Question

1. Using your own explained, numerical, practical examples, differentiate between periodic and perpetual inventory systems. You may apply your examples to the case of Dino's After School.
2. Using your own explained, numerical, practical examples differentiate between LIFO, FIFO, and Weighted Average as forms of inventory valuation.
3. On April 12, 2017 Dino's After School purchased $6,000 in inventory. Sales began to slow-down, so on May 12 they purchased only $2,000 worth of inventory. In June, with the start of summer when more customers are purchasing their inventory, they purchased $9,000 worth of inventory - June 20, 2017. If they had $4,780 of inventory remaining at the end of the first quarter, and sold $17,500 worth of inventory during the second quarter:

• What is the ending inventory for Dino's After School at the end of June, 2017?
• If there was no ending inventory from the first quarter, with the same levels of sales, what would have been the cost of goods sold during the second quarter?

Answer 1

Under periodic inventory system, cost of goods sold and stock in hand is determined using physical counting of inventory. Since, physical counting cannot be done on a regular basis, since entire business is required to be halted and thus periodic stock counting is done and that's why this system of inventory is called periodic inventory system. Also note that this system can be used only in businesses having lower quantity of inventory

In case of perpetual inventory system , inventory accounts are constantly updated as and when any buying or selling it inventory take place. Thus, such a system is generally used when we are having larger quantities of inventory.

Take the example of dino after school if periodic inventory method would have been implemented then we would have physically counted the stock on June 30 and then on the basis of such physical stock taking only we would record cost of goods sold and ending inventory. Whereas if we would be following perpetual inventory system then on puruchase of inventory on Apr 12, may 12 and June 20 we would have e updated all the inventory records on those individual dates.

Under LIFO method, the inventory which is purchased last will be deemed to have sold first whereas in FIFO method , the inventory which is purchased first will be seemed to have sold first, whereas in weighted average method we would average the cost of inventory purchased and accordingly on sale that average cost would be deducted .

Take example of dino after school if LIFO method would have followed then inventory purchased on June 20, would be considered to have been sold in the quarter 2, then inventory purchased on may 12 and then from April 12 and then difference if any from beginning inventoru. Whereas in case FIFO method any sale in quarter 3 will be first assumed to have made from beginning inventory then inventort purchsed in April 12, then may 12, then June 20 balance. Whereas in case of weighted average we would calculate of weighted average of cost of inventory purchsed on different dates and then any sale would be taken out on the basis of that weighted average

Ending inventory for dino's after school at the end of June, 2017 will be as follows :-

Particulars	amount
Ending inventory of quarter 1	4780
Inventory purchased on April 12	6000
Inventory purchsed on may 12	2000
Inventory purchsed on June 20, 2017	9000
Total inventory	21780
Less : cost of inventory sold during quarter 2	(17500)
Ending inventory on quarter 2	$4280