ASSINGMENT#4

Assignment #4 Income statements — periodic inventory system

Part A
Beyer Ltd is registered for GST, balances its accounts at month-end, uses special journals, and uses
the perpetual inventory system with the FIFO cost flow assumption. All purchases and sales of
inventory are made on credit. End of the reporting period is 30 June. Sales and purchases (all net of
GST) of product JINX-87 in May 2016 were:

Date Transaction No. Unit cost

May 1 Inventory on hand 50 $10
May 7 Purchase 20 $11
May 11 Sale @ $35/unit 54
May 17 Purchase 30 $12
May 21 Purchase return 10 $11
May 24 Sale @ $36/unit 30
May 29 Sale return (on 24 May sale) 8

Required
For product JINX-87, calculate May 2016’s cost of sales and cost of inventory on hand at 31 May
2016, using an inventory record.

FIFO: Perpetual

Purchases Sales Balance

Date Explanation Un Unit Total Units Unit Total cost Units Unit Total
its cost cost cost cost cost
1/5 Beg. Inventory 50 $10 $500
7/5 Purchase 20 $11 $220 50 $10
20 $11 $720
11/5 Sales 50 $10 $500 $11
4 $11 $44 16 $11 $176
17/5 Purchase 30 $12 $360 16 $35
30 $12 $536
21/5 Purchase return 10 $11 $110 6 $11 66
30 $12 $426

24/5 Sales 6 $11 66 20 $11

24 12 288 6 $12 72
29/5 Sales return (8) $12 $(96) $12
14 $ $168
$802

Ending inventory = $168

Cost of sales = $802
Part B
The inventory ledger account balance at 30 June 2016 was $7650, and net realisable value for each
product line exceeded cost. The cost of inventory on hand at 30 June 2016 determined by physical
count, however, was only $7578. In investigating the reasons for the discrepancy, Beyer Ltd
discovered the following.
● Goods costing $87 plus GST were sold for $100 plus GST on 26 June 2016 on DDP shipping
terms. The goods were in transit at 30 June 2016. The sale was recorded on 26 June 2016 and the
goods were not included in the physical count.
● Goods costing $90 plus GST were ordered on 24 June 2016 on EXW shipping terms. The goods
were delivered to the transport company on 27 June 2016. The purchase was recorded on 27 June
2016 but, as the goods had not yet arrived, the goods were not included in the physical count.
● Goods costing $140 (excluding GST) held on consignment for Richmond Ltd were included in
the physical count.

Required
Prepare any journal entries required on 30 June 2016 to correct error(s) and to adjust the inventory
account (Use the general journal).

General Journal
Date Particulars Debit Credit
2016
June 30 Sales 100
GST Payable 10
Accounts Receivable 110
Reverse error in recording sales of item on
DDP shipping terms

Inventory 87
Cost of Sales 87
Include items ‘sold’ back into inventory
(inventory ledger account balance is now
Equal to $7 650 +$87 = 7 737), corrected
Physical balance = $7 578+$87+$90-$140
= $7 615

Inventory Shortage Expense 122

Inventory 122
Inventory lost or missing