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During 20X7 Global discovered that certain items had been included in inventory at 31 December 20X6,
valued at $4.2m, which had in fact been sold before the year end. The following figures for 20X6 (as
reported) and 20X7 (draft) are available.
20X6 20X7 (draft)
$’000 $’000
Sales 47,400 67,200
Cost of goods sold (34,570) (55,800)
Profit before taxation 12,830 11,400
Income taxes (3,880) (3,400)
Profit for the period 8,950 8,000
Retained earnings at 1 January 20X6 were $13m. The cost of goods sold for 20X7 includes the $4.2m
error in opening inventory. The income tax rate was 30% for 20X6 and 20X7. No dividends have been
declared or paid.
Required
Show the statement of profit or loss for 20X7, with the 20X6 comparative, and retained earningsSo, reduce the Cost of Goods Sold in 2007 from $55,800 down to $51,600 and increase the Cost of Goods Sold in 2008 from $34,750 up to $38,950
Rewrite the statements of profit or loss and then increase 2006 taxation charge by $1,260 and decrease 2007 taxation charge by the same amount
In future Yvon, when you’re faced with a question like this, it would be preferable for you to try to work through it with the answer open in front of you and then say something like “I don’t understand where the increase in the 2006 Cost of Goods Sold comes from”
If there’s one thing that I really do not like it’s when a student simply puts a question in front of me with the instruction “Show the statement of profit or loss for 20X7, with the 20X6 comparative, and retained earnings”
That, to me, indicates that you have put zero effort into working this problem out for yourself – if fact, this could well be a homework assignment given to you from college but you’d rather that I did it than you :-(((
Please bear this in mind in future
Sorry if I have translation misunderstanding ” The cost of goods sold for 20X7 includes the $4.2m
error in opening inventory” is meaning the the closing inventory in 20X7 is added to 4.2 m?And in calculating retained earnings in 20X7 , the answer is
Opening retained earnings 21,950
Correction of prior period (2,940) (4,200-1,260)
I don’t understnad the correction of prior periodThank you
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