- This topic has 8 replies, 2 voices, and was last updated 2 years ago by
.
- Posts
A BUSINESS RECEIVED A DELIVERY OF GOODS ON 29 JUNE 2013, WHICH WAS INCLUDED IN INVENTORY AT 30 JUNE 2013.
THE INVOICE FOR THE GOOD WAS RECORDED IN JULY 2013.
WHAT EFFECT WILL THIS HAVE HAD ON THE BUSINESS?THE CORRECT ANSWER WAS:
Profit for the year ended 30 June 2013 will be overstated.I do not know why sir.
Since we have the goods before the year end, is it not okay to have included it in the inventory. That is the only explanation for the overstating of profit.It was correct to include the goods in inventory.
However the invoice should have been accrued for as at 30 June but nothing has been entered. This means that the purchases for the year was understated and therefore the profit was overstated.
Okay. That makes so much sense to me now. It would have been safer to use a t-account, wouldn’t it?
I prefer not to use a t-account, but it is your choice.
You can never be asked to prepare a t-account in the exam, and to do so usually takes more time (and time pressure is the biggest problem in the exam).
John, please how do I deal with revaluation surplus in a consolidated statement of financial position?
And please specify if it is revenue reserve or not. Or do I also treat it like I would treat retained earnings?In future please start a new thread when asking about a new topic (and head up the thread with the topic and not just ‘question’). It is because many students use the search facility on this website to see if their question has already been answered 🙂
As I explain in my free lectures. a revaluation reserve is not a revenue reserve – it is a capital reserve. However all reserves (including retained earnings and revaluation reserve) are treated in the same way when consolidating.
- The topic ‘question’ is closed to new replies.