Chap – 1 INVENTORY VALUATION – QUESTIONS (1)

QUESTIONS
QUESTION NO. 1
Anjum Traders started its operations on May 1, 2018. During first year of operations 30,000 units of a product were
imported in one lot and following expenses were incurred:
Rs.
Purchase price (subject to 10% trade discount) 600,000
Import duties 36,000
Refundable sales tax 80,000
L/C charges 24,000
Freight charges 120,000
Clearing charges 60,000
Transportation to godown 18,000
Transit insurance 12,000
Godown rent (per month) 25,000
Fire insurance 10,000
At end of first year, December 31, 2018, 2,800 units are still held in inventory.
Required:
Total cost of closing inventory as at December 31, 2018.

QUESTION NO. 2
Gamma Electronics is engaged in sale of various electronic appliances for household and office use. One of the products is
Hexa-120. Following transactions relate to Hexa-120 for the month of April 2018:

Date Transaction Units Cost (Rs.)

01-04 Opening stock 200 22
02-04 Purchase 500 25
05-04 Sale 480 -
09-04 Purchase 100 28
10-04 Purchase returns (2nd April purchase) 20 -
15-04 Sale 230 -
19-04 Drawings 40 -
21-04 Sale returns:
- Out of 5th April sale 60 -
- Out of 15th April sale 10 -
27-04 Purchase 150 30
30-04 Goods lost by fire 10 -
Required:
Calculate total cost of closing stock as at April 30, 2018 using:
(1) FIFO (Perpetual)
(2) AVCO (Perpetual)
(3) FIFO (Periodic)
(4) AVCO (Periodic)

QUESTION NO. 3
Alpha Traders sells four different products A, B, C and D. Following information relates to these products for the year
ended June 30, 2018:

Product Units Total cost (Rs,)

Opening stock 40 800
A Purchases 160 4,000
Sales 170 -
Opening stock 80 2,400
B Purchases 220 5,940
Sales 240 -
Chap – 1 INVENTORY VALUATION – QUESTIONS (2)

Opening stock 170 3,060

C Purchases 80 1,600
Sales 150 -
Opening stock 150 3,000
D Purchases 30 420
Sales 130 -

As a result of changes in market conditions, now net realizable values of these products are estimated as follows:

Product NRV (Rs.)

A 26
B 29
C 19
D 18

Required:
Value of closing stock of each product assuming that entity uses:
(a) FIFO costing method
(b) AVCO costing method

QUESTION NO. 4
The closing stock of ABC Ltd. As at September 30, 1998 was Rs. 750,000. There were doubts regarding its condition and
realizable value. It was found that:
➢ 80% was in good condition and was expected to realize a gross margin of 25%.
➢ 15% was slightly damaged and required and additional expenditure of 15% of cost to make it saleable at normal
price.
➢ 5% was damaged and would fetch only 40% of the normal sale price.
Required:
Calculate the revised value of stock as of September 30, 1998.

QUESTION NO. 5
Kidz Party & Co. (KPC) manufactures and sells toys. Following information is available regarding four of its inventory items
as on 31 December 2017:

Normal
Cost per unit
Items Units selling price
(Rs.)
per unit (Rs.)
Toy cars 10,000 1,250 1,200
Doll houses 5,000 1,800 2,700
Stuffed toys 1,850 1,200 1,900
Minion costumes 870 1,500 2,500
Following information is also available:
(i) A sales order for 3,000 toy cars @ Rs. 1,100 per unit is in hand. The remaining units can be sold at normal selling
price after incurring selling cost of Rs. 150 per unit.
(ii) Doll houses include 1,000 defective units with no scrap value. 20% of the remaining doll houses are damaged and
can be sold at 50% of cost.
(iii) Stuffed toys costing Rs. 420,000 were accidentally damaged and are beyond repair. KPC plans to sell these toys as
scrap. Proceeds from such sale are estimated at Rs. 175,000 and the sale would require transportation cost of Rs.
6,300.
(iv) All minion costumes have manufacturing faults and can be sold in present condition at Rs. 1,350 per unit. However,
60% of the units can be rectified at a cost of Rs. 200 per unit after which they can be sold at Rs. 1,600 per
unit.
Required:
Calculate the amount at which above inventory items should be carried as on 31 December 2017.
Chap – 1 INVENTORY VALUATION – QUESTIONS (3)

QUESTION NO. 6
Nawaz Manufacturing Limited (NML) deals in various products. One of its product B2 is produced using raw material A1.
Production is carried out after receiving confirmed sales order.

Following information is available for the month of January 2017:

(i) Opening inventory of A1 was 200 kg @ Rs. 3,000 per kg.
(ii) Details of purchases made during the month ended 31 January 2017 are as follows:

Date Quantity (Kg) Price per kg (Rs.)

1-Jan-17 250 2,800
15-Jan-17 250 2,900
50 kg of A1 purchased on 15 January 2017 were returned to the supplier on 16 January 2017 due to inferior
quality of material supplied.
(iii) On 18 January 2017, 100 kg of A1 were destroyed. They had no scrap value.
(iv) Under normal circumstances 500 kg of A1 produce 400 liters of B2.
(v) Sales of B2 during the month of January were as follows:

Sales price per

Sale order date Delivery date Quantity (liters)
liter (Rs.)
2-Jan-17 4-Jan-17 100 7,000
26-Jan-17 28-Jan-17 160 6,250
(vi) NML uses weighted average method for valuation of inventory.
Required:
Compute cost of closing stock of material A1 of January 2017 under each of the following methods:
(a) Perpetual inventory method
(b) Periodic inventory method

QUESTION NO. 7
Hammad Limited (HL) imports and supplies three products, Alpha, Gamma and Beta. The opening balances and
transactions for the month of June 2014 are as follows:
Units purchased during Units Sold during the
Opening balance
the month month
Items
Invoice
Qty. Value (Rs.) Qty. Qty. Value (Rs.)
value (Rs.)
Alpha 20 60,000 360 920,000 350 1,820,000
Gamma 100 4,800,000 50 2,375,000 70 4,060,000
Beta 30 120,000 490 1,820,000 400 1,640,000
The following information is also available:
(i) HL’s bank charges a commission of 0.5% of invoice value for opening the letter of credit.
(ii) Import taxes and duties were 23% of the invoice value out of which 40% are refundable / adjustable.
(iii) The transportation charges are Rs. 1,500 per trip. 20 units of Alpha, 2 units of Gamma or 15 units of Beta can be
transported in each trip.
(iv) All goods are repacked after import. The cost of packing per unit was Rs. 300, Rs. 1,500 and 700 respectively.
(v) HL values its stock on first-in, first-out basis.
(vi) Average selling costs per unit are Rs. 700, Rs. 1,500 and Rs. 400 respectively.
Required:
Compute the value of stock of each product as at 30 June 2014.
Chap – 1 INVENTORY VALUATION – QUESTIONS (4)

QUESTION NO. 8
Superior Enterprises is engaged in the business of supplying four different products to four different industries. The
details relating to the movement of inventory and related expenditures are as follows:

Opening Balance Import Duties (Rs.) Sales

Quantity Invoice
Items Value
Quantity Purchase Value (Rs.) Refundable Non-refundable Quantity Value (Rs.)
(Rs.)
A 30 60,000 360 810,000 120,000 90,000 350 1,015,000
B 60 90,000 780 1,560,000 200,000 150,000 800 2,080,000
C 40 120,000 560 1,820,000 250,000 200,000 580 2,320,000
D 80 200,000 600 1,650,000 - - 350 1,155,000
The following information is available:
(i) The transportation charges upto the company’s godown are Rs. 100 per unit.
(ii) The transportation charges from the company’s godown to the customers’ premises are approximately Rs. 150
per unit.
(iii) 25% of the closing stock of item A has been damaged due to mishandling and can only be sold at 60% of its
selling price.
(iv) A new product has been introduced by a competitor. It is similar to product C and is being marketed at Rs. 3,200
per unit. The management of Superior Enterprises is of the opinion that in future, it will also have to reduce the
price of C to Rs. 3,500 per unit.
Required:
Compute the value of the stock as at December 31, 2007.
Chapter - 1 IVENTORY VALUATION – SOLUTIONS (1)

SOLUTIONS
SOLUTION TO QUESTION NO.1
Total cost of purchase Rs.
Purchase price 600,000
Trade discount (60,000)
Import duties 36,000
L/C charges 24,000
Freight charges 120,000
Clearing charges 60,000
Transportation 18,000
Transit insurance 12,000
[A] 810,000

Cost per unit [B = A/30,000] 27.00

Total cost of closing stock [B x 2,800] 75,600

SOLUTION TO QUESTION NO.2

FIFO (Perpetual)

Date ----------- Purchase --------- ----------- Sales ---------- ----------- Balance -------
Units Rate Amount Units Rate Amount Units Rate Amount
Rs Rs Rs Rs Rs Rs
01-04 Balance 200 22.00 4,400
02-04 Purchase 500 25.00 12,500 200 22.00 4,400
500 25.00 12,500
05-04 Sale 200 22.00 4,400
280 25.00 7,000 220 25.00 5,500
09-04 Purchase 100 28.00 2,800 220 25.00 5,500
100 28.00 2,800
10-04 Purchase return (20) 25.00 (500) 200 25.00 5,000
100 28.00 2,800
15-04 Sale 200 25.00 5,000
30 28.00 840 70 28.00 1,960
19-04 Drawings 40 28.00 1,120 30 28.00 840
21-04 Sale return (60) 25.00 (1,500) 60 25.00 1,500
(10) 28.00 (280) 40 28.00 1,120
27-04 Purchase 150 30.00 4,500 60 25.00 1,500
40 28.00 1,120
150 30.00 4,500
30-04 Write off 10 25.00 250 50 25.00 1,250
40 28.00 1,120
150 30.00 4,500
240 6,870
Chapter - 1 IVENTORY VALUATION – SOLUTIONS (2)

AVCO (Perpetual)

Date ----------- Purchase -------- ----------- Sales ---------- ----------- Balance -------
Units Rate Amount Units Rate Amount Units Rate Amount
Rs Rs Rs Rs Rs Rs
01-04 Balance 200 22.00 4,400
02-04 Purchase 500 25.00 12,500 700 24.14 16,900
05-04 Sale 480 24.14 11,587 220 24.15 5,313
09-04 Purchase 100 28.00 2,800 320 25.35 8,113
10-04 Purchase return (20) 25.00 (500) 300 25.38 7,613
15-04 Sale 230 25.38 5,837 70 25.36 1,775
19-04 Drawings 40 25.36 1,014 30 25.37 761
21-04 Sale return (60) 24.14 (1,448) 100 24.63 2,463
(10) 25.38 (254)
27-04 Purchase 150 30.00 4,500 250 27.85 6,963
30-04 Write off 10 27.85 279 240 27.85 6,685
240 6,685

FIFO (Periodic)

Units Rate Amount

Rs Rs
90 28.00 2,520
150 30.00 4,500
Closing stock 240 7,020

AVCO (Periodic)
Units Amount
Rs
Opening stock 200 4,400
Net total purchases 730 19,300
930 23,700

Avg. rate 25.48

Closing stock 6,115

SOLUTION TO QUESTION NO.3

Closing stock (units): A B C D
Opening stock 40 80 170 150
Purchases 160 220 80 30
200 300 250 180
Sales (170) (240) (150) (130)
Closing stock 30 60 100 50

Total amount (Rs.):

Opening stock 800 2,400 3,060 3,000
Purchases 4,000 5,940 1,600 420
4,800 8,340 4,660 3,420
Chapter - 1 IVENTORY VALUATION – SOLUTIONS (3)

Per unit cost (Rs.):

Opening stock 20.00 30.00 18.00 20.00
Purchases 25.00 27.00 20.00 14.00
Average rate 24.00 27.80 18.64 19.00

NRV per unit 26.00 29.00 19.00 18.00

(a)
Cost of closing stock 750 1,620 1,960 820
[30 x 25] [60 x 27] [80 x 20 + 20 x 18] [30 x 14 + 20 x 20]
NRV of closing stock 780 1,740 1,900 900
[30 x 26] [60 x 29] [100 x 19] [50 x 18]
Value (lower) 750 1,620 1,900 820

(b)
Cost of closing stock 720 1,668 1,864 950
[30 x 24] [60 x 27.8] [100 x 18.64] [50 x 19]
NRV of closing stock 780 1,740 1,900 900

Value (lower) 720 1,668 1,864 900

SOLUTION TO QUESTION NO. 4

ABC Ltd.
Revised Value of Closing Stock
As at 30 September 1998
Rs.
Value as given 750,000
Adjustment of damaged stock requiring additional expenditure (W-1) –
Less: Cost of damaged stock (5% of Rs. 750,000) 37,500
712,500
Add: Net realisable value of the above stock (40% of Rs.37,500 x 100/75) 20,000
Revised value 732,500

(W-1)
Value of slightly damaged stock:

Cost (15% of Rs.750,000) 112,500

Selling price of the above(Rs.112,500 x 100/75) 150,000
Less: Additional expenditure required(Rs.112,500 x 15%) 16,875
Net realisable value 133,125
Stock will be valued at the lower of the cost and net realisable value. Therefore, no adjustment is required.

SOLUTION TO QUESTION NO. 5

Kidz Party & Co.
Inventory valuation as on 31 December 2017
Cost Normal Cost to NRV Inventory
Units per unit selling price sell per unit valuation at lower
per unit per unit of cost and NRV
1 2 3 4 5=(3–4) 6
----------------------------------------- Rupees -----------------------------------------
Toy cars 7,000 1,250 1,200 150 1,050 NRV 7,350,000
3,000 1,250 1,100 - 1,100 NRV 3,300,000
10,000 10,650,000
Chapter - 1 IVENTORY VALUATION – SOLUTIONS (4)

Doll houses 1,000 1,800 - - NRV -

800 1,800 900 - 900 NRV 720,000
(5,000-1,000)×20% (1,800×50%)
3,200 1,800 2,700 - 1,800 Cost 5,760,000
5,000 6,480,000

Stuffed toys 350 1,200 500 18 482 NRV 168,700

(420,000÷1,200) (175,000÷350) (6,300÷350)
1,500 1,200 1,900 - 1,900 Cost 1,800,000
1,850 1,968,700

Minion costumes 522 1,500 1,600 200 1,400 NRV 730,800

(870×60%)
348 1,500 1,350 - 1,350 NRV 469,800
870 1,200,600
20,299,300

SOLUTION TO QUESTION NO.6

(a)
Perpetual Inventory
Material
Date Description A1
Qty (kg) Per unit Amount
cost
------- Rupees -------
31-Dec-16 Opening stock 200 3,000.00 600,000
1-Jan-17 Purchase 250 2,800.00 700,000
Balance 450 2,888.89 1,300,000
2-Jan-17 Issuance (100×5/4) (125) 2,888.89 (361,111)
Balance 325 2,888.89 938,889
15-Jan-17 Purchase 250 2,900.00 725,000
Balance 575 2,893.72 1,663,889
16-Jan-17 Purchase return (50) 2,900.00 (145,000)
Balance 525 2,893.12 1,518,889
18-Jan-17 Abnormal loss (100) 2,893.12 (289,312)
Balance 425 2,893.12 1,229,577
26-Jan-17 Issuance (160×5/4) (200) 2,893.12 (578,624)
Balance 225 2,893.12 650,952

(b)
Periodic Inventory Quantity Rate Rupees
Opening inventory 200 3,000.00 600,000
Purchases 250 2,800.00 700,000
Purchases 250 2,900.00 725,000
Purchase return (50) 2,900.00 (145,000)
Balance 650 2,892.31 1,880,000

Cost of closing material Rupees

[225 x 2,892.31] 650,770
Chapter - 1 IVENTORY VALUATION – SOLUTIONS (5)

SOLUTION TO QUESTION NO.7

Value of stock
Items Cost NRV Value (lower)
------------------------ Rs. ------------------------
Alpha [W-1] 98,880 135,000 98,880
Gamma [W-2] 4,267,125 4,520,000 4,267,125
Beta [W-3] 605,451 444,000 444,000
4,810,005
Workings:
W-1 ALPHA
Units Total (Rs.) Rate (Rs.)
Cost [A] [B] [B/A]
Purchase:
Invoice value 920,000
L/C charges [0.5% x value] 4,600
Taxes & duties [23% x 60% x value] 126,960
Transportation [360 / 20 x 1,500] 27,000
Packing cost [300 x 360] 108,000
360 1,186,560 3,296
Opening stock 20 60,000 3,000

Closing stock Units Rate (Rs.) Total (Rs.)

Out of purchases 30 3,296 98,880
Out of opening stock - 3,000 -
[20 + 360 - 350] 30 98,880

NRV Rs.
Selling price [1,820,000 / 350] 5,200
Selling cost (700)
NRV per unit 4,500
Total NRV [30 x 4,500] 135,000

W-2 GAMMA
Units Total (Rs.) Rate (Rs.)
Cost [A] [B] [B/A]
Purchase:
Invoice value 2,375,000
L/C charges [0.5% x value] 11,875
Taxes & duties [23% x 60% x value] 327,750
Transportation [50 / 2 x 1,500] 37,500
Packing cost [50 x 1,500] 75,000
50 2,827,125 56,543

Opening stock 100 4,800,000 48,000

Chapter - 1 IVENTORY VALUATION – SOLUTIONS (6)

Closing stock Units Rate (Rs.) Total (Rs.)

Out of purchases 50 56,543 2,827,125
Out of opening stock 30 48,000 1,440,000
[100 + 50 - 70] 80 4,267,125

NRV Rs.
Selling price [4,060,000 / 70] 58,000
Selling cost (1,500)
NRV per unit 56,500
Total NRV [80 x 56,500] 4,520,000

W-3 BETA
Units Total (Rs.) Rate (Rs.)
Cost [A] [B] [B/A]
Purchase:
Invoice value 1,820,000
L/C charges [0.5% x value] 9,100
Taxes & duties [23% x 60% x value] 251,160
Transportation [490 / 15 x 1,500] 49,000
Packing cost [490 x 700] 343,000
490 2,472,260 5,045

Opening stock 30 120,000 4,000

Closing stock Units Rate (Rs.) Total (Rs.)

Out of purchases 120 5,045 605,451
Out of opening stock - 4,000 -
[30 + 490 - 400] 120 605,451

NRV Rs.
Selling price [1,640,000 / 400] 4,100
Selling cost (400)
NRV per unit 3,700
Total NRV [120 x 3,700] 444,000

SOLUTION TO QUESTION NO.8

Value of inventory (using AVCO)
Rs.
A (W-1) 92,520
B (W-2) 89,440
C (W-3) 67,000
D (W-4) 926,970
1,175,930
Chapter - 1 IVENTORY VALUATION – SOLUTIONS (7)

W-1 Product A
Closing units = 30 + 360 - 350 = 40 units

Cost: Rs.
(60,000 + 810,000 + 90,000 + 36,000) ÷ (30 + 360) = 2,554

NRV:
Normal Rs.
Sale price [1,015,000 / 350] 2,900
Cost to sell (150)
2,750

Damaged Rs.
Sale price [2,900 x 60%] 1,740
Cost to sell (150)
1,590

Value: Rs.
Normal [40 x 75% x 2,554] 76,620
Damaged [40 x 25% x 1,590] 15,900
92,520

W-2 Product B
Closing units = 60 + 780 - 800 = 40 units

Cost: Rs.
(90,000 + 1,560,000 + 150,000 + 78,000) ÷ (60 + 780) = 2,236

NRV: Rs.
Sale price [2,080,000 / 800] 2,600
Cost to sell (150)
2,450

Value: Rs.
[40 x 2,236] 89,440

W-3 Product C
Closing units = 40 + 560 - 580 = 20 units

Cost: Rs.
(120,000 + 1,820,000 + 200,000 + 56,000) ÷ (40 + 560) = 3,660

NRV: Rs.
Sale price 3,500
Cost to sell (150)
3,350
Chapter - 1 IVENTORY VALUATION – SOLUTIONS (8)

Value: Rs.
[20 x 3,350] 67,000

W-4 Product D
Closing units = 80 + 600 - 350 = 330 units

Cost: Rs.
(200,000 + 1,650,000 + 60,000) ÷ (80 + 600) = 2,809

NRV: Rs.
Sale price [1,155,000 / 350] 3,300
Cost to sell (150)
3,150

Value: Rs.
[330 x 2,809] 926,970