Reference no: EM132479295

Pluslife Limited ("Pluslife") is a nutritional infant formula retailer in New Zealand. Dennis Miles, the owner, has been having difficulties in accounting for the company's current assets and has asked foryour assistance. Pluslife is a GST registered company in New Zealand.

Required:

(a) INVENTORY VALUATION: At the end of its financial year, Pluslife determines that inventory with a cost of $4,200 has a net realisable value of $4,000.

(i) Prepare the required journal entry assuming Pluslife values its inventory at the lower of cost and net realisable value.

(b) INVENTORY COSTING: Pluslife purchases its infant formula powder in bulk and resells it in smaller quantities to customers. The following infant formula powder inventory information relates to the month of October 2019. Pluslife operates on an accruals basis and uses a perpetual, First In First Out (FIFO) inventory method (assume that all sales are on credit and ignore GST).

Infant Formula Powder (Inventory Information)

Date (2019) Details

1 October Opening Balance: 30 kg's at $2.10/kg (Cost Price)

5 October Purchases: 45 kg's at $2.20/kg (Cost Price)

10 October Sales: 52 kg's at $2.80/kg (Selling Price)

22 October Purchases: 34 kg's at $2.30/kg (Cost Price)

31 October Sales: 19 kg's at $2.80 /kg (Selling Price)

Question (i) Calculate the total cost of goods sold and gross profit from the sale of infant formula powder for the month ended 31 October 2019.

Question (ii) Describe the effect on the gross profit and closing inventory balance for October 2019 if Pluslife had used the Weighted Average Cost method for recording inventory rather than the First In First Out method (no calculations required).