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Hi Mike, I’m confused with the calculation of closing inventory in this question: Highwood Co, ACCA paper June 2011
The inventory of Highwood was not counted until 4 April 2011 due to operational reasons. At this date it’s value at cost was $36m and this figure has been used in the trial balance. Between the year end of 31 march 2011 and 4 April 2011, Highwood received a delivery of goods at a cost of $2.7m and made sales of $7.8m 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 or revenue in the trial balance.
The increase in closing inventory as given in the answer:
Delivered goods ($2.7m)
Cost of goods sold $6m
Increase in closing inventory $3.3m
“Highwood received a delivery of goods at $2.7m…” doesn’t this mean that the inventory amount would have increased?
And “made sales of $7.8m…” means that $6m of inventory would have left the inventory balance?
And so my answer was:
Delivered goods $2.7m
Cost of goods sold $(6m)
Decrease in closing inventory 3.3m
Hope you could advice me on this, thanks 🙂