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Secondary 4 Principles of Accounts Semestral Assessment 1 (Mid-Year) Paper 3

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Questions

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TuitionGoWhere Practice Paper - Principles of Accounts Secondary 4

TuitionGoWhere Secondary School (AI)

Subject: Principles of Accounts
Level: Secondary 4
Paper: SA1 (Semester 1 Assessment)
Version: 3 of 5
Duration: 1 hour 15 minutes
Total Marks: 60

Name: _________________________
Class: _________________________
Date: _________________________

Instructions to Candidates

  1. This paper consists of three sections: Section A, Section B, and Section C.
  2. Answer all questions in the spaces provided.
  3. Show all workings clearly. Marks are awarded for method.
  4. Use a calculator where necessary.
  5. Round all ratios to two decimal places unless otherwise stated.
  6. The total marks for this paper are 60.
  7. Read each question carefully before answering.

Section A: Short Answer Questions (10 marks)

Answer all questions in this section.

Question 1 (2 marks)

State the basis on which inventory should be valued in the financial statements. Explain the accounting concept that supports this basis.

Answer:

Question 2 (2 marks)

Explain the difference between a cash sale and a credit sale. Include the effect of each on the business's cash flow.

Answer:

Question 3 (2 marks)

State two reasons why a cheque received from a customer may be returned dishonoured by the bank.

Answer:

Question 4 (2 marks)

A business discovered that its closing inventory at 31 December 2024 was overstated by $1,500. State the effect of this error on:

(a) Cost of goods sold for the year ended 31 December 2024. (1 mark)

(b) Net profit for the year ended 31 December 2024. (1 mark)

Answer:

(a)

(b)

Question 5 (2 marks)

On 15 March 2025, a credit customer, Mr Tan, who owed $2,800, could not be contacted. The business decided to write off his debt as irrecoverable. Prepare the journal entry to record this transaction. Narrations are not required.

Answer:

DateAccountDebit ($)Credit ($)

Section B: Calculation Questions (20 marks)

Answer all questions in this section. Show all workings clearly.

Question 6 (4 marks)

The following information relates to GreenTech Trading for the year ended 31 December 2024:

Item$
Opening inventory12,400
Purchases85,600
Carriage inwards2,100
Purchases returns3,200
Closing inventory15,800

Calculate the cost of goods sold for the year ended 31 December 2024.

Answer:

Question 7 (4 marks)

BlueWave Enterprise provided the following information for the year ended 31 December 2024:

Item$
Revenue180,000
Opening inventory22,000
Purchases95,000
Closing inventory18,000

Calculate:

(a) Cost of goods sold. (2 marks)

(b) Gross profit. (2 marks)

Answer:

(a)

(b)

Question 8 (4 marks)

The following information relates to SilverLine Retail for the year ended 31 December 2024:

Item$
Cost of goods sold72,000
Opening inventory14,000
Closing inventory10,000

Calculate the inventory turnover rate (in times per year). Show all workings.

Answer:

Question 9 (4 marks)

GoldMark Stores provided the following data for two consecutive years:

2023 ($)2024 ($)
Revenue240,000280,000
Cost of goods sold156,000196,000

Calculate the gross profit margin for each year (to two decimal places). Show all workings.

Answer:

2023:

2024:

Question 10 (4 marks)

The following information relates to Apex Trading for the year ended 31 December 2024:

Item$
Revenue350,000
Gross profit140,000
Operating expenses85,000
Other income5,000

Calculate:

(a) Net profit for the year. (2 marks)

(b) Net profit margin (to two decimal places). (2 marks)

Answer:

(a)

(b)

Section C: Structured Response Questions (30 marks)

Answer all questions in this section. Show all workings clearly.

Question 11 (8 marks)

The following trial balance extract relates to Horizon Trading as at 31 December 2024:

AccountDebit ($)Credit ($)
Inventory (1 January 2024)18,500
Purchases120,000
Carriage inwards3,500
Purchases returns4,200
Revenue210,000
Sales returns5,000

Additional information:

  • Closing inventory as at 31 December 2024 was valued at $22,000.

Prepare the trading portion of the Income Statement for the year ended 31 December 2024.

Answer:

Horizon Trading
Trading Portion of the Income Statement for the year ended 31 December 2024

$$

Question 12 (8 marks)

The following information relates to two businesses, AlphaMart and BetaStore, for the year ended 31 December 2024:

AlphaMart ($)BetaStore ($)
Revenue500,000400,000
Cost of goods sold300,000220,000
Opening inventory45,00035,000
Closing inventory55,00025,000

Required:

(a) Calculate the inventory turnover rate for each business (to two decimal places). (4 marks)

(b) Compare and comment on the inventory turnover rates of the two businesses. (4 marks)

Answer:

(a)

AlphaMart:

BetaStore:

(b)

Question 13 (8 marks)

The following information relates to Nova Trading for the year ended 31 December 2024:

Item$
Revenue450,000
Opening inventory28,000
Purchases260,000
Purchases returns6,000
Carriage inwards4,500
Closing inventory32,000
Operating expenses95,000
Other income3,000

Required:

(a) Prepare the Income Statement for the year ended 31 December 2024. (6 marks)

(b) Calculate the gross profit margin (to two decimal places). (2 marks)

Answer:

(a)

Nova Trading
Income Statement for the year ended 31 December 2024

$$

(b)

Question 14 (6 marks)

Crystal Retail discovered the following errors in its accounting records for the year ended 31 December 2024:

  1. Closing inventory was understated by $3,000.
  2. A purchase of office equipment costing $5,000 was incorrectly recorded as a purchase of goods for resale.
  3. Sales returns of $2,500 were completely omitted from the books.

The unadjusted net profit before correcting these errors was $48,000.

Required:

Prepare a statement showing the adjusted net profit after correcting all errors. Show clearly whether each adjustment increases or decreases profit.

Answer:

Crystal Retail
Statement of Adjusted Net Profit for the year ended 31 December 2024

$

Question 15 (6 marks)

The following information relates to Zenith Trading for the years ended 31 December 2023 and 2024:

20232024
Inventory turnover rate8 times6 times
Gross profit margin35%32%

Required:

Explain two possible reasons for the decrease in the inventory turnover rate from 2023 to 2024. Your answer should consider both the inventory turnover rate and the gross profit margin information provided.

Answer:

Question 16 (4 marks)

The following information relates to Pacific Trading for the year ended 31 December 2024:

Item$
Cost of goods sold180,000
Opening inventory25,000
Closing inventory35,000

Calculate the inventory turnover rate (in times per year) and the average inventory holding period (in days). Assume 365 days in a year. Round your answers to two decimal places.

Answer:

Question 17 (4 marks)

Explain the effect of using the First-In-First-Out (FIFO) method on inventory valuation and profit during a period of rising prices. Compare this with the effect of using the Weighted Average Cost (AVCO) method.

Answer:

Question 18 (4 marks)

A business has the following inventory data for Product X during January 2025:

DateTransactionUnitsCost per unit ($)
1 JanOpening inventory10010
10 JanPurchase20012
20 JanPurchase15014
25 JanSale300—

Using the FIFO method, calculate the cost of goods sold for the sale on 25 January 2025. Show all workings.

Answer:

Question 19 (4 marks)

Using the same data from Question 18, calculate the value of closing inventory as at 31 January 2025 using the Weighted Average Cost (AVCO) method. Show all workings and round the weighted average cost per unit to two decimal places.

Answer:

Question 20 (4 marks)

A business values its inventory at the lower of cost and net realisable value (NRV). The following information relates to three inventory items as at 31 December 2024:

ItemCost ($)Estimated selling price ($)Estimated costs to sell ($)
A5,0006,000500
B8,0007,500300
C12,00014,0001,500

Calculate the total value of inventory that should be reported in the financial statements as at 31 December 2024. Show all workings.

Answer:

— End of Paper —

Answers

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TuitionGoWhere Practice Paper - Principles of Accounts Secondary 4

Answer Key and Marking Scheme

Paper: SA1 (Semester 1 Assessment)
Version: 3 of 5
Total Marks: 60

Section A: Short Answer Questions (10 marks)

Question 1 (2 marks)

Answer: Inventory should be valued at the lower of cost and net realisable value (NRV). (1 mark)

The accounting concept that supports this basis is prudence (or conservatism). This concept requires that assets should not be overstated and losses should be recognised as soon as they are foreseen. By valuing inventory at the lower of cost and NRV, the business ensures that inventory is not carried at an amount higher than what it can recover from its sale. (1 mark)

Marking notes:

  • Award 1 mark for stating "lower of cost and net realisable value"
  • Award 1 mark for identifying prudence/conservatism and providing a brief explanation
  • Accept "lower of cost and market value" as an alternative phrasing

Question 2 (2 marks)

Answer: A cash sale is a transaction where the customer pays immediately at the point of purchase. The business receives cash immediately, resulting in an immediate cash inflow. The journal entry is: Dr. Cash / Cr. Revenue. (1 mark)

A credit sale is a transaction where the customer pays at a later date. The business does not receive cash immediately; instead, a receivable is created. Cash inflow is deferred. The journal entry is: Dr. Trade Receivables / Cr. Revenue. (1 mark)

Marking notes:

  • Award 1 mark for explaining cash sale with cash flow effect
  • Award 1 mark for explaining credit sale with cash flow effect
  • Accept journal entries as part of the explanation

Question 3 (2 marks)

Answer: Two reasons why a cheque may be returned dishonoured:

  1. Insufficient funds in the drawer's bank account. (1 mark)
  2. Signature mismatch — the signature on the cheque does not match the specimen signature held by the bank. (1 mark)

Other acceptable reasons (any two for full marks):

  • Post-dated cheque presented before its date
  • Stale cheque (presented after validity period, typically 6 months)
  • Alterations on the cheque not properly authenticated
  • Account closed or frozen
  • Stop payment instruction from the drawer

Marking notes:

  • Award 1 mark for each valid reason (maximum 2 marks)
  • Accept any two reasonable and accurate reasons

Question 4 (2 marks)

Answer:

(a) Cost of goods sold is understated by $1,500. (1 mark)

  • Explanation: Closing inventory is deducted in the COGS calculation. If closing inventory is overstated, the deduction is too large, making COGS lower than it should be.

(b) Net profit is overstated by $1,500. (1 mark)

  • Explanation: Since COGS is understated, gross profit is overstated, leading to net profit being overstated by the same amount.

Marking notes:

  • Award 1 mark for each correct effect with direction (understated/overstated)
  • No mark for stating the amount only without direction
  • Accept "profit is too high" or "profit is too low" as equivalent to overstated/understated

Question 5 (2 marks)

Answer:

DateAccountDebit ($)Credit ($)
2025 Mar 15Bad Debts Expense (or Irrecoverable Debts Expense)2,800
Trade Receivables (or Mr Tan)2,800

Marking notes:

  • Award 1 mark for correct debit entry (Bad Debts Expense / Irrecoverable Debts)
  • Award 1 mark for correct credit entry (Trade Receivables / Mr Tan)
  • Date is not required for the marks but should be present for completeness
  • Narrations are not required as per question instruction

Section B: Calculation Questions (20 marks)

Question 6 (4 marks)

Answer:

Cost of Goods Sold Calculation:

$
Opening inventory12,400
Add: Purchases85,600
Less: Purchases returns(3,200)
Add: Carriage inwards2,100
Net purchases84,500
Cost of goods available for sale96,900
Less: Closing inventory(15,800)
Cost of goods sold81,100

Marking notes:

  • Award 1 mark for correct treatment of purchases returns (deduction)
  • Award 1 mark for correct treatment of carriage inwards (addition)
  • Award 1 mark for correct calculation of cost of goods available for sale
  • Award 1 mark for correct final answer ($81,100)
  • Award method marks if working is shown even if final answer is incorrect
  • Accept alternative presentation formats

Question 7 (4 marks)

Answer:

(a) Cost of goods sold: (2 marks)

$
Opening inventory22,000
Add: Purchases95,000
Cost of goods available for sale117,000
Less: Closing inventory(18,000)
Cost of goods sold99,000

(b) Gross profit: (2 marks)

$
Revenue180,000
Less: Cost of goods sold(99,000)
Gross profit81,000

Marking notes:

  • Award 1 mark for correct COGS formula and 1 mark for correct answer ($99,000)
  • Award 1 mark for correct gross profit formula and 1 mark for correct answer ($81,000)
  • Award method marks if working is shown even if final answer is incorrect

Question 8 (4 marks)

Answer:

Step 1: Calculate average inventory

Average inventory = (Opening inventory + Closing inventory) ÷ 2
= (14,000+14,000 + 10,000) ÷ 2
= 24,000÷2=∗∗24,000 ÷ 2 = **12,000** (1 mark)

Step 2: Calculate inventory turnover rate

Inventory turnover rate = Cost of goods sold ÷ Average inventory
= 72,000÷72,000 ÷ 12,000
= 6 times per year (1 mark)

Marking notes:

  • Award 1 mark for correct calculation of average inventory
  • Award 1 mark for correct formula (COGS ÷ Average inventory)
  • Award 1 mark for correct substitution
  • Award 1 mark for correct final answer (6 times)
  • Award method marks if working is shown even if final answer is incorrect

Question 9 (4 marks)

Answer:

Gross Profit Margin = (Gross Profit ÷ Revenue) × 100%

2023: Gross profit = Revenue − COGS = 240,000−240,000 − 156,000 = 84,000Grossprofitmargin=(84,000 Gross profit margin = (84,000 ÷ $240,000) × 100% = 35.00% (2 marks)

2024: Gross profit = Revenue − COGS = 280,000−280,000 − 196,000 = 84,000Grossprofitmargin=(84,000 Gross profit margin = (84,000 ÷ $280,000) × 100% = 30.00% (2 marks)

Marking notes:

  • Award 1 mark for correct gross profit calculation for each year
  • Award 1 mark for correct gross profit margin for each year (to two decimal places)
  • Award method marks if working is shown even if final answer is incorrect
  • Deduct 0.5 marks if not expressed to two decimal places

Question 10 (4 marks)

Answer:

(a) Net profit: (2 marks)

Net profit = Gross profit − Operating expenses + Other income
= 140,000−140,000 − 85,000 + 5,000=∗∗5,000 = **60,000**

(b) Net profit margin: (2 marks)

Net profit margin = (Net profit ÷ Revenue) × 100%
= (60,000÷60,000 ÷ 350,000) × 100%
= 17.14%

Marking notes:

  • Award 1 mark for correct net profit formula and 1 mark for correct answer ($60,000)
  • Award 1 mark for correct net profit margin formula and 1 mark for correct answer (17.14%)
  • Award method marks if working is shown even if final answer is incorrect
  • Deduct 0.5 marks if not expressed to two decimal places

Section C: Structured Response Questions (30 marks)

Question 11 (8 marks)

Answer:

Horizon Trading
Trading Portion of the Income Statement for the year ended 31 December 2024

$$
Revenue210,000
Less: Sales returns(5,000)
Net revenue205,000
Opening inventory18,500
Add: Purchases120,000
Less: Purchases returns(4,200)
Add: Carriage inwards3,500
Net purchases119,300
Cost of goods available for sale137,800
Less: Closing inventory(22,000)
Cost of goods sold(115,800)
Gross profit89,200

Marking notes:

  • Award 1 mark for correct heading (business name, statement title, date)
  • Award 1 mark for correct treatment of sales returns (deduction from revenue)
  • Award 1 mark for correct net revenue figure ($205,000)
  • Award 1 mark for correct treatment of purchases returns (deduction)
  • Award 1 mark for correct treatment of carriage inwards (addition)
  • Award 1 mark for correct COGS calculation ($115,800)
  • Award 1 mark for correct gross profit calculation ($89,200)
  • Award 1 mark for proper format and presentation
  • Award method marks if working is shown even if final answer is incorrect

Question 12 (8 marks)

Answer:

(a) Inventory turnover rate calculation: (4 marks)

AlphaMart: Average inventory = (45,000+45,000 + 55,000) ÷ 2 = 50,000Inventoryturnoverrate=50,000 Inventory turnover rate = 300,000 ÷ $50,000 = 6.00 times (2 marks)

BetaStore: Average inventory = (35,000+35,000 + 25,000) ÷ 2 = 30,000Inventoryturnoverrate=30,000 Inventory turnover rate = 220,000 ÷ $30,000 = 7.33 times (2 marks)

(b) Comparison and commentary: (4 marks)

BetaStore has a higher inventory turnover rate (7.33 times) compared to AlphaMart (6.00 times). This indicates that BetaStore is managing its inventory more efficiently — it sells and replaces its inventory more frequently during the year.

A higher inventory turnover rate suggests:

  • Better inventory management: BetaStore holds less inventory relative to its sales volume, reducing storage costs and the risk of obsolescence.
  • More efficient use of working capital: Less cash is tied up in inventory, improving liquidity.
  • Faster response to market demand: BetaStore may be better at matching inventory levels to customer demand.

However, an excessively high turnover rate could also indicate that BetaStore is holding too little inventory, which might lead to stock-outs and lost sales. AlphaMart's lower turnover rate may indicate it holds more buffer stock, which could be appropriate if it operates in a market with uncertain demand or long supplier lead times.

Marking notes:

  • Award 2 marks for each correct inventory turnover calculation (1 mark for average inventory, 1 mark for turnover rate)
  • Award up to 4 marks for commentary:
    • 1 mark for identifying which business has the higher/lower rate
    • 1 mark for interpreting what higher turnover means (efficiency, faster movement)
    • 1 mark for linking to business implications (storage costs, obsolescence, working capital)
    • 1 mark for balanced commentary (acknowledging potential downsides of very high or low turnover)
  • Accept any reasonable and well-explained commentary

Question 13 (8 marks)

Answer:

(a) Income Statement: (6 marks)

Nova Trading
Income Statement for the year ended 31 December 2024

$$
Revenue450,000
Opening inventory28,000
Add: Purchases260,000
Less: Purchases returns(6,000)
Add: Carriage inwards4,500
Net purchases258,500
Cost of goods available for sale286,500
Less: Closing inventory(32,000)
Cost of goods sold(254,500)
Gross profit195,500
Less: Operating expenses(95,000)
Operating profit100,500
Add: Other income3,000
Net profit103,500

(b) Gross profit margin: (2 marks)

Gross profit margin = (Gross profit ÷ Revenue) × 100%
= (195,500÷195,500 ÷ 450,000) × 100%
= 43.44%

Marking notes:

  • Award 1 mark for correct heading
  • Award 1 mark for correct COGS calculation ($254,500)
  • Award 1 mark for correct gross profit ($195,500)
  • Award 1 mark for correct treatment of operating expenses
  • Award 1 mark for correct treatment of other income
  • Award 1 mark for correct net profit ($103,500)
  • Award 1 mark for correct gross profit margin formula
  • Award 1 mark for correct gross profit margin answer (43.44%)
  • Award method marks if working is shown even if final answer is incorrect

Question 14 (6 marks)

Answer:

Crystal Retail
Statement of Adjusted Net Profit for the year ended 31 December 2024

$
Unadjusted net profit48,000
Adjustments:
1. Closing inventory understated by $3,000
— COGS was overstated, so profit was understated
— Add back: Increase profit+3,000
2. Office equipment incorrectly recorded as purchases
— Purchases (and COGS) were overstated by $5,000
— Profit was understated
— Add back: Increase profit+5,000
3. Sales returns omitted
— Revenue was overstated by $2,500
— Profit was overstated
— Deduct: Decrease profit−2,500
Adjusted net profit53,500

Marking notes:

  • Award 1 mark for starting with unadjusted profit ($48,000)
  • Award 1 mark for correct treatment of error 1 (add $3,000 — closing inventory understated means COGS overstated, profit understated)
  • Award 1 mark for correct treatment of error 2 (add $5,000 — capital expenditure wrongly treated as revenue expenditure, COGS overstated, profit understated)
  • Award 1 mark for correct treatment of error 3 (deduct $2,500 — revenue overstated, profit overstated)
  • Award 1 mark for correct adjusted net profit ($53,500)
  • Award 1 mark for clear presentation showing direction of each adjustment
  • Award method marks if reasoning is shown even if final answer is incorrect

Question 15 (6 marks)

Answer:

Reason 1: Decline in demand or market conditions (3 marks)

The decrease in inventory turnover rate from 8 times to 6 times suggests that inventory is moving more slowly. This could be due to a decline in customer demand, perhaps caused by changing consumer preferences, increased competition, or an economic downturn. The decline in gross profit margin from 35% to 32% supports this — the business may have had to reduce selling prices to stimulate sales, which would lower the gross profit margin. Slower sales would also mean inventory sits longer before being sold, reducing the turnover rate.

Reason 2: Overstocking or poor inventory management (3 marks)

The business may have purchased more inventory than needed, leading to overstocking. If inventory levels increased significantly while sales did not grow proportionally, the inventory turnover rate would decrease. The decline in gross profit margin could also indicate that the business is holding older inventory that may be becoming obsolete, forcing price reductions to clear stock. This would simultaneously reduce both the turnover rate (more inventory relative to COGS) and the gross profit margin (lower selling prices).

Marking notes:

  • Award up to 3 marks for each well-explained reason (maximum 6 marks)
  • For each reason:
    • 1 mark for identifying a plausible cause
    • 1 mark for linking the cause to the decrease in inventory turnover rate
    • 1 mark for linking the cause to the decrease in gross profit margin
  • Accept any reasonable and well-explained reasons
  • Examples of acceptable reasons: increased competition, economic downturn, change in product mix, supply chain issues leading to over-ordering, seasonal fluctuations, poor demand forecasting

Question 16 (4 marks)

Answer:

Step 1: Calculate average inventory

Average inventory = (Opening inventory + Closing inventory) ÷ 2
= (25,000+25,000 + 35,000) ÷ 2
= 60,000÷2=∗∗60,000 ÷ 2 = **30,000** (1 mark)

Step 2: Calculate inventory turnover rate

Inventory turnover rate = Cost of goods sold ÷ Average inventory
= 180,000÷180,000 ÷ 30,000
= 6.00 times (1 mark)

Step 3: Calculate average inventory holding period

Average inventory holding period = 365 days ÷ Inventory turnover rate
= 365 ÷ 6
= 60.83 days (2 marks)

Marking notes:

  • Award 1 mark for correct average inventory ($30,000)
  • Award 1 mark for correct inventory turnover rate (6.00 times)
  • Award 1 mark for correct formula for holding period (365 ÷ turnover rate)
  • Award 1 mark for correct holding period (60.83 days)
  • Award method marks if working is shown even if final answer is incorrect

Question 17 (4 marks)

Answer:

FIFO method during rising prices:

Under FIFO, the oldest (and typically cheapest) inventory is assumed to be sold first. During a period of rising prices, this means:

  • Cost of goods sold is based on older, lower costs, resulting in a lower COGS.
  • Closing inventory is valued at the most recent, higher purchase prices, resulting in a higher inventory valuation on the balance sheet.
  • Gross profit is higher because revenue is matched against lower COGS. (2 marks)

AVCO method during rising prices:

Under AVCO, all units are valued at the weighted average cost. During rising prices:

  • Cost of goods sold is based on an average that includes both older lower costs and newer higher costs, resulting in a moderate COGS (higher than FIFO but lower than LIFO).
  • Closing inventory is valued at the average cost, which is lower than FIFO but higher than LIFO.
  • Gross profit is lower than FIFO because COGS is higher. (2 marks)

Comparison: In a period of rising prices, FIFO results in higher reported profit and higher inventory values compared to AVCO. AVCO smooths out price fluctuations and provides a more moderate picture of profitability and asset values.

Marking notes:

  • Award 2 marks for correct explanation of FIFO effects (COGS, inventory valuation, profit)
  • Award 2 marks for correct explanation of AVCO effects and comparison with FIFO
  • Accept partial marks for partially correct explanations
  • Key points: FIFO = lower COGS, higher profit, higher closing inventory; AVCO = moderate COGS, moderate profit, moderate closing inventory

Question 18 (4 marks)

Answer:

FIFO Method — Cost of Goods Sold for sale on 25 January 2025:

Under FIFO, the oldest inventory is sold first.

Sale quantity: 300 units

SourceUnitsCost per unit ($)Total cost ($)
Opening inventory (1 Jan)100101,000
Purchase (10 Jan)200122,400
Total COGS3003,400

Cost of goods sold = $3,400 (4 marks)

Marking notes:

  • Award 1 mark for identifying that opening inventory (100 units) is used first
  • Award 1 mark for identifying that 200 units from 10 Jan purchase are used next
  • Award 1 mark for correct multiplication of units × cost
  • Award 1 mark for correct total COGS ($3,400)
  • Award method marks if working is shown even if final answer is incorrect

Question 19 (4 marks)

Answer:

AVCO Method — Closing Inventory as at 31 January 2025:

Step 1: Calculate total cost and total units before the sale

DateUnitsCost per unit ($)Total cost ($)
1 Jan100101,000
10 Jan200122,400
20 Jan150142,100
Total4505,500

Step 2: Calculate weighted average cost per unit

Weighted average cost = Total cost ÷ Total units
= 5,500÷450=∗∗5,500 ÷ 450 = **12.22 per unit** (rounded to two decimal places) (2 marks)

Step 3: Calculate closing inventory units

Units available: 450
Units sold: 300
Closing inventory units: 450 − 300 = 150 units (1 mark)

Step 4: Calculate closing inventory value

Closing inventory value = 150 units × 12.22=∗∗12.22 = **1,833.00** (1 mark)

Marking notes:

  • Award 1 mark for correct total cost ($5,500) and total units (450)
  • Award 1 mark for correct weighted average cost per unit ($12.22)
  • Award 1 mark for correct closing inventory units (150)
  • Award 1 mark for correct closing inventory value ($1,833.00)
  • Award method marks if working is shown even if final answer is incorrect
  • Accept 1,833or1,833 or 1,833.00

Question 20 (4 marks)

Answer:

Lower of Cost and Net Realisable Value (NRV) Calculation:

ItemCost ($)NRV ($)Lower of Cost and NRV ($)
A5,0006,000 − 500 = 5,5005,000
B8,0007,500 − 300 = 7,2007,200
C12,00014,000 − 1,500 = 12,50012,000
Total inventory value24,200

Workings:

  • Item A: NRV = 6,000−6,000 − 500 = 5,500.Cost(5,500. Cost (5,000) < NRV (5,500),sovalueatcost=5,500), so value at cost = 5,000.
  • Item B: NRV = 7,500−7,500 − 300 = 7,200.NRV(7,200. NRV (7,200) < Cost (8,000),sovalueatNRV=8,000), so value at NRV = 7,200.
  • Item C: NRV = 14,000−14,000 − 1,500 = 12,500.Cost(12,500. Cost (12,000) < NRV (12,500),sovalueatcost=12,500), so value at cost = 12,000.

Total inventory value = 5,000+5,000 + 7,200 + 12,000=12,000 = 24,200 (4 marks)

Marking notes:

  • Award 1 mark for correct NRV calculation for each item (or for all three correctly)
  • Award 1 mark for correct application of lower of cost and NRV for each item
  • Award 1 mark for correct individual valuations
  • Award 1 mark for correct total ($24,200)
  • Award method marks if working is shown even if final answer is incorrect
  • Note: Each item must be assessed individually; the lower of cost and NRV is applied item by item, not to the total

— End of Answer Key —