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Sir, could you please help to explain Q5 in the quiz. How come we need to add back the goods returned? On 4th Jun, the inventory figure should have reflected this 700, shouldn’t we work back by deducting it ?
We wish to calculate the inventory as at 31 May.
They returned goods to the supplier between 31 May and 4 June, so as at 31 May the inventory will have been higher than it was on 4 June.
Aiya, I read the question wrongly. Thank you, sir.
You are welcome 馃檪
A sole trader fixes her prices by adding 50 per cent to the cost of all goods purchased. On 31 October 20X3 a fire destroyed a considerable part of the inventory and all inventory records.
Her trading account for the year ended 31 October 20X3 included the following figures:
$ $
Sales 281,250
Opening inventory at cost 183,600
Purchases 249,200
432,800
Closing inventory at cost 204,600
228,200
Gross profit 53,050
Cost of sales = $281,250 x 2/3 = $187,500
Loss of inventory = $228,200 – 187,500 = $40,700
so why is it $281,250 x 2/3 why do we need to multiply 2/3?
In future you must ask questions like this in the Ask the Tutor Forum, and not as a comment on a lecture.
For every $2 cost, then add on a profit of $1 (50% x $2), and get a selling price of $3.
So for every $3 selling price, the cost is $2. So the cost is always 2/3 x selling price.
thanks John
really appreciate
I almost there!
this is a topic requires a private tutor!
I am still confused with this question.
stion 4 Chapter 18 Silver Co made sales of $193,200 during the year ended 31 August X1. Inventory decreased by $13,200 over the year and all sales were made at a mark up of 42%. What was the cost of purchases during the year, to the nearest $1,000?
A $149,000 B $136,000 C $123,000 D $109,000
If there is a mark-up of 42% then for every 100 cost, the profit is 42 and the sales are 142.
So for sales of 193200, the cost must have been 100/142 x 193200 = 136,056
Of that cost, 13,200 came out of inventory and so the remainder of 122,856 were purchases.
Thank you Sir, I got it now
You are welcome 馃檪
Hi Sir,
Please do explain question 2 & 3? It’s very confusing too me. I’m having a lot of trouble with it.
Question 2: We know the inventory on 4 June and we need to work backwards to find out what it was on 31 May. So we need to subtract any purchases made between the dates (8,600) because they were not there on 31 May; we need to add back the cost of any sales made between the dates (70% x 14,000) because they were there on 31 May; and we need to add back any returns made between the dates (700) because they were there on 31 May.
So inventory on 31 May = 836,200 – 8,600 + 9,800 + 700 = 838,100
Question 3: Revenue was understated, so actual revenue is 10,000 higher at 90,000; and actual profit is 10,000 higher at 30,000.
Closing inventory was overstated, so revenue is not affected and stays at 90,000, but cost of sales in understated and therefore profit overstated by 5,000 and should be 25,000.
So profit percentage = 25,000/90,000 = 27.8%