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meaning help

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › meaning help

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by John Moffat.
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  • March 22, 2019 at 7:14 pm #510094
    kingkongsajang
    Member
    • Topics: 95
    • Replies: 75
    • ☆☆

    What does this sentence mean?

    “When inventory is included in purchases at cost and closing inventory at cost, the effect on profit is nil (the same amount is both a debit and a credit in the statement of profit or loss)”

    March 23, 2019 at 10:10 am #510139
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    Suppose we make extra purchases at a cost of $100, and these items are still in inventory at the and of the period.

    Purchases increase by $100, and closing inventory increases by $100 (provided that they are valued at cost). Therefore the cost of sales stays the same and therefore the profit stays the same.

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