Good day sir, can you please help to explain why we need to subtract the Purchases 8600. I thought purchase add to inventory, while sales reduce inventory but on your calculations is vise versa. Thank you sir

It is because we are having to work backwards. We are given the inventory on 4 June but we need to calculate what the inventory would have been on 31 May.

Given that the mark up is 42% (of cost), then the cost of sales must be 100/142 x 193,200 = 136,056.

The inventory fell by 13,200 over the year, and so only the remainder of the cost of sales needed to be purchased, and 136,056 – 13,200 = 122,856 (which to the nearest 1,000 is 123,000).

(If you click on ‘review quiz’ after submitting your answers then you will see the explanations for the correct answers)

I don’t understand why at the question number 5, the goods returned need to be added, as I think on 31 May we did sell that 700 already, and in next days we receive back 700 so we have to minus 700 on 31 May? Thank you Sir

Hileni@21 says

Question 5

Good day sir, can you please help to explain why we need to subtract the Purchases 8600. I thought purchase add to inventory, while sales reduce inventory but on your calculations is vise versa. Thank you sir

John Moffat says

It is because we are having to work backwards. We are given the inventory on 4 June but we need to calculate what the inventory would have been on 31 May.

@henry23 says

can you please explain how the answer is 123000 questiion 2

John Moffat says

Given that the mark up is 42% (of cost), then the cost of sales must be 100/142 x 193,200 = 136,056.

The inventory fell by 13,200 over the year, and so only the remainder of the cost of sales needed to be purchased, and 136,056 – 13,200 = 122,856 (which to the nearest 1,000 is 123,000).

(If you click on ‘review quiz’ after submitting your answers then you will see the explanations for the correct answers)

sk.acca says

i think it should be cogs + closing inventory to get purchase rather than subtract

John Moffat says

The question does not give us the closing inventory, only the decrease over the year. My previous answer is correct.

anhduong11 says

I don’t understand why at the question number 5, the goods returned need to be added, as I think on 31 May we did sell that 700 already, and in next days we receive back 700 so we have to minus 700 on 31 May? Thank you Sir

John Moffat says

We returned the goods to the supplier. So on 31 May we had more than on 4 June because on 31 May we had not sent them back to the supplier.

Pearl says

Can you kindly break down question 4, how do you arrive at the the 27.8 % answer. its quite unclear.

John Moffat says

The revenue is understated and so the correct revenue is 10,000 higher. Higher revenue also means that the profit will be 10,000 higher.

The closing inventory was overstated and lower closing inventory means that the profit will be lower by 5,000 (but this does not affect the revenue).

Therefore the correct revenue is 90,000 and the correct profit is 25,000.

MuhammedSaleem says

sir, what is the meaning of inventory decreased?

John Moffat says

It means that the closing inventory is lower than the opening inventory.