IAS 2 Question 6

QUESTION 6 – IAS 2 (ICAP CAF5 S17)

Nawaz Manufacturing Limited (NML) deals in various products. One of its product B2 is produced
using raw material A1. Production is carried out after receiving confirmed sales order. Following
information is available for the month of January 2017:

(i) Opening inventory of A1 was 200 kg @ Rs. 3,000 per kg.

(ii) Details of purchases made during the month ended 31 January 2017 are as follows:
Date Quantity (kg) Price per kg (Rs.)
1-Jan-17 250 2,800
15-Jan-17 250 2,900

50 kg of A1 purchased on 15 January 2017 were returned to the supplier on 16 January

2017 due to inferior quality of material supplied.

(iii) On 18 January 2017, 100 kg of A1 were destroyed. They had no scrap value.

(iv) Under normal circumstances 500 kg of A1 produce 400 liters of B2.

(v) Labour cost per liter of B2 was Rs. 700.

(vi) Overheads are estimated at 120% of labour cost. The actual overheads for the month were
Rs. 275,000.

(vii) There is no opening and closing work in progress.

(viii) Sales of B2 during the month of January were as follows:

Sale order date Delivery date Quantity (liters) Sales price per liter (Rs.)
2-Jan-17 4-Jan-17 100 7,000
26-Jan-17 28-Jan-17 160 6,250

(ix) NML uses weighted average method for valuation of inventory.

Required:
Prepare cost of goods sold statement for the month of January 2017 under each of the following
methods:
(a) Perpetual inventory method (10)
(b) Periodic inventory method (05)

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IAS 2 Question 6

ANSWER 6 – IAS 2 (ICAP CAF5 S17)

Part (a) Perpetual inventory

Material A
Date Description
Quantity Kg. Per unit cost Rs. Amount Rs.
31-Dec- 16 Opening stock 200 3,000 600,000
1-Jan-17 Purchases 250 2,800 700,000
Balance 450 2,888.89 1,300,000
2-Jan-17 Issuance (100x5/4) (125) 2,888.89 (361,111)
Balance 325 2,888.89 938,889
15-Jan-17 Purchases 250 2,900 725,000
Balance 575 2,893.72 1,663,889
16-Jan-17 Purchase return (50) 2,900 (145,000)
Balance 525 2,893.12 1,518,889
18-Jan-17 Abnormal loss (100) 2,893.12 (289,312)
Balance 425 2,893.12 1,229,577
26-Jan-17 Issuance (160x5/4) (200) 2,893.12 (578,624)
Balance 225 2,893.12 650,952

Cost of Goods sold

Date Description Labour @ Rs. FOH @ 120% Cost of
Material
700 per litre of labour goods sold
Rupees
4-Jan 17 Sale (100 litres) 361,111 70,000 84,000 515,111
28-Jan-17 Sale (160 litre) 578,264 112,000 134,400 824,664
939,375 182,000 218,400 1,339,775
Under absorption of overheads (275,000-218,400) 56,600
Total cost of goods sold 1,396,375

Part (b) Periodic inventory

Quantity Rate Rupees
Opening inventory 200 3,000 600,000
Purchases 250 2,800 700,000
Purchases 250 2,900 725,000
Purchase return (50) 2,900 (145,000)
Balance 650 2,892.31 1,880,000

Cost of Goods sold Rupees

Cost of raw material (325 x 2,892.31) 940,001
Labour (700x260) 182,000
Overheads – actual 275,000
Cost of goods sold 1,397,001

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