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I abstracted this question from BPP material.
The inventory value for the financial statement of Q for the year ended 31 December 20X4 was based on an inventory count on 4 January 20X5, which gave a total inventory value of 836,200 between 31 December and 4 January 20X5, the following transactions took place:
Purchase of goods 8,600
Sales of goods ( profit margin 30% on sales) 14,000
Goods returned by Q to supplier 700
What adjusted figure should be included in the financial statements for inventories at 31 December 20X4?My problem is that I dont know exactly what does the total value of 836,200 mean? Is it a opening inventory of the year ended 31 December?
I did as Value of inventory figure in financial statement = 836,000+8,600+9800( cost of goods)-700 = 853,900 but this is the wrong answer…Could I have a favor of you?They should have counted the inventory on 31 December 20X4.
However, for whatever reason they did not count it until 4 January 20X5, and on that date it was 836,200.
We need to know what it was on 31 December, which will be different from 836,200 because during the period they have been buying, selling and returning goods.
So we need to work backwards. Any that they bought will have increased the inventory and so we need to subtract from the value on 4 Jan to find what it would have been on 31 Dec. Any that they sold will have reduced the inventory, so we need to add to the value on 4 Jan to find out what it would have been on 31 Dec. And finally, any they returned will have reduced inventory, so we need to add to the value to find out what it would have been on 31 December
So the value on 31 December will have been 836,200 – 8,600 + 9,800 + 700 = 838,100
But, the value of 838,100 is the closing stock of inventory at the year ended 31/12/20X4?
Hix, but one things I still didn’t know is that if the $838,100 is the closing stock of the 31/12/20X4 so which side this value will be in? Debit or credit side? Because largely the closing stock of inventory current year will be the value of opening inventory in next year…so why value of closing stock $838,100 have to substract the purchase, plus the cost of goods and plus the goods return? That is contrary!!
Debits and credits are complete unnecessary in this sort of question (F3 is not a debit/credit exam – computers do that for us – and there is very little testing of debits and credits).
If the inventory is 838,100 at the end of December, then if you buy more in January then the inventory will increase.
Here we did not know what it was at the end of December, but we know what it is in January. So at the end of December it must have been lower than it was in January after having bought more.
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