Question 2 OR (b)
Closing stock by FIFO and weighted average, perpetual system
12 marks
- Time to write
- About 24 minutes
- Notes
- Crux notes
Question
Question 2 OR (b) · 12 marksGiven below are the details of material relating to certain items of M/s. Mohan & Co.:
| Date | Particulars | Units and Cost per unit |
|---|---|---|
| 01.01.2024 | Opening Stock | 100 units @ Rs 27 per unit |
| 05.01.2024 | Purchases | 200 units @ Rs 33 per unit |
| 15.01.2024 | Sales | 100 units @ Rs 44 per unit |
| 01.02.2024 | Purchases | 400 units @ Rs 44 per unit |
| 10.02.2024 | Normal Loss | 20 units |
| 15.02.2024 | Sales | 200 units @ Rs 55 per unit |
| 20.02.2024 | Sales | 200 units @ Rs 55 per unit |
| 20.02.2024 | Purchases | 300 units @ 55 per unit |
| 21.02.2024 | Purchases Return (Dated 20.2.2024) | 200 units |
Under the perpetual system of Inventory valuation, find out the cost of the closing stock as on 28.02.2024 according to:
FIFO method,
Weighted Average 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
Read from the question
- find outFormula first, then the working, then the answer with its unit (₹, %, units).
What the paper leaves open
- The weighted average is worked on the moving (perpetual) basis, a new average after every receipt, and the normal loss is absorbed: its cost stays in the pool.
- The purchase return of 21.02 relates to the purchase of 20.02 and goes back at that purchase's price.
- On 20.02 the sale is taken before the purchase, in the order printed; "300 units @ 55 per unit" is read as Rs 55 per unit.
Write it in this order
- Read the data; note exactly what is asked 2 min
- 1 FIFO stores ledger, with the normal loss and the purchase return 5 marks 8 min
- 2 Weighted average stores ledger, with the loss absorbed and the return 5 marks 8 min
- 3 Closing stock under each method 2 marks 3 min
- Check: arithmetic, units (₹, %), final answer underlined 3 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
- FIFO assumes the items bought first are sold first, so the closing stock is the latest purchases. The normal loss of 20 units is the earliest units then in stock; their cost goes with the cost of goods sold.
- Weighted average, perpetual (moving average). A new rate is struck after every receipt; AS 2 allows the average to be calculated "as each additional shipment is received". The normal loss is absorbed: the 20 units leave, their cost stays in the pool, and the rate of the units left rises. Rates are shown to four decimals; amounts are worked on the unrounded rate.
- The purchase return of 21.02 (200 units of the 20.02 purchase) goes back at that purchase's price, ₹55.
Stores ledger: FIFO
| Date | Received (units @ ₹ = ₹) | Issued (units @ ₹ = ₹) | Balance (units) |
|---|---|---|---|
| 01.01 | Opening 100 @ 27 = 2,700 | 100 @ 27 | |
| 05.01 | 200 @ 33 = 6,600 | 100 @ 27, 200 @ 33 | |
| 15.01 | Sale 100 @ 27 = 2,700 | 200 @ 33 | |
| 01.02 | 400 @ 44 = 17,600 | 200 @ 33, 400 @ 44 | |
| 10.02 | Normal loss 20 @ 33 = 660 | 180 @ 33, 400 @ 44 | |
| 15.02 | Sale 180 @ 33 + 20 @ 44 = 6,820 | 380 @ 44 | |
| 20.02 | Sale 200 @ 44 = 8,800 | 180 @ 44 | |
| 20.02 | 300 @ 55 = 16,500 | 180 @ 44, 300 @ 55 | |
| 21.02 | Return to supplier 200 @ 55 = (11,000) | 180 @ 44, 100 @ 55 |
Cost of goods sold with the normal loss = 2,700 + 660 + 6,820 + 8,800 = ₹18,980. Closing stock (FIFO), 280 units = 180 × 44 + 100 × 55 = ₹13,420.
Stores ledger: weighted average (perpetual)
| Date | Received / returned | Issued (units @ rate = ₹) | Balance (units, ₹, rate) |
|---|---|---|---|
| 01.01 | Opening 100 @ 27 = 2,700 | 100, 2,700, 27.0000 | |
| 05.01 | 200 @ 33 = 6,600 | 300, 9,300, 31.0000 | |
| 15.01 | 100 @ 31.0000 = 3,100 | 200, 6,200, 31.0000 | |
| 01.02 | 400 @ 44 = 17,600 | 600, 23,800, 39.6667 | |
| 10.02 | Normal loss 20 units (absorbed) | 580, 23,800, 41.0345 | |
| 15.02 | 200 @ 41.0345 = 8,206.90 | 380, 15,593.10, 41.0345 | |
| 20.02 | 200 @ 41.0345 = 8,206.89 | 180, 7,386.21, 41.0345 | |
| 20.02 | 300 @ 55 = 16,500 | 480, 23,886.21, 49.7629 | |
| 21.02 | Return to supplier 200 @ 55 = (11,000) | 280, 12,886.21, 46.0222 |
Cost of goods sold = 3,100 + 8,206.90 + 8,206.89 = ₹19,513.79 (each issue shown as the fall in the running balance, so the ledger agrees to the paisa). Closing stock (weighted average), 280 units = ₹12,886.21.
Result
| Method | Cost of goods sold, with the normal loss (₹) | Closing stock, 280 units (₹) |
|---|---|---|
| FIFO | 18,980 | 13,420 |
| Weighted average (perpetual) | 19,513.79 | 12,886.21 |
Check: opening stock and purchases less the return = ₹32,400 = issues (with the normal loss) + closing stock under each method (18,980 + 13,420; 19,513.79 + 12,886.21).
Where the 12 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | FIFO stores ledger, with the normal loss and the purchase return | 5 |
| 2 | Weighted average stores ledger, with the loss absorbed and the return | 5 |
| 3 | Closing stock under each method | 2 |
| Total | 12 |
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