The owner of the business, Roger Lightfoot, has stated that his objective is to cut back on his tax liability as much as possible and at the same time have his balance sheet looking at its best and is of the view that the LIFO method would be best to achieve both. Do you agree with Roger? Explain your answer clearly distinguishing between the first in, first out (FIFO) and last in, first out (LIFO) methods of inventory valuation, with reference to IAS 2
One Stop Electrical Shop are merchandisers of household fixtures & fittings. The business began the
last quarter of 2020 (October to December) with 25 Starburst Wall Clocks at a total cost of $153,000.
The following transactions took place during the quarter.
October 10 100 clocks were purchased on account at a cost of $6,225 each. In addition,
One Stop paid $120 cash on each clock to have the inventory shipped from
the vendor’s warehouse to their warehouse
October 31 During the month 90 clocks were sold at a price of $8,300 each. (20 of these
clocks sold were on account to a long-standing customer of the business)
November 1 A new batch of 60 clocks was purchased at a total cost of $406,500
November 10 5 of the clocks purchased on November 1 were returned to the supplier, as
they were damaged
November 30 The sales for November were 58 clocks which yielded total sales revenue of
$498,800
December 2 Owing to increased demand, a further 110 clocks were purchased at a cost of
$7,400 each and these were subject to a trade discount of 2% each.
December 6 Kimoya Rennie, a customer to whom 8 clocks were sold at the start of the first
business day in November, returned 2 of the clocks, as they did not match her
specifications.
December 31 117 clocks were sold during December at a unit selling price of $9,220.
December 31 An actual inventory count was carried out which revealed that there were 22
Starburst wall clocks in the store room.
Unless otherwise stated, assume that all purchases are on account and all sales are for cash.
D) The owner of the business, Roger Lightfoot, has stated that his objective is to cut back on his tax
liability as much as possible and at the same time have his
is of the view that the LIFO method would be best to achieve both. Do you agree with Roger?
Explain your answer clearly distinguishing between the first in, first out (FIFO) and last in, first out
(LIFO) methods of
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