ACCT1501

2011S1

Week 9 Tutorial Questions: DQ 8.8; Problems 8.4, 8.8, 9.11, CASE 8B

8 FIFO, weighted average and LIFO are assumptions made about the order in which units of inventory flow through the business. FIFO assumes that the first items acquired are the first ones sold and, therefore any ending inventory on hand consists of the most recently acquired units. Thus the older costs will appear in cost of goods sold and the more recent costs on the balance sheet. Weighted average assumes that ending inventory and cost of goods sold are composed of a mixture of old and new units. LIFO assumes the opposite of FIFO. Recent costs will appear in cost of goods sold and the older costs in the balance sheet. The three methods will give similar profit figures if inventory prices are fairly constant. They would give identical profit figures if cost prices of opening inventory and purchases remain unchanged throughout the financial period.

ACCT1501

2011S1

P roblem 8.4

ACCT1501

2011S1

P roblem 8.8
1 a Perpetual FIFO COGS = 60 x $5 + (50 x $5 + 70 x $6) + (10 x $6 + 80 x $7) = $1590 Closing inventory = 30 x $7 + 100 x $8 = $1010 b Perpetual LIFO COGS = 60 x $6 + (110 x $7 + 10 x $6) + 90 x $8 = $1910 Closing inventory = 110 x $5 + 10 x $6 + 10 x $8 = $690 Students who calculated that the total cost of goods available for sale was $2600 tended to perform better in this question as they had a method to test check their answer.

2 Only Closing inventory is adjusted the net realisable value is designed to prevent companies overstating their asset values. Therefore under both FIFO and LIFO, Closing inventory should be $650 (130 x $5). FIFO Closing inventory should be reduced by $360, LIFO by $40.

ACCT1501

2011S1

P roblem 9.11