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1. Draw inventory valuation tables for August as per two IAS suggested valuation methods (consult book and
video lectures for approved inventory valuation methods).
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MGT401 Assignment Solution
Prepared By: Raheel Raaj
M. Accounting And Finance
2. A physical inventory count revealed a shortage of five units. Show how you would bring this into account.
Answer:
FIFO:
Opening Balance 0000
Add: Purchases 2176
Less: Shortage of 5 Units 5 @ 9.4 Rs. 47
Cost of Goods Available for Sale 2129
Closing Stock 60 Units @ 9.4 564
Cost of Goods Sold 1565
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MGT401 Assignment Solution
Prepared By: Raheel Raaj
M. Accounting And Finance
Weighted Average:
Opening Balance 0000
Add: Purchases 2176
Less: Shortage of 5 Units 5 @ 9.49 Rs. 47.45
Cost of Goods Available for Sale 2128.55
Closing Stock 60 Units @ 9.49 569.40
Cost of Goods Sold 1559.15
(iii) Also determine the cost of sales and gross profit under the both methods from the following information:
a. Sale price of a unit is Rs. 15 (Amount of direct material will be taken from the requirement (i)) and also treat
the cost of lost units in calculation of gross profit
FIFO:
Sales (265 units @ 15 Rs.) 3975
Less: CGS 1565
Gross Profit 2410
Weighted Average:
Sales (265 units @ 15 Rs.) 3975
Less: CGS 1559.15
Gross Profit 2415.15
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MGT401 Assignment Solution
Prepared By: Raheel Raaj
M. Accounting And Finance
4. You are required to give some logical reasons that why LIFO method has been obsoleted and declared not to be
used method for inventory valuation.
Firstly, inventory valuation does not talk about current prices, hence LIFO of no relevance, in assessing
current situations.
It is more difficult and complex to maintain. If most recent purchased inventories are always used as cost of
goods sold, it creates older and outdated inventories, which can never be sold. Therefore, it is quite
unrealistic.
LIFO calculations are more complicated, especially when prices keep fluctuating.
Clerical work is more in LIFO procedure
If businesses plan to expand globally, LIFO is definitely not the right choice for valuing companys current
assets.
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