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- November 25, 2015 at 3:12 pm #285205
Dear Mike, i have a confused question about the Highwood’s inventory the detailed as follows:
The inventory of Highwood was not counted until 4 April 20×6 due to operational reason. At this date its value at cost was $36m and this figure has been used in the cost of sales calculation. Between the year end of 31 March 20×6 and 4 April 20×6, Highwood received a delivery of goods at a cost of $2.7m and made sales of $7.8 m at a mark-up on cost of 30%. Neither the goods delivered nor the sales made in this period were included in Highwood’s purchases(as part of cost of sales) or revenue in the trial balance.
the answer is that:
Goods delivered (deduct from closing inventory) ………………….(2,700)
Cost of goods sold (7,800 x 100/130) (add to closing inventory) 6,000
Net increase in closing inventory ………………………………………….3,300
Cost of sales and non-current assets:
Cost of sales per question…………………………………………………. 207,750
Depreciation – building ……………… …………………………………………2,500
– plant and equipment …………………………………………………………10,000
Adjustment/increase to closing inventory ………………. ………………(3,300)
Total:…………………………………………………………………………………216,950
why 3300 needs to be deducted from the cost of sale, because the scenario had provided the information about that(Neither the goods delivered nor the sales made in this period were included in Highwood’s purchases(as part of cost of sales) or revenue in the trial balance.) if it like this it would suggest that some goods or material’s cost had been recorded in the cost of sale, i am very confused, please help me.
many thanksNovember 25, 2015 at 4:54 pm #285248If you increase closing inventory, that represents a reduction in cost of sales and therefore an increase in gross profit
Neither the goods delivered were included in the purchases for the year (correctly omitted) nor the sales included in revenue for the year (again, correctly omitted)
This is telling you that the only adjustment necessary is the adjustment to the inventory and thus the cost of sales
Ok?
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