a) At 1 May 2019 Troy company had 700 engines in inventory, valued at Tk. 190 each. During the year ended 30 April 2020 the

Question

94 users unlocked this solution today!

a) At 1 May 2019 Troy company

had 700 engines in inventory, valued at Tk. 190 each.

During the year ended 30

April 2020 the following transactions took place:

2019

1 July Purchased 500 engines

at TK 220 each

1 November Sold 400 engines

for TK 160,000

2020

1 February Purchased 300

engines at TK 230 each

15 April Sold 250 engines for

125,000

Required:

1) Suppose the company uses

FIFO method. You are required to calculate the company's

closing inventory of engines

on 30 April 2020. Calculate cost of goods sold and gross

profit.

2) Suppose the company uses

LIFO method. You are required to calculate the company's

closing inventory of engines

on 30 April 2020. Calculate cost of goods sold and gross

profit.

3) Suppose the company uses

Weighted average method. You are required to calculate the

company's closing inventory

of engines on 30 April 2020. Calculate cost of goods sold

and gross profit.

b) What are the assumptions

behind FIFO, LIFO and weighted average methods? In case of

inflation, which method is

the most suitable for determining ending inventory and cost of goods sold? In

case of deflation, will your choice differ? Why?