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Tuesday, January 3, 2012

FIN621 Assignment No 2 Solution fall 2011


Question :
Mr. Ijaz newly started trading business as cement supplier in 2010 in Lahore. He requested you to act as his accountant (For the year ended on 31st December 2010). His instructions to you are in the form of following letter written in April, 2010:

Dear Accountant!
I was pleased to know that you are agreed to act as my accountant and looking forward to your first
visit to check my records. The accountancy fee of Rs. 20,000/- for the year is acceptable as per our
contract. The financial year of my business starts from 1st January of each year. On 1st January 2010,I have invested Rs. 2.5 million in cash. Because of new business and limited resources, I purchased 2,000 bags of cement at the rate of Rs. 150/- each on 14th of January 2010 in cash. On 20th of January, I placed another order for purchase of 3,500 bags (which were delivered me on 23rd  of January) at Rs. 156/- each because the rates were expected to go up within next week.


I have drawn Rs. 10,000/- during January from the business for my personal use. During February, I did not purchase new inventory but 4,500 bags of cement were purchased at Rs. 158/- each by me on 15th of March. Sales of 5,000 bags were made to Mega Contactors (Pvt.) Limited at Rs. 160 each on cash during the period and contract of sale of 6,000 bags is also expected with mega contractors on 5th of April at Rs. 162 each bag.

In my business, it is difficult to take a holiday, but I have managed to get away for a while. The travel agent’s bill for Rs. 3,000/- was also paid out from the business. The rent of the office was paid Rs. 20,000/- for two months.
Yours sincerely,
Mr. Ijaz.
Proprietor
Requirements:
1. Calculate ending inventory and cost of goods sold on 31st March 2010 under First In
First Out (FIFO) and Weighted Average Method. Assume that Mr. Ijaz uses periodic
inventory system.

(6 + 6 marks)

2. Identify which of the following methods (FIFO or Weighted Average) will tend to raise
the quality of company’s earnings and which will tend to lower? Support your answer
with valid reasoning.
(3 marks)




Read more: FIN621 Assignment No 2 Solution & Discussion Due Date: 03-01-2012 - Virtual University of Pakistan http://vustudents.ning.com/group/fin621financialstatementanalysis/forum/topics/fin621-2nd-assignment-req-solution#ixzz1iOXkOAW9

2 comments:

  1. FIN621 Assigenment # 2 Soluation

    SEMESTER FALL 2011
    Financial Statement Analysis (FIN621)
    Assignment No. 2
    Pr!ncE
    Q: 1
    Mr. Ijaz newly started trading business as cement supplier in 2010 in Lahore. He requested you to act as his accountant (For the year ended on 31st December 2010). His instructions to you are in the form of following letter written in April, 2010:
    ANS:
    Cost of sold goods under FIFO
    2 000 bags @ Rs 150 = RS 300, 000
    3000 bags @RS 156 = RS 468, 000

    TOTAL = 5000 BAGS = RS .768, 000

    COST OF SOLD GOODS UNDER WEIGHTED AVERAGE

    PURCHASE

    2000 BAGS@ RS.150 PER BAG = RS .300, 000


    3500 BAGS @RS156 PER BAG = RS.546, 000



    4500 BAG@ RS.158 PER BAG = RS.711,000


    TOTAL BAGS = 10, 000

    TOATAL PRICE = RS.1557, 000


    WEIGHTED AVERAGE PRICE PER BAG = 1557, 000 / 10000

    WEIGHTED AVERAGE PRICE PER BAG = RS.155.7 per bag

    TOTAL SALE = 5, 000 BAGS

    COST UNDER WEIGHTED AVERAGE = 5, 000 ∗ 155.7

    COST UNDER WEIGHTED AVERAGE = RS 778,500


    ENDING INVENTORY

    UNDER FIFO METHOD


    OPENING BALANCE = 000
    ADD PURCHASE = 1557,000


    LESS CLOSING BALANCE = 789, 000

    INVENTORY USED =768,000


    UNDER WEIGHTED AVERAGE METHOD


    OPENING BALANCE = 000
    ADD PURCHASE = 1557,000
    LESS CLOSING BALANCE = 779,000

    INVENTORY USED =778,000




    Q:2
    Identify which of the following methods (FIFO or Weighted Average) will tend to raise
    the quality of company’s earnings and which will tend to lower? Support your answer
    with valid reasoning.
    ANS:
    FIFO tend to raise the quality of the company’s earning
    cost of good sold is lower FIFO method used.


    Read more: FIN621 Assignment No 2 Solution & Discussion Due Date: 03-01-2012 - Virtual University of Pakistan http://vustudents.ning.com/group/fin621financialstatementanalysis/forum/topics/fin621-2nd-assignment-req-solution#ixzz1iVJENyzp

    ReplyDelete
  2. FIN621 Assigenment # 2 Soluation

    SEMESTER FALL 2011
    Financial Statement Analysis (FIN621)
    Assignment No. 2
    Pr!ncE
    Q: 1
    Mr. Ijaz newly started trading business as cement supplier in 2010 in Lahore. He requested you to act as his accountant (For the year ended on 31st December 2010). His instructions to you are in the form of following letter written in April, 2010:
    ANS:
    Cost of sold goods under FIFO
    2 000 bags @ Rs 150 = RS 300, 000
    3000 bags @RS 156 = RS 468, 000

    TOTAL = 5000 BAGS = RS .768, 000

    COST OF SOLD GOODS UNDER WEIGHTED AVERAGE

    PURCHASE

    2000 BAGS@ RS.150 PER BAG = RS .300, 000


    3500 BAGS @RS156 PER BAG = RS.546, 000



    4500 BAG@ RS.158 PER BAG = RS.711,000


    TOTAL BAGS = 10, 000

    TOATAL PRICE = RS.1557, 000


    WEIGHTED AVERAGE PRICE PER BAG = 1557, 000 / 10000

    WEIGHTED AVERAGE PRICE PER BAG = RS.155.7 per bag

    TOTAL SALE = 5, 000 BAGS

    COST UNDER WEIGHTED AVERAGE = 5, 000 ∗ 155.7

    COST UNDER WEIGHTED AVERAGE = RS 778,500


    ENDING INVENTORY

    UNDER FIFO METHOD


    OPENING BALANCE = 000
    ADD PURCHASE = 1557,000


    LESS CLOSING BALANCE = 789, 000

    INVENTORY USED =768,000


    UNDER WEIGHTED AVERAGE METHOD


    OPENING BALANCE = 000
    ADD PURCHASE = 1557,000
    LESS CLOSING BALANCE = 779,000

    INVENTORY USED =778,000




    Q:2
    Identify which of the following methods (FIFO or Weighted Average) will tend to raise
    the quality of company’s earnings and which will tend to lower? Support your answer
    with valid reasoning.
    ANS:
    FIFO tend to raise the quality of the company’s earning
    cost of good sold is lower FIFO method used.


    Read more: FIN621 Assignment No 2 Solution & Discussion Due Date: 03-01-2012 - Virtual University of Pakistan http://vustudents.ning.com/group/fin621financialstatementanalysis/forum/topics/fin621-2nd-assignment-req-solution#ixzz1iVU6FqaL

    ReplyDelete