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level: Recording Transactions and Events

Questions and Answers List

level questions: Recording Transactions and Events

QuestionAnswer
Gross means what?Inclusive
Net means what?Exclusive
What should the cost of inventory include?The cost of purchase, cost of conversions, cost of transport of the purchases.
What are the key accounting standards examinable in this paper relating to inventory?IAS 2
How should inventory be valued?The lower of cost and net realisable value.
How is the Net Realisable Value (NRV) calculated?Selling price less any extra costs that there are in order to get the goods in a sellable state.
What is Cost in terms of inventory?The cost of getting the goods to the state that they are in.
In accordance with IAS 2, which methods of inventory valuation are acceptable?FIFO and AVCO
How should a dishonoured check be recorded in the receivables ledger account?It should be recorded as DR in the receivables account because it would have previously been deducted from the account.
When should a provision be recognised?When: 1) There is a present obligation as a result of a past event 2)There is a probability of an outflow of resources to settle the obligation 3) There is a reliable estimate of the amount of obligation.
What is the difference between provisions and other liabilities?There is an uncertain timing or amount of expenditure with provisions.
How are provisions accounted for?Dr. Expenses (SPL) Cr. Provisions (SFP)
How should contingent liabilities be disclosed/recognised in the financial statements?They should *not* be recognised, but rather disclosed, unless there is only a remote possibility of needed to fulfil the possible obligation. When there is only a remote chance, then it is not even disclosed.