This is for Accounting Grade 12 subject. The Analysis and interpretation of financial statements Grade 12 study content will help you with your Accounting Subject Revisions, Tests, Exams, and Assignments.
Inventory Valuation And Internal Control
An effective internal control structure for inventory includes a company’s plan of organization and all the procedures and actions it takes to:
- Protect its assets against theft and waste.
- Ensure compliance with company policies and federal law.
- Evaluate the performance of all personnel to promote efficient operations.
- Ensure accurate and reliable operating data and accounting reports.
Makro Stores sells television sets to the public. The financial year ended on 28 February 2019. They are unsure which method to use in valuing their stock. The cost price of the products has changed significantly during the current year. The owner Naidoo, has decided to keep selling the same model of TV set (Ekasi TV sets), despite the fact that other shops are now selling newer models.
- Calculate the value of closing stock using the FIFO (first-in-first-out) method.
- Calculate the value of closing stock using the weighted average method.
- Which method of stock valuation would you advice the owner to use? Explain your answer.
| Stock Records: | Number of TV Sets | Cost per unit | Total value | ||
| TV sets on hand on 1 March 2018 | 50 | R11 000 | R550 000 | ||
| TV Sets bought during the year | 750 | R8 090 000 | |||
| May 2018 | 300 | R12 000 | R3 600 000 | ||
| September 2018 | 250 | R11 560 | R2 890 000 | ||
| February 2019 | 200 | R8 000 | R1 600 000 | ||
| Sub total | 800 | R8 640 000 | |||
| TV sets sold during the year | 440 | R16 000 | R7 040 000 | ||
| TV sets on hand on 28 February 2019 | 360 | ? | ? |
Apart from TV sets, Makro Stores also sell other products. You are provided with information taken from their stock records on 28 February 2019. The owner Naidoo is uncertain if he should be satisfied with control of all these items.