### SECTION D -- Answer Only One Question

#### This section carries 40 Marks

Question 1

An importer deals only in one commodity and has recorded the following transactions for the first six months of the year.

\begin{tabular}{lccc}
\textbf{Purchases} & \textbf{Quantity Purchased} & \textbf{Gross Invoice Value (Le)} & \textbf{Quantity Discount (\%)} \\
\multicolumn{1}{c}{\textbf{Date}} & \textbf{Units} & \textbf{Le} & \textbf{\%} \\
1 February & 100 & 30,000 & Nil \\
1 March & 200 & 60,000 & 2.5 \\
1 May & 300 & 90,000 & 5 \\
\end{tabular}

\begin{tabular}{lccc}
\textbf{Sales} & \textbf{Quantity Sold} & \textbf{Total Sales Value (Le)} & \\
\textbf{Date} & \textbf{Units} & \textbf{Le} & \\
February & 75 & 30,000 & \\
May & 350 & 175,000 & \\
\end{tabular}

There was an opening balance on January 1st of 50 units, valued at Le 12,500.

Required:

a) Prepare the store ledger for the six months using the perpetual inventory system and the FIFO method of pricing issues.

b) Prepare a trading account to show the gross profit for the period, using the FIFO method of valuation.

c) Prepare a trading account to show the gross profit for the period using the LIFO method of valuation.



Answer :

Sure, let's go through the solution step-by-step:

### a) Store Ledger using FIFO Method

Opening Balance (1st January):
- Quantity: 50 units
- Value: Le 12,500

Purchase (1st February):
- Quantity: 100 units
- Gross Invoice Value: Le 30,000
- Discount: Nil
- Net Invoice Value: Le 30,000 (since no discount)

Purchase (1st March):
- Quantity: 200 units
- Gross Invoice Value: Le 60,000
- Discount: 2.5%
- Net Invoice Value: Le 60,000 × (1 - 0.025) = Le 58,500

Purchase (1st May):
- Quantity: 300 units
- Gross Invoice Value: Le 90,000
- Discount: 5%
- Net Invoice Value: Le 90,000 × (1 - 0.05) = Le 85,500

Sales (February):
- Quantity Sold: 75 units
- Based on FIFO:
- From Jan batch: 50 units (50 × 250)
- From Feb batch: 25 units (25 × 300)
- Cost of Goods Sold: 50×250 + 25×300 = Le 20000

Sales (May):
- Quantity Sold: 350 units
- Based on FIFO:
- Remaining from Feb batch: 75 units (75 × 300)
- From Mar batch: 200 units (200 × 292.5)
- From May batch: 75 units (75 × 285)
- Cost of Goods Sold: 75×300 + 200×292.5 + 75×285 = Le 102,375

Ending Inventory (June):
- Remaining units from Mar batch: 0 units
- Remaining units from May batch: 225 units (225 × 285 = Le 64125)

### b) Trading Account (FIFO Method)

Total Purchases Under FIFO:
- 1 Feb: Le 30,000
- 1 Mar: Le 58,500
- 1 May: Le 85,500

Total Sales Under FIFO:
- February: Le 30,000
- May: Le 175,000

Opening Inventory: Le 12,500

Ending Inventory: Le 64,125

Cost of Goods Sold Under FIFO:
- Opening Inventory + Total Purchases - Ending Inventory
- 12,500 + 30,000 + 58,500 + 85,500 - 64,125 = Le 122,375

Gross Profit (FIFO):
- Total Sales - Cost of Goods Sold
- 30,000 + 175,000 - 122,375 = Le 82,625

### c) Trading Account (LIFO Method)

Sales (February):
- Quantity Sold: 75 units
- Based on LIFO:
- From Feb batch: 75 units (75 × 300)
- Cost of Goods Sold: 75 × 300 = Le 21,375

Sales (May):
- Quantity Sold: 350 units
- Based on LIFO:
- Remaining from May batch: 225 units (225 × 285)
- From Mar batch: 125 units (125 × 292.5)
- Cost of Goods Sold: 225 × 285 + 125 × 292.5 = Le 100,687.5

Ending Inventory (June):
- Remaining units from Jan batch: 50 units (50 × 250)
- Remaining units from Mar batch: 75 units (75 × 292.5)
- Ending Inventory Value: 50 × 250 + 75 × 292.5 = Le 64,437.5

Cost of Goods Sold Under LIFO:
- Opening Inventory + Total Purchases - Ending Inventory
- 12,500 + 30,000 + 58,500 + 85,500 - 64,437.5 = Le 122,062.5

Gross Profit (LIFO):
- Total Sales - Cost of Goods Sold
- 30,000 + 175,000 - 122,062.5 = Le 82,625