Secondary 4 Principles of Accounts Inventory Costing Quiz

Secondary 4 Principles of Accounts Quiz - Inventory Costing

Name: _________________ Class: _________________ Date: _________________

Score: _______ / 25 Duration: 30 minutes

Instructions:

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

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Section A: Short Answer Questions (8 marks)

Question 1 (2 marks) State the basis on which inventory should be valued according to accounting principles.

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Question 2 (2 marks) Explain the difference between a cash sale and a credit sale.

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Question 3 (2 marks) State TWO reasons why a cheque may be returned dishonoured by the bank.

Reason 1: ___________________________________________________

Reason 2: ___________________________________________________

Question 4 (2 marks) Calculate Sunrise Trading's inventory turnover rate for the year ended 31 December 2024.

Given:

• Cost of goods sold: $180,000
• Opening inventory: $25,000
• Closing inventory: $35,000

Working:

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Answer: _________________ times per year

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Section B: Structured Questions (17 marks)

Question 5 (4 marks) Moonlight Enterprise discovered that their closing inventory as at 31 December 2024 was overstated by $8,000.

(a) State the effect of this error on the profit for the year ended 31 December 2024. (1 mark)

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(b) Calculate the cost of sales for Moonlight Enterprise for the year ended 31 December 2024. (3 marks)

Given:

• Opening inventory: $42,000
• Purchases: $156,000
• Purchases returns: $3,000
• Carriage inwards: $2,500
• Closing inventory (before correction): $38,000

Working:

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Answer: $ _________________

Question 6 (5 marks) The following information relates to two competing businesses:

	Rainbow Ltd	Sunshine Pte Ltd
Revenue	$240,000	$180,000
Cost of goods sold	$144,000	$126,000
Average inventory	$24,000	$21,000

(a) Calculate the inventory turnover rate for both companies. (2 marks)

Rainbow Ltd: _________________________________________________

Sunshine Pte Ltd: ____________________________________________

(b) Compare and comment on the inventory turnover rates of both companies. (3 marks)

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Question 7 (4 marks) Golden Trading's gross profit margin is 35% and inventory turnover rate for the year ended 31 March 2024 was 8 times. The previous year's inventory turnover rate was 6 times.

Explain TWO reasons for the improvement in the inventory turnover rate.

Reason 1: ___________________________________________________

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Reason 2: ___________________________________________________

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Question 8 (4 marks) On 15 November 2024, a credit customer, Mr Lim, who owed $4,500, could not be contacted. The business decided to write off his debt as irrecoverable.

(a) State the journal entry to record this transaction. (2 marks)

Dr. _________________________ $ _________________

Cr. _________________________ $ _________________

(b) Explain the effect of this write-off on the business's profit. (2 marks)

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Secondary 4 Principles of Accounts Quiz - Inventory Costing (Answer Key)

Total Marks: 25

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Section A: Short Answer Questions (8 marks)

Question 1 (2 marks) Answer: Lower of cost and net realisable value (NRV)

Marking: 1 mark for "lower of cost and NRV", 1 mark for correct terminology

Question 2 (2 marks) Answer:

• Cash sale: Customer pays immediately at point of purchase
• Credit sale: Payment is received at a later date, creating a debtor/receivable

Marking: 1 mark for each correct explanation

Question 3 (2 marks) Answer: Any two of:

• Insufficient funds in drawer's account
• Signature mismatch or missing signature
• Post-dated cheque
• Stale cheque (over 6 months old)
• Account closed
• Alterations on cheque

Marking: 1 mark for each valid reason (maximum 2 marks)

Question 4 (2 marks) Working: Average inventory = (Opening inventory + Closing inventory) ÷ 2 = ($25,000 +$35,000) ÷ 2 = $30,000

Inventory turnover rate = Cost of goods sold ÷ Average inventory = $180,000 ÷$30,000 = 6 times per year

Marking: 1 mark for correct working, 1 mark for correct answer

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Section B: Structured Questions (17 marks)

Question 5 (4 marks)

(a) (1 mark) Answer: Profit is overstated by $8,000

Marking: 1 mark for correct direction and amount

(b) (3 marks) Working: Corrected closing inventory = $38,000 -$8,000 = $30,000

Cost of sales = Opening inventory + Purchases - Purchases returns + Carriage inwards - Closing inventory = $42,000 +$156,000 - $3,000 +$2,500 - $30,000 =$167,500

Marking: 1 mark for correcting closing inventory, 1 mark for correct formula, 1 mark for correct final answer

Question 6 (5 marks)

(a) (2 marks) Rainbow Ltd: $144,000 ÷$24,000 = 6 times Sunshine Pte Ltd: $126,000 ÷$21,000 = 6 times

Marking: 1 mark for each correct calculation

(b) (3 marks) Answer: Both companies have the same inventory turnover rate of 6 times per year. This suggests similar efficiency in inventory management. However, Rainbow Ltd has higher revenue and COGS, indicating larger scale operations. Both companies turn over their inventory every 2 months (12÷6), which may be appropriate for their industry.

Marking: 1 mark for identifying same turnover rate, 1 mark for relevant comparison point, 1 mark for meaningful interpretation

Question 7 (4 marks) Sample Answers: Reason 1: Improved demand forecasting leading to better inventory planning and reduced excess stock Reason 2: Better supplier relationships resulting in faster delivery times and reduced need to hold large inventory levels

Alternative acceptable reasons:

• More efficient inventory management systems
• Improved product mix focusing on faster-moving items
• Better marketing strategies increasing sales velocity
• Reduced lead times from suppliers

Marking: 2 marks for each well-explained reason (1 mark for stating reason, 1 mark for explanation)

Question 8 (4 marks)

(a) (2 marks) Dr. Bad Debts Expense $4,500 Cr. Trade Receivables$4,500

Marking: 1 mark for correct accounts, 1 mark for correct amounts

(b) (2 marks) Answer: The write-off will reduce the business's profit by $4,500 as bad debts expense is recorded in the income statement. This represents a loss from the uncollectible receivable.

Marking: 1 mark for stating profit reduction, 1 mark for correct amount or explanation of expense treatment