Inventory Valuation

FIFO Periodic
FIFO Perpetual

Edjierson John Ongbit Derecho

PRACTICE
EXERCISE

1)

The Delta company uses a periodic inventory system. The beginning balance of
inventory and the purchases made by Delta during the month of July are given below:

Date

Description

Units

Unit cost

Total cost

July 01

Beginning inventory

500

$20

$10,000

July 18

Inventory purchased

800

$24

$19,200

July 25

Inventory purchased

700

$26

$18,200

Total

______

________

2,000

$47,400

______

________

Delta company sold 1400 units during the month

REQUIREMENT: USING FIFO, SOLVE FOR:
A) ENDING INVENTORY
B) COST OF GOODS SOLD
C) COST OF GOODS AVAILABLE FOR SALE

Solution:
Ending inventory in units:

Beginning
inventory

Purchases
made during
the month of
July (800 +
700)

500 units

1,500 units

Ending inventory:
600 units $26 = $15,600
Cost
goods
500 ofunits
sold
$20(COGS):

$10,000

800 units $24

$19,200

100 units $26

$2,600

Available for
sale during the
month of July

2,000 units

Units sold
during the
month of July

1,400 units

Cost of goods sold

(COGS)

$31,800

Ending
inventory

600 units
-

Cost of goods available for

sale

$47,400

Less ending inventory

$15,600

Cost of goods sold (COGS)

$31,800

2) Great company uses FIFO Perpetual inventory system. The inventory

transactions for September of the current year were as follows:
DATE

DESCRIPTION

September 1
8
18
22
30

Beginning Balance
Sale
Purchase
Sale
Purchase

REQUIREMENT: USING FIFO, SOLVE FOR:

A) ENDING INVENTORY
B) COST OF GOODS SOLD
C) COST OF GOODS AVAILABLE FOR SALE

UNITS

UNIT COST

TOTAL COST

800

200

160, 000

500
700

210

147, 000

220

110, 000

800
500

DATE

PURCHASES
UNIT COST TOTAL COST

UNIT
September

1
8
18
22

700

30

500

210

220

SALES
UNIT COST TOTAL COST

UNIT
500

200

100000

300
500

200
210

60000
105000

147000

110000
COS

UNIT

BALANCE
UNIT COST TOTAL COST
800
200
160000
300
200
60000
300
200
60000
700
210
147000
200
210
42000
200
210
42000
500
220
110000

265000
EI

COGAS

417000

152000

What is First in, First out (FIFO)?

It assumes that the goods first purchased are first sold and
consequently the goods remaining in the inventory at the end of the
period are those most recently purchased or produced
It is in accordance with the ordinary merchandising procedure that
the goods are sold in the order they are purchased
The rule is first come, first sold

What is First in, First out (FIFO)?

Inventory is expressed in terms of recent or new prices and cost of
goods sold is representative of earlier prices
This method favor the statement of financial position in that the
inventory is stated at current replacement cost

Objection to the method

There is improper matching of cost against revenue because the cost
of goods sold are stated at earlier or older prices resulting in an
understatement of cost of sales

 In a period of inflation or rising of prices, the FIFO method would

result to the highest net income
In a period of deflation or declining of prices, the FIFO method would
result to the lowest net income

Methods used in FIFO

Periodic
Perpetual
-this method requires the preparation stock cards

NOTE:
Under FIFO-periodic and FIFO-perpetual, the inventory costs are
the same

Additional Information
In general, sales returns should be costed back to the unit price of the most recent inventory
Except in cases where all of the goods sold were from the older inventories, sales returns should be
costed to the price of the older inventories
inventory
Example:
inventory, beg

5000 @ 50

purchase

3000 @ 60

sale

3000

sales return

2000

The sales return should have a unit cost of 50 since all of the goods sold were from the beginning inventories

Additional Information
inventory
Example:
inventory, beg

4000 @ 50

purchase

3000 @ 60

sale

5000

sales return

2000

Following the general rule, the sales return should be costed back to the latest purchase which is 60 per unit

Sales
Gross Sales
Less: Sales Ret. and Allow.
Sales Discounts
Net Sales
Cost of Sales
Beg. Inventory
Purchases
Add: Freight-in
Less: Purchase Ret. And Allow.
Purchase Discounts
Net Purchases
Goods Available for Sale
Ending Inventory
Cost of Sales
Gross Profit
Less: Selling and Admin
NET INCOME

XX
XX
XX

(XX)
XX
XX
XX

XX
XX
XX

XX
XX
XX
(XX)
(XX)
XX
(XX)
XX

1) QUALI company which used the periodic inventory system provided

the following transaction for June:

June

PURCHASES
2
4
7
9
12

SALES
7500 @ 304
4000 @ 320
6000 @ 325
3500 @ 330
2500 @ 313

June

Beginning Inventory was 3000 @ 300

REQUIREMENTS:
a) cost of the ending inventory
b) cost of goods sold
c) cost of goods available for sale
d) gross profit

2
9
12
14
24

2500 @ 500
6500 @ 500
3000 @ 550
6000 @ 550
4500 @ 600

EI

4000 units
2500
1500

313
330
1,277,500.00

3000

300

900,000.00

7500

304

2,280,000.00

4000

320

1,280,000.00

6000

325

1,950,000.00

3500

330

1,155,000.00

2500

313

782,500.00
8,347,500.00

COGAS
COS

Sales
COS

7,070,000.00
2500

500

1,250,000.00

6500
3000

500
550

3,250,000.00
1,650,000.00

6000

550

3,300,000.00

4500

600

2,700,000.00
12,150,000.00
(7,070,000.00)
5,080,000.00

2) Hmmm Company provided the following data for purchases and

sales:
PURCHASES

2013
2014
2015

UNITS

UNIT COSTS

5000
9000
15000

50
60
75

REQUIREMENTS:
a) 2015 ending inventory units
b) 2015 beginning inventory units
c) 2015 Cost of Goods Sold
d) 2015 Gross Profit

SALES
COST

250,000.00
540,000.00
1,125,000.00

UNITS

4000
7000
12000

REVENUE

280,000.00
630,000.00
1,200,000.00

PURCHASES
5000
9000
15000
Inventory, end
Sales
COS
inv, beg
purch
cogas
inv, end

SALES
4000
7000
12000

INVENTORY INCREMENT
1000
2000
3000
6000
1,200,000.00

3000

6000

60

180,000.00
1,125,000.00
1,305,000.00
75 (450,000.00)
(855,000.00)
345,000.00

3) Oraaayt company sells Brand X product. During a move to a new location, the
inventory records for the product were misplaced. The entity has been able to
gather some information from the purchases and sales records. The February
purchases are as follows:
DATE
QUANTITY UNIT COST
July 5
10, 000
65
9
12, 000
63
12
15, 000
60
25
14, 000
62
On February 28, 15, 000 units were in hand. The sales for the month amount to
P6, 000, 000 or 60, 000 units at P100 per unit. The entity has always used a periodic
FIFO inventory costing system. Gross profit on sales for the month was
P2, 400, 000.
REQUIREMENTS:
a) How much is the cost of the beginning inventory?
b) How much is the cost of the ending inventory?
c) How much is the Cost of Goods Sold?
d) Assuming FIFO-perpetual, how much is the cost of the beginning inventory?

sales
gross profit
cost of sales
inventory, end
cost of goods available for sale
purchases
inventory, beg

14000
1000

62 868000
60 60000
928000

6,000,000.00
(2,400,000.00)
3,600,000.00
928000
4,528,000.00
(3,174,000.00)
1,354,000.00