Reference no: EM132596564
Three students, Kim, Linda and Mable, are equal partners in a joint business which involves them, on a part-time basis, in buying and selling sacks of product F. The transactions for the six months ended September were as stated below. You are to assume that purchases at unit costs given were made at the beginning of each month and that sales were made at the end of each month at the fixed price of K1,500 per sack.
Month Purchases Sales Sacks Unit cost Sacks K
April 1,000 1,000 500
May 500 1,200 750
June 1,000 1,000 nil
July nil - 600
August 500 1,200 650
September 500 1,300 600
In October the student partners held a meeting to review their financial position and share out the profits but there was disagreement because each partner had priced the issues on a different basis. Kim had used FIFO, Linda had used LIFO, and Mable had used a weighted average, basing her weighted average on the whole of the six months' purchases. It was, however, agreed that the stock remaining at the end of September should be stored until next April.
Required:
Question (a) Show the records which each student kept for the transactions.
Question (b) Show the amount each student ought to receive if the whole of the profit arising from each method of pricing the issues was distributed.
Question (c) Comment on the acceptability of the three different results arising from the transaction