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Closing inventory or Average inventory? (when calculating inventory days)

Forums › ACCA Forums › ACCA MA Management Accounting Forums › Closing inventory or Average inventory? (when calculating inventory days)

  • This topic has 3 replies, 2 voices, and was last updated 2 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • November 25, 2020 at 9:51 am #596385
    safwanstark99
    Member
    • Topics: 10
    • Replies: 6
    • ☆

    Question number 462 on kaplan F2 exam kit (Sep 19 – Aug 2020) (a) you need to find out inventory holding period for the year.

    Bank Overdraft – 40,500

    Revenue – 343,275
    Cost of sales – 284,000
    Purchases – 275,000
    Receivables – 37,400
    Payables – 35,410

    Answer is closing inventory/cost of sales x 365

    Shouldn’t using average inventory make more sense?

    November 25, 2020 at 5:43 pm #596435
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51582
    • ☆☆☆☆☆

    I do not have the Kaplan exam kit (only the BPP Revision Kit).

    However, although there is a logic in using the average inventory it is only possible if we are given both the opening and closing inventories. In addition, because the purpose of calculating the inventory turnover in practice is so as to be able to compare with the previous year, we would need the opening and closing inventories for both year.

    As a result it is more normal to use the closing inventory and in the exam use the closing inventory (unless the question specifically says to do differently) 🙂

    November 25, 2020 at 9:31 pm #596463
    safwanstark99
    Member
    • Topics: 10
    • Replies: 6
    • ☆

    Many thanks!

    November 26, 2020 at 8:54 am #596493
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51582
    • ☆☆☆☆☆

    You are welcome 🙂

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    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Closing inventory or Average inventory? (when calculating inventory days)’ is closed to new replies.

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