Skip to content
Sign inRegister

Ask the Tutor ACCA MA

trade payables

JJongha9y ago
As always thank you very much for you help John! 1. selected figures from a firm's budget for next month are as follows: sales $450000 gross profit on sales 30% decrease in trade payables over the month $10000 increase in cost of inventory held over the month $18000 What is the budgeted payment to trade payables? The answer says $((450000 x 70% + 18000 + 10000) = 343000 However, I don't understand why it is adding the decrease in trade payables into budgeted payment to trade payables. Could you please explain?
RRyan9y ago#1
i understood why the decrease in trade payables added.............actually its because we are paying more of $10000 to decrease the creditors by 10000, so budgeted payment to trade payable will increase by that amount. But i have one question to sir increase in cost of inventory held over the month $18000 what does this line mean - cost of inventory (purchase price) has increased or Holding cost of inventory has increased?
John MoffatJohn MoffatTutor9y ago#2
It means that the inventory at the end of the month is 18,000 higher than the inventory at the start of the month. (So in addition to having to purchase goods of (450,000 x 70%) to cover the sales, they had to buy another 18,000 to increase the inventory).
RRyan9y ago#3
since nothing is being told about opening inventory here in budgetary figure so we can assume it to be 0 .So to keep closing stock at $18000, they need to buy more of goods of $18000 from supplier apart from goods which will cover sales (450000x70%) and so its added to trade payables. am i right?
John MoffatJohn MoffatTutor9y ago#4
You do not need to assume the opening inventory is zero! It does not matter what the opening inventory is - if it increases over the month by 18,000 then they need to spend 18,000 to buy the extra.
RRyan9y ago#5
okay thanks for clearing that out one last thing am i right on this one? The decrease in trade payables by $10000 over the month is added to the budgeted payment to trade payables because...............as we are paying more of $10000 to decrease further the creditors amount by $10000 , so budgeted payment to trade payable will increase by that amount.
John MoffatJohn MoffatTutor9y ago#6
Correct :-)
Sign into reply to this topic.