# Chapter 8 Accounting for Stock – Solutions to exercises

Exercise 8.1 Stock cards: constant cost prices
a
Stock Item: Super Soft mattress Location: C4, 114
Stock Code: SSM Supplier: Foamworks
IN OUT BLNCE
!ate !etails "t# Unit
cost
\$alue
%
"t# Unit
cost
\$alue
%
"t# Unit
cost
\$alue
%
Oct. 1 Balance &' 1(' ) 8''
4 Ch. 567 25 130 3 250 85 130 11 050
6 Rec. 62 20 130 2 600 65 130 8 450
12 Ch. 577 30 130 3 900 95 130 12 350
18 Rec. 64 40 130 5 200 55 130 7 150
20 Ch. 580 20 130 2 600 75 130 9 750
31 Rec. 68 30 130 3 900 45 130 5 850
*
Calculation
45 mattresses !130 each
" !5 850
Stock on +and % 5 850
c
,eason #t is on\$% for one \$ine of stock. &'he (a\$ance Sheet )i\$\$ sho) the tota\$ *a\$ue of a\$\$
\$ines of stock on han+.,
d
Calculation -.' co\$umn/
-ct. 6 2 600
18 5 200
31 3 900 11 700
Cost o- Sales % 11 700
Simmons, Hardy 1 Cam!rid"e #ni\$ersity %ress &'1&
Chapter 8 Accounting for Stock – Solutions to exercises
e
Explanation 0o effect/ 1S' +oes not affect the economic 2enefit re3resente+ 2% the stock4
so stock car+s on\$% recor+ the cost 3rice of stock that is 2ought an+ so\$+. &1S'
on sa\$es increases 1S' \$ia2i\$it%5 1S' on 3urchases +ecreases 1S' \$ia2i\$it%.,
Exercise 8.. /irst in0 -irst out
a
Calculation
4 !290 1 160
14 !300 4 200 5 360
Cost o- Sales % 5 360
*
Explanation 6#6- assumes that the stock that is 3urchase+ first )i\$\$ 2e so\$+ first. #n this
e7am3\$e4 the 4 units of stock *a\$ue+ at !290 are assume+ to 2e so\$+ 2efore
an% of the units *a\$ue+ at !300.
c
Calculation
Sa\$es !9 000 &18 7 !500,
\$ess Cost of
Sa\$es
!5 360
1ross 8rofit !3 640
1ross 2ro-it % 3 640
d
Calculation
1 !300 300
10 !320 3 200 3 500
Stock on +and % 3 500
Simmons, Hardy & Cam!rid"e #ni\$ersity %ress &'1&
Chapter 8 Accounting for Stock – Solutions to exercises
Exercise 8.( Stock cards: c+an3in3 cost prices
a
Stock Item: (lass Front Ca!inets Location: )ow *, +ay 4
Stock Code: ,'' x ,'', (F Supplier: %ine %roducts
IN OUT BLNCE
!ate !etails "t# Unit
cost
\$alue
%
"t# Unit
cost
\$alue
%
"t# Unit
cost
\$alue
%
4a# 1 Balance 5' .5' 6 &''
2 #n*. 745 20 240 4 800 60 240 14 400
4 Rec. 76 35 240 8 400 25 240 6 000
7 9emo 34 2 240 480 23 240 5 520
15 #n*. 758 25 250 6 250 23 240 5 520
25 250 6 250
19 #n*. C61 23 240 5 520
17 250 4 250 8 250 2 000
24 #n*. 786 30 260 7 800 8 250 2 000
30 260 7 800
31 Rec. 86 8 250 2 000
7 260 1 820 23 260 5 980
* 1eneral 7ournal
1eneral
Led3er
Su*sidiar#
Led3er
!ate !etails !e*it
%
Credit
%
!e*it
%
Credit
%
9a% 7 :ra)ings 480
Stock Contro\$ 480
:ra)ings of 2 ca2inets 2% o)ner
&9emo 34,
c Sales 7ournal
!ate !e*tor In8oice
num*er
Cost o-
Sales
Sales 1ST !e*tors
Control
9a% 19 ;i\$son 6urniture C61 9 770 20 000 2 000 22 000
Simmons, Hardy - Cam!rid"e #ni\$ersity %ress &'1&
Chapter 8 Accounting for Stock – Solutions to exercises
d
Calculation
23 units 7 !260 each " !5 980
Stock on +and % 5 980
e
Calculation -.' co\$umn/
9a% 4 8 400
19 9 770
31 3 820 21 990
Cost o- Sales % 21 990
-
Explanation 6#6- assumes that the o\$+er stock is so\$+ first4 an+ that the ne)er stock is sti\$\$
on han+/ )hen 3rices are rising4 this ne)er stock )i\$\$ 2e more e73ensi*e4
o*erstating stock on han+. &#t is 3ossi2\$e some of the stock on han+ is actua\$\$%
the o\$+er4 chea3er stock.,
Simmons, Hardy 4 Cam!rid"e #ni\$ersity %ress &'1&
Chapter 8 Accounting for Stock – Solutions to exercises
Exercise 8.5 Stock cards: c+an3in3 cost prices
a
Stock Item: %icture frames Location: +ack wall
Stock Code: 4. x 4. frames, !lack Supplier: %riority %lastics
IN OUT BLNCE
!ate !etails "t# Unit
cost
\$alue
%
"t# Unit
cost
\$alue
%
"t# Unit
cost
\$alue
%
7an. 1 Balance 8'' 5' (. '''
&'' 9' (' '''
3 Ch. 243 100 50 5 000 800 40 32 000
700 50 35 000
8 #n*. 44 800 40 32 000
100 50 5 000 600 50 30 000
12 Rec. 68 400 50 20 000 200 50 10 000
16 9emo 14 10 50 500 190 50 9 500
20 #n*. A10 200 60 12 000 190 50 9 500
200 60 12 000
22 #n*. 49 190 50 9 500
110 60 6 600 90 60 5 400
31 #n*. 990 250 70 17 500 90 60 5 400
250 70 17 500
* Cas+ ,eceipts 7ournal
!ate !etails ,ec.
No.
Bank !isc.
Exp.
!e*tors
Control
Cost o-
Sales
Sales Sundries 1ST
<an. 12 Cash Sa\$es 68 44 000 20 000 40 000 4 000
c 1eneral 7ournal
1eneral
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!ate !etails !e*it
%
Credit
%
!e*it
%
Credit
%
<an. 16 A+*ertising 500
Stock Contro\$ 500
10 frames taken for a+*ertising use
&9emo 14,
Simmons, Hardy . Cam!rid"e #ni\$ersity %ress &'1&
Chapter 8 Accounting for Stock – Solutions to exercises
d
Calculation -.' co\$umn/
<an. 8 37 000 &32 000 = 5 000,
12 20 000
22 16 100 &9 500 = 6 600,
Cost o- Sales % 73 100
e
Calculation
Sa\$es re*enue !160 000 &90 000 = 40 000 = 30 000,
\$ess Cost of Sa\$es !73 100
1ross 8rofit !86 900
1ross 2ro-it % 86 900
-
Explanation 6#6- assumes that the o\$+er stock is so\$+ first/ )hen 3rices are rising this
o\$+er stock )i\$\$ 2e chea3er4 un+erstating Cost of Sa\$es an+ o*erstating 0et
8rofit. &#t is 3ossi2\$e some of the stock so\$+ is actua\$\$% the ne)er4 more
e73ensi*e stock.,
Exercise 8.9 /I/O and stock loss
a
Explanation Stock car+s are su2si+iar% accounting recor+s use+ to maintain a continuous>
3er3etua\$ recor+ of a\$\$ mo*ements of stock in an+ out of the 2usiness
3remises.
*
"ualitati8e c+aracteristic Re\$ia2i\$it%
Explanation 'he stocktake ensures that the figure for Stock Contro\$
re3orte+ in the (a\$ance Sheet is accurate an+ free from 2ias4
2% *erif%ing the 2a\$ances in the stock car+s an+ in the 3rocess
+etecting an% stock \$oss or gain.
Simmons, Hardy * Cam!rid"e #ni\$ersity %ress &'1&
Chapter 8 Accounting for Stock – Solutions to exercises
c
,eason 1 :amage
-*ersu33\$% to customer
,eason . .n+ersu33\$% from su33\$ier
d 1eneral 7ournal
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%
Credit
%
!e*it
%
Credit
%
<an. 31 Stock ?oss 620
Stock Contro\$ 620
Stock \$oss of 1 +ish)asher +etecte+ 2%
stocktake &9emo 37,
e
Explanation Stock Contro\$ +ecreases +ecreasing Current Assets 2% !620. Stock ?oss
e73ense +ecreases 0et 8rofit4 +ecreasing -)ner@s ABuit% 2% !620.
Simmons, Hardy / Cam!rid"e #ni\$ersity %ress &'1&
Chapter 8 Accounting for Stock – Solutions to exercises
Exercise 8.& Stock cards and stock losses:3ains
a:c
Stock Item: M%- players Location: Middle display case
Stock Code: M%-012 Supplier: +ennon
IN OUT BLNCE
!ate !etails "t# Unit
cost
\$alue
%
"t# Unit
cost
\$alue
%
"t# Unit
cost
\$alue
%
4ar. 1 Balance 15 8' 1 1.'
) 6' &('
8 9emo 4 3 80 240 11 80 880
7 90 630
12 Rec. 555 C
561
11 80 880
1 90 90 6 90 540
19 #n*. 76 20 80 1 600 6 90 540
20 80 1 600
22 Rec. 564 C
566
6 90 540
2 80 160 18 80 1 440
28 Ch. 880 15 90 1 350 18 80 1 440
15 90 1 350
30 #n*. 43 14 80 1 120 4 80 320
15 90 1 350
31 9emo 5 2 80 160 2 80 160
15 90 1 350
*
Calculation
Stock as 3er stock car+ 19
\$ess Stock as 3er stocktake 17
Stock \$oss 2 !80 each
Stock loss:3ain % 160
Simmons, Hardy 8 Cam!rid"e #ni\$ersity %ress &'1&
Chapter 8 Accounting for Stock – Solutions to exercises
d 1eneral 7ournal
1eneral
Led3er
Su*sidiar#
Led3er
!ate !etails !e*it
%
Credit
%
!e*it
%
Credit
%
9ar. 31 Stock ?oss 160
Stock Contro\$ 160
Stock \$oss of 2 983 3\$a%ers re*ea\$e+ 2%
stocktake &9emo 5,
e
Calculation
Sa\$es re*enue !5 440 &34 units 7 !160 3er unit,
\$ess Cost of Sa\$es 2 790 &970 = 700 = 1 120,
1ross 8rofit 2 650
\$ess Stock ?oss 160
A+Duste+ 1ross
8rofit
!2 490
d;usted 1ross 2ro-it % 2 490
-
Explanation 0o effect/ :ra)ings )ou\$+ 2e un+erstate+ 2% !2404 2ut the \$oss of these units
)ou\$+ 2e +etecte+ 2% the stocktake as a Stock ?oss4 re+ucing 0et 8rofit 2%
!240. Aither )a%4 -)ner@s ABuit% )ou\$+ +ecrease 2% !240.
Simmons, Hardy , Cam!rid"e #ni\$ersity %ress &'1&
Chapter 8 Accounting for Stock – Solutions to exercises
Exercise 8.) Stock cards and stock losses:3ains
a:c
Stock Item: Stereo system 3&*' Location: 4isle -
Stock Code: SS&*' Supplier: Sankyo
IN OUT BLNCE
!ate !etails "t# Unit
cost
\$alue
%
"t# Unit
cost
\$alue
%
"t# Unit
cost
\$alue
%
Oct. 1 Balance 5 &'' . 5''
4 #n*. :34 7 650 4 550 4 600 2 400
7 650 4 550
10 Rec. 87 4 600 2 400
1 650 650 6 650 3 900
14 #n*. (101 2 650 1 300 4 650 2 600
20 #n*. :45 5 700 3 500 4 650 2 600
5 700 3 500
26 9emo 41 1 650 650 3 650 1 950
5 700 3 500
31 9emo 42 1 650 650 4 650 2 600
5 700 3 500
*
,eason 1 -*ersu33\$% 2% su33\$ier
.n+ersu33\$% to customer
,eason . Recor+ing error in stock car+>Counting error in stock take
d
ccountin3
principle
Conser*atism
Explanation 'he stock gain is *a\$ue+ at the \$o)est 3rice on han+ in the stock car+
&!650, so that re*enues &Stock 1ain, an+ assets &Stock Contro\$, are
not o*erstate+.
Simmons, Hardy 1' Cam!rid"e #ni\$ersity %ress &'1&
Chapter 8 Accounting for Stock – Solutions to exercises
e 1eneral 7ournal
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!ate !etails !e*it
%
Credit
%
!e*it
%
Credit
%
-ct. 31 Stock Contro\$ 650
Stock 1ain 650
Stock gain of 1 stereo re*ea\$e+ 2%
stocktake &9emo 42,
-
Calculation
Sa\$es re*enue !6 300 &7 units 7 !900 3er unit,
\$ess Cost of Sa\$es 4 350 &3 050 = 1 300,
1ross 8rofit 1 950
a++ Stock 1ain 650
A+Duste+ 1ross
8rofit
!2 600
d;usted 1ross 2ro-it % 2 600
3
Explanation As A+*ertising e73ense un+er the hea+ing -ther A73enses4 as it is an outf\$o)
of an economic 2enefit in the form of a +ecrease in assets &Stock Contro\$,4
)hich \$ea+s to a +ecrease in o)ner@s eBuit%4 2ut it occurs after the goo+s are
rea+% for sa\$e
Exercise 8.8 ,eportin3 -or stock
a
Classi-ication A73ense
7usti-ication #t is \$iste+ on the +e2it si+e of the 'ria\$ (a\$ance.
Simmons, Hardy 11 Cam!rid"e #ni\$ersity %ress &'1&
Chapter 8 Accounting for Stock – Solutions to exercises
* <,,EN=S <O>S
Income Statement -or Septem*er .'19
% %
Revenue
Sa\$es 80 000
less Cost of Goods Sold
Cost of Sa\$es 40 000
Customs :ut% 2 200 42 200
Gross Profit 37 800
\$ess Stock ?oss 500
less Other Expenses
A+*ertising 4 900
#nterest A73ense 600
;ages 16 300 21 800
et Profit ! "# #00
c
7usti-icatio
n
'reate+ as 3art of Cost of 1oo+s So\$+ as it is incurre+ to 2ring stock into a
\$ocation an+ con+ition rea+% for sa\$e.
d
Explanation #t is necessar% to 3ro*i+e information a2out the a*erage markEu34 so that the
o)ner can take correcti*e action &)here necessar%, to im3ro*e 3rofit. &'his
cou\$+ mean increasing the markEu3 to generate greater 3rofit 3er sa\$e4 or
+ecreasing the markEu3 to 2e more 3rice com3etiti*e.,
e
Explanation #t is a \$oss of an economic 2enefit &stock, in the form of a +ecrease in assets
&Stock Contro\$, )hich \$ea+s to a +ecrease in -)ner@s ABuit%.
Simmons, Hardy 1& Cam!rid"e #ni\$ersity %ress &'1&
Chapter 8 Accounting for Stock – Solutions to exercises
- <,,EN=S <O>S
Balance S+eet as at (' Septem*er .'19
Current ssets % % Current Lia*ilities % %
(ank 4 300 Cre+itors Contro\$ 9 200
:e2tors Contro\$ 13 100 1S' C\$earing 3 400
8re3ai+ A+*ertising 1 100 9ortgage C (F (ank 12 000 24 600
Stock Contro\$ 19 000 37 500
Non?Current Lia*ilities
9ortgage C (F (ank 78 000
Non?Current ssets
She\$*ing 17 000 O@ner=s EAuit#
8remises 120 000 137 000 Ca3ita\$ C ;arren 59 400
= 0et 8rofit 15 500
74 900
\$ess :ra)ings 3 000 71 900
Total ssets % "7\$ #00 Total EAuities % "7\$ #00
Simmons, Hardy 1- Cam!rid"e #ni\$ersity %ress &'1&
Chapter 8 Accounting for Stock – Solutions to exercises
Exercise 8.6 ,eportin3 -or stock
a 2OTS BN= 2NS
Income Statement -or 7une .'19
% %
Revenue
Sa\$es 90 000
less Cost of Goods Sold
Cost of Sa\$es 60 000
Cartage #n 1 900 61 900
Gross Profit %8 "00
\$ess Stock 1ain 700
less Other Expenses
:e\$i*er% to Customers 2 500
Rent A73ense 14 000
;ages 12 000 28 500
et Profit ! 300
*
Explanation 'reate+ as an -ther A73ense as it is incurre+ to +e\$i*er stock from the
2usiness to the customer on\$% after the stock is a\$rea+% so\$+
c
Explanation #t is an inf\$o) of an economic 2enefit &e7tra stock, in the form of an increase in
assets &Stock Contro\$, )hich \$ea+s to an increase in -)ner@s ABuit%.
Simmons, Hardy 14 Cam!rid"e #ni\$ersity %ress &'1&
Chapter 8 Accounting for Stock – Solutions to exercises
d 2ots Bn= 2ans
Balance S+eet as at (' 7une .'19
Current ssets % % Current Lia*ilities % %
:e2tors Contro\$ 4 600 (ank 1 500
Stock Contro\$ 20 000 24 600 Cre+itors Contro\$ 6 300
1S' C\$earing 500 8 300
Non?Current ssets
Sho3 6ittings 40 000 Non?Current Lia*ilities
?oan C Guickfin 20 000
O@ner=s EAuit#
Ca3ita\$ C 8ame\$a 41 000
= 0et 8rofit 300
41 300
\$ess :ra)ings 5 000 36 300
Total ssets % &\$ &00 Total EAuities % &\$ &00
e
,eason #t is higher than the 0et 8rofit figure &meaning -)ner@s ABuit% )i\$\$ +ecrease,.
Exercise 8.1' Interpretin3 stock cards
a
Transaction Cre+it sa\$e &of 40 tins of oi\$4 each )ith a cost 3rice of !30,
*
7ournal 8urchases <ourna\$
7usti-icatio
n
#0 co\$umn means it is a 3urchase5 H#n*. 770@ means it is on cre+it.
c
,eason 1 A+*ertising
,eason . :ra)ings
Simmons, Hardy 1. Cam!rid"e #ni\$ersity %ress &'1&
Chapter 8 Accounting for Stock – Solutions to exercises
d:e Cas+ ,eceipts 7ournal
!ate !etails ,ec.
No.
Bank !isc.
Exp.
!e*tors
Control
Cost o-
Sales
Sales Sundries 1ST
0o*. 22 Cash Sa\$es 19 1 881 1 140 1 710 171
Sales 7ournal
!ate !e*tor In8oice
num*er
Cost o-
Sales
Sales 1ST !e*tors
Control
1eneral 7ournal
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!ate !etails !e*it
%
Credit
%
!e*it
%
Credit
%
0o*. 30 Stock ?oss 120
Stock Contro\$ 120
Stock \$oss of 3 cans of oi\$ re*ea\$e+ 2%
stocktake &9emo 64,
-
Calculation -.' co\$umn/
0o*. 9 1 200
22 1 140 &180 = 960,
!2 340
Cost o- Sales % 2 340
3
,eason 1 #t is on\$% for one \$ine of stock
,eason . #t +oesn@t inc\$u+e other Cost of 1oo+s So\$+4 such as 2u%ing e73enses4 freight
in.
Simmons, Hardy 1* Cam!rid"e #ni\$ersity %ress &'1&
Chapter 8 Accounting for Stock – Solutions to exercises
Exercise 8.11 Source documents and stock cards
a
"ualitati8e
c+aracteristic
Re\$ia2i\$it%
Explanation Source +ocuments 3ro*i+e the *erifia2\$e e*i+ence of each
transaction to ensure that the information in the re3orts remains
accurate an+ free from error an+ 2ias.
*
Stock Item: +edside lamps Location: )ow ., +ay 4
Stock Code: +51'' Supplier: +ri"ht 5i"hts
IN OUT BLNCE
!ate !etails "t# Unit
cost
\$alue
%
"t# Unit
cost
\$alue
%
"t# Unit
cost
\$alue
%
/e*. 1 Balance 5 5' 1&'
) 9' (9'
2 #n*. 519 20 50 1 000 4 40 160
27 50 1 350
12 #n*. 70 4 40 160
6 50 300 21 50 1 050
28 9emo 73 3 50 150 18 50 900
c
Explanation 0ot recor+e+ as no transaction has occurre+ C it is sim3\$% an or+er form.
&'here is no e7change of goo+s4 an+ no 3rice is s3ecifie+.,
d 2urc+ases 7ournal
!ate Creditor In8oice
num*er
Stock
Control
1ST Creditors
Control
6e2. 2 (right ?ights 519 1 000 100 1 100
Sales 7ournal
!ate !e*tor In8oice
num*er
Cost o-
Sales
Sales 1ST !e*tors
Control
6e2. 12 'he Fi\$ton Countr% #nn 70 460 600 60 660
Simmons, Hardy 1/ Cam!rid"e #ni\$ersity %ress &'1&
Chapter 8 Accounting for Stock – Solutions to exercises
1eneral 7ournal
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%
!e*it
%
Credit
%
6e2. 28 Stock ?oss 150
Stock Contro\$ 150
Stock \$oss of 3 2e+si+e \$am3s re*ea\$e+
2% stocktake &9emo 73,
e
Explanation #t increases Stock Contro\$ an+ Current Assets 2% !1 000. #t increases \$ia2i\$ities
o*era\$\$ 2% !1 000/ a\$though Cre+itors Contro\$ increases 2% !1 1004 1S'
C\$earing +ecreases 2% !100.
-
O8erstated:Understated:No e--ect
mount
%
ssets -*erstate+ &Stock Contro\$, 150
Lia*ilities 0o effect
O@ner=s
EAuit#
-*erstate+ &.n+erstate+ Stock ?oss e73ense o*erstates 0et
8rofit,
150
Exercise 8.1. Stock and t+e 1eneral Led3er
a
Num*er o- mats 105
*
Explanation #t )i\$\$ *erif% the stock on han+ as recor+e+ in the stock car+s4 an+ in the
3rocess +etect an% stock \$oss or gain4 thus ensuring that the figure re3orte+ as
Stock Contro\$ in the (a\$ance Sheet is accurate an+ free from 2ias an+ error.
Simmons, Hardy 18 Cam!rid"e #ni\$ersity %ress &'1&
Chapter 8 Accounting for Stock – Solutions to exercises
c 1eneral 7ournal
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!ate !etails !e*it
%
Credit
%
!e*it
%
Credit
%
A3ri\$ 9 :ra)ings 90
Stock Contro\$ 90
3 mats )ith+ra)n 2% o)ner &9emo 71,

30 Stock Contro\$ 120
Stock 1ain 120
Stock gain of 3 mats re*ea\$e+ 2%
stocktake &9emo 72,
d 1eneral Led3er
Stock Control
!ate Cross?re-erence mount
%
!ate Cross?re-erence mount
%
A3r. 1 (a\$ance 5 000 A3r. 30 Cost of Sa\$es 11 500
30 (ank 12 000 Cost of Sa\$es 15 000
Cre+itors Contro\$ 20 000 :ra)ings 90
Stock 1ain 120 (a\$ance 10 530
!37 120 !37 120
9a% 1 (a\$ance 10 530
!e*tors Control
!ate Cross?re-erence mount
%
!ate Cross?re-erence mount
%
A3r. 1 (a\$ance 2 000 A3r. 30 (ank>:iscount A73ense 13 000
30 Sa\$es>1S' C\$earing 33 000 (a\$ance 22 000
!35 000 !35 000
9a% 1 (a\$ance 22 000
Simmons, Hardy 1, Cam!rid"e #ni\$ersity %ress &'1&
Chapter 8 Accounting for Stock – Solutions to exercises
e 4TT=S 4TS
Income Statement -or pril .'19
% %
Revenue
Cash Sa\$es 21 000
Cre+it Sa\$es 30 000 51 000
less Cost of Goods Sold
Cost of Sa\$es 26 500
Gross Profit 24 500
a++ Stock 1ain 120