Tag: methods of valuation of closing stock

Questions Related to methods of valuation of closing stock

EOQ determines the order size when ______________.

elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

  1. Total order cost is minimum

  2. Total number of order is least

  3. Total inventory cost is minimum

  4. None of the above

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Correct Option: C
Explanation:

Economic Order Quantity is the optimum quantity of goods that a firm may order in one time to minimize the annual cost of ordering and inventory carrying cost.

EOQ is based on certain assumptions:
a) Annual Demand 
b) Ordering Cost
c) Carrying cost 

Changing the value of closing stock from cost to expected selling price might be an application of which accounting concept?

elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

  1. Going Concern

  2. Prudence

  3. Historical cost

  4. Consistency

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Correct Option: B

Which method of inventory valuation is most widely used in accounting?

elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

  1. Cost price

  2. Market price

  3. Cost or market price whichever is greater

  4. Cost or market price whichever is lower

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Correct Option: D
Explanation:

Conservatism concept defines that all future losses should be recorded in books of account. Stock is normally valued at cost or market value whichever is lower.

Which of the following is true for a company which continuous reviews its inventory system?

elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

  1. Order Interval is fixed

  2. Order Interval varies

  3. Order Quantity is fixed

  4. Both A and C

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Correct Option: B
Explanation:

Continuous inventory system or perpetual inventory system of inventory describes the system of inventory where information of inventory quantity with the availability is monitored on a regular basis.

As inventory ordering is also based on the availability of stock, order intervals may change because of the perpetual inventory system.

Which inventory price method assumes that the goods most recently purchased are sold first?

elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

  1. FIFO

  2. Specific identifications

  3. Weighted average

  4. LIFO

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Correct Option: D
Explanation:

In the LIFO method, Inventory which is purchased recently is issued first.  It is called last in first out. 

Available closing stock will have the stock of older items with older price. 

Under FIFO method, the materials issued are priced at ___________.

elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

  1. latest purchases

  2. oldest purchases

  3. average cost of purchases

  4. next purchases

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Correct Option: B
Explanation:

Under the FIFO (First in First Out ) method, stock is issued to the production on the basis of its receipt. Stock which has procurred first is issued first and so on. 

In such case, stock issued are priced at oldest purchases. Latest stock will be available as closing inventory.