Accountancy MCQs
Topic Notes: Accountancy
General Description
Plato
- Biography: Ancient Greek philosopher (427–347 BCE), student of Socrates and teacher of Aristotle, founder of the Academy in Athens.
- Important Ideas:
- Theory of Forms
- Philosopher-King
- Ideal State
1
Which category of assets must be valued at the lower of cost or net realizable value?
Answer:
Inventories
According to standard accounting principles, specifically those governing inventory valuation, inventories should be measured at the lower of cost or net realizable value (NRV). This practice adheres to the principle of conservatism, ensuring that assets are not overstated on the balance sheet if their market value has declined below their original acquisition cost.
2
Under accounting standards, how should inventory be valued in the balance sheet?
Answer:
the lower of net realisable value or cost price
The principle of prudence dictates that assets should not be overstated. Therefore, inventory is valued at the lower of its historical cost or its net realisable value. This ensures that if the market value of the inventory has fallen below its cost, the loss is recognized in the current period.
3
If an inventory item has a cost of $100 and a net realizable value of $85, at what value should it be recorded in the financial statements?
Answer:
85
According to the accounting principle of 'Lower of Cost or Net Realizable Value' (LCNRV), inventory must be valued at the lower of its historical cost or its current net realizable value to prevent overstatement of assets and profits.
4
What is the standard accounting principle for the valuation of inventory?
Answer:
at the lower of cost or net realisable value
According to accounting standards, inventory must be valued at the lower of its historical cost or its net realisable value. This conservative approach ensures that assets are not overstated on the balance sheet if their market value has declined.
5
According to accounting standards, what is the appropriate basis for valuing inventory?
Answer:
lower of cost or net realisable value
Inventory must be valued at the lower of cost or net realizable value (NRV) to adhere to the prudence concept. This ensures that assets are not overstated on the balance sheet if their market value has fallen below the original cost of acquisition.
6
How is the Net Realizable Value (NRV) of inventory calculated?
Answer:
Expenses necessary to complete sale
Net Realizable Value (NRV) is defined as the estimated selling price of inventory in the ordinary course of business, minus the estimated costs of completion and the estimated costs necessary to make the sale. It is a key metric for inventory valuation.
7
What is the standard accounting principle for the valuation of closing stock?
Answer:
Cost or market price which ever is lower
According to the principle of conservatism, inventory should be valued at the lower of its historical cost or its current net realizable value (market price). This ensures that potential losses are recognized immediately, while profits are only recognized when realized, preventing the overstatement of assets on the balance sheet.
8
Inventory is valued at the lower of its historical cost or which other value?
Answer:
Net realizable value
The accounting standard for inventory valuation requires that stock be carried at the lower of cost or Net Realizable Value (NRV). NRV is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. This ensures that inventory is not overstated on the balance sheet if its market value has declined.