INVENTORY

{QUESTIONS}
QUESTION NO. H-1

Hammad deals in a single product. The transactions for the month of August 2014 are summarized below:

Balance 1 Aug 2014 40,000 units @ Rs. 70

Purchase 12 Aug 2014 20,000 units @ Rs. 75
Sale 15 Aug 2014 30,000 units @ Rs. 120
Purchase 28 Aug 2014 20,000 units @ Rs. 78
Sale 30 Aug 2014 20,000 units @ Rs. 125

Required:

Compute the cost of ending inventory using weighted average method under each of the following
assumptions:
(a) Perpetual inventories are maintained; (4.5)
(b) Perpetual inventories are not maintained. (4.5)
(Autumn 2014, Q6)

QUESTION NO. H-2

In the month of December 2013 there was a fire in the premises of Zee Limited resulting in loss of inventory.
Relevant information related to damaged inventory is as under:

Alpha Beta Gamma

--------Rs. in million--------
Cost 12.00 6.00 8.00
Alpha to be sold as scrap 0.90
Estimated selling price - 4.00 9.00
Estimated costs to sell - 0.10 0.05
Estimated additional costs for re-packing - 0.50 0.70

Required:

Compute the amount of inventory as would appear in the trading and profit and loss account of Zee Limited for
the year ended 31 December 2013. (06)
(Spring 2014, Q3 (a))
QUESTION NO. H-4
Azhar and Company are importers of a particular item. Accountant of the company has prepared the Profit and
Loss Account following average method for valuation of closing inventory.

Following are the details of transactions during the year:

Particulars Date Quantity Amount (Rs.)

Opening stock - 1,000 -
05-07-2002 5,000 3,250,000
10-09-2002 14,000 8,750,000
26-12-2002 9,500 6,650,000
Purchases
24-03-2003 18,600 13,857,000
05-04-2003 15,600 11,310,000
31-05-2003 10,100 6,969,000
Sales - 57,000 -
Closing stock - 16,800 -
The Profit and Loss Account prepared by the Accountant on average method of valuation of closing inventory is
as follows:
Profit and loss account
Particulars Rs. Rs.
Sales 41,325,000
Cost of Sales:
Opening stock 560,000
Purchases 50,786,000
51,346,000
Less: Closing Stock 11,688,520 39,657,480
Gross Profit 1,667,520
Operating and Selling Expenses 1,525,900
Net profit
141,620
Required:

Prepare a revised Profit & Loss Account based on FIFO method for valuation of closing inventory at cost or net
realizable value which ever is lower. The selling expenses are 2% of sales. (10)
{Autumn 2003, Module C, Q # 7}
QUESTION NO. H-6
A company’s accounting policy is to value stock at lower of cost and net realizable value, 40% sales are on
credit. Selling expenses are 10% of sales value and collection charges are 1% of Debtors.

Items Cost Sales value

(Rs.) (Rs.)
A 80,000 120,000
B 98,000 101,000
C 50,000 40,000
D 89,000 73,000
E 94,000 108,000
F 180,000 205,000
G 194,000 210,000

Required: Determine the value of stocks as on 30-6-2000. (10)

{Spring 2001, SM - I, Q # 3}
QUESTION NO. H-8

Mr. Asfar, a client has recently received the accounts which you prepared in respect of his first year’s trading.
He has contacted you saying that he is concerned about the treatment of stock. He is aware that the value
applied to closing stock in the accounts will affect the reported profit. He has queried how his inventory has
been valued, claiming that ‘the profit is understated because stock will be sold for much more than the amount
shown in the accounts’. From your working papers you have selected one inventory item to illustrate how
valued is valued. The stock movements and purchase prices for the item were:

Purchase Unit Sales Sales Price

Date Quantity
Price (Rs.) Quantity Rs.
Jan 120 17
Apr 170 17.5
May 120 20
June 180 17.8
July 185 25
Aug 100 18
Sept 120 23
570 425
Required:
Calculate the cost of closing inventory in respect of this item using each of the following bases:
(i) Periodic Weighted Average
(ii) FIFO (PAC) (08)

QUESTION NO. H-9

Zeeshan Enterprises had the following transactions in cocoa beans in the year ended 31 December, 2013 (the
company’s first year of trade)

Purchase Price
Tons of per Ton Total Price paid
Beans Rs.000 Rs.000
Jan – 1 76 15.50 1,178
Mar – 3 52 16.75 871
May – 31 56 17.5 980
July – 10 45 24 1,080
Sep – 24 32 32 1,024
Nov – 11 31 45 1,395
st
By 31 December 2013, 158 Tons had been sold for sale proceeds of Rs. (000) 8,000.
st
Required: Calculate the closing stock as at 31 December, 2013 using each of the following bases of
valuation:
i) Periodic Weighted Average
ii) FIFO (PAC) (08)
QUESTION NO. H-12
Mudasser Ashfaq is a sole-trader who deals in the trading of water dispensers. Following are the transactions
for the month of January 2016.
Particulars Rs.(Cost)
Opening stock ( 48 units) 864,000
Purchases during the month on credit ( 256 units) 4,608,000
Stock lost ( Normal loss, 12 units) 216,000
Stock withdrawn by the owner for personal needs ( 5 Units) 90,000
Units damaged due to mishandling ( 8 units) 144,000
Units sold for cash ( 180 units) @ Rs.23,000 per unit 3,240,000
Closing stock ( 99 units) 1,782,000
Required:
Pass Journal entries under periodic and perpetual method of inventory. (9)
(PAC)