In: Accounting
Mr Alfred gets a note from a client called Tony’s Technologies. On behalf of Tony’s Technologies, Mr Alfred maintains their perpetual inventory recording system using the FIFO (First In First Out) cost assignment method. The note advises that during August 2020 the following transactions occurred relating to the ‘Benk Computer Monitor’.
Feb. 1 |
Balance of inventory - 52 Benk Computer Monitors, cost price is $105 each |
4 |
Credit sale of 25 units to Greenvale Secondary School (Invoice H72). Selling price $215. |
9 |
Cash sale of 1 unit to Jarrod Sanders (Receipt V51). Selling price $215. |
13 |
Purchase of 45 units at $110 each (plus GST) from Keji Ltd (Invoice S21). |
19 |
Credit sale of 23 units to Mt Alexander Village (Invoice H91). Selling price $245. |
20 |
Tony used 2 units as gifts to his two cousins (Memo 13). Selling price $215. |
24 |
40 units purchased from Keji Ltd for $4 620 including GST (Invoice S87). |
28 |
Tony decided to use 2 units as part of a trade display at a computer fair (Memo 14). Selling price $215. |
Required:
Rule up a perpetual stock record card for the Benk Compute Monitor and record the above transactions on the stock record card using the perpetual inventory recording system and FIFO (First in First Out) cost assignment method.
After you have finished preparing the stock record card, Mr Albert arrives, and tells you he has shocking news. The news is that the net realisable value of each item is $107.
Required:
Calculate the stock write down and prepare the general journal entry to adjust inventory records, if required. You are not required to update this on the stock card. Show all workings.
You and Mr Albert’s assistant start to discuss the job Mr Albert has just given you. Mr Albert’s assistant remarks that she sees no difference between LIFO and FIFO.
Required:
Explain the different impacts on the Income Statement and the Balance Sheet of maintaining a perpetual recording system and the FIFO cost flow assignment as against the LIFO cost flow assignment during a period of cost prices decreasing.
Stock Cards
Particulars Units Price Total
Balance of Inventory of Benk Computers 52 105 5460
Sold to to Greenvale Secondary School (Invoice H72) (25) 105 -2625
Cash sale of 1 unit to Jarrod Sanders (Receipt V51) (1) 105 -105
Purchase 45 units at $110 each from Keji Ltd(Invoice S21) 45 110 4950
Credit sale of 23 units to Mt Alexander Village (Invoice H91) (23) 105 -2415
Tony used 2 units as gifts to his two cousins (Memo 13) (2) 105 -210
40 units purchased from Keji Ltd 40 115.50 4620
Used at a computer fair (1) 105 -105
Used at a computer fair (1) 110 -110
Total 84 9460
Note : For the computers used at fair 1 is taken from the opening lot whose cost were @105 and the secend was taken from the lot whose cost was @110. (As per the FIFO rule)
The Net Realisable value of the stocks are @107
Hence total NRV is 84*107 = 9309
Cost 9460
Value of Stock Loss 151
Journal - Profit and Loss 151
Provision for Loss of Inventory 151
When the price of the products are faling then LIFO method would give a heigher profit as compared to the FIFO Method. As the cost of the Inventory would be taken as of the latest i.e the lower value would be taken.
Similarly the Value of the Inventory would be high in LIFO as compared to FIFO as the Inventory with high time duration would be there in the stock which would have a heigher value than the latest stock.