1. avatar says

    Please can you explain how 2950 is the right answer for this question?

    An inventory record shows the following details for the month of February;

    Feb 1: 50 units in stock at a cost of $40 per unit.
    Feb 7: 100 units purchased at a cost of $45 per unit
    Feb 14: 80 units sold
    Feb 21: 50 units purchased at a cost of $50 dollars per unit
    Feb 28: 60 units sold.

    what is the value of closing inventory at 28 feb using the fifo method?

    • Profile photo of John Moffat says

      LIFO is not allowed (IAS 2)

      In example 5, I have calculated it using FIFO (first-in-first-out) and using average cost.
      Both methods are allowed by IAS 2, and in the exam you can be asked for calculations using either of the two ways.

      Have you downloaded the Course Notes that go with the lectures? There you will find headings for FIFO and for Average methods (and as well as going through them in the lecture, the answers are at the back of the Course Notes).

  2. avatar says

    I have a question plz.

    — if the closing inventory have been understated in the year by 22500, what will be the effect on the profit this year and next year ?

    a) the current year’s profit will be OVERSTATED and next years’ profit will be understated
    b) the current year’s profit will be UNDERSTATED and next years’s profit will be overstated

    • avatar says

      Hi pretty1,

      The question asks to calculate the value of closing inventory. To calculate the number of units for closing inventories, we can say…
      Opening Inventory Units + Purchased Units – Sold Units = Closing Inventory Units
      300 + (400+400+400) – (500+400+100) = 500 units

      Maybe you were thinking of cost of sales: Cost of Sales = Opening Inventory + Purchases – Closing Inventories

  3. avatar says

    Why does a higher closing inventory lead to a higher profit and lower closing inventory lead to a lower profit? The more units you have in closing inventory the less you sold in the year, thus it should be the more closing inventory the lower the profit. Help me understand.

Leave a Reply