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Adjustment on Profit or loss, closing inventory and receivables

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Adjustment on Profit or loss, closing inventory and receivables

  • This topic has 4 replies, 3 voices, and was last updated 2 years ago by John Moffat.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • December 23, 2021 at 10:54 am #644727
    khulan2002
    Member
    • Topics: 13
    • Replies: 6
    • ☆

    The draft financial statements of Rampion for the year ended 31 December 20X6 included the following:
    $
    Profit 684,000
    Closing inventory. 116,800
    Trade receivables. 248,000
    Loss allowance for receivables. 10,000

    No adjustments have yet been made for the following matters:
    (1) The company’s inventory count was carried out on 3 January 20X7 leading to the figure shown above. Sales between the close of business on 31 December 20X6 and the inventory count totaled $36,000. There were no deliveries from suppliers in that period. The company fixes selling prices to produce a 40% gross profit on sales. The $36,000 sales were included in the sales records in January 20X7.

    (2) In December 20X6 a customer ordered $10,000 of goods. These goods cost $6,000. Due to a clerical error the order was duplicated and goods were delivered and accounted for twice in December. On 10 January 20X7 the customer returned the goods in the second delivery in good condition.

    (3) Goods included in inventory at cost $18,000 were sold in January 20X7 for $13,500. Selling expenses were $500.

    (4) $8,000 of trade receivables are to be written off as irrecoverable.

    (5) The loss allowance for receivables is to be adjusted to the equivalent of 5% of the
    trade receivables after allowing for the above matters.

    Required:
    (a) Prepare a statement showing the effect of the adjustments on the company’s profit for the year ended 31 December 20X6.
    (b) Show how the adjustments affect:
    (i) Closing inventory;
    (ii) Receivables, showing separately the deduction of the loss allowance.

    December 23, 2021 at 11:03 am #644728
    khulan2002
    Member
    • Topics: 13
    • Replies: 6
    • ☆

    For the above question:
    a) Adjustment to profit statement

    Profit per draft financial statement : 684,000
    (1) Inventory movement :
    Adjustment for sales –> 36,000
    (2) Duplicated sale
    Elimination of profit–>. (6,000)
    (3) Reduction in inventory: (5,000)
    (4) Debts written off: (8,000)
    (5) Increase in allowance for receivables: 12,000

    Revised profit: 713,000

    is it correct? I’m not sure if I understood the problem.

    December 24, 2021 at 2:32 pm #644761
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54682
    • ☆☆☆☆☆

    Why are you attempting a question for which you do not have an answer?

    Also, have you watched my free lecture on adjustments to profit?

    May 9, 2023 at 3:22 am #684088
    talletalent
    Participant
    • Topics: 0
    • Replies: 1
    • ☆

    V. Closing inventory had been valued at $17,500. It was subsequently discovered that some items of inventory which had cost $5,000 had a net realisable value of $3,750

    May 9, 2023 at 9:14 am #684098
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54682
    • ☆☆☆☆☆

    Given that the inventory should be valued at the lower of cost and net realisable value, they need to reduce the value of the closing inventory by $1,250.

    Reducing the closing inventory serves to increase the cost of sales which in turn results in an decrease in the profit.

    Have you watched my free lectures on this?

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