Inventories Assignment

May’22 MTP 1:
Write short notes on:
(i) Adjusted Selling Price method of determining cost of stock.
(ii) Principal methods of ascertainment of cost of inventory.
(5 Marks)
Answer:
(i) Adjusted selling method is also called retail inventory method. It is used widely in retail business or in
business where the inventory comprises of items, the individual costs of which are not readily
ascertainable. The historical cost of inventory is estimated by calculating it in the first instance at selling
price and then deducting an amount equal to the estimated gross margin of profit on such stocks.
(ii) The specific identification method, First-In–First-Out (FIFO) and weighted average cost formulae are the
principal methods of ascertaining the cost of inventory. The cost of inventories of items that are not
ordinarily interchangeable and goods or services produce and segregated for specific projects should be
assigned by specific identification of their individual costs under the specific identification method.

May’22 MTP 2:
2. M/s Sam, Profit and loss account showed a net profit of ` 24,00,000, after considering the closing
(i) stock of ` 22,50,000 on 31st March, 2022. Subsequently the following information was obtained
(ii) from scrutiny of the books:
(iii) Purchases for the year included ` 90,000 paid for new electric fittings for the shop.
(iv) M/s Sam gave away goods valued at ` 2,40,000 as free samples for which no entry was made
(v) in the books of accounts.
(vi) Invoices for goods amounting to ` 15,00,000 have been entered on 27th March, 2022, but the
(vii) goods were not included in stock.
(viii) In March, 2022 goods of ` 12,00,000 sold and delivered were taken in the sales for
 (ix) April, 2022.
(x) Goods costing ` 4,50,000 were sent on sale or return in March, 2022 at a margin of profit of
(xi) 33-1/3% on cost. Though approval was given in April, 2022 these were taken as sales for March,
2022.
You are required to determine the adjusted net profit for the year ended on 31.3.2022 and calculate
the value of stock on 31st March, 2022.
(10 Marks)
Answer:
Profit and Loss Adjustment Account

Calculation of value of inventory on 31st March, 2022

RTP May’20:
3. Sky Ltd. keeps no stock records but a physical inventory of stock is made at the end of each quarter and the
valuation is taken at cost. The company’s year ends on 31st March, 2018 and their accounts have been prepared to
that date. The stock valuation taken on 31st March, 2018 was however, misleading and you have been advised to
value the closing stocks as on 31st March, 2018 with the stock figure as on 31st December, 2017 and some other
information is available to you:
i. The cost of stock on 31st December, 2017 as shown by the inventory sheet was ` 80,000.
ii. On 31st December, stock sheet showed the following discrepancies:
a. A page total of ` 5,000 had been carried to summary sheet as ` 6,000.
b. The total of a page had been undercast by ` 200.
iii. Invoice of purchases entered in the Purchase Book during the quarter from January to March, 2018 totalled `
70,000. Out of this ` 3,000 related to goods received prior to 31st December, 2017. Invoices entered in April
2018 relating to goods received in March, 2018 totalled ` 4,000.
iv. Sales invoiced to customers totalled ` 90,000 from January to March, 2018. Of this ` 5,000 related to goods
dispatched before 31st December, 2017. Goods dispatched to customers before 31st March, 2018 but invoiced
in April, 2018 totalled ` 4,000.
v. During the final quarter, credit notes at invoiced value of ` 1,000 had been issued to customers in respect of
goods returned during that period. The gross margin earned by the company is 25% of cost.
You are required to prepare a statement showing the amount of stock at cost as on 31st March, 2018. Transfer of ownership
takes place at the time of delivery of goods.

Answer:
 Valuation of Physical Stock as at March 31, 2018

RTP Nov’20:
4. A trader prepared his accounts on 31st March, each year. Due to some unavoidable reasons, no stock taking could be possible till 15th April, 2020 on which
date the total cost of goods in his godown came to ` 50,000. The following facts were established between 31st March and 15th April, 2020.
a. Sales ` 41,000 (including cash sales ` 10,000)
b. Purchases ` 5,034 (including cash purchases ` 1,990)
 c. Sales Return ` 1,000.
d. On 15th March, goods of the sale value of ` 10,000 were sent on sale or return basis to a customer, the period of approval being four weeks. He
returned 40% of the goods on 10th April, approving the rest; the customer was billed on 16th April.
e. The trader had also received goods costing ` 8,000 in March, for sale on consignment basis; 20% of the goods had been sold by 31st March, and
another 50% by the 15th April. These sales are not included in above sales. Goods are sold by the trader at a profit of 20% on sales.
You are required to ascertain the value of Inventory as on 31st March, 2020.

Answer:
Statement of Valuation of Stock on 31st March, 2020
RTP May’21:
5. Closing stock is valued by Zebra Stores on generally accepted accounting principles. Stock taking for the year ended 31st March, 2020 was completed by
10th April, 2020, the valuation of which showed a stock figure of ` 5,02,500 at cost as on the completion date. After the end of the accounting year and till
the date of completion of stock taking, sales for the next year were made for ` 20,625, profit margin being 33.33 percent on cost. Purchases for the next
year included in the stock amounted to ` 27,000 at cost less trade discount 10 percent. During this period, goods were added to stock of the mark up price
of ` 900 in respect of sales returns. After stock taking it was found that there were certain very old slow moving items costing ` 3,375 which should be
taken at ` 1,575 to ensure disposal to an interested customer. Due to heavy floods, certain goods costing ` 4,650 were received from the supplier beyond
the delivery date of customer. As a result, the customer refused to take delivery and net realizable value of the goods was estimated to be ` 3,750 on 31st
March, 2020.
You are required to calculate the value of stock for inclusion in the final accounts for the year ended 31st March, 2020

Answer:
Statement showing the valuation of stock
as on 31st March, 2020
Note: Profit margin of 33.33 percent on cost means 25 percent on sale price.

RTP Nov’21:
6. Submarine Ltd. keeps no stock records but a physical inventory of stock is made half yearly and the valuation is taken at cost. The company’s year ends
on 31st March, 2021 and their accounts have been prepared to that date. The stock valuation taken on 31 March, 2021 was however, misleading and you
st

have been advised to value the closing stocks as on 31st March, 2021 with the stock figure as on 30th September, 2020 and some other information is
available to you:
i. The cost of stock on 30th September, 2020 as shown by the inventory sheet was `2,40,000.
ii. On 30th September, stock sheet showed the following discrepancies:
a. A page total of ` 15,000 had been carried to summary sheet as ` 16,000.
b. The total of a page had been undercast by ` 600.
iii. Invoice of purchases entered in the Purchase Book during the quarter from October,2020 to March,2021 totalled ` 2,10,000. Out of this ` 9,000
related to goods received prior to 30thSeptember, 2020. Invoices entered in April,2021 relating to goods received in March, 2021 totalled `12,000.
 iv. Sales invoiced to customers totalled `2,70,000 from September,2020 to March, 2021. Of this ` 15,000 related to goods dispatched before 30th
September, 2020. Goods dispatched to customers before 31st March, 2021 but invoiced in April, 2021 totalled ` 12,000.
Answer:
Valuation of Physical Stock as at March 31, 2021

Note: In the above solution, transfer of ownership is assumed to take place at the time of delivery of goods. If it is assumed that transfer of ownership takes place on the
date of invoice, then ` 1,20,000 goods delivered in March, 2021 for which invoice was received in April, 2021, would be treated as purchases of the accounting year
2020-2021 and thus excluded. Similarly, goods dispatched in March, 2021 but invoiced in April, 2021 would be excluded and treated as sale of the year 2020-2021.
RTP May’22:
7. A trader prepared his accounts on 31st March, each year. Due to some unavoidable reasons, no stock taking could be possible till 15th April, 2021 on which
date the total cost of goods in his godown came to ` 1,50,000. The following facts were established between 31st March and 15th April, 2021.
i) Sales ` 1,23,000 (including cash sales ` 30,000)
ii) Purchases ` 15,102 (including cash purchases ` 5970)
iii) Sales Return ` 3,000.
iv) On 15th March, goods of the sale value of ` 30,000 were sent on sale or return basis to a customer, the period of approval being four weeks. He returned
40% of the goods on 10th April, approving the rest; the customer was billed on 16th April.
v) The trader had also received goods costing ` 24,000 in March, for sale on consignment basis; 20% of the goods had been sold by 31st March, and another
50% by the 15th April. These sales are not included in above sales. Goods are sold by the trader at a profit of 20% on sales.

You are required to ascertain the value of Inventory as on 31st March, 2021.

Answer:

Statement of Valuation of Stock on 31st March, 2021

Past Year Papers:
Nov’19
8. Distinguish between Periodic Inventory System and Perpetual Inventory System.
(5 Marks)
Answer:

Periodic Inventory System Perpetual Inventory System

1. This system is based on physical verification It is based on book records
2. This system provides information about It provides continuous information about
 inventory and cost of goods sold at a particular inventory and cost of sales.
date
3. This system determines inventory and takes It directly determines cost of goods sold and
cost of goods sold as residual figure. computes inventory as balancing figure.
4. Cost of goods sold includes loss of goods as Closing inventory includes loss of goods as all
goods not in inventory are assumed to be sold. unsold goods are assumed to be in Inventory
5. Under this method, inventory control is not Inventory control can be exercised under this
possible. system.
6. This system is simple and less expensive. It is costlier method.
7. Periodic system requires closure of business for Inventory can be determined without affecting
counting of inventory. the operations of the business.

Nov’20
9. Physical verification of stock in a business was done on 23rd February, 2020. The value of the
stock was ` 28,00,000. The following transactions took place from 23rd February to 29th February,
2020:
(1)Out of the goods sent on consignment, goods at cost worth ` 2,30,000 were unsold.
(2)Purchases of ` 3,00,000 were made out of which goods worth ` 1,20,000 were delivered on 5th
March, 2020.
(3)Sales were ` 13,60,000 which include goods worth ` 3,20,000 sent on approval. Half of these
goods were returned before 29th February, 2020, but no information is available regarding the
remaining goods.
(4)Goods are sold at cost plus 25%. However, goods costing ` 2,40,000 had been sold for `
1,50,000.
Determine the value of stock on 29th February, 2020.
(10 Marks)
Answer:
Statement of Valuation of stock on 29th February 2020

Working Notes:
Jan’21
10. From the following particulars ascertain the value of inventories as on 31st March, 2020:
i. Inventory as on 1st April, 2019 ` 3,50,000
ii. Purchase made during the year ` 12,00,000
iii. Sales ` 18,50,000
iv. Manufacturing Expenses ` 1,00,000
v. Selling and Distribution Expenses ` 50,000
vi. Administration Expenses ` 80,000
At the time of valuing inventory as on 31st March, 2019, a sum of ` 20,000 was written off on a particular item which
was originally purchased for ` 55,000 and was sold during the year for ` 50,000. Except the above-mentioned
transaction, gross profit earned during the year was 20 on sales.
(5 Marks)
Answer:
Statement of inventory in trade as on 31st March,2020:
July’21
11. From the following information, calculate the historical cost of closing inventories using adjusted selling price method:
i. Purchase during the year - ` 5,00,000
ii. Sales during the year - ` 7,50,000
iii. Opening Inventory Nil
iv. Closing Inventory at selling price - ` 1,00,000
(5 Marks)
Answer:
Dec’21
The following are the details of the spare parts of an Oil Mill:

1-1-2021 Opening Inventory Nil

1-1-2021 Purchases 10 units @ ` 300 per unit
15-1-2021 Issued for consumption 5 units
1-2-2021 Purchases 20 units @ ` 400 per unit
15-2-2021 Issued for consumption 10 units
20-2-2021 Issued for consumption 10 units
Find out the value of Inventory as on 31.3.2021,if the company follows Weighted Average
Method.
(4 Marks)
Answer:

Oil Mill
Calculation of value of inventory as on 31-3-2021