Author: stuart001uk2014

The valuation of stock at the lower of its cost and its net realisable value is an application of. . . 

Select ONE answer:

1. the consistency concept.
2. the going concern concept.
3. the prudence concept.
4. the accruals concept.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct – The prudence concept means that profit should not be anticipated and all foreseeable losses. should be provided for as soon as they are foreseen. If stock was valued at an amount greater than its cost (NRV usually is greater than cost) it would include an element of profit, which, as the stock is not yet sold, would be an anticipation of profit. If stock was valued at its cost, when its net realisable value was lower, this would not be anticipating a foreseeable loss.
4. Not correct

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If an item of stock which originally cost £1,420 can be sold for £1,600, after incurring further completion costs of £110 and advertising costs of £130, then it should be included in the balance sheet stock valuation at:

Select ONE answer:

1. £1,360
2. £1,420
3. £1,490
4. £1,600

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct – The net realisable value of an item of stock is its actual or estimated selling price less all further costs to completion and all costs to be incurred in marketing, selling and distributing the item. In this case, this is £1,600 – £110 – £130 = £1,360. According to IAS / GAAP, when the NRV of an item is less than its cost, the item should be valued at its NRV, i.e. £1,360.
2. Not correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

The net realisable value of an item of stock is its actual or estimated selling price . . .

Select ONE answer:

1. plus all further costs to completion and all costs to be incurred in marketing, selling and distributing the item.
2. less all further costs to completion.
3. less all further costs to completion and all costs to be incurred in marketing, selling and distributing the item.
4. None of the above.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

A firm has two categories of stock. The cost and net realisable value (NRV) of each are as follows:

Cost          NRV

Category 1         £35,000   £22,000
Category 2         £22,000   £25,000

Select ONE answer:

1. £44,000
2. £47,000
3. £57,000
4. £60,000

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

Correct – Stock should be valued at the lower of its cost and its net realisable value (NRV) on an item- by-item or category-by-category basis (not on a total basis)

1. Category: Cost or NRV = Lower of Cost and NRV
   1 £35,000 or £22,000 = £22,000
   2 £22,000 or £25,000 = £22,000
   = Total of £44,000
2. Not correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.