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# MGT401 GDB 2 Closing Date 21,jan 2016

Financial Accounting II (MGT401)

Topic: Valuation of Inventory

XYZ Ltd. is a manufacturer of readymade garments. Company’s accounts officer has suggested the management to change its accounting policy relating to inventory valuation method from weighted-average cost method (WAC) to first-in first-out (FIFO). It was considered that FIFO method reflects the usage of inventory more accurately in response of economic cycle.

Accounts officer has determined following differences, if company changes its inventory valuation method from weightage average method to first-in, first-out method.

 Weighted Average Method (Rs.) First-in, First-out  (Rs.) Inventory at 1st January 2013 25,000 22,000 Inventory at 31st December 2013 36.000 30,000 Inventory at 31st December 2014 48,000 50,000 Inventory at 31st December 2015 64,000 70,000

Requirement:

a) On the basis of given data, you are required to mention that what will be the effect of change in inventory valuation method by filling the table given below.

 Year Particulars Effect on Cost of Goods Sold (simply mention that whether it will increase or decrease) Effect on Profit (simply mention that whether it will increase or decrease) 2013 Change in Opening Inventory 2013 Change in Closing Inventory 2014 Change in Closing Inventory 2015 Change in Closing Inventory

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### Replies to This Discussion

AMEENA i asked the insterecture he says that only one table is required and in handouts WAC method shows that it does show no effect

its overs all table LIFO FIFO WAC

Financial Accounting II (MGT401)

Topic: Valuation of Inventory

 Year Particulars Effect on Cost of Goods Sold (simply mention that whether it will increase or decrease) Effect on Profit (simply mention that whether it will increase or decrease) 2013 Change in Opening Inventory Decrease Increase 2013 Change in Closing Inventory Increase Decrease 2014 Change in Closing Inventory Decrease Increase 2015 Change in Closing Inventory Decrease Increase

Closing inventory is the part of cost goods sold and always less from the inventory. The following formula appear in cost of goods sold as:

Opening inventory

Less:               Closing inventory

Example take for the years ended 201 and vice ver3 in which if XYZ use WAC then high amount less from inventory as a result cost goods sold increase, as a result profit decrease because cost of goods sold increase.

Cost of goods sold treated as expense and less from sales.

 Year Particulars Effect on Cost of Goods Sold (simply mention that whether it will increase or decrease) Effect on Profit (simply mention that whether it will increase or decrease) 2013 Change in Opening Inventory Increase Decrease 2013 Change in Closing Inventory Decrease Increase 2014 Change in Closing Inventory Increase Decrease 2015 Change in Closing Inventory Increase Decrease

those answers are post here all are wrong.

Correct answer are not upload any body here because they was not want that any person copy and same upload.

correct answer are the opsite effect of those that the angel Dove upload correct that.

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