Page 73 - Accountancy_F5

Example 2.12
The following relates to the Swahili business for the year ended 31 December 2023.
st
Date Details Costs price Retail price
TZS TZS
1 Jan. 2023 Opening inventory 261,000 417,600
st
FOR ONLINE READING ONLY
0 Jun. 2023 Purchases 210,250 307,400
th
30 Sep. 2023 Sales - 246,500
th
Required: Estimate the value of closing inventory using the retail method as of
December, 2023
LANGUAGE EDITING

Solution 2.12
Apply the steps of the retail method to solve the problem presented in Example 2.12:

Step 1: Determine the cost of goods available for sale in retail price and cost price.
Details Costs price Retail price

TZS TZS
Opening inventory 261,000 417,600

Add: Purchases 210,250 307,400
Cost of goods available for sale 471,250 725,000

Step 2: Calculate the cost to retail ratio

Cost of goods available for sale at cost price
Cost of retail ratio = # 100
Cost of goods available for sale at retail price
471 ,250
= # 100 = 65 %
725 ,000

Step 3: Calculate the value of closing inventory at retail price
Inventory at retail price
= Cost of goods available for sale at retail price – Sales figure
Inventory at retail price = 725,000 – 246,500 = TZS 478,500
Step 4: Obtain the closing inventory at cost by taking step (2) × step (3)
Closing inventory = cost to retail ratio × closing inventory at retail prices.
Values of closing inventory = 65% × 478,500 = TZS 311,025

Student’s Book Form Five
60

23/06/2024 17:35
ACCOUNTANCY_DUMMY_23 JUNE.indd 60 23/06/2024 17:35
ACCOUNTANCY_DUMMY_23 JUNE.indd 60