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Sir, In Flyscreen MTQ, where reduction of provision is to be calculated, could you help me understand how to arrive at the answer?
Thanks
Last year Flyscreen provided for the return of 7.5% of sales so we’re expecting 7.5% x $24,000,000 sale price goods being returned = $1,800,000
These sales had been made and achieved a gross margin of 20% so the profit element in those sales was $360,000 and that must have been the amount of the provision brought forward
This year Flyscreen needs to provide for the return of 2% of sales so we’re expecting 2% x $32,000,000 sale price goods being returned = $640,000
These sales had been made and achieved a gross margin of 25% so the profit element in those sales was $160,000 and that must be the amount of the provision carried forward
If we have a provision of $360,000 brought forward and the equivalent this year is an amount of $160,000, that’s a reduction in the provision and we need to:
Dr Provision Account 200,000
Cr Statement of profit or loss 200,000OK?
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