In: Accounting
You are auditing a retail apparel company as of December 2018. The inventory for black down jackets show 1,263 jackets. When you look at the invoices for the jackets from the wholesaler from which the company purchases those jackets, you see the following:
Inventory # | Date | Quantity | Unit Price | Total |
12732 | 10/22/17 | 1,000 | $282 | 282,000 |
12844 | 12/03/18 | 800 | $277 | 221,600 |
12905 | 01/28/18 | 600 | $275 | 165,000 |
1.Assuming the company uses LIFO as the inventory valuation method, determine the cost of inventory at December 31, 2018.
2.The company can buy the same jacket from the wholesaler at $270 in December 2018. Determine the total carrying value of inventory as of December 31, 2018.
3.Then replace the price of $270 with $277 or $ 282 in the question 2 above and see how your answer changes.
1. Calculation of cost of inventory at 31-12-2018
inventory | Date | Quantity | Unit Price | Total | Closing stock | CARRYING AMOUNT |
12732 | 10-22-2017 | 1,000 | $282 | 2,82,000 | 1000 | 2,82,000 |
12844 | 12-03-2018 | 800 | $277 | 2,21,600 | ||
12905 | 01/28/18 | 600 | $275 | 1,65,000 | 263 | 72325 |
2400 | 668600 | 1263 | 354325 | |||
AS PER LIFO THE REAMINIG STOCK IS 1000 UNITS OF Inv. 127312 & 263 UNITS OF Inv. OF 128905 |
In LIFO method, stock which received last is sold
first.
2. If the company can buy the same jacket from the wholesaler at $270 in December 2018, even then there wont be any change in carrying cost of inentory as we are following LIFO there wont be any stock left that has purchased in december
3. Here also there wont be any change , as there wont be any stock left that purchased in dec.
NOTE: VALUATION of Inventory is done on the basis of
COST (or) Net Realisable Value(i.e market value) whichever is lower
but in this question the charge in price is not market value, it is change in wholesale price, as he is a retail trader this cannot be considered as his net realisable value