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Introduction to accounting - inventory student question&answer
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This is an inventory-based student question & answer. I have done 2 questions which one is on the weighted average and one is on FIFO.
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INVENTORY PRACTISE QUESTIONQUESTION 1
CALCULUS TRADERS
Calculus Traders is a business selling accounting textbooks to first year students.
The business is a registered VAT vendor and VAT is levied at 14%. Calculus
Traders uses the periodic inventory system and the weighted average cost allocation
method.
The following information pertains to May 2014:
1. On 1 May 2014, Calculus Traders had 86 textbooks to the value of R 64 500-00
(excluding Vat) on hand. The balance on the inventory account in the general ledger
(Current asset) also amounted to R 64 500-00 as at 1 May 2014
2. On 5 May 2014, Calculus Traders purchased 50 textbooks from a supplier, Moxford
Publishers. The purchase price amounted to R 49 400-00 (including Vat). Moxford
Publishers allowed a trade discount of 10%. The supplier was settled on 31 May
2014.
3. Calculus Traders returned 5 damaged textbooks to Moxford Publisher on 7 May 2014
and received a credit note from the supplier.
4. Calculus Traders also purchased 65 textbooks for cash amounting to R 67 431-00
(including VAT) on 7 May 2014
5. Total sales for May 2014 amounted to R 145 200-00 (excluding VAT). 75% of all
sales are for cash.
6. Sales returns during May 2014 amounted to R 9 576-00 (including VAT). All
customers were refunded in cash.
7. On 31 May 2014, a physical inventory count was performed. 79 textbooks were on
hand as at 31 May 2014.
8. On 1 June 2014 the Accounting Standards changed and it was found that the
accounting textbooks on hand as at 31 May 2014 could only be sold at R 500-00
each (excluding VAT) as the textbooks were now outdated
REQUIRED
a) Prepare the journal entries in respect of the information given in notes 2 to 6 above in
the accounting records of Calculus Traders. Journal entries must be dated and
narrated
b) Prepare ALL the journal entries in respect of the following notes as given above.
1) Note 7
Your journals should include the closing journal entries for inventory and cost of
sales as at 31 May 2014.
2) Note 8
c) Disclose inventory in the financial statement of Calculus Traders for the month ended
31 May 2014. The accounting policy note should be included.
d) Briefly describe in your own words how inventory should be measured when it is
initially purchased.
QUESTION 2
Super-Song Sound Systems
, SuperSong Sound Systems is a business specialising in the latest sound equipment. The
owner, Mr Vuyela started the business in Polokwane in 2010. SuperSong Sound Systems is
the sole distributor of the very popular Vuvu-Yella MP3 players which were developed during
the 2010 soccer world cup season. The Vuvu-Yella MP3 players are bought directly from the
manufactures in Cape Town. SuperSong Sound Systems is registered for VAT purposes
and so are all parties trading with them. VAT is levied at 14%. Inventory is measured at the
lower of cost or net realisable value. The business records inventory using the perpetual
inventory system on the FIFO method.
The following transactions occurred during December 2011:
1. Inventory on hand as at 30 November 2011 comprised of 320 Vuvu-Yella
MP3 players at a total cost of R 200-00 per unit.
2. On 2 December 2011, SuperSong Sound Systems sold 250 Vuvu-Yella MP3
players to Cheep & Cheerful Retailers for R 570-00 (VAT inclusive) per unit,
on credit.
3. On 12 December 2011 SuperSong Sound Systems purchased 200 Vuvu-
Yella MP3 players from the manufacturers in Cape Town for R 399-00
(including VAT) per unit and paid cash.
4. The MP3 players are packaged in custom designed packaging material. The
packaging material is sourced from a separate supplier in Limpopo and was
received on 11 December 2011. Mr Vuyela purchased just enough of the
packaging material to last for the 200 units. The customised packaging
material amounted to R 30-00 (excluding VAT) per unit. The supplier was
paid on the delivery date, 11 December 2011.
5. On 17 December 2011, 150 MP3 players were sold for cash at R 1 000-00
(excluding VAT) per unit.
6. An old friend of Mr Vuyela, Alfred owns Alldays Audio, a shop also selling
audio equipment. Mr Vuyela sent 50 MP3 players to Alldays Audio on 14
December 2011 on consignment and agreed to pay Alfred a commission of
30% (excluding VAT) per MP3 player sold. On 31 December 2011 Alldays
Audio had sold 30 MP3 players at R 1 000-00 (excluding VAT) per unit. On
the same day, Alfred transferred the money owed to SuperSong Sound
Systems electronically, after taking the commission agreement into account.
7. During December 2011 a brand new type of MP3 player was released from
China. The Chinese MP 3 player was more advanced and much cheaper than
the Vuvu-Yella MP3 players. Consequently, the Vuvu-Yella MP3 players
could only be sold at R 300-00 (excluding VAT) per MP3 player as from 31
December 2011.
REQUIRED
a) Prepare the journal entries necessary to record the transactions in points
2 to 7.
b) Disclose inventory in the notes to the financial statements and statement
of financial position of SuperSong Sound Systems as at 31 December
2011.
SOLUTIONS
QUESTION 1
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