Unit 3 - Homework Help

[siddhartharora]

Hey everybody!

I'm just trying to get some homework for Accounting out of the way. Have spent around 2 hours working on this but the textbook hasn't got any answers or help on these questions. Hopefully someone can help me out

1) Explain the effect on Net Profit of using the FIFO cost assignment method at a time when suppliers' prices are falling.

2) Explain the effect on the accounting equation if the transaction on 16 March 2013 (memo 63)* has not been recorded (in the stock card).

*Frank gave 2 batteries as prizes for the local school's annual raffle. (Memo 63)

3) Apart from the stocktake itself state on reason to explain how a stock gain occurs.
(A bit confused here, but would the fact that the supplier may have over-supplied be an answer?)

4) Explain why a stock gain is recognised as revenue.
(Once again, not too sure but I've generally thought this may be the answer: Due to the fact that extra stock has been identified by the business, stock gain should be recognised as revenue since an increase in economic benefit in the form of inflows of assets has resulted in increases in equity.)


I'm not after exact answers to copy them into my homework book, but just to get these questions clarified and get a good grasp on the content these questions cover so that its less difficult when it comes to the SAC and exam.

Cheers!

[abcdqdxD]

I'll give you a brief answer for each of them so you can try to expand on them. If you still you trouble feel free to ask again

1) cost of sales overstated -> net profit understated   (would appreciate it if someone could confirm this - haven't done this question in almost a year)

2) Is batteries part of stock control? Let's assume it is. Recording it would be DR Advertising CR Stock Control (by value as per stock card). If we didn't record it, advertising expense woudl be understated, and stock control overstated.

3) oversupply from supplier, undersupply to customer

4) stock gain increases the balance of stock control, representing inflow of economic benefit, etc.

[Sach1_K]

I understood answers for 3 and 4, but can you clarify in detail Question 1 and 2? If not confident with 1, at least 2? Cheers!

In times of falling prices the most expensive stock would the first stock in right? So applying FIFO would mean that the most expensive stock would be out first, which would mean cost of sales would be overstated, understating net profit.

And with 2

I'll give you a brief answer for each of them so you can try to expand on them. If you still you trouble feel free to ask

2) Is batteries part of stock control? Let's assume it is. Recording it would be DR Advertising CR Stock Control (by value as per stock card). If we didn't record it, advertising expense woudl be understated, and stock control overstated.

Shouldn't the stock overstated be picked up in the physical stocktake. Meaning It should be like advertising understated and stock loss overstated?

[abcdqdxD]

Hmm depends on the context of the question imo. If you're looking at the transaction in isolation, then it would be what I said. If you're looking at the overall effect on net profit for the period, then what you said is correct. I remember a VCAA question similar to this in the exam

[siddhartharora]

Hmm depends on the context of the question imo. If you're looking at the transaction in isolation, then it would be what I said. If you're looking at the overall effect on net profit for the period, then what you said is correct. I remember a VCAA question similar to this in the exam

I'd say its asking for the effect for the period, seeing as the question states 'at a time when suppliers' prices are falling'. I don't know if its otherwise, but I went with what Sach1_K said.

Also, in regards to donations of stock by the firm to e.g. local community, will result in a decrease in stock control, hence what part of the accounting equation will be affected?

[abcdqdxD]

I was referring to the Memo 63 question