18.2 Polly and Mona have each been given £100,000 by their aunt, Miss Nab. Polly and Mona have used the money to set up separate trading businesses.

During the first year of trading Polly made the following purchases (for cash) of Product X:

600 units at £60 each £36,000 300 units at £80 each 24,000 400 units at £100 each 40,000

£100,000 She then sold 900 units at £160 each, for cash.

During her first year of trading Mona made the following purchases (for cash) of Product Y:

300 units at £110 each £33,000 500 units at £90 each 45,000 275 units at £80 each 22,000

£100,000 She then sold 900 units at £150 each, for cash.

(a) If they had no expenses other than cost of goods sold, whar would Polly and Mona’s profits be, respectively, on a FIFO basis?

(b) If they each withdraw all their profits in cash, to what extent could they each replenish their stocks, calculating profits on a FIFO basis?

(c) Whar assumptions do you need to make in answering

(b) above?

(d) How much would you advise Polly to withdraw and why? How would you advise her to value her stock for accounting purposes? Give your reasons and show the result of her taking your advice, in figures.