- This topic has 3 replies, 1 voice, and was last updated 1 year ago by
.
- Posts
Most of Tunshills competitors value their inventory using the average cost (AVCO) basis, whereas Tunshill uses the first in first out ( FIFO) basis. The value of Tunhills inventory at 30 September 2013 ( on the FIFO basis) is $20 million, however on the AVCO basis it would be valued at $18 million. By adopting the same method (AVCO) as its competitors, the assistant accountant says the company would improve its profit for the year ended 30 September 2013 by $2 million. Tunshills inventory at 30 September 2012 was reported as $15 million, however on the AVCO basis it would have been reported as $13.4 million.
Q.what will be the effect of the change of above in profits for the year ended 30 9.2013Ans.
Fifo avco C.Yprof
Y/e to 30.9.2012 15 13.4 1.6
To 30.9.2013 20 18 (2.0)
(0.4)Sir why is that we deduct c.y profit from Prev year profit ?
I find that, when faced with a question like this, it’s easier if I put ‘pretend’ figures into a table
Try this:
Figures for the two separate years:
Revenue 50,000 and 63,000
Opening inventory 14,000 and 15,000
Purchases 40,000 and 50,000
Closing inventory (15,000) and (20,000)Cost of sales 39,000 and 45,000
Profit 11,000 and 18,000
OK so far?
Now, change last year’s closing inventory to 13,400 and this year’s closing inventory to 18,000
The figures now become:
Revenue 50,000 and 63,000
Opening inventory 14,000 and 13,400
Purchases 40,000 and 50,000
Closing inventory (13,400) and (18,000)Cost of sales 40,600 and 45,400
Profit 9,400 and 17,600
So this year’s profit has fallen by $400
OK?
Think about using the same approach whenever you are faced with a similar problem – be willing to put figures into a proforma to see the affect of any alterations
- Topics: 0
- Replies: 1
- ☆
Hi. may i know why can u pretend the revenue is 63000? if i put 60k, this system is not working.
- You must be logged in to reply to this topic.