Question

Question Nestle is a wholesale distribution business that sells its Milo drink product to supermarkets. The following relates to the business's activities during January 2019: January Opening inventory 40,000 tins – cost $3 each tin Purchases 4,000 tins – purchase price $3.50 each tin 23 Purchases 30,000 tins – purchase price $3.60 each tin 31 Closing inventory (as per physical stocktake) 33,000 tins. Additional information i. The most recent selling price of the milo drink is $6.50 per tin ii. Two thousand tins of the closing inventory have passed their use-by date and cannot be sold for human consumption. However, they can be sold as pig feed for $1.80 per tin. Freight from the supplier to Nestle costs $1.20 per tin. Freight from Nestle to supermarkets costs $1.40 per tin and would also apply to tins sold for pig feed. Nestle pays both sets of freight costs. 111. iv. Nestle adopts the FIFO cost flow method for its MILO drink product line Required (a) Nestle is considering introducing a new line of inventory, a Barcelona FC Football Jersey. Explain why the weighted average cost flow method is appropriate for this line of inventory (b) Calculate the value of closing inventory as provided for in AASB 102 Inventories, applying the FIFO (first-in-first-out) cost flow method. Justify all aspects of your calculation (c) Prepare any adjustment general journal entry for inventory at 31 January 2019. (d) Prepare the extract to the Balance Sheet for valuation of closing inventory as at 31 January 2019

Answer 1

x x x x Extract of Bls as at 31st Jan 2018 Assets Non-Conent Assets:- fixed Assets. Goodwill Investment X X X curent Assets! 118500 Inventory XX Cosh dubtor x 118SDO

WNI - op. Inventory = 38000x3 = $114000 (Note I) 8. Purchase = 4000 X 3.50 = $14000 g 23. Purchase = 30000 x 3.60 = $108000 30. Sale : 39000 38000 x 3 $114000) ..] (Note II) Closing Inut = 33000 3000 $losoo - 30000 X 3.60 = $108.000 $118500 L1000 * 3.5003500) - 31. Note I op. Inventory - Youoo (-) Abnormalnut. = (2000) 38000 Here, we are using FIFO Method. So, assume that Abnormal Inut, that Passed use by date is from op. Inventory Note I Here, op. Inventory = 40000 (+) Puri - You H) Pur. : 30000 (-) closing Jout a (33000) 41060 39000 2000 Afh Jhut. Sales,

Anslis weighted Aug. Method is Used when Product is durable and is Independent of time, which Meanis Product will Remire Remaina sarre irresep. rective of time lapesed In Comparison to Ouest.. - ibn given above tin is a term relating some Perisable items which require Seller to sale . old Product first other wise it will be getting passed through its use by-date. Ars WN I (Refere) closing Inventory = $118500 (33000 tin) Ans(ii) i Inventory Exp. al To Inventory (2000 x 33) Dr. $6000 alc. 6000 w Cash al Dr. $3600 To sale to pig feed. ale $3600 Note! Here we assume that Inventories are already sold to Pig feed for Cash, ]