18.6 Sue Poly is a trader in ‘Modules’. She set up business with a capital of £10,000 which was left to her in the will of her aunt.

During the first year of trading, she made the following purchases of ‘Modules’ (for cash):

600 at £6 each £3,600 300 at £8 each 2,400 400 at £10 each 4,000

£10,000 She then sold 900 ‘Modules’ at £16 each, for cash.

(a) If Sue had no other expenses, what is her profit for the year on a FIFO basis?

(b) If Sue withdraws all her profit, to what extent can she replenish her stock on a FIFO basis?

(c) What assumption do you need to make in

(b) above?

(d) How much would you advise Sue to withdraw and why? Support your advice with appropriate calculations.