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INVENTORY VALUATION (45 marks; 25 minutes) George Grande is the majority shareholder and CEO of Grande Ltd - NSC Accounting - Question 3 - 2019 - Paper 1
Question 3
INVENTORY VALUATION (45 marks; 25 minutes) George Grande is the majority shareholder and CEO of Grande Ltd. The company supplies hotels with cabinets and lamps. Th... show full transcript
Worked Solution & Example Answer:INVENTORY VALUATION (45 marks; 25 minutes) George Grande is the majority shareholder and CEO of Grande Ltd - NSC Accounting - Question 3 - 2019 - Paper 1
Step 1
Calculate the value of closing stock for cabinets on 30 September 2019 using the first-in-first-out method.
Answer
To calculate the value of closing stock using the FIFO method, we sum the values of the earliest inventory purchased until reaching the number of units remaining in closing stock.
Assuming:
- Opening stock: 230 units @ R1 x 100 = R230,000
- Purchases during the year: 650 units @ R50 = R32,500
- Remaining stock: 990 units
Using FIFO, the closing stock consists of:
- 230 @ R1 (from opening stock) + 253 (remaining from purchases) @ R50.
Thus, the total closing stock value is:
a) Value from opening stock: R230,000 b) Value from purchases: 253 * R50 = R12,650
Total closing stock = R230,000 + R12,650 = R302,500.
Step 2
Calculate the % mark-up achieved in 2019.
Answer
The % mark-up can be calculated with the formula:
ext{Percentage Mark-up} = rac{ ext{Selling Price} - ext{Cost Price}}{ ext{Cost Price}} imes 100Assuming:
- Selling price = R3,480,000
- Cost price = R2,170,500
Plugging into the formula:
ext{Percentage Mark-up} = rac{3,480,000 - 2,170,500}{2,170,500} imes 100 = 60.3\%Step 3
Provide TWO points (with figures) to prove that this decision achieved its aims.
Answer
- Sales increased from R3,375,000 to R3,480,000, which shows an increase of R105,000 or 3.1%.
- The number of customers rose significantly from 26 to 37, indicating a successful expansion of the target market.
Step 4
The CEO feels that this decision also negatively affected the company. Provide TWO points (with figures) to support his opinion.
Answer
- The gross profit decreased from R1,309,500 to R1,115,500, which represents a drop of R194,000 or approximately 14.8%.
- The cost of sales increased from R950,000 to R1,220,500, which is an increase of R270,500 or approximately 28.5%.
Step 5
Step 6
Calculate the stockholding period for lamps (use closing stock).
Answer
To calculate the stockholding period, we use the formula:
ext{Stockholding Period} = rac{ ext{Average Stock}}{ ext{Cost of Sales}} imes 365Assuming:
- Average stock = (Opening stock + Closing stock) / 2 = (600 + 265) / 2 = 432.5
- Sales = 3,675
Calculating:
ext{Stockholding Period} = rac{432.5}{3,675} imes 365 \ ext{OR} = 23.4 \text{ days} \text{ OR } 0.8 \text{ months}Step 7
Step 8
Step 9
Calculate the value of the closing stock of TV sets on 30 September 2019 using the specific identification method.
Answer
For LYN:
- Total Purchases: R7,800,000
- Total Sales: R2,580,000
- Closing stock value = R5,220,000.
For KYA:
- Purchases = R10,440,000 and Sales = R3,888,000
Closing stock value = R7,200,000.
Total value of closing stock of both = R5,220,000 + R7,200,000 = R12,420,000.
Step 10
Explain THREE different concerns that George would have about this problem.
Answer
- Ethical concerns regarding Bruce's commission could lead to conflicts of interest, impacting the company's integrity.
- Potential reputational damage from perceived unethical dealings with suppliers.
- Financial concerns about inflated costs leading to diminished profitability.