The transactions of A Strauss for January 20.9 were as follows:
Jan 2 Purchase 100 articles at R1 each.
5 Purchase 150 articles at R1,20 each.
7 Sell 175 articles at R2 each.
10 Purchase 120 articles at R1,50 each.
12 Sell 45 articles at R2,20 each.
20 Sell 130 articles at R2,40 each.
29 Purchase 40 articles at R1,60 each.
31 Sell 45 articles at R2,50 each.
Assignment
Calculate the value of inventories on hand on 31 January 20.9 by applying the FIFO
method. A Strauss is not registered for VAT purposes. The entity can use the perpetual
method or the periodic method.
To calculate the value of inventories on hand on January 31 using the FIFO method, we need to first determine the cost of the items sold and the cost of the items remaining in inventory.
Starting inventory:
100 articles x R1 = R100
Purchases:
150 articles x R1.20 = R180
120 articles x R1.50 = R180
40 articles x R1.60 = R64
Total Cost of Goods Available for Sale:
R100 + R180 + R180 + R64 = R524
Calculating cost of goods sold:
175 articles sold at R2 each = 175 x R2 = R350
45 articles sold at R2.20 each = 45 x R2.20 = R99
130 articles sold at R2.40 each = 130 x R2.40 = R312
Total cost of goods sold:
R350 + R99 + R312 = R761
Remaining inventory:
100 articles (starting inventory) + 150 articles (purchase) + 120 articles (purchase) + 40 articles (purchase) - 175 articles (sold) - 45 articles (sold) - 130 articles (sold) = 40 articles
Using the FIFO method, we assume that the items sold first were from the earliest purchases. Therefore, the cost of the remaining 40 articles in inventory will be from the latest purchase at R1.60 each.
40 articles x R1.60 = R64
Therefore, the value of inventories on hand on January 31 using the FIFO method is R64.