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Topic 6 - Inventories Lecture Illustrations: Required

This document discusses inventory valuation methods and preparing inventory records. It provides an example of a business, Ham and Small, that sells DVD players and tracks their purchases and sales over time. It asks to calculate cost of goods sold and inventory on hand using weighted average and FIFO methods. It also asks how the value of inventory would change if the DVD players decreased in value. Finally, it provides inventory information for a shoe store and asks to prepare an inventory card using FIFO and describe features of a perpetual inventory system and reasons physical counts may differ from records.

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Mitchell Bylart
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66 views4 pages

Topic 6 - Inventories Lecture Illustrations: Required

This document discusses inventory valuation methods and preparing inventory records. It provides an example of a business, Ham and Small, that sells DVD players and tracks their purchases and sales over time. It asks to calculate cost of goods sold and inventory on hand using weighted average and FIFO methods. It also asks how the value of inventory would change if the DVD players decreased in value. Finally, it provides inventory information for a shoe store and asks to prepare an inventory card using FIFO and describe features of a perpetual inventory system and reasons physical counts may differ from records.

Uploaded by

Mitchell Bylart
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Topic 6 – Inventories

Lecture illustrations

1. Valuation of inventory

Ham and Small is a business selling audio-visual equipment. The following relates to the
purchase and sales one of its products, a DVD player. Ham and Small uses the perpetual
system for recording purchase and sale of inventory.

Note: All prices exclude G.S.T.

July 1 2017 Beginning balance 8 @ $35 = $280


14 August 2017 Purchases 11 @ $38 = $418
20 September 2017 Sales 9
7 February 2018 Purchases 10 @ $40 = $400
29 March 2018 Purchased 5 @ $42 = $210
20 April 2018 Sales 11
2 June 2018 Sold 3

Required:

a. Using the weighted average cost method determine:


i. Cost of goods sold, and
ii. Value of inventory on hand at 30 June 2018

b. Using the F.I.F.O. method:


i. Cost of goods sold, and
ii. Value of inventory on hand at 30 June 2018

c. On 29 June 2018, due to technical changes, the DVD player has been out dated and can
only be sold for $60 each instead of original selling price of $135. Ham and Smith elect to
revalue the DVDs using the Lower of Cost or Net Realisable Value.
i. What is the value of these DVDs on 30 June 2018?
ii. How would this impact on the Income Statement for Ham and Small?

a.

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b.

c.

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2. Preparation of inventory records

Kevin Wilson owns and operates a shoe store called Footloose. He has been operating his
business for the last 2 years.

The following information has been extracted from Kevin’s financial records for the month of
June 2018.
Sale price for inventory item SA410 is $60 per unit.

Inventory item: SA410


June Units Unit Cost
1 Inventory on hand 160 $50
3 Purchases 240 $52
9 Sales 230
11 Purchases 120 $55
13 Purchases Returns of inventory purchased on 11 June 10
18 Purchases 125 $57
25 Sales 300
30 Sales Returns of inventory sold on 25 June costing $57 20

Required:

a. Prepare the stock card for SA410 for the month of June using the F.I.F.O. method of
inventory valuation.
b. Outline the features of a perpetual inventory system.
c. State three reasons why the result of a physical stock take may differ from the amount
recorded on the inventory card.

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Inventory item: SA410
Purchases Cost of sales Balance
Date Particulars Units Unit Total Units Unit Total Units Unit Total
Cost Cost Cost Cost Cost Cost

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