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THE FIRST IN FIRST OUT (FIFO) METHOD OF VALUING INVENTORY
Please watch the presentation and then try the exercises below.
Exercise 1
Widgets Ltd had the following inventory receipts and issues during the month of June.
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|
Quantity in |
Unit Cost |
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Opening balance 1 June |
150 |
4.00 |
|
Receipts, 2 June |
450 |
4.20 |
|
Issues, 4 June |
150 |
|
|
Receipts, 8 June |
300 |
4.40 |
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Issue, 12 June |
500 |
|
|
Receipts, 19 June |
100 |
4.50 |
|
Issues, 21 June |
300 |
|
Complete the following stores ledger card and give the value of closing inventory on 30 June using the FIFO method.
Stores Ledger Card - FIFO
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|
RECEIPTS |
ISSUES |
STOCK |
|||||||
|
Date |
Folio |
QTY |
Unit Price |
Value £ |
QTY |
Unit Price |
Value £ |
QTY |
Unit Price |
Value £ |
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1 Jun |
Op Bal |
150 |
4.00 |
|
|
|
|
|
|
|
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2 Jun |
Rec |
450 |
4.20 |
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4 Jun |
Iss |
|
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|
150 |
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8 Jun |
Rec |
300 |
4.40 |
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12 Jun |
Iss |
|
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|
500 |
|
*1 |
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|
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19 Jun |
Rec |
100 |
4.50 |
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21 Jun |
Iss |
|
|
|
300 |
|
*2 |
|
|
|
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30 Jun |
Cl. Bal. |
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|
|
|
|
|
|
The value of closing inventory on 30th June was: £
Exercise 2A
Jones Ltd. had the following movements of stock during April
|
1 Apr. |
Opening Stock - Nil |
|
3 Apr. |
Purchases – 10 units @ £3.50 each |
|
5 Apr. |
Sales – 7 units @ £13 each |
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7 Apr. |
Purchases – 18 units @ 3.80 each |
|
11 Apr. |
Sales – 14 units @ £13 each |
|
14 Apr. |
Purchases – 12 units @ £4.50 each |
|
18 Apr. |
Sales – 6 units @ £13 each |
A) Complete a Stores Ledger Card for the month of April
B) Produce the Trading Account to show gross profit using these figures. .
Note that FIFO applies to items that are used, issued to production, or sold. Also note that the sale price isn't a part of the Stores Ledger Card.
A)
Stores Ledger Card - FIFO
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|
RECEIPTS |
ISSUES |
STOCK |
|||||||
|
Date |
Folio |
QTY |
Unit Price |
Value £ |
QTY |
Unit Price |
Value £ |
QTY |
Unit Price |
Value £ |
|
1 Apr. |
Op Bal |
Nil |
|
Nil |
|
|
|
Nil |
|
Nil |
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3 Apr. |
Rec |
10 |
3.50 |
|
|
|
|
|
|
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5 Apr. |
Iss |
|
|
|
7 |
|
|
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|
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7 Apr. |
Rec |
18 |
3.80 |
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11 Apr. |
Iss |
|
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|
14 |
|
*1 |
|
|
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14 Apr. |
Rec |
12 |
4.50 |
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18 Apr. |
Iss |
|
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6 |
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*2 |
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Cl. Bal. |
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TOTAL |
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Exercise 2B
B)
Formulas:
Gross Profit = Sales - Cost of Sales.
Cost of Sales = Opening Stock + Purchases - Closing Stock.
(NB, In the Trading Account, use 2 decimal places for all figures.)
Jones Ltd. Trading Account.
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|
|
£ |
|
Sales*3 |
|
|
|
Opening Stock |
----------- |
|
|
Purchases*4 |
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|
|
Closing Stock*5 |
(
) |
|
|
Cost of Sales*6 |
|
(
) |
|
Gross Profit |
|
|
The Gross Profit figure for April was : £
Exercise 3
CoBox Ltd. make the following purchases and sales during the
period.
|
|
Units |
£ |
|
|
3 July |
Purchases |
2,000 |
9,500 |
|
28 July |
Purchases |
500 |
1,500 |
|
8 August |
Sales |
1,750 |
10,325 |
|
19 Aug |
Purchases |
1,500 |
4,250 |
|
5 Sept |
Sales |
650 |
3,835 |
Answer the following multiple choice questions:
|
A £5,725
| |
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B £6,525
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C £6,725
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D £5,625
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Cloze Activity
Trading Account
|
|
£ |
£ |
|
Sales |
|
|
|
Opening Stock |
2990 |
|
|
Purchases |
19215 |
|
|
|
22205 |
|
|
Closing Stock |
(6725) |
|
|
Cost of Sales |
|
(15480) |
|
Gross Profit |
|
(
) |
We hope you have enjoyed and learned how to use the FIFO method of valuing stock in this lesson.
There are other methods of valuing stock, these being LIFO (Last In First Out) Method, and the Weighted Average Method.
Remember, you can have tuition here, simply contact us through the website (www.accountancy-base.co.uk) and we will get back to you.
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