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On 31 May 2010, Charmaine counted her closing inventory for the year ended 31 May 2010. Its valuation at cost amounted to $ 459 204. Several days later, she realized that she had included inventory of $ 5130 which was in the dispatch area and was to be returned to the supplier as it was faulty. Additionally, certain inventory items with a cost of $6700 were obsolete and only has a net realizable value of $ 6150.
What should be the adjustments to profit and closing inventory in the financial statements for the year ended 31 May 2010?
I had for answer ” Reduce profit by $5680, Reduce Inventory by $5680″
But the actual answer is “Reduce profit by $550, Reduce Inventory by $550”
Please sir could you explain why.. 🙁
No adjustment is needed for the 5,130.
It was in inventory at the year end and so the inventory figure for this is correct.For the other items, they must be values at the lower of cost (6700) and net realisable value (6150), therefore it needs adjusting by the difference of 550.
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