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Ordering and accounting for inventory – ACCA Management Accounting (MA)

VIVA

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  3. Purchases & OP Inv:(20 + 140 +100) = 260
    Sales: ( 80 + 140) = 220
    Closing Inventory: 260 – 220 = 40

    LIFO Valuation: (20 x $4.00) + (20 x $4.40) = $168.

    how it comes ???
    can u explain it …pls

    • Hi Jith,

      My assumption is that you believe the LIFO should be valued at (40 x $4.60). However, this method is incorrect as LIFO takes into account the timing of sales; for example, when you first sell your goods on 12 November, you are already using LIFO then. This means that, as John said in the video, the cost of sales will be valued at (80 x $ 4.40).

      If the sales end on 12th November (i.e no more sales after 12th November), the method which you use is correct (similar to FIFO, where you find total purchases & OP inv, deducted by the sales. Only difference is you use the cost of the most recently purchased goods for the cost of sales. This means that the method (the one similar to calculation of FIFO can be used since timing is not taken into account) can be used. Similarly, if there are only 2 changes (R for receipt, I for issues. RRRRII or RRIII), the method should also be correct. However, when it comes to RRRIIIRR or RIIIRR, where it switches back from R to I to R again, timing matters and hence you have to calculate the LIFO valuation step by step, and not like FIFO.

      I feel that this misconception is also analogous to the cumulative weighted average cost and periodic weighted average cost. You can search it up if it helps to clear up your misunderstanding. This is also explained in the FA exam in John’s videos.

  4. Thank you Mr Moffat. You’re literally the only person I have come across who has helped me FINALLY understand this and I’ve gone through multiple sources looking for help. Great at explaining and made it extremely easy to comprehend. Thank you so much!

  6. Dear John,
    For LIFO, since they are accounted on the year end and not perpetually,
    Is the below method; a valid approach of arriving at the answer?

    Purchases & OP Inv:(20 + 140 +100) = 260
    Sales: ( 80 + 140) = 220
    Closing Inventory: 260 – 220 = 40

    LIFO Valuation: (20 x $4.00) + (20 x $4.40) = $168.

    Please Advice,
    Thank You!

    • brother how you divide 40 into 20 each and the values 4&4.40……i didnt understand….is there any equation for finding this easy way….till 260 minus 220=40 i understood….but afterwards can you explain it

  9. Hi with the LIFO example, 12th Nov- ‘Sold 80 Units’ why is it that:
    You’ve written down, sold 60*£4.40 + 20*£4.00.

    The last most recent purchases was from the 140 units, so why is it not:
    80*£4.40

  13. Sir for LIFO, since they are accounted on the year end, and not perpetually like Avg, can we not just do:
    20 + 140 + 100 – 80 – 140 = 40
    (20 x 4) + (20 x 4.4) = 168.

    Simple calculation of quantity like FIFO, then take cost from old stock instead of new stock for LIFO reasons.

    ————

    Sir for Avg cost, can we simply do:
    20 + 140 + 100 – 80 – 140 = 40

    (4 + 4.4 / 2) = 4.2
    (4.2 + 4.6 / 2) = 4.4

    40 x 4.4 = 176

    Your answer was around 180.

    Is this method good enough ? Is this small difference of value an issue ?

  14. Well simplified lecture, sir ! And really a funny adorable comment for shopping in the Supermarket – LIFO style , made me laugh off loud.

    Sir, if you may, shall you be covering about periodic weighted avg later on? I saw it briefly mentioned alongside Weighted Avg, in my Tuition Notes of the Institute I go to. Or it won’t appear in the Exams and we don’t need to know.

  18. sir, i don’t understand how we 40*4.49 instead of 140*4.49 in example 3 (Weighted average cost. The last issue). in the lecture it says its because we sold 100 units. so why didnt we apply that in the previous issue?

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