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5.25 A friend who owns a small entity trading as Jobs Galore knows that you are studying accounting, and has asked if you would prepare the entity’s classified balance sheet as at 30 June. The friend has provided you with the following list of assets and liabilities (the equity figure has not been provided) to perform this task:

JOBS GALORE
Balance Sheet as at 30 June $ $
Assets
Current
Cash 4 000
Accounts receivable 3 500
Prepaid rent 700
Total current assets 8 200

Non-current assets
Motor vehicles 24 000
Equipment 16 000
Total non-current assets 40 000

Total assets 48 200

Liabilities
Current
Accounts payable 6 000
Accrued wages 1 200
Total current liabilities 7 200

Non-current
Loan 18 000

Total liabilities 25 200
Net Assets $23 000
Equity $23 000

5.46 Valuing inventory

Freedome Furniture Ltd

a. Explain why the inventory costing method affects the financial reporting numbers.

The inventory costing system affects financial reporting in two ways as it impacts on the carrying amount of assets on the balance sheet and on the cost of sales expense in the income statement. This is because:
 the inventory on hand at the end of the period is recorded as an asset in the balance sheet.
 the inventory on hand at the end of the period affects the calculation of the cost of sales in the income statement (cost of sales = opening inventory + purchases – closing inventory).
 the inventory on hand at the end of one period becomes the inventory on hand at the beginning of the next period and feeds into the cost of sales calculation in the income statement for the next period.

b. Compare the value of the office chairs on hand as at 30 June, to be included in the inventory balance on the balance sheet, using the following cost flow assumptions:
i. FIFO ii. weighted-average

Date
Units
Price ($)
Total ($)
Opening balance
14
110
1 540
August
25
122
3 050
October
30
130
3 900
December
35