Part A Branxton Ltd’s inventory on 1 April 2019 had a cost of $100 000 and a retail value of $170 000.

During April, the company’s net purchases cost $216 000 and had a net retail value of $324 000.

Net sales for April totalled $390 000. Ignore GST.

Required

(a) Calculate estimated cost of inventory at 30 April 2019 using the retail inventory method.

(b) What key assumptions underlie the validity of this estimate of inventory cost?

Part B On 18 July, the warehouse storing the inventory of Thomas Ltd was destroyed by a fire. The insurance company asked the managing director to prove his inventory loss. Available records indicated that the beginning inventory was $320 000. Sales up to 18 July were $1 082 000, sales returns were $60 000, and it was company policy to mark up goods in such a way as to have a gross profit of 40%. Purchases totalled $920 000, purchases returns were $22 000, and freight inwards was $6800. Ignore GST.

Required

(a) Determine the amount of Thomas Ltd’s claim for the inventory loss.