Question 1 Pluto Ltd is an Australian GST-registered business that uses a perpetual inventory system to record movements in its herbal drink merchandise

Finance Dec 09, 2021

Question 1

Pluto Ltd is an Australian GST-registered business that uses a perpetual inventory system to record movements in its herbal drink merchandise.

Its transactions for August 2021 are as follows:

Date	Particulars	Quantity(cartons)	Unit Cost (plus GST)
1 Aug	Beginning Inventory	2,200	$21
5 Aug	Purchases	1,800	$25
13 Aug	Sales	2,500
19 Aug	Purchases	3,100	$24
23 Aug	Sales returns	20	$25
29 Aug	Purchases Returns	50	$24

The selling price of each carton of herbal drink is $33 inclusive GST. REQUIRED:

a. If Pluto Ltd uses the First in, First Out (FIFO) cost flow assumption, i. calculate the value of the ending inventory on 31 August 2021 [6 marks] ii. calculate the cost of sales for August 2021. [2 marks] iii. calculate the gross profit for August 2021. [5 marks]

b. Due to competition from other health drink suppliers in Australia, the estimated unit selling price per carton is reduced to $20 net GST on 31 August 2021 i. At what value should the herbal drinks be reported in the Balance Sheet at 31 August 2021? Describe and explain the generally accepted accounting principle to support your answer. [3 marks] ii. Explain the monetary effect on the business expenses and equity for August 2021 as a result of the reduction of the estimated selling price of the herbal drink. [4 marks]