2020 USS 3N POA EOY P2 Q4

2020 USS 3N POA EOY P2 Q4

4 Hi Sports Trading buys and sells sports apparel.

On 1 July 2020, Hi Sports Trading had an inventory balance of $5 000 for 100 units. The following transactions took place during July 2020.

Purchases:

Date

Quantity (units)

Amount ($)

Payment method

July 5

70

4 240

On credit: Ace Supplies

July 8

30

2 100

Paid by cheque

July 16

70

5 850

On credit: Great Ltd

July 25

20

1 620

Paid by cash

Hi Sports Trading sold 170 units of inventory for $16 500 on 31 July 2020. The business uses the First-In-First-Out method (FIFO) to record inventory movement.

1. The owner took out an office computer costing $2 100 for his son. This has not been recorded yet.

2. The net realisable value of the inventory was $47 930.

3. Interest expense of $200 was unpaid.

4. Commission income of $1 610 was received in advance.

REQUIRED

a. Prepare the inventory account to record the above transactions Bring down the balance to the next month.

[6]

b. Calculate the gross profit for the month of July 2020.

[1]

c. Calculate the value of inventory at 31 July 2020.

[1]

On 30 September 2020, Hi Sports Trading had $3 600 worth of inventory in his warehouse. On the same day, a fire destroyed some of the inventory and the net realisable value of the inventory was $1 900.

REQUIRED

d. State the valuation rule for inventory.

[1]

e. Prepare the journal entry to adjust the value of the inventory on 30 September 2020. A narration is not required

[2]

[TOTAL 11]

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Gross profit =16500 - 9240 = $7260

Ending inventory = 2100 + 5850 + 1620 = $9570

Inventory is always valued at cost or net realisable value, whichever is lower.

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