Question 2 OR (d)
Closing stock and profit by FIFO and Weighted Average (with a return and a normal loss)
9 marks
- Time to write
- About 18 minutes
- Notes
- Crux notes
Question
Question 2 OR (d) · 9 marksFrom the details below, find the closing stock as per FIFO and Weighted Average Method.
Purchases: 2024
| Date & Month | Units | Rate |
|---|---|---|
| Feb. 4 | 20 | ₹17 |
| Feb. 17 | 30 | ₹16 |
| March 2 | 40 | ₹16.50 |
| March 30 | 50 | ₹15.00 |
Sales: 2024
| Date & Month | Units | Rate |
|---|---|---|
| Feb. 20 | 25 | ₹20 |
| March 5 | 40 | ₹25 |
| March 10 | 10 | ₹19 |
| March 31 | 45 | ₹17 |
On 20th March, 2024: two units sold on 10th March, 2024 were returned by the customers. On 29th March, 2024: one unit was damaged and had to be discarded (treated as Normal Loss). Calculate the profit as well.
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- findFormula first, then the working, then the answer with its unit (₹, %, units).
What the paper leaves open
- No opening stock is given, so it is taken as nil.
- "Weighted Average Method" is applied on the perpetual (moving) basis: a new average after every purchase and after the return, each issue priced at the average then ruling. A periodic (one average for the period) basis would give different figures.
- The unit discarded as a normal loss is a cost of the goods, not a separate loss. Under the weighted average its cost stays in the pool (absorbed), so the units left carry it; under FIFO the discarded unit is the earliest unit in stock, and its cost goes to the cost of goods sold.
- The two units returned on 20 March come back into stock at the cost at which they were issued on 10 March.
- "Also calculate profit" is read as the gross profit on the year's sales under each method (sales less returns, less cost of goods sold including the normal loss). The paper is dated 2020 although it was set for 2025; the dates are kept as printed in shape.
Write it in this order
- Read the data; note exactly what is asked 1 min
- 1 Units: purchases, sales, return and normal loss; 21 units in closing stock 1 mark 2 min
- 2 FIFO issues and closing stock 3 marks 5 min
- 3 Weighted average ledger and closing stock 3 marks 5 min
- 4 Profit under each method 2 marks 4 min
- Check: arithmetic, units (₹, %), final answer underlined 1 min
Try it first. About 18 minutes for 9 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
AS-2 assigns the cost of interchangeable items by the first-in, first-out or the weighted average cost formula. Under FIFO the items sold first are taken to be those bought first, so the items left at the end are the latest bought. Under the weighted average each item's cost comes from the weighted average of the cost of similar items, and the average may be worked out for the period as a whole or afresh as each shipment is received.
Stock movement (units): purchases 140; sales 120; returned by customers 2; normal loss 1; closing stock 140 − 120 + 2 − 1 = 21 units.
Purchases and sales
| Date | Purchases (units) | Rate (₹) | Amount (₹) |
|---|---|---|---|
| Feb 4 | 20 | 17.00 | 340.00 |
| Feb 17 | 30 | 16.00 | 480.00 |
| March 2 | 40 | 16.50 | 660.00 |
| March 30 | 50 | 15.00 | 750.00 |
| Total | 140 | 2,230.00 |
| Date | Sales (units) | Rate (₹) | Amount (₹) |
|---|---|---|---|
| Feb 20 | 25 | 20.00 | 500.00 |
| March 5 | 40 | 25.00 | 1,000.00 |
| March 10 | 10 | 19.00 | 190.00 |
| March 31 | 45 | 17.00 | 765.00 |
| Total | 120 | 2,455.00 |
Net sales: 2,455.00 − returns (2 units at the 10 March price of ₹19) 38.00 = ₹2,417.00.
(a) FIFO
| Date | Issue | Units | Cost (₹) |
|---|---|---|---|
| Feb 20 | Sale: 20 @ ₹17 + 5 @ ₹16 | 25 | 420.00 |
| March 5 | Sale: 25 @ ₹16 + 15 @ ₹16.50 | 40 | 647.50 |
| March 10 | Sale: 10 @ ₹16.50 | 10 | 165.00 |
| March 20 | Returned by customers: 2 @ ₹16.50, back into stock | −2 | −33.00 |
| March 29 | Normal loss: 1 @ ₹16.50 (the earliest unit in stock) | 1 | 16.50 |
| March 31 | Sale: 16 @ ₹16.50 + 29 @ ₹15 | 45 | 699.00 |
Closing stock: the 21 units left are from the 30 March lot, 21 @ ₹15 = ₹315.00.
(b) Weighted average (moving)
| Date | Transaction | Units | Rate (₹) | Amount (₹) | Balance units | Balance (₹) | Average (₹) |
|---|---|---|---|---|---|---|---|
| Feb 4 | Purchase | 20 | 17.00 | 340.00 | 20 | 340.00 | 17.0000 |
| Feb 17 | Purchase | 30 | 16.00 | 480.00 | 50 | 820.00 | 16.4000 |
| Feb 20 | Sale | 25 | 16.4000 | 410.00 | 25 | 410.00 | 16.4000 |
| March 2 | Purchase | 40 | 16.50 | 660.00 | 65 | 1,070.00 | 16.4615 |
| March 5 | Sale | 40 | 16.4615 | 658.46 | 25 | 411.54 | 16.4615 |
| March 10 | Sale | 10 | 16.4615 | 164.62 | 15 | 246.92 | 16.4615 |
| March 20 | Return (at issue cost) | 2 | 16.4615 | 32.92 | 17 | 279.85 | 16.4615 |
| March 29 | Normal loss (absorbed) | 1 | — | — | 16 | 279.85 | 17.4904 |
| March 30 | Purchase | 50 | 15.00 | 750.00 | 66 | 1,029.85 | 15.6037 |
| March 31 | Sale | 45 | 15.6037 | 702.17 | 21 | 327.68 | 15.6037 |
Closing stock: 21 units, ₹327.68.
Closing stock and profit
| Particulars | FIFO (₹) | Weighted average (₹) |
|---|---|---|
| Cost of goods sold, including the normal loss | 1,915.00 | 1,902.32 |
| Closing stock (21 units) | 315.00 | 327.68 |
| Total purchases (140 units) | 2,230.00 | 2,230.00 |
| Particulars | FIFO (₹) | Weighted average (₹) |
|---|---|---|
| Cost of goods sold | 1,915.00 | 1,902.32 |
| Gross profit | 502.00 | 514.68 |
| Net sales | 2,417.00 | 2,417.00 |
With prices falling in March, FIFO leaves the cheapest, latest units in stock, so its closing stock and profit are the lower of the two.
Where the 9 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Units: purchases, sales, return and normal loss; 21 units in closing stock | 1 |
| 2 | FIFO issues and closing stock ₹315.00 | 3 |
| 3 | Weighted average ledger and closing stock ₹327.68 | 3 |
| 4 | Profit under each method (net sales ₹2,417.00) | 2 |
| Total | 9 |
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