Retail Business Case Study: Sand Castles at the Beach Inventory

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ASSIGNMENT 2
1

Contents
Introduction......................................................................................................................................3
Answer 1 Retail inventory...............................................................................................................4
i)...................................................................................................................................................5
ii)..................................................................................................................................................9
iii)...............................................................................................................................................10
Answer 2. Retail operations – and decision making in accounting...............................................11
Answer 3 Internal controls – cash.................................................................................................15
Answer 4 Bank reconciliations and cash.......................................................................................18
i).................................................................................................................................................18
ii)................................................................................................................................................20
iii)...............................................................................................................................................22
Answer 5 Property, plant and equipment......................................................................................24
Conclusion.....................................................................................................................................26
References......................................................................................................................................27
2

Introduction
The assignment is given covers various aspects of both financial reporting and management
accounting such as Inventory Management, Retail operations, Internal Control, Bank
reconciliation, and cash and lastly, Asset acquisition reporting. The aim of the project was to
gain a comprehensive understanding of the various above mentioned tasks and to learn and
acquire new techniques and skills in the process.
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Answer 1Retail inventory
Jack has opened anew business called ‘Sand Castles at the Beach’ selling sand castle sets. The
first month has gone by and Jack is struggling with inventory accounting as he has no prior
knowledge of the same. He has prepared a schedule of the inventory movement and is not able to
decide which method to follow. In business, different batches of inventory are purchased at
different times making it difficult to keep a check of the inventory movement and thus the
valuation of closing stock becomes a tedious job. Inventory is homogeneous and is difficult to
differentiate between each other, but is purchased at different prices due to the time differences
and other external factors outside the control of the organization.
Inventory Information of Sand Castles sets for October 2018
Date Details
No of sets
purchased/sold
Cost per
umbrella
Selling price per
Umbrella
1/10/2018
Opening
inventory 0 $0.00
2/10/2018 Purchase 50 $5.00
6/10/2018 Sale -15 $12.00
7/10/2018 Sale -12 $12.00
10/10/201
8 Purchase 60 $5.50
4

13/10/201
8 Sale -20 $12.00
14/10/201
8 Sale -10 $12.00
20/10/201
8 Sale -5 $14.00
21/10/201
8 Sale -14 $14.00
27/10/201
8 Sale -22 $14.00
28/10/201
8 Purchase 80 $5.80
30/10/201
8 Sale -5 $14.00
i)
FIFO Method(First in First out Method):FIFO method is an inventory valuation method
where outgoing inventory is valued on a first come basis. It means that inventory which was
purchased earlier is sold first and hence closing stock mostly makes up of inventory purchased
5

last and therefore is valued at that price for accounting purposes. It is the most commonly used
method as it is easy to adopt and lest complex in comparison to other methods.
FIFO Method of
Valuation:
Date Details
No of units
(Purchased/
Sold)
Total
Purchase
Cost
COGS(
FIFO
method
)
Balance
of Units
Cost of
Units on
hand
1/10/2018
Opening
inventory 0 $0.00 $0.00 0 $0.00
2/10/2018 Purchase 50 $250.00 $0.00 50 $250.00
6/10/2018 Sale -15 $75.00 35 $175.00
7/10/2018 Sale -12 $60.00 23 $115.00
10/10/2018 Purchase 60 $330.00 83 $445.00
13/10/2018 Sale -20 $100.00 63 $345.00
14/10/2018 Sale -10 $53.50 53 $291.50
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20/10/2018 Sale -5 $27.50 48 $264.00
21/10/2018 Sale -14 $77.00 34 $187.00
27/10/2018 Sale -22 $121.00 12 $66.00
28/10/2018 Purchase 80 $464.00 92 $530.00
30/10/2018 Sale -5 $27.50 87 $502.50
Total $1,044.00 $541.50
In this method can be seen that the cost of the closing stock comes out to be $502.50.
LIFO Method(Last in First out Method):LIFO method works on the assumption that the last
inventory is sold earliest and thus the closing stock is formed of inventory purchased in the
beginning. This method is unrealistic as a business model will always make an effort to sell old
inventory because it is getting obsolete and it also getting deteriorated as the time passes.
LIFO Method of Valuation:
Date Details
No of units
(Purchased
/ Sold)
Total
Purchase
Cost
COGS(LIFO
method)
Balance
of Units
Cost of
units on
hand
1/10/2018 Opening 0 $0.00 $0.00 0 $0.00
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Inventory
2/10/2018 Purchase 50 $250.00 50 $250.00
6/10/2018 Sale -15 $75.00 35 $175.00
7/10/2018 Sale -12 $60.00 23 $115.00
10/10/201
8 Purchase 60 $330.00 83 $445.00
13/10/201
8 Sale -20 $110.00 63 $335.00
14/10/201
8 Sale -10 $55.00 53 $280.00
20/10/201
8 Sale -5 $27.50 48 $252.50
21/10/201
8 Sale -14 $77.00 34 $175.50
27/10/201
8 Sale -22 $115.50 12 $60.00
28/10/201
8 Purchase 80 $464.00 92 $524.00
8

30/10/201
8 Sale -5 $29.00 87 $495.00
Total $1,044.00 $549.00
Here it can be seen that the closing stock is valued at $495.00 because of the fact that it majorly
consists of the stock purchased at the beginning at lower costs.
Weighted Average cost method:In this method of valuation, inventory at hand is averaged at
the time of selling goods and that calculated value is applied to the outgoing inventory. More
weight is given to older inventory and hence a weighted average is calculated for the same.
Weighted Average Method of Valuation:
Date Details
No of units
(Purchased
/ Sold)
Total
Purchase
Cost
COGS
(WAC
method)
Balance
of Units
Cost of
units
on
hand
1/10/2018
Opening
Inventory 0 $0.00 $0.00 0 $0.00
2/10/2018 Purchase 50 $250.00 50
$250.0
0
6/10/2018 Sale -15 $75.00 35
$175.0
0
7/10/2018 Sale -12 $60.00 23 $115.0
9

0
10/10/201
8 Purchase 60 $330.00 83
$445.0
0
13/10/201
8 Sale -20 $107.20 63
$337.6
8
14/10/201
8 Sale -10 $53.60 53
$284.0
8
20/10/201
8 Sale -5 $26.80 48
$257.2
8
21/10/201
8 Sale -14 $75.04 34
$182.2
4
27/10/201
8 Sale -22 $117.92 12 $64.32
28/10/201
8 Purchase 80 $464.00 92
$528.3
2
30/10/201
8 Sale -5 $27.85 87
$500.4
7
10

Total
$1,044.0
0 $543.41
The weighted average cost
per unit:
The total cost of all
purchased
Total of all purchased units
At the time of sale of 20units: $5.36
Same in case of sale of 10 units& 5 units: $5.36
At the time of sale of 5 units: $5.58
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ii)
Calculation of the amount of sales revenue and Gross profit using the FIFO, LIFO and
weighted average cost methods:
Sales revenue:
Particulars FIFO LIFO Weighted Average Cost
Opening Inventory $0.00 $0.00 $0.00
Add: Purchases $1,044.00 $1,044.00 $1,044.00
Cost of Goods available for sale $1,044.00 $1,044.00 $1,044.00
Ending Inventory $502.50 $495.00 $500.47
Cost of Goods Sold $541.50 $549.00 $543.53
Gross Profit:
Particulars FIFO LIFO Weighted Average Cost
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