Compute the value of inventory and cost of goods

Assignment Help Accounting Basics

Reference no: EM13728906

Methods of valuation of inventories

First In First Out (FIFO) Method .

Average Cost Method.

Last In Last Out (LIFO) Method .

Base Stock Method

Weighted Average Method.

Specific Identification Method

Standard Cost

Adjusted Selling Price

Latest Purchase Price

Next In First Out (NIFO) Method

Highest In First Out (HIFO) Method

1. FIRST IN FIRST OUT METHOD:
The First In First Out Method is based on the assumptions that the goods which are received first are issued first. This assumption is made for the purpose of the assigning costs and not for the purposes of the physical flow of goods. The physical flow of goods therefore need not necessarily coincide with the pattern of cost flow assumption. The goods sold therefore , consist of the earliest lots and are valued at the price paid for such lots. The ending inventory consists of the latest lots and is valued at the price paid for such lots.

Required: Compute the value of inventory and cost of goods sold as on Jan 5, 2014 by FIFO Method.

Statement Showing the Value of Inventory and Cost of Goods Sold under FIFO Method (using Periodic System)
Solution:
A. Opening Inventory 100
B. Add: Purchase (Rs 600 + Rs1030) 1630
Refer W.N.1
C. Less: Ending Inventory (250*2.06) (515)
Refer W.N.2
D. Cost of Goods Sold (A+B-C) 1215
Working note1
Purchase=400*1.5=600 +500*2.06=1630
Working Note2
Ending Inventory in units=
100+400+500-450-300=250

FIFO Method (using Perpetual System)
A. Opening Inventory 100
B. Add: Purchases (Rs 600 +Rs 1030) 1630
C. Less: Cost of Goods Sold (1215)
(Rs 100+Rs 525+Rs 75+Rs515)
D. Ending Inventory (A+B+C) 515
Stock ledger under FIFO Method
(Using Perpetual System)

C	Receipts			Issued			Balance
	Umits	Rate	Amount	Units	Rate	Amount	Units	Rate	Amount
.
01/01/2014							100	1	100
02/01/2014	400	1.5	600				100	1	100
							400	1.5	600
03/01/2014				100	1	100
				350	1.5	525	50	1.5	75
04/01/2014	500	2.06	1030				50	1.5	75
							500	2.06	1030
05/01/2014				50	1.5	75
				250	2.06	515	250	2.06	515

LAST IN FIRST OUT METHOD (LIFO)
The Last in First Out Method is based on the assumption that the goods which are purchased last are issued first. Thus LIFO assigns the cost of newer inventory to cost of goods sold and cost of older inventory to ending inventory account.
.

Illustration same as above:

Statement Showing the Value of Inventory and Cost of Goods Sold under LIFO Method (using Periodic System)
Solution:
A. Opening Inventory 100
B. Add: Purchase (Rs 600 + Rs1030) 1630
Refer W.N.3
C. Less: Ending Inventory (100+225) (325)
Refer W.N.4
D. Cost of Goods Sold (A+B-C) 1405

Stock ledger under LIFO Method
(Using Perpetual System)

Date	Receipts			Issued			Balance
	Units	Rate	Amount	Units	Rate	Amount	Units	Rate	Amount
.
01/01/2014							100	1	100
02/01/2014	400	1.5	600				100	1	100
							400	1.5	600
03/01/2014				400	1.5	600
				50	1.0	50	50	1.0	50
04/01/2014	500	2.06	1030				50	1.0	50
							500	2.06	1030
05/01/2014				300	2.06	618	50	1.0	50
							250	2.06	412

LAST IN FIRST OUT METHOD (LIFO)

The Last in First Out Method is based on the assumption that the goods which are purchased last are issued first. Thus LIFO assigns the cost of newer inventory to cost of goods sold and cost of older inventory to ending inventory account.

Illustration same as above:

Stock ledger under LIFO Method (Using Perpetual System)

Reference no: EM13728906

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