ICAEW CFAB ACCOUNTING (AG) - END ch. 7

what are the methods of inventory valuation?

• Stock count

• AVCO

• LIFO

• FIFO

• NRV

inventory that is being held at the end of accounting period is the latest inventory bought

• avco

• lifo

• fifo

5 may 2017 ;

Purchases 60 unit @ $ 12

7 May 2017 ;

Purchases 120 unit @ $ 23

10 May 2017 ;

Sales 55 units

Based on FIFO METHOD, what is the SALES value

• 55 @ $ 23

• 55 @ $ 35

• 55 @ $ 12

Answer explanation

Based on the FIFO (First-In, First-Out) method, the sales value would be:

55 units @ $12

In the FIFO method, the assumption is that the earliest inventory purchased is the first one to be sold. In this case, the first 55 units sold would be from the inventory purchased on 5th May 2017 at $12 per unit. Therefore, the sales value would be:

55 units * $12 = $660

So, the correct answer is:

55 @ $12

5 may 2017 ;

Purchases 60 unit @ $ 125

7 May 2017 ;

Purchases 120 unit @ $ 230

10 May 2017 ;

Sales 55 units

Based on AVCO method, what would the sales be?

• 55 @ $ 125

• 55 @ $ 350

• 55 @ $ 230

• 55 @ $ 195

Answer explanation

Based on the AVCO (Weighted Average Cost) method, we calculate the average cost per unit by dividing the total cost of inventory by the total number of units.

Total cost of inventory = (60 units $125) + (120 units $230) = $7,500 + $27,600 = $35,100

Total number of units = 60 units + 120 units = 180 units

Average cost per unit = $35,100 / 180 units ≈ $194.44

Therefore, based on the AVCO method, the sales value would be:

55 units @ $194.44 ≈ $10,694.20

So, the correct answer is:

55 @ $195

First In, First Out is

• an assumption that the inventory purchased first is sold first

• an assumption that the inventory purchased last will be sold first

• a dance move

• the reality that the inventory purchased first is sold first

Cost of sales

• Is the revenue generated from selling inventory

• Expenses incurred when inventory is sold

• Net profit minus Expenses

• The value of inventory recorded in the inventory cards

Gross Profit is

• The same as Sales Revenue

• The same as Net Profit

• The profit earned purely from the purchase and sale of inventory

• Revenue Less Expenses

What is the journal entry for purchasing inventory?

• Dr Inventory Cr Trade payables

• Dr Trade payables Cr Inventory

• Dr Trade receivables Cr Sales revenue

• Dr Cost of sales Cr Inventory

Inventory loss is when

• the number of units revealed by a stocktake is the same as the quantity shown on an inventory card

• the number of units revealed by a stocktake is less than the quantity shown on an inventory card

• the number of units revealed by a stocktake is greater than the quantity shown on an inventory card

What's best to describe an inventory

• a service or product of a business

• Assets owned by business with purpose of selling to the customer

• An asset that is being held in business

• Non current asset a business owned