Tamworth Trading Ltd is a company operating in the retail sector. The beginning inventory of Product EF5089 and information about purchases and sales made during June are shown below. Units Unit price $ June 1 Inventory 6,100 2.20 4 Purchases 4,600 2.25 9 Sales 4,100 12 Purchases 4,100 2.40 21 Sales 6,000 26 Purchases 3,100 2.50 Tamworth Trading Ltd uses the perpetual inventory system, and all purchases and sales are on credit. Selling price is $5 per unit. A stocktake on 30 June revealed 7,700 units in inventory. Ignore GST. Required: a) Using the FIFO method, prepare an appropriate inventory record for Product EF5089 for June.  b) Prepare an income statement down to the gross profit for Tamworth Trading Ltd for June.

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.