Happy Limited purchased 150,000 units of inventory (goods) for resale at ₦5 per unit on 1 January 2018 and sold them on 31 May 2018 for ₦8 per unit. The current replacement cost to the company is ₦6 per unit based on the current prevailing price to the company if the same inventory is to be purchased now.
Required: Determine the gain (profit) from the sale assuming all inventory are sold, and separate the gain into the following:
i. Holding gain
ii. Operating gain
See a suggested solution to practice activity 14.4 here.
Suggested solution to practice activity 14.4
Profit on the sale of inventory ₦
Sales (₦8 * 150,000 units) 1,200,000
Less: Cost of Sales (₦5 * 150,000 units) (750,000)
Profit/Gain 450,000
The gain is separated as follows:
₦
(i) Holding Gain (₦6 – ₦5)* 150,000 units) 150,000
(ii)Operating Gain (₦8 – ₦6) * 150,000 units) 300,000
450,000
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