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This might be a dumb question, but this is most confusing chapter to me thus far and I’m having a hard time matching textbook examples to the practice kit…
A sole trader fixes her prices by adding 50 per cent to the cost of all goods purchased. On 31 October 20X3 a fire destroyed a considerable part of the inventory and all inventory records.
Her trading account for the year ended 31 October 20X3 included the following figures:
??Sales 281,250
Opening inventory at cost 183,600
Purchases 249,200
Closing inventory at cost 204,600
Gross profit 53,050
Using this information, what inventory loss has occurred?The answer demonstrates finding cost of sales as 281,250 x 2/3 = 187,500. I am wondering why cost of sales isn’t 228,200? I thought cost of sales was opening inventory + purchases – closing inventory?
Thanks!
But if the inventory is lower than it should be because some of it was destroyed, then the cost of what was sold can’t simply be the opening inventory + purchases – closing inventory!!
If everything is sold at a standard mark-up then we know the costs of goods sold and can then calculate the goods that were destroyed.
You really should watch my free lectures because I go through an example exactly like this one, and you cannot expect me to type out all my lectures here!!!
…But when I look at the answers for some of the other questions that involve finding lost inventory, the cost of sales IS found by using opening inventory + purchases – closing inventory. This is how they found the answer in 20.7. Why should it be different in another question of the same type?
I have watched all your lectures already, and I was not expecting you to type out an entire lecture on the forum. Apologies if I gave that impression. However as I go through this chapter I am finding the exam kit very different from your lectures, and much more complex. And given that the BBP exam kit questions are more structured like the ACCA exam questions, I assuming I should practice more off that.
The Revision Kit questions are not at all very different and more complex!!
Look at example 3 in Chapter 18 of the free lectures notes (and the lecture that goes with it) – it is an almost identical example and I explain exactly how to solve it, and why. Obviously how you decide to do the actual workings is irrelevant because nobody will look at your workings.Practicing as many questions as possible is vital because the examiner deliberately asks the same topics in different ways to check that you really understand what is happening and that you have not just learned rules.
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