Question
a) At 1 May 2019 Troy company had 700 engines in inventory, valued at Tk. 190 each. During the year ended 30 April 2020 the
a) At 1 May 2019 Troy company
had 700 engines in inventory, valued at Tk. 190 each.
During the year ended 30
April 2020 the following transactions took place:
2019
1 July Purchased 500 engines
at TK 220 each
1 November Sold 400 engines
for TK 160,000
2020
1 February Purchased 300
engines at TK 230 each
15 April Sold 250 engines for
125,000
Required:
1) Suppose the company uses
FIFO method. You are required to calculate the company's
closing inventory of engines
on 30 April 2020. Calculate cost of goods sold and gross
profit.
2) Suppose the company uses
LIFO method. You are required to calculate the company's
closing inventory of engines
on 30 April 2020. Calculate cost of goods sold and gross
profit.
3) Suppose the company uses
Weighted average method. You are required to calculate the
company's closing inventory
of engines on 30 April 2020. Calculate cost of goods sold
and gross profit.
b) What are the assumptions
behind FIFO, LIFO and weighted average methods? In case of
inflation, which method is
the most suitable for determining ending inventory and cost of goods sold? In
case of deflation, will your choice differ? Why?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
1 FIFO Method FIFO FirstIn FirstOut The earliest items purchased are the first to be sold Initial Inventory 700 engines at Tk 190 each Purchases 1 July 2019 500 engines at Tk 220 each 1 February 2020 ...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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