Using the same data as in the FIFO illustration above, prepare a Stores Ledger Account under the Simple Average Method (recomputing the average rate on every fresh receipt):
Jan 1: Opening stock 100 units @ ₹10
Jan 5: Purchased 200 units @ ₹12
Jan 10: Issued 150 units
Jan 15: Pur

Question

Using the same data as in the FIFO illustration above, prepare a Stores Ledger Account under the Simple Average Method (recomputing the average rate on every fresh receipt):
Jan 1: Opening stock 100 units @ ₹10
Jan 5: Purchased 200 units @ ₹12
Jan 10: Issued 150 units
Jan 15: Purchased 150 units @ ₹14
Jan 20: Issued 200 units
Jan 25: Purchased 100 units @ ₹16
Jan 28: Issued 100 units

Accepted Answer

Under the Simple Average Method, the issue rate is calculated as a plain, UNWEIGHTED average of the rates of the different batches currently in stock — quantities in each batch are deliberately ignored. This average is recalculated every time a fresh purchase is received, and the newly-computed rate applies to every issue made until the next receipt.

| Date | Receipt Qty | Receipt Rate (₹) | Receipt Amount (₹) | Issue Qty | Issue Rate (₹) | Issue Amount (₹) | Balance Qty | Balance Rate (₹) | Balance Amount (₹) |
|---|---|---|---|---|---|---|---|---|---|
| Jan 1 (Opening) | — | — | — | — | — | — | 100 | 10.00 | 1,000 |
| Jan 5 | 200 | 12 | 2,400 | — | — | — | 300 | 11.00 | 3,300 |
| Jan 10 | — | — | — | 150 | 11.00 | 1,650 | 150 | 11.00 | 1,650 |
| Jan 15 | 150 | 14 | 2,100 | — | — | — | 300 | 12.50 | 3,750 |
| Jan 20 | — | — | — | 200 | 12.50 | 2,500 | 100 | 12.50 | 1,250 |
| Jan 25 | 100 | 16 | 1,600 | — | — | — | 200 | 14.25 | 2,850 |
| Jan 28 | — | — | — | 100 | 14.25 | 1,425 | 100 | 14.25 | 1,425 |

**Working for each average rate:**

- After Jan 5 receipt: rates in stock are ₹10 (opening) and ₹12 (new lot). Simple average = (10 + 12) ÷ 2 = **₹11.00**. This rate prices the Jan 10 issue: 150 × ₹11 = ₹1,650.
- After Jan 15 receipt: rates in stock are treated as the previous average rate ₹11.00 and the new lot's rate ₹14. Simple average = (11 + 14) ÷ 2 = **₹12.50**. This rate prices the Jan 20 issue: 200 × ₹12.50 = ₹2,500.
- After Jan 25 receipt: rates are the previous average ₹12.50 and the new lot's rate ₹16. Simple average = (12.50 + 16) ÷ 2 = **₹14.25**. This rate prices the Jan 28 issue: 100 × ₹14.25 = ₹1,425.

**Total cost of material issued** = 1,650 + 2,500 + 1,425 = **₹5,575**
**Closing balance** = 100 units @ ₹14.25 = **₹1,425** …

Date	Receipt Qty	Receipt Rate (₹)	Receipt Amount (₹)	Issue Qty	Issue Rate (₹)	Issue Amount (₹)	Balance Qty	Balance Rate (₹)	Balance Amount (₹)
Jan 1 (Opening)	—	—	—	—	—	—	100	10.00	1,000
Jan 5	200	12	2,400	—	—	—	300	11.00	3,300
Jan 10	—	—	—	150	11.00	1,650	150	11.00	1,650
Jan 15	150	14	2,100	—	—	—	300	12.50	3,750
Jan 20	—	—	—	200	12.50	2,500	100	12.50	1,250
Jan 25	100	16	1,600	—	—	—	200	14.25	2,850
Jan 28	—	—	—	100	14.25	1,425	100	14.25	1,425

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