Khumalo Retailers buys and sells two inventory items: Rio and Lima.

• Inventory movements are recorded on a computerised perpetual system on a first-infirst- out (FIFO) method, at the lower of cost and net realisable value.

• On 30 September 20x5, part of the inventory of Khumalo Retailers was destroyed by fire.

The loss of inventory was insured for R43 280 by a policy that contained the average clause.

• The business’s financial year ended on 31 December 20x5.

Additional information:

Rio

1 A consistent mark-up of 25% on cost has always been applied when determining selling prices.

2 30 units of Rio were not destroyed during the fire.

3 Inventory records are updated when invoices are received from suppliers.

4 An extract from the inventory records:

5 On 30 September, inventory of 15 units at a cost of R60 was received. The invoice was received on 3 October 20x5.
6 On 1 October, inventory bought on 26 September 20x5 was received.

7 On 1 October, the market price for Rio fell to R48. Selling expenses were estimated at R2 per unit.

Lima
1 A consistent mark-up of 25% on cost applied from 1 January 20x5 to 30 May 20x5, when it was increased to 33.33% on cost.

2 The inventory records of Lima were destroyed shortly before the fire due to a computer malfunction.

3 Sales from the accounts receivable journal, consists of:

4 Included in the sales total was a discount of 15% on normal revenue for these sales amounts:

5 Inventory that cost R3 075 was not destroyed during the fire.

6 Opening inventory at 1 January 20x5 was R32 000 and purchases from 1 January 20x5 to 30 September 20x5 was R160 000.

You are required to:

1. Calculate the amount that can be claimed from the insurance business in respect of the cost of inventory destroyed by the fire.

2. Journalise all the required adjusting journal entries to correct the general ledger. (Narrations are not required.)

Transcribed Image Text:

Purchases 26 September 20x5 27 September 20x5 30 September 20x5 Sales 20 x R65 1 300 00 = 25 x R45 60 x R60 25 x R65 20 x R65 25 x R65 = 1 125 00 3 600 00 00 1 625 1 300 00 1 625 00 Balance 45 x R452 025 00 60 x R60 3 600 00 20 x R65 1 300 00 = 20 x R45 = 900 00 20 x R65 1 300 00 20 x R45 = 900 00