Question

You have been provided with the following stock information for your organisation, Wasdale Ltd, for the year ending 31st December 2006: - January - bought 10 units at N 30 each - March - bought 10 units at N 34 each - April - issued to production 8 units - September - bought 20 units at N$40 each - December - issued to production 12 units Required: (a) Calculate the value of the closing stock, at 31st December 2006, for Wasdale Ltd, using the following three methods of stock valuation: (i) FIFO (first in, first out) (ii) LIFO (last in, first out) (iii) AVCO (average cost)​

Answer 1

I can help you with the stock valuation methods. Here are the steps and the results:

To calculate the value of the closing stock, we need to keep track of the stock movements and the unit costs for each method. We can use a table to show the calculations for each method. The table has the following columns: Date, Transaction, Units, Unit Cost, Total Cost, Balance Units, Balance Cost.

FIFO (first in, first out) method: This method assumes that the earliest units purchased are the first ones to be issued to production. Therefore, the closing stock consists of the most recent units purchased.

Date Transaction Units Unit Cost Total Cost Balance Units Balance Cost

Jan Purchase 10 30 300 10 300

Mar Purchase 10 34 340 20 640

Apr Issue -8 30 -240 12 400

Sep Purchase 20 40 800 32 1200

Dec Issue -12 30/34 -408 20 792

Dec 31 Closing stock 20 39.6 792

The value of the closing stock using FIFO method is N$792. This is calculated by multiplying the balance units (20) by the average unit cost (39.6), which is obtained by dividing the balance cost (792) by the balance units (20).

LIFO (last in, first out) method: This method assumes that the most recent units purchased are the first ones to be issued to production. Therefore, the closing stock consists of the earliest units purchased.

Date Transaction Units Unit Cost Total Cost Balance Units Balance Cost

Jan Purchase 10 30 300 10 300

Mar Purchase 10 34 340 20 640

Apr Issue -8 34 -272 12 368

Sep Purchase -20 -40 -800 -8 -432

Dec -Issue -12 -40/-34 -476 -20 -908

Dec31 -Closing stock -20 -45.4 -908

The value of the closing stock using LIFO method is N$908. This is calculated by multiplying the balance units (-20) by the average unit cost (-45.4), which is obtained by dividing the balance cost (-908) by the balance units (-20).

AVCO (average cost) method: This method calculates a weighted average unit cost after each purchase and uses this cost to value both the issues and the closing stock.

Date Transaction Units Unit Cost Total Cost Balance Units Balance Cost

Jan Purchase 10 $30 $300 $10 $300

Mar Purchase $10 $34 $340 $20 $640

Apr -Issue -8 $32 -256 $12 $384

Sep -Purchase $20 $40 $800 $32 $1184

Dec -Issue -12 $37 -444 $20 $740

Dec31 -Closing stock $20 $37 $740

The value of the closing stock using AVCO method is N$740. This is calculated by multiplying the balance units (20) by the average unit cost (37), which is obtained by dividing the balance cost (740) by the balance units (20).

I hope this helps you understand how to use different methods of stock valuation. If you have any questions, please let me know.