Question

In: Accounting

You are auditing a retail apparel company as of December 2018. The inventory for black down...

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.

Solutions

Expert Solution

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


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