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The value for the financial statements of Global Inc for the year ended 30 June 2003 was based on a inventory count on 7 July 2003, which gave a total inventory value of $950,000.
Between 30 June and 7 July 2006, the following transaction took place.
Purchase of goods 11, 750
Sale of goods (mark up on cost at 15%) 14,950
Goods returned by Global Inc to supplier 1,500What figure should be included in the financial statements for inventories at 30 June 2003?
Current balance: $950,000.
($11,700) – we didn’t have this inventory on 30 June, so we deduct it
$14,950/(1+0,15)=$13,000 – we did have this inventory on 30 June, and we need to add COGS
$1,500 – we did have this inventory on 30 June, so we add it.In the FS you show the inventory $ 952,750.
Sangria9’s answer is correct and he has explained it very well step by step.
You really need to say which step you are confused about.
I think you mean ‘please explain’!! 🙂
If goods are sold at a mark-up of 15%, then for every $100 cost then the selling price will be 100 = 15 = $115.
So…for every $115 selling price, the cost will be $100.Because we are looking at the inventory, we need the cost of the goods sold. The selling price was $14950 and so the cost was 14950 x 100/115 = $13,000.
You might find my free lecture on mark-ups and margins to be useful.
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