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Could you please explain the following the question?
1. Why is is that if closing inventory is understated, then the cost of sales is overstated?
2. Why is it that if opening inventory is understated, so it the cost of sales?
3. If you do own a BPP exam kit, could you please explain question 6.3?
4. What are carriage inwards and outwards?
5. What is NRV?
As always, thank you for all your help!
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1. Because the method we use to calculate ‘cost of sales’ is by: opening inventory + purchase – closing inventory = cost of sales.
If the closing inventory should be Higher (because it was understated) then the cost of sales should be lower (because it was overstated).
Dennis: Than you for your answer, but please don’t answer in this forum because it is Ask the Tutor Forum (but please do help people in the other F3 forum)
Tony: You really should watch my free lectures, because everything you have asked is explained in full in my lectures and I cannot possibly type them all out here.
1. Dennis has answered
2. The same logic as for 1
3. Inventory must be valued at the lower of cost spent so far, and the net realisable value. The net realisable value is the expected future selling price less any expected future costs that there will be before they are sold.
4. Carriage is delivery. Carriage inwards is the cost of delivering goods from suppliers into the factory, carriage outwards is the cost of delivering goods out of the factory to customers.
5. See 3.Again, you cannot expect me to answer such basic questions if you cannot be bothered to watch the free lectures. They are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
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