8.9 Airwaves Ltd are retailers who sell mobile telephones. During January to March 1993 they decided to

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8.9 Airwaves Ltd are retailers who sell mobile telephones. During January to March 1993 they decided to concentrate their selling activities on the ‘Meteor’ model, which experienced several cost price fluctuations during the period. The company found that because of this it had to adjust its own selling price.

During the period the following transactions took place:

1 1 Jan.: an opening stock of 50 telephones was obtained at a total cost of £8,250.

2 10 Jan.: initial sales were good so extra telephones had to be obtained from abroad;

200 telephones were purchased at a cost of £135 each, but in addition there was a freight charge of £3 each, as well as a customs import duty of £5 each.

3 31 Jan.: during the month 180 telephones were sold at a price of £175 each.

4 1 Feb.: a new batch of 120 telephones was purchased at a cost of £170 each.

5 28 Feb.: the sales for February were 120, at a selling price of £215 each.

6 2 Mar.: a further 220 telephones were purchased at a cost of £240 each and these were subject to a trade discount of 12.5 per cent each.

7 31 Mar.: 250 telephones were sold during March at a price of £230 each.

All purchases were received on the dates stated.

The accountant of Airwaves Ltd decided he would apply the first in first out (FIFO) and weighted average (AVCO) methods of stock valuation in order that the results could be compared.

(a) Calculate the stock value at 31 March 1993 using each of the methods indicated (if necessary, calculate to one decimal place). (16 marks)

(b) Prepare the trading accounts using each of the above methods for the period January–

March 1993. (8 marks)

(c) What considerations should an accountant bear in mind in deciding on a basis of stock valuation? Reference should be made to relevant accounting concepts. (20 marks)

(AEB, Accounting, November 1993)

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Introduction To Accounting

ISBN: 9780761970378

3rd Edition

Authors: Pru Marriott, J R Edwards, Howard J Mellett

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