Enter the following transactions in the Stores Ledger of Material Y using FIFO method.

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Understand the Problem

The question is asking to enter a series of inventory transactions into a Stores Ledger for a specific material using the FIFO (First-In, First-Out) method. This involves tracking the quantities and prices of units as they are issued and received.

Answer

Final Ledger: 230 units @ Rs 11/unit, 60 units @ Rs 12/unit.
Answer for screen readers

The final balances in the Stores Ledger for Material Y using FIFO are:

  • 230 units @ Rs 11
  • 60 units @ Rs 12

Steps to Solve

  1. Initial Balance Entry
    The ledger starts with a balance of 250 units at Rs 10 each.

    • Balance: 250 units @ Rs 10/unit
  2. Issuing 50 Units (January 3)
    50 units are issued. According to FIFO, these will come from the initial balance.

    • Remaining Balance: 250 - 50 = 200 units @ Rs 10/unit
  3. Receiving 800 Units (January 6)
    800 new units are received at Rs 11 each.

    • Total Inventory after Receipt:
      • 200 units @ Rs 10/unit
      • 800 units @ Rs 11/unit
  4. Issuing 300 Units (January 7)
    300 units are issued, starting from the oldest inventory (FIFO).

    • First, 200 units @ Rs 10/unit are issued, then 100 units @ Rs 11/unit.
    • Remaining Balance:
      • 700 units @ Rs 11/unit (800 - 100)
  5. Returning 20 Units to Stores (January 8)
    20 units are returned to inventory from the issued amount (assumed at Rs 11 as they are the most recent).

    • Total Inventory:
      • 700 units @ Rs 11/unit
      • 20 units @ Rs 11/unit (returned)
  6. Receiving 300 Units (January 12)
    Another 300 units are received at Rs 12 each.

    • Inventory breakdown:
      • 720 units @ Rs 11/unit
      • 300 units @ Rs 12/unit
  7. Issuing 320 Units (January 15)
    320 units are issued; they will be taken from the existing inventory in FIFO order.

    • First, 720 units @ Rs 11/unit, issue 320 units fully from this batch.
    • Remaining Balance:
      • 400 units @ Rs 11/unit
  8. Receiving 100 Units (January 18)
    100 units are received at Rs 12 each.

    • Total Inventory after Receipt:
      • 400 units @ Rs 11/unit
      • 100 units @ Rs 12/unit
  9. Issuing 120 Units (January 20)
    120 units are issued. These will come from the oldest batch first.

    • 120 units from 400 units @ Rs 11/unit.
    • Remaining Balance:
      • 280 units @ Rs 11/unit
      • 100 units @ Rs 12/unit
  10. Returning 40 Units to Vendors (January 23)
    40 units from the last receipt are returned.

  • New balance of the latest receipt becomes 60 units @ Rs 12/unit.
  1. Receiving 200 Units (January 26)
    200 units are received at Rs 10 each.
  • Total Inventory:
    • 280 units @ Rs 11/unit
    • 60 units @ Rs 12/unit
    • 200 units @ Rs 10/unit
  1. Issuing 250 Units (January 30)
    250 units are issued. They will be taken FIFO: first from Rs 10, then from Rs 11.
  • First 200 units @ Rs 10
  • Then 50 units from Rs 11
  • Remaining Balance:
    • 230 units @ Rs 11/unit

The final balances in the Stores Ledger for Material Y using FIFO are:

  • 230 units @ Rs 11
  • 60 units @ Rs 12

More Information

FIFO (First-In, First-Out) is a method to manage inventory, ensuring that the oldest stock is used first. It is especially crucial in industries where products might have expiration dates.

Tips

  • Not following FIFO properly, which may lead to incorrect inventory valuation.
  • Failing to update inventory levels accurately after each transaction.
  • Confusing returns with issues or receipts, leading to double counting or missing transactions.
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