Q.1 Which of the following is NOT an inventory valuation method?
FIFO
LIFO
Weighted Average
Amortization
Explanation - Amortization relates to intangible assets, not inventory valuation. FIFO, LIFO, and Weighted Average are inventory valuation methods.
Correct answer is: Amortization
Q.2 Under FIFO method, which inventory is issued first?
Oldest inventory
Newest inventory
Random inventory
Damaged inventory
Explanation - FIFO means First-In, First-Out, so the oldest inventory is issued first.
Correct answer is: Oldest inventory
Q.3 LIFO stands for:
Last In, First Out
Least In, First Out
Large In, Fast Out
Last In, Final Out
Explanation - LIFO means the last goods purchased are the first to be issued.
Correct answer is: Last In, First Out
Q.4 Which method of inventory valuation results in higher profit during inflation?
FIFO
LIFO
Weighted Average
Specific Identification
Explanation - Under FIFO, older and cheaper stock is issued first, leaving costlier stock in inventory, which increases profit during inflation.
Correct answer is: FIFO
Q.5 Which inventory valuation method is prohibited under IFRS?
FIFO
LIFO
Weighted Average
Specific Identification
Explanation - IFRS does not allow LIFO because it can distort financial statements.
Correct answer is: LIFO
Q.6 In Weighted Average method, inventory cost is calculated based on:
Earliest purchase
Latest purchase
Average cost of all purchases
Random purchase
Explanation - The Weighted Average method uses the average cost of goods available for sale.
Correct answer is: Average cost of all purchases
Q.7 Which method values inventory at actual cost of each item?
FIFO
LIFO
Weighted Average
Specific Identification
Explanation - Specific Identification tracks the actual cost of each item, suitable for unique items like cars or jewelry.
Correct answer is: Specific Identification
Q.8 During deflation, which method results in lower profit?
FIFO
LIFO
Weighted Average
Specific Identification
Explanation - Under FIFO in deflation, older expensive stock is issued first, leading to higher cost of goods sold and lower profit.
Correct answer is: FIFO
Q.9 Inventory is classified under which category in Balance Sheet?
Current Assets
Fixed Assets
Current Liabilities
Equity
Explanation - Inventory is a short-term resource and shown under Current Assets.
Correct answer is: Current Assets
Q.10 Which inventory method smooths price fluctuations over time?
FIFO
LIFO
Weighted Average
Specific Identification
Explanation - The Weighted Average method averages costs, minimizing the impact of price fluctuations.
Correct answer is: Weighted Average
Q.11 If 100 units were bought at $10 each and 100 units at $15 each, the Weighted Average cost per unit is:
$12.50
$15
$10
$13
Explanation - Total cost = $1000 + $1500 = $2500 for 200 units. Average = $2500/200 = $12.50 per unit.
Correct answer is: $12.50
Q.12 Which method reduces tax liability in times of rising prices?
FIFO
LIFO
Weighted Average
Specific Identification
Explanation - LIFO matches recent higher costs with current revenues, reducing reported profit and thus tax liability.
Correct answer is: LIFO
Q.13 Under periodic inventory system, valuation is done:
After each sale
After each purchase
At the end of accounting period
Daily
Explanation - In the periodic system, inventory valuation is done only at the end of the period.
Correct answer is: At the end of accounting period
Q.14 Which method is suitable when inventory items are identical and interchangeable?
Specific Identification
FIFO
LIFO
Weighted Average
Explanation - Weighted Average is best for homogeneous and interchangeable items.
Correct answer is: Weighted Average
Q.15 Inventory turnover ratio is calculated as:
COGS / Average Inventory
Sales / Average Inventory
Inventory / Sales
Gross Profit / Inventory
Explanation - Inventory turnover = Cost of Goods Sold ÷ Average Inventory.
Correct answer is: COGS / Average Inventory
Q.16 Which valuation method closely matches current cost with current revenue?
FIFO
LIFO
Weighted Average
Specific Identification
Explanation - LIFO issues the latest stock, which reflects current market costs, matching with current revenues.
Correct answer is: LIFO
Q.17 Closing inventory directly affects which financial statement?
Cash Flow Statement
Profit and Loss Account
Statement of Retained Earnings
Trial Balance
Explanation - Closing inventory reduces COGS and hence affects Profit and Loss account.
Correct answer is: Profit and Loss Account
Q.18 Which method generally gives higher closing stock during inflation?
FIFO
LIFO
Weighted Average
Specific Identification
Explanation - FIFO leaves the latest higher priced items in stock, resulting in higher closing stock value.
Correct answer is: FIFO
Q.19 Which of the following is an advantage of FIFO method?
Simplifies record keeping
Matches latest costs with revenues
Provides lower profit in inflation
Not acceptable under IFRS
Explanation - FIFO is simple to apply as goods issued are assumed to be in order of purchase.
Correct answer is: Simplifies record keeping
Q.20 The net realizable value (NRV) of inventory is:
Selling price - Cost
Selling price - Costs to complete and sell
Purchase price
Cost + Profit
Explanation - NRV is the estimated selling price less costs necessary to complete and sell the item.
Correct answer is: Selling price - Costs to complete and sell
Q.21 If market value of inventory is lower than cost, inventory is valued at:
Cost
Market Value
Average Cost
Historical Cost
Explanation - According to conservatism principle, inventory is valued at lower of cost or market.
Correct answer is: Market Value
Q.22 Which principle requires valuing inventory at lower of cost or NRV?
Consistency
Conservatism
Matching
Materiality
Explanation - Conservatism principle requires reporting lower value to avoid overstating assets.
Correct answer is: Conservatism
Q.23 Which method is most appropriate for perishable goods?
LIFO
FIFO
Weighted Average
Specific Identification
Explanation - FIFO ensures older goods are used first, reducing chances of spoilage.
Correct answer is: FIFO
Q.24 Inventory at the end of the year is shown in:
Profit and Loss Account only
Balance Sheet only
Both Balance Sheet and Profit and Loss Account
Cash Flow Statement
Explanation - Closing inventory appears in Balance Sheet (asset) and reduces COGS in Profit and Loss account.
Correct answer is: Both Balance Sheet and Profit and Loss Account
Q.25 Which method results in better tax benefits during inflation?
FIFO
LIFO
Weighted Average
Specific Identification
Explanation - LIFO shows lower profits in inflation, leading to lower tax liability.
Correct answer is: LIFO