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Inventory Valuation Methods Explained

The document outlines various examples of inventory management and accounting methods such as FIFO and LIFO, detailing purchases and sales of materials over specific periods. It includes calculations for ending inventory and gross profit for different scenarios, as well as journal entries for recording transactions. The examples illustrate how to apply different inventory costing methods and their impact on financial statements.

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Vanamala Mahathi
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4 views3 pages

Inventory Valuation Methods Explained

The document outlines various examples of inventory management and accounting methods such as FIFO and LIFO, detailing purchases and sales of materials over specific periods. It includes calculations for ending inventory and gross profit for different scenarios, as well as journal entries for recording transactions. The examples illustrate how to apply different inventory costing methods and their impact on financial statements.

Uploaded by

Vanamala Mahathi
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Example1: The following are purchases of material during the month Jan.

2015:

 Jan. 1, 2011 Opening Balance 1,000 units @ Rs 2


Jan. 6 received from vendor 400 units @ Rs 3
Jan. 11 received from vendor 300 units @ Rs 2
Jan. 20 received from vendor 600 units @ „Rs 3
Jan. 26 Received from vendor 800 units @ „Rs 2
 Issues of materials were as follows:
Jan. 5- 400 units,
Jan 10 – 800 units
Jan.18- 200 units

Prepare store ledger accounts showing how the value of the issues would be recorded under
FIFO method and Calculate

i) Ending Inventory
ii) Gross profit on sales for the month of January.

Example 2 – Stores ledger FIFO & LIFO method From the following particulates prepare
stores ledger account under (i) FIFO (ii) LIFO method.

March 2 nd Purchases 200 units @ Rs.200

4 th Issued 150 units

6 th Purchases 200 units @ Rs.220

10th Issued 100 units

16th Purchases 200 units @ Rs.210

18th Issued 220 units

24th Purchases 150 units @ Rs.230

25th Issued 190 units

28th Issued 30 units


Example 3: Aryan Company's beginning inventory and purchases during the
fiscal year ended June 30, 2010 are as follows:

Units Per Unit


Jul. 1, 09 Inventory 1,000 50.00

Jul. 10, 09 Purchases 1,200 52.50

Aug. 30, 09 Purchases 800 55.00

Oct. 1, 09 Purchases 2,000 56.00

Dec. 15, 09 Purchases 1,500 57.00

Feb. 1, 10 Purchases 700 58.00

Mar. 20, 10 Purchases 1,370 60.00

Mar. 20, 10 Purchases 450 62.00

The company uses the Periodic Inventory System and the Co. sold 5,800 units for total
amount of Rs.536,000 during the year.

REQUIRED

Determine the cost of ending inventory on June 30, 2010, under each of the following
inventory costing methods:

(a) FIFO

(b) LIFO

(c) Weighted Average

(d) Prepare a comparative income statement showing the gross profit under each
method.
Example 4: Vaqar & Co. uses Perpetual System and uses LIFO inventory valuation
method. The records of the company show the following purchases and sales
transactions for the month of September 2003:
September 1 Inventory 5,000 units @ Rs.5
September 9 Purchase 2,500 units @ Rs.6
September 14 Sales 2,500 units @ Rs.12
September 19 Purchase 1,600 units @ Rs.7
September 21 Sales 2,200 units @ Rs.12
September 24 Purchase 3,000 units @ Rs.8
September 29 Sales 2,500 units @ Rs.12

REQUIRED:
Give entries in Journal to record total purchases, total cost of goods sold and total sales
on September 30. Assume that all transactions were on account.

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