Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Cost of Sales Adjustment on Q2 June 2011 exam
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- April 14, 2016 at 5:49 pm #310112AnonymousInactive
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Hi Mr. Mike Little,
May I ask about a cost of sales adjustment regarding the closing inventory in this exam?
The examiner said:
“The inventory of Highwood was not counted until 4 April 2011 due to operational reasons. At this date its value at cost was $36 million and this figure has been used in the cost of sales calculation above. Between the year end of 31 March 2011 and 4 April 2011, Highwood received a delivery of goods at a cost of $2·7 million and made sales of $7·8 million at a mark-up on cost of 30%. Neither the goods delivered nor the sales made in this period were included in Highwood’s purchases (as part of cost of sales) or revenue in the above trial balance.”I was unsure about the wording of the last sentence “Neither the goods delivered nor the sales made in this period were included in Highwood’s purchases (as part of cost of sales) or revenue in the above trial balance.”
Now in the solution, cost of sales is adjusted with the adjusted closing inventory figure. But how one can arrive the conclusion that we need to adjust cost of sales with this sentence?
My understanding is that the examiner said neither the goods delivered nor the sales made in this period were included in Highwood’s purchases (as part of cost of sales) or revenue in the above trial balance, shouldn’t that mean neither the cost of sales nor the revenue need to be adjusted, only the closing inventory would need?
Thank you.
April 15, 2016 at 3:25 am #310166AnonymousInactive- Topics: 43
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Hi Sir,
Could you help me understand my question above? Thank you.
April 15, 2016 at 6:34 am #310172DON’T DO THIS TO ME!!!!
:-(((
I WILL reply to you but I do have other things to do in my life
When you ask me a question on this site it is a very unusual occasion when I don’t reply within 24 hours so I DO NOT NEED A REMINDER
April 15, 2016 at 6:41 am #310173“I was unsure about the wording of the last sentence “Neither the goods delivered nor the sales made in this period were included in Highwood’s purchases (as part of cost of sales) or revenue in the above trial balance.””
The trial balance is extracted from the accounting records as at the close of business on the year end. So any transactions subsequent to the year end are not reflected within the trial balance figures
But the inventory figure is $36 million as at 4 April. Although goods were received in that 4 days subsequent to the year end, and those goods have been included within the $36 million inventory value as at 4 April, those purchases are (correctly) NOT included within the purchases / cost of sales figure in the trial balance
Similarly the after-date sales have correctly been excluded from the trial balance revenue figure
Now you say “shouldn’t that mean neither the cost of sales nor the revenue need to be adjusted, only the closing inventory would need?” and, of course you are correct.
But humour me here …. remind me how the cost of sales figure is arrived at. From memory, there are three elements involved in the calculation of cost of sales, but I can’t for the life of me remember what they are. Can you help me? Or must I go back into John’s F3 lectures to find out how to arrive at cost of sales?
April 15, 2016 at 9:32 am #310192AnonymousInactive- Topics: 43
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Hi Sir,
Sorry for being so rude. I raised two same questions yesterday. The first one did not appear in the question list, so I thought may be the site crashed or something. I raised a second time and still no reflecting. I stopped and after a night found out the question appeared in the forum. But since suspecting that you may have not receive the question, I followed up again. Once again, feel sorry for being nuisance. Us self-learners feel really grateful for your effort you and Mr Moffat and other colleagues put in this great site.
To answer your question, I understand the closing inventory is calculated like:
Opening balance
Material purchased
Labour spent
Other direct costs apportioned
(cost of sales)
—————————————–
closing balance of the inventoryBut I thought the examiner indeed said “those purchases are Not included within the purchases/cost of sales figure nor those sales included in the revenue figure”.
Thus I’m lost why need to adjust if they were not included in the first place.
Thank you.
April 15, 2016 at 12:20 pm #310208“less closing balance of the inventory” – but the after-date items ARE reflected within the closing inventory figure and that’s why the closing inventory is adjusted and that’s why the cost of sales figure is adjusted
OK?
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