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September 30, 2015 at 1:32 am
Please do explain question 2 & 3? It’s very confusing too me. I’m having a lot of trouble with it.
John Moffat says
September 30, 2015 at 7:27 am
Question 2: We know the inventory on 4 June and we need to work backwards to find out what it was on 31 May. So we need to subtract any purchases made between the dates (8,600) because they were not there on 31 May; we need to add back the cost of any sales made between the dates (70% x 14,000) because they were there on 31 May; and we need to add back any returns made between the dates (700) because they were there on 31 May.
So inventory on 31 May = 836,200 – 8,600 + 9,800 + 700 = 838,100
Question 3: Revenue was understated, so actual revenue is 10,000 higher at 90,000; and actual profit is 10,000 higher at 30,000.
Closing inventory was overstated, so revenue is not affected and stays at 90,000, but cost of sales in understated and therefore profit overstated by 5,000 and should be 25,000.
So profit percentage = 25,000/90,000 = 27.8%
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