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Inventory Valuation – Accounting CA Foundation Notes

 

Inventory Valuation – CA Foundation, CPT notes, PDF

This article is about the Inventory Valuation in for CA foundation CPT students. we also provide PDF file at the end.

inventory valuation

Inventory Valuation

We will study in this chapter:

Meaning & how inventory is ascertained and adjusted in accounts, Methods of ascertaining cost, valuation principle, etc. and Provision of AS-2 Inventory Valuation’ issued by ICAl

INTRODUCTION:

While preparing the final accounts a concern has to make adjustment of stock/inventory balance at the end of that year. The balance of stock will not be available from the financial records, but will be ascertained by making physical counting at the end of the year and then valuing it.

The adjustment is necessary because purchase is treated as an expense and debited to trading account, whereas some of those goods may be still remaining with the organization at the end of the year ie. that much inventory is an asset and not an expense.

The Entry will be:

Stock a/c (asset) Dr….

To Trading a/c Or Purchase a/c….

14.1   INVENTORY: MEANING & ASCERTAINMENT:

14.1.1   inventory:

♦        Inventory are the assets held

■               for resale (finished goods and stock in trade) or

■               for consumption in the process of production (raw material, packing material, stores and spares, etc.) or

■               in the course of conversion into finished goods (WIP).

♦        Inventory is commonly referred to as stock or closing stock.

14.1.2   Items included in inventory:

The inventory mainly includes:

♦        For a manufacturer:

■               Raw material

■               Work-in-progress

■          Finished goods, stock-in-trade and

■               Others like store, spares, packaging material etc.

♦        For a trader :

■               Finished Goods/Stock-in-trade

14.1.3   inventory System:

♦        Inventory system refers to system of ascertaining the inventory i.e. how much balance of an item is there.

♦        The most common systems are:

■                Periodic /Physical inventory system

■                Perpetual inventory system

14.1.3.1   Periodic/Physical inventory system:

♦        No records of inventory are maintained.

♦        Inventory is ascertained by physical counting at the end of the year and then valued.

♦        It is simple and commonly followed by small organisations.

Unless otherwise specified, we can always assume that inventory/closing stock for annual financial account purposes is ascertained by physical counting and then valuing.

14.1.3.2   Perpetual/continuous inventory system:

♦        Inventory records also known as stores records are maintained in which details of each and every item are kept.

♦        The records may be in only quantity form or may include value also (known as priced ledger).

♦        The details of receipt and issue are recorded instantly and balance ascertained.

♦    Hence balance of all items of inventory are always available. The balance of year end can be used in financial accounting for final accounts.

14.1.4   Stock taking:

♦        Stock taking is referred to the process of physical counting/checking of each item of inventory.

♦        It is a necessary element of inventory control system.

♦    It can be carried at pre-determined time interval or on a surprise basis Le. any time without intimating in advance to the stores people.

♦        All items may be verified together at one time or on few items everyday basis.

♦        Important and valuable items will be verified more frequently than others.

♦        In perpetual inventory system also stock taking is carried so as to prove the accuracy of stock records.

♦        In periodic inventory system stock taking is carried at the year end.

14.2         INVENTORY VALUATION:

14.2.1   The principles of inventory valuation:

♦        The inventory may be valued:

■                at cost or

■                at net realisable value or

■                at cost or net realisable value whichever is lower.

AS-2 requires inventory should be valued at lower of the cost and net realisable value.

This is in accordance with the prudence principle. Because if the inventory value reduces the anticipated loss gets recognized but in case the value increases the expected profit (which is not yet realized) is not recognized.

14.2.2   Cost:

♦        Cost is the expenditure necessarily incurred to bring the inventory into its present form and condition.

14.2.3   The cost formulas used for inventory valuation:

♦        The cost may be calculated by different methods/cost formulas.

♦        The more commonly used and recognized methods are:

■                Specific identification/specific pricing method

■                First In First out (FIFO)

■               Last In First Out (LIFO)

■               Weighted Average Method

♦    The use of method is required when there are more than one cost (rate) ie. there are two or more lots of same inventory item with different cost.

♦       This methods help to select the rate from among this rates, for valuation.

14.2.4   Elements (items) included in cost:

♦    The cost include various elements in it. e.g., Material, Labour, Direct Expenses, Manufacturing Expenses, Administration Expenses, Selling-Distribution Expenses and Interest.

♦    But generally for valuation of closing stock of Finished goods and WIP we include expenses upto manufacturing stages only ie. Material, Labour, Direct expense and Manufacturing overhead (Variable and Fixed both)

♦       That means, administration expenses, selling expenses and interest is not included in inventory valuation.

As per AS-2 Accounting Standard on Inventory valuation only FIFO method and Weighted average methods are permitted for valuation.

AS-2 requires expenses upto manufacturing stage (including fixed overheads) should be included in cost. Cost should include those expenses which are necessarily incurred to bring inventory into its present stage and condition.

14.2.5   Net realisable value:

♦    The net realisable value in case of Raw Material will be generally the replacement price (ie., the price which will be payable if we purchase that material at the end of the year).

♦    In case of finished goods/stock-in-trade the net realisable value will be the net selling price which will be receivable if we sale that goods at the end of the year in the normal course of business. Thus –

♦    Net realizable price in case of raw materials = Replacement price = Purchase price + Expenses of completing purchase.

♦        Net realizable price in case of finished goods = Net selling price = Selling price (-) Expenses of completing sale.

14.3   COST FORMULA:

14.3.1   Specific identification method:

♦    In this method the rate of inventory item which is actually issued is applied for valuing issues ie. physical tracking is required.

♦        This may be practicable only for those items which are purchased for a specific use.

♦    For general items which are similar & interchangeable and are regularly held in stock, this method will be most inconvenient to apply.

14.3.2   FIFO (First In First Out) method:

♦    In FIFO method it is assumed that the lot of material which comes first will be issued first and then the next and so on.

♦    Therefore the closing stock will be out of the latest (recent) lots and hence the stock will be valued at the rates of this lots.

♦    Closing stock can be valued from out of the latest (last) lots or by preparing date wise stores ledger, both approaches will give same valuation.

♦    In case of rising prices, the inventory will be valued at the latest ie. higher prices and hence profit will be higher and cost of sales will be lower.

♦    In case of declining prices, the inventory will be valued at the latest i e. lower prices and hence profit will be lower and cost of sales will be higher.

14.3.3   LIFO (Last In First Out) method:

♦    In LIFO method it is assumed that the last lot (ie., the last among the lots available at the time of issue) will be issued first and then the previous lot and so on.

♦    Therefore the earlier lots will be in stock and hence the closing stock will be valued at those rates of earliest lots (ie. oldest lots)

♦    In case of rising prices, the inventory will be valued at the oldest ie. lower prices and hence profit will be lower and cost of sales will be higher.

♦    In case of declining prices, the inventory will be valued at the oldest ie. higher prices and hence profit will be higher and cost of sales will be lower.

♦        In this method the current (ie. latest) cost gets charged against current revenue.

♦    In case of LIFO method the valuation of inventory from earliest lot will be followed only when date wise details of issue are not given.

♦    But if in the question the details of date-wise issues are given then more correctly the valuation should be made by preparing a date wise stores-Card. Both approaches can give different valuation.

♦        LIFO as a cost formula is not permitted by revised AS-2.

Students should have noted that in FIFO and LIFO both, the word ‘assumed’ has been used. That means first going first or last going first is only an assumption for the purpose of valuation, actually (physically) any material may have been issued.

14.3.4   Average price method:

♦        The average can be a simple average or weighted average.

♦    If we calculate the total of various rates and divide it by the number of rates taken then it is a simple average e.g.

♦        Simple Average =  =  = 5.35

♦    The simple average is not considered as appropriate method (not permitted by AS-2) & hence generally not followed.

♦        Therefore in average price method, we follow weighted average method.

♦        Weighted average can be calculated in two ways:

■                1. Weighted average of ter every purchase.

  • In weighted average for calculating the average, the rates are given weight of its quantity (ie. rate quantity).
  • It is re-computed every time after receipt (purchase) of new lot.

■                2. Periodic Weighted average:

  • In Periodic weighted average, average is calculated for a particular period say weekly or monthly etc ie. all lots and opening balance of that period are taken together.

AS-2 permits both this weighted average but not simple average.

14.3.5   Standard price method:

♦        Standard price is a pre-determined price (ie. it is a best estimated price and not actual cost).

♦    It can be applied for inventory valuation only when the result approximates the actual (As per AS-2).

14.3.6   Retail price method or adjusted selling price method:

♦        The cost is ascertained by deducting a percentage of profit from the sale value.

♦    In case of large number of small value inventory this method is permitted for convenience by AS-2, if the result approximates the actuals.

♦    In case of retail trade where numerous items are dealt with and the individual cost details are not being maintained.

♦    Then for inventory valuation the selling price of such goods can be reduced by some % representing the profit margin and selling expenses.

♦    Such adjusted rate will be used for valuation of inventory.

♦    It is simple to use and does not require elaborate record maintenance.

14.4   OTHER SITUATION OF INVENTORY ASCERTAINMENT:

♦    Inventory is ascertained Most commonly:

■               by Physical counting refer Para 14.1.3.1 or

■               by maintaining Inventory records refer Para 14.1.3.2

♦    but sometimes following situation may arise.

14.4.1  Ascertaining Inventory when Physical verification is done at different date:

♦    Physical count of an early date or later date will be available.

♦    The transactions like sale, purchase, returns etc. between this date and year end date should be appropriately adjusted on the physical count given to arrive at closing inventory.

♦    In case above data is in value terms and not quantity, then all should be converted into same valuation base say cost.

♦    For this purpose from sale value and sales return value the gross profit will be deducted to arrive at cost, rest of the process will be same.

Closing Inventory = Early date inventory + Purchases + Cost of sales return – Cost of sales – Purchase return.

Closing Inventory — Later date inventory + Cost of sales + Purchase return – Purchases – Cost of sales return.

14.4.2   Ascertaining Inventory when physical verification is not done and inventory records are also not maintained by the organization:

♦    In such situation gross profit (G.P.) ratio will be given alternatively it can be ascertained from last years trading account.

♦    Prepare trading account write G.P. earned on the sales calculated at above G.P. rate and balance the account to get closing inventory.

♦    If any abnormal item (Le. on which this % of profit is not applicable) is included, then remove such abnormal items from both side of trading a/c. and then calculate and write G. P. and balance trading a/c to get closing inventory.

♦    If any abnormal item was also lying (remaining) till that date then add the same to closing inventory ascertain ed from above trading a/c, at lower of cost and net realisable value.

Requirements of Accounting Standard-2:

(1)  Inventory should be valued at cost or net realisable value whichever is lower.

(2)  Cost should be valued by FIFO or Weighted Average basis. Specific price method can be followed when material is acquired for a particular transaction or contract. Standard cost and retail price method (adjusted selling price method) is permitted in only specific situation.

(3)  Cost should be valued on absorption costing basis (i.e., including variable cost + proportionate fixed production overhead). Administration overhead, Selling & Distribution cost, storage cost and interest should be excluded for stock valuation.

ILLUSTRATIONS

FIFO, LIFO and WEIGHTED AVERAGE

Illustration 14.1 : The following are the details of a spare part of Sriram Mills :

1-1-06Opening StockNil
1-1-06Purchases100 units @ Rs. 30 per unit
15-1-06Issued for consumption50 units
1-2-06Purchases200 units @ Rs. 40 per unit
15-2-06Issued for consumption100 units
20-2-06Issued for consumption100 units
1-3-06Purchases150 units @ Rs. 50 per unit
15-3-06Issued for consumption100 units

Find out the value of stock as on 31-3-06 if the company follows:

  1. First in First Out basis 2. Last in First Out basis 3. Weighted Average basis Solution :

Stores card/Stores ledger

FIFO METHOD

Item – Spare parts Method of Valuation of issues → FIFO

DateReceiptIssueBalance
2006ParticularsV. No.QtyRateAmtQtyRateAmtQtyRateAmt
1.1Opening Bal.
1.1Purchase100303000100303000
15.1Issue5030150050301500
1.2Purchase20040800050301500
200408000
15.2Issue10050×301500150406000
50×402000
20.2Issue100100×40400050402000
1.3Purchase15050750050402000
150507500
15.3Issue10050×402000
50×502500100505000
Total45018500350135001005000

Qty.     Value

Purchases

Consumption

450

350

18.500

13.500

Closing Stock (Cost by FIFO method)1005,000

Without making stores card, if we simply value the stock of 100 units from the last lot because the earlier lots have been issued, we get the same valuation 100 units @ 50/- = Rs. 5,000.

LIFO METHOD

Item – Spare parts Method of Valuation of issues LIFO

DateReceiptIssueBalance
2006ParticularsV.No.Qty.RateAmt.Qty.RateAmt.Qty.RateAmt.
1.1Opening Bal.
1.1Purchase100303000100303000
15.1Issue5030150050301500
1.2Purchase20040800050301500
200408000
15.2Issue10040400050301500
100404000
20.2Issue10040400050301500
1.3Purchase15050750050301500
150507500
15.3Issue10050500050301500
50502500
Total45018500350145001004000

 

Qty.Value
Purchases

Consumption

450

350

18.500

14.500

Closing Stock (Cost by LIFO method)1004,000

Alternatively: The shortcut valuation of closing stock by LIFO i.e. without preparing stores card, would have been 100 units @30 = 3,000. It differs from the above valuation which is more correct if datewise issue is known.

WEIGHTED AVERAGE METHOD

Item – Spare parts Method of Valuation of Issues Weighted Average Method

DateReceiptIssueBalance
2006ParticularsV.No.QtyRateAmtQtyRateAmtQtyRateAmt
1.1Opening Bal.––
1.1Purchase100303000100303000
15.1Issue5030150050301500
1.2Purchase200408000250389500
15.2Issue100383800150385700
20.2Issue10038380050381900
1.3Purchase150507500200479400
15.3Issue100474700100474700
Total45018500350138001004700

 

Qty.Value
Purchases45018,500
Consumption35013,800
Closing Stock (Cost by weighted method)1004,700

Alternatively periodic weighted average can be applied

say quarterly weighted average = 3000+8000+7500, 100+200+150 = 41.11 Closing stock = 41.11 × 100 = 4111

Qty.Value
Purchases45018,500
Consumption35014,389
Closing Stock (Cost by weighted method)1004,111

FIFO, LIFO and WEIGHTED AVERAGE METHOD

Illustration 14.2 : A manufacturer has the following record of purchase of a condenser which he uses while manufacturing radio sets:

Purchases were as follows

DateQuantity

(Units)

Price per

(Unit)

Dec-49005.00
Dec-104005.50
Dec-113005.50
Dec-192006.00
Dec-288004.75
2600

Value the closing stock under different methods

Issues were made as follows

DateQuantity (Units)
Dec-5600
Dec-12400
Dec-29600

Solution

FIFO METHOD

Item – Condenser → Method of Valuation of issues → FIFO

ReceiptIssueBalance
DateParticularsV. No.QtyRateAmtQtyRateAmtQtyRateAmt
01.12

04.12

Opening Bal. Purchase9005450090054500
05.12Issue6005300030051500
10.12Purchase4005.502200300

400

5

5.50

1500

2200

11.12Purchase3005.51650300

700

5

5.50

1500

3850

12.12Issue400300×5

100×5.5

1500

550

6005.503300
19.12Purchase20061200600

200

5.50

6

3300

1200

28.12Purchase8004.753800600

200

800

5.50

6

4.75

3300

1200

3800

29.12Issue6005.503300200

800

6

4.75

1200

3800

Total260013350160083505000

 

Qty.Value
Purchases

Consumption

2600

1600

13,350

8,350

Closing Stock (Cost by FIFO method)10005,000

Without making stores card, if we simply value the stock of 1000 units from the last lots because the earlier lots have been issued, we get the same valuation 800 units @ 4.75/- = Rs. 3,800 and 200 units @6 = Rs.1,200.

LIFO METHOD

Item → Condenser → Method of Valuation of issues LIFO

DateParticularsV. No.Qty.RateAmt.Qty.RateAmt.Qty.RateAmt.
01.12Opening Bal.
04.12Purchase9005450090054500
05.12Issues600530003005.501500
10.12Purchase4005.5220030051500
4005.502200
11.12Purchase3005.5165030051500
7005.503850
12.12Issue4005.50220030051500
3005.501650
19.12Purchase2006120030051500
3005.501650
20061200
28.12Purchase8004.75380030051500
3005.501650
20061200
8004.753800
29,12Issue6004.75285030051500
3005.501650
20061200
2004.75950
Total260013350160080505300

 

Qty.Value
Purchases260013,350
Consumption16008,050
Closing Stock (Cost by LIFO method)10005,300

The shortcut valuation of closing stock by LIFO ie. without preparing stores card, would have been 900 units @5 = 4,500 and 100 units @5.50 = 550. It differs from the above, which is more correct if date wise issue is known.

WEIGHTED AVERAGE METHOD

Item → Condenser → Valuation of Issues → Weighted Average

DateParticularsV. No.Qty.RateAmt.Qty.RateAmt.Qty.RateAmt.
01.12Opening Bal.
04.12Purchase9005450090054500
05.12Issue6005300030051500
10.12Purchase4005.5022007005.2863700
11.12Purchase3005.50165010005.355350
12.12Issue4005.3521406005.353210
19.12Purchase200612008005.51254410
28.12Purchase8004.75380016005.1318210
29.12Issue6005.131307910005.1315131

 

Qty.Value
Purchases260013,350
Consumption16008,219
Closing Stock (Cost by LIFO method)10005,131

Monthly Weighted Average =

=  = = 5.135

Therefore closing stock will be 1000 × 5.135 = 5135

Qty.Value
Purchases260013,350
Consumption16008,215
Closing Stock (Cost by LIFO method)10005,135

Ascertaining closing stock by preparing trading account

Illustration 14.3 : From the following particulars for the years 2004 and 2005 determine the value of the closing stock at the end of 2005.

2004

Rs.

2005

Rs.

Opening Stock20,00030,000
Purchases1,20,0001,90,000
Sales2,00,0002,40,000

Uniform rate of gross profit may be assumed.

At the end of 2005, goods purchased were received, but no entry was made for this credit purchase since invoice was not received. These goods cost Rs. 20,000.

Solution

Closing stock of 2005 can be ascertained by preparing Trading a/c but gross profit ratio for 2005 is not given hence the same is ascertained by preparing Trading a/c of 2004. For this remember the closing stock of this year is the opening stock of next year.

Trading A/c

For the year ending 31st December, 2004

ParticularsRs.ParticularsRs.
To Opening Stock20,000By Sales2,00,000
To purchases1,20,000By Closing Stock30,000
To Gross Profit (Balancing figure)90,000
2,30,0002,30,000

Calculation of Rate of Gross Profit

Gross Profit Ratio = × 100 = ×100 = 45%

Trading A/c

For the year ending 31st December, 2005

ParticularsRs.ParticularsRs.
To Qpening Stock30,000By Sales2,40,000
To Purchases1,90,000By Closing Stock (Balancing Figure)1,08,000
+ unrecorded purchase20,0002,10,000
To Gross Profit (45% of 2,40,000)1,08,000
3,48,0003,48,000

Alternatively periodic weighted average can be applied. It can be monthly, quarterly etc.

Uniform Rate of gross Profit = 45% is taken from 2004. Stock as on 31-12-2005 including goods for which invoice was not accounted is Rs. 1,08,000

Ascertaining Closing Stock by Preparing Trading Accounts

Illustration 14.4 : From the following particulars ascertain the value of stock as on 31st March, 2006 and also the profit for the year. Stock as on 1-4-2005 Rs.14,250; Purchases Rs.76,250; Manufacturing Expenses Rs.15,000; Selling Expenses Rs. 6050; Administrative Expenses Rs. 3,000; Financial Charges 2,150; Sales Rs. 1,24,500.

At the time of valuing stock as on 31st March, 2005 a sum of Rs. 1,750 was written off on a particular item, which was originally purchased for Rs. 5,000 and was sold during the year for Rs.4,500. Barring the transaction relating to this item, the gross profit earned during the year was 20 per cent on sales.

Solution

To apply the given normal G.P. ratio of 20%, abnormal item is excluded from opening stock as well as sales.

Trading A/c

ParticularsAmountParticularsAmount
Opening stock14250Sales124500
(-) Abnormal item325011,000(-) Abnormal item sale45001,20,000
Purchases76,250Closing stock (Balancing figure)6,250
Manufacturing Exp.15,000
Gross profit (20% on 1,20,000)24,000
1,26,2501,26,250

Profit & Loss A/c

ParticularsAmountParticularsAmount
Selling exp.6,050Gross profit24,000
Administrative exp.3,000Profit on abnormal item
Financial charges2,150Sale value4500
Net profit (Balancing figure)14,050Less Written down cost– 32501,250
25,25025,250

Ascertaining Stock, When Stock of Different Date is Known (Stock of Latter date is Known)

Illustration : 14.5 : X who was closing his books on 31-3-2006 failed to take the actual Stock which he did only on 9th April, 2006, when it was ascertained by him to be worth Rs. 25,000.

It was found that sales are entered in the sales book on the same day of dispatch and return inwards in the return book as and when the goods are received back. Purchases are entered in the purchases day book once the invoices are received. It was found that sales between 31-3-2006 and 9-4-2006 as per the sales day book are Rs. 1,720. Purchases between 31-3-2006 and 9-4-2006 as per purchases day book are Rs.120, out of these goods amounting to Rs.50 were not received until after the stock was taken.

Goods invoiced during the month of March, 2006 but goods received only on 4th April, 2006 amounted to Rs. 100. Rate of gross profit is 33 1/3% on cost.

Ascertain the value of physical stock as on 31-3-2006.

Solution:

Stock on 9-4-200625,000
Add: Cost of goods sold (1720/100)×75+ 1,290
Note: Profit 33 1 /3% on cost — 25% on sale
Less: Goods purchased and received (120-50)-70
Less: Goods purchased in March but received on 4-4-06– 100
Physical stock on 31-3-0626120
Add: Stock in transit (purchased but not received till 31-3-06)+ 100
Closing stock for final a/c.26,220

Ascertaining Stock, When Stock of Different Date is Known (Stock of Earlier Date is Known)

Illustration 14.6 : A trader prepared his accounts on 31st March, each year. Due to some unavoidable reasons, stock taking was done on 15th March, 2006 on which date the total cost of goods in his godown came to Rs. 50,000. The following facts were established between 15th March and 31st March, 2006.

(α) Sales Rs. 41,000 (including cash sales Rs. 10,000)

(h) Purchases Rs. 5,034 {including cash purchases Rs. 1,990)

(c) Sales Returns Rs. 1,000

Goods are sold by the trader at a profit of 20% on sales.

You are required to ascertain the value of stock on hand on 31st March, 2006.

Solution

Statement showing the Valuation of Stock as on 31st March, 2006

Rs.
A Stock in godown (Physical inventory) as on 15-3-0650,000
B Less: (a) Cost of sales between 15.3 to 31.3. net of return
80% of (Rs. 41,000 – Rs. 1,000)– 32,000
C Add: (a) Purchases during the period+ 5,034
D Stock as on March 31, 2006 (at cost)23,034

PRACTICE PROBLEMS

(Answers & Hints given at the end of the Chapter)

P.1 : How valuation will be done in following cases.

ItemsCostNet realisable price (net of selling exp.)Replacement price (including purchase exp.)Remarks
(a) Finished goods5006001000 units in stock
(b) Finished goods5004601000 units in stock
(c) Raw material200220600 units in stock
(d) Raw material200175600 units in stock
(e) WIP260600200 units in stock, further cost 240
(/) WIP260460200 units in stock, further cost 240

P.2 : M/s Subhalaxmi Traders find out the following historical cost and net realisable value for various types of inventories. Find out value of Closing Stock.

Inventory CategoriesHistorical Cost (Rs.)Net Realisable Value (Rs.)
0117,40012,200
0220,10027,400
0318,20019,100
0416,50017,200
0515,40016,800
0621,40020,900
Total1,09,0001,13,600

Also comment on whether or not we can take Rs. 1,09,000 as the value of closing stock?

P.3 : X has the following transactions in a certain product for 6 months to 30th June 2013

Jan 1 Purchase 400 items @ Rs. 10 each            April 15 Sales 200 items @ Rs. 20 each

Feb 1 Purchase 200 items @ Rs. 12 each            June 1 Purchases 500 items @ Rs. 20 each

Feb 15 Sales 400 items @ Rs. 15 each                June 15 Sales 400 items @ Rs. 25 each

April 1 Purchases 400 items @ Rs. 15 each

You are required to calculate the value of closing stock at 30th June 2013 and to prepare Trading Account for the 6 months ended 30th June 2013 under FIFO method. (Detailed Stores ledger to be prepared)

P.4 : Using the information of P.3 : above, You are required to calculate the value of closing stock at 30th June 2013 and to prepare Trading Account for the 6 months ended 30th June 2013 under LIFO method. (Detailed Stores ledger to be prepared)

P.5 : Using the information of P.3 : above, You are required to calculate the value of closing stock at 30th June 2013 and to prepare Trading Account for the 6 months ended 30th June 2013 under Weighted average method (Detailed Stores ledger to be prepared)

P.6: From the following data, find out the cost of goods sold, closing inventory and profit under the FIFO, LIFO & Weighted Average method of inventory valuation:

1st January, 2013Inventory1,000 units@ Rs. 4 each
31st January, 2013Purchases1,100 units@ Rs. 5 each
28th February, 2013Purchases1,300 units@ Rs.6 each
31st March, 2013Purchases1,400 units@ Rs. 7 each

Sales for the period, 4000 units @ Rs. 10 each.

P.7 : Mr. James submits you the following information for the year ended 31.3.2013:

Rs.
Stock as on 1.4.20121,50,000
Purchases4,37,000
Manufacturing Expenses85,000
Sales6,25,000

During the year damaged goods costing Rs. 12,000 were sold for Rs. 5,000. Barring the above transaction the Gross Profit has been @20% on sales.

Compute the Closing Stock as on 31.3.2013.

P.8 : From the following information, ascertain the value of stock as on 31.3.2013:

Rs.
Value of Stock on 1.4.201270,000
Purchases during the period from 1.4.2012 to 31.3.20133,46,000
Manufacturing expenses during the above period70,000
Sales during the same period5,22,000

At the time of valuing stock on 31.3.2012, a sum of Rs. 6,000 was written off a particular item which was originally purchased for Rs. 20,000 and was sold for Rs. 16,000. But for the above transaction the gross profit earned during the year was 25% on cost.

P.9 : Ravi makes up his annual accounts to 31 st December, each year. He was unable to take stock of physical inventory till 9th January, 2014 on which date the physical stock at cost was valued at Rs. 75,500.

You are required to ascertain the value of physical stock at cost on 31st Dec. 2013 from the following information regarding the period from 1st January, 2014 to 9th January 2014.

(a) Purchases of goods amounted to Rs. 25,000.

(b)     Sales of goods amounted to Rs. 36,000.

(c)     Sales return amounted to Rs. 1800.

(d)     Purchase return Rs. 1,000.

(e)     A sub-total of Rs. 12,000 on one of the stock sheets had been carried to the summary of stock sheets as Rs. 21,000.

(f) The rate of gross profit was 20% on the cost price.

P.10 : A trader prepared his accounts on 31st March, each year. Due to some unavoidable reasons, stock taking was done on 15th March, 2013 on which date the total cost of goods in his godown came to Rs. 60,000. The following facts were established between 15th March and 31st March, 2013.

(a)     Sales Rs. 40,000 (including cash sales Rs. 10,000)

(b)     Purchases Rs. 30,000 (including cash purchases Rs. 5,000)

(c)     Purchase Returns Rs. 1,000

(d)     Sales Returns Rs. 2,500

Goods are sold by the trader at a profit of 20% on sales.

You are required to ascertain the value of stock on hand on 31st March, 2013.

ANSWERS AND HINTS FOR

Practice Problems

P. No.Answers & Hints
1.(a) Rs. 5,00,000 (b) Rs. 4,60,000 (c) Rs. 1,20,000 (d) Rs. 1,05,000 (e) Rs. 52,000 (/) Rs. 44,000
2.Compare item by item and take cost or NRV lower of the two Stock Rs. 1,03,3 00
3.Refer solved illustration given in the book.
4.Refer solved illustration given in the book.
5.Refer solved illustration given in the book.
6.Refer solved illustration given in the book.
7.Closing Stock Rs. 1,64,000
8.Closing Stock Rs. 67,200
9.Refer solved illustration given in the book.
10.Refer solved illustration given in the book.

*This article contains all topics about the Inventory Valuation in Accounting.

For notes on all CA foundation topics, you can visit this article CA foundation note

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