ASSIGNMENT 1

Student number: R2104D12078598

Student Name: Ferdilia Gopal
Course Name: UU-ACG-1001-ZM-40881
Student Email Address: ferds101@hotmail.com
Tutor’s Name: Ramakrushna Mahapatra
Date: 20.11.2022
(a) Last in, First out (LIFO) method:

1. Computation of inve ntory on July 31, 2016 (Ending Inve ntory) under LIFO:

Earliest cost; July 1, 2016 (Beginning Inventory):

500 units @ $20 per unit $ 10,000.00

Next earliest cost; July 18, 2016:

100 units @ $24 per unit $ 2,400.00

Total cost of 600 units in inventory on July

31, 2016 (i.e., Ending Inventory) $ 12,400.00

2. Computation of cost of goods sold (COGS) for July 31, 2016 under LIFO:

Cost of units on July 1, 2016 (opening inventory):

500 units @ $20 per unit $ 10,000.00

Add cost of units purchased during month:

800 unit purchased @ $24 per unit $ 19,200.00
700 unit purchased @ $26 per unit $ 18,200.00 $ 37,400.00

Total cost of units available for sale $ 47,400.00

Less cost of units in Closing Inventory $ 12,400.00

Total cost of 1,400 units sold during July (i.e,. cost of goods
sold for July, 2016) $ 35,000.00

(b) First in, first out (FIFO) method:

Number of units in ending inventory :

Ending Inventory = Beginning Inventory + Purchases made during the month - Units sold during the month
= 500 units + 1,500 units (800 units +700 units) - 1,400 units

= 600 units

1. Computation of inve ntory on July 31, 2016 (ending inventory) under FIFO:

Most recent cost; July 25, 2016:

600 units @ $26.00 per unit $ 15,600.00

2. Computation of cost of goods sold (COGS) for July 31, 2016 under FIFO

Cost of units on July 1, 2016 (Opening Inventory):

500 units @ $20 per unit $ 10,000.00

Add cost of units purchased during the month:

800 units purchased @ $24 per unit $ 19,200.00
700 units purchased @ $26 per unit $ 18,200.00 $ 37,400.00

Total cost of units available for sale $ 47,400.00

Less cost of units in ending inventory (see a above) $ 15,600.00

Total cost of 1,400 units sold during July (i.e., cost of goods $ 31,800.00
sold for July, 2016)

(c) If average cost me thod is used:

(500 units x $20) + (800 units x $24) + (700 units x $26) /500 units + 800 units + 700 units
= $47,400/2,000 units
= $23.70
1. Computation of inve ntory on July 31, 2016 (Closing Inventory) under
Ave rage cost method:
Ending inventory =600 units x $23.70
= $ 14,220.00

2. Computation of cost of goods sold (COGS) for July 31, 2016 under average
cost method:
Cost of goods sold (COGS) =1,400 x $23.70
= $ 33,180.00

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Question 2

Brown Sugar PLC

Bank Reconciliation
as at November 30
Updates to Bank Statement Updates to Company's Books
Ending cash balance per bank statement $ 37,758.00 Ending cash balance per Cash book $ 42,500.00
Add: Add:
Deposit in Transit $ 6,244.00 Interest $ 167.00
$ 6,244.00 $ 167.00
Deduct: Deduct:
Outstnading Checks Service charge $ 14.00
Check number 921 964.00 NSF check - Mr. Sweet $ 700.00
Check number 925 1,085.00 $ 2,049.00 $ 714.00

Balance as per Bank Statement $ 41,953.00 Balance as per cash book $ 41,953.00

Brown Sugar PLC

Journal Entries
Dr. Cr.
Bank(Cash Book) $ 167.00
Interest Revenue $ 167.00

Accounts Receivable $ 700.00

Miscellaneous (Service Charge) $ 14.00
Bank (Cash Book) $ 714.00

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Question 3

The techniques and policies a company employs to safeguard its assets internally are referred to as
internal controls. According to Khlif, Samaha, and Amara (2021, p.286) “Internal controls ensure
organization performance quality and earnings management to improve the overall operations of entities.” A
strong internal control system is made to protect assets and guarantee the correctness and dependability of
accounting records. Moreover, internal controls assist management in disseminating voluntary information
which benefits the investors and shareholders of the entity to create an environment of confidence and
assurance for future support and further investment (Khlif, et.al., 2021). Internal control encourages
operational effectiveness and assures adherence to rules and laws. The disclosures that are necessary are not
available for firms with weak internal controls. Poor internal controls may contribute to underperformance,
poor decisions, unintentional mistakes, errors, and intentional misstatements which may affect the overall
quality of the firm’s operations (Feng, Li, and McVay, 2009). In addition, some forms of internal control are
related to inventory, receipt of goods and services, safekeeping of records, proper management, and
financial accounting. Le, Vu, Nguyen, (2021, p.173) stated that “Adequate internal control system can
promote efficiency, effectiveness of activities, reliability of information and compliance with the law.”

Money, coins, cheques made payable to the company, money orders and amounts deposited in banks and
other financial organizations are all examples of cash equivalents. It is typically regarded as the most
valuable asset and is easily taken if unprotected. Individuals tend to manage their personal financing by
establishing controls to save as much as possible while spending on products and services that are essential
to them. However, according to Chujan, Le Bao Ngoc and Faizi (2022, p.290) “Employees should exercise
judgment in securing and managing funds based on the operating procedures established by organizations
and through orientations that should affect their behaviors in handling financial assets based on internal
controls established.”

Internal controls that can be put in place by a company to protect its cash are segregation of duties, bank
reconciliations of cash, physical security of cash, documentation, and verification.

Segregation of duties which encompasses custody, authorization, and recording of cash is a major
internal control that a company can put in place to protect its cash. Butcher, (2022, p.2) stated that
“Employees within the same unit handling cash should maintain separation of duties in relation to custody,
authorization, and recording of cash so that the possibility of enabling fraud is minimized.” For instance, the
collection of cash should be separated from the recording, disbursing, depositing, and custody of the cash.
However, in smaller companies’ segregation of duties may pose a challenge because of the limited staff
available to perform the various responsibilities (Gramling, Hermanson, Hermanson, and Ye, 2010). There
are limited avenues for any employee to embezzle any cash if the responsibilities of handling cash are
distributed based on the identified duties.

Bank reconciliation is also another way of protecting a company’s cash. It is classified as a major
control for companies on a continual basis. Morris, (2021, p.1) indicated that “It is an effective method to
substantiate cash by validating transactions from the cash book against the transactions on the bank
statements.” Furthermore, it verifies the integrity and authenticity of data involving transactions between the
bank records and internal financial records based on the cash book. Additionally, bank reconciliation can
detect errors, fraud, and missing transactions from the cash book and other internal documents (MSU Texas,
2021). It enables completeness by ensuring that payments and receipts are recorded in both the bank
statement and the accounting records. The differences identified from the bank reconciliation are identified
and explained to ensure that they are accurate and processed by the company (Morris, 2021). The receipts
are compared from the books with the bank deposits and disbursements from books are compared to the
bank debits.
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 The third internal control is classified as the physical security of cash. Physical cash is the most liquid
form of asset that should be physically secured to avoid theft and loss. Policies, procedures, and guidelines
are normally adopted for the physical handling of cash (Flatt, 2021). Employees are normally assigned to
specific duties as it relates to the physical handling of cash which can custody, record keeping,
disbursement, and collection. Cruz, (2022, p.2) stated that “There are specific internal controls that deal with
the physical security of cash which includes using a vault with a secured password, daily deposits of cash to
the bank to avoid holding a large amount of cash, providing proper security in the office and only keeping a
limited sum of money in hand for certain needs which most times are petty cash purchases.” Some
companies decide to hold cash for specific reasons like unforeseen emergencies, however, in these cases a
cash management system can be used to secure physical cash. With high-quality security of cash, there are
clear guidelines for the physical security of cash which can justify the reasonable level of an established
cash holding level with clear and reasonable instructions (Hu and Yang, 2022).

Finally, documentation and verification play a key role in the internal control of companies which
includes completeness, adequacy, and correctness. According to Moldof, (2021, p.41) “Documentation and
verification when done in a proper way enables the information to be complete in order that it can
communicate the accurate essence of transactions for dependency by other stakeholders.” For instance,
through this process, there are demonstrations of evidence through invoices, receipts, statements, checks,
and accounting records that substantiate the transactions of companies and the relationships that are
established with vendors, customers, distributors, and other third parties. Additionally, cashiers
independently verify the cash registers, supervisors count the daily cash receipts, and the corporate treasurer
verifies the cash receipts to the bank through the documentation and verification form of internal control.
Also, this form of internal control is implemented to give information to those in governance to make
decisions and to assess the impact of the information through verification of the financial statements
(Fischer, 2022).

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Question 4

Defining for Ownership of Goods:

The precise moment that ownership of goods moves from the provider to the buyer in a transaction
including a sale is crucial since it has various legal ramifications. This is because, in a number of uncommon
situations, ownership of the goods determines the legal entitlement. Another type of document that purports
to demonstrate legal ownership of things or resources is a title (Von Königslöw, 2022). A title might
indicate ownership of a tangible resource, like a car, or an elusive asset or resource, like a brand name. A
title can also attest to the holder's possession of property rights, which include all assets, whether tangible of
a material character or intangible. According to Von Königslöw, (2022, p. 43) “A supplier of inventory can
retain legal ownership of the inventory until the buyer has fully paid the purchase price for that inventory.”
Suppliers can claim their inventory if the buyer does not comply with payment if the inventory was bought
in the presence of the buyer, if the purchase price was not paid and if the inventory is in the same state as
when it was purchased initially. Additionally, retention of title has to be agreed between a supplier and a
buyer, for example in a sales contract or through general terms and conditions (Sees, R1999). 
1. In transit (FOB) Shipping Point
The phrase FOB shipping point, which stands for free on board, is used to describe the sale of products
that occurs when the vendor or provider of those goods ships out a product. It is also classified as a free-on-
board destination. In essence, the transaction is complete as soon as the merchandise is picked up by the
shipping company and delivered to the customer (Chatham, 2015). The goods are titled as the buyer’s goods
when they are placed on the delivery vehicle or when the goods are placed at the shipping point. This
ultimately means that the buyer is liable for both the cost of transportation and any additional obligations
associated with the commodities being transported (Deuss, Maggi, and Frezal, 2022). It is significant to
mention that, in this case, the transit inventory is part of the buyer’s inventory stock and not the seller’s.

Example of FOB Shipping Point

In this illustration, the assumption is that True Fit Fitness, the vendor, has set a price of $625.75 as the
FOB shipping point for the sale of workout equipment. In addition, the assumption is that the item is labeled
for delivery on May 5 specifically. Up to its arrival at the buyer's location on May 10, the product or piece of
equipment can still be in transit. In this instance, the seller would mark the transaction as a sale on May 5
and track the sale as an increase in accounts receivable and a decrease in inventory.
Additionally, the purchaser would also document the acquisition of the equipment, the account payable,
and the expansion of their inventory as of May 5, the date of the initial acquisition. The products belong to
the buyer because the sale was completed at the time of shipping; as a result, the buyer would be liable for
the shipping fees. These expenses could be in addition to the price of the item.

2. In transit (FOB) Destination

The sale of goods that would happen after a product arrives at a buyer's destination is referred to as the
FOB (free on board) destination point in the shipping industry. In contrast to the FOB shipping point, the
seller may be liable for the expenses of shipment and any associated obligations for as long as the goods are
in transit (Deuss, Maggi, and Freza, 2022). When items are sold FOB destination, the title of ownership
cannot be transferred to the buyer until they arrive at their final destination, which could be a loading dock,
mailbox, house, or office. The seller is legally responsible for the goods during shipping, up until the time

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they reach the buyer, and then the title of ownership passes from the seller to the buyer once the products are
at the buyer's location.

Example of FOB Destination

A gym equipment distributor in Europe buys equipment in bulk from a U.S. company called True Fit
Fitness. The equipment's $3,300 purchase price can be contingent upon it arriving at the buyer's destination,
according to a FOB destination agreement that the seller may impose. We could also surmise that the goods
were never delivered to their intended location in Europe. Since a FOB destination contract was made, the
seller may assume complete liability for the lost items even if the buyer and seller are still under contract.
In this situation, the seller has two options: either reship the things or pay the European company back
for the equipment's cost. Due to the expenditures associated with preparing the goods for sale, this type of
shipping term may have an impact on the buyer's inventory cost. The buyer cannot immediately outlay the
charges because they would then have to be added to their inventory. The buyer's net profits, not the seller's,
may ultimately be impacted by this delay in recording the expenditures as an expense.

3. On Consignment

Goods obtained on a consignment basis are not part of the consignee's inventory since the ownership is still
on the consigner's end. When the consignor ships goods to the consignee, this only transfers possession of
the goods and not ownership. Goods dispatched on consignments are all still part of the inventory of the
consigner. The consigner can be classified as the supplier and the consignee as the retailer. Ratisoontorn,
(2012, p.1) stated that “Goods on consignment that deals with possession of goods indicate the time of
payment when the goods are eventually sold based on the time of payment in which the revenue from the
sale of the goods are shared between the supplier and retailer.” The retailer first decides the fraction of the
revenue to keep for each unit sold; the supplier then chooses the retail price and the quantity placed at the
retailers. In some situations, the supplier decides on the price and product quantity. Goods on consignment
are a very attractive method of selling products this segment is increasing because of the arrangement and
the sharing of revenue which the retailer has a choice in the arrangement to decide on the revenue it will
charge from the sales of products (Gagnet, 2022). The clothing industry is an industry that deals with Goods
on consignment which has realized an increase in sales through this method.

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