inventory

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November 25, 2020 at 5:58 am #596354
ketki15
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On 31 May 20X0, Charmaine Co counted it’s closing inventory for the year ended 31 May 20X0. Its valuation at cost amounted to $459,204. Several days later, the company realised that it had included inventory of $5,130 which was in the despatch area and was to be returned to the supplier as it was faulty. Additionally, certain inventory items with a cost of $6,700 were obsolete and only had a net realisable value of $6,150.
What should the adjustments be to profit and closing inventory in the financial statements for the year ended 31 May 20X0?
How do we analyze if there is an increase or decrease of 5680 in the closing stock and profit?
November 25, 2020 at 8:54 am #596378
John Moffat
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Given that the adjustments reduce the value of the closing inventory, they will increase the cost of sales and therefore also reduce the profit.
Lower inventory always means lower profit. Higher inventory always means higher profit.
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