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Discrepancy in study text: Classification of Opening Inventory vs. Purchases (P/L or Not P/L)

AAmy2d ago

Hi OpenTuition Tutors,

I am currently working through some Trial Balance classification questions in my study text, where I have to identify whether specific items belong in the Statement of Profit or Loss (P/L) or Not P/L at the year-end 31 October 20X6.

I have noticed what seems to be a contradiction in the answer key regarding two items, and I would really appreciate your clarification.

  • For "Inventory at 1 November 20X5" (which is the Opening Inventory), the answer key states it is Not P/L.

  • However, for "Purchases", the answer key classifies it as P/L.

My confusion stems from the underlying accounting principles. Under a periodic inventory system, both Opening Inventory and Purchases are core components used to calculate the Cost of Sales (Opening Inventory + Purchases - Closing Inventory). Therefore, both balances are ultimately closed to the P/L.

If the textbook's rationale for classifying Opening Inventory as "Not P/L" is based strictly on IAS 1 presentation rules (meaning these working figures are hidden behind the final "Cost of Sales" line item on the face of the statement), then logically, shouldn't "Purchases" also be classified as "Not P/L" for the exact same reason?

Could you please explain if there is a specific technical justification for treating these two items differently in this context, or is it highly likely to be a typo/inconsistency in the textbook's answers?

Thank you so much for your time and guidance!

John MoffatJohn MoffatTutor2d ago#1

Your confusion is very valid.

As you state, the opening inventory (and the closing inventory) are usually used in the calculation of the cost of goods sold. However, this does not always have to be the case - what the company could do is that every time they sell goods they could record the cost of those goods that have been sold, and then show the total as the cost of goods sold on the P&L statement.

Also, although usually (and particularly in the exam) we do calculate the cost of goods sold as being the opening inventor + purchases - closing inventory, this is just workings (and the workings do not appear on the statement) and so strictly the opening inventory does not itself appear on the statement.

AAmy1d ago#2

Thank you! Your explanation really helped.

John MoffatJohn MoffatTutor9h ago#3

You are welcome

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