Professional Documents
Culture Documents
School
of
Business
ACCT1501
Accounting
and
Financial
Management
1A
Session
1
2013
TUTORIAL
WEEK
9
Solutions
to
Tutorial
Questions
Tutorial Questions
v DQ: 9.8; Problems 9.3, 9.10, 9.16; Problems 10.12, 10.16
Discussion Question
9.8
FIFO, weighted average and LIFO are assumptions made about the order in which units of
inventory flow through the business. FIFO assumes that the first items acquired are the first ones
sold and, therefore any ending inventory on hand consists of the most recently acquired units.
Thus the older costs will appear in cost of goods sold and the more recent costs on the balance
sheet. Weighted average assumes that ending inventory and cost of goods sold are composed of
a mixture of old and new units. LIFO assumes the opposite of FIFO. Recent costs will appear in
cost of goods sold and the older costs in the balance sheet.
The three methods will give similar profit figures if inventory prices are fairly constant. They
would give identical profit figures if cost prices of opening inventory and purchases remain
unchanged throughout the financial period.
Problem 9.3
1
Bragg Ltd
General journal
a Perpetual inventory
Inventory
Accounts payable
Credit purchases during the period
$
110 000
110 000
Accounts receivable
Sales revenue
Sales on credit during the period
Cost of goods sold expense
Inventory
Cost of goods sold expense: 50% mark-up 180 000
x 100/150 = $120 000
180 000
1 400
Operating expenses
Cash
180 000
120 000
120 000
1 400
35 000
35 000
156 400
120 000
1 400
35 000
180 000
180 000
23 600
23 600
Bragg Ltd
General journal
b Periodic inventory
$
110 000
Purchase expense
Accounts payable
Credit purchases during the period
110 000
Accounts receivable
Sales revenue
Sales on credit during the period
180 000
180 000
Operating expenses
Cash
Expenses paid in cash
35 000
35 000
2 a
175 000
110 000
35 000
30 000
18 600
180 000
198 600
23 600
23 600
Perpetual inventory
Bragg Ltd
Income Statement for year ended 30 June 2012
$
Sales
Less:
120 000
1 400
$
180 000
121 400
58 600
35 000
23 600
b Periodic inventory
Bragg Ltd
Income Statement for year ended 30 June 2012
$
Sales
Less:
$
180 000
30 000
110 000
140 000
18 600
121 400
58 600
35 000
23 600
Problem 9.10
1
FIFO
Date
1-July
8-July
12-July
13-July
#
300
500
In
$ per
6.00
5.00
$
1 800.00
200
4.00
50
150
6.00
6.00
300.00
900.00
100
300
100
6.00
5.00
5.00
600.00
1 500.00
500.00
100
50
5.00
4.00
500.00
200.00
4 500.00
2 500.00
20-July
22-July
24-July
Out
$ per
800.00
29-July
Sales
200 @ $7
400 @ $6
100 @ $5.50
150 @ $5
#
300
250
100
100
500
Balance
$ per
$
6.00
1 800.00
6.00
1 500.00
6.00
600.00
6.00
600.00
5.00
2 500.00
200
100
100
200
5.00
5.00
5.00
4.00
1 000.00
500.0
500.00
800.00
150
4.00
600.00
1 400
2 400
550
750
5 100
4 500
600
1-July
8-July
12-July
13-July
300
In
$ per
6.00
LIFO
Out
$ per
1 800.00
50
150
6.00
6.00
300.00
900.00
20-July
400
5.00
2 000.00
22-July
24-July
100
5.00
500.00
150
4.00
600.00
500
200
5.00
4.00
29-July
2 500.00
800.00
4 300.00
Sales
Less cost of goods sold
Gross profit
$
5 100
4 300
800
Balance
$ per
300
250
100
100
6.00
6.00
6.00
6.00
1 800.00
1 500.00
600.00
600.00
500
100
100
100
100
200
100
50
5.00
6.00
5.00
6.00
6.00
4.00
6.00
4.00
2 500.00
600.00
500.00
600.00
600.00
800.00
600.00
200.00
Problem 9.16
Methods used to adjust profits include: stock values would be increased artificially, cost of
goods sold decreased and gross profit increased.
Goods available for sale (i.e. opening inventory + purchases) are split between COGS
and closing inventory depending on whether inventory has been sold or not. Increasing
the value of inventory reduces cost of goods sold and thereby raises profit.
The tweaking usually involved overstating of number of items in inventory or the
dollar value of specific items.
Problem 10.12
The cost and depreciable amount of the additional equipment purchased is calculated as
follows:
Price
Less:
Less:
$
120 000
30 000
90 000
7 500
2 500
100 000
3 125
96 875
Trade discount
Freight charges
Installation and testing
Cost
Salvage value
Depreciable amount
Problem 10.16
1 Dr Cash
Dr Accumulated depreciation
Cr
Delivery truck
$8,000
$39,000
$47,000
2 Dr Cash
Dr Accumulated depreciation
Cr
Gain on sale
Cr
Delivery truck
$9,000
$39,000
$1,000
$47,000
3 Dr Cash
Dr Accumulated depreciation
Dr Loss on sale
Cr
Delivery truck
$7,100
$39,000
$900
$47,000