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Goods in transit

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Goods in transit

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by P2-D2.
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    Posts
  • November 20, 2018 at 7:45 pm #485349
    miss2acca
    Member
    • Topics: 18
    • Replies: 14
    • ☆

    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!

    November 21, 2018 at 8:32 pm #485425
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7171
    • ☆☆☆☆☆

    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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