FIRST-IN-FIRST-OUT INVENTORY SYSTEM
QUESTION 1
The following information was obtained from the financial records of Ezra Stores for the year
ended 28 March 2015. The entity uses the FIFO method for inventory valuation.
Jan 1
Jan 9
Feb 8
Feb 14
March 25
Inventory on hand: 8 units @ R4 per unit
Purchase 10 units @ R5 per unit
Sold 10 units @ R12 per unit
Purchase 15 units @ R7 per unit
Purchase 12 units @ R7.50 per unit
Sold 15 units @ R12 per unit
32
50
120
105
90
180
Required:
Calculate the value of closing stock, cost of sales and gross profit of Ezra Stores for the
financial year ended 28 March 2015.
Solution:
Closing stock:
Units in opening stock
Units purchased (10 + 15 + 12)
Units sold
Units in closing stock
Closing stock will be valued at the cost price of the latest purchase (March, Feb, Jan)
Latest purchase (March – R7.50), thus 12 units x R7.50
Second last purchase (February – R7), thus 8 units x R7
Cost of sales:
Older stock are usually sold first, therefore the purchases in January will be sold first,
then February and then March. Cost of sales for 25 units were sold: 
8 @ R4
10 @ R5
7 @ R7
8 units
37 units
 (25 units)
20 units
R90
56
R146
R32
50
49
R131
Gross profit: Perpetual inventory system
Sales – cost of sales = Gross profit
Sales (25 x R12)
Cost of sales (from above)
Gross profit
Gross profit: Periodic inventory system
Sales (10 x R12) + (15 x R12)
Cost of sales
Opening inventory
Purchases (50 + 105 + 90) 
Closing inventory
Gross profit
R300
(131)
R169
R300
(131)
32
245
(146)
R169
What did we learn:
When the FIFO method is used the first purchases will be sold first.
Therefore the cost of sales will consist of the first purchases, then second purchases, etc.
The closing inventory will consist of the last purchases, second last purchases, etc.
When the FIFO method is used the cost of sales and closing inventory figure will be the
same irrespective whether you use the periodic or perpetual inventory method.