Part A

Branxton Ltd’s inventory on 1 April 2015 had a cost of $100000 and a retail value of $170000. During April, the company’s net purchases cost $216000 and had a net retail value of $324000. Net sales for April totalled $390000. Ignore GST.

Required

A. Calculate estimated cost of the inventory at 30 April 2015 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 $320000. Sales up to 18 July were $1082000, sales returns were $60000, and it was company policy to mark up goods in such a way as to have a gross profit of 40%. Purchases totalled $920000, purchases returns were $22000, and freight inwards was $6800. Ignore GST.

Required

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