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I am doing this 2011 December paper for F7. Question 2 under the trial balance for keystone. I do not understand why we need to minus $3m for material cost, $4m for production labour and $3m for overhead. Won’t the cost of goods sold be cheaper and profits will go up? And for the answers in the attachment, under working part 3, how did we get the per count of $54.8m? I cannot get this number to begin with. Please help.
If I deduct 3m for material costs etc, will my cost figure not go down ….. and therefore my profit figure will go up?
Dear Expert,
Thank you so much, I am sorry that I left out for note iv.
If I deduct 3m, my cost figure will go down and profit will go up. Actually, I don’t understand the English. Is the question saying that Keystone manufactured these goods themselves itself of purchase? therefore, I need to take out the cost.
Dear Tutor,
For the same question, how did the self constructed plant come out to be $10m and depreciated at $1m?
The costs of construction (I’m doing this from memory so it MAY not make sense – if it doesn’t, let me know and I’ll look up the question) have so far been included within various expense headings.
They shouldn’t have been – they should have been capitalised
So we need to remove them from those expense accounts and thus increase profits.
At the same time, the TNCA figure will increase. Do I remember that the plant was completed half way through the year, was to be depreciated at the rate of 20%. So depreciation for half a year would be $1m
Does that make sense?
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