AAT L3 Management Accounting (Costing) 5

Question 1

Which inventory valuation method issues inventory at the cost of the oldest batch held?

Accepted Answer

First In First Out (FIFO)

Answer

FIFO (First In, First Out) assumes the oldest inventory is issued first, so the cost of issues is based on the earliest purchase prices. Closing inventory is valued at more recent (higher) costs during inflation.

Question 2

Under FIFO during a period of rising prices, closing inventory is valued at:

Accepted Answer

The most recent (highest) purchase prices

Answer

Under FIFO in a period of rising prices, the older (cheaper) items are issued first, leaving the more recently purchased (and more expensive) units in closing inventory.

Question 3

The weighted average cost (AVCO) method recalculates the average cost:

Accepted Answer

After every receipt of goods into inventory

Answer

Under the continuous AVCO method, a new weighted average cost is calculated after every receipt into inventory; all subsequent issues are made at this revised average until the next receipt.

Question 4

Which costing method is NOT permitted under IAS 2 for the valuation of inventories?

Accepted Answer

LIFO

Answer

IAS 2 prohibits the use of LIFO (Last In First Out) for inventory valuation because it can result in inventory being carried at costs that bear little relationship to recent transactions, reducing the reliability of financial information.

Question 5

Material requisition notes are used to:

Accepted Answer

Request the issue of materials from stores to production

Answer

A material requisition note is an internal document used by a production department to request the issue of raw materials from the stores; it triggers the recording of the materials usage in the cost accounting records.

AAT Level 3 Practice Test

AAT Level 3 Practice Test

AAT L3 Management Accounting (Costing) 5