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6.6 A company with an accounting date of 31 October carried out a physical check of inventory on
4 November 20X3, leading to an inventory value at cost at this date of $483,700.
Between 1 November 20X3 and 4 November 20X3 the following transactions took place:
1 Goods costing $38,400 were received from suppliers.
2 Goods that had cost $14,800 were sold for $20,000.
3 A customer returned, in good condition, some goods which had been sold to him in October for
$600 and which had cost $400.
4 The company returned goods that had cost $1,800 in October to the supplier, and received a
credit note for them.
What figure should appear in the company’s financial statements at 31 October 20X3 for closing
inventory, based on this information?
A $458,700
B $505,900
C $508,700
D $461,500The correct answer is D.
But please clarify the scenario 3 and 4.
3. since the goods return from custom in October, so it means before October end, and if so why we need to adjust and if we need to adjust why we need to Less ?
4. since the goods is return to supplier in October, so it means before October end, and if so why we need to adjust and if we need to adjust why we need to Add ?
Thank you in advance sir!
3. Although the goods had been bought in October, there were not returned in October – they were returned ‘between 1 November and 4 November’.
4. The same applies here as in point 3.
All four transactions occurred between 1 and 4 November (as written in the question).
Yeah Thank sir I see all Transaction are incurred between Nov 1 and Nov 4, but could you please explain me more why we Less goods return from customer and why we Add goods return to supplies ?
We need to know the inventory as at the end of October.
If a customer returns goods to us between 1 and 4 November, then as at 4 November these goods will be in the inventory. However the weren’t there at the end of October and therefore we need to subtract from the inventory counted at 4 November.
Similarly, if we return goods to the supplier then they will not be in the inventory at 4 november, but they were there at the end of October – so we need to add them to the inventory as at 4 November.
On 1 September 20×7, William had inventory of $590,000. During the month, sales totaled $2,200,000 and purchases $1,820,000. On 30 September 20×7 a fire destroyed some of the inventory. The undamaged goods were valued at $390,000. The business operates with a standard gross profs mark up of 10%.
What is the cost of the inventory destroyed in the fire ?Answer is $20,000.
But I don’t know how to get to this answer. Can you please explain ?
Thank you.
It would seem that you have not watched my free lectures on mark-ups and margins, and I suggest that you do. The lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
The sales were 2,200,00, and to the cost of the sales was 100/110 x 2,200,000 = 2,000,000.
Therefore the closing inventory should have been 590,000 + 1,820,000 – 2,000,000 = 410,000.
The actual inventory was only 390,000.
Therefore the inventory destroyed must have been 410,000 – 390,000 = 20,000
Please do watch the lectures – I am not going to type them all out here 🙂 🙂
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