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  1. Plz can someone show me how to solve Question 3 from this chapter 18 in the course notes?
    Revenue 80,000
    Gross Profit 20,000
    It was discovered that Revenue was understated by 10,000 and Closing Inventory overstated by 5,000. Find the% change in gross profit after correcting errors?

    • The question does not ask for the % change in gross profit. It asks what the gross profit percentage will be.

      The revenue was understated, so the correct revenue is 80,000 + 10,000 = 90,000.

      More revenue means more gross profit, and if the closing inventory is overstated then it means that the profit is also understated. So the correct gross profit is 20,000 + 10,000 – 5,000 = 25,000

      So the gross profit %age is 25,000/90,000 = 27.8%

      • Ohkk…now i see, i did get 27.77 as i was trying to work my way thru to get the answer backwards but i just cudnt understand why the % was taken over the sales revenue of 90k rather than over the older GP value. Thanks a lot sir:):)

      • Hello ACCA Tutor. Thank you for a great lecture and for a great note. I was doing the same question as wang9ackles above. (question 3). I understand the whole point. but I thought when closing inventory is overstated. sales is also overstated and also gross profit. So my answer came up like this.
        Sales = 80000+10000-5000 = 85000
        Profit = 20000+10000-5000 =25000
        then the percentage =25000/85000 =29.4%
        what point did I miss here?

  3. could anyone help me with this question from BPP its as follow
    Bob is a sole trader.He has calculated a cost of sales figure for the year, which is $ 342,000.Bob received a payment of $8,030 into the business bank account for goods sold on a special deal to Harry and this amount has been included within sales.The figure of $ 8,030 was calculated by adding a mark up of 10% to the cost of the goods. His gross profit percentage on all other goods sold was 20% of sales.
    What is the total figure of sales for the year?
    .A) $ 401,640
    B) $ 402,370
    C) $ 418,375
    D) $ 426,405
    The answer is D

    Please help me out

    • 8,030 was a special deal. 8,030 is the selling price and there is a mark-up of 10%.
      So the cost of these was 8,030 / 1.10 = 7,300

      The total cost of sales was 342,000, but this includes the 7,300 above. So the cost of other goods was 342,000 – 7,300 = 334,700.
      These was sold at a gross margin of 20% and so the sales value was 334,700 / 0.8 = 428,375.

      Add the special sales to this: 418,375 + 8,030 = 426,405

    • @zinnat10,
      open inventory 318000
      + purchases 412000
      – cogs 459000 ( cogs=612000-0.25*612000)
      closing inventory 214000
      => loss in inventory is 57000 (318000+412000-459000-214000)
      hope that helps

    • @nhs14, The cost of sales at the moment is 40,000 + 60,000 – 50,000 = 50,000.

      Sale prices are 2 times the cost, and so either sales should be 100,000 (2 x 50,000), or cost of sales should be 47,500 (95,000 / 2 ).

      Choice 1 would mean that the sales would have been 100,000, so that is correct.
      Choice 3 would mean that the cost of sales would be 47,500 so that is correct.

      Neither of the other two choices would work.

    • @williamansah, For question 3:
      Firstly, revenue was understated by 10,000.
      This means that the correct revenue should be 80000 + 10000 = 90000.
      It also means the profit would be 20000 + 10000 = 30000

      Secondly, closing inventory was overstated by 5000. Reducing the closing inventory will reduce the profit, so this would make the profit 30000 – 5000 = 25000

      So, the correct gross profit percentage is 25000 / 90000 = 27.8%

      For question 4:

      If sales are 193200, the cost of sales is 100/142 x 193200 = 136056.

      Since inventory fell by 13200, this means that 13200 of the sales came from inventory and only the remainder needed purchasing.

      So, the purchases are 136056 – 13200 = 122856

  12. Silver Co made sales of $193200 during the year ended 31 August X1.Inventery decreased by $13200 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 $1000?

    A) $ 149000
    B) $ 136000
    C) $ 123000
    D) $ 109000

    can any one help me with this question

    • @mohammadbangash,

      The sales made on 42% above from cost
      thats mean sales itself is 142 %
      co we fine find cost because cost always be equal to 100 %
      Cost of good sold = 193200 * 100 / 142
      cost of good sold = 136056 ( round off)
      cost of good purchase = cost of good sold – decrease in inventory
      cost of good purchase = 136056 – 13200
      cost of good purchase = 122856
      have to give ans in neares $ 1000 so 122856 will become 123000
      answer is C

  13. Could anyone help with Question 3 from Course Notes, please?
    The draft accounts of Anthea Co. for the year ended 31 December 20X9 include the following:
    Revenue $80,000
    Gross profit $20,000
    It was subsequently discovered that revenue had been understated by $10,000 and closing inventory overstated by $5,000. After correction of these errors the gross progit percentage will be:
    A. 33,3%
    B. 16,7%
    C. 31,3%
    D. 27,8%

    As for my considerations the answer should be B. 16,7%:
    Corrected revenue should be: $80,000 + $10,000 = $90,000 (revenue is higher then we received from draft accounts).
    Corrected gross profit should be: $20,000 – $5,000 = $15,000 (closing inventory should be smaller -> so COGS should be higher -> gross profit should be smaller).
    Gross profit percentage: $15,000 / $90,000 = 16,7%.

    But the answer in Course Notes shows us D… 🙁

      • Hi,

        Could you please explain to me why you were adding the overstated closing inventory back to the (80-20).
        I found this statement ‘To calculate the cost of goods sold, you take the beginning inventory, add purchases and then subtract ending inventory. If the ending inventory is overstated, it makes the cost of goods sold appear lower than it really is.’ So should not the answer be B as Sangria9 says. Please help.

      • Firstly, revenue was understated by 10,000.
        This means that the correct revenue should be 80000 + 10000 = 90000.
        It also means the profit would be 20000 + 10000 = 30000

        Secondly, closing inventory was overstated by 5000. Reducing the closing inventory will reduce the profit, so this would make the profit 30000 – 5000 = 25000

        So, the correct gross profit percentage is 25000 / 90000 = 27.8%

    • @amr1974,
      Question 2:
      Initial figure for inventory on 4 June 2008: $836,200. This should be corrected with operations that occured between 31 May and 4 June:
      ($8,600) – purchases of goods: on 31 May 2008 this wasn’t in inventory;
      $9,800 – sales of goods: $14,000 * 70% = $9,800: on 31 May 2008 this amount was in inventory;
      $700 – goods returned by X to supplier: on 31 May 2008 this was in inventory.

      Adjusted figure in the financial statement for inventories at 31 May 2008:
      $836,200 – $8,600 + $9,800 + $700 = $838,100 (answer A.)

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