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Hello Sir, In the BPP 19.3 Tonson ,
Question : Do each of these items belong in the profit or loss account as at 31 October 20X6 ? I had confusion about the question
Consider the following items which is an extract of the question :
Administrative Expenses
Inventory at 1 november 20X5
Returns Inward
Irrecoverable debts
Loan Note InterestI had put the answer that all the of them appear in P/L account
But in the BPP answers , all except Opening Inventory are included in P/L account
I thought that maybe this is because Opening Inventory forms part of Cost of Goods sold but then
This would have to be applied on Irrecoverable debts which forms part of Administrative Expenses and Loan Note Interest as well which forms part of Finance Costs but it says that Loan Note Interest and the irrecoverable debts are included and inventory not.Can Someone Please Explain this to me ?
Where did i go wrong ?Thank you very much
I can understand why you are confused, but there is a difference.
Irrecoverable debts and loan not interest are actual expenses. The company can (and usually does) show expenses in totals rather than list them separately, but they can list them separately if they want to.
However the opening (and closing) inventories are neither income nor expenses and as such are not shown on the SOPL as income or expense. They are only used as workings for calculating the cost of goods sold, and it is the cost of goods sold that is the expense.
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