Question 2 OR (b)

Closing stock by FIFO and weighted average, perpetual system

12 marks

Time to write
About 24 minutes
Topic
Inventory valuation and AS 2
Notes
Crux notes

Question

Question 2 OR (b) · 12 marks

Given below are the details of material relating to certain items of M/s. Govind & Co.:

DateParticularsUnits and Cost per unit
01.09.2023Opening Balance350 units @ Rs 36 per unit
04.09.2023Purchases115 units @ Rs 42 per unit
06.09.2023Issue250 units
09.09.2023Issue125 units
15.09.2023Purchase575 units @ Rs 24 per unit
19.09.2023Issue400 units
26.09.2023Purchase180 units @ Rs 60 per unit
29.09.2023Issue65 units

Using the perpetual system of recording inventory, find out the value of the closing stock as on 30/09/2023 according to FIFO and to the weighted average price method.

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

24 minfor 12 marks

Read from the question

  • find outFormula first, then the working, then the answer with its unit (₹, %, units).

What the paper leaves open

  1. The weighted average is worked on the moving (perpetual) basis, a new average after every receipt.
  2. The "Opening Balance" is the opening stock.

Write it in this order

  1. Read the data; note exactly what is asked 2 min
  2. 1 FIFO stores ledger and closing stock 6 marks 10 min
  3. 2 Weighted average (perpetual) stores ledger and closing stock 6 marks 10 min
  4. Check: arithmetic, units (₹, %), final answer underlined 2 min

Try it first. About 24 minutes for 12 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.

Basis of the answer

  1. FIFO: the items received first are issued first, so the closing stock is the latest receipts.
  2. Weighted average, perpetual (moving average): a new rate after every receipt, from the units and cost then in stock; AS 2 allows the average to be worked as each shipment is received. Rates are shown to four decimals; amounts are worked on the unrounded rate.
  3. Under the perpetual system the balance is recorded after every receipt and issue.

Stores ledger: FIFO

DateReceived (units @ ₹ = ₹)Issued (units @ ₹ = ₹)Balance (units)
01.09Opening 350 @ 36 = 12,600350 @ 36
04.09115 @ 42 = 4,830350 @ 36, 115 @ 42
06.09250 @ 36 = 9,000100 @ 36, 115 @ 42
09.09100 @ 36 + 25 @ 42 = 4,65090 @ 42
15.09575 @ 24 = 13,80090 @ 42, 575 @ 24
19.0990 @ 42 + 310 @ 24 = 11,220265 @ 24
26.09180 @ 60 = 10,800265 @ 24, 180 @ 60
29.0965 @ 24 = 1,560200 @ 24, 180 @ 60

Closing stock (FIFO), 380 units = 200 × 24 + 180 × 60 = ₹15,600.

Stores ledger: weighted average (perpetual)

DateReceivedIssued (units @ rate = ₹)Balance (units, ₹, rate)
01.09Opening 350 @ 36 = 12,600350, 12,600, 36.0000
04.09115 @ 42 = 4,830465, 17,430, 37.4839
06.09250 @ 37.4839 = 9,370.97215, 8,059.03, 37.4839
09.09125 @ 37.4839 = 4,685.4890, 3,373.55, 37.4839
15.09575 @ 24 = 13,800665, 17,173.55, 25.8249
19.09400 @ 25.8249 = 10,329.96265, 6,843.59, 25.8249
26.09180 @ 60 = 10,800445, 17,643.59, 39.6485
29.0965 @ 39.6485 = 2,577.15380, 15,066.44, 39.6485

Closing stock (weighted average), 380 units = ₹15,066.44.

Result

MethodIssues (₹)Closing stock, 380 units (₹)
FIFO (9,000 + 4,650 + 11,220 + 1,560)26,43015,600
Weighted average (9,370.97 + 4,685.48 + 10,329.96 + 2,577.15)26,963.5615,066.44

Check: receipts ₹42,030 = issues + closing stock under each method.

Where the 12 marks sit

#ComponentMarks
1FIFO stores ledger and closing stock6
2Weighted average (perpetual) stores ledger and closing stock6
Total12
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