16 Inventory Valuation

Chapter # 16
Inventory Valuation
Principles of Accounting – B.Com Part – I
Sameer Hussain
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Inventory Valuation
Chapter # 16
WHAT THE EXAMINER USUALLY ASK?

 Perpetual Inventory System:
o FIFO Method.
o LIFO Method.
o Moving Average Method.
 Periodic Inventory System:
o FIFO Method.
o LIFO Method.
o Weighted Average Method.
 Gross Profit Method.
 Retail Price Method.
 Computation of cost of ending inventory.
 Computation of cost of goods sold.
 Computation of gross profit.
 Entries under Perpetual Inventory System and Periodic Inventory System.
 Comparative Income Statement.
 Effects of Inventory on Financial Statements.
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Chapter # 16
INVENTORY VALUATION
Inventory valuation
The valuation on inventory at the end of particular period is called inventory valuation. An
inventory count takes place to confirm that actual quantities support the figures given in the
books of accounts. The differences between the inventories at the beginning and at the end of
the period are used in calculation of cost of goods sold.
There are two systems of inventory valuation:
a) Perpetual Inventory System.
b) Periodic/physical Inventory System.
a) Perpetual inventory system

The process of keeping records in an inventory ledger or on a bin card in which the balance of
the quantity in inventory is entered after each receipt or issue of stock. In some system the
value of inventory balance is also entered after each transaction.
There are three methods on inventory valuation under perpetual inventory system:
i. FIFO Method (First in First Out).
ii. LIFO Method (last in First Out).
iii. Moving Average Method.
 Fifo Method (first in first out)

A method of valuing units of merchandise issued from inventory based on using the earliest unit
value for pricing the issues until all the stock received at that price has been used up. The next
latest price is then used for pricing the issues, and so on.
 Lifo Method (last in first out)

A method of valuing units of merchandise issued from the inventory by using the latest unit
value for pricing the issues until all the quantity of inventory received at that price is used up.
The next earliest price is then used for pricing the issues, and so on.
 Moving average method

A method of valuing units of merchandise issued from inventory; it involves the recalculating
the unit value to be used for pricing the issues after each new consignment has been added to
the stock. The average is obtained by dividing the total stock value by the number of units in
inventory.
Format of inventory card by perpetual system

Received/Purchase Sale/Issue Balance
Date Unit Total Unit Total Unit Total
Quantity Quantity Quantity
cost cost cost cost cost cost
This column shows the This column shows the This column shows the
Total purchases. Cost of goods sold. Cost of ending inventory.
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Entry to Record Purchase of Merchandise Under Perpetual Inventory System:

Merchandise DR. (with the purchase amount)
Accounts payable / Cash CR. (with the amount of inventory)
(To record the purchase of merchandise)
----------------------------------------------------------------------------------------------------------------------
Adjusting Entry Under Perpetual Inventory System:
Cost of goods sold DR. (with the amount of cost of goods sold)
Merchandise inventory CR. (with amount of cost of goods sold)
(To adjust the cost of goods sold)
----------------------------------------------------------------------------------------------------------------------
ILLUSTRATION # 1: (Perpetual Inventory System – FIFO Method)

2004 Private – UOK
The following data relate to the business of Arsalan Trading Company which uses perpetual
inventory system and uses FIFO inventory valuation method.
Units Unit Cost
November 1 Inventory 50 Rs.50
November 4 Purchases 30 Rs.55
November 8 Sales 35 Rs.80
REQUIRED
(i) Compute the cost of ending inventory on November 30.
(ii) Compute the gross profit on sales for the month of November.
SOLUTION # 1:
ARSALAN TRADING COMPANY
INVENTORY VALUATION
PERPETUAL INVENTORY SYSTEM - FIFO METHOD
FOR THE PERIOD NOVEMBER
Date Purchases/Received Sales/Issued Balance
Units Unit Total Units Unit Total Units Unit Total
1 Nov 50 50 2,500
4 Nov 30 55 1,650 50 50 2,500
30 55 1,650
8 Nov 35 50 1,750 15 50 750
30 55 1,650
9 Nov 40 60 2,400 15 50 750
30 55 1,650
40 60 2,400
20 Nov 15 50 750 25 60 1,500
30 55 1,650
15 60 900
25 Nov 40 65 2,600 25 60 1,500
40 65 2,600
30 Nov 10 60 600 15 60 900
40 65 2,600
110 6,650 105 5,650 55 3,500

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Inventory Valuation
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Computation of Cost of Ending Inventory:
15 Units @ Rs.60 each 900
40 Units @ Rs.65 each 2,600
55 units Cost of ending inventory 3,500
Computation of Cost of Goods Sold:

Merchandise inventory (opening) 2,500
Add: Net purchases during the period 6,650
Merchandise available for sale 9,150
Less: Merchandise inventory (ending) (3,500)
Cost of goods sold 5,650
Computation of Total Sales:

10 Units @ Rs.100 each 1,000
105 units Total sales 8,900
Computation of Gross Profit:

Sales 8,900
Less: Cost of goods sold (5,650)
Gross profit 3,250
ILLUSTRATION # 2: (Perpetual Inventory System – LIFO Method)

2004 Regular – UOK
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
REQUIRED
Give entries in General Journal to record total purchases, total cost of goods sold and total sales
on September 30. Assume that all transactions were on account.
SOLUTION # 2:
2,500 Units @ Rs.12 each 30,000
2,200 Units @ Rs.12 each 26,400
2,500 Units @ Rs.12 each 30,000
7,200 units Total sales 86,400
Computation of Total Purchases:

2,500 Units @ Rs.6 each 15,000
1,600 Units @ Rs.7 each 11,200
3,000 Units @ Rs.8 each 24,000
7,100 units Total purchases 50,200

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Inventory Valuation
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VAQAR & CO.
INVENTORY VALUATION
PERPETUAL INVENTORY SYSTEM
LIFO METHOD
FOR THE PERIOD SEPTEMBER 2003
Date Purchases/Received Sales/Issued Balance
Units Unit Total Units Unit Total Units Unit Total
1 Sep 5,000 5 25,000
9 Sep 2,500 6 15,000 5,000 5 25,000
2,500 6 15,000
14 Sep 2,500 6 15,000 5,000 5 25,000
19 Sep 1,600 7 11,200 5,000 5 25,000
1,600 7 11,200
21 Sep 1,600 7 11,200 4,400 5 22,000
600 5 3,000
24 Sep 3,000 8 24,000 4,400 5 22,000
3,000 8 24,000
29 Sep 2,500 8 20,000 4,400 5 22,000
500 8 4,000
7,100 50,200 7,200 49,200 4,900 26,000

4,400 Units @ Rs.5 each 22,000
4,900 units Cost of ending inventory 26,000

VAQAR & CO.

GENERAL JOURNAL
FOR THE MONTH OF SEPTEMBER 2003
Date Particulars P/R Debit Credit
1 Merchandise 50,200
Accounts payable 50,200
(To record the merchandise purchased on account)
2 Cost of goods sold 49,200
Merchandise 49,200
(To record the cost of goods sold)
3 Accounts receivable 86,400
Sales 86,400
(To record the merchandise sold on account)

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ILLUSTRATION # 3: (Perpetual Inventory System – Moving Average Method)

Zafar Enterprises deal in only one product. Opening stock on October 1st 2002 comprised of 20
units at a total cost of Rs.20,000. Purchase and Sales during October 2002 are as follows:
Purchases Sales
Date Units Unit Cost Date Units Unit Cost
October 3 140 Rs.700 October 6 90 Rs.1,500
October 20 120 Rs.1,000 October 23 30 Rs.1,500
October 25 30 Rs.1,100 October 31 100 Rs.1,700
REQUIRED
Calculate the cost of goods sold, gross profit, and value of stock as on October 31st using Moving
Average Method assuming the company uses perpetual Inventory system.
SOLUTION # 3:
ZAFAR ENTERPRISES
INVENTORY VALUATION
PERPETUAL INVENTORY SYSTEM
MOVING AVERAGE METHOD
FOR THE PERIOD OCTOBER 2002
Date Received Issues Balance
Qty. Qty. Qty.
Unit Total Unit Total Unit Total
of of of
Cost Cost Cost Cost Cost Cost
units units units
Oct 1 20 1,000 20,000
3 140 700 98,000 160 737.5 118,000
6 90 737.5 66,375 70 737.5 51,625
7 60 500 30,000 130 627.88 81,625
10 50 627.88 31,394 80 627.88 50,231
14 150 800 120,000 230 740.13 170,231
19 170 740.13 125,822 60 740.13 44,409
20 120 1,000 120,000 180 913.38 164,409
23 30 913.38 27,401 150 913.38 137,008
25 30 1,100 33,000 180 944.49 170,008
100 944.49 94,449 80 944.49 75,559
500 401,000 440 345,441 80 75,559

80 Units @ Rs.944.49 each 75,559
80 units Cost of ending inventory 75,559


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90 Units @ Rs.1,500 each 135,000
50 Units @ Rs.1,300 each 65,000
170 Units @ Rs.1,400 each 238,000
30 Units @ Rs.1,500 each 45,000
100 Units @ Rs.1,700 each 170,000
440 units Total sales 653,000
Computation of Gross Profit:

Sales 653,000
Less: Cost of goods sold (345,441)
Gross profit 307,559
B) periodic inventory system

The counting or evaluating of the inventory held by an organization at the end of particular
period is called periodic inventory system. Same as perpetual inventory system, there are three
methods of inventory valuation under periodic inventory system:
i. FIFO Method (First in First Out).
ii. LIFO Method (Last in First Out).
iii. Weighted Average Method.
Format of units purchased, units sold & units at end

Date: Inventory (Beg) @ Rs.XX XX Units Rs.XXX
Add: Units Purchased During the Period:
Date: Units purchased @ Rs.XX XX Units Rs.XXX
Date: Units purchased @ Rs.XX XX Units Rs.XXX
Total units purchased during the period XX Units Rs.XXX
Total units available for sale XX Units Rs.XXX
Less: Units sold during the period (XX) Units
Inventory (end) in units XX Units
After making this schedule, the computation of cost of goods sold or cost of ending inventory
takes place.
Entry to Record Purchase of Merchandise Under Periodic Inventory System:

Purchases DR. (with the purchase amount)
Accounts payable / Cash CR. (with the amount of inventory)
(To record the merchandise purchased)
----------------------------------------------------------------------------------------------------------------------
Adjusting Entry Under Periodic Inventory System:

Merchandise inventory DR. (with ending inventory amount)
Expense and revenue summary CR. (with ending inventory amount)
(To close the ending inventory)
----------------------------------------------------------------------------------------------------------------------

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ILLUSTRATION # 4: (Periodic Inventory System – FIFO, LIFO & Weighted Average

Method, Comparative Income Statement)
2002 Regular & Private – UOK
The following data relate to Riaz & Co. which uses the Periodic Inventory System:
Jan. 1 Inventory 8,000 units @ Rs.4.00 per unit.
Jan. 10 Purchases 20,000 units @ Rs.4.20 per unit.
Jan. 31 Sold 56,000 units at a uniform selling price of Rs.8.0 per unit.
REQUIRED
(1) Determine the cost of ending inventory by the following methods:
(a) FIFO. (b) LIFO. (c) Weighted Average.
(2) Prepare a comparative income statement showing the gross profit under each of the
above methods separately.
SOLUTION # 4:
RIAZ & CO.
SCHEDULE OF UNITS PURCHASED, UNITS SOLD AND UNITS AT END
FOR THE PERIOD JANUARY
Date Description Units Cost (Rs.)
1 January Inventory (opening) @ Rs.4.00 each 8,000 32,000
Add: Units Purchased During the Period:
10 January Purchased @ Rs.4.20 each 20,000 84,000
Total units purchased during the period 60,000 258,000
Total units available for sale 68,000 290,000
Less: Units Sold During the Period:
31 January Total units sold during the period (56,000)
Unsold units at end 12,000
Computation of Cost of Ending Inventory by FIFO Method (Periodic System):

Date Particulars Units Unit Cost Total Cost
January 20 Purchases 2,000 units @ Rs.4.30 each 8,600
12,000 units Cost of ending inventory Rs.53,600
Computation of Cost of Ending Inventory by LIFO Method (Periodic System):

Date Particulars Units Unit Cost Total Cost
January 1 Inventory 8,000 units @ Rs.4.00 each 32,000
12,000 units Cost of ending inventory Rs.48,800
Computation of Cost of Ending Inventory by Weighted Average Method (Periodic System):

Average per unit cost = Total cost of merchandise available for sale
Total units available for sale
Average per unit cost = 290,000
68,000
Average per unit cost = Rs.4.2647
Cost of ending inventory = Unsold units at end x Average per unit cost
Cost of ending inventory = 12,000 x 4.2647
Cost of ending inventory = 51,176

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RIAZ & CO.
COMPARATIVE INCOME STATEMENT
FOR THE PERIOD ENDED 31 JANUARY
FIFO LIFO Weighted Average
Sales (56,000 x 8.00) 448,000 448,000 448,000
Less: Cost of Goods Sold:
Inventory (beginning) 32,000 32,000 32,000
Add: Total purchases 258,000 258,000 258,000
Merchandise available for sale 290,000 290,000 290,000
Less: Inventory (ending) (53,600) (48,800) (51,176)
Cost of goods sold (236,400) (241,200) (238,824)
Gross profit 211,600 206,800 209,176
ILLUSTRATION # 5: (Entries under Perpetual & Periodic Inventory System)

1997 Private – UOK
Give the necessary journal entries under both Perpetual and Periodic systems from the
following:-
(i) Purchased merchandise on account Rs.120,000 and cash Rs.30,000.
(ii) Returned merchandise worth Rs.3,000 cash.
(iii) Paid freight on purchases Rs.800.
(iv) Paid to the merchandise creditor’s subject to credit term 2/10, n/30.
(v) Sold merchandise costing Rs.55,000 for cash Rs.10,000 and on account Rs.50,000.
SOLUTION # 5:
M/S. ___________
GENERAL JOURNAL
(PERIODIC SYSTEM)
1 Purchases 150,000
Cash 30,000
(To record the goods purchased on account & for
cash)
2 Cash 3,000
Purchase returns and allowance 3,000
(To record the merchandise returned to supplier)
3 Freight charges 800
Cash 800
(To record the freight paid on purchase of
merchandise)
4 Accounts payable 120,000
Purchase discount 2,400
Cash 117,600
(To record the cash paid to supplier)
Cash 10,000
Sales 60,000
(To record the goods sold for cash and on account)

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M/S. ___________
GENERAL JOURNAL
(PERPETUAL SYSTEM)
1 Merchandise 150,000
Cash 30,000
(To record the goods purchased on account & for cash)
2 Cash 3,000
Merchandise returned 3,000
(To record the merchandise returned to supplier)
3 Freight charges 800
Cash 800
(To record the freight paid on purchase of merchandise)
4 Accounts payable 120,000
Purchase discount 2,400
Cash 117,600
(To record the cash paid to supplier)
Cash 10,000
Sales 60,000
(To record the goods sold for cash and on account)
6 Cost of goods sold 55,000
Merchandise 55,000
(To record the cost of goods sold)
Gross profit method

It is a method of estimating inventory that can be used for interim accounting periods or when
records are destroyed. It is not acceptable for the annual report. The method is based on the
concept that if you know the percentage of the selling price that is the profit, then you can
calculate the amount that is the cost of goods (sales minus the gross-margin percentage time’s
sales). Starting with beginning inventory, add the purchases during the period then deduct the
calculated cost of goods sold. What remains is an estimate of ending inventory. The estimate is
only as good as the data used to calculate the gross-margin percentage.
Merchandise inventory (beginning) XXX

Add: Net Purchases:
Purchases XXX
Add: Transportation-in XXX
Delivered purchases XXX
Less: Purchase return and allowance (XXX)
Less: Purchase discount (XXX)
Net purchases XXX
Merchandise available for sale XXX
Sales XXX
Less: Sales return (XXX)
Less: Sales discount (XXX)
Net sales XXX
Less: Gross profit (net sales x gross profit rate) (XXX)
Cost of goods sold (XXX)
Cost of ending inventory XXX

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ILLUSTRATION # 6: (Cost of Ending Inventory by Gross Profit Method)

Allied Co. have Inventory on January 1st 2009 Rs.225,000.
From January 1st 2009 to June 30th 2009:
Sales Rs.830,000
Sales Return & Allowance 18,000
Sales Discount 12,000
Purchases 650,00
Purchase Return & Allowance 25,000
Transportation-in 10,000
REQUIRED
Compute the value of inventory at the end of 1st half of 2009 through Gross Profit Method. The
estimated Gross Profit of the company is 20% on sales.
SOLUTION # 6:
ALLIED CO.
COST OF ENDING INVENTORY by GROSS PROFIT METHOD
Merchandise inventory (beginning) 225,000
Add: Net Purchases:
Purchases 650,000
Add: Transportation-in 10,000
Delivered purchases 660,000
Less: Purchase return and allowance (25,000)
Net purchases 635,000
Sales 830,000
Less: Sales return & allowance (18,000)
Less: Sales discount (12,000)
Net sales 800,000
Less: Gross profit (800,000 x 20%) (160,000)
Cost of goods sold (640,000)
Cost of ending inventory 220,000
Retail price method

It is a method of determining inventory in retail operations, without a detailed physical count of
the inventory items. The method is based on the relationship between the total cost of goods
available for sale at wholesale (or the purchase price) and at retail (or selling price). Start with
cost of goods available for sale at the retail value and deduct sales for the period. The result is
the retail value of ending inventory. Then, calculate the percentage of sales price that is cost, by
dividing the total cost of goods available for sale at the purchase price by the total cost of goods
available for sale at retail. Multiply the retail value of ending inventory by that percentage to get
an estimate of ending inventory at cost. Businesses can use the retail method for year-end
reporting. The physical count of inventory goes faster at the retail price, which is on the item,
than at cost, which would require the counter to look up the cost for each item.

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COST PRICE RETAIL PRICE

Beginning inventory XXX XXX
Add: Net Purchases:
Purchases XXX
Add: Transportation-in XXX
Delivered purchases XXX
Less: Purchase return and allowance (XXX)
Less: Purchase discount (XXX)
Net purchases XXX XXX
Merchandise available for sale XXX XXX
Less: Net Sales:
Sales XXX
Less: Sales return and allowances (XXX)
Less: Sales discount (XXX)
Net sales (XXX)
Ending inventory based on retail price XXX
Merchandise available for sale at cost price

Cost percentage (%) = x 100
Merchandise available for sale at retail price
Cost of ending inventory = Ending inventory at retail price x Percentage of cost
ILLUSTRATION # 7: (Cost of Ending Inventory by Retail Price Method)

From the following data calculate the cost of ending inventory:
At Cost At Retail
Beginning Inventory Rs.55,000 Rs.60,000
Purchases 310,000 440,000
Net Sales 420,000
SOLUTION # 7:
COST OF ENDING INVENTORY
RETAIL PRICE METHOD
Cost Price Retail Price
Beginning inventory 55,000 60,000
Add: Purchases during the period 310,000 440,000
Merchandise available for sale 365,000 500,000
Less: Sales (420,000)
Ending inventory based on retail price 80,000
Percentage of Cost = Merchandise available for sale at cost price x 100%
Merchandise available for sale at retail price
Percentage of cost = 365,000 x 100
500,000
Percentage of cost = 73%
Cost of ending inventory = Ending inventory at retail price x Percentage of cost
Cost of ending inventory = 80,000 x 73%
Cost of ending inventory = 58,400

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Particulars
Understatement Overstatement of Understatement
Corrected Overstatement of
Chapter # 16
of Beginning Beginning of Ending

Figures Ending Inventory
Inventory Inventory Inventory
Sales 20,000 20,000 20,000 20,000 20,000

Inventory Valuation
Merchandise inventory (beg) 4,000 3,000 4,300 4,000 4,000
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Add: Purchases 15,000 15,000 15,000 15,000 15,000
Merchandise available for sale 19,000 18,000 19,300 19,000 19,000
Less: Merchandise inv. (end) 5,000 5,000 5,000 4,700 5,900
Cost of goods sold 14,000 13,000 14,300 14,300 13,100
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Gross profit 6,000 7,000 5,700 5,700 6,900
Less: Operating expenses 2,000 2,000 2,000 2,000 2,000
Net profit 4,000 5,000 3,700 3,700 4,900
EFFECTS OF INVENTORY ON FINANCIAL STATEMENTS
Cost of goods sold Understated Overstated Overstated Understated
Gross profit Overstated Understated Understated Overstated
Net profit Overstated Understated Understated Overstated
Effects of inventory on financial statements
Owner’s equity Overstated Understated Understated Overstated
Sameer Hussain
Inventory Valuation
Chapter # 16
ILLUSTRATION # 8: (Effects of Inventory)

2010 Regular – UOK
State the effects of understatement of ending inventory on:
(i) Cost of goods sold (ii) Net income
(iii) Current assets (iv) Total assets
(v) Owner’s equity
SOLUTION # 8:
Effects of Understatement of Ending Inventory:
(i) Cost of goods sold Increase
(ii) Net income Decrease
(iii) Current assets Decrease
(iv) Total assets Decrease
(v) Owner’s equity Decrease
Comparative income statement

WEIGHTED
PARTICULARS FIFO LIFO
AVERAGE
Sales XXX XXX XXX
Opening inventory XXX XXX XXX
Add: Net purchases XXX XXX XXX
Merchandise available for sale XXX XXX XXX
Less: Ending inventory (XXX) (XXX) (XXX)
Cost of goods sold (XXX) (XXX) (XXX)
Gross profit XXX XXX XXX

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Practice questions
Question # 1: 1993 Private – UOK
Karim Company uses a “Perpetual Inventory System”. The records of the Company show the
following purchases and sale transactions for the month of January 1993:
January 01, Beginning Inventory 80 Units at Rs.15 per unit.
January 03, Purchased 300 Units at Rs.16 per unit.
January 05, Sold 200 Units at Rs.25 per unit.
REQUIRED
Determine the cost of ending inventory. The cost of goods sold and the gross profit Perpetual
System, “FIFO METHOD”.
Question # 2: 1989 Regular & Private – UOK

Salam Company uses a perpetual inventory system. The records of the Company show the
following purchase and sale, transaction for the month of April 1989.
April 01, Inventory 100 Units @ Rs.60.
April 05, Purchases 40 Units @ Rs.65.
April 08, Sales 50 Units @ Rs.100.
REQUIRED
(1) Find out the value of ending inventory using FIFO method of Inventory Valuation.
(2) Assume that all sales were made on Credit compute the total sales and total Cost of
Goods Sold for April 1989. Prepare an entry in general journal form to record these sales
on a second entry to record the cost of goods sold for April, 1989.
(3) Compute the gross profit on sales for the month of April 1989.
Question # 3: 1992 Regular – UOK

The following data relate to the business of Waqar & Co. which uses Perpetual Inventory
System, FIFO Method.
UNITS UNIT COST
August 01 Beginning Inventory 600 Rs.10
August 03 Purchased 300 Rs.11
August 18 Sold 400
August 27 Purchased 700 Rs. 12
August 13 Sold 600
REQUIRED
(i) Determine Ending Inventory on August 31.
(ii) Compute the cost of Goods Sold during August.

Karim Trading Company uses perpetual system and uses F.I.F.O. Inventory valuation method.
The records of the Inventory purchases and Sales during the month of January are as follows.
January 01, Inventory 1,000 Units @ Rs.10.
January 10, Purchase on account 5,000 Units @ Rs.11.
January 15, Sales on Account 4,000 Units @ Rs.22.
January 18, Purchase on Cash 3,000 Units @ Rs.12.
January 20, Sales on Account 4,000 Units @ Rs.22.

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January 25, Purchase on Cash 6,000 Units @ Rs.13.
January 30, Sales on Cash 5,000 Units @ Rs 22.
REQUIRED
Give dated entries in the General Journal for purchases, cost of goods sold and sales price of the
merchandise showing computations.

Ahsan Company presents the following data for the month of August 1995:
August 1 Balance 100 units @ Rs.25 per unit
August 4 Purchases 200 units @ Rs.26 per unit
August 6 Sales 160 units @ Rs.35 per unit
REQUIRED
Determine the cost of ending inventory, the cost of goods sales and the gross profit under
perpetual system by FIFO method.

Friends Store uses the perpetual inventory system and FIFO method of inventory valuation,
following are the data concerning purchases and sales of merchandise during the month of
January 1998:-
Quantity Rate per unit
January 1, 98 Merchandise inventory 1,000 Rs.12/per unit
January 5 Purchases 1,200 Rs.13/per unit
January 8 Sales 1,500 Rs.18/per unit
REQUIRED
(i) Cost of inventory at January 31st.
(ii) Set up T account for merchandise inventory and make all the posting and balance the
accounts.

The inventory record of Adam Company for the month of December 2005 is as under:
Units Unit Cost
December 1 Inventory 800 Rs.6
December 6 Purchases 500 Rs.7
December 16 Sales @ Rs.13 400 ---
December 30 Purchases 900 Rs.8
REQUIRED
Compute the ending inventory and gross profit on sales using the FIFO method and the
perpetual system.

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The following data related to the business of Ashraf Company, which uses the Perpetual System
and FIFO Method.
Nov. 1 Merchandise inventory 500 units @ Rs.50 each.
Purchases Sales
Nov. 4 300 units @ Rs.55 Nov. 8 350 units @ Rs.70
REQUIRED
(i) Prepare an inventory card, indicating each day’s inventory.
(ii) Give the cost of goods available for sale and the cost of goods sold at Nov. 30.
(iii) Compute gross profit.

Saad Co. sells merchandise. At Dec. 31, 2010 the Co.’s inventory amounted to Rs.50,000. During
the 1st week of Jan. 2011 the Co. made only one purchase and one sale. These transactions were
as follows:
Jan. 3: Sold merchandise for Rs.20,000 cash. The total cost of merchandise amounted to
Rs.11,200.
Jan. 7: Purchased merchandise amounted to Rs.10,000; term 2/10, n/30.
REQUIRED
Prepare journal entries to record the above transactions under Perpetual inventory System.

On the books of Pak Enterprises, on July 1, 1998, the merchandise inventory account had a
balance of Rs.62,300. During July 1998, the following transactions took place:
July 10: Purchased merchandise on credit for Rs.11,950.
July 25: Sold merchandise on account for Rs.18,400 costing Rs.13,600.
REQUIRED
Using the Perpetual System:
(1) Give the necessary dated journal entries in proper form of the above transactions.
(2) Give the necessary adjusting & closing journal entries in proper form as on July 31,
1998.
(3) Prepare partial income statement for the month ended July 31, 1998.

Sharif Trading Company uses perpetual inventory system and uses LIFO Inventory valuation
Method. The records of the Inventory purchases and sales during the month of January are as
follows:
January 01, Inventory 100 Units @ Rs.10
January 15, Purchase on Account 700 Units @ Rs.12
January 18, Sales on Account 650 Units @ Rs.20
January 20, Purchase for Cash 500 Units @ Rs.13
January 30, Sales for Cash 520 Units @ Rs.20
REQUIRED
(1) Give dated entries in the General Journal for purchases, cost of goods sold and sales
price of the merchandise showing your computations.
(2) Post the entries to the relevant accounts.

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Inventory data for a merchandise item stocked by Philips Electronics are as follows:
2006 Units Unit Cost
March 1 Beginning inventory 150 2,000
March 4 Purchased 75 1,500
March 15 Sold 100 3,000
March 25 Purchased 175 2,500
March 30 Sold 200 2,500
REQUIRED
(i) Compute (i) the cost of goods sold during March 2006, (ii) the ending inventory and (iii)
the gross profit on March 30, 2006 using the Perpetual Inventory System and LIFO
Method.
(ii) Prepare dated necessary journal entries for the above transactions, assuming all
transactions were on credit.

Following transactions relate to the business of Babar Traders:
November
1: Balance in merchandise inventory 7,000 units @ Rs.7.00
2: Purchased merchandise for cash Rs.21,000 at a unit price of Rs.4.00
5: Purchased merchandise on account Rs.2,500 at a unit price of Rs.5.00
7: Sold 4,100 units on account at Rs.10.00 per unit
10: Purchased 5,000 units at Rs.5.00 per unit
12: Sold 10,100 units at Rs.10.00 per unit
15: Purchased 4,500 units at Rs.8.00 per unit
20: Sold 5,000 units at Rs.10.00 per unit
25: paid carriage outwards on sales Rs.2,500
REQUIRED
(a) Prepare dated journal entries, assuming that company uses FIFO method under
Perpetual Inventory System.
(b) Show necessary computations for cost of ending inventory, cost of goods sold, and sales
of the merchandise.
(c) Compute the amount of gross profit under FIFO method.

Following transactions relate to the business of Husnain Traders:
November 1: Balance in merchandise inventory 6,000 units @ Rs.7.00.
November 2: Purchased merchandise for cash Rs.42,000 at a unit price of Rs.4.00.
November 5: Purchased merchandise on account 5,000 units at a unit price of Rs.5.00.
November 7: Sold 8,200 units on account at Rs.10.00 per unit.
November 10: Purchased 7,000 units at Rs.5.00 per unit.
November 12: Sold 12,100 units at Rs.10.00 per unit.
November 15: Purchased 9,000 units at Rs.8.00 per unit.
November 20: Sold 12,100 units at Rs.10.00 per unit.
November 25: Paid carriage out on sales Rs.3,500.
REQUIRED
(i) Prepare dated journal entries (Assume that company uses LIFO method under
perpetual inventory system).
(ii) Compute amount of Gross Profit under LIFO.

Page 241
Inventory Valuation
Chapter # 16
On February 1, 2008, Abid Company had inventory of a commodity 150 units @ Rs.15. during
February his transactions were as follows:
Feb. 6 Purchased 150 units @ Rs.16.
Feb. 10 Sold 180 units @ Rs.20.
Feb. 21 Purchased 150 units @ Rs.17.
Feb. 23 Sold 160 units @ Rs.22.
Feb. 25 A customer returned 10 units from Feb. 10 sale.
The company uses perpetual system of inventory applying Moving Average Method.
REQUIRED
Prepare inventory card and find out the value of ending inventory.

On January 1, 2001 Zia Trading Company had 8,000 units in inventory costing Rs.120,000.
During the period ended June 30, purchases were made as follows:
February 4 1,500 units @ Rs.16
April 2 2,500 units @ Rs.18
May 31 6,000 units @ Rs.19
Sales made during the period ended June 30, are as under:-
January 10 Sold 4,000 units at Rs.20 per unit.
February 6 Sold 1,000 units at Rs.21 per unit.
April 15 Sold 2,000 units at Rs.22 per unit.
June 16 Sold 4,000 units at Rs.23 per unit.
REQUIRED
Determine the cost of ending inventory and cost of goods sold at June 30, assuming that the
business uses the perpetual inventory system and Moving Average Method for inventory
valuation.

During the year 1995 Shamim Company sold 12,000 units of X commodity for Rs.240,000. The
company had on hand 1,500 units each Rs.13/= on January 1, 1995. Purchases during 1995
were as follows:
Month Date Quantity in Units Unit Cost Total Cost
January 20 2,000 Rs.12.00 Rs. 24,000
March 30 1,000 Rs.13.00 Rs. 13,000
May 24 3,000 Rs.13.00 Rs. 39,000
July 12 4,000 Rs.15.00 Rs. 60,000
September 15 1,000 Rs.16.00 Rs. 16,000
November 20 1,000 Rs.17.00 Rs. 17,000
December 8 600 Rs.18.00 Rs. 10,800
Total 12,600 Rs. 179,800
REQUIRED
On December 31, 1995, compute the gross profit/loss on sales, assuming the use of the
following cost of closing inventory of each method:
(a) FIFO (b) LIFO (c) Weighted Average

Page 242
Inventory Valuation
Chapter # 16
The record of Pioneer Sales Co. shows the following data for its sales and purchases:-
Nov. 1, 1996 Beginning inventory 300 units at Rs.55
Purchases Sold
Nov. 4 375 units at Rs.55
250 units at Rs.60
300 units at Rs.64
100 units at Rs.65
REQUIRED
Compute the ending inventory and the gross profit at the end of November, 1996 under FIFO
and LIFO using Periodic Inventory System.

Below given data entries to Umer Nadeem & Bros. for the month of May, 1997. The firm uses
Periodic Inventory System:-
May – 1 Inventory of 150 units costing Rs.25,500.
May – 10 Bought 100 units at Rs.173/= each.
During the month 450 units were sold for Rs.85,500.
REQUIRED
(i) Determine the cost of goods sold under LIFO and FIFO method.
(ii) Quantity and value of ending inventory under Weighted Average Method.
(iii) Compute gross profit under each of the above method.

Zulfiqar Trading Company uses Periodic Inventory System. The beginning inventory balance of
item “Z” on June 1 and purchases of this item during June were as follows:
June 1 Inventory 10,000 units @ Rs.10.00
June 8 Purchases 15,000 units @ Rs.14.00
During the month of June, net sales are Rs.875,000 @ Rs.25 per unit.
REQUIRED
(1) Determine the cost of ending inventory under each of the following methods:
(a) FIFO Method (b) LIFO Method (c) Weighted Average Method
(2) Prepare Comparative Income Statement for the period ended on June 30, 2007 to
determine gross profit.

The following data relate to the business or Marghoob Co. which uses a Periodic Inventory
System.
Quantity in Units Unit Cost
January 1989 Inventory 40,000 Rs.4.00
February 1989 Purchases 100,000 Rs.4.20
May 1989 Purchases 1,50,000 Rs.4.10
July 1989 Purchases 50,000 Rs.4.30
November 1989 Purchases 10,000 Rs.4.40
On December 31, 1989 the units on hand were 70,000.

Page 243
Inventory Valuation
Chapter # 16
REQUIRED
(a) Determine the cost of Ending Inventory of 70,000 Units under:
(i) FIFO
(ii) LIFO
(iii) Weighted Average Method
(b) Prepare Adjusting Journal Entries as on December 31, 1989 under each method
separately.

The beginning inventory and the purchases of a product are as follows:
October 1: Inventory 400 units @ Rs.6.25
October 8: Purchases 300 units @ Rs.6.50
On October 31, 500 units remain in inventory. Periodic inventory system is used.
REQUIRED
Determine the cost of ending inventory and the cost of goods sold, using the following methods:
(a) Average cost.
(b) First – in First – out.
(c) Last – in First – out.

Rahat Equipment Co. provides you with the following inventory data:
Date: 2008 Units Cost Per Unit
January 1 Beginning 40 1,250
February 28 Purchases 100 1,220
June 25 Purchases 85 1,200
November 11 Purchases 110 1,800
The inventory on Dec. 31, 2008, of 50 units.
REQUIRED
Determine cost of:
(i) Cost of goods available for sale and
(ii) Required to cost of ending inventory, using FIFO Method, Periodic System.

Records of Rashid Bros. Ltd. show the following data relative to commodity:
Jan. 1, 1998 Opening inventory 1,000 units Rs.6.00 per unit
Feb. 5, 1998 Purchases 2,500 units Rs.5.50 per unit
Mar. 12, 1998 Purchases 3,500 units Rs.5.60 per unit
Mar. 15, 1998 Sales 4,000 units Rs.9.00 per unit
Apr. 10, 1998 Purchases 4,500 units Rs.6.00 per unit
May 14, 1998 Purchases 1,500 units Rs.8.00 per unit
June 30, 1998 Sales 4,000 units Rs.10.00 per unit
REQUIRED
(i) Compute the cost of ending inventory under the period system on June 30, 1998 using
the following methods:
a) FIFO b) LIFO c) Average Method
(ii) Give the adjusting entries under each method.

Page 244
Inventory Valuation
Chapter # 16
Salman & Company uses a Periodic Inventory System. The records of the company show the
following purchases and sales transactions for the month of November 2006.
Nov. 1 Inventory 1,000 units @ Rs.50 each.
Nov. 10 Purchases for cash 1,600 units @ Rs.60 each.
Nov. 15 Sale for cash 1,500 units @ Rs.100 each.
Nov. 20 Purchases on account 2,000 units @ Rs.80 each.
Nov. 26 Sales on account 900 units @ Rs.120 each.
REQUIRED
(a) Give dated entries in the General Journal for purchases and sales of merchandise.
(b) Determine the cost of ending inventory and cost of goods sold separately by:
(i) First in First out method, and
(ii) Last in First out method.

The records of Maria Traders show the following data relating to commodity A:
2008 Units Per Unit
Jan. 1 Opening inventory 100 50
Feb. 5 Purchases 200 55
Mar. 12 Purchases 300 54
Mar. 14 Sales 350 100
Apr. 12 Purchases 500 60
May. 14 Purchases 100 70
Jun. 30 Sales 400 110
REQUIRED
(i) Compute the cost of ending inventory on June 30, 2008 by each of the following
methods:
(a) First-in-first-out (FIFO)
(b) Last-in-first-out (LIFO)
Assume that company uses Periodic System of inventory valuation.
(ii) Prepare comparative income statement showing effect of two alternative valuation
methods on gross profit.

The Gap uses a Periodic Inventory System. During the first year of operations, the company
made four purchases of a particular product. Each purchase was for 300 units and the prices
paid were Rs.7 per unit in the first purchase, Rs.8 per unit in the second purchase, Rs.10 per unit
in the third purchase, and Rs.11 per unit in the fourth purchase. At year-end, 350 of these units
remain unsold.
REQUIRED
Compute the cost of goods sold under the FIFO method and LIFO method, separately.

The inventory record of Imam Company showed the following transactions for the month ended
September 30, 1995:
Units Unit Cost
September 1 Inventory 700 Rs. 6.20
September 5 Purchases 400 6.40
September 18 Sales @ Rs.12 300 ---
September 25 Sales @ Rs.12.5 600 ---
September 28 Purchases 600 6.70

Page 245
Inventory Valuation
Chapter # 16
REQUIRED
Compute the ending inventory under:
(i) LIFO – Perpetual System (ii) LIFO – Periodic System
Explain the causes of difference in the final inventory valuations under the above two systems.

The inventory records of Essa Company showed the following transactions for the month ended
December 31, 2004:
Units Cost
December 1 Inventory 700 6.20
December 6 Purchases 400 6.40
December 28 Purchases 600 6.70
REQUIRED
Compute ending inventory under:
(i) LIFO – Perpetual, and
(ii) LIFO – Periodic.

The following data relate to the business of Aamir & Co.
Date Units Unit Cost / Price
Nov. 1 Beginning inventory 6,000 Rs.100
Nov. 5 Purchased 3,000 Rs.150
Nov. 15 Sold 4,000 Rs.250
Nov. 25 Purchased 7,000 Rs.180
Nov. 30 Sold 6,000 Rs.300
REQUIRED
(i) Prepare inventory card under FIFO Method.
(ii) Assume that Co. uses Periodic Inventory System. Compute cost of goods sold and
merchandise inventory (ending) under LIFO Method & calculate gross profit.

The following are selected transactions performed by Zenat Trading Company:
(i) Purchased merchandise on account Rs.27,000.
(ii) Received allowance on supply of defective goods Rs.2,000.
(iii) Sold merchandise costing Rs.16,000 on account for Rs.20,000.
(iv) Accepted the return of defective merchandise from customer (cost Rs.4,000 sales price
Rs.5,000).
REQUIRED
Prepare general journal entries under:
(i) Periodic System (ii) Perpetual System

Following data are obtained from the records of Karim & Sons.
Units Sold Units Purchased Cost per Unit
December 1 Inventory - 9 Rs.50
December 12 Credit purchase - 10 Rs.55
December 17 Sales 8 - --
December 21 Cash purchase - 10 Rs.60
December 28 Sales 9 - --

Page 246
Inventory Valuation
Chapter # 16
REQUIRED
(i) Calculate the cost of inventory at December 31, and cost of goods sold under the
periodic system and LIFO method.
(ii) Calculate the cost of inventory at December 31, and cost of goods sold under the
perpetual system and FIFO method.
(iii) Give the necessary adjusting journal entries under both the system separately.

The following data are taken from Mirza Trading Co. at Dec. 31, 2002:
Jan. 1 Balance 9 units @ Rs.500 each
Apr. 12 Purchased 10 units @ Rs.550 each
Aug. 17 Sold 8 units
Oct. 21 Purchased 10 units @ Rs.600 each
Dec. 28 Sold 9 units
REQUIRED
(a) Using FIFO Periodic:
(i) Compute the cost of ending inventory at Dec. 31, 2002.
(ii) Compute the cost of goods sold for the year ended Dec. 31, 2002.
(iii) Prepare journal entries to record purchases and the year-end adjusting entry
using cost of goods sold.
(b) Using FIFO Perpetual:
(i) Prepare the inventory card in good form.
(ii) Give an entry to adjust inventory at Dec. 31, 2002.

The following year’s data is available for a single product of a company:
2007 2008
Units Rate Units Rate
Purchases 900 Rs.35 1,100 Rs.43
Purchases 1,000 37 750 46
Purchases 650 40 800 48
Sales 1,000 2,300
The company uses FIFO method.
REQUIRED
(i) Compute the inventory at the end of the each year.
(ii) What is the amount of beginning inventory of 2008?

Zenith Traders deal in a specialized type of value. The firm uses Periodic Inventory System and
FIFO method for inventory valuation. During the year the inventory quantities purchases,
purchases returns, and sales were as follows.
Quantity in Unit Cost Total Cost (Rs.)
Units
January 01 Inventory 1,000 Rs.10.00 10,000
April 03 Credit purchases 2,000 Rs.11.00 22,000
July 08 Credit purchases 3,000 Rs.12.00 36,000
July 18 Returns (100) Rs.12.00 (1,200)
September 10 Cash purchases 2,500 Rs.15.00 37,500
September 17 Returns (150) Rs.15.00 (2,250)
Goods available for sale 8,250
Units sold during the year 5,000
Inventory December 31 3,250

Page 247
Inventory Valuation
Chapter # 16
REQUIRED
(1) Give dated general journal entries for the above transactions and an adjusting entry to
record merchandise inventory at December 31. Indent and narrate each entry.
(2) Compute the cost of inventory at December 31.
(3) The returns being immaterial, you can ignore them while assigning value to inventory
but you need quote the Accounting Principle that permits you to do so.

The following data relate to the mineral water inventory of Milo Company, which uses a period
inventory system:
January 01, Beginning Inventory 80,000 Liters at Rs.0.40 Rs.32,000
January 13, Purchases 200,000 Liters at Rs.0.42 Rs.84,000
January 15, Purchased 300,000 Liters at Rs.0.41 Rs.123,000
January 30, Purchased 100,000 Liters at Rs.0.? ?
January 31, Ending Inventory 120,000 Liters at Rs.0. ? ?
January 31, Cost of goods sold Rs.2,33,200
REQUIRED
Assuming the use of LIFO Method:
(1) Determine the cost of the ending inventory.
(2) Determine the unit cost and total cost of the January 30, Purchases.

Merchandise Inventory on June 01, 1991 Rs.30,000, Purchase during the month of June
Rs.90,000, Freight in Rs.30,000, Purchases Returns Rs.4,000, Purchase Discount Rs.1,000, Sales
Rs.1,35,000. Sales were made a Gross Profit of 30%.
REQUIRED
From the data given above estimate the cost of Inventory June 30, 1991.

Inam Company’s beginning inventory and purchases during the fiscal year ended June 30, 2010
are as follows:
Units Per Units
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
May 21, 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) Gross Profit Method, assuming that above mentioned sales were made at an estimated
gross profit rate of 40%.

Page 248
Inventory Valuation
Chapter # 16
Bushra – Arshad Firm sells goods at a gross profit of 40% of sales. Following are the information
related to sale & purchase of merchandise for the month of November, 2008:
Sales (net) during the month 300,000
Merchandise inventory (1.11.2008) 9,600
Purchases (net) during the month 192,000
During the month a certain class of merchandise costing to Rs.12,000 was sold for Rs.14,400.
Expect for this sale, the gross profit on rest of the sales remained normal at 40%.
REQUIRED
Determine the cost of ending inventory by Gross Profit Method on November 30, 2008.

On the morning of April 10, 2011 a fire destroyed the entire merchandise inventory in the
stores. The merchandise was un-insured. The following data are available:
Sales March 1, 2011 to April 9, 2010 Rs.216,000
Inventory March 1, 2011 30,000
Purchases March 1, 2011 to April 9, 2011 189,000
Gross profit on cost 25%
REQUIRED
Find out the cost of inventory destroyed by fire?

The following data for the year 1994 has been collected from the books of Bilal & Company:
Cost Retail Price
Merchandise inventory Jan. 1 55,000 60,000
Purchases during the year 310,000 440,000
Sales during the year 430,000
Sales return & allowance 10,000
REQUIRED
Compute the amount of ending inventory by Retail Price Method.

The following data for the year 2006 has been collected from the books of Amjad Company.
Cost Price Retail Price
Merchandise inventory Jan. 1 80,000 100,000
Purchases during the year 220,000 300,000
Sales during the year 350,000
Sales return & allowance 20,000
Sales discount 10,000
REQUIRED
Compute the amount of ending inventory by Retail Price Method.

State the effects of Under Statement and over statement of ending merchandise inventory on
Cost of Goods Sold, net income and Owner’s equity.

What are the effects of overstatement and understatement of beginning and ending inventory
on gross profit?

Page 249
Inventory Valuation
Chapter # 16
Because of an error in counting for merchandise at Dec. 31, 2003, Mumtaz & Co. overstated the
amount of merchandise on hand by Rs.8,000.
REQUIRED
If the error had not been discovered until the end of 2004, what was its effect on:
Net income 2003, Owner’s equity 2003
Net income 2004, Owner’s equity at Dec. 31, 2004

The condensed Income Statement prepared by Nizam Company for two years are shown below:
2006 2005
Sales 500,000 400,000
Cost of goods sold 410,000 340,000
Gross profit 90,000 60,000
Operating expenses 25,000 20,000
Net income 65,000 40,000
At the end of 2005, the inventory was understated by Rs.15,000 but the error was not
discovered until after the accounts had been closed & Financial Statement prepared at the end
of 2006.
REQUIRED
Compute the corrected net income figures of 2005 & 2006.

Page 250

16 Inventory Valuation

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16 Inventory Valuation

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Chapter # 16

Principles of Accounting – B.Com Part – I

WHAT THE EXAMINER USUALLY ASK?

www.a4accounting.weebly.com Sameer Hussain

a) Perpetual inventory system

 Fifo Method (first in first out)

 Lifo Method (last in first out)

 Moving average method

Format of inventory card by perpetual system

Sameer Hussain www.a4accounting.weebly.com

Entry to Record Purchase of Merchandise Under Perpetual Inventory System:

ILLUSTRATION # 1: (Perpetual Inventory System – FIFO Method)

www.a4accounting.weebly.com Sameer Hussain

Computation of Cost of Goods Sold:

Computation of Total Sales:

Computation of Gross Profit:

ILLUSTRATION # 2: (Perpetual Inventory System – LIFO Method)

Computation of Total Purchases:

Sameer Hussain www.a4accounting.weebly.com

Computation of Cost of Ending Inventory:

Computation of Cost of Goods Sold:

VAQAR & CO.

www.a4accounting.weebly.com Sameer Hussain

ILLUSTRATION # 3: (Perpetual Inventory System – Moving Average Method)

Computation of Cost of Ending Inventory:

Computation of Cost of Goods Sold:

Sameer Hussain www.a4accounting.weebly.com

Computation of Gross Profit:

B) periodic inventory system

Format of units purchased, units sold & units at end

Entry to Record Purchase of Merchandise Under Periodic Inventory System:

Adjusting Entry Under Periodic Inventory System:

www.a4accounting.weebly.com Sameer Hussain

ILLUSTRATION # 4: (Periodic Inventory System – FIFO, LIFO & Weighted Average

Computation of Cost of Ending Inventory by FIFO Method (Periodic System):

Computation of Cost of Ending Inventory by LIFO Method (Periodic System):

Computation of Cost of Ending Inventory by Weighted Average Method (Periodic System):

Sameer Hussain www.a4accounting.weebly.com

ILLUSTRATION # 5: (Entries under Perpetual & Periodic Inventory System)

www.a4accounting.weebly.com Sameer Hussain

Gross profit method

Merchandise inventory (beginning) XXX

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ILLUSTRATION # 6: (Cost of Ending Inventory by Gross Profit Method)

Retail price method

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COST PRICE RETAIL PRICE

Merchandise available for sale at cost price

Cost of ending inventory = Ending inventory at retail price x Percentage of cost

ILLUSTRATION # 7: (Cost of Ending Inventory by Retail Price Method)

Sameer Hussain www.a4accounting.weebly.com

of Beginning Beginning of Ending

Sales 20,000 20,000 20,000 20,000 20,000

Merchandise inventory (beg) 4,000 3,000 4,300 4,000 4,000

Owner’s equity Overstated Understated Understated Overstated

ILLUSTRATION # 8: (Effects of Inventory)

Comparative income statement

Sameer Hussain www.a4accounting.weebly.com

Question # 2: 1989 Regular & Private – UOK

Question # 3: 1992 Regular – UOK

Question # 4: 1993 Regular – UOK

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Question # 5: 1995 Regular – UOK