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, 20.9 using the FIFO method, we need to determine the cost of goods sold (COGS) and the value of remaining inventory.
First, let's calculate the cost of goods sold (COGS) for the sales transactions:
- 175 articles sold on Jan 7 at R2 each: 175 * R1 (cost of first 100 articles) = R175
- 45 articles sold on Jan 12 at R2.20 each: 45 * R1 (cost of next 45 articles) + 55 * R1.20 (cost of next 55 articles) = R99 + R66 = R165
- 130 articles sold on Jan 20 at R2.40 each: 130 * R1 (cost of next 40 articles) + 90 * R1.20 (cost of next 90 articles) = R130 + R108 = R238
- 45 articles sold on Jan 31 at R2.50 each: 45 * R1 (cost of next 5 articles) + 40 * R1.20 (cost of next 40 articles) = R45 + R48 = R93
Total COGS = R175 + R165 + R238 + R93 = R671
Next, let's calculate the value of remaining inventory on Jan 31, 20.9:
- Remaining inventory on hand = 100 (initial purchase) + 150 (Jan 5 purchase) + 120 (Jan 10 purchase) + 40 (Jan 29 purchase) - (175 + 45 + 130 + 45) = 380 - 395 = -15 articles
Since the entity cannot have negative inventory, we assume that there are no articles on hand on Jan 31, 20.9.
Therefore, the value of inventories on hand on 31 January 20.9 using the FIFO method is R0.