Question

Assume the financial statements of ABC Corporation for years 2017, 2018
and 2019:
Statement of financial position (balance sheet) as of
31/12/2017 31/12/2018 31/12/2019
Fixed assets (net value) 100,000 180,000 175,000
Inventory 80,000 88,500 90,000
Accounts receivable 70,000 92,000 86,000
Other assets 35,000 90,000 207,000
Cash 90,000 130,000 142,000
Total assets 375,000 580,500 700,000
Share capital 150,000 150,000 150,000
Retained earnings 160,000 366,400 464,080
Accounts payable 65,000 64,100 85,920
Total equity and
liabilities
375,000 580,500 700,000
Income statements for years ended
31/12/20107 31/12/2018 31/12/2019
Sales 450,000 588,000 642,600
Cost of goods sold (230,000) (230,000) (270,500)
Gross profit 220,000   358,000 372,100
Other expenses (85,000) (100,000) (250,000)
Income before taxes 135,000 258,000 122,100
Income taxes (20 %) (27,000) (51,600) (24,420)
Net income 108,000 206,400 97,680
ABC has applied the FIFO (Fist-in First-out) as cost-flow method for its inventory,
while it adopts the periodic inventory system.
Required: Prepare the statement of financial position (balance sheet) of ABC
corporation as of 31/12/2019, under the cost-flow method of weighted-average cost.
Assume that the change to average cost is effective from January 1, 2018. ABC’s
accounting period starts on January 1 and ends on 31 December of each year. ABC’sannual income is carried forward and no distribution of dividends has taken place in
the 2017-2019 period.
Additional information:
1. Ending inventory at December 31, 2017, consisted of 40,000 units, at €2,0 per
unit.
2. Purchases of inventory:

2018
Units Unit Cost in €
30,000 2.2
40,000 3
25,000 2.1

2019
Units Unit Cost in €
20,000 3
40,000 2.8
50,000 2

3. Sales:
2017: 112,500 units, sold at €4 per unit
2018: 98,000 units, sold at €6 per unit
2019:102,000 units, sold at €6.3 per unit

4. Income taxes are paid on December 31, each year.

Answer 1

CALCULATION OF WEIGHTED AVERAGE OF CLOSING INVENTORY ON 31.12.2018
	QUANTITY	RATE	AMOUNT	WEIGHTED AVERAGE QUANTITY	AMOUNT	RATE
Opening Bal as on 01.01.2018	40000	2	80000	40000	80000	2
PURCHASES	30000	2.2	66000	70000	146000	2.09
	40000	3	120000	110000	266000	2.42
	25000	2.1	52500	135000	318500	2.36
Sales 2018	98000	6	588000	37000 (Closing Inventory)	87292	2.36
CALCULATION OF WEIGHTED AVERAGE OF CLOSING INVENTORY ON 31.12.2019
Opening Inventory 01.01.2019	37000	2.36	87292	37000	87292	2.36
Purchases	20000	3	60000	57000	147292	2.58
	40000	2.8	112000	97000	259292	2.67
	50000	2	100000	147000	359292	2.44
Sales	102000	6.3	642600	45000 (Closing Inventory)	109987	2.44

Cost of Goods sold = (Opening Inventory + Purchases - Closing Inventory)
2018 ( 80000+66000+120000+52500-87292) = 231208
2019 (87292+60000+112000+100000-109987) = 249305
Income Statements for the year 2018 & 2019 Particulars 2018 2019 Sales 588000 642600 Less: Cost of Goods Sold 231208 249305 Gross Profit 356792 393295 Less : Other Expenses 100000 250000 Income Before Taxes 256792 143295 Less : Taxes @ 20% 51358 28659 Net Income 205434 114636

Statement of Financial Position (Balance Sheet) of ABC
	2018	2019
Fixed assets (net value)	180000	175000
Inventory	87292	109987
Accounts receivable	92000	86000
Other assets	90000	207000
Cash	130242	138003
Total assets	579534	715990
Share capital	150000	150000
Retained earnings	365434	480070
Accounts payable	64100	85920
Total Equity and Liabilities	579534	715990

Cash balances as on 31.12.2018 and 31.12.2019
As on 31.12.2018 (130000+51600-51358) = 130242
51600 taxes paid under FIFO method and 51358 Taxes paid under Weighted Average method
As on 31.12.2019 ( 142000+130242-130000+24420-28659) = 138003
24420 taxes paid under FIFO method and 28659 Taxes paid under Weighted Average method