Chap – 1 INVENTORY VALUATION – QUESTIONS (1)

QUESTIONS
QUESTION NO. 1
Anjum Traders started its operations on May 1, 2018. During first year of operations 30,000 units of a product were
imported in one lot and following expenses were incurred:
Rs.
Purchase price (subject to 10% trade discount) 600,000
Import duties 36,000
Refundable sales tax 80,000
L/C charges 24,000
Freight charges 120,000
Clearing charges 60,000
Transportation to godown 18,000
Transit insurance 12,000
Godown rent (per month) 25,000
Fire insurance 10,000
At end of first year, December 31, 2018, 2,800 units are still held in inventory.
Required:
Total cost of closing inventory as at December 31, 2018.

QUESTION NO. 2
Gamma Electronics is engaged in sale of various electronic appliances for household and office use. One of the products
is Hexa-120. Following transactions relate to Hexa-120 for the month of April 2018:

Date Transaction Units Cost (Rs.)

01-04 Opening stock 200 22
02-04 Purchase 500 25
05-04 Sale 480 -
09-04 Purchase 100 28
10-04 Purchase returns (2nd April purchase) 20 -
15-04 Sale 230 -
19-04 Drawings 40 -
21-04 Sale returns:
- Out of 5th April sale 60 -
- Out of 15th April sale 10 -
27-04 Purchase 150 30
30-04 Goods lost by fire 10 -
Required:
Calculate total cost of closing stock as at April 30, 2018 using:
(1) FIFO (Perpetual)
(2) AVCO (Perpetual)
(3) FIFO (Periodic)
(4) AVCO (Periodic)

QUESTION NO. 3
Alpha Traders sells four different products A, B, C and D. Following information relates to these products for the year
ended June 30, 2018:

Product Units Total cost (Rs,)

Opening stock 40 800
A Purchases 160 4,000
Sales 170 -
Opening stock 80 2,400
B Purchases 220 5,940
Sales 240 -
Chap – 1 INVENTORY VALUATION – QUESTIONS (2)

Opening stock 170 3,060

C Purchases 80 1,600
Sales 150 -
Opening stock 150 3,000
D Purchases 30 420
Sales 130 -

As a result of changes in market conditions, now net realizable values of these products are estimated as follows:

Product NRV (Rs.)

A 26
B 29
C 19
D 18

Required:
Value of closing stock of each product assuming that entity uses:
(a) FIFO costing method
(b) AVCO costing method

QUESTION NO. 4
The closing stock of ABC Ltd. As at September 30, 1998 was Rs. 750,000. There were doubts regarding its condition and
realizable value. It was found that:
➢ 80% was in good condition and was expected to realize a gross margin of 25%.
➢ 15% was slightly damaged and required and additional expenditure of 15% of cost to make it saleable at
normal price.
➢ 5% was damaged and would fetch only 40% of the normal sale price.
Required:
Calculate the revised value of stock as of September 30, 1998.

QUESTION NO. 5
Kidz Party & Co. (KPC) manufactures and sells toys. Following information is available regarding four of its inventory
items as on 31 December 2017:

Normal
Cost per unit
Items Units selling price
(Rs.)
per unit (Rs.)
Toy cars 10,000 1,250 1,200
Doll houses 5,000 1,800 2,700
Stuffed toys 1,850 1,200 1,900
Minion costumes 870 1,500 2,500
Following information is also available:
(i) A sales order for 3,000 toy cars @ Rs. 1,100 per unit is in hand. The remaining units can be sold at normal selling
price after incurring selling cost of Rs. 150 per unit.
(ii) Doll houses include 1,000 defective units with no scrap value. 20% of the remaining doll houses are damaged
and can be sold at 50% of cost.
(iii) Stuffed toys costing Rs. 420,000 were accidentally damaged and are beyond repair. KPC plans to sell these toys
as scrap. Proceeds from such sale are estimated at Rs. 175,000 and the sale would require transportation cost
of Rs. 6,300.
(iv) All minion costumes have manufacturing faults and can be sold in present condition at Rs. 1,350 per unit. However,
60% of the units can be rectified at a cost of Rs. 200 per unit after which they can be sold at Rs. 1,600 per
unit.
Required:
Calculate the amount at which above inventory items should be carried as on 31 December 2017.
Chap – 1 INVENTORY VALUATION – QUESTIONS (3)

QUESTION NO. 6
Nawaz Manufacturing Limited (NML) deals in various products. One of its product B2 is produced using raw material A1.
Production is carried out after receiving confirmed sales order.

Following information is available for the month of January 2017:

(i) Opening inventory of A1 was 200 kg @ Rs. 3,000 per kg.
(ii) Details of purchases made during the month ended 31 January 2017 are as follows:

Date Quantity (Kg) Price per kg (Rs.)

1-Jan-17 250 2,800
15-Jan-17 250 2,900
50 kg of A1 purchased on 15 January 2017 were returned to the supplier on 16 January 2017 due to inferior
quality of material supplied.
(iii) On 18 January 2017, 100 kg of A1 were destroyed. They had no scrap value.
(iv) Under normal circumstances 500 kg of A1 produce 400 liters of B2.
(v) Sales of B2 during the month of January were as follows:

Sales price per

Sale order date Delivery date Quantity (liters)
liter (Rs.)
2-Jan-17 4-Jan-17 100 7,000
26-Jan-17 28-Jan-17 160 6,250
(vi) NML uses weighted average method for valuation of inventory.
Required:
Compute cost of closing stock of material A1 of January 2017 under each of the following methods:
(a) Perpetual inventory method
(b) Periodic inventory method

QUESTION NO. 7
Hammad Limited (HL) imports and supplies three products, Alpha, Gamma and Beta. The opening balances and
transactions for the month of June 2014 are as follows:
Units purchased during
Opening balance Units Sold during the month
the month
Items
Invoice
Qty. Value (Rs.) Qty. Qty. Value (Rs.)
value (Rs.)
Alpha 20 60,000 360 920,000 350 1,820,000
Gamma 100 4,800,000 50 2,375,000 70 4,060,000
Beta 30 120,000 490 1,820,000 400 1,640,000
The following information is also available:
(i) HL’s bank charges a commission of 0.5% of invoice value for opening the letter of credit.
(ii) Import taxes and duties were 23% of the invoice value out of which 40% are refundable / adjustable.
(iii) The transportation charges are Rs. 1,500 per trip. 20 units of Alpha, 2 units of Gamma or 15 units of Beta can
be transported in each trip.
(iv) All goods are repacked after import. The cost of packing per unit was Rs. 300, Rs. 1,500 and 700 respectively.
(v) HL values its stock on first-in, first-out basis.
(vi) Average selling costs per unit are Rs. 700, Rs. 1,500 and Rs. 400 respectively.
Required:
Compute the value of stock of each product as at 30 June 2014.
Chap – 1 INVENTORY VALUATION – QUESTIONS (4)

QUESTION NO. 8
Superior Enterprises is engaged in the business of supplying four different products to four different industries. The
details relating to the movement of inventory and related expenditures are as follows:

Opening Balance Quantity Invoice Import Duties Quantity Sold

Items
Quantity Value Purchase Value Refundable Non-refundable Quantity Value
A 30 60,000 360 810,000 120,000 90,000 350 1,015,000
B 60 90,000 780 1,560,000 200,000 150,000 800 2,080,000
C 40 120,000 560 1,820,000 250,000 200,000 580 2,320,000
D 80 200,000 600 1,650,000 - - 350 1,155,000
The following information is available:
(i) The transportation charges upto the company’s godown are Rs. 100 per unit.
(ii) The transportation charges from the company’s godown to the customers’ premises are approximately Rs. 150
per unit.
(iii) 25% of the closing stock of item A has been damaged due to mishandling and can only be sold at 60% of its
selling price.
(iv) A new product has been introduced by a competitor. It is similar to product C and is being marketed at Rs.
3,200 per unit. The management of Superior Enterprises is of the opinion that in future, it will also have to
reduce the price of C to Rs. 3,500 per unit.
Required:
Compute the value of the stock as at December 31, 2007.