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- May 26, 2017 at 9:58 am #388192
Hi My dear Tutor, I have a question.I do not know in which past paper it exists but i took it from Becker.
But if it is Highwood you will know which trial balance is itTrial balance at 31 March
Inventory-36000The inventory of Highwood was not counted until 4 April 2014 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 2014 and 4 April 2014, 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
Solution
opening inventory-36000
delivery-(2700) usually purchase included in opening inventory but in this case no delivery received?am i right?
then cost of sales-6000
closing inventory=39300sales-7800
cost of sales (7800*100/130)-6000
gross profit-1800debit inventory 6000
credit cost of sales-60002700-6000=3300 it should be deducted from cost of sales-this part became unclear for me?
could you explain?May 26, 2017 at 3:22 pm #388283Imagine, there you are on April 4 and you have $36 million inventory in front of you
But you KNOW that $2.7 million of those goods weren’t there 4 days ago – they have been received in April so they weren’t there at the end of March
And you also know that 4 days ago there were some goods here but they aren’t here now – they’ve been sold for $7.8 million
But we know also that those goods had a cost price of $6 million and we know that they WERE in inventory as at 31 March
So on the one hand, if we want to find out what the situation was on 31 March, we have to deduct $2.7 million and we have to add $6 million
Is that better?
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