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ACCT10002 Tutorial 4 In-Class Exercises - Solutions | PDF | Accounts Payable | Profit (Economics)
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ACCT10002 Tutorial 4 In-Class Exercises - Solutions

The document provides solutions to tutorial exercises on profit measurement, inventory systems, and accounting entries for a merchandising business. Key points include the differences in profit measurement between merchandising and service businesses, factors affecting gross profit rates, and comparisons between perpetual and periodic inventory systems. Additionally, it outlines specific journal entries for transactions related to inventory purchases and sales, as well as inventory valuation methods like FIFO and average cost.

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37 views3 pages

ACCT10002 Tutorial 4 In-Class Exercises - Solutions

The document provides solutions to tutorial exercises on profit measurement, inventory systems, and accounting entries for a merchandising business. Key points include the differences in profit measurement between merchandising and service businesses, factors affecting gross profit rates, and comparisons between perpetual and periodic inventory systems. Additionally, it outlines specific journal entries for transactions related to inventory purchases and sales, as well as inventory valuation methods like FIFO and average cost.

Uploaded by

d2701home
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ACCT10002: Tutorial 4 In-class Exercises SUGGESTED SOLUTIONS

Question 1 (Q 4.2)

(a) The profit measurement process is as follows:

Sales Cost of Gross Operating Net


Revenue Less Sales Equals Profit Less Expenses Equals Profit

(b) Profit measurement in a merchandising business differs from a service business as follows:
(i) sales are the primary source of revenue; and
(ii) expenses are divided into two main categories:
 cost of sales, and
 operating expenses

Question 2 (Q 4.9)

Factors affecting a company’s gross profit rate include:


 selling products with a higher (or lower) ‘mark-up’;
 increased competition that results in lower selling prices; and
 price increases from suppliers.
 Any other factors affecting price and cost of inventory

Question 3
 Perpetual inventory system keeps a continual record of COS and inventory balances,
whereas periodic system does not.
 COS is recorded at the point of sale under perpetual system, whereas it is recorded at
the end of the reporting period under periodic system after a physical stocktake
 The journal entries for perpetual system uses Inventory account to record purchases,
whereas it uses Purchases under periodic system
 Both systems require a stocktake, but for different purposes

Question 4 (Please note that answers provided are for the scenario inclusive of GST)
Part A Hans Olaf Pty Ltd
(a) (1) 5 April Inventory 18 000
GST Receivable/paid 1 800
Accounts Payable 19 800
(Purchase inventory on credit)

(2) 6 April Freight Inwards/Inventory 900


GST Receivable/paid 90
Cash 990
(Paid freight)
(3) 7 April Equipment 26 000
GST Receivable/paid 2 600
Accounts Payable 28 600
(Purchase of equipment)

(4) 8 April Accounts Payable 3 300


GST Receivable/paid 300
Inventory 3 000
(Returned inventory on credit)

(5) 11 April Accounts Payable ($19 800 - $3 300) 16 500


Discount Received 300
[($18 000 - $3 000) x 2%]
GST Receivable/paid 30
[($1 800 - $300) x 2%]
Cash [($19 800 - $3 300) x 98%] 16 170
(Payment within discount period)

Part B Sailing Boats

(a) (1) 7 Dec Accounts Receivable 792 000


Sales 720 000
GST Payable/collected 72 000
(To record sale of inventory)

Cost of Goods Sold 480 000


Inventory 480 000
(To record the cost of inventory sold)

(2) 8 Dec Sales Returns and Allowances 30 000


GST Payable/collected 3 000
Accounts Receivable 33 000
(To record sales allowance)

(3)13 Dec Cash ($759 000 x 98%) 743 820


Discount Allowed [($720 000 - $30 000) x 2%] 13 800
GST Payable/collected [($72 000 - $3 000) x 2%] 1 380
Accounts Receivable ($792 000 - $33 000) 759 000
(To record payment of account within a discount
period)

Question 5 (PSA 5.6)


Fontana Ltd

(a) (1) FIFO

Date Purchases Sales Balance


1/7 (5 @ $95) $475 (5 @ $95) $475
6/7 (3 @ $95) $285 (2 @ $95) $190
11/7 (4 @ $106) $424 (2 @ $95)
(4 @ $106) $614
14/7 (2 @ $95)}
(1 @ $106)} $296 (3 @ $106) $318
21/7 (3 @ $112) $336 (3 @ $106)}
(3 @ $112)} $654
27/7 (3 @ $106)}
(1 @ $112) $430 ($2 @ $112) $224
Ending inventory=$224

(2) AVERAGE COST

Date Purchases Sales Balance


1/7 (5 @ $95) $475 (5 @ $95) $475
6/7 (3 @ $95) $285 (2 @ $95) $190
11/7 (4 @ $106) $424 (6 @ $102)* $614
14/7 (3 @ $102.3) $308 (3 @ $102) $306
21/7 (3 @ $112) $336 (6 @ $107)** $642
27/7 (4 @ $107) $428 (2 @ $107) $214

*$614 ÷ 6 = $102.3
**$642 ÷ 6 = $107
Ending inventory = $214

(b) The highest ending inventory is $224 under the FIFO method.

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