Inventory valuation problems and solutions pdf

The Pharma company is a single product company. The company presents the following information regarding its activities during the month of December Pharma company uses a first-in, first-out FIFO cost flow assumption.

All purchases and sales are made on account. Notice that cost of goods sold and gross profit of the Pharma company are same under both periodic and perpetual inventory methods. It is because of the use of FIFO cost flow assumption. Skip to content Menu. At the end of December, there were units on hand according to a physical count of inventory.

Required: Prepare journal entries and compute gross profit assuming the company uses a periodic inventory system. Prepare journal entries and compute gross profit assuming the company uses a perpetual inventory system. Solution: 1. If periodic inventory method is used: a. If perpetual inventory method is used: a. Journal entries: b. Show your love for us by sharing our contents. Thank you limitless, it is strongly useful lesson. How useful and helpful the lessons are for accounting beginners!

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Valuation of Inventory: Cost Basis Approach. Introduction to Managerial Accounting. Cost Accounting Interview Questions and Answers will guide you here that in management accounting, profitability or social use of f. Practicing question paper gives you the confidence to face the board exam with minimum fear and stress since you get proper idea about question paper pattern and marks weightage.

The fixed costs amount to Rs.Adnan Naeem Imports, Ltd has the following information about the inventory of electronic components for October Requirement b : If company uses the FIFO method of allocating inventory costs, what would is the ending inventory?

Requirement c : If company uses the average cost method of allocating inventory costs, what would is the ending inventory for October? Malik Company uses a periodic inventory system. The beginning inventory of a particular product, and the purchases during the current year, were as follows:.

At December 31, the ending inventory of this product consisted of 55 and selling price during year was Rs. July 05 Purchases ………………………………………. July 09 Purchases …………………. July 13 Sales ………………………………………………………………. July 23 Purchases …………………………………………………………. July 26 Purchases …………………………………………………………. July 30 Sales ……………………………………………………………….

Determine the Cost of Sales, cost of Closing Stock and Gross profit under each of the following method by using perpetual inventory system. Inventory Valuation. Inventory Valuation MCQs. Principles of Accounting. Cost Accounting. Principles of Finance. Financial Accounting. Your email address will not be published.

Save my name, email, and website in this browser for the next time I comment. Submit Comment. Problem 2: Adnan Naeem Imports, Ltd has the following information about the inventory of electronic components for October At the end of October, components remained in inventory.

Problem 3: Malik Company uses a periodic inventory system. The beginning inventory of a particular product, and the purchases during the current year, were as follows: Jan.

Opening Stock ……………………… units Rs.The Zee manufacturing company produces a single product which goes through one process only.

The manufacturing cycle takes a month. The company started its manufacturing operation on 1 st February, and costs of production for this month were as follows:. The Prince Corporation has two production departments and maintains a process cost system.

The following is a summary of the cots for the month of December, Shah Manufacturing Company engaged in a continuous process, manufacturing a single product which is processed in three departments known as Cleaning, Milling and Finishing. There were no inventories at beginning of the March Following data is available for preparing Cost of Production Report for three departments:.

Tazeen Ltd. Process Costing MCQs.

inventory valuation problems and solutions pdf

Principles of Accounting. Cost Accounting. Principles of Finance. Financial Accounting.

inventory valuation problems and solutions pdf

Your email address will not be published. Save my name, email, and website in this browser for the next time I comment. Submit Comment. Problem 2: The Prince Corporation has two production departments and maintains a process cost system. Problem 3: Shah Manufacturing Company engaged in a continuous process, manufacturing a single product which is processed in three departments known as Cleaning, Milling and Finishing.

Problem 4: Tazeen Ltd. Search here… Search for:. Facebook Handle. Submit a Comment Cancel reply Your email address will not be published.The Delta company uses a periodic inventory system. The beginning balance of inventory and purchases made by the company during the month of July, are given below:.

Required: Compute inventory on July 31, and cost of goods sold for the month of July using following inventory costing methods:. Computation of inventory on July 31, i, e. Alternatively, we can compute cost of goods sold COGS using earliest cost method as follows:.

Alternatively, we can compute cost of goods sold COGS using most recent cost method as follows:. Alternatively, we can compute cost of goods sold COGS by deducting ending inventory from cost of goods available for sale:. Which of the methods mentioned above will yield the lowest figure of the gross profit in the income statement? Hi Arslan, we have an exercise that answers your question. Units from July 18 purchases. Under LIFO, the units are assigned cost using earliest prices.

This was great, however most questions I am coming across need to be answered via spreadsheet work. Do you have the solution on video as an excel spreadsheet solution by chance?

I thought the LIFO is last in first out. Because the most recent purchase means that it is the Last In, so it means that it should be out first.

inventory valuation problems and solutions pdf

Skip to content Menu. The Delta company sold 1, units during the month of July. Show your love for us by sharing our contents. Thanx a lot now I have got simple way of calculating the inventory.

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Will there be a change in the unit cost if there is purchase return or sales return?Inventory valuation is the cost associated with an entity's inventory at the end of a reporting period.

It forms a key part of the cost of goods sold calculation, and can also be used as collateral for loans.

This valuation appears as a current asset on the entity's balance sheet. The inventory valuation is based on the costs incurred by the entity to acquire the inventory, convert it into a condition that makes it ready for sale, and have it transported into the proper place for sale. Do not add any administrative or selling costs to the cost of inventory. The costs that can be included in an inventory valuation are:. Direct labor. Direct materials. Factory overhead. Freight in. Under the lower of cost or market rule, you may be required to reduce the inventory valuation to the market value of the inventory, if it is lower than the recorded cost of the inventory.

There are also some very limited circumstances where you are allowed under international financial reporting standards to record the cost of inventory at its market value, irrespective of the cost to produce it generally limited to agricultural produce. When assigning costs to inventory, one should adopt and consistently use a cost-flow assumption regarding how inventory flows through the entity. Examples of cost-flow are:.

The specific identification methodwhere you track the specific cost of individual items of inventory. The first in, first out methodwhere you assume that the first items to enter the inventory are the first ones to be used.

FIFO Method Problems and Solutions

The last in, first out methodwhere you assume that the last items to enter the inventory are the first ones to be used. The weighted average methodwhere an average of the costs in the inventory is used in the cost of goods sold. Whichever method chosen will affect the inventory valuation recorded at the end of the reporting period.

Inventory valuation is important for the following reasons:. Impact on cost of goods sold.

FIFO Method Problems and Solutions

When a higher valuation is recorded for ending inventory, this leaves less expense to be charged to the cost of goods sold, and vice versa.The FIFO method uses the price of first batch received for costing all units of sales until all units from this batch have been sold; after which the price of the next batch received is used for costing purposes.

Upon that batch being fully sold the price of the next batch received is used and so on. But the balance column may not have any such lot.

Simple and weighted average (STORES LEDGER ) with solved problem :-by kauserwise

Don Barco has recently started a new business which deals in a single product. The first three months of his year of trading showed the following purchases and sales:.

Caveat Emptor buys and sells a single product from two years. For your convenience you may assume that all purchases took place at the first day of each month, whereas sales are made on the last day of the relevant month. Definition and Explanation: The FIFO method uses the price of first batch received for costing all units of sales until all units from this batch have been sold; after which the price of the next batch received is used for costing purposes.

Advantages: i The inventory is valued at the price of the most recently acquired goods and thus closes to current market value.

inventory valuation problems and solutions pdf

Disadvantages: i In time of rising prices, use of FIFO results in lower costs of sales and higher inventory values as such profits will be inflated which is against prudence concept. Solved Problems and Examples: Problem 1 : Don Barco has recently started a new business which deals in a single product.

The first three months of his year of trading showed the following purchases and sales: Required: Calculate value of inventory as at 31 March under FIFO method of inventory valuation.


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