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Graded Discussion Board 02

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

 

 

 

b) Justify your answer with logical arguments.

Views: 3765

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

Thank u behzad 

thank you behzad...................what about justification?

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  

 

b) Justify your answer with logical arguments.

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

                                                                 Add:            Purchase

                                                                 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.  


Read more at http://vustudents.ning.com/group/mgt401financialaccountingii/forum/...

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

Kya Ya answer correct hai?

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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