Hi Sir,
In this question, there is description below:
It has been discovered that goods with a cost of $6 million, which had been correctly included in the count of the inventory at 31 March 2010, had been invoiced in April 2010 to customers at a gross profi t of 25% on sales, but included in the revenue (and receivables) of the year ended 31 March 2010.
In the answer, the examiner said both revenue and receivables should be adjusted, but not for cost of sales?
Why? Also why income tax isn't adjusted either since revenue is reduced?
Thanks.
Ask the Tutor ACCA FR
Why Cost of Sales are not adjusted in Q2 of Jun 2010 exam
Let's deal with the tax issue first.... the only time you're going to be asked to compute the tax for a company is in the tax paper(s) so even though we are reducing profits by reducing revenues, there's no change in the tax figures.
Now, let me ask you "How is the cost of sales figure arrived at?"
Do you remember from your F3 days?
Opening inventory
+
Purchases
-
Closing inventory
These goods that were delivered and invoiced in April we, according to the question, correctly included in closing inventory.
Ok, so which of the three elements of "cost of sales" do you want to adjust?
Opening inventory? - er, no
Purchases? - er, no again
Closing inventory? The question tells us that the goods have been "correctly included in closing inventory"
Ok?
@mikelittle said: Let's deal with the tax issue first.... the only time you're going to be asked to compute the tax for a company is in the tax paper(s) so even though we are reducing profits by reducing revenues, there's no change in the tax figures. Now, let me ask you "How is the cost of sales figure arrived at?" Do you remember from your F3 days? Opening inventory + Purchases - Closing inventory These goods that were delivered and invoiced in April we, according to the question, correctly included in closing inventory. Ok, so which of the three elements of "cost of sales" do you want to adjust? Opening inventory? - er, no Purchases? - er, no again Closing inventory? The question tells us that the goods have been "correctly included in closing inventory" Ok?About income tax, I am still not clear. You said that the tax will be asked to compute only tax paper(s). Does that mean that the adjustment for income tax for this reverse of transaction is more complicated than 6million * 30% tax reduction? Hence for exam purpose of F7, this is not adjusted? Pardon my ignorance, I skip F6 to sit F7 first. As for cost of sales, yeah, I get it now, silly me. Thanks.
Let me make this clear for you - you will NOT be asked to carry out an F6 exercise of computing taxation in the F7 exam
Ok?
OK, thank you.
You're welcome
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