Tutorial 4 Inventory Questions Student Handout PDF

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MCD2160 Trim2 2020 – Tutorial 4 – Inventory – Retail Business By the end of this week’s tutorials you need to have mastered the following initial check list Features of Retailing under the following recording methods Perpetual Asset Periodic Expense Advantages and disadvantages of each method of recording Application of the Conceptual Framework Appropriate Measurement base Historical cost after impairment Typical practical entries and reports for each method Opening inventory carried from previous period Purchase of inventory for cash or on credit Sales for cash or on credit Purchases returns Sales returns Treatment of settlement discount for Account customer Account supplier Deposit on a sale Cost of Goods sold Inventory discrepancy – gain or loss Stock take GST for a purchase GST for a sale General Journal General Ledger Income Statement Extract to Gross Profit Before going to Tutorial 4 (Inventory Retail). Read Text: Monash Custom Carlon et al Chapter 4 and Chapter 5 pp 285 – 292 Complete the Homework in the MyAccountingLab by Sunday before tutorials

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MCD2160 Trim2 2020 – Tutorial 4 – Inventory – Retail Business In Tutorial 4 Check any queries from the homework in MyAccountingLab Complete the Review Question in the MyAccountingLab Complete the Group Presentation Question in period 2 Question 1 Amart is a single store, family owned, small supplier of home furnishings. April 1 Michael Jones contributed cash of $400,000 and inventory of $900,000 to commence the operations of Amart 2 Amart purchased inventory from Fantastic Furniture Pty Ltd for $280,000 5 Amart returned goods that had cost $15,000 to Fantastic Furniture

15 Amart paid the amount owing to Fantastic Furniture less 10% settlement discount. 17 Cash sales of $100,000 to All Furniture (cost price $40,000) were made by Amart.

21 Goods were returned to Amart by All Furniture for a cash refund of $5,000 (cost price $1,550). 22 Sold goods on credit to Best Buys for $180,000 (cost price $115,000). 29 Amart received full settlement from Best Buys less 5% discount 30 Amart received a deposit of $10,000 for goods to be delivered on May 31. Michael Jones wants to report this as income for April 30 A physical stocktake revealed inventory on hand of $1,000,000.

Required a) Amart is a single store, family owned, small supplier of home furnishings. Explain which method of inventory recording appears to be better suited to this business. b) Prepare an adjusted Trial Balance using the periodic method of recording c) Show the Income Statement down to the unadjusted Gross Profit before the stocktake for the perpetual inventory method for the month ended 30 April In Tutorial 4 Question 2 Impairment of Inventory Amart Refer to the information in Question 1 for Amart The physical stocktake revealed inventory on hand at an historical cost of $1,000,000 Amart has now reviewed the carrying amount of the inventory and has indicated that of the $1,000,000 in inventory $50,000 has an estimated net realizable value of $20,000 at 30 April Required 2

(a) Explain the requirements of the 2020 Conceptual Framework to apply the historical cost method measurement basis for Inventory in the GPFRs. (b) Prepare an extract of the GPFRs for Inventory write down in the Income Statement and Inventory valuation in the Balance sheet for April

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MCD2160 Trim2 2020 – Tutorial 4 – Inventory – Retail Business In Tutorial 4 Question 3 April 1

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Jack Ma contributed cash of $100,000 and inventory of $315,000 to commence the operations of Alibaba Traders Bank Dr 100,000 Inventory Dr 315,000 Capital Cr 415,000 Alibaba Traders purchased inventory from Western Digital Ltd for $84,000 Inventory Dr 84,000 Accounts Payable 84,000

5 Alibaba Traders returned goods that had cost $5,250 to Western Digital Ltd Accounts Payable Dr 5250 Inventory Cr 5250 15 Alibaba Traders paid the amount owing to Western Digital less 10% settlement discount. Accounts Payable Dr 84,0000 Purchase Discount Cr 8,400 Bank Cr 75,600 17 Cash sales of $25,000 to Vodafone (cost price 18,900) were made by Alibaba Traders. Bank Dr 25,000 Sales Cr 25,000 COGS Dr 18,900 Inventory Cr 18,900 21 Goods were returned to Alibaba Traders by Vodafone for a cash refund of $2,000 (cost price $1,538). Sales Returned Dr 2,000 Bank Cr 2,000 Inventory Dr 1,538 COGS Cr 1,538 22 Sold goods on credit to Westpac for $40,000 (cost price $24,150). A/R Dr 40,000 Sales Cr 40,000 COGS Dr 24,150 Inventory Cr 24,150 29 Alibaba Traders received full settlement from Westpac less 5% discount Bank Dr 38,000 Revenue Discount Dr 2,000 A/R Cr 40,000 30 A physical stocktake revealed inventory on hand of $347,000. Inventory loss Dr 5238 Inventory Cr 5238 Required a) Record the above transactions and events in the general journal of Alibaba Traders. Use the perpetual inventory method of recording inventory b) Show the Income Statement to Gross Profit for the periodic inventory method for the month ended 30 April 4

Alibaba Traders Income Statement For the month ended 30th April Periodic Method Revenue Sales Less Sales Returns Less Cost of Goods Sold COGS Inventory (beg) Add Purchases Less Purchases Returns Net Purchases Goods Available for sale Less Inventory (end) Gross Profit

65,000 2,000 63,000

315,000 84,000 5,250 78,750 393,750 347,000

46,750 16,250

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STRUCTURE FOR INCOME STATEMENT: Sapphire Kingdom Income Statement to Gross Profit for month ended 30 April periodic Revenue Sales Less Cost of Goods Sold Inventory (beg) Add Purchases Goods available for sale Less Inventory (end) COGS Gross Profit Less Inventory Loss Adjusted Gross Profit

perpetual

156,000

156,000

(102,000) 54,000

(96,000) 60,000 (6,000) 54,000

72,000 180,000 252,000 (150,000)

54,000

Question 4 Inventory recording methods April 1

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Chen Mingyong contributed cash of $1,600,000 and inventory of $5,040,000 to commence the operations of Oppo Traders Bank Dr 1,600,000 Inventory Dr 5,040,000 Capital Cr 6,640,000 Oppo Traders purchased inventory from BBK Ltd for $1,344,000 Purchases Dr 1,344,000 A/P Cr 1,344,000

5 Oppo Traders returned goods that had cost $84,000 to BBK Ltd A/P Dr 84,000 Purchases returned Cr 84,000 15 Oppo Traders paid the amount owing to BBK Ltd less 10% settlement discount. A/P Dr 1,34,400 Purchase Discount Cr 1,34,40 Bank Cr 1,209,600 17 Cash sales of $400,000 to OnePlus (cost price 306,400) were made by Oppo Traders. Bank Dr 400,000 Sales Cr 400,000 21 Goods were returned to Oppo Traders by OnePlus for a cash refund of $32,000 (cost price $24,600). Sales Return Dr 32,000 Bank Cr 32,000 22 Sold goods on credit to Woolworths for $640,000 (cost price $386,400). A/R Dr 640,000 Sales Cr 640,000 29 Oppo Traders received full settlement from Woolworths less 5% discount 6

Bank Dr 608,000 Sales Discount Dr 32,000 A/R Cr 640,000 30 A physical stocktake revealed inventory on hand of $5,544,000. (Beg inv + purchases -COGS (?)=Clos inv) Dr Cr COGS 6,384,000 Inventory 5,040,000 Purchases 1,334,000 Purchase returns 84,000 COGS 84,000 Inventory 5,544,000 COGS 5,544,000 Required a) Record the above transactions and events in the general journal of Oppo Traders. Use the periodic inventory method of recording inventory b) Show the ‘inventory’ and ‘cost of goods sold’ ledger accounts for the perpetual method. c) Outline two advantages and two disadvantages of the perpetual and periodic methods of recording inventory Explain two advantages and two disadvantages of perpetual and periodic inventory Advantages & disadvantages of the perpetual and periodic inventory methods Perpetual • - Facilitates the frequency and timeliness of financial reporting, so interim reports can be prepared. Recall from Lecture 1 this will help information to be Relevant • - Better control and more efficient management of inventory. • - Can determine stock loss or gains, helps reliability • •

- Requires considerable record keeping, hence increasing costs. - Development in technology and software has made perpetual inventory more affordable.

Periodic • - Requires a physical stock take to measure profit. Stock takes can be costly & disruptive. • - Not as efficient as does not maintain records of inventory movements. • - No stock loss or gains recorded. Assumes all stock is sold.

• •

- Lower cost and easier recording procedures. - Lower cost now no longer an advantage.

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MCD2160 Trim2 2020 – Tutorial 4 – Inventory – Retail Business In Tutorial 4 Question 5 Sapphire Kingdom commenced trading as an antiques dealer on 1 April 2016. The owner Martina Chin contributed Inventory of $72,000 The subsequent transactions of Sapphire Kingdom during April are as follows: 4 April Purchased antiques from East West Art Ltd for $180,000 terms 2/10, n/30 13 April Paid the amount owing to East West Art Ltd within the discount period 15 April Sold goods for $156,000 to Simon Tang on terms 1/15 n/30 (cost price $96,000) 30 April Received the amount owing from Simon Tang within the discount period 30 April A physical stocktake showed $150,000 of inventory on hand Required a) Using the perpetual method, enter these transactions and events in the general journal b) Using the periodic method, enter these transactions and events in the general journal c) Prepare the extract of the Income Statement to Gross Profit under both the perpetual and periodic methods of recording inventory In Tutorial 4 Question 6 Puma Sports sells fitness equipment to sporting organisations and the general public. One item they sell is the EFC 1000 treadmill. Transactions relating to the EFC 1000 for the last week of June 2016 are detailed below. At 24 June, Puma Sports had a stock of 141 EFC 1000 treadmills purchased for $2,200 each (GST inclusive). June 24 Sold 12 treadmills for cash, $3,600 each plus GST June 26 Sold 36 treadmills on credit to a local gymnasium for a reduced price of $3,300 each plus GST June 27 Three of the treadmills sold on June 24 was returned to Puma Sports by the customer as they were not working properly. The customer was given a refund. June 28 Puma Sports determined that the treadmills returned by the customer the previous day had manufacturing faults, therefore they were returned to the supplier for credit. June 30 Sold 6 treadmills for cash, $3,600 each plus GST June 30 A physical stock take revealed 78 treadmills in stock Required: (a) Prepare the general journal entries for the transactions above under the perpetual inventory method. (b) Prepare the general journal entries for the transactions above under the periodic inventory method.

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