Mock exam Solution H v 1 - Question 1 Part A-2 minutes 2...

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Question 1 Part A -2 minutes 2 Marks The perpetual inventory system is superior to the periodic system. Discuss. Advantages of the perpetual system over the periodic system. The perpetual system: keeps a continuous record of all inventory movements so that, at any time, the entity knows how much inventory it should have on hand; allows the entity to calculate cost of sales at the time of the sale; allows better planning and control of the entity’s inventory requirements through the provision of more timely information; is readily usable in computerised systems; (1/2 mark each Part B- 25 Minutes 10Marks Assume that Western Sydney Ltd had an inventory balance of $65 140 at the close of the last accounting period. The following sales and purchase transactions are for the current period: 1. Purchased goods on account for $54 380. 2. Returned part of the above purchase that had an original purchase price of $3180. 3. Paid for the balance of the purchase in time to receive a discount of 2% of the purchase price. 4. Sold goods costing $49 800 for $99 640. Cash of $46 000 was received, with the balance due on account. 5. Goods sold on credit for $4040 (cost $2020) were returned. Required A. In two columns, prepare general journal entries (GST) assuming: 1. a periodic inventory system is used 2. a perpetual inventory system is used. B. Suppose that a physical count of the inventory at the end of the current period shows inventory of $60 000 to be on hand. Present the entries (if any) required under each inventory system to adjust for any discrepancy. A. (with GST) ) MERRYLAND’S MARKETS Periodic Perpetual 1. Purchases 54 380 Inventory 54380 GST Receivable 5438 GST Receivable 5438 Accounts Payable 59818 Accounts Payable 59818 (1 mark) (1 mark) 2. Accounts Payable 3 498 Accounts Payable 3498 Purchases Rtns& Allows. 3180 Inventory 3180 GST Receivable 318 GST Receivable 318 (1 mark) (1 mark) 3. Accounts Payable 56320 Accounts Payable 56320 Discount Received 1024.00 Discount Received 1024.00 GST Receivable 102.40 GST Receivable 102.40 Cash at Bank 55193.60 Cash at Bank 55193.60 (1 mark) (1 mark) 4. Cash 46 000 Cash 46 000 Accounts Receivable 63604 Accounts Receivable 63604
Sales 99 640 Sales 99640 GST Payable 9964 GST Payable 9 964 (1 mark) (1/2 mark) Cost of Sales 49800 Inventory 49800 (1/2 mark) 5. Sales Returns & Allowances 4 040 Sales Rtns & Allows 4 040 GST Payable 404 GST Payable 404 Accounts Receivable 4444 Accounts Receivable 4444 (1 mark) (1/2 mark) Inventory 2 020 Cost of Sales (1 mark) 2 020 (deduct 1 /2 overall for not providing narration) B. 4 Marks Physical count at period end (1 mark) $60 000 Inventory balance Perpetual System (1 mark) $60000 No entry required under periodic system. Inventory loss included in calculation of Cost of Sales. $65140 (balance) + $54380 (purchase) – $3 180 (return) – $49800 (sale) + $2 020 (sale return) = $68560 (1 mark) Inventory Shortage Expense 8560 Inventory 8560 Inventory loss $68560 – $60 000 = $8560 (1 mark) PART 3 Inventory costing 8 marks The following information relates to the inventory of GamesRUs Ltd during May: May 3 10 12 17 25 Beginning Inventory Purchased Purchased Sold Sold Sold 160 180 220 180 160 60 units units units units units units @ $7 @ $8 @ $9 Ignore GST. 1

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