(a) Calculation of Cost of Invetntory and Cost of Goods Sold.
Specific Identification method :
We have been provided that 20 units are sold from opening inventory while the balance 17 were sold from July 20 purchase hence closing stock of 13 unit will compose of 10 unit from July 8 purchase and 3 unit from July 20 purchase :
Particulars | Qty | Per Unit | Total (USD) |
Jul 8 | 10 | 1,800 | 18,000 |
Jul 20 | 3 | 1,700 | 5,100 |
Closing Stock | 13 | 1,777 | 23,100 |
Cost of Goods Sold | |||
From Opening Balance | 20 | 2,000 | 40,000 |
From July 20 Purchase | 17 | 1,700 | 28,900 |
Total Cost of goods sold | 37 | 1,862 | 68,900 |
Under FIFO Method :
FIFO method means first in first out.FIFO Method :
The closing balance is 13 quantity which will be out of last purchase since last purchase was for 20 units
Particulars | Qty | Per Unit | Total (USD) |
Closing Balance | 13 | 1,700 | 22,100 |
The first sale is of 15 unit which will be from opening stock. Next sale is 22 unit, where 5 units which are remained from opening balance, 10 unit from purchase made on 8th July and balance 7 units from July 20 purchase
Cost of Goods Sold | |||
From Opening Balance | 15 | 2,000 | 30,000 |
From Opening Balance | 5 | 2,000 | 10,000 |
From Jul 8 Purchase | 10 | 1,800 | 18,000 |
From Jul 20 Purchase | 7 | 1,700 | 11,900 |
Total | 37 | 69,900 |
(b) Impact of FIFO on closing inventory & Profit
Under specific identification method the closing inventory value is 23,100 while under FIFO it is 22,100 so inventory value is lower by 1,000.
The corollary impact is the cost of goods sold is higher in case of FIFO by 1,000 hence the profit will be lower by 1,000 under FIFO as compared to specific identification method
(c) Change in inventory method :
Change in inventory valuation method is change in accounting policy. Change in accounting policy should be adopted only if it results in the financial statements providing reliable and more relevant information about the effects of transactions.
The suggestion of CEO is not acceptable as company is not intending to apply consistent policy for inventory valuation whereas the criteria specified by CEO is on the base of better financial performance which should not be the criteria to change accounting policy.
Ernst Company sells electronics products. The company uses the perpetual inventory system. The following information relates...
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Martinez Ltd. uses the perpetual inventory system and reports
the following inventory transactions for the month of June:
Date
Explanation
Units
Unit
Cost
Total
Cost
June
1
Beginning inventory
1,500
$6
$9,000.00
12
Purchases
2,480
7
17,360
15
Sale
(2,610
)
16
Purchases
4,560
8
36,480
23
Purchases
1,380
9
12,420
27
Sales
(5,830
)
(a)
Determine the cost of goods sold and the cost of the ending
inventory using (1) FIFO and (2) Average cost. (Round
average
final answers...
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