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Q: The inventory value for the financial statements of Global Inc for the year ended 30june 20×3 was based on a inventory count on 7July 20×3, which gave a total inventory value of $950,000.
Between 30June and 7 July 20×6, the following transactions took place,
1. purchase of goods $11,750
2. sale of goods (mark up on cost at 15%) $14,950
3. Goods returned by Global Inc. to supplier $1,500
What figure should be included in the financial statements for inventories at 30 June 20×3?a.$952,750
b.$949,750
c.$926,750d
d.$958,950Answer: 950,000-11,750+1,500 + (14,950×100/115) = $952,750
Now my confusion is why markup cost was calculated as 100/115 instead of 14,950×15/100?
For every $100 cost, the profit is $15, and therefore the selling price is $115.
Putting it the other way round – for every $115 selling price, the cost is $100.
I do suggest that you watch my free lectures on mark-ups and margins.
(Our free lectures are a complete course for Paper F3 and cover everything needed to be able to pass the exam well.)Dear All,
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Thanks in advance for your feedback.
Best.
Adiga
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