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Lecture 18

The document compares perpetual and periodic inventory costing methods using GSI as an example. It details the calculations for sales, cost of sales, gross profit, and ending inventory under both systems, highlighting differences in inventory valuation. The perpetual system applies LIFO continuously, affecting the carrying amounts of inventory and cost of sales differently than the periodic system.

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mamunrasel1998
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2 views4 pages

Lecture 18

The document compares perpetual and periodic inventory costing methods using GSI as an example. It details the calculations for sales, cost of sales, gross profit, and ending inventory under both systems, highlighting differences in inventory valuation. The perpetual system applies LIFO continuously, affecting the carrying amounts of inventory and cost of sales differently than the periodic system.

Uploaded by

mamunrasel1998
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Perpetual vs periodic Inventory costing

GSI (the company in Example 2) had used a perpetual inventory system, the timing of purchases
and sales would affect the amounts of cost of sales and inventory. Below is a record of the
purchases, sales, and quantity of inventory on hand after the transaction in 2018.

The amounts for total goods available for sale and sales are the same under either the perpetual
or periodic system in this first year of operation. The carrying amount of the ending inventory,
however, may differ because the perpetual system will apply LIFO continuously throughout the
year. Under the periodic system, it was assumed that the ending inventory was composed of
80,000 units of the oldest inventory, which cost 110 AED/kg. What are the ending inventory, cost
of sales, and gross profit amounts using the perpetual system and the LIFO method?

Solution

The carrying amounts of the inventory at the different time points using the perpetual inventory
system are as follows:
Perpetual system: Sales = 520,000 × 240 = 124,800,000 AED
Cost of sales = 58,000,000 – 7,600,000 = 50,400,000 AED
Gross profit= 124,800,000 – 50,400,000 = 74,400,000 AED
Ending inventory = 7,600,000 AED

LIFO: Sales = 520,000 × 240 = 124,800,000 AED


Cost of sales = (20,000 × 110) + (200,000 × 100) + (300,000 × 90) = 49,200,000 AED
Gross profit = 124,800,000 – 49,200,000 = 75,600,000 AED
Ending inventory = 80,000 × 110 = 8,800,000 AED
Revalua'on reserve

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