Advanced Inventory Management Quiz with Accounting Scenarios

The bond question refers to debt issuance, not equity compensation. Swing High Inc. would not record any compensation expense because employees bought shares at market value, which does not result in an accounting cost. Compensation expense only arises if shares are issued below fair market value, as that represents an employee benefit.

In a perpetual inventory system, every purchase, return, and sale is immediately recorded in the inventory account. This method provides real-time tracking of cost of goods sold (COGS) and inventory balance. Journalizing ensures inventory accuracy and compliance with matching principles in financial reporting.

The lower-of-cost-or-market rule requires inventory to be written down if its market value falls below cost. This approach prevents overstating assets and aligns with the conservatism principle, ensuring that losses are recognized when probable, while unrealized gains are not recorded until realized.

Weighted-average accumulated expenditures represent the portion of construction costs subject to capitalization for interest. It’s calculated by weighting each expenditure by the fraction of the year it was outstanding. This ensures that interest expense reflects the time cost of funds tied up in construction.

Book value equals an asset’s cost minus accumulated depreciation. It reflects the undepreciated portion of the asset’s cost on the balance sheet. Book value is not necessarily the market value; it represents the accounting value based on the cost allocation method chosen.

The asset turnover ratio measures efficiency by dividing net sales by average total assets. Bargain Shop’s ratio is 2.5 ($175 ÷ $70), showing the company generates $2.50 in sales for every $1 of assets, an indicator of high asset utilization.

Under IFRS, inventory is recognized when control of goods is transferred from seller to buyer, not when ordered or produced. This aligns with the revenue recognition principle and ensures accurate matching of costs with revenue.

IFRS prohibits LIFO because it can distort inventory valuation and earnings during inflationary periods. Instead, IFRS promotes FIFO or weighted-average methods that better reflect current costs and inventory values, ensuring transparency and comparability.

Under dollar-value LIFO, the 10% index adjusts the base-year cost to current-year dollars. The 2015 inventory equals $100,000 × 1.10 = $110,000. This method measures inventory layers in dollar terms rather than physical quantity, reflecting inflation-adjusted inventory value.

The sum-of-the-years’-digits (SYD) method accelerates depreciation. For an 8-year life, total SYD = 36. In 2015, 7 years of life remain, so depreciation = (7/36) × ($285,000 − $15,000) = $52,500. Adjusting for purchase month gives ~$42,187. This method matches higher depreciation with early asset use.

A bill becomes law through multiple readings, committee and report stages in both Houses, followed by Royal Assent. Each stage ensures scrutiny, debate, and refinement before the bill becomes an Act of Parliament.

Parliamentary sovereignty means Parliament is the supreme law-making body. It can make or repeal any law, and its acts cannot be invalidated by courts. However, EU and human rights laws place limited practical constraints.