Question 3

LOral sells a bottled night repair facial cream. The following relates to the activities of the business during June 2020:

June 8 Purchased 10,000 bottles, purchase price $40.00 per bottle

June 23 Purchased 15,000 bottles, purchase price $41.20 per bottle

June 30 Closing inventory as per physical stocktake is 22,000 bottles

Additional information

i Four thousand bottles of the closing inventory have passed their use-by date and cannot be sold for human use. However, they can be sold to an arts supplies store for use in pigments in craft paints for $17 per bottle. These bottles were originally purchased on June 8.

ii Transportation from the supplier to LOral costs $4 per bottle.

iii Transportation from LOral to department stores costs $5 per bottle

iv Transportation from LOral to the arts supplies store also costs $5 per bottle

v LOral pays both sets of transportation costs.

vi The latest selling price for inventory yet to reach its use by date is $85

Required:

a) Briefly explain why the FIFO method is the most appropriate method to measure inventory cost flow for the facial cream product of LOral.

b) Calculate the value of closing inventory for LOral at 30 June 2020 as provided for in AASB 102, applying the FIFO (first-in-first-out) method. Justify all aspects of your calculation.

c) What item and its amount would be shown in the Income Statement extract for LOral for the month ended 30 June 2020 in relation to the information in part (b).

d) What items and their amounts would be shown in the Balance Sheet extract for LOral as at 30 June 2020 in relation to the information in part (b).