2020 BGSS 3N POA EOY P2 Q2

2 Inari Trading is in the footwear business. On 15 July 2020, Inari Trading purchased a batch of sandals on credit from a credit supplier. The following costs relate to this batch of sandals.



Purchase price of sandals

9 000

Insurance for shipment of sandals


Import tax on sandals


Wages for salesperson to promote sandals

2 900


a. Calculate the cost of inventory purchased.


On 1 August 2020, Inari Trading had 20 units of inventory valued at $6 000. During the month of August, the following purchases took place.

Purchases (by cheque)

Aug 8

Bought 20 units at $3 500

Aug 13

Bought 20 units at $5 000

Aug 23

Bought 40 units at $10 500




Aug 17

Sold 40 units for $40 600

Aug 29

Sold 20 units for $25 300

The business records inventory using the First-In-First-Out (FIFO) method.


b. Calculate the cost of sales for the month of August 2020.


c. Prepare the inventory account for the month of August 2020. Bring down the balance to the next month.


On 30 September 2020, the business had an ending inventory valued at $4 320. Due to flash floods, the packaging of the remaining goods was damaged. The damage amounted to $800.


d. State the valuation rule for inventory.


e. Prepare the journal entry to account for the goods destroyed.  A narration is not required.


f. State the effect on the following items for the month of September after the adjustment done in (e).


ii. profit

[TOTAL 14]

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Cost of inventory purchased = 9 000 + 120 + 630 

= $9 750


Cost of sales = 6000 + 3500 + 5000

= $14 500


Inventory is valued at the lower of cost and net realisable value.


(i) Current assets will decrease by $800. 

(ii) Profit will decrease by $800.