Tutorial 8 Inventories 1 LTJ 2022
Tutorial 8 - Accounting for Inventories 13 May 2022 issue of 40 units (40 units left)
21 May 2022 purchases of 60 units at RM2.50 each
A Point for discussion (understanding WAC) 25 May 2022 issue of 25 units
What is the value of inventories at 31 May 2022? Show the movements
WAC: Weighted average cost. of the inventories in the form of an inventory card.
(10 eggs at RM0.30 + 2 eggs at RM0.15) Question 3
(10 + 5)
= RM0.27 per egg. TaufooFa Sdn. Bhd. commenced trading on 1 January 2018 and trading
activities during the next five years were as follows:
How would the weighted average change if RM0.15 priced eggs were Purchase price Sales price
increased to 12 eggs? Units purchased Units sold (per unit) (per unit)
RM RM
2018 12,000 6,000 28 40
2019 18,000 12,000 32 46
Points for understanding 2020 24,000 18,000 36 54
2021 24,000 18,000 40 58
Cost vs selling price 2022 24,000 48,000 44 60
Sales 100 units (selling price) – Inventory 100 units (cost) = TaufooFa Sdn. Bhd. adopted the inventories flow assumption of first-in
Gross Profit first-out (FIFO) when matching purchases with sales for each of the five
years.
Section A:
Required:
1. An organisation's inventories as at 1 April (opening inventory) are 15 Prepare a trading account for each of the five years.
units @ RM3.00 (cost) each. The following movements occur:
05 April 2022 10 units sold at RM3.30 each Question 4
11 April 2022 20 units bought at RM3.50 each
18 April 2022 16 units sold at RM4.00 each Lorenzo runs a workshop which sells several grades of petrol. On 30 April
What is the value of the closing inventories (cost) at 31 April if the FIFO 2022, the tank containing unleaded petrol was empty. Set out below are the
method of inventory valuation is used? records for receipts and sales of unleaded petrol during May 2022.
Purchase Sales
2. Your organisation uses the weighted average cost method of valuing Litres Price per litre Litres Price per litre
1 May 75,000 RM0.50
inventories. During May 2022, the following inventories details were
1 May - 7 May 67,500 RM0.60
recorded: 8 May 75,000 RM0.52
Opening balance 30 units valued at RM2.00 each 8 May - 14 May 75,000 RM0.65
06 May 2022 purchases of 50 units at RM2.40 each 15 May 60,000 RM0.54
WAC = RM2.25 15 May – 21 May 45,000 RM0.68
Tutorial 8 Inventories 2 LTJ 2022
22 May 60,000 RM0.56 Section B: Extra exercise questions (for students’ own practice)
22 May – 28 May 37,500 RM0.70
Question 1
Required:
(a) Calculate Lorenzo’s gross profit on his sales of unleaded petrol for the The following statement of profit or loss has been extracted from the
month ended 31 May 2022 if he values her inventories on a first-in first- financial statements of Surprise Trading for the year ended 31 December
out basis. 2021.
(b) Calculate Lorenzo's gross profit using the weighted average basis.
(c) Lorenzo expects the cost of petrol to continue rising. In 4 weeks’ time, Extract – Statement of Profit or Loss for the year ended
at the end of June 2022, he expects the unleaded petrol tank to be full. 31 December 2021
Which inventories valuation method will give him the higher profit for RM RM
this period? Sales 500,000
Opening stock 40,000
Purchases 300,000
Less: Closing stock (50,000)
COGS (290,000)
Gross Profit 210,000
Less: Total expenses (80,000)
Net Profit 130,000_
As at the year end date, the following errors have been discovered:
i. the closing stock was overstated by RM10,000, and
ii. the opening stock was understated by RM20,000.
Required:
a. Explain the effects of the above errors on the values of cost of goods
sold and net profit of Surprise Trading.
b. Redraft the above Statement of Profit or Loss for the year ended 31
December 2021 to include the corrections of the errors.
Tutorial 8 Inventories 3 LTJ 2022
Question 2 Question 3
The following statement of financial position has been extracted from the a. Using the following balances taken from the ledger, prepare the Trading
financial statements of Kayaraya Enterprise for the year ended 31 December Account for the year ended 31 July 2022:
2021. RM
Stock, 1 August 2021 4,780
Statement of Financial Position extract as at 31 December 2021 Purchases 66,800
Sales 57,390
RM Returns inwards 450
Current assets Returns outwards 630
Closing stock 40,000 Duty on purchases 380
Debtors 220,000 Stock, 31 July 2022 12,470
Cash in hand _10,000
270,000 b. Write up the Inventories Account as it would appear in the ledger after
Owner’s equity the preparation of the Trading Account.
Capital 200,000
Net profit _70,000
270,000 Question 4
As at the year end, Kayaraya Enterprise discovered that stock has been (a) How will the closing inventories amount affect the profit for the period?
overstated by RM8,000. Explain.
(b)The inventories valuation rule states that inventories should be valued at
Required: the lower of cost and net realisable value. Explain the statement.
a. Explain the effects of the error on the total current assets and total
owner’s equity of Kayaraya Enterprise.
b. Redraft the above Statement of Financial Position as at 31 December
2021 to include the correction of the error.
