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Q No 1
Faisalabad Trading had opening inventory of Rs. 10,000.
Purchases during the year were Rs. 30,000.
During the year inventory at a cost of Rs. 28,000 was transferred to cost of sales.
Closing inventory at the end of Year 2 was Rs. 12,000.
What are entries for recording the above?
Inventory Account
Rs. Rs.
Opening Inventory 10,000 Cost of Sales 28,000
Purchases 30,000 Balance c/d (Ending Inventory) 12,000
40,000 40,000
Q No 2
Gujrat Retail (GR) had opening inventory of Rs. 100,000.
Purchases during the year were Rs. 500,000. Inventory with a cost of Rs. 18,000 was returned to
a supplier. One of the purchases in the above amount was subject to an express delivery fee
which cost the company an extra Rs. 15,000 in addition to the above amount.
GR sold goods during the year which had cost Rs. 500,000. Goods which had cost Rs. 20,000
were returned to the company.
Just before the yearend goods which had cost Rs. 5,000 were found to have been damaged
whilst being handled by GR’s staff.
Inventory Account
Rs. Rs.
Opening Inventory 100,000 Purchase Returns 18,000
Purchases 500,000 Cost of Sales 500,000
Sales Returns 20,000 Normal Loss (damaged) 5,000
Special Freight Charges 15,000 Balance c/d (Ending Inventory) 112,000
635,000 635,000
Inventory Account
Rs. Rs.
Inventory at 31st Dec 2,760,00 Cost of Sales 96,000
0
Purchases 136,000 Inventory at 5th Jan 2,800,000
2,896,00 2,896,000
0
Q No 4
Kasur Consumer Electrics (KCE) buys goods from an overseas supplier.
It has recently taken delivery of 1,000 units of component X.
The quoted price of component X was Rs. 1,200 per unit but KCE has negotiated a trade
discount of 5% due to the size of the order.
The supplier offers an early settlement discount of 2% for payment within 30 days and KCE
intends to achieve this. (write assumption if using this clause)
Import duties of Rs. 60 per unit must be paid before the goods are released through custom.
Once the goods are released through customs KCE must pay a delivery cost of Rs. 5,000 to have
the components taken to its warehouse.
----------------------------------------- Rs -----------------------------------------
Required:
At what amount will inventory be stated in the balance sheet?
Deluxe Soap
Market Price: 185 – 12 = 173 (NRV)
Cost Price: 160 + 15 = 175
Lower of the two – Rs 173
Amount: 300(173) = 51900
Tooth paste
Market Price: 75 – 10 = 65 (NRV)
Cost Price: 50 + 10 = 60
Lower of the two – Rs 60
Amount: 250(60) = 15000
Q No 6
Tino Ltd. manufactures of cars, has an inventory in hand of 30 Cars each category at year
ended 2018.
Total: 2,803
Q No 8
A business has four items of inventory. A count of the inventory has established that the amounts
of inventory currently held, at cost, are as follows:
Rs.
Cost Sales price Selling costs
Inventory item A1 8,000 7,800 500
Inventory item A2 14,000 18,000 200
Inventory item B1 16,000 17,000 200
Inventory item C1 6,000 7,500 150
What is the value of closing inventory in the financial statements?
Periodic Method
Opening Inventory: 5000
Purchases: 69000
Total: 74000
Less: Ending Inventory: 23000
Cost of Sales: 51000
Perpetual Method
B/F 5th April 14th July 22nd October
Purchases 100 @ 50 300 @ 60 500 @ 70 200 @ 80
Issues
9th May (11000) (100) @ 50 (100) @ 60
25th July (12000) (200) @ 60
23rd Nov (14000) (200) @ 70
12th Dec (14000) (200) @ 70
Sales 428,000
Purchases 304,400
Wages and salaries 64,000
Rent 14,000 - 700
Heating and lighting 5,000 +400
Inventory as at 1 January 2017 15,000
Drawings 22,000
Allowance for doubtful debts 4,000 + 500
Non-current assets 146,000 (Dep: 14600)
Accumulated depreciation: 32,000
Trade receivables 51,000 -1200 - 4500
Trade payables 42,000
Cash 6,200
Capital as at 1 January 2017 121,600
Further information:
a) Rs. 400 is owed for heating and lighting expenses (Accrued Exp – 400)
b) Rs. 700 has been prepaid for rent. (Prepayment – 700)
c) It is decided that a bad debt of Rs. 1,200 should be written off, and that the allowance for
doubtful debts should be increased to Rs. 4,500.
d) Depreciation is to be provided for the year at 10% on cost
e) Inventory at 31 December 2017 was valued at Rs. 16,500.
Sales 428000
Less: Cost of Sales
Opening Inventory
Add: Purchases
Cost of good available for sale
Less: Ending Inventory
Gross Profit 125100
Less: Expenses
Net Profit 26100
Balancing Figure:
Assets: 168100
Capital: 125700
Liabilities: 42400
Q No 11
Ingles Company has accounts receivable of $93,100 at March 31. An analysis of the accounts
shows the following.
Credit terms are 2/10, n/30. At March 31, Allowance for Doubtful Accounts has a credit balance
of $1,200 prior to adjustment. The company uses the percentage-of-receivables basis for
estimating uncollectible accounts. The company’s estimate of bad debts is as follows.
Estimated Percentage
Age of Accounts Uncollectible
1–30 days 2.0%
30–60 days 5.0%
60–90 days 30.0%
Over 90 days 50.0%
Q No 12
The following information pertains to Napa Merchandising Company.
(a) Calculate the amount of credit sales made during the year.
Total Sales: 83000
Credit Sales: 83000 – 18000 = 65000
(b) Calculate the balance of accounts receivable at the end of the year.
Opening: 24000
Credit Sales: 65000
Write-off: 1000
Collection: 78000
Balance: 10000
Q No 13
Bledel Company had accounts receivable of $100,000 on January 1, 2008. The only
transactions that affected accounts receivable during 2008 were net credit sales of $1,000,000,
cash collections of $900,000, and accounts written off of $30,000.
Opening: 100000
Sales: 1000000
Collection: 900000
Write-off: 30000
Balance: 170000
Q No 14
Information related to Hermesch Company for 2008 is summarized below.
Total credit sales $2,200,000
Accounts receivable at December 31 825,000
Bad debts written off 33,000
a) What amount of bad debts expense will Hermesch Company report if it uses the direct
write-off method of accounting for bad debts?
Answer: 33000
b) Assume that Hermesch Company decides to estimate its bad debts expense to be 2% of
credit sales. What amount of bad debts expense will Hermesch record if Allowance for
Doubtful Accounts has a credit balance of $4,000?
Answer: 44000 (based on sales – no adjustment)
c) Assume that Hermesch Company decides to estimate its bad debts expense based on 6%
of accounts receivable. What amount of bad debts expense will Bee Company record if
Allowance for Doubtful Accounts has a credit balance of $3,000?
Answer: 46500 (6% of 825000 – 3000)
d) Assume the same facts as in (c), except that there is a $3,000 debit balance in Allowance
for Doubtful Accounts. What amount of bad debts expense will Hermesch record?
Answer: 52500 (6% of 825000 + 3000)
e) What is the weakness of the direct write-off method of reporting bad debts expense?