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2012S2 Practice Questions – Instalment 2 QUESTION 1 (15 MARKS) INVENTORYPart A (7 marks) In terms of inventory valuation and profit determination, and the associated assumptions about inventory flow, outline the differences between FIFO and LIFO. DO NOT WRITE BEYOND THIS LINE
2 Part B (8 marks) A company has the following details in its stock records: 1stJuly, 500 units of product X on hand, valued at $5,000 in total. 10thJuly, 250 units of X purchased at $16 per unit. 12thJuly, 200 units of X sold. 15thJuly, 200 units of X purchased at $19.20 per unit. 20thJuly, 300 units of X purchased at $17.50 per unit. 24thJuly, 500 units of X sold. Compute the cost of goods sold during the month of July and the valuation attributed to the inventory at the 31stJuly using the Weighted Average Method. DO NOT WRITE OUTSIDE THE BOX
3 QUESTION 2 (3 Marks) Discuss how the following items should be treated in the General Purpose Financial Reports: a.A customer who bought a front loading washing machine from Able Company is suing the company for $5m after her two year old daughter became trapped in the machine and suffered brain injury, claiming that the machine door lock failed. The company has denied liability and the company lawyers have indicated that, whilst it is not probable, there is more than a remote possibility that the company could lose the case. DO NOT WRITE BEYOND THIS LINE
4 QUESTION 3 NON-CURRENT ASSETSPart A (5 Marks) A new processing machine was acquired at a direct cost of $500,000. It required installation and modifications amounting to $25,000 and $45,000 respectively before it could be operated. The new machine is expected to have a useful life of six years, at which point it will have a disposal value of $90,000. The machine begins operating at the start of the financial year. Calculate depreciation for the first two years that the company holds the machine and provide the accounting entries using: (a) The straight-line method. DO NOT WRITE OUTSIDE THE BOX Date Debit Credit