- CFA Exams
- CFA Level I Exam
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 25. Inventories
- Subject 1. Cost of Inventories
CFA Practice Question
There are 520 practice questions for this study session.
CFA Practice Question
Which statement(s) is (are) true?
I. If one hundred units of merchandise were purchased at $15 per unit and the end-of-period replacement cost of the merchandise is $8 per unit, the merchandise will be reported at $8 per unit.
II. Goods in transit that were purchased under freight terms of FOB Shipping Point should be included in the inventory of the buyer.
III. Goods shipped FOB destination are the property of the seller until the goods are removed from the carrier and placed on the buyer's receiving dock.
IV. Goods in transit that were shipped under freight terms of FOB Shipping Point should be included in the seller's inventory.
A. I, II and III
B. I, III and IV
C. I, II and IV
Explanation: I. Applying LCM (the lower of cost or the current market price rule), the merchandise would be valued at $8 per unit, since the replacement cost of the merchandise is lower than the historical cost.
II. FOB shipping point not only indicates that the buyer pays the freight charges, but it generally indicates that the buyer takes ownership of the merchandise at the time and point of shipping.
III. This statement is true.
IV. Goods shipped FOB shipping point become the property of the buyer when they are shipped.
User Contributed Comments 8
|gunbound||SHIPPING POINT - BUYERS INVENTORY
FOB DESTINATION - SELLERS INVENTORY
|CoffeeGirl||D: buyer's inventory.|
|Bibhu||FOB - Freight On Board.|
|bahodir||Bibhu, no it is not.
FOB - free on board
|teje||fob shipping, think of when you buys goods, and pay shipping costs! if buyer pays shipping cost than risk/reward essentially passed on to buyer and the buyer must include it in his or her inventory|
|nostalgia||upon googling, FOB seems to be able to stand for either Free on Board or Freight on Board (Free on Board internationally, and Freight on Board for North America).|
|jnptrsn1||Why should goods being shipped FOB be considered the sellers property while they're being shipped, but not listed on the sellers inventory?|
|doctubber||jnptrsn1 - you need to distinguish between 'FOB shipping point' and 'FOB destination'|