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Hello sir,
Im a bit confused with he treatment of goods in transit done due to this adjustment.
Adjustment: At 31st March 20×4 Picant’s current account with Sander was $3.4million (debit). This did not agree with the equivalent balance in Sanders book due to some goods in-transit invoiced at &1.8 million that were sent by Picant on 28 March 20×4, but had not been received by Sander until after the year end. Picant sold all these goods at cost plus 50%.According to me the treatment of this should be:
Dr inventory 1800 ( in 000s)
Cr payables 1800
So 1800 be added to inventory and receivables.
But in the solution inventory is added with 1800 but 3400 is deducted from trade receivables and 1600 (3400-1800) is deducted from trade payables.
Please explain why this is done.
Thank you!Hi,
Goods in transit are tough.
Firstly, you need to account for the goods in transit DR Inventory CR Payables, so here with the $1.8m
Secondly, you then need to eliminate the now equal intra-group balance DR Payables CR Receivables with the $3.4m
Finally, you need to remove the PURP, as the goods will have been sold at a profit that is still in the group at the reporting date.
Thanks
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