1. Yaasir (166053), Omar (166037), Mahmood (166044), Ali (166035)
TOPIC PRESENTATION
Yaasir (166053), Omar (166037), Mahmood (166044), Ali (166035)

2. Inventories
Inventories are goods purchased by merchandisers to resell.
The goods that are purchased but have not yet been sold are recorded in an account named “inventories”
High level of inventory is not recommended since it can result in additional expenses and they may become obsolete. Low levels of inventory are not recommended either since a business might not be able to meet demand.

3. Periodic Inventory Systems
With this system, no detailed record of inventory is being maintained during the year.
An actual physical count of the goods remaining on hand is required at the end of each period.
Purchases of goods are recorded in the purchases account. Which is closed at the end of the year and the inventory will then be adjusted to equal the cost of the goods actually on hand at the end of the year.

4. Perpetual Inventory System
Inventory Systems
Perpetual Inventory System
This system involves the maintenance of detailed inventory records in the accounting system.
There is a cost of goods sold in this system which is debited for each sale at the cost of the merchandise sold.
When a retailer purchases merchandise, the retailer debits its Inventory account for the cost; when the retailer sells the merchandise to its customers its Inventory account is credited and its Cost of Goods Sold account is debited for the cost of the goods sold.
Under the perpetual system, two transactions are recorded when merchandise is sold: (1) the sales amount is debited to Accounts Receivable or Cash and is credited to Sales, and (2) the cost of the merchandise sold is debited to Cost of Goods Sold and is credited to Inventory.

5. Periodic Inventory System
Disadvantages
Periodic Inventory System
The necessity to take a complete physical count of all merchandise on hand at the end of each period for which financial statements are prepared.
Lack of inventory control

6. Perpetual Inventory System
Disadvantages
Perpetual Inventory System
The maintenance of a separate inventory record for each type of goods stocked can be time consuming and costly.
May involve a considerable amount of clerical effort.

7. DIFFERENCES BETWEEN PERIODIC AND PERPETUAL
Inventory A. Periodic During the period, the inventory account does not change; thus, it reflects the beginning inventory amount. During the period, each purchase is recorded in the Purchases account. As a consequence, the ending inventory each period must be measured by physical count, then ”costed” at unit price cost.

8. DIFFERENCES BETWEEN PERIODIC AND PERPETUAL
During the period, the Inventory account is increased for each purchase and decreased (at cost) for each sale. Thus, at the end of the period, it measures ending inventory.

9. DIFFERENCES BETWEEN PERIODIC AND PERPETUAL
Cost of Goods Sold
A. Periodic
During the period, no entry is made for cost of goods sold. At the end of the period, after the physical inventory count, cost of goods sold is measured as: Beg. Inventory + Purchases – End. Inventory = Cost of Goods Sold

10. DIFFERENCES BETWEEN PERIODIC AND PERPETUAL
B. Perpetual
During the period, cost of goods sold is recorded at the time of each sale and the Inventory account is reduced (at cost). Thus the system measure the cost of goods sold amount for the period.

11. Cost Flow Assumptions Periodic FIFO Periodic LIFO Periodic average
Perpetual FIFO
Perpetual LIFO
Perpetual average

12. Periodic FIFO
FIFO is an acronym which stands for First in First Out, which means that the first goods bought are the first ones to leave the inventory and become the cost of goods sold on the income statement. The more recent goods will be recorded on the balance sheet as inventory.

13. Example

14. Periodic LIFO
LIFO is an acronym for Last in First Out, therefore goods purchased most recently will be the first ones to leave the inventory. They become the cost of goods sold on the income statement, while the first goods bought will be recorded in the balance sheet as inventory.

15. Example

16. Periodic Average
Using this system and assumption, the total goods available (cost from the opening inventory + the cost of all purchases made during the year) will be totalled then the average cost will be calculated. In other words, the periodic average is calculated at the end of the year; after all the purchases have been made. The average cost is then applied to all the goods sold and available in the inventory

17. Example

18. Perpetual FIFO
With perpetual FIFO, the first (or oldest) costs are the first moved from the Inventory account and debited to the Cost of Goods Sold account. The end result under perpetual FIFO is the same as under periodic FIFO. In other words, the first costs are the same whether you move the cost out of inventory with each sale (perpetual) or whether you wait until the year is over (periodic).

19. Perpetual LIFO
With perpetual LIFO, the last costs available at the time of the sale are the first to be removed from the Inventory account and debited to the Cost of Goods Sold account.
An entry must be recorded at the time of the sale in order to reduce the Inventory account and to increase the Cost of Goods Sold account.
If costs continue to rise throughout the entire year, perpetual LIFO will yield a lower cost of goods sold and a higher net income than periodic LIFO.

20. Example

21. Perpetual Average
Under the perpetual system, "average" means the average cost of the items in inventory as of the date of the sale.
This average cost is multiplied by the number of units sold and is removed from the Inventory account and debited to the Cost of Goods Sold account.

22. Example

23. QUESTIONS

24. QUESTION A
Prepare a Store Ledger Card for Tricycle Workshop Sdn Bhd using FIFO, LIFO and Weighted Average method for the following transactions:
Date Particulars
01/7/ units opening stock valued at RM 2,000.
15/7/2016 Purchased 70 units valued at RM 2,100.
20/7/2016 Sold 150 units at RM50 per unit.
28/7/ units from sale on 20/7/2013 were returned.

25. Question A: FIFO Receipts Issues Balance Date Quantity Rate per unit
Amount
01/07/2016
100 units
RM20
RM2,000
15/07/2016
70 units
RM30
RM2,100
170 units
100 x RM20
RM4100
70 x RM30
20/07/2016
RM2000
50 units
RM1,500
20 units
RM600
28/07/2016
10 units (returned)
RM200
10 units
RM800

26. LIFO Receipts Issues Balance Date Quantity Rate per unit Amount
01/07/2016
100 units
RM20
RM2,000
15/07/2016
70 units
RM30
RM2,100
170 units
100 x RM20
RM4100
70 x RM30
20/07/2016
80 units
RM1,600
20 units
RM400
28/07/2016
10 units (returned)
RM300
RM1,300
30 units

27. Weighted Average Receipts Issues Balance Date Quantity Rate per unit
Amount
Rate per unit
01/07/2016
100 units
RM20
RM2,000
15/07/2016
70 units
RM30
RM2,100
170 units
(RM2,000+RM2,100)/(100+70) = RM24.12
RM4,100.4
20/07/2016
150 units
RM24.12
RM3,613
20 units
RM482.4
28/07/2016
10 units (returned)
RM241.2
30 units
RM723.6

28. QUESTION B
The following information is available about component B30 of Tricycle Workshop Sdn Bhd.
Date Receipts Purchase Price Issues
01/10/ RM4.00
04/10/ RM4.50
07/10/ units
11/10/ units
21/10/ RM4.80
26/10/ units
Prepare three separate stores ledger accounts assuming the issues are priced using:-
FIFO method
LIFO method
Average method
Under each method identify:
the quantity and value of closing stock
the cost of material issues to production
Given material can be sold at RM20 per unit, prepare a Trading Profit Statement for Tricycle Workshop Sdn Bhd under each method.

29. Question B FIFO Receipts Issues Balance Date Quantity Rate per unit
Amount
01/10/2016
150 units
RM4
RM600
04/10/2016
100 units
RM4.5
RM450
250 units
150 x RM4
100 x RM4.5
RM1,050
07/10/2016
80 units
RM320
170 units
70 x RM4
RM730
11/10/2016
30 x RM4.5
RM415
70 units
70 x RM4.5
RM315
21/10/2016
90 units
RM4.8
RM432
160 units
90 x RM4.8
RM747
26/10/2016
10 x RM4.8
RM363
80 x RM4.8
RM384

30. LIFO Receipts Issues Balance Date Quantity Rate per unit Amount
01/10/2016
150 units
RM4
RM600
04/10/2016
100 units
RM4.5
RM450
250 units
150 x RM4
100 x RM4.5
RM1,050
07/10/2016
80 units
RM360
170 units
20 x RM4.5
RM690
11/10/2016
80 x RM4
RM410
70 units
70 x RM4
RM280
21/10/2016
90 units
RM4.8
RM432
160 units
90 x RM4.8
RM712
26/10/2016
80 x RM4.8
RM384
10 x RM4.8
RM328

31. Weighted Average Receipts Issues Balance Date Quantity Rate per unit
Amount
01/10/2016
150 units
RM4
RM600
04/10/2016
100 units
RM4.5
RM450
250 units
(RM600+RM450)/( ) = RM4.2
RM1,050
07/10/2016
80 units
RM4.2
RM336
170 units
170 x RM4.2
RM714
11/10/2016
RM420
70 units
70 x RM4.2
RM294
21/10/2016
90 units
RM4.8
RM432
160 units
(RM294+RM432)/(90+70) = RM4.54
RM726.4
26/10/2016
RM4.54
RM363.2
80 x RM4.54

32. Bi)
Quantity of closing stock: 80 units
Value of closing stock (FIFO): 80 x RM4.8 = RM384
Value of closing stock (LIFO): (70 x RM4) +(10 x RM4.8) = RM328
Value of closing stock (Weighted Avg): 80 x RM4.54 = RM363.2
Bii)
Cost of material issues to production (FIFO): (80 x RM4) + (70 x RM4) + (30 x RM4.5) + (70 x RM4.5) + (10 x RM4.8) = RM1098
Cost of material issues to production (LIFO): (80 x RM4.5) + (80 x RM4) + (20 x RM4.5) + (80 x RM4.8) = RM1154
Cost of material issues to production (Weighted Avg): (80 x RM4.2) + (100 x RM4.2) + (80 x RM4.54) = RM1119.2

33. Trading Account for the month ended October 2016
FIFO
FIFO
Trading Account for the month ended October 2016 RM
Sales revenue
5,200
Less: Cost of Goods Sold
Purchases
First Purchase
600
Second Purchase
450
Third Purchase
432
1,482
Less Closing Inventory
(384)
(1,098)
Gross Profit
4,102

34. Trading Account for the month ended October 2016
LIFO
Trading Account for the month ended October 2016 RM
Sales revenue
5,200
Less: Cost of Goods Sold
Purchases
First Purchase
600
Second Purchase
450
Third Purchase
432
1,482
Less Closing Inventory
(328)
(1,154)
Gross Profit
4,046

35. Trading Account for the month ended October 2016
Weighted Average
Trading Account for the month ended October 2016 RM
Sales revenue
5,200
Less: Cost of Goods Sold
Purchases
First Purchase
600
Second Purchase
450
Third Purchase
432
1,482
Less Closing Inventory
(363.2)
(1,118.8)
Gross Profit
4,081.2

36. QUESTION C
The following are 2016 first half year transactions of component B25.
January Purchased 160 RM30.50 per unit
February Purchased 400 RM35.00 per unit
March Purchased 400 RM40.00 per unit
April Purchased 800 RM41.00 per unit
May Sold 560 RM50.00 per unit
June Sold 400 RM54.00 per unit
Calculate the cost of goods sold for the first six months period of year 2016 using FIFO and LIFO methods of pricing.
Calculate the trading profit for both methods pricing mentioned in (a) above. Which pricing method will result in a higher profit and why?

37. Inventory and Sales data table:
Date
Details
Cost/Selling price per unit
Purchases
Sales
January
Purchased 160 units
RM30.50
RM4,880
February
Purchased 400 units
RM35.00
RM14,000
March
RM40.00
RM16,000
April
Purchased 800 units
RM41.00
RM32,800
May
Sold 560 units
RM50.00
RM28,000
June
Sold 400 units
RM54.00
RM21,600
Cost of Goods Sold = Opening inventory + additional purchases – closing inventory.
With the First in First out method, it is assumed that the first batch of goods bought will be the first batch to be sold, then the second, the third and so on.
On the other hand, with the Last in First out method, the latest batch of goods purchased will be the first batch to be sold, then the second last, then the third last and so on.

38. FIFO Method: Date In Out Balance January 160 units at RM30.50
160 units X RM30.50 = RM4,880
February
400 units at RM35.00
400 units X RM35.00 = RM14,000
March
400 units at RM40.00
400 units X RM40.00 = RM16,000
April
800 units at RM41.00
800 units X RM41.00 = RM32,800
May
June
Cost of Goods Sold (COGS): RM34,880
Ending Inventory: RM32,800

39. LIFO Method: Date In Out Balance January 160 units at RM30.50
160 units X RM30.50 = RM4,880
February
400 units at RM35.00
400 units X RM35.00 = RM14,000
March
400 units at RM40.00
400 units X RM40.00 = RM16,000
April
800 units at RM41.00
800 units X RM41.00 = RM32,800
May
560 units at RM41.00
300 units X RM41.00 = RM12,300
June
300 units at RM41.00
100 units at RM40.00
300 units X RM40.00 = RM12,000
Cost of Goods Sold: RM39,260
Ending Inventory: RM30,880

40. Trading Account for the first half of 2016
Part B:
FIFO method:
Trading Account for the first half of 2016 RM
Sales revenue
49,600
Less: Cost of Goods Sold
Purchases
First Purchase
4,880
Second Purchase
14,000
Third Purchase
16,000
Fourth Purchase
32,800
67,680
Less Closing Inventory
(32,800)
(34,880)
Gross Profit
14,720

41. Trading Account for the first half of 2016
LIFO method:
Trading Account for the first half of 2016 RM
Sales revenue
49,600
Less: Cost of Goods Sold
Purchases
First Purchase
4,880
Second Purchase
14,000
Third Purchase
16,000
Fourth Purchase
32,800
67,680
Less Closing Inventory
(30,880)
(36,800)
Gross Profit
12,800
As you can see, using the First in First out method results in higher gross profit than the Last in First out method. The reason for this is because with the FIFO method, the earlier goods are assumed to be sold first and the prices of the goods have steadily increased. In the LIFO method, the latest batch is the one that is assumed to be sold first, which results in a lower value of closing inventory and therefore, a higher cost of goods sold.

42. THANK YOU TERIMA KASIH 