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In preparing financial statements for the year ended 31 March 20×6, the inventory count was carried out on 4 April 20×6. The valu of inventory counted was $36 million. Between 31 March and 4 April goods with a cost of $2.7 million were received into inventory and sales of 7.8 million were made with a mark up on cost of 30%.
At what amount should inventory be stated in the statement of financial postion as at 31 March 2ox6?
I answered this by adding the 2.7 million and deducting the 6 million (7.3/1.3). I did this because it seemed o me that 2.7 was added to inventory and the 6 million was sales thus deducting from inventory.
However, it seems to be the opposite way…and im really not sure why?Many thanks
Imagine this …
We can count and value $36 million
But, of that figure, we know that $2.7 million was not there as at 31 March, so only $33.3 million was there
But what we didn’t count, because it wasn’t there!, was the inventory that had been sold during those 4 days after the year end
That figure at selling price was $7.8 million and computes down to cost as $7.8 x 100/130 giving us a cost figure for that $7.8 million of $6 million
So, we have $33.3 million from above and now we need to add this last $6 million to give us a figure of $39.3 million
BEWARE! Sometimes a similar question will show the inventory valuation from a stock count carried out 4 days BEFORE the year end. THAT’S when it works the way you wanted it to
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