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Wiley IFRS: Practical Implementation Guide and Workbook
Case Study 2
First-in, First-out (FIFO) Method
Facts
XYZ Inc. is a new ly established international trading company. It commenced its operation in 2005.
XYZ imports goods from Chi na and sells in the local market.
It
uses the FIFO method to value its in–
ventory. Listed next are the purc hases and sale s made by the entity during the year 2005 :
Purchases
January
2005
March
2005
September
2005
Sales
May
2005
November
2005
100,000
units
@
$ 25
each
15,000
units
@
$ 30
each
20,000
units
@
$ 35
each
15,000
units
20,000
units
$250,000
$450 000
$700,000
$(250,000)
$(I5 0 000l
$(400 000l
- 10,000
units
@
$25
- 5,000
units
@
$30
+
10,000
units
@
$25
+
15,000
units
@
$30
Total
Purchase
Purchase
Sales
(15,000
units)
May
2005
(b)
Required
Based on the FIFO cos t flow assumption, compute the value of inventory at May 31, 2005, Septe m–
ber 30,2005, and December 31, 2005 .
Solution
(a) January
2005
March
2005
(c) Inventory valued on FIFO basis at May 31, 2005:
10,000
units
@
$30
(d) September
2005
Purchase
+
20,000
units
@
$35
(e) Inventory valued on FIFO basis at September 30, 2005:
10,000
units
@
$30
20,000
units
@
$35
(f)
November
2005
Sales
(20,000
units) -
10,000
units
@
$30
- 10,000
units
@
$35
$300 000
$700 000
$300,000
$700 000
$ 1 000000
$(300,000)
$<350 0001
$(650 0001
(g) Inventor y valued on FIFO basis at December 31, 2005:
10,000
units
@
$35
$350 000
Case Study 3
Weighted-Avera ge Cost Method
Facts
@
$250
per unit
@
$300
per unit
@
$350
per unit
100
units
150
units
200
units
Vigilant LLC, a newl y incorporated company, uses the latest vers ion of a software package (EXODUS)
to cost and value its inventory. The software uses the weighted-average cos t method to value inve ntory.
The followi ng are the purchases and sales made by Vigilant LLC du ring 2006 (as a newly set up
company, Vigilant LLC has no begi nning inventory) :
Purchases
January
March
September
Sales
March
150
units
December
170
units