- This topic has 5 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
During 2007 global discovered that certain items had been included in inventory at 31 december 20×6. Valued at $4.2m which had in fact been sold before the year end. The following figures for 20×6 as reported and 20×7 are available.
20×6 20×7
$000 $000
Sales 47400 67200
Cos (34570) (55800)
Pbt 12830 11400 tax (3880) (3400)
Pat 8950 8000Retained earnings at 1 January 20×6 were $13m. The cost of goods sold for 20×7 includes the $4.2m error in opening inventory. The income tax rate was 30% for 20×6 and 20×7. No dividend have been paid.
Cost of goods sold
20×6 20×7
$000 $000
As stated in question 34570 55800
Inventory adj 4200 (4200)Income tax
As stated in question 3880 3400
Inventory adj (1260) 1260My question is
Why $4200 is added to 20×6
That figure is already included in 20×6 accounts it should have been subtracted as the goods are sold before the year endUnaiza, “My question is
Why $4200 is added to 20×6”What has it been added to?
I really do try my hardest to understand your posts but you regularly miss off or misquote some vital piece of information
IF (and it’s a big IF) the $4.2 has been added to the retained earnings for 2007, then the reason is simple
The closing inventory for 2006 is overstated so should be reduced in 2006 – that will reduce the 2006 reported profits
But that reduction means that the opening inventory for 2007 is also overstated and by reducing that figure, that will reduce the 2007 cost of sales and increase the 2007 profits
Was that a lucky guess or are you going to tell me that the $4.2 was added to the 1993 tax figure?
I wrote whole question and wrote that part of solution which I didn’t understand as the solution was too long. I didn’t know that my short cut would become a trouble for you
Iam sorry for that
- You must be logged in to reply to this topic.