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Extract from trial balance for year ended 31 March 20X1
Inventory – 4 April 20X1 $ 36,000,000
Revenue $ 339,650,000
Cost of sales $ 207,750,000Relevant note:
The inventory of Highwood was not counted until 4 April 20X1 due to operational reasons. At this date its value at cost was $36 million and this figure has been used in the cost of sales calculation above. Between the year end of 31 March 20X1 and 4 April 20X1, Highwood received a delivery of goods at a cost of $2.7 million and made sales of $7.8 million 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 (as part of cost of sales) or revenue in the above trial balance.Questions:
What amount will be recognized as inventory at 31 March 20X1?
What will be our cost of sales for the year ended 31 March 20X1? Why?Thanks in advance!
Hi,
I’m not going to just answer the whole question for you, that isn’t the purpose of the forum. You should attempt the question and then ask on what you do not understand, and then I’ll happily answer your queries.
Thanks
Hello,
I attempted the question, and this is what I got:
Inventory 36,000+2,700-6,000=32,700
Revenue 339,650-7,800=331,850
Cost of sales 207,750-2,700+6,000=211,050The model answer shows:
Inventory 39,300
Revenue 339,650
Cost of sales 206,950Why are we deducting $2,700 and adding $6,000 to inventory?
Thanks
The $2,700 is the delivery of goods that we received after the reporting date, so will have been included within the inventory count on 4 April. We need the inventory value at 31 March and so we need to remove these to get back to the reporting date figure.
Similar with the sales, in that they won’t have been included in the count on 4 April but would have been in inventory at 31 March, hence we add them back.
Thanks
But sir in the cost of sales, why are we adding back 6000? Aren’t we supposed to deduct it?
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