Amara Ltd was founded on 1st January 2019. Amara sells bed frames to customers. The company has adopted a periodic inventory system together with the average cost cost-flow assumption (AVCO) to determine the Cost of Goods Sold for the year. The company’s inventory transactions for its first year of operation to December 31st, 2019 are as follows:
|
Date |
Description |
Units |
Cost price per unit | Selling price per unit |
| Jan 1 | Beginning Balance | 100 | $160 | |
| Feb 2 | Purchase | 500 | $140 | |
| Mar 15 | Sales | 350 | $200 | |
| Jul 28 | Purchase | 150 | $120 | |
| Oct 25 | Sales | 200 | $200 | |
| Dec 26 | Sales | 100 | $200 | |
| Dec 29 | Purchase | 200 | $100 |
Required:
- What amount will Amara Ltd report as its Inventory balance in the Current Asset section of its Balance Sheet? What amount will Amara report as Cost of Goods Sold for the year ended 2019 financial year?(Show all workings)
- If Amara Ltd had adopted First-In First-Out (FIFO) as its cost flow assumption on 1st January 2019, what Cost of Goods Sold figure would have been reported in its Statement of Financial Performance for the 2019 financial year? (Show all workings)
- Management is aware of another cost-flow assumption; Last-In First-Out (LIFO). Which of the three cost-flow assumptions; AVCO, FIFO or LIFO will yield the highest Gross Profit Margin for the 2019 year if 80% of Sales are on credit?
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