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Your client uses a perpetual inventory system has provided you with the following stock movement figures. Date Qty Status Unit Price (excl GST) June...

8.1


1. Your client uses a perpetual inventory system has provided you with the following stock movement figures.
Date Qty Status Unit Price (excl GST)
June 1 +175 Opening bal. 4.00
June 4 - 100 Sold 7.30
June 7 -50 Sold 7.55
June 10 +75 Purchased 4.80
June 12 -50 Sold 8.10
June 21 +35 Purchased 4.60
June 29 -55 Sold 8.15
June 30 30 Closing bal.
a) Complete the following table using FIFO, LIFO and the Weighted Average Method (AVCO) to calculate sales, cost of goods sold and gross margins.

FIFO LIFO AVCO
Sales Sales Sales
Cost of Sales Cost of Sales Cost of Sales
Gross Margin Gross Margin Gross Margin



Use the worksheets below to calculate your answers.


FIFO
Date Purchases Sales / Issue Net
Qty Unit Cost Value Qty Unit Cost COS Qty Unit Cost Value








TOTAL

LIFO
Date Purchases Sales / Issue Net
Qty Unit Cost Value Qty Unit Cost COS Qty Unit Cost Value








TOTAL

AVCO
Date Purchases Sales / Issue Net
Qty Unit Cost Value Qty Unit Cost COS Qty Unit Cost Value








TOTAL






b) Explain why each Gross Margin value is different






c) The Australian Taxation Office has deemed LIFO unacceptable to the accountancy profession. Explain why you think they have done this?




















8.2

Question 2
Marks: 1
Your client commenced business on June 1, 2011 using the perpetual inventory method AVCO, and, as it is now the end of the 2011 financial year, has provided the following records:

June 1 commenced business with an inventory of 500 units @ $6 per unit (GST exclusive)

June 4 sold 300 units for $3,300 on credit

June 7 sales returns of 5 units for $55

June 10 purchased 700 units on credit for $5,390

June 17 purchased 600 units on credit for $5,280

June 18 sold 1200 units on credit for $14,520

June 21 paid customs duty $330 on June 17 purchase

June 24 purchased 400 units on credit for $4,400

June 26 purchases returns 10 units for $110

June 27 paid further import costs on June 17 purchase $200

June 30 physical stock-take revealed 645 units on hand worth $5,940 (GST exclusive)

Required: Calculate any variance between the accounting system value of inventory at June 30th and the results of the physical stock-take at the same date.

Your client provides the following data (all GST exclusive)
Inventory item: Mattress
Inventory Qty: 250
Expected selling price: $100
Cost of purchase: $54
Selling cost: $2
Freight outwards: $ 10

Now answer question 3 and 4.
Question 3
Marks: 1
Calculate the net realisable value of the inventory items:
Answer:

Question 4
Marks: 1
Explain why under current Australian Accounting Standards it is a requirement that the value of inventories must be stated at net realisable value if this is lower than cost.
Answer:



Your client had total sales of $100,000 (GST exclusive) and purchases of $72,000 (GST exclusive) in its first year of operation. At the end of the first year a stock take was conducted resulting in a figure of $16 000. The owner is not convinced that this is correct and undertakes a second stock take – resulting in a figure of $20,000.

Now answer question 5, 6 and 7.
Question 5
Marks: 1
Calculate the gross profit with closing inventories of $16 000 and $20 000
Answer:



Question 6
Marks: 1
Describe and explain the impact of underestimating and overestimating closing inventories on gross profit calculations for the current and next accounting period
Answer:

Question 7
Marks: 1
If the physical count value of inventory for the end of the period is $20,000 less than the closing value as per the accounts, what will be the required adjustment journal to correct the accounts?
Answer:

Question 8
Marks: 1
Purchases of inventory are recorded from appropriate documentation such as delivery notes, invoices from suppliers, purchase orders, purchase requisitions, etc. However the accounting transactions are different depending on whether the Perpetual or Periodic inventory accounting methods are used. Briefly explain the difference in accounting treatment of inventory purchases between the 2 inventory methods.
Answer:

Question 9
Marks: 1
Explain if, and how, GST impacts on the two inventory accounting methods, Perpetual and Periodic.
Answer:

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