Question

B. GoGolf Ltd sells one type of golf cart. Its financial year ends on the 30 June and it commenced the financial year with 40 golf carts that cost $2200 each. GoGolf uses the FIFO method and had the following transactions throughout the financial year.

(i) On 30 July it acquired 35 golf carts on credit at $2250 each.

(ii) On 4 August it paid for the purchase made on 30 July and received a 2.5% discount for early payment.

(iii) On 28 August it sold 50 golf carts for $2900 each on credit terms 2/10, n/30.

(iv) On 5th September received payment for the golf carts sold on 28th August.

(v) On 23 September it acquired on credit 40 golf carts for $2260 each, less trade discount 3%.

(vi) On 1 November GoGolf paid for the purchases made on 23 September. Because of the late payment they were charged an administration fee of 1.5%.

(vii) On 24 December 25 golf carts were sold for cash for $2875 each.

(viii) On 2nd January 1 of the golf carts sold on 24 December was returned because it as the wrong colour. No replacement was made and it was returned to stock.

(ix) On 1 March GoGolf purchased on credit another 50 golf carts for $2000 each from a new supplier in China. No trade discount was received.

(x) On 5 March 4 of the carts purchased on 1 March were returned when the wheels fell off. No replacements were ordered.

(xi) On 30 June it was assessed that there was downturn in the demand for these golf carts and the net realisable value of the golf carts on hand was assessed as $1900.

Required:

(a) Why might GoGolf Ltd have chosen to use the net realisable value of the lounges in the transaction (xi) rather than lower of cost?

(b) Using the periodic system of accounting, provide the journal entries for the above transactions and determine the balance of cost of goods sold and value of closing inventory for the year.

(c) Using the perpetual system of accounting, provide the journal entries for the above transactions and determine the balance of cost of goods and value of closing inventory for the year if a stocktake revealed that 5 golf carts from the last order purchased were missing from the warehouse presumed stolen.

(d) Which inventory method (periodic or perpetual) is preferable and why?

Answer 1

1) As the demand decreased there is a negative impact on the product which should have reduced the market value.. actually net realisable value means market value minus any further cost.. so in these ongoing examinable situations it is better to use net realisable value method

2) 30/7 DR Purchases $78750

CR Payables $7875

1) As the demand decreased there is a negative impact on the product which should have reduced the market value.. actually net realisable value means market value minus any further cost.. so in these ongoing examinable situations it is better to use net realisable value method

2) 30/7 DR Purchases $78750

CR Payables $78750

4/8 DR Payables $78750

CR Cash $76781.25

CR Discount Recieved 1968.75

28/8 DR Recievables $145000

CR Sales $145000

5/9 DR Cash $145000

CR Recievables $145000

23/9 DR Purchases $87688

CR Payables $87688

1/10 DR Payables $87688

DR Administration charge $1315.32

CR Cash 89003.32

24/12 DR Cash $71875

CR Sales $71875

2/1 DR Sales Return $2875

CR Cash $2875

1/3 DR Purchase $100,000

CR Payables $100,000

5/3 DR Payables $8000

CR Purchase Return $8000