2020 JYSS 3N POA EOY P2 Q7
7 Ernest buys and sells computers. At the financial year end on 31 March 2020, he supplied the following information.
$ | |
Computers, 1 March 2020 (50 units) | 50 000 |
Additional information
1. Computers bought during the month of March
Date | Quantity | $ |
March 2 | 40 units | 35 000 |
10 | 12 units | 12 000 |
16 | 30 units | 27 000 |
20 | 50 units | 1 000 |
2. For the year ended 31 March 2020, Ernest sold 132 units of computers.
3. Ernest uses the FIFO (First In First Out) method of inventory valuation.
REQUIRED
a. Explain the term First In First Out.
[1]
b. Calculate the cost of sales for the month of March 2020.
[2]
c. Calculate the value of ending inventory on 31 March 2020.
[1]
On 31 March 2020, Ernest realised that his remaining computers can only be sold at $37 000 due to newer computers with better technologies entering the market.
REQUIRED
d. Calculate the loss in the value of inventory on 31 March 2020.
[1]
[TOTAL 8]
Inventories that are bought earliest are sold first.
50000+35000+12000+27000 = $124 000
$40000
40 000-37 000 = $3000