Question 3 1. Manufacturers report inventory in the form of raw materials, work-in-progress, and finished goods. For each category, discuss how an increase might be viewed as a positive or a negative indicator of future performance depending on the circumstances of the inventory built up. (3 marks) 2. Maxim Sdn Bhd purchases its merchandise at current market costs and resells the product at a reasonable promargin. Its inventory cost is constant throughout the current year. Data on the number of units in Inventory at the beginning of the year, and unit sales are shown below: Number of units in Inventory - Beginning of the year @ RM 10.00 per unit Number of units purchased during the year @ RM 10.50 per unit Number of units sold during the year @ RM 11.00 per unit 5,000 5,000 5,000 The beginning of the year balance sheet for Maxim Sdn Bhd reports the following: RM 50,000 Inventory (5,000 units @ RM 10.00).. Total Equity..... RM 50,000 Required a. Compute the after-tax profit of Maxim Sdn Bhd separately for both (1) FIFO and (2) LIFO methods of inventory valuation assuming the company has no other expenses other than the cost of goods sold and the income tax rate is 50%. (6 marks) b. If all sales and purchase are in cash, construct the balance sheet at the end of the year separately for both (1) LIFO and (2) FIFO method of valuation. (12 marks) c. Describe the significance of each of these methods of inventory valuation for income determination and financial position in a period of increasing prices. (4 marks) (Total 25 marks) Question 3 1. Manufacturers report inventory in the form of raw materials, work-in-progress, and finished goods. For each category, discuss how an increase might be viewed as a positive or a negative indicator of future performance depending on the circumstances of the inventory built up. (3 marks) 2. Maxim Sdn Bhd purchases its merchandise at current market costs and resells the product at a reasonable promargin. Its inventory cost is constant throughout the current year. Data on the number of units in Inventory at the beginning of the year, and unit sales are shown below: Number of units in Inventory - Beginning of the year @ RM 10.00 per unit Number of units purchased during the year @ RM 10.50 per unit Number of units sold during the year @ RM 11.00 per unit 5,000 5,000 5,000 The beginning of the year balance sheet for Maxim Sdn Bhd reports the following: RM 50,000 Inventory (5,000 units @ RM 10.00).. Total Equity..... RM 50,000 Required a. Compute the after-tax profit of Maxim Sdn Bhd separately for both (1) FIFO and (2) LIFO methods of inventory valuation assuming the company has no other expenses other than the cost of goods sold and the income tax rate is 50%. (6 marks) b. If all sales and purchase are in cash, construct the balance sheet at the end of the year separately for both (1) LIFO and (2) FIFO method of valuation. (12 marks) c. Describe the significance of each of these methods of inventory valuation for income determination and financial position in a period of increasing prices. (4 marks) (Total 25 marks)
