Question 1: Inventories

Anna’s Frozen Treats Ltd sells only one product, a refreshing lemonade ice-block that is very popular during the summer. The company uses the perpetual inventory system for recording its cost of sales. The inventories and purchases for the month of December 2019 are as follows:




  Purchases Sales
Quantity Cost per unit Quantity
1 Beginning inventory 100 1.00
3 Purchase 200 1.30
7 Sales 220
9 Purchase 200 1.80
14 Sales 280
18 Purchase 300 2.00
21 Sales 200
30 Purchase 100 2.20


During the month units were sold for $3.50 per unit.


Required: For the purpose of this question, please ignore GST. Show ALL your workings. 


  1. Calculate the cost of goods available for sale in December.
  2. Calculate the cost of sales for 14 December using the FIFO method.
  3. Calculate the cost of sales for 14 December using the LIFO method.
  4. Calculate the cost of sales for 14 December using the weighted average cost method.
  5. Using the weighted average cost method, calculate the $ amount assigned to the inventory on hand at 31 December and the gross profit earned for the month of December.


Question 2: Statement of Cash Flows                           

Set out below are Williams Ltd’s financial statements for the year ended 30 June:

Williams Limited

Comparative Statement of Financial Position as at 30 June

 Assets 2020 2019
Cash  $ 95,000  $  47,250
Accounts receivable (net) 86,800 57,000
Inventory 121,900 102,650
Investments (long-term) 84,600 87,000
Property, plant and equipment 250,000 205,000
Accumulated depreciation (49,500) (40,000)
Total assets $588,800 $458,900


        Liabilities and Shareholders’ Equity                                                
        Accounts payable                                                                   $  52,700     48,280
        Accrued operating expenses                                                      12,100 18,830
        Notes payable (long-term)                                                       100,000 70,000
        Share capital                                                                             250,000 200,000
        Retained earnings                                                                     174,000    121,790
        Total liabilities and shareholders’ equity                               $588,800 $458,900
Williams Limited

Statement of Profit or Loss for the year ended 30 June 2020

        Sales                                                                                                   $300,000
        Gain on sale of equipment                                                                   8,750
        Less:                                                                                                   308,750
              Cost of sales                                                                  $ 99,460
              Operating expenses                                                          64,370
              Income tax expense                                                           7,270
              Interest expense                                                                 5,440 (176,540)
        Net profit after tax                                                                             $    132,210


The following additional information was provided:

  1. All sales and purchases of inventories were on account.
  2. Accounts payable pertains to inventory creditors.
  3. Additional equipment was purchased for cash during the year.
  4. Investments were sold for cash at cost.
  5. Equipment costing $47,000 was sold for cash with a gain of $8,750.
  6. A cash dividend was declared and paid during the year.
  7. Operating expenses include depreciation expense of $49,700.
  8. Income tax expense and interest expense were settled in cash.
  9. Additional shares were issued for cash during the year.


Required: For the purpose of this question, please ignore GST, but show all your workings. 

  1. Prepare a Statement of Cash Flows for Williams Ltd for the year ended 30 June 2020 using the direct method.
  2. Prepare a reconciliation of net profit after tax to net cash provided from operating activities.

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