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5.1 INVENTORY VALUATION Matrix Traders sell three different types of laptops: Lexus, Granite and Vision - NSC Accounting - Question 5 - 2016 - Paper 1
Question 5
5.1 INVENTORY VALUATION Matrix Traders sell three different types of laptops: Lexus, Granite and Vision. They use the periodic inventory system and the specific ide... show full transcript
Worked Solution & Example Answer:5.1 INVENTORY VALUATION Matrix Traders sell three different types of laptops: Lexus, Granite and Vision - NSC Accounting - Question 5 - 2016 - Paper 1
Step 1
Explain the following valuation methods: FIFO
Answer
FIFO, or 'First In, First Out', is a method that assumes that the oldest inventory items are sold first. Therefore, the cost of goods sold is based on the cost of the older items, while the ending inventory reflects the most recent purchases. This approach helps in times of rising prices as it matches older, cheaper costs with revenue, resulting in higher profits for the period.
Step 2
Explain the following valuation methods: Specific identification
Answer
The specific identification method allocates the actual cost of specific items in inventory to the cost of goods sold when those items are sold. This method is particularly useful for businesses with unique items or high-value inventories, allowing for precise tracking of each item's cost, which reflects its true value in financial reporting.
Step 3
Calculate the cost price per laptop on hand on 1 October 2015.
Answer
To calculate the cost price per laptop for Lexus on 1 October 2015, we take the total cost of opening stock and divide it by the number of units:
Cost Price per Laptop = Total Cost / Units
ext{Cost Price per Laptop} = rac{R413,000}{118} = R3,500
Step 4
Calculate the value of the closing stock on 30 September 2016.
Answer
To calculate the value of closing stock, we will consider the sales and purchases data. Opening stock plus net purchases minus cost of goods sold gives us closing stock. Using FIFO:
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Start with the opening stock of Lexus:
- Opening stock = 118 units at R3,500
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Total units sold during the year:
- Total sold = 118 + 356 + 502 = 976 units
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Calculate Cost of Sales:
- Cost of sales = (118 x R3,500) + (410 x R3,750) + (630 - 20 x R4,650)
- This gives a total cost of R7,040,700.
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Closing stock is then calculated:
- Closing Stock = Cost of opening stock + Cost of purchases - Cost of sales
- ext{Closing Stock} = R4,374,000 - R7,040,700 = R704,700.