Exercise

4.1 Gross profit for 20×7 can be calculated from（）．

A．Purchases for 20×7， plus inventory at 31 December 20×7， less inventory at 1 January 20×7

B．Purchases for 20×7， less inventory at 31 December 20×7， plus inventory at 1 January 20×7

C．Cost of goods sold during 20×7， plus sales during 20×7

D．Profit for the year for 20×7， plus expenses for 20×7

4.2 The inventory value for the financial statements of Global Inc for the year ended 30 June 20×3 was based on an inventory count on 7 July 20×3， which gave a total inventory value of ￡ 950，000.Between 30 June and 7 July 20×6， the following transactions took place．

What figure should be included in the financial statements for inventories at 30 June 20×3？（）

A．￡ 952，750

B．￡ 949，750

C．￡ 926，750

D．￡ 958，950

4.3 Which of the following costs may be included when arriving at the cost of finished goods inventory for inclusion in the financial statements of a manufacturing company？ （）

1 Carriage inwards

2 Carriage outwards

3 Depreciation of factory plant

4 Finished goods storage costs

5 Factory supervisors 'wages

A．1 and 5 only

B．2，4 and 5 only

C．1，3 and 5 only

D．1，2，3 and 4 only

4.4 In preparing its financial statements for the current year， a company's closing inventory was understated by ￡ 300，000.What will be the effect of this error if it remains uncorrected？ （）

A．The current year's profit will be overstated and next year's profit will be understated

B． The current year's profit will be understated but there will be no effect on next year's profit

C．The current year's profit will be understated and next year's profit will be overstated

D． The current year's profit will be overstated but there will be no effect on next year's profit

4.5 Which one of the following statements about the use of a continuous inventory system is INCORRECT？ （）

A．In a retail organisation， a continuous inventory system can be used to keep track of the quantity of each stock item available in its distribution centers

B．Under continuous inventory， the cost of each receipt of inventory and the cost of each issue from inventory is recorded individually

C．A continuous inventory system removes the need for periodic physical inventory counts

D．Both the FIFO and average cost （AVCO） methods of pricing inventory may be used within a continuous inventory system

4.6 You are preparing the final accounts for a business． The cost of the items in closing inventory is ￡ 41，875.This includes some items which cost ￡ 1，960 and which were damaged in transit． You have estimated that it will cost ￡ 360 to repair the items， and they can then be sold for ￡ 1，200.What is the correct inventory valuation for inclusion in the final accounts？（）

A．￡ 39，915

B．￡ 40，755

C．￡ 41，515

D．￡ 42，995

4.7 Carlisle has the following inventory movements during May as listed in Exhibit 4.16.

Assuming that the business values inventory on a FIFO basis， what will be the value of closing inventory at the end of the month？ （）

A．￡ 1，615

B．￡ 1，655

C．￡ 1，700

D．￡ 1，705

4.8 A trader used the LIFO method to value inventory at the end of July at ￡ 3，110.Sales and purchases in July were described in Exhibit 4.17：

The opening inventory at 1 July was 50 units valued at ￡ 15 per unit． The trader needs to adopt the FIFO method． What is the effect of this change on the trader's profit？ （）

A．￡ 190 decrease

B．￡ 420 decrease

C．￡ 420 increase

D．￡ 190 increase

4.9 The inventory records for Simmons last month were as shown in Exhibit 4.18：

Opening inventory was 600 units valued at ￡ 12，000.Purchases in February were at￡ 31.25 per unit． The total cost of sales in February， using the AVCO method， is （）．（to the nearest ￡ ）

A．￡ 37，000

B．￡ 28，000

C．￡ 17，625

D．￡ 22，000

4.10 What would be the effect on a business's profit of discovering that inventory with a cost of ￡ 1，250 and a net realisable value of ￡ 1，000 had been omitted from the inventory count at the end of the reporting period？ （）

A．An increase of ￡ 1，250

B．An increase of ￡ 1，000

C．A decrease of ￡ 250

D．No effect

4.11 June Ltd has three lines of inventory at the end of its reporting period．

At what value should inventory appear in the financial statements at the end of the reporting period？ （）

A．￡ 2，700

B．￡ 2，325

C．￡ 2，300

D．￡ 2，100

4.12 A company values its inventory using the first in， first out （ FIFO） method． At 1 May 20×2 the company had 700 engines in inventory， valued at ￡ 190 each．

During the year ended 30 April 20×3 the following transactions took place：

20×2

1 July Purchased 500 engines at ￡ 220 each

1 November Sold 400 engines for ￡ 160，000

20×3

1 February Purchased 300 engines at ￡ 230 each

15 April Sold 250 engines for ￡ 125，000

What is the value of the company's closing inventory of engines at 30 April 20 × 3？（）

A．￡ 188，500

B．￡ 195，500

C．￡ 166，000

D．None of these figures

4.13 Which of the following statements about the valuation of inventory are correct， according to IAS 2 Inventories？ （）

1 Inventory items are normally to be valued at the higher of cost and net realisable value

2 The cost of goods manufactured by an entity will include materials and labour only． Overhead costs cannot be included

3 LIFO （last in， first out） cannot be used to value inventory

4 Selling price less estimated profit margin may be used to arrive at cost if this gives a reasonable approximation to actual cost

A．1，3 and 4 only

B．1 and 2 only

C．3 and 4 only

D．None of the statements are correct

4.14 The financial year of Mitex Co ended on 31 December 20×1.An inventory count on 4 January 20×2 gave a total inventory value of ￡ 527，300.The following transactions occurred between January 1 and January 4.

What inventory value should be included in Mitex Cos financial statements at 31 December 20×1？（）

A．￡ 525，400

B．￡ 527，600

C．￡ 529，200

D．￡ 535，200

4.15 You are preparing the final accounts for a business． The cost of the items in closing inventory is ￡41，875.This includes some items which cost ￡1，960 and which were damaged in transit． You have estimated that it will cost ￡360 to repair the items， and they can then be sold for ￡1，200.What is the correct inventory valuation for inclusion in the final accounts？ （）

A．￡ 39，915

B．￡ 40，755

C．￡ 41，515

D．￡ 42，995

4.16*On 1 January 20×6， the Grand Union Food Stores had goods in inventory valued at￡ 6，000.During 20×6 its proprietor purchased supplies costing ￡ 50，000.Sales for the year to 31 December 20×6 amounted to ￡ 80，000.The cost of goods in inventory at 31 December 20×6 was ￡ 12，500.

What is the gross profit for the year？

4.17*A business is established with capital of ￡ 2，000 and this amount is paid into a business bank account by the proprietor． During the first year's trading， the following transactions occurred．

All ‘other expenses’ relate to the current year．

Closing inventory is valued at ￡ 1，800.（Because this is the first year of the business，there are no opening inventories．）

Requirement

Prepare the ledger accounts， a profit or loss account for the year and a statement of financial position as at the end of the year．

4.18 A firm has the following transactions with its product R．

Year 1

Opening inventory： nil

Buys 10 units at ￡ 300 per unit

Buys 12 units at ￡ 250 per unit

Sells 8 units at ￡ 400 per unit

Buys 6 units at ￡ 200 per unit

Sells 12 units at ￡ 400 per unit

Year 2

Buys 10 units at ￡ 200 per unit

Sells 5 units at ￡ 400 per unit

Buys 12 units at ￡ 150 per unit

Sells 25 units at ￡ 400 per unit

Requirement

Using FIFO， calculate the following on an item by item basis for both year 1 and year 2.

（1）The closing inventory．

（2）The sales．

（3）The cost of sales．

（4）The gross profit．

Reference

1.ACCA FA Financial Accounting／ FIA FFA Interactive Text 2020， BPP Learning Media．

2.ACCA FA Financial Accounting／ FIA FFA Practice ＆ Revision Kit 2020， BPP Learning Media．

3.Accounting （Study Manual 2020）， The Institute of Chartered Accountants in England and Wales．

4.Accounting （Question Bank 2020）， The Institute of Chartered Accountants in England and Wales．

5.Alan Sangster，Frank Wood's Business Accounting Volume 1（2019）， Pearson． aZbWg4B2miwLe8U3itFyrxJpBdKWKz7jwF7GZHUdWZ2vGTpaI5VjVuSvKYmzvkUE