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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 🙂
If closing inventory was understated at 31 December 20X1, then the cost of sales would be overstated (cost of sales is op inv + purchases – cl inv).
So if cost of sales is overstated, gross profit for the year ended X1 would be understated.It also means that the opening inventory for the following year would be understated, which means the cost of sales would be understated, which means that the profit for year ended X2 would be overstated.
With regard to Apple, the general allowance is always a % of those debts that we think are ‘OK’. So obviously we subtract the irrecoverable. We also deduct all of Y’s debt – if we thought that we any risk of the rest of Y’s debt not being received we would have had a specific allowance of more than 60%.
We have dealt with X and with Y – the general allowance is 10% of all the other people owing us money.
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