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O Level Principles of Accounts Inventory Costing Quiz

Free O Level POA Inventory Costing quiz, HY3 Exam version, with questions, answers, and O Level-style practice for Singapore students.

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Questions

O-Level Principles of Accounts Quiz - Inventory Costing

Name: ___________________________
Class: ___________________________
Date: ___________________________
Score: _______ / 40

Duration: 60 minutes
Total Marks: 40
Instructions: Answer all 20 questions. Show all workings clearly. Use the lower of cost and net realisable value rule where applicable. Round monetary values to 2 decimal places unless stated.

Section A: Basic Concepts and Calculations (Questions 1–5)

1. [1 mark] State the formula for Cost of Sales using opening inventory, purchases and closing inventory.

2. [1 mark] According to the prudence concept, inventory should be valued at the lower of cost and _______________________.

3. [1 mark] Calculate the cost of sales for the month of March 2025 given:

Opening inventory: $4,200
Purchases: $12,500
Closing inventory: $3,800

4. [1 mark] Explain, with an accounting concept, how inventory is valued.

5. [2 marks] A business had opening inventory of $5,000, purchases of$ 20,000 and closing inventory of $6,000. Calculate the inventory turnover ratio. Show your working.

Section B: FIFO and AVCO Methods (Questions 6–10)

6. [3 marks] The following purchases and issues of Product X occurred in July 2025:

Date	Receipts	Issues
1 Jul	Opening balance 100 units @ $10
5 Jul	200 units @ $12
12 Jul		150 units
20 Jul	150 units @ $14
25 Jul		200 units

Using FIFO, calculate the value of closing inventory at 31 July 2025. Show your working.

7. [2 marks] Using the data in Question 6, calculate the cost of sales for July 2025 under FIFO.

8. [3 marks] Using the AVCO (weighted average cost) method, calculate the value of closing inventory for Product X at 31 July 2025 based on the data in Question 6. Show your working and round to 2 decimal places.

9. [2 marks] Explain one reason why a business might choose FIFO over AVCO during a period of rising prices.

10. [2 marks] State the effect of using FIFO (instead of AVCO) on closing inventory valuation when prices are rising. (Circle one: Higher / Lower / Same)

Section C: Inventory Account and Records (Questions 11–15)

11. [3 marks] Prepare the Inventory Account (T-account) for the month of August 2025:

1 Aug: Opening balance $3,000
10 Aug: Purchases $7,500
22 Aug: Cost of sales $6,200
31 Aug: Closing balance carried down

Show the balance brought down to September.

12. [1 mark] Calculate the ending inventory at 30 September 2025 if physical count shows 400 units at $8 each, but 50 units are damaged and unsellable.

13. [2 marks] A stocktake on 31 October 2025 revealed goods costing $1,200 sent to a customer on consignment (not yet sold). Should these be included in the business's closing inventory? Explain briefly.

14. [2 marks] Goods costing $2,000 were in transit to the business on 31 December 2025 under FOB shipping point. State whether they should be included in closing inventory and why.

15. [2 marks] The trial balance shows inventory account with a credit balance of $500 after closing. Explain the likely error and the correct treatment.

Section D: Analysis and Interpretation (Questions 16–20)

16. [2 marks] Calculate the days sales in inventory for the year ended 30 June 2024 and 30 June 2025:

	2024	2025
Cost of sales	$80,000	$95,000
Opening inventory	$10,000	$12,000
Closing inventory	$12,000	$15,000

Show answers to two decimal places.

17. [2 marks] Using your answer in Q16, explain whether the business improved its inventory management from 2024 to 2025.

18. [2 marks] Net realisable value of an item is $40 but its cost is$ 55. State the value to be recorded and the accounting principle applied.

19. [3 marks] A business has closing inventory of $20,000 (cost) but net realisable value of$ 17,500. Show the journal entry to adjust inventory to NRV, including narration.

20. [2 marks] Recommend two measures a business could take to reduce its days sales in inventory.

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Answers

O-Level Principles of Accounts Quiz - Inventory Costing (Answer Key)

Total Marks: 40
Topic: Inventory Costing

Section A: Basic Concepts and Calculations

Q1 [1 mark]
Cost of Sales = Opening Inventory + Purchases − Closing Inventory
Teaching note: This is the basic periodic inventory formula. Opening inventory plus what was bought minus what remains equals what was sold.

Q2 [1 mark]
Net realisable value
Teaching note: Prudence means not overstating assets; we take the lower of cost or what we can sell it for (NRV).

Q3 [1 mark]
Cost of Sales = $4,200 +$ 12,500 − $3,800 =$ 13,900
Working: 4200 + 12500 = 16700; 16700 − 3800 = 13900.

Q4 [2 marks]
Inventory is valued at the lower of cost and net realisable value (prudence concept). Cost is the purchase price plus bringing it to condition/location; NRV is estimated selling price less costs to sell. We do not overstate inventory.
Marking: 1 mark for lower of cost and NRV; 1 mark for naming prudence or explaining why.

Q5 [2 marks]
Average inventory = ( $5,000 +$ 6,000) ÷ 2 = $5,500 Inventory turnover ratio =$ 20,000 ÷ $5,500 = 3.64 times
Marking: 1 mark average inventory, 1 mark ratio.

Section B: FIFO and AVCO Methods

Q6 [3 marks] FIFO closing inventory (100+200+150−150−200 = 100 units left from 20 Jul batch @ $14): 100 units ×$ 14 = $1,400
Working: Issues: 150 from opening (100@10, 50@12); 200 from remaining 150@12 + 50@14. Left: 100@14.
Marking: 2 marks for correct units identification, 1 mark for value.

Q7 [2 marks]
Cost of sales = (100×10)+(50×12)+(150×12)+(50×14) = 1000+600+1800+700 = $4,100
Alternatively: Total available (100×10+200×12+150×14=5,500) − closing (1,400) = 4,100.

Q8 [3 marks]
AVCO:

After 1 Jul + 5 Jul: (100×10 + 200×12) ÷ 300 = $11.33/unit
Issue 150: 150×11.33 = 1,699.50; remaining 150 units @11.33 = 1,699.50
Add 20 Jul: (1,699.50 + 150×14) ÷ 300 = (1,699.50+2,100)÷300 = $12.67/unit
Issue 200: 200×12.67 = 2,534; remaining 100 @12.67 = $1,266.67 Closing inventory =$ 1,266.67
Marking: 1 mark per AVCO step, round 2 dp.

Q9 [2 marks]
FIFO gives higher closing inventory and lower cost of sales in rising prices → higher reported profit (acceptable if tax not concern) or matches actual physical flow.
Marking: 1 mark reason, 1 mark explanation.

Q10 [2 marks]
Higher
Teaching note: Older cheaper costs go to COGS, recent higher costs remain in inventory.

Section C: Inventory Account and Records

Q11 [3 marks]
Inventory Account

Debit	$	Credit	$
1 Aug Balance b/d	3,000	22 Aug Cost of sales	6,200
10 Aug Purchases	7,500	31 Aug Balance c/d	4,300
	10,500		10,500
1 Sep Balance b/d	4,300
Marking: 1 mark format, 1 mark entries, 1 mark balancing.

Q12 [1 mark]
(400−50) × $8 = 350 × 8 =$ 2,800
Note: Damaged unsellable excluded.

Q13 [2 marks]
No. Consignment goods are owned by the consignor until sold; not business inventory.
Marking: 1 mark no, 1 mark reason.

Q14 [2 marks]
Yes. FOB shipping point means title passes when shipped; included in buyer inventory.
Marking: 1 mark yes, 1 mark reason.

Q15 [2 marks]
Inventory is an asset → normal debit balance. Credit balance suggests error (e.g., recorded purchase as issue). Correct by reversing entry or suspense.
Marking: 1 mark error ID, 1 mark treatment.

Section D: Analysis and Interpretation

Q16 [2 marks]
2024: Avg inv = (10k+12k)/2=11k; Turnover=80k/11k=7.27; Days=365/7.27=50.21
2025: Avg inv = (12k+15k)/2=13.5k; Turnover=95k/13.5k=7.04; Days=365/7.04=51.85
Marking: 1 mark each year.

Q17 [2 marks]
Worsened: days increased 50.21→51.85, inventory held longer.
Marking: 1 mark correct direction, 1 mark reasoning.

Q18 [2 marks]
Record at $40; lower of cost and NRV (prudence).
Marking: 1 mark value, 1 mark principle.

Q19 [3 marks]
Dr Loss on Inventory Write-down $2,500 Cr Inventory$ 2,500
(Narration: To write inventory down to NRV)
Marking: 1 mark debit, 1 mark credit, 1 mark narration.

Q20 [2 marks]
Examples: improve demand forecasting, run promotions to clear stock, negotiate faster supplies, reduce lead time.
Marking: 1 mark each valid measure.