Question 3

BumiHijau Corporation uses a periodic inventory system and has used the FIFO cost method since inception of the company in 1978. In 2017, the company decided to switch to the average cost method. Data for 2017 are as follows:

Beginning inventory, FIFO (5,000 units @ RM30)		RM150,000
Purchases:
5,000 units @ RM36 5,000 units @ RM40	RM180,000 200,000	380,000
Cost of goods available for sale		530,000
Sales for 2017 (8,000 units @ RM70)		560,000

Additional information:

a) The companys effective income tax rate is 40% for all years.

b) If the company had used the average cost method prior 2017, ending inventory for 2016 would have been RM130,000.

c) 7,000 units remained in inventory at the end of 2017.

Required:

a) Ignoring income taxes, prepare the 2017 journal entry to adjust the accounts to reflect the average cost method.

b) What is the effect of the change in methods on 2017 net income?