CAT CAT Inventory & Asset Management 1

Question 1

Under US GAAP, which inventory costing method assumes the most recently purchased items are sold first?

Accepted Answer

LIFO (Last-In, First-Out)

Answer

LIFO assumes the last units purchased are the first units sold, often resulting in higher cost of goods sold in a rising price environment.

Question 2

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

Accepted Answer

LIFO

Answer

IFRS prohibits LIFO because it can produce outdated balance sheet values and is considered less representative of actual inventory flow.

Question 3

What does 'lower of cost or net realizable value' (LCNRV) require for inventory reporting?

Accepted Answer

Inventory must be written down if its net realizable value falls below its cost

Answer

LCNRV requires recognizing a loss when inventory's expected selling price minus completion costs is lower than its recorded cost.

Question 4

Which term describes the difference between a company's book inventory quantity and its actual physical count?

Accepted Answer

Inventory shrinkage

Answer

Inventory shrinkage refers to losses from theft, damage, or administrative errors that reduce actual stock below recorded levels.

Question 5

How is inventory turnover ratio calculated?

Accepted Answer

Cost of Goods Sold ÷ Average Inventory

Answer

Inventory turnover measures how many times inventory is sold and replaced in a period, using COGS divided by average inventory.

(CAT) Certified Accounting Technician Practice Test