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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 iden... 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 an inventory valuation method where the oldest inventory items are sold first. This approach assumes that the first items bought are the first items sold, thus aligning the flow of inventory with the flow of goods sold. When calculating the cost of goods sold (COGS), it considers the costs associated with the inventory purchased at the time of the earliest purchases, ensuring that the company accounts for costs appropriately.
Step 2
Explain the following valuation methods: Specific identification
Answer
The specific identification method involves tracking the actual cost of each specific item of inventory. Each item sold is matched directly with its specific cost at the time of purchase. This method is particularly useful for businesses that sell high-value items or unique products, allowing precise tracking of inventory costs. It ensures that the company reflects the exact cost associated with each item sold in its financial statements.
Step 3
Calculate the cost price per laptop on hand on 1 October 2015.
Answer
To calculate the cost price per laptop on hand on 1 October 2015, we divide the total cost of the opening stock by the number of units:
ext{Cost Price per Laptop} = rac{ ext{Total Cost}}{ ext{Units}} = rac{R413,000}{118} = R3,500
Step 4
Calculate the value of the closing stock on 30 September 2016.
Answer
The value of the closing stock is derived from the purchases made minus sales and returns. First, we calculate the total purchases, net of returns:
- Total Purchases = R4,374,000
- Sales = R7,076,000
Using the preferred method:
To calculate the Cost of Goods Sold, we need to account for the sold quantities and their respective costs. The calculation considers all sales data, allowing us to derive the final value:
- Closing stock value calculation: