June 2014 question 2 Xtol

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November 10, 2015 at 8:38 am #281415
Nikolai
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I was working question 2 of the June 14 past paper.

Why is closing inventory not deducted from cost of sales ?

thanks
November 10, 2015 at 4:27 pm #281546
MikeLittle
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Let me ask you 3 questions

1) How much is the closing inventory?

2) What makes you think it hasn’t been deducted

3) What are the three elements involved in arriving at the figure “Cost of Sales”?
November 10, 2015 at 4:49 pm #281551
Nikolai
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the closing inventory is 61000,

it is not deducted i think because maybe the inventory belongs to Francais. Xtol is the agent as said in note 1

to arrive at cost of sales you need to add opening stock and purchases and deduct closing stock.
November 10, 2015 at 4:59 pm #281553
MikeLittle
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Ok, point number 3 – “add opening stock and purchases and deduct closing stock.”

When you deduct closing inventory from opening inventory (a debit balance brought forward) and purchases (a debit balance accumulated through the year) what sort of entry would be required to deduct closing inventory from these two debits?

Yup, a credit. So, Cr Cost of Sales 61,000, but where’s the debit?

It’s on the trial balance and from there it goes to the statement of financial position

What I’m saying is that closing inventory has already been deducted from (opening inventory + purchases) in order to arrive at cost of sales

Better?
November 10, 2015 at 5:07 pm #281559
Nikolai
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Oh i see because usually closing stock is not written in the trial balance but written as a note. So closing inventory is written in the trial balance because it is already deducted from the cost of sales leaving a debit balance which goes in current assets.

Thanks very much !
November 10, 2015 at 5:10 pm #281562
Nikolai
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Also I need to ask you about question 6 of the same paper June 2014 in section b the loss in revaluation of item A is charged in the p/l. Why was it not deducted from the gain in revaluation of item B leaving a revaluation surplus of 32000-20000= 12000 instead of charging it to the p/l ?
November 10, 2015 at 5:15 pm #281564
MikeLittle
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In answer to the earlier post, the examiner is very loose describing the figures as a trial balance. A trial balance is done BEFORE the closing year adjustments of accruals, prepayments, depreciation, non-recoverable debts and inventory

Just watch ot – if Cost of Sales in included within the list of figures, that means that the inventory in the list is closing inventory

If inventory and purchases are in the list, that will be opening inventory and the figure for closing inventory will be hidden in the notes to the question
November 10, 2015 at 5:17 pm #281565
MikeLittle
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“Also I need to ask you about question 6 of the same paper June 2014 in section b the loss in revaluation of item A”

There is no question 6 in June 2014!
November 10, 2015 at 6:04 pm #281573
Nikolai
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sorry 4
November 10, 2015 at 7:47 pm #281581
MikeLittle
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There was nothing in the revaluation reserve relating to item A. The only amount in there was related to item B

You can only take out of revaluation in respect of the asset that was previously revalued upwards

OK?
November 10, 2015 at 11:00 pm #281611
Nikolai
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So you can only deduct revaluation surplus of item b if there was a loss in revaluation in Item b?
You cannot deduct the revaluation surplus from loss in revaluation of other types of assets ?
For example if you have a gain in revaluation of a building and a loss in revaluation in a machinery you cannot deduct it :

Dr Property
Cr Revaluation

Dr Revaluation
Cr Machinery

Thanks
November 11, 2015 at 3:27 am #281626
MikeLittle
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Correct, and you’re welcome
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