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MGT 401 FINANCIAL ACCOUNTING II, GDB NO. 02 (FALL 2013), TOTAL MARKS: 05, DUE DATE: JANUARY 27, 2014

Graded Discussion Board: 02 (Fall2013)

MGT 401

“Measurement of Inventories IAS-2”

 

SWAN Shoes Ltd. was established in 1980. Initially, company was engaged in leather processing, manufacturing of shoes and its trade in local market. In 1998, it expanded its business internationally & started exporting shoes. Main target of the company were European countries. In today’s competitive environment, companies across industries are emphasizing on inventory valuation. Management of the company is interested in changing its inventory valuation technique from FIFO to weighted average. Prices of leather are increasing day by day. Selection of method used for inventory valuation does not change the reality of economic transactions, that have occurred but it is taken into consideration for financial reporting propose.

 

Accountant of SWAN Shoes Ltd. reported following differences if company switches to weighted average method from First-In-First-Out method.

 

 

Year

Inventory

First-In-First-Out (Rs.)

Weighted Average Method

(Rs.)

2002

Opening

34,000

30,000

2002

Closing

45,000

51,000

2003

Closing

65,000

60,000

2004

Closing

60,000

66,000

 

Requirements:

 

Q1. What will be the effects of above figures on the profits of the respective years due to change in the basis of valuation? Give arguments to justify your answer.    (Marks 4)

 

Q2. In the year 2004, 1/3rd of the inventory was damaged. It has been estimated that it will now be sold at 10% less than the normal selling price which is 25% above the weighted average cost. To fetch this sale, the company has to incur Rs. 1,500 on rework of the inventory. Determine the value of the damaged inventory to be presented in the balance sheet.(Mark 1)

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Replies to This Discussion

please share your ideas.....

Can somebody please explain this GDB in simplest possible words....

yar sbr rakho bs baqi gdb,s kr k iska bhi kuch krty hain 

kafi sabr hogaya, ab kaam ki bari he.......

Inventory is one of the most important figures on the balance sheet. The inventory level lets you know how efficient management is with shareholder capital and, in some cases, see how confident they are in the company's future sales.

FIFO Method: in this method things that are purchase first must be sell first

Weighted Average Method: in this method all items are sell on average base for example if we purchase some item at 10 Rs per unit and after that we purchase same thing at 5 Rs per unit but we sale both thing on the average rate per unit not 10 Rs or 5 Rs per unit

All friends having MGT401 are requested to post their comments  over here regarding this GDB

Dear Students Don’t wait for solution post your problems here and discuss ... after discussion a perfect solution will come in a result. So, Start it now, replies here give your comments according to your knowledge and understandings....

Is anyone out there???? kiya hua gdb post nhe krna kya.....please discuss your ideas...

I'm sharing some idea for the gdb which I have attempted so far:

In the first question I think we are only suppose to discuss and give relevant reasons that company k profits pr year 2002, 2003 aur 2004 pr ky effect hoga as it has changed the valuation method from fifo to wam...Theoretically speaking, men ny hr saal k liay values ko consideration men rkhty huay likha hy k fifo men profits zyada hoty hen aur wam men average values use ki jati hen...prices of leather increase hony ki whja sy cost of goods sold brhy gi, lekin fifo men profits zyada aur wam men kam hongy.....

Am I right?????

Aur second kuch is tarah samajh aya hy....

s.p:

= 0.25*60,000= Rs.15,000 (60,000 is the opening inventory of 2004 for wam)

=75,000(60,000+15,000)

costs on rework= Rs.1500

value of damaged inventory is 1/3 * 60,000= Rs. 20,000

the value of damaged inventory to be reported in balance sheet would be:

75,000-20,000-1500= Rs.53,500

kya esa hi kuch hy....

pls correct me if I am wrong somewhere and share your ideas as well.........

Regards....

samra sis damaged inventory k lie closing inventory use hogi? 

scenario men dia hy k 2004 men 1/3rd inventory damage hui hy......selling price ki bat hui he...to phir opening inventory use hogi na.....

closing inventory to woh hy na jo sales k baad bachi he....

please send correct gdb mgt401

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