stolen inventory

We don't record it at all! It's not part of any transaction capable of double-entry! When we calculate cost of sales, that's a three part calculation: Opening inventory + Purchases - Closing inventory If goods are stolen, closing inventory will not be as large as it should be so the cost of sales figure is automatically inflated and therefore gross profit is reduced And that's the effect of having some inventory stolen OK?

Hello sir! This qn is not regarding stolen inventory but about inventory valuation: Can you guide me please? During the year, Chestnut decided to value their inventory using weighted average cost rather than FIFO . This has been incorporated into the closing inventory balance. If the average cost had always been used, opening inventory would have been lower by $2m. So do we add the closing inventory figure by $2m?

"This qn is not regarding stolen inventory but about inventory valuation:" - so start a new thread! No, you would adjust the opening inventory figure and restate last year's figures, and the year before because last year's opening inventory (involved as part of last year's cost of sales) was the figure from the year before closing inventory If we are now in the year ended 31 December, 2015, this year's cost of sales comprises: Opening inventory (from 31 December, 2014) plus 2015 purchases (less) closing inventory (from 31 December, 2015) But because we have to disclose comparative figures when we prepare financial statements, we should need to recompute last year's cost of sales and that comprises: Opening inventory (from 31 December, 2013) plus 2014 purchases (less) closing inventory (from 31 December, 2014) But that inventory from 31 December, 2013 also needs to be recalculated! Much easier to continue to use FIFO!

But there are no full details provided. Only inventory at 31/3/20X5 (which is closing inventory) is provided at $35250 and cost of sales at $293130. Please help.

Why have you asked me a question without full relevant details? How am I expected to answer it? Even now you haven't told me the question requirement so I'm saying no more until you give me the full details and the question requirement

This question was from Dec 2015 Kaplan Revision Mock, question 3 Chestnut Note no (vii). So if you go through this question, this note no (vii) is part of an additional note on preparing Financial Statements.

No, you would adjust the opening inventory figure Opening inventory (say 30,000,000) plus 2015 purchases (say 298,380,000) (less) closing inventory 35,250,000 (from 31 December, 2015) Cost of sales 293,130,000 Now, if we adjust the opening inventory and reduce it by $2,000,000, cost of sales falls by that $2,000,000 In addition, and this may not be relevant to the question requirement, you would need to adjust the retained earnings figure brought forward by reducing that figure by $2,000,000 OK?

Ok. I got the concept now. Thank you so much sir.

You're welcome