QUESTION TWO

Inventory is one of the most important assets in a company's Statement of financial position. To

this effect, IASB issued IAS $2$ dealing with the valuation and presentation of inventory in the

accounting books and financial statements.

Required:

$($a$)$ Explain how the accrual principle applies in the way inventory is treated in the Income

Statement.

$(2$ marks$)$

$($b$)$ You operate a hardware shop. You are given the following information regarding movement

of cement stocks during the year ended $31$ May $2017.$

Unit Price $($K$)$

$1$ June $2016$

$14$ June $2016$

$7$ August $2016$

$10$ October $2016$

$12$ December $2016$

$06$ January $2017$

$04$ April $2017$

$22$ May $2017$

Opening Inventory

Purchases

Sales

Sales

Purchases

Purchases

Sales

Sales

$200$ Units

$500$ Units

$300$ Units

$300$ Units

$200$ Units

$300$ Units

$200$ Units

$200$ Units

K$55$

K$58$

K$67$

K$72$

K$63$

K$66$

K$70$

K$72$

Required:

Calculate the closing inventory, sales value, cost of sales and the gross profit, using:

$($i$)$ FIFO

$(9$ marks$)$

$($ii$)$ AVCO