Depreciation and AmortisationQ- 11 | Depreciation and AmortisationQuestion 4736 of 42
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The following details are available of raw material of a manufacturing unit : 1-5-2024 Opening Inventory 100 units @ Rs. 15 per unit 2-5-2024 Purchases 300 units @ Rs. 18 per unit 5-5-2024 Issued for consumption 250 units 16-5-2024 Purchases 500 units @ Rs. 21 per unit 21-5-2024 Issued for consumption 100 units 25-5-2024 Issued for consumption 450 units The manufacturer also incurred the following expenses: ◆ Freight of 300 and unloading charges of 150 at the time of every purchase respectively. ◆ Warehouse rent of ₹ 2,000 per month. ◆ Administrative Expenses of ₹ 1,500 per month. You are required to find out the value of inventory as on May 31, 2024 if the company follows: (a) Weighted Average method for inventory valuation. (b) First in First Out method for inventory valuation. [Jan. 2025, Marks 5]

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Detailed Solution & Explanation

(a) STOCK LEDGER (Under Weighted Average method) Date Receipt Issue Balance 2024 Qty (units) Rate Amt. Qty (units) Rate Amt. Oty. (units) Rate Amt 1st May - - - - - - 100 15 1500 2 May 300 19.51 5850 - - - 400 18.38 7350 5 May - - - 250 18.38 4595 150 18.37 2755 16 May 500 21.92 10950 - - - 650 21.08 13705 21 May - - - 100 21.08 2108 550 21.09 11597 25 May - - - 450 21.09 9491 100 21.06 2106 *Value of inventory as on 31 May is Rs. 2,106 [100 units@ 21.06] (b) First in First Out method for inventory valuation. STOCK LEDGER [Under FIFO Method) Date Receipt Issue Balance 2024 Qty (units) Rate Amt. Qty (units) Rate Amt. Oty. (units) Rate Amt 1st May - - - - - - 100 15 1500 2 May 300 19.51 5850 - - - 100 15 1500 300 19.5 5850 5 May 100 15 1500 150 19.5 2925 150 19.5 2925 16 May 500 21.92 10950 150 19.5 2925 500 21.9 10950 21 May 100 19.5 1950 50 19.5 975 500 21.9 10950 25 May 50 19.5 975 400 21.9 8760 100 21.9 2190 Value of inventory on 31 May is Rs. 2,190 [100 units @ 21.9] Working Notes: - 1. 300 X Rs. 18 = Rs. 5,400 + Rs. 450 [300 + 150] 5,850@ 19.5/- 2. 500 X Rs. 21 = Rs. 10,500 +450 Rs. 10,950 @ 21.9/-

About This Chapter: BRS & Inventories

Paper

Paper 1: Accounting

Weightage

20-25%

Key Topics

Reconciliation, Valuation, Depreciation

This chapter covers Reconciliation, Valuation, Depreciation and is part of Paper 1: Accounting in the CA Foundation exam.

View Official ICAI Syllabus

Exam Strategy Tip

This topic carries 20-25% weightage. Focus on understanding core concepts rather than memorizing.

Key Concepts to Understand

Depreciation

Allocation of the cost of a tangible fixed asset over its useful life due to wear and tear, efflux of time, or obsolescence.

Weighted Average Method

An inventory costing method that calculates the cost of ending inventory and COGS by dividing the total cost of goods available for sale by the total number of units available, resulting in a single average cost applied to all units.

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