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O Level Principles of Accounts Inventory Costing Quiz

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O Level Principles of Accounts From Real Exams Generated by Claude Sonnet 4 Updated 2026-06-03
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Questions

O-Level Principles of Accounts Quiz - Inventory Costing

Name: _________________ Class: _________ Date: _________

Score: _____ / 35 marks Duration: 45 minutes

Instructions

  • Answer ALL questions in the spaces provided
  • Show all working clearly
  • Round answers to 2 decimal places where appropriate
  • Calculators are permitted

Section A: Short Answer Questions [15 marks]

Question 1 [2 marks] State the accounting concept used to value inventory and explain why this concept is applied.

Concept: _________________________________

Explanation: ________________________________________________________________

Question 2 [3 marks] Prepare the inventory account for March 2024 for Sunrise Trading. Show the balance brought down to April.

Opening inventory (1 March): 8,500PurchasesduringMarch:8,500 Purchases during March: 12,300 Cost of sales for March: $11,200

                    Inventory Account
Dr                                                           Cr
_______________|_______    _______________|_______
               |              |
               |              |
               |              |
               |              |

Question 3 [1 mark] Calculate the cost of sales for June 2024.

Opening inventory: 15,600Purchases:15,600 Purchases: 28,400 Closing inventory: $17,200

Cost of sales = $ ______________

Question 4 [2 marks] List TWO factors that should be considered when choosing between FIFO and weighted average cost methods for inventory valuation.

Section B: Calculation Questions [12 marks]

Question 5 [4 marks] Metro Electronics uses the FIFO method for inventory valuation. Calculate the value of closing inventory on 31 May 2024.

Inventory movements for May 2024:

  • 1 May: Opening balance 50 units @ $120 each
  • 8 May: Purchased 80 units @ $125 each
  • 15 May: Sold 70 units
  • 22 May: Purchased 60 units @ $130 each
  • 28 May: Sold 45 units

Working:

Closing inventory value = $ ______________

Question 6 [4 marks] Calculate the current ratio and quick ratio for Harmony Ltd as at 30 June 2024. Show answers to 2 decimal places.

Extract from Statement of Financial Position:

  • Inventory: $45,600
  • Trade receivables: $32,800
  • Cash at bank: $8,900
  • Trade payables: $28,500
  • Accrued expenses: $4,200
  • Bank overdraft: $12,300

Current Assets: ______________ Current Liabilities: ______________ Current Ratio = ______________ : 1

Quick Assets: $ ______________ Quick Ratio = ______________ : 1

Question 7 [4 marks] Calculate the days sales in inventory for Pacific Trading for the years ended 31 December 2023 and 2024.

20232024
Opening inventory$18,500$22,300
Closing inventory$22,300$26,800
Cost of sales$156,000$178,400

Working for 2023:

Working for 2024:

Days sales in inventory 2023: ______________ days Days sales in inventory 2024: ______________ days

Section C: Application Question [8 marks]

Question 8 [8 marks] Golden Supplies Ltd is experiencing cash flow difficulties. The following information is available:

Financial Data (as at 31 March 2024):

  • Current ratio: 1.2:1
  • Quick ratio: 0.7:1
  • Days sales in inventory: 95 days
  • Trade receivables collection period: 65 days
  • Trade payables payment period: 35 days

Additional Information:

  • Industry average days sales in inventory: 45 days
  • Industry average collection period: 30 days
  • The company's main competitor has a current ratio of 2.1:1

(a) Identify TWO liquidity problems faced by Golden Supplies Ltd based on the ratios provided. [2 marks]

Problem 1: ________________________________________________________________

Problem 2: ________________________________________________________________

(b) Recommend THREE specific actions Golden Supplies Ltd could take to improve its liquidity position. For each action, explain how it would improve liquidity. [6 marks]

Action 1: ________________________________________________________________ Explanation: ______________________________________________________________

Action 2: ________________________________________________________________ Explanation: ______________________________________________________________

Action 3: ________________________________________________________________ Explanation: ______________________________________________________________

END OF QUIZ

Answers

O-Level Principles of Accounts Quiz - Inventory Costing

Answer Key and Marking Scheme

Section A: Short Answer Questions [15 marks]

Question 1 [2 marks] State the accounting concept used to value inventory and explain why this concept is applied.

Answer: Concept: Lower of cost and net realizable value / Prudence concept [1 mark]

Explanation: This concept ensures that assets are not overstated and prevents the overstatement of profit. It follows the prudence concept by recognizing losses immediately but not anticipating gains. [1 mark]

Marking Notes: Accept "conservatism" for prudence. Must link to not overstating assets/profit for full marks.

Question 2 [3 marks] Prepare the inventory account for March 2024.

Answer:

                    Inventory Account
Dr                                                           Cr
1 Mar Balance b/d  | 8,500     31 Mar Cost of sales | 11,200
31 Mar Purchases   | 12,300    31 Mar Balance c/d   | 9,600
                   | 20,800                         | 20,800

1 Apr Balance b/d  | 9,600

Marking Scheme:

  • Correct opening balance (1 mark)
  • Correct purchases entry (1 mark)
  • Correct cost of sales and closing balance with balance b/d (1 mark)

Question 3 [1 mark] Calculate the cost of sales for June 2024.

Answer: Cost of sales = Opening inventory + Purchases - Closing inventory = 15,600+15,600 + 28,400 - 17,200=17,200 = 26,800

Marking: 1 mark for correct answer. Accept working shown.

Question 4 [2 marks] List TWO factors for choosing inventory methods.

Sample Answers:

  1. Price trend of inventory (rising/falling prices) [1 mark]
  2. Tax implications / profit reporting requirements [1 mark]

Accept also: Cash flow considerations, industry practice, ease of calculation, management preference for profit smoothing.

Section B: Calculation Questions [12 marks]

Question 5 [4 marks] FIFO inventory calculation.

Answer: Working:

  • 1 May: 50 units @ 120=120 = 6,000
  • 8 May: Purchase 80 units @ 125=125 = 10,000
  • 15 May: Sold 70 units (50 @ 120+20@120 + 20 @ 125) - leaves 60 @ $125
  • 22 May: Purchase 60 units @ 130=130 = 7,800
  • 28 May: Sold 45 units (all from 125batch)−leaves15@125 batch) - leaves 15 @ 125 + 60 @ $130

Closing inventory = (15 × 125)+(60×125) + (60 × 130) = 1,875+1,875 + 7,800 = $9,675

Marking Scheme:

  • Correct FIFO flow identification (1 mark)
  • Correct calculation after first sale (1 mark)
  • Correct calculation after second sale (1 mark)
  • Correct final answer (1 mark)

Question 6 [4 marks] Ratio calculations for Harmony Ltd.

Answer: Current Assets = 45,600+45,600 + 32,800 + 8,900=8,900 = 87,300 Current Liabilities = 28,500+28,500 + 4,200 + 12,300=12,300 = 45,000 Current Ratio = 87,300÷87,300 ÷ 45,000 = 1.94:1

Quick Assets = 87,300−87,300 - 45,600 = 41,700QuickRatio=41,700 Quick Ratio = 41,700 ÷ $45,000 = 0.93:1

Marking Scheme:

  • Current assets calculation (1 mark)
  • Current liabilities calculation (1 mark)
  • Current ratio correct to 2 d.p. (1 mark)
  • Quick ratio correct to 2 d.p. (1 mark)

Question 7 [4 marks] Days sales in inventory calculation.

Answer: 2023: Average inventory = (18,500+18,500 + 22,300) ÷ 2 = 20,400Inventoryturnover=20,400 Inventory turnover = 156,000 ÷ $20,400 = 7.65 Days sales in inventory = 365 ÷ 7.65 = 47.71 days

2024: Average inventory = (22,300+22,300 + 26,800) ÷ 2 = 24,550Inventoryturnover=24,550 Inventory turnover = 178,400 ÷ $24,550 = 7.27 Days sales in inventory = 365 ÷ 7.27 = 50.21 days

Marking Scheme:

  • 2023 calculation correct (2 marks)
  • 2024 calculation correct (2 marks)

Section C: Application Question [8 marks]

Question 8 [8 marks]

(a) TWO liquidity problems [2 marks]

Sample Answers: Problem 1: Low current ratio (1.2:1) compared to competitor (2.1:1) indicates insufficient current assets to cover current liabilities Problem 2: High days sales in inventory (95 days vs industry 45 days) shows slow-moving stock tying up cash

Accept also: Low quick ratio, long collection period, short payment period creating cash squeeze.

(b) THREE actions to improve liquidity [6 marks]

Sample Answers: Action 1: Reduce inventory levels through better stock management/clearance sales Explanation: This will convert slow-moving stock to cash and reduce days sales in inventory closer to industry average

Action 2: Implement stricter credit control to reduce collection period Explanation: Faster collection of receivables will improve cash flow and reduce the 65-day collection period

Action 3: Negotiate extended payment terms with suppliers Explanation: Longer payment period will improve cash flow timing and reduce pressure on working capital

Marking: 2 marks per action (1 for action, 1 for explanation). Must be practical and clearly linked to liquidity improvement.