Merchandise Inventory

Inventory has been defined as:

“Raw material & Supplies, Semi finished & finished goods,

and merchandise on hand & in-transit at he end of
an accounting period”

2-1 LO 2
 Inventory System

Periodic Inventory System:

• The periodic inventory system uses an occasional physical count
to measure the level of inventory and the cost of goods sold.

• The periodic inventory system is ideal for smaller businesses that

maintain minimum amounts of inventory. The
physical inventory count is easy to complete, small businesses
can estimate the cost of goods sold figures for temporary periods.

2-2 LO 2
 Inventory System

Perpetual Inventory System:

• The perpetual system keeps track of inventory balances
continuously, with updates made automatically whenever a
product is received or sold

•  Perpetual inventory systems involve more record-keeping than

periodic inventory systems, which takes place using specialized,
automated software

2-3 LO 2
 Inventory – Gross Profit Method

Q.1 The selected information of a company is as under:

Opening Inventory Rs. 40,000

Purchases during the period 260,000
Sales for the period 230,000

Required:
Calculate the value of ending inventory for the following cases
separately;

i. If Gross Profit is 20% of Sales

ii. If Gross Profit is 20% of cost of goods sold.

2-4 LO 2
 Inventory – Gross Profit Method

Q.2 The selected information of a company is as under:

Opening Inventory Rs. 72,000

Purchases during the period 468,000
Sales for the period 414,000

Required:
Calculate the value of ending inventory for the following cases
separately;

i. If Gross Profit is 25% of Sales

ii. If Gross Profit is 25% of cost of goods sold.

2-5 LO 2
 Inventory – Retail Price Method

Q.3 The selected information of a company is as under:

At Cost At Market Retail Price

Opening Inventory 80,000 95,000
Purchases during the period 150,000 190,000
Sales for the period 220,000

Required:
Calculate the cost of ending inventory using Retail Price Method

2-6 LO 2
 Inventory – Retail Price Method

Q.4 The selected information of a company is as under:

At Cost At Market Retail Price

Opening Inventory 144,000 171,000
Purchases during the period 270,000 342,000
Sales for the period 396,000

Required:
Calculate the cost of ending inventory using Retail Price Method

2-7 LO 2
 Inventory – Lower of Cost or Market Value
Method

Q.5 A Company has the following inventories on Dec 31, 2018

Items Quantity Unit Cost Market Rate

Raw Material
A 2,000 1.10 1.00
B 7,000 2.40 2.50
C 6,000 3.00 3.20

Goods in Process
1 8,000 3.75 3.80
2 4,000 5.00 5.10

Finished Goods
X 3,000 7.00 7.20
Y 2,500 8.00 7.50

Required:
i. Individual inventory item-wise
ii. Each class of inventory
2-8 LO 2
iii. Inventory as a whole.
 Inventory – Periodic System (Income
Statement)

Q.6 The inventory record of Deluxe Trading Co. for the month of
November is as under,

Units (Rate Rs.)

Nov.01 Inventory 300 8
Nov.08 Purchases 600 9
Nov.15 Purchases 400 10
Nov.25 Purchases 600 15

Total 700 units were sold during the month @ Rs.18 per unit.

Required:
• Calculate the units and cost of goods available for sale during
November
• Calculate the number of units in ending inventory.

2-9 LO 2
 Inventory – Periodic System (Income
Statement)
• Calculate the value of ending inventory using Periodic System of
Inventory Valuation under each of the following methods;
a. FIFO b. Weighted Average Method

• Prepare an income statement for each of the above method, also

mention which method of inventory valuation gives you more
profit?

2-10 LO 2
 Inventory – Perpetual System

Q.7 Zahid Traders makes the following purchases and issues during
the month of September 2019

Inventory on Sept 01 400 units @Rs.14

Purchases 05 500 units @Rs.13.10
09 200 units @Rs.12.40
25 700 units @Rs.12.10
12 600 units
27 500 units

Required:
• Calculate the cost of ending inventory on Sept 30, and
• Cost of goods sold, using perpetual inventory system under each
of the following methods
i. FIFO Method ii. Moving Average Method

2-11 LO 2
 Inventory – Perpetual System

Q.8 Kashif Traders makes the following purchases and issues during
the month of November 2018

Inventory on Nov 01 300 units @Rs.13

Purchases 04 600 units @Rs.12.20
10 400 units @Rs.11.50
23 600 units @Rs.13.40
14 700 units
28 500 units

Required:
• Calculate the cost of ending inventory on Nov 30, and
• Cost of goods sold, using perpetual inventory system under each
of the following methods
i. FIFO Method ii. Moving Average Method

2-12 LO 2
 Inventory – Perpetual System (Material
Returned)
Q.9 The following transactions affecting Material No. 115 – 8,
occurred during March 2019:
March 01 Balance on hand 500 gallons at Rs. 20 per gallon
March 02 Received 1,200 gallons at Rs. 21 per gallon
March 03 Issued 600 gallon
March 05 Received 1,000 gallons at Rs. 19 per gallon
March 07 Returned to vendor 200 gallons received on March 05
March 10 Issued 900 gallon
March 14 Received 600 gallons at Rs. 20 per gallon
March 18 Issued 800 gallon
March 22 Issued 400 gallon
March 26 Received 1,500 gallons at Rs. 18 per gallon
March 28 100 gallons were returned from the factory to the store room
(Treat as oldest one)
March 30 Issued 700 gallons

2-13• Record the above transactions on the store Ledger card using FIFO LO 2
method of costing