BKAR1013 FINANCIAL ACCOUNTING AND REPORTING I (A201)

MINI CASE 4: INVENTORY

DUE DATE: 5 December 2020, Saturday

Guidelines for submission:

1) Please answer all questions.

2) Please write your name, matric number, no. position in class, group on the header and
page number on the bottom of your answer document.

3) The mini case is an individual task, however discussion is allowed, but copying other
student’s answer is forbidden.

4) Your answer should be handwritten and subsequently scanned with a scanner or

mobile scanner apps in a combined PDF file. The scanned document must be clear,
easily readable and complete. Photo is not allowed.

5) Submit your scanned answer via Online Learning portal → within

the allotted time and period, before 12.00 mid night, 5 December 2020 (MYT). Only
one submission will be accepted.
QUESTION 1

The board of directors of Amer Bhd is considering whether it should instruct the accounting
department to change its inventory cost flow assumptions from First-in-First-out (FIFO) basis
to an average costs. The following information has been extracted from the records of Amer
Bhd about its products; Viral15. Amer Bhd uses perpetual inventory system and its reporting
period ends on 30 June. The following information related to an inventory; Viral15:

Purchase Price Selling Price

Date Particular Unit
RM/Unit RM/Unit
01/07/19 Beginning balance 4,000 80.00
06/08/19 Purchased 1,500 80.50
05/09/19 Sold 5,000 123.00
19/11/19 Purchased 10,000 77.50
24/11/19 Purchase returns 550 77.50
30/05/20 Sold 9,200 122.50

REQUIRED:
(Round all figures to TWO (2) decimal points)

(a) Calculate the cost of inventory on hand as at 30 June 2020 and the cost of sales for
the year ended 30 June 2020, using:

(i) the FIFO cost flow assumptions.

(ii) the moving average cost flow assumptions.
Show your workings clearly by following the given format:

  Purchases Cost of goods sold Ending balance

Unit Total Unit Total Unit Total
Date Unit Cost cost Unit Cost cost Unit Cost cost
(RM) (RM) (RM) (RM) (RM) (RM)
           

(b) It is expected that the purchase cost of inventory will keep increasing. If Amer Bhd
wants to minimize the income in order to pay least tax, suggest cost flow
assumptions (FIFO or average cost) that is more relevant. Justify your answer.

QUESTION 2
De Luna Bhd is a company located in Jitra, Kedah. The transactions for De Luna Bhd for the
year 2019 in relation to product X are as follow:

Date Transaction

20 January Purchased 3,000 units of product X with a price of RM2,400,000.

19 February Sold 2,800 units of product X on account free on BOD shipping point to
VB Enterprise with the price of RM1,500 per unit.
25 March Purchased 2,000 units of product X with a cost of RM950 per unit.
20 April Sold 2,000 units of product X to Kakala Sdn Bhd and the transaction
was made in cash with the price of RM1,600 per unit.
28 April Due to wrong specification, 80 units of product sold on 20 April 2019
were returned to customer.
25 August Purchased another 1,500 units of product X with overall cost of
RM1,425,000
1 September 100 units of product X that were bought in 25 August 2019 were
returned to supplier due to wrong specification.
20 November Purchased 2,000 units of product X with a total purchase cost of
RM2,000,000.
17 December Sold for credit 3,500 units of product X to ReadyGo Enterprise with a
selling price of RM1,250 per unit.

Additional information:

1. As at 31 December 2018, the company’s inventory showed an ending balance of

2,000 units at the cost of RM1,000 per unit.
2. Other expenses for the year 2018 were RM1,500,000,
 3. Assuming the tax for the year 2019 is 24%.

REQUIRED:
(Round all figures to TWO (2) decimal points)
(a) Calculate the amount of ending inventory as at 31 December 2019 using the method of:
(i) First in first out (FIFO)
(ii) Weighted average cost method
(b) Prepare the Income Statement for the Year 2019 by referring to both FIFO and weighted
average cost method effects.
(c) Assuming that you are an accountant of De Luna Bhd. If you have been given a chance
to choose between the two method, which one you prefer and why?

QUESTION 3
Syarikat Alma Meter Bhd (SAMB) just recently hired a new assistant, Encik Subki Muda to
help company’s inventory controller in inventory costing and management. Although Encik
Subki understands the sophisticated computer inventory control systems, however he is not
familiar with the SAMB inventory system and has little knowledge of how inventory cost is
determined. SAMB has two types of inventories, Model B1 and Model Z2. In studying the
records of SAMB, Encik Subki was provided with the incomplete schedule to show how the
cost of inventories on hand at 31 December 2016 and the cost of sales for the month of
December 2016 are computed for the Model B1. SAMB uses net method to record the
purchase and account payable. The company's reporting period ends on 31 December.

Incomplete schedule of inventory on hand and cost of sales of unit inventory Model B1
  Purchases Cost of sales Ending balance
Total Total Total
Unit Unit Unit
Date Detail Unit cost Unit cost Unit cost
Cost Cost Cost
(RM) (RM) (RM)
Beginning
1-Dec             40 350 14,000
inventories
                     
2-Dec Purchase 30 400 12,000       40 350 14,000
  Freight Cost     360       30 412 12,360
        12,360       70 26,360
  Cost per unit      412            
9-Dec Sold       40 350 14,000 0 350 0
          5 412 2,060 25 412 10,300
          45   16,060 25   10,300
 11-Dec              

Notes: The information for inventory transaction that took place on 11 December 2016 and
onwards is as follows:
 Date Detail
11 Dec Returned two units of Model B1 to the supplier. These units were recently
purchased on 2 December 2016.
15 Dec Sold 15 units of Model B1 for RM600 each.
20 Dec Purchased three units of Model Z2 for RM6,000 each. Additional costs incurred
include RM830 cost on freight.
21 Dec Two defect units of Model B1 were returned by a customer. These units were
identified as released for sale from the beginning inventory on 1 December 2016.
23 Dec Sold 2 units of Model Z2 at RM8,500 each.
25 Dec Purchased 11 units of Model B1 for RM400 each. The purchase was on credit
with 2/10, n/60 term.

REQUIRED:

(a) Based on the schedule and the information provided, assume that you are in the
position of Encik Subki as an inventory controller assistant. Therefore the controller
asks you to find the following information:

(i) What is the type of inventory system used by SAMB? Give ONE (1) justification
for your answer.

(ii) What is the cost flow assumption applied by SAMB to measure the cost of
inventory? Give ONE (1) justification for your answer.

(iii) What is the freight term applied to determine ownership of inventory for the
purchase on 2 December 2016? Give ONE (1) justification for your answer.

(b) Prepare a schedule, starting with the transaction at 11 December 2016 to calculate the
cost of inventory on hand at 31 December 2016 and the cost of sales for the month of
December 2016 for the item Model B1.

(c) Calculate the gross profit of Model B1 for the month of December 2016.

(d) Suggest the appropriate cost flow assumption that can be used by SAMB for the
Model Z2 if this model is small in its quantity and easily distinguishable. Give TWO
(2) examples of products that suitable with the suggested cost flow assumption.