Comparisons of Methods using Perpetual Stock System

Trading Account for the year ended 31 December 2018

FIFO LIFO AVCO FIFO LIFO AVCO
RM RM RM RM RM RM
Opening Stock 1,500 1,500 1,500 Sales 91,600 91,600 91,600
Add Purchases 49,100 49,100 49,100
Less Closing Stock (18,450) (17,700) (18,241)
COGS 32,150 32,900 32,359
Gross Profit 59,450 58,700 59,241
91,600 91,600 91,600 91,600 91,600 91,600

A higher closing stock value results in a higher profit figure.

Even though the FIFO method produces a higher profit, it is to be preferred since it gives a

latest price of the closing stock for inclusion in Balance Sheet.

Exercises

1. If a perpetual stock system is maintained, is it necessary to take a physical stock at

year-end?
Yes, the physical stock at year end is to confirm the quantity of the stock in existence. Unless the stocks are counted, the book balance in the perpetual
inventory system cannot be verified.

2. What is the objective of control over stock?

To ensure that materials will be made available when needed for production at the lowest cost possible.

3. Fateh had 100 litres of foam liquid in stock as at 1 November 2018, purchased at RM2
per litre. During the month to 31 November 2018, the following changes occurred in
the stock position.

Date Purchases/Receipts Cost per litre Sales/Issues

Quantity (Litres) (RM) Quantity (Litres)
November 2 200 2.50
5 80
7 70
10 350 3.00
12 290
15 50
17 250 3.20
21 150
26 100
29 300 3.50

Fateh is using the Perpetual System in recording the stock.

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