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P2-D2.
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miss2acca
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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!
P2-D2
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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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