JAIBB

ACCOUNTING FOR FINANCIAL SERVICES (AFS)

MATHEMATICS

INVENTORY, LIFO, FIFO, DEPRECIATION , BEP

Md. Anisur Rahman (Parvej), SO (IT), ICTD, BDBL

 Question # 1 [November-2010]
 Oriental Camera Shop uses “the lower of cost or market basis” for its inventory. The
following data are available at December 31,2013 :—

Item Brand Units Unit Cost (Taka) Market Price (Taka)

Cameras : Minolta 5 170 160
Canon 6 150 152
Light metres : Vivitar 12 125 110
Kodak 11 115 135
Requirements :
Determine the amount of the ending inventory by applying “the lower of cost or
market basis” to-
(i). Individual Items; (ii). Inventory Categories; (iii). The Total Inventory;
Answer (1) : Amount of Ending Inventory at December 31, 2013 :
Item Brand Stock Cost or Amount (Tk.) Total Amount per
Units Market Lower Category (Tk.)
basis (Tk.)
Cameras Minolta 5 160 5  160 = 800
800 + 900
Canon 6 150 6  150 = 900
= Tk.1,700
Light metres Vivitar 12 110 12  110 = 1,320 1,320 + 1,265
Kodak 11 115 11  115 = 1,265 = Tk. 2,585

(i). Amount of ending inventory for Individual Items :

Cameras Minolta Tk. 800
Canon Tk. 900
Light metres Vivitar Tk. 1,320
Kodak Tk. 1,265

(ii). Amount of ending inventory for Inventory Categories :

Cameras 800 + 900 = Tk.1,700

Light metres 1,320 + 1,265 = Tk. 2,585

(iii). Total Inventory : Tk. 1,700 + Tk. 2,585 = Tk. 4,285



Md. Anisur Rahman (Parvej), SO (IT), ICTD, BDBL 2

 Question # 2 [May-2011]
 You are provided with the following information for Web Inc. for the month ended June
30, 2013. Web uses the periodic method for inventory :—
Date Description Quantity Unit Cost or Selling
Price (Taka)
June-1 Beginning Inventory 40 40
June-4 Purchase 135 44
June-10 Sale 110 70
June-11 Sale Return 15 70
June-18 Purchase 55 46
June-18 Purchase Return 10 46
June-25 Sale 65 75
June-28 Purchase 30 50
Instructions :
Calculate : (i). Ending Inventory, (ii). Cost of Goods Sold, (iii). Gross Profit and (iv).
Gross Profit Rate under each of the following methods :—
(1). LIFO; (2). FIFO; (3). Average Cost;
Answer (2) :
LIFO METHOD
Receipts Issues Balance
Date Qty Rate Value Qty Rate Value Qty Rate Value
2013 Tk. Tk. Tk. Tk. Tk. Tk.
June-1 40 40 40  40  1,600

June-4 135 44 5,940  40 40 1,600 

175   7,540
135 44 5,940
June-10 110 44 4,840 40 40 1, 600 
65  2, 700
135110 44 1,100 
June-11 15 44 660 40 40 1, 600 
 44 
80 25 1,100  3,360
15
 44 660 
June-18 55 46 2,530 40 40 1, 600 
25
 44 1,160 
135   5,890
15 44 660 
55 46 2,530 
June-18 10 46 460 40 40 1, 600 
25
 44 1,160 
125   5, 430
15 44 660 
45 46 2, 070 
June-25  45 46 2,070 40 40 1, 600 
  60   2, 480
65 15 44 660  2,950 20 44 880 
5
 44 220 

Md. Anisur Rahman (Parvej), SO (IT), ICTD, BDBL 3

 LIFO METHOD
Receipts Issues Balance
Date Qty Rate Value Qty Rate Value Qty Rate Value
2013 Tk. Tk. Tk. Tk. Tk. Tk.
June-28 30 50 1,500 40 40 1, 600 
 
90 20 44 880  3, 980
30 50 1, 500 


FIFO METHOD
Receipts Issues Balance
Date Qty Rate Value Qty Rate Value Qty Rate Value
2013 Tk. Tk. Tk. Tk. Tk. Tk.
June-1 40 40 40  40  1,600
June-4 135 44 5,940  40 40 1,600 
175   7,540
135 44 5,940
June-10 40 40 1, 600  0 40 0
110   4, 680 65   2,860
3, 080  135  70 44 2,860 
70 44

June-11 15 44 660 65 44 2,860 

80  3,520
15 44 660 
June-18 55 46 2,530 65 44 2,860 
 44 
135 15 660  6, 050
55

46 2,530 
June-18 10 46 460 65 44 2,860 
 44 
125 15 660  5,590
55  10

46 2, 070 

June-25 65 44 2,860 0 44 0
 44 
60 15 660  2, 730
45

46 2, 070 
June-28 30 50 1,500 15 44 660 
 
90  45 46 2,070  4, 230
30 50 1500 


AVERAGE COST (WEIGHTED) METHOD

Receipts Issues Balance
Date Qty Rate Value Qty Rate Value Qty Rate Value
2013 Tk. Tk. Tk. Tk. Tk. Tk.
June-1 40 40 1,600
June-4 135 44 5,940 40 43.086 7,540
175  1600  5940 
135  40  135 
 
June-10 110 43.086 4,740 175  110  65 43.086 2,800

Md. Anisur Rahman (Parvej), SO (IT), ICTD, BDBL 4

 AVERAGE COST (WEIGHTED) METHOD
Receipts Issues Balance
Date Qty Rate Value Qty Rate Value Qty Rate Value
2013 Tk. Tk. Tk. Tk. Tk. Tk.
June-11 15 44 660 65+15=80 43.25 3, 460
 2800  660 
 65  15 
 
June-18 55 46 2,530 135 44.37 5,990
June-18 10 46 460 125 44.24 5,530
June-25 65 44.24 2,876 60 44.24 2,654
June-28 30 50 1,500 90 46.16 4,154

(i). Ending Inventory

LIFO Method 90 units Tk. 3,980
FIFO Method 90 units Tk. 4,230
Average Method 90 units Tk. 4,154
(ii). Cost of Goods Sold
Date LIFO FIFO Average
June-10 Sales 4,840 4,680 4,740
June-25 Sales 2,950 2,860 2,876
Total Sales Tk .7,790 Tk . 7,540 Tk . 7,616
(iii). Gross Profit
Sales LIFO FIFO Average
110 units  Tk. 70 = Tk. 7,700 12,575 12,575 12,575
65 units  Tk. 75 = Tk. 4,875
Total : Tk. 12,575
Less (-) : Cost of Goods Sold 7,790 7,540 7,616
Gross Profit : 4,785 5,035 4,959
(iv). Gross Profit Rate
Gross Profit
We know, Gross Profit Rate =  100
Sales
LIFO FIFO Average
4,785 5,035 4,959
Gross Profit Rate =  100 =  100 =  100
12,575 12,575 12,575
 38.05%  40.04%  39.44%


Md. Anisur Rahman (Parvej), SO (IT), ICTD, BDBL 5

 Question # 3 [Decmber-2013]
 You are provided with the following information for Pavey Inc. for the month ended
October 31, 2012. Pavey uses the periodic method of inventory :—
Date Description Quantity Unit Cost or Selling
Price (Taka)
October-1 Beginning Inventory 60 25
October-9 Purchase 120 26
October-11 Sale 100 35
October-17 Purchase 70 27
October-22 Sale 60 40
October-25 Purchase 80 28
October-29 Sale 110 40
Instructions : Calculate
(i). Ending Inventory, (ii). Cost of Goods Sold, (iii). Gross Profit and (iv). Gross Profit
Rate under each of the following methods :—
(1). LIFO; (2). FIFO; (3).Average Cost;
Answer (3) :
LIFO METHOD
Receipts Issues Balance
Date Qty Rate Value Qty Rate Value Qty Rate Value
2012 Tk. Tk. Tk. Tk. Tk. Tk.
Oct-1 60 25 1,500
Oct-9 120 26 3,120 60 25 1,500 
180   4, 620
26 3,120 
120
Oct-11 0 25 0 60 25 1,500 
100   2, 600 80   2, 020
2, 600  26 520 
100 26 20
Oct-17 70 27 1,890 60 25 1,500 
 
150 20 26 520  3,910
70 27 1,890 

Oct-22 0 0 0 60 25 1,500
   
60 0 0 0 1, 620 90 20 26 520  2,310
60 27 1, 620  10 27 290 
 
Oct-25 80 28 60 25 1,500 
20
 26 520 
170   4,550
27 290 
10
80 28 2,240

Oct-29 0 0 0 170  110  60 25 1,500

20
 26 520 
110   3,030
27 270
10
80 28 2,240

Md. Anisur Rahman (Parvej), SO (IT), ICTD, BDBL 6

 FIFO METHOD
Receipts Issues Balance
Date Qty Rate Value Qty Rate Value Qty Rate Value
2012 Tk. Tk. Tk. Tk. Tk. Tk.
Oct-1 60 25 1,500
Oct-9 120 26 3,120 60 25 1,500 
180   4, 620
26 3,120 
120
Oct-11 60 25 1,500  180  100  80 26 2,080
100   2,540
1, 040 
40 26
Oct-17 70 27 1,890 80 26 2,080 
150   3,970
27 1,890 
70
Oct-22 60 26 1,560  20 26 520 
60  1,560 90   2, 410
0 27 1,890 
0 0 70
Oct-25 80 28 20 26 520 
 
170 70 27 1,890  4,650
80 28 2, 240 

Oct-29 20 26 520 170  110  60 28 1,680
 
110 70 27 1,890  2,970
20 28 560 


AVERAGE COST (WEIGHTED) METHOD

Receipts Issues Balance
Date Qty Rate Value Qty Rate Value Qty Rate Value
2012 Tk. Tk. Tk. Tk. Tk. Tk.
Oct-1 60 25 1,500
Oct-9 120 26 3,120 60  120  180 25.67 4,620
1500  3120 
 60  120 
 
Oct-11 100 25.67 2,567 180  100  80 25.67 2,053
Oct-17 70 27 1,890 80  70  150 26.29 3,943
 2054  1890 
 80  70 
 
Oct-22 60 26.29 1,577 150  60  90 26.29 2,366
Oct-25 80 28 2,240 90  80  170 27.09 4,606
 2366  2240 
 90  80 
 

Oct-29 110 27.10 2,980 170  110  60 27.09 1,626

(i). Ending Inventor

LIFO Method 60 units Tk. 1,500

FIFO Method 60 units Tk. 1,680
Average Method 60 units Tk. 1,626
Md. Anisur Rahman (Parvej), SO (IT), ICTD, BDBL 7
 (ii). Cost of Goods Sold
Sold Date LIFO FIFO Average
October-11 2,600 2,540 2,567
October-22 1,620 1,560 1,577
October-29 3,030 2,970 2,980
Total Sales 7,250 7,070 7,124
(iii). Gross Profit
Sales LIFO FIFO Average
100 units  Tk. 35 = Tk. 3,500 10,300 10,300 10,300
60 units  Tk. 40 = Tk. 2,400
110 units  Tk. 40 = Tk. 4,400
Total : Tk. 10,300
Less (-) : Cost of Goods Sold 7,250 7,070 7,124
Gross Profit : 3,050 3,230 3,174
(iv). Gross Profit Rate
Gross Profit
We know, Gross Profit Rate =  100
Sales
LIFO FIFO Average
3,050 3,230 3,174
Gross Profit Rate =  100 =  100 =  100
10,300 10,300 10,300
 29.61%  31.36%  30.81%

Alternative Method

Calculation of cost of goods available for sale (Periodic Method) :

Date
Particulars Units Rate (Tk.) Amount (Tk.)
2012
October-1 Beginning Inventory 60 25 1,500
October-9 Purchases 120 26 3,120
October-17 Purchases 70 27 1,890
October-25 Purchases 80 28 2,240
Total = 330 8,750
Goods Available for Sale = 330 units
Cost of Goods Available for Sale = Tk. 8,750

Md. Anisur Rahman (Parvej), SO (IT), ICTD, BDBL 8

 Calculation of Sales :
Date Particulars Units Rate (Tk.) Amount (Tk.)
2012
October-11 Sale 100 35 3,500
October-22 Sale 60 40 2,400
October-29 Sale 110 40 4,400
Total = 270 10,300
Goods Sold = 270 Units
Total Sales = Tk. 10,300
Ending Inventory = Goods Available for Sale - Goods Sold
= 330 - 270 = 60 Units

LIFO METHOD
1. Ending Inventory (Tk.) = 60  25 = Tk. 1,500
2. Cost of Goods sold = Cost of Goods available for sale - Ending Inventory
= 8,750 - 1,500 = Tk. 7,250
3. Gross Profit = Total Sales - Cost of Goods sold = 10,300 - 7,250 = Tk. 3,050
4. Gross Profit Rate = (Gross Profit ÷ Total Sales) 100%
= (3,050 ÷ 10,300)100% = 29.61 %

FIFO METHOD
1. Ending Inventory (Tk.) = 60  28 = Tk. 1,680

2. Cost of Goods sold = Cost of Goods available for sale - Ending Inventory
= 8,750 - 1,680 = Tk. 7,070
3. Gross Profit = Total Sales - Cost of Goods sold = 10,300 - 7,070 = Tk. 3,230

4. Gross Profit Rate = (Gross Profit ÷ Total Sales) 100%

= (3,230 ÷ 10,300)100% = 31.36 %

AVERAGE COST METHOD

Average Rate = Total Cost ÷ Total Units = 8,750 ÷ 330 = Tk. 26.51
1. Ending Inventory (Tk.) = 60  26.51 = Tk. 1,591
2. Cost of Goods sold = Cost of Goods available for sale - Ending Inventory
= 8,750 - 1,591 = Tk. 7,159
3. Gross Profit = Total Sales - Cost of Goods sold = 10,300 - 7,159 = Tk. 3,141
4. Gross Profit Rate = (Gross Profit ÷ Total Sales) 100%
= (3,141 ÷ 10,300)100% = 30.50 %



Md. Anisur Rahman (Parvej), SO (IT), ICTD, BDBL 9

 Question # 4 [June -2010]
 Kabir Traders reported the following information for November and December, 2009 :—
Description November (Taka) December (Taka)
Cost of Goods Purchased 5,00,000 6,10,000
Inventory, Beginning 1,00,000 1,20,000
Inventory, Ending 1,20,000 ?
Sales 8,00,000 10,00,000
Kabir Traders’ ending inventory at December 31 was destroyed in a fire.
Requirements :
a. Compute the Gross Profit Rate for November;
b. Using the gross profit rate for November, determine the estimated cost of
inventory lost in the fire.
Answer (4) :
(i). Gross Profit Rate
Gross Profit
We know, Gross Profit Rate =  100
Total Sales
and Gross Profit = Total Sales - Cost of Goods Sold
Here, Total Sales = Tk. 8,00,000 [For November]
Cost of Goods Sold = Cost of Goods Purchased - Cost of Ending Inventory
= 5,00,000 - 1,20,000 [For November]
= Tk. 3,80,000
 Gross Profit = 8,00,000 - 3,80,000 = Tk. 4,20,000
Tk. 4,20,000
 Gross Profit Rate =  100 = 0.525 = 52.5%
Tk. 8,00,000
(ii). Cost of Inventory lost in the fire for December
Here, Gross Profit Rate = 52.50% [as per November]
Gross Profit
We know, Gross Profit Rate =
Total Sales
 Gross Profit = Total Sales  Gross Profit Rate = 10,00,000  52.50%
 Gross Profit  Tk. 52,500
Again, Gross Profit = Total Sales - Cost of Goods Sold
 Cost of Goods Sold = Total Sales - Gross Profit
= 10,00,000 - 52,500 = Tk. 9,47,500
Now, Cost of Ending Inventory = Cost of Goods Purchased - Cost of Goods Sold
= 6,10,000 - 10,00,000 = - Tk. 3,90,000

Md. Anisur Rahman (Parvej), SO (IT), ICTD, BDBL 10
 Question # 5 [November -2010]
 ‘X’ Co. Ltd. purchased a machinery Tk. 5,10,000 on January 1, 2001. Useful life is 5
years, scrap value Tk. 10,000. During 2001, working hours were 2,000. Total estimated
working hours 25,000 :—
Requirements :
Compute depreciation for year 2001 under each of the following methods :
(i). Straight Line;
(ii). Working Hours;
(iii). Sum of Years digit;
Answer (5) : According to Bangladesh Accounting Standards (BAS) :
Cost 5,10,000
Less : Scrap Value 10,000
Depreciable Value Tk. 5,00,000
(i). Straight Line Method :
Depreciation = 5,00,000  5 = Tk. 1,00,000 [For 2001]
(ii). Working Hours Method :
Depreciation = (5,00,000  25,000)  2,000 = 20  2,000 = Tk. 40,000
(iii). Sum of Years Digit Method :
Here, Sum of Year Digits = 5 + 4 + 3 + 2 + 1 = 15
 Depreciation for 2013 = 5,00,000  15 = Tk. 1,66,667


Question # 6 [May-2011]
 Monno Ceramics purchased a factory machine at a cost of Tk. 18,000 on January 1,
2010. Monno Ceramics expects the machine to have a salvage value of Tk. 2,000 at the
end of its 4-years useful life. During its useful life the machine is expected to be used
1,60,000 hours. Actual annual hourly use was :—
2010 : 40,000
2011 : 60,000
2012 : 35,000
2013 : 25,000
Instructions :
Prepare Depreciation schedules for the following methods :
(i). Straight Line;
(ii). Units of Activity;
(iii). Declining balance using double the straight line rate;

Answer (6):
Md. Anisur Rahman (Parvej), SO (IT), ICTD, BDBL 11
 (i). Straight Line Method :
Depreciable Value = Purchase Cost - Salvage Value = 18,000 - 2,000 = Tk. 16,000
Depreciable Value 16,000
 Depreciation per Year =   Tk. 4,000
Estimated Life 4,000

Depreciation Schedule
Year Computation Annual Accumulated Carrying or
Depreciation Depreciation Book
Depreciable Value  Dep.Rate Expenses Value
Date of Purchase : Jan-1, 2010 18,000
2010 16,000  25% 4,000 4,000 14,000
2011 16,000  25% 4,000 8,000 10,000
2012 16,000  25% 4,000 12,000 6,000
2013 16,000  25% 4,000 16,000 2,000

(ii). Units of Activity Method :

Depreciable Value = Purchase Cost - Salvage Value = 18,000 - 2,000 = Tk. 16,000
Depreciable Value 16,000
 Depreciation per Hour =   Tk. 0.10
Expected Hours 1,60,000

Depreciation Schedule
Date of Purchase : January 1, 2010 at a Cost of Tk. 18,000
Year Computation Annual Year end Year end
Depreciation Accumulated Book Value
Hours Depreciation Expenses Depreciation
Worked per Hour (YAD)
H.W.  Dep/HR. 18,000 - YAD
2010 40,000 0.10 4,000 4,000 14,000
2011 60,000 0.10 6,000 10,000 8,000
2012 35,000 0.10 3,500 13,500 4,500
2013 25,000 0.10 2,500 16,000 2,000
(iii). Declining balance using double the Straight Line Rate Method :
Rate of Normal Depreciation = 100%  Useful Life = 100%  4 = 25%
 Double Declining Rate = 25% × 2 = 50%
Depreciation Schedule
Date of Purchase : January 1, 2010 at a Cost of Tk. 18,000
Year Computation

Md. Anisur Rahman (Parvej), SO (IT), ICTD, BDBL 12

 Book value beginning Annual Accumulated Book Value
of the year  Depreciation Rate Depreciation Depreciation 18,000 - AD
Expenses (AD)
2010 18,000  50% 9,000 9,000 9,000
2011 9,000  50% 4,500 13,500 4,500
2012 4,500  50% 2,250 15,750 2,250
2013 2,250 250 16,000 2,000
Here, Tk. 250 is adjusted in 2013, because Ending Book Value should not be less than
Expected Salvage Value 2,000.

Question # 7 [November-2011]
 In 2009, Manager’s salary was Tk. 2,00,000; Rent Tk. 80,000, Material Cost Tk. 5 per
unit, Labor Tk. 3 per unit, Other Variable Expenses Tk. 2 per unit, Sales per unit Tk. 16.
In 2010 Manager’s Salary and labour cost increased by 10% but material cost decreased
by 12%. All other information remain the same :
(i). Calculate BEP for 2010;
(ii). How many units to be sold to make a profit of Tk. 1,00,000 in year 2010?
Answer (7). : Here, Product/Variable Cost per unit :
Items In 2009 Increased/Decreased by In 2010
Materials Tk. 5 - 12% Tk. 4.40
Labour Tk. 3 +10% Tk. 3.30
Other Cost Tk. 2 0% Tk. 2.00
Total Tk. 10 Tk. 9.70
Fixed/Period Cost for :
Items In 2009 Increased/Decreased by In 2010
Managers Salary Tk. 2,00,000 +10% Tk. 2,20,000
Rent Expenses Tk. 80,000 0% Tk. 80,000
Total Tk. 2,80,000 Tk. 3,00,000
Contribution per Unit = Sales per unit - Variable cost per unit
= Tk. 16.00 - Tk. 9.70 = Tk. 6.30
(i). BEP in 2010
Fixed Cost Tk. 3,00,000
BEP in Units =   47,619 Units
Contribution per Unit 6.30
BEP in Taka = BEP Units  Sales per Unit = 47,619  16 = Tk. 7,61,904
(ii). Profit/Loss Calculation

Md. Anisur Rahman (Parvej), SO (IT), ICTD, BDBL 13

 BEP in Taka (Net Sales) = Tk. 7,61,904
Variable Cost (for BEP units) = 47,619  Tk. 9.70 = Tk. 4,61,904
 Contribution = Net Sales - Variable Cost
= Tk. 7,61,9 04  Tk. 4,61,904 = Tk. 3,00,000
Fixed Cost = Tk. 3,00,000
 Profit/Loss = Tk. 3,00,000  Tk. 3,00,000  0

In order to make a Profit of Tk. 1,00,000 in year 2010, then

Contribution Amount = Tk. 3,00,000 + Tk. 1,00,000 = Tk. 4,00,000
Contribution per Unit = 6.30
Tk. 4,00,000
 Units to be Sold =  63,492 Units
6.30


Question # 8 [December-2013]
 You have been supplied with the following data :—
Particulars Taka
Net Sales 2,00,000
Variable costs 1,00,000
Fixed costs 60,000
Requirements :
(i). Break-even sales in taka;
(ii). P/V ratio;

Answer (8). :
(i). Break-even sales in taka
Fixed Costs
Break-Even Sales =
Contribution Margin Ratio (CM Ratio)
Here, Fixed costs = 60,000
Contribution Margin = Net Sales - Variable Costs
= 2,00,000 - 1,00,000 = 1,00,000
Contribution Margin 1,00,000
 Contribution M arg in Ratio = = = 0.50
Net Sales 2,00,000
Fixed Costs 60,000
 Break-even sales = = = 1,20,000 (Tk.)
CM Ratio 0.50
(ii). P/V Ratio = Contribution M arg in Ratio = 0.50

Md. Anisur Rahman (Parvej), SO (IT), ICTD, BDBL 14

 
Question # 9 [December-2012]
 In the month of June Xebba Company’s fixed expense including rent of the building and
salary of sales persons is Tk. 1,50,000, selling price per unit is Tk. 30 and variable cost is
Tk. 18 per unit.
(i). Calculate Break-Even point in unit and in sales taka;
(ii). What is the contribution Margin;
Answer (9). :
(i). Break-Even Point Calculation
Fixed Cost
BEP in Units =
Contribution per Unit
Fixed Cost

Selling Price per Unit - Variable Cost per Unit
Tk. 1,50,000 Tk. 1,50,000
=   12,500 units
Tk. 30 - Tk. 18 Tk. 12
BEP in Taka = BEP Units  Sales per Unit = 12,500  Tk. 30 = Tk. 3,75,000
(ii). Contribution Margin Calculation
BEP in Taka (Net Sales) = Tk. 3,75,000
Variable Cost (for BEP units) = 12,500  Tk. 18 = Tk. 2,25,000
 Contribution Margin = Net Sales - Variable Cost
= Tk. 3,75,000  Tk. 2,25,000
= Tk. 1,50,000


Md. Anisur Rahman (Parvej), SO (IT), ICTD, BDBL 15