What amount will Amara report as Cost of Goods Sold

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Reference no: EM133032428

Problem - Amara Ltd was founded on 1st January 2019. Amara sells bed frames to customers. The company has adopted a periodic inventory system together with the average cost cost-flow assumption (AVCO) to determine the Cost of Goods Sold for the year. The company's inventory transactions for its first year of operation to December 31st, 2019 are as follows:

Date

Description

Units

Cost price per unit

Selling price per unit

Jan 1

Beginning Balance

100

$160

 

Feb 2

Purchase

500

$140

 

Mar 15

Sales

350

 

$200

Jul 28

Purchase

150

$120

 

Oct 25

Sales

200

 

$200

Dec 26

Sales

100

 

$200

Dec 29

Purchase

200

$100

 

Required -

(a) What amount will Amara Ltd report as its Inventory balance in the Current Asset section of its Balance Sheet? What amount will Amara report as Cost of Goods Sold for the year ended 2019 financial year?

(b) If Amara Lid had adopted First-In First-Out (FIFO) as its cost flow assumption on 1st January 2019, what Cost of Goods Sold figure would have been reported in its Statement of Financial Performance for the 2019 financial year?

(c) Management is aware of another cost-flow assumption; Last-In First-Out (LIFO). Which of the three cost-flow assumptions; AVCO, FIFO or LIFO will yield the highest Gross Profit Margin for the 2019 year if 80% of Sales are on credit? Explain.

Reference no: EM133032428

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