Observation

Candidates’ performance was average. However, some candidates could not differentiate between objectives and functions and thereby, lose some marks in this question.

(i) Purchase requisition - A purchase requisition is a form used as a formal request by the storekeeper to the purchasing department to purchase requisite quantity of materials. When stock reaches re-ordering level, the storekeeper initiates purchase requisition to the purchasing department for fresh supply of materials.

(ii) Perpetual inventory system - This is a system of record maintained by the controlling department which reflects the physical movement of stocks and their current balances.

(iii) Bin card - It is a document used in recording stock, after every receipt and every issue and their current balances. To ensure accuracy, the physical verification may be made which must agree with the balance of the Bin Card and the Store Ledger.

(b) (i) Advantages of First In, First Out (FIFO) method

- It is easy to understand and simple to operate;

- This method gives better result in case of falling prices;

- The closing stock of materials will be represented at the current market price;

- It is based on actual costs and no profit or loss arises;

- It is useful where transactions are not voluminous;

- This method helps to avoid deterioration and obsolescence;

- It is suitable for bulky materials with high unit prices.

(ii) Disadvantages of First In, First Out (FIFO) method

- This method could cause error if prices change regularly/frequently;

- The costs charged to the same job are likely to show variation from time to time;

- The calculation of issues are very cumbersome;

- The cost comparison of two consecutive jobs is difficult because of various issue rates;

- Accounting for costs when inventory is returned or exchanged is quite complex;

- It does not reflect current price;

- It overstates profit during inflation.