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SEMESTERSPRING 2014
FINANCIAL ACCOUNTING-II (MGT401)
ASSIGNMENT NO. 01
DUE DATE: May 26, 2014
MARKS: 10

Learning Objectives
To give the students in depth knowledge of valuation of inventories and to make them
realize that difference arises in books of accounts due to selection of different
inventory valuation method.

Learning Outcomes
Students will be able to get comprehensive knowledge about inventory valuation
methods; FIFO and weighted average method.

Case
GEAR-UP Pvt. Ltd is a leading motorcycle spare parts manufacturer in Pakistan. Prices of auto
spare parts have been changing from previous four years drastically, due to inflation prevails in
the country thus the prices of spare parts are considered volatile. As per rule of IAS -2 there are
two methods available one is ‘FIFO’ (first-in, first-out) and second is ‘weighted-average cost
method’ to measure the cost of inventory. In and out record of product “SP001” has been
extracted form books of GEAR-UP Pvt. Ltd as on December 31, 2013 is as follows:


Details of “SP001” received and issued as on December, 31 2013
Date Description Per unit in Rs.
Dec.1st
Received 200 units 130
Dec.8th Received 300 units 150
Dec.22nd Received 100 units 200
Dec.10th Sold 150 units
Dec.30th Sold 80 units

REQUIREMENTS:
Calculate the cost of inventory under FIFO and weighted average method. (05Marks)
Calculate Gross profit under both methods if selling price of SP001 is Rs.250 per unit. (03Marks)
Give the reason of difference in profit under both methods, which method results in higher tax
burden and why? (02Marks)

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Replies to This Discussion

Please see the attached file for the Assignment.

Attachments:

Please Discuss here about this assignment.Thanks

Our main purpose here discussion not just Solution

We are here with you hands in hands to facilitate your learning and do not appreciate the idea of copying or replicating solutions.

Any idea about part 3 of assignment

Give the reasons of difference in profit under both methods, which method results in higher tax
burden and why? (02Marks)

here is the solution of this assignment:

i am new member of this forum.

Required:

Calculate the cost of inventory under FIFO and weighted average method.

FIFO method:

Date

Receipt/Issue

Value of Stock

Dec 1

200×RS130=26,000

 

26,000+ 45,000=71,000

Dec 8

300×Rs150=45,000

Dec 10 (sale)

150×Rs130=19,500

50×Rs130= 6500     Remaining

300×Rs150=45,000

Dec22

100×Rs200=20,000

6500+45,000+20,000=71,500

Dec30

50×Rs130=6500

30×Rs150=4500

40,500+20,000=Rs60,500 Remaining

 

Weighted Average Method

Date

Receipt/Issue

Value of Stock

Average Cost

Dec 1

200×RS130=26,000

26,000

26,000/130=Rs200

Dec 8

300×Rs150=45,000

26,000+45,000=71,000

71,000/500=Rs142

Dec 10

150×Rs142=21,300

71,000-21,300=49,700

49,700/350=Rs142

Dec 22

100×Rs200=20,000

49,700+20,000=69,700

69,700/450=Rs154.89

Dec 30

  80×Rs154.89=12391.2

69,700-12391.2=57308.8

57308.8/370=Rs154.89

 

 

 

 

Question No #2

Calculate Gross profit under both methods  If selling price of SP001 is Rs.250 per unit.

 

In case of FIFO:

Unit Sold=150+80=230

Sale Price= 230×250= 57,500

Cost= 19,500+4,500=24,000

Gross Profit=57,500-24,000=33,500

 

In case of Weighted Average Method

Cost=21,300+12391.2=33691.2

Gross Profit= 57,500- 33691.2= 23,808.8

 

@ Maho Zaidi

I think there is some mistake in Question 2 under FIFO Method

you took cost 19500+4500

where as it should be 19500+11000 because 50 units were sold for 6500 and 30 units were sold for 4500 so we will take total of 6500+4500= 11000

You only tool the cost of 30 units were as 50 units cost is not been taken.

yes...110000 he aye ga...

19500 kese aya???

hmm a gai accounting

here is the solution of this assignment:

i am new member of this forum.

Required:

Calculate the cost of inventory under FIFO and weighted average method.

FIFO method:

Date

Receipt/Issue

Value of Stock

Dec 1

200×RS130=26,000

 

26,000+ 45,000=71,000

Dec 8

300×Rs150=45,000

Dec 10 (sale)

150×Rs130=19,500

50×Rs130= 6500     Remaining

300×Rs150=45,000

Dec22

100×Rs200=20,000

6500+45,000+20,000=71,500

Dec30

50×Rs130=6500

30×Rs150=4500

40,500+20,000=Rs60,500 Remaining

 

Weighted Average Method

Date

Receipt/Issue

Value of Stock

Average Cost

Dec 1

200×RS130=26,000

26,000

26,000/130=Rs200

Dec 8

300×Rs150=45,000

26,000+45,000=71,000

71,000/500=Rs142

Dec 10

150×Rs142=21,300

71,000-21,300=49,700

49,700/350=Rs142

Dec 22

100×Rs200=20,000

49,700+20,000=69,700

69,700/450=Rs154.89

Dec 30

  80×Rs154.89=12391.2

69,700-12391.2=57308.8

57308.8/370=Rs154.89

 

 

 

 

Question No #2

Calculate Gross profit under both methods  If selling price of SP001 is Rs.250 per unit.

 

In case of FIFO:

Unit Sold=150+80=230

Sale Price= 230×250= 57,500

Cost= 19,500+4,500=24,000

Gross Profit=57,500-24,000=33,500

 

In case of Weighted Average Method

Cost=21,300+12391.2=33691.2

Gross Profit= 57,500- 33691.2= 23,808.8

 




weighted avg method me  Dec 1 ko average cost me 26000/200 nae hu gya kya ???

don't mind @  parishey but have just copied my work and paste it as it is hahaha..

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