Reference no: EM13907047

X industries has used the LIFO inventory since it started business 10 years ago.

It has decided that it would comply with the IFRS standard and would switch to the FIFO method effective January 1, 2014 for the 2014 financial year.

International uses a periodic inventory system.

Records are not available such that years prior to 2013 can be restated. That means that the difference in the January 1, 2013 inventory is an adjustment to January 1, 2013 retained earnings (net of tax)

The tax rate for all periods is 40%

X uses a periodic inventory method

Here are the end products needed;

Restated income statement and retained earnings statement for 2013

Income and retained earnings earning statement for 2014, using FIFO ( the RE for 2013 will include inventory adjustment as of 1/1/13, the RE for 1/1/14 will include the inventory adjustment as of 1/1/14

Entries to adjust inventory, retained earnings and taxes as of January 1, 2014

Journal entries to close purchases and adjust inventories and to create a cost of goods sold for 2014

If it’s suggested you create cost of goods T-accounts for 2013 under both LIFO and FIFO to calculate the number for 2013

For 2014 you really only need a cost of goods sold using the FIFO method since the change will be effective for 2014

These are the inventory values on January 1, 2013

LIFO                                                          FIFO

300 @ 20                               6,000         500 @ 28          14,000

200 @ 23                               4,600

Transaction for 2013;

Purchases

800 @ 32          25,600

700 @ 35          24,500

Sold

1200 @ 60        72,000

Transactions for 2014

Purchases

1,000 @ 38        38,000

1,200 @ 40        48,000

Sold

1,800 @ 79      142,200

Income statement      (2014 has not been issued it is tentative)

2013                                                                    

Sales                                             72,000                         

Cost of goods sold                    40,500                                  

Gross profit                               31,500                                              

S&A expenses                            19,000                                       

Income before tax                    12,500                                 

Tax provision                              -5,000                                           

Net income                                7,500                                              

Retained earnings

                Balance 1/1/13                         130,000 

              Balance 12/31/13                     137,500

                 Net income                                    7,500 

2014

sales                                                  142,200

cost of goods sold                             70,800

gross profit                                         71,400

S&A expenses                                     45,000

income before tax                              26,400

tax provision                                       -10,560

gross profit                                         71,400

net income                                           15,840

Retained earnings

balance 1/1/14                                   137,500

net income                                           15,840

balance 12/31/14                            153,340