AFC AFC Inventory Management 2

Question 1

Which inventory method is NOT permitted under IFRS but is allowed under US GAAP?

Accepted Answer

LIFO

Answer

LIFO (Last-In, First-Out) is prohibited under IFRS because it can result in outdated inventory values on the balance sheet.

Question 2

Cost of goods sold is calculated as:

Accepted Answer

Beginning inventory + Purchases – Ending inventory

Answer

COGS = Beginning Inventory + Purchases (net) − Ending Inventory, representing the cost of units sold during the period.

Question 3

A company discovers that ending inventory was overstated by $5,000. What is the effect on net income for that period?

Accepted Answer

Net income is overstated by $5,000

Answer

Overstated ending inventory reduces COGS (since COGS = BI + Purchases − EI), which overstates gross profit and net income.

Question 4

What does inventory turnover ratio measure?

Accepted Answer

How many times inventory is sold and replaced in a period

Answer

Inventory turnover = COGS ÷ Average Inventory, indicating how efficiently a company sells its inventory during a period.

Question 5

Which of the following costs is NOT included in the cost of inventory under US GAAP?

Accepted Answer

Storage costs after purchase

Answer

Storage and handling costs incurred after inventory is purchased and ready for sale are period costs, not product costs, under US GAAP.

AFC - Accounting Fundamentals Certification Practice Test