MGT401 Assignment Solution

Prepared By: Raheel Raaj

M. Accounting And Finance

1. Draw inventory valuation tables for August as per two IAS suggested valuation methods (consult book and
video lectures for approved inventory valuation methods).

Inventory valuation tables using FIFO method

Received Issued Balance
Date
Units Unit Cost Amount Units Unit Cost Amount Units Unit Cost Amount
01-August 100 11 1100
10-August 70 11 770 30 11 330
90 9.5 855 30 11 330
12-August
90 9.5 855
30 11 330
14-August 20 9.5 190
70 9.5 665
50 9.5 475 20 9.5 190
15-August
50 9.5 475
90 9.4 846 20 9.5 190
20-August 50 9.5 475
90 9.4 846
20 9.5 190 65 9.4 611
30-August 50 9.5 475
25 9.4 235
Total 2176 2665 611

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 MGT401 Assignment Solution
Prepared By: Raheel Raaj
M. Accounting And Finance

Inventory valuation tables using Weighted Average method

Received Issued Balance
Date
Units Unit Cost Amount Units Unit Cost Amount Units Unit Cost Amount
01-August 100 11.00 1100.00
10-August 70 11.00 770.00 30 11.00 330.00
12-August 90 9.50 855.00 120 9.88 1185.00
14-August 100 9.88 987.50 20 9.88 197.50
15-August 50 9.50 475.00 70 9.61 672.50
20-August 90 9.40 846.00 160 9.49 1518.50
30-August 95 9.49 901.55 65 9.49 616.85
Total 2176.00 2659.05 5620.35

2. A physical inventory count revealed a shortage of five units. Show how you would bring this into account.
Answer:
FIFO:
Opening Balance 0000
Add: Purchases 2176
Less: Shortage of 5 Units 5 @ 9.4 Rs. 47
Cost of Goods Available for Sale 2129
Closing Stock 60 Units @ 9.4 564
Cost of Goods Sold 1565

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 MGT401 Assignment Solution
Prepared By: Raheel Raaj
M. Accounting And Finance

Weighted Average:
Opening Balance 0000
Add: Purchases 2176
Less: Shortage of 5 Units 5 @ 9.49 Rs. 47.45
Cost of Goods Available for Sale 2128.55
Closing Stock 60 Units @ 9.49 569.40
Cost of Goods Sold 1559.15

(iii) Also determine the cost of sales and gross profit under the both methods from the following information:
a. Sale price of a unit is Rs. 15 (Amount of direct material will be taken from the requirement (i)) and also treat
the cost of lost units in calculation of gross profit
FIFO:
Sales (265 units @ 15 Rs.) 3975
Less: CGS 1565
Gross Profit 2410

Weighted Average:
Sales (265 units @ 15 Rs.) 3975
Less: CGS 1559.15
Gross Profit 2415.15

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 MGT401 Assignment Solution
Prepared By: Raheel Raaj
M. Accounting And Finance

4. You are required to give some logical reasons that why LIFO method has been obsoleted and declared not to be
used method for inventory valuation.

Firstly, inventory valuation does not talk about current prices, hence LIFO of no relevance, in assessing
current situations.
It is more difficult and complex to maintain. If most recent purchased inventories are always used as cost of
goods sold, it creates older and outdated inventories, which can never be sold. Therefore, it is quite
unrealistic.
LIFO calculations are more complicated, especially when prices keep fluctuating.
Clerical work is more in LIFO procedure
If businesses plan to expand globally, LIFO is definitely not the right choice for valuing companys current
assets.

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