Perpetual and Periodic Inventory Systems
In the present days, there has many accounting softwares arrived in the market; however, the utility of Excel still persists. The Excel spreadsheet provides variety of functions and modality which is the most crucial advantage of using Excel in business management. The other accounting softwares are made customized to cater specific business needs. So, the utility of excel increases due to its flexibility and variety of functions being available for use.
The use of Excel is vulnerable to security threats and this is biggest disadvantages of using excel in business. Sometimes it is also time consuming for data maintenance as compared to fast customized softwares (Contractlogix, 2015).
Requirement-2
The separation of data section from the report section is very necessary when designing a spreadsheet. If the data section is not kept separate, it will be difficult for one to manipulate data to get different results. One needs to keep data section separate so that changes could be accommodated in the report automatically (Bowerman et al. 2003).
Requirement-3
Use of If function normal view
|
S. No. |
Data |
If data is more than or equals to 100, then good, else better |
|
A |
100 |
Good |
|
B |
50 |
Better |
|
A |
200 |
Good |
|
B |
99 |
Better |
|
C |
120 |
Good |
Use of If function formula view
Part-B
Introduction
This report presents the discussion on perpetual and periodic inventory system with a view to find out suitability of each system. Further, the report also covers inventory valuation and cost of goods sold computation for Fashion Haven.
Perpetual and Periodic Inventory Systems
The perpetual system of inventory record keeping is based on the premise that recording the transactions of sale and purchase and adjusting inventory on a routine basis is important. Thus, the inventory figures are adjusted on a daily basis or on the basis of some fixed routine in the perpetual inventory system. The periodic system is different from the perpetual. In the periodic system, the inventory figures are adjusted after the end of a definite period rather than routinely. In this system, the inventory is physically counted preferably at the quarter end and then adjustments are made to compute value of closing inventory and cost of gods sold (Stevenson, Hojati, & Cao, 2007).
It depends upon the business peculiarities to find the system suitable out of perpetual and periodic. The perpetual system is necessary for the business where volume of transactions is large with multiple products being dealt with. On the contrary, the period system is helpful where one or two products are being dealt and volume is low. Fashion Haven is a retail stores that deals with various types of clothes. Thus, considering the nature of business, perpetual system of inventory is recommended for Fashion Haven (Latosiíiski & Bartoszewicz, 2017).
Calculation of Ending Inventory and Cost of Goods Sold
Calculation of Ending Inventory and Cost of Goods Sold
Normal View
|
Data section |
|||||
|
Date |
Item |
Quantity |
Unit cost |
||
|
May |
1 |
Opening balance |
21 |
105 |
|
|
5 |
Purchase |
5 |
102 |
||
|
7 |
Purchase |
15 |
97 |
||
|
17 |
Purchase |
35 |
95 |
||
|
31 |
Inventory on hand |
16 |
|||
|
Sales revenue for May |
10,800 |
||||
|
Average cost method |
|||||
|
Date |
Item |
Quantity |
Unit cost |
Product |
|
|
May |
1 |
Opening balance |
21 |
105.00 |
2,205.00 |
|
5 |
Purchase |
5 |
102.00 |
510.00 |
|
|
7 |
Purchase |
15 |
97.00 |
1,455.00 |
|
|
17 |
Purchase |
35 |
95.00 |
3,325.00 |
|
|
Total purchases |
76 |
7,495.00 |
|||
|
Cost per unit |
98.62 |
||||
|
31 |
Inventory on hand |
16 |
|||
|
Cost of inventory |
|
|
1,577.89 |
||
|
Cost of goods sold |
60 |
5,917.11 |
|||
|
LIFO cost method |
|||||
|
Date |
Item |
Quantity |
Unit cost |
Product |
|
|
May |
1 |
Opening balance |
21 |
105.00 |
2,205.00 |
|
5 |
Purchase |
5 |
102.00 |
510.00 |
|
|
7 |
Purchase |
15 |
97.00 |
1,455.00 |
|
|
17 |
Purchase |
35 |
95.00 |
3,325.00 |
|
|
Total purchases |
76 |
7,495.00 |
|||
|
31 |
Inventory on hand |
16 |
|||
|
Cost of inventory |
|
|
1,680.00 |
||
|
Cost of goods sold |
60 |
|
5,815.00 |
||
|
FIFO cost method |
|||||
|
Date |
Item |
Quantity |
Unit cost |
Product |
|
|
May |
1 |
Opening balance |
21 |
105.00 |
2,205.00 |
|
5 |
Purchase |
5 |
102.00 |
510.00 |
|
|
7 |
Purchase |
15 |
97.00 |
1,455.00 |
|
|
17 |
Purchase |
35 |
95.00 |
3,325.00 |
|
|
Total purchases |
76 |
7,495.00 |
|||
|
31 |
Inventory on hand |
16 |
1,520.00 |
||
|
Cost of inventory |
60 |
|
5,975.00 |
Recommendation
The cost of inventory is $1,577.89, $1,680, and $1,520 under average cost method, LIFO, and FIFO method respectively. Fashion Haven is in the business of retail sales of clothes which is highly dynamic in nature and keeps changing with innovation. Thus, the company should follow FIFO system of inventory valuation.
Part-C
Requirement-1
The wrong deduction from the bank account of $520 is the transaction which will decrease the cash balance on preparing reconciliation. Similarly, outstanding cheque of $520 will decrease the balance of bank (Sian & Roberts, 2009).
|
Debit |
Credit |
|
|
Cash |
1,050.00 |
|
|
Dividend received |
1,050.00 |
|
|
Cash |
12,502.00 |
|
|
Accounts receivables |
12,502.00 |
|
|
Accounts receivables |
1,920.00 |
|
|
Cash |
1,920.00 |
|
|
Rates paid |
2,520.00 |
|
|
Cash |
2,520.00 |
|
|
Bank service charge |
250.00 |
|
|
Cash |
250.00 |
|
|
Cash |
12,030.00 |
|
|
Accounts payable |
12,030.00 |
|
|
Adjustment Wrong deduction |
520.00 |
|
|
Cash |
520.00 |
|
|
Cash |
122.00 |
|
|
Interest revenues |
122.00 |
Part-D
Introduction
This report deals with financial analysis of Coca-Cola Amatil Limited for the year 2017 with a view to make investment decision. The report also covers specific coverage of bad debts and sustainability initiatives taken by the company.
Inspection of Bad Debts
As enunciated in the accounting policy of the company, the bad debts are recognized based on the identification of such situation giving rise to insolvency of the party. The trade receivables are verified for loss of recovery in amounts on a periodic basis. In the year 2017, the company did not recognize the bad debt at all (CocaCola, 2017).
However, there is a method of bad debt recognition namely percentage to sales method. The company may follow a method where amount of bad debt expense would be determined based on certain predetermined rate applied on the credit sales.
Analysis of the Company’s Financial Information
There are three crucial aspects of financial analysis such as profitability, liquidity, and solvency. In order assess profitability of Coca-cola Amatil, the net margin ratio has been computed. The net margin ratio depicts profits as a percentage to revenues and thus, it gives an essential insight into the firm’s profitability. The chart given below shows that net margin ratio was higher in the year 2017 as compared to 2016 (CocaCola, 2017). This signifies that the company is performing well.
Further, in order to assess liquidity and solvency, two ratios such as current ratio and debt equity ratio have been computed as show in the chart given below:
The current ratio measures short term liquidity of the business while debt equity ratio measures long term solvency position of the business. The current ratio has declined in the year 2017 to 1.52 times from 1.68 times in the year 2016. This shows that the liquidity position of the company has diminished in the current year. The debt equity ratio has increased in 2017 to 2.70 times from 2.18 times in 2016, which implies that solvency risk in the company has risen (CocaCola, 2017).
Company’s Report on Sustainability
The company includes strategy on sustainability in its annual report. The company reports initiatives taken by it in compliance with the global reporting standards. Coca-cola Amatil has set many goals to achieve sustainability. One of them is harm free environment of working. The company has been able to maintain good governance leading to good sustainability (CocaCola, 2017).
Recommendation
Overall, the financial performance of Coca-Cola Amatil seems to be improving which means that the investors can seek investment in this company. The deteriorating liquidity and solvency positions are short term phenomenon (CocaCola, 2017).
References
Bowerman, B. L., O’Connell, R. T., Murphree, E., Huchendorf, S. C., & Porter, D. C. (2003). Business statistics in practice(pp. 728-730). New York: McGraw-Hill/Irwin.
CocaCola. (2017). Annual report of coca-cola Amatil Limited.
Contractlogix. (2015). Top 3 Disadvantages of Using Spreadsheets for Contract Management.
Latosiíiski, P., & Bartoszewicz, A. (2017, August). Inventory management strategies with higher relative degree sliding variables. In Methods and Models in Automation and Robotics (MMAR), 2017 22nd International Conference on (pp. 425-430). IEEE.
Sian, S., & Roberts, C. (2009). UK small owner-managed businesses: accounting and financial reporting needs. Journal of Small Business and Enterprise Development, 16(2), 289-305.
Stevenson, W. J., Hojati, M., & Cao, J. (2007). Operations management (Vol. 8). Boston: McGraw-Hill/Irwin.
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