Question 2 OR (b)

Closing stock and cost of goods sold by FIFO, 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 the material for certain items of M/s. Kavita & Co.:

DateParticularsUnits and Cost per unit
01.01.2024Opening Stock100 units @ ₹ 42 per unit
05.01.2024Purchases300 units @ ₹ 36 per unit
15.01.2024Sales100 units @ ₹ 48 per unit
01.02.2024Purchases400 units @ ₹ 42 per unit
10.02.2024Loss by fire20 units
15.02.2024Sales180 units @ ₹ 60 per unit
20.02.2024Sales200 units @ ₹ 60 per unit
20.02.2024Purchases300units @ ₹ 60 per unit

Under the perpetual Inventory valuation system, find out, as on 20.02.2024, the cost of the closing stock and the cost of goods sold according to the FIFO 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 loss by fire is an abnormal loss: its cost, at FIFO, is taken out of stock and kept out of the cost of goods sold.
  2. On 20.02 the sale is taken before the purchase, in the order printed.
  3. "300units" is read as 300 units.

Write it in this order

  1. Read the data; note exactly what is asked 2 min
  2. 1 Stores ledger by FIFO, perpetual 6 marks 10 min
  3. 2 Treatment of the loss by fire 2 marks 3 min
  4. 3 Cost of goods sold 2 marks 3 min
  5. 4 Closing stock 2 marks 3 min
  6. Check: arithmetic, units (₹, %), final answer underlined 3 min

Short on time? Step 1 carries 6 of the 12 marks: guard its minutes.

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 assumes the items bought first are sold first, so the closing stock is the latest purchases.
  2. Under the perpetual system the stock record is updated at every receipt and issue.
  3. The loss by fire is abnormal. Its cost (the earliest units, by FIFO) leaves the stock but is not part of the cost of goods sold; it is charged to profit and loss as a loss by fire. Abnormal amounts of wasted materials are not part of the cost of inventories.

Stores ledger: FIFO

DateReceived (units @ ₹ = ₹)Issued (units @ ₹ = ₹)Balance (units)
01.01Opening 100 @ 42 = 4,200100 @ 42
05.01300 @ 36 = 10,800100 @ 42, 300 @ 36
15.01Sale 100 @ 42 = 4,200300 @ 36
01.02400 @ 42 = 16,800300 @ 36, 400 @ 42
10.02Fire 20 @ 36 = 720 (abnormal)280 @ 36, 400 @ 42
15.02Sale 180 @ 36 = 6,480100 @ 36, 400 @ 42
20.02Sale 100 @ 36 + 100 @ 42 = 7,800300 @ 42
20.02300 @ 60 = 18,000300 @ 42, 300 @ 60

Result

Item₹
Cost of goods sold (4,200 + 6,480 + 7,800)18,480
Loss by fire (abnormal, to profit and loss)720
Closing stock, 600 units (300 @ 42 + 300 @ 60)30,600

Check: opening stock and purchases ₹49,800 = 18,480 + 720 + 30,600.

Where the 12 marks sit

#ComponentMarks
1Stores ledger by FIFO, perpetual6
2Treatment of the loss by fire2
3Cost of goods sold2
4Closing stock2
Total12
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