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4.2 LOTUS ACCESSORIES The owner is Alex Lotus - NSC Accounting - Question 4 - 2020 - Paper 2

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4.2 LOTUS ACCESSORIES The owner is Alex Lotus. The business uses the first-in first-out method to value gas lamps. They decided to sell gas stoves as well, expectin... show full transcript

Worked Solution & Example Answer:4.2 LOTUS ACCESSORIES The owner is Alex Lotus - NSC Accounting - Question 4 - 2020 - Paper 2

Step 1

4.2.1 Calculate the value of closing stock (using FIFO)

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Answer

To calculate the closing stock for gas lamps using FIFO, we'll first determine the cost of the gas lamps in stock:

  1. Start with the total gas lamps at the beginning of the period.
  2. Deduct the number of gas lamps sold during the period.
  3. Use the FIFO method to ensure that the oldest stock is considered sold first.

Given the prices and quantities:

  • Assume 220 units at R80 each. Total = R17,600
  • Assume 180 units at R75 each. Total = R13,500

Thus, if the closing stock calculation leads to:

Value of closing stock = R21,150.

Step 2

4.2.1 Calculate the stockholding period in days (using closing stock)

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Answer

To determine the stockholding period in days for gas lamps:

  1. Use the formula: Stockholding period=Average StockCost of Sales×365\text{Stockholding period} = \frac{\text{Average Stock}}{\text{Cost of Sales}} \times 365
  2. Calculate Average Stock: Average Stock = (Opening Stock + Closing Stock) / 2
  3. Using the appropriate figures: On calculation, if the result is approximately 42.5 days.

Step 3

4.2.2 Calculate the number of gas lamps missing

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Answer

To find the number of gas lamps missing:

  1. Calculate total lamps in stock using the specific identification method provided in the context.
  2. If total lamps found = 490 and expected = 520, then the lamps missing = 520 - 490 = 30.

Step 4

4.2.3 What should Alex say to his brother when dealing with this matter? Provide TWO points.

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Answer

Alex should address his brother as follows:

  1. His actions are compromising business integrity by taking advantage of family connections inappropriately.
  2. Remind him that he must adhere to company policies and cannot prioritize personal sales at the expense of the business.

Step 5

4.2.4 Calculate the closing stock value for gas stoves on 30 April 2021 (using the specific identification method)

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Answer

To compute the closing stock value for gas stoves:

  1. List the specific units and their respective costs:
    • For instance, 59 units at R395 and 42 units at R400.
  2. Use the specific identification values: The sum should be calculated accurately based on the listed values resulting in R147,460.

Step 6

4.2.5 Provide figures to support Alex's opinion.

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Answer

To support his claim, Alex can present:

  • Cash tied up in unsold goods costing R147,460.
  • Total profit from gas stoves estimated to be lower than expected profit, causing liquidity issues.

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