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FIN621 Financial Statement Analysis-assignment 2 idea
FIN621 Financial Statement Analysis-assignment 2 idea
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.
Tags: 2, Analysis-assignment, FIN621, Financial, Statement, idea
Replies to This Discussion
-
Permalink Reply by Yasmeen(S.admin) on -
2nd solution
FIFO MATHOD
DATE PARTICULARS PURCHASED/RECEIVED ISSUED/SALES BALANCE/CLOSING INVENTORY
QTY RATE AMOUNT QTY RATE AMOUNT QTY RATE QMOUNT Total stock value
14-Jan-10 Purchased stocks 2000 150 300000 2000 150 300000 300000
23-Jan-10 Purchased stocks 3500 156 546000 2000 150 300000
3500 156 546000 846000
15-Mar-10 Purchases Stock 4500 158 711000 2000 150 300000
3500 156 546000
4500 158 711000 1557000
15-Mar-10 Sales Of Stock 5000 160 800000 500 150 75000
4500 158 546000 621000
Weighted Average Mathod
DATE PARTICULARS PURCHASED/RECEIVED ISSUED/SALES BALANCE/CLOSING INVENTORY
QTY RATE AMOUNT QTY RATE AMOUNT QTY RATE QMOUNT Total stock value
14-Jan-10 Purchased stocks 2000 150 300000 2000 150 300000 300000
23-Jan-10 Purchased stocks 3500 156 546000 5500 154 846000 846000
15-Mar-10 Purchases Stock 4500 158 711000 10000 156 1557000 1557000
15-Mar-10 Sales Of Stock 5000 156 780000 5000 156 780000 780000
Req:2 FIFO method shows actual cost of stock at their cost price while the weighted average method shows mix the cost in other words mean of stock material
purchased. Now its depend on company management which on method is suitable for them because in weighted average method
mean cost is coming and on FIFO actual cost if company sales on competing envirment so he can minimize his cost by FIFO and LIFO method
and mention the lowest cost which they deem fit. -
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