CIM CIM Inventory Costing & Valuation 1

Question 1

Which inventory costing method assumes the first items purchased are the first items sold?

Accepted Answer

FIFO

Answer

FIFO (First-In, First-Out) assumes the earliest purchased inventory is sold first, leaving newer costs in ending inventory.

Question 2

Under LIFO during periods of rising prices, what effect does it have on reported net income compared to FIFO?

Accepted Answer

Lower net income

Answer

LIFO matches the most recent (higher) costs against revenue, reducing gross profit and resulting in lower net income during inflation.

Question 3

The weighted average cost method calculates inventory cost by:

Accepted Answer

Dividing total inventory cost by total units available

Answer

The weighted average method computes a blended cost per unit by dividing total inventory cost by total units available for sale.

Question 4

Which inventory valuation method is prohibited under International Financial Reporting Standards (IFRS)?

Accepted Answer

LIFO

Answer

LIFO is banned under IFRS because it can produce outdated balance sheet values that don't reflect the actual physical flow of goods.

Question 5

The Lower of Cost or Net Realizable Value (LCNRV) rule requires a write-down when:

Accepted Answer

Historical cost exceeds net realizable value

Answer

LCNRV requires inventory to be reported at the lower of its purchase cost or its expected selling price minus completion and selling costs.

(CIM) Certified Inventory Manager Practice Test