Question

In 2020, the Alnoor Company purchased from Hamoorthe right to be the sole distributor in Muscat governance of a product called Zelenex in 2021.

Alnoor reports inventory using the periodic FIFO assumption. Late in 2021, the following information is available concerning the inventory of Zelenex:

Beginning inventory, 1/1/2021 (10,000 units @ $30)	$ 300,000
Purchases (40,000 units @ $30)	1,200,000
Sales (35,000 units @ $60)	2,100,000

By the end of the year, the purchase price of Zelenex had risen to $40 per unit. On December 28, 2021, three days before year-end, Alnoor is in a position to purchase 20,000 additional units of Zelenex at the $40 per unit price. Due to the increase in purchase price, Alnoor will increase the selling price in 2022 to $80 per unit. Inventory on hand before the purchase, 15,000 units, is sufficient to meet the next six months’ sales and the company does not anticipate any significant changes in purchase price during 2022.

Required:

Calculating the ending inventory of the year 2021? show calculations and explanations.

Answer 1

Short Summary of Computation of Closing Stock:

Method of Inventory Valuation: FIFO (First In First Out)

Total Units Sold = 35,000

Using First In First Out Method, the units were sold as follows:

First 10,000 units sold from Opening Stock

Next 25,000 units were sold from the first purchase during the year and remaining 15,000 units held as closing inventory from the first purchase. (Value = 15000 x $30 = $450,000)

20,000 units from additional purchase were remained as it is as closing inventory. (Value = 20,000 x $40 = $800,000)

Total Closing Inventory as on 31/12/2021 = $450,000 + $800,000 = $1,250,000

(i.e., 15,000 units + 20,000 units = 35,000 units)

However, the calculation is simple I am providing you the detailed solution in handwritten mode along with Trading Account for the year and Gross Profit.