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Hi,
I have a question. While I was solving inventory questions from Kaplan exam kit, I found out slightly different Average cost method over there.
Question was to compare closing inventory value using “FIFO” with “periodic weighted average” method. I used method which was explained in the lecture but ended up with the different result. Upon checking the answer I found out that they solved differently.
Eg. If I used their Average cost method for Example 5 from the lecture notes then it will be like=>300+400+400+400 = 1500 units
=>(300×12)+(400×12.50)+(400×14)+(400×15) = 20200
=>20200/1500 = $13.46
=>So value of the closing inventory = 500 x 13.46 = 6733.33Please could you explain which method should be used in exams ?
Many thanks,
The periodic weighted average is the average cost of all purchases bought during the period. It is not the method to use in the exam unless specifically asked for, which is not likely.
Inventory brought forward from the previous year is assumed to have been
used to generate assets for sale. It must be removed from inventory
assets and recognized as an expense in the year
Dr Opening inventory in cost of sales
Cr Inventory assetsSir, Why do we record opening stock as an expense to remove from inventory
The opening inventory was an asset on the SOFP. It has been sold and no longer exists in inventory and we therefore debit the cost of sales and credit the inventory.
(At the end of the year we make the opposite entry to create the closing inventory on the SOFP.)
I explain all of this, with examples, in my free lectures on Inventory and IAS2.
The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
á business has the following cash and bank transactions during January 2001. balance 1.1.2001: cash $500, Bank $1,000 overdrawn, receipts of cash $12,600, cash paid $3,200, Cash paid to bank $5,500, payments by cheque $8,200. Closing balance: cash $600 and Bank $6.200 overdrawn. Calculate the total cash and bank drawing.
A. $14.800 (no bank drawing)
B. $860
C. $11,800
D. $6,300Why the answer is option D.
In future you must start a new thread when you are asking about a different topic. This question has nothing to do with inventory!!
The net cash and bank figure at the start of the year was an overdraft of 500, so -500
The net cash and bank figure at the end of the year (ignoring any drawings) should therefore have been: -500 + 12,600 – 3,200 – 8,200 = + 700.
The actual net cash and bank figure at the end of the year was – 5,600 (an overdraft of 5,600).
Therefore the drawings must have been 700 + 5,600 = 6,300.
Good morning Sir, im failing to get the free practice tests on the ACCA link YOU SEND US. How can i access it.
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