IFRS for SMEs) IFRS for SMEs Inventory and Cost 2

Question 1

Under IFRS for SMEs, which method is used to allocate fixed production overhead to inventory?

Accepted Answer

Based on normal capacity of production facilities

Answer

Fixed production overheads are allocated based on normal capacity, not actual production, to avoid distorting unit costs in low-output periods.

Question 2

An SME entity holds raw materials, work-in-progress, and finished goods. Under IFRS for SMEs, the lower of cost and NRV test applies to:

Accepted Answer

Each category or line item of inventory

Answer

IFRS for SMEs requires the lower of cost and NRV assessment to be applied on an item-by-item basis or for similar categories.

Question 3

Under IFRS for SMEs, borrowing costs on funds used to finance inventory held for sale should be:

Accepted Answer

Recognized as an expense when incurred

Answer

IFRS for SMEs requires all borrowing costs to be recognized as an expense; capitalization of borrowing costs is not permitted.

Question 4

When an SME uses a standard cost method for measuring inventory, what condition must be met for it to be acceptable?

Accepted Answer

The standard costs must approximate actual cost

Answer

Under IFRS for SMEs, standard costs are an acceptable inventory cost technique provided they approximate actual cost.

Question 5

Under IFRS for SMEs, service providers that hold inventories should measure those inventories at:

Accepted Answer

Costs of production, primarily labor and other costs of personnel directly engaged in providing the service

Answer

For service providers, inventory costs consist mainly of the labor and other costs of personnel directly engaged in providing the service, including attributable overheads.

IFRS for SMEs (IFRS for Small and Medium-sized Entities (SMEs)) Practice Test

IFRS for SMEs (IFRS for Small and Medium-sized Entities (SMEs)) Practice Test

IFRS for SMEs) IFRS for SMEs Inventory and Cost 2