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Inventory….Explain your answer

Forums › ACCA Forums › ACCA FA Financial Accounting Forums › Inventory….Explain your answer

  • This topic has 4 replies, 3 voices, and was last updated 10 years ago by John Moffat.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • June 9, 2012 at 7:05 pm #53269
    queeenshana
    Member
    • Topics: 25
    • Replies: 20
    • ☆

    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 1,500

    What figure should be included in the financial statements for inventories at 30 June 2003?

    June 10, 2012 at 5:11 am #99844
    Sangria9
    Member
    • Topics: 25
    • Replies: 285
    • ☆☆☆

    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.

    July 21, 2014 at 7:53 pm #179313
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    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.

    July 22, 2014 at 6:09 pm #179393
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    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.

    July 23, 2014 at 8:09 am #179427
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    You are welcome 🙂

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