2020 NAS 3E POA EOY P1 Q4
4 BTS Watches is a branded watch retailer. On 1 September 2019, his inventory account had the following balance:
$ | |
Inventory (120 watches) | 36 000 |
During the year, the following purchases and sales of watches took place.
Purchases | Sales | |||||
2019 | No. of watches | $ | 2019 | No. of watches | $ | |
Oct 8 | 220 | 61 500 | Nov 25 | 120 | 59 600 | |
Dec 14 | 80 | 24 300 | 2020 | |||
2020 | Apr 9 | 300 | 135 000 | |||
Mar 16 | 140 | 41 200 | Jul 28 | 140 | 64 200 | |
May 5 | 50 | 16 700 | ||||
Aug 10 | 190 | 58 150 | ||||
Additional information
The business uses the FIFO (First In First Out) method of inventory valuation.
REQUIRED
a. Calculate the cost of sales for the financial year ended 31 August 2020.
[2]
b. Calculate the value of ending inventory on 31 August 2020.
[1]
c. Prepare the trading portion of BTS Watches’ statement of financial performance for the financial year ended 31 August 2020.
[2]
d. State the basis on which inventory should be valued.
[1]
On 9 September 2020, BTS Watches’ shop was broken into and watches costing $39 785 were stolen.
REQUIRED
e. Prepare the journal entry to record the watches stolen on 9 September 2020. A narration is not required.
[1]
f. State the effect on BTS Watches’ profit for the year and current assets if the stolen watches were not recorded.
[2]
On 28 September 2020, the insurance company agreed to a compensation of $20 000 but will need six weeks to process the payment. BTS Watches will only receive the amount in November.
REQUIRED
g. Prepare the journal entry to record the transaction on 28 September 2020. A narration is not required.
[1]
[TOTAL 10]
36 000 + 61 500 + 24 300 + 41 200 ✔✔ = $163 000 ✔✔
16 700 + 58 150 ✔ = $74 850 ✔
Ending inventory should be valued at lower of cost or net realisable
value. ✔✔
Profit for the year will be overstated ✔ by $39 785 ✔
Current assets will be overstated ✔ by $39 785 ✔