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Hello Chris,
Since I am unable to copy the whole question of section C from the online BPP mock exam site, I will just give u that piece of information from where i have my doubts.
We have to prepare SOPL and SOFP for Highwood from the given trial balance.
In the notes it is mentioned that:
The inventory of Hihwood was not counted until 4th April and it was about 36 mn which is included in the cost of sales given in the trial balance. Between the period of 31 march and 4 th april, Highwood received a delivery of good of 2.7 mn and made a credit sales of 7.8 mn both of which are not included in eith revenue or COS in the trial balance.So my question is when I am preparing the SOPL, am i not supposed to add the credit sales to the revenue and also increase my receivables to the same amount. Also COS will need to be adjusted for the same right?
Suggested answer only does correction for inventory levels in sofp.
Please clarify.
Sorry for all my spelling mistakes.
Thanks in advance
PoonamHi Poonam,
No, the key is that the inventory was counted after the reporting date and so the figure counted will not reflect the true inventory value at the end of the year. Effectively this then means that we need to work backwards from the 36 million figure to get the reporting date figure.
The delivery of goods needs to be removed from what has been counted as it wouldn’t have been there at the reporting date. So we will remove the 2.7 million from the inventory valuation.
The sale of the goods needs to be adjusted too by adding them back in to the inventory valuation as these would have been in inventory at the reporting date. This will need to be added back at cost, so there must be a mark-up margin figure within the question to get the cost.
No adjustment is required for the revenue as the sale has not been included in the TB as per the question.
Hope that all helps.
Thanks
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