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Kindly i need some help with these questions .
A company’s gross profit as a percentage of sales increased from 24% in the year ended 31 December 20X1 to 27%
in the year ended 31 December 20X2.
Which of the following events is most likely to have caused the increase?
A An increase in sales volume
B A purchase in December 20X1 mistakenly being recorded as happening in January 20X2
C Overstatement of the closing inventory at 31 December 20X1
D Understatement of the closing inventory at 31 December 20X1–the answer says it D, but how when closing inventory increases gross profit increases ?
Apple has her own business selling dolls to stores. at 30 june 2013 she has a balance on her trade receivable of 62900.
a balance of 2000 due from x co is considered irrecoverable and is to be written off . y co was in financial difficulty and apple wished to provide an allowance for 60% if their balance of 1600 she has also decide a general allowance for receivables 10% of remaining receivables. what is the allowance for receivables in her SOFP at 30june2013 ?
–the answer is 6890 however my calculation shows closing allowance of 6954, so it seems that we deduct the 1600 out of the receivables 62900 ? why ?Thanks 🙂
Qns 1:
Take note of the formula
Gross Profit = Sales – (op inv + purchases – cl inv)
Note the date it says 31 dec 20X1, meaning the likely probable cause was that the GP is lower in 20X1 (meaning higher GP in 20X2) due to overstatement in closing inventory.
Tricky question requiring thinking backwards.
2. Not tricky, just abit of understanding:
Apple receivables for
X = 2000
Y = 1600
Remaining = 59300Total allowance for apple
= 60% * 1600 + 10% * 59300
= 6890Just think of different weighted allowance for different accounts receivables /customers.
Hope that helps
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