Stockholm Ltd wholesales bicycles. It uses the perpetual inventory method and allocates cost to inventory on a first-in, first-out basis. The company’s reporting period ends on 31 March. At 1 March 2013, inventory on hand consisted of 350 bicycles at $82 each and 43 bicycles at $85 each. During the month ended 31 March 2013, the following inventory transactions took place (all purchase and sales transactions are on credit):
March 1 Sold 300 bicycles for $120 each.
3 Five bicycles were returned by a customer. They had originally cost $82 each and were sold for $120 each.
9 Purchased 55 bicycles at $91 each.
10 Purchased 76 bicycles at $96 each.
15 Sold 86 bicycles for $135 each.
17 Returned one damaged bicycle to the supplier. This bicycle had been purchased on 9 March.
22 Sold 60 bicycles for $125 each.
26 Purchased 72 bicycles at $98 each.
29 Two bicycles, sold on 22 March, were returned by a customer. The bicycles were badly damaged so it was decided to wto write them off. They had originally cost $91 each.
Required
1. Calculate the cost of inventory on hand at 31 March 2013 and the cost of sales for the month of March.
2. Show the Inventory general ledger control account (in T-format) as it would appear at 31 March 2013.
3. Calculate the gross profit on sales for the month of March 2013.
4. IAS 2 requires inventories to be measured at the lower of cost and net realisable value. Identify three reasons why the net realisable value of the bicycles on hand at 31 March 2013 may be below their cost.
5. If the net realisable value is below cost, what action should Stockholm Ltd take?
