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Hello,
The answer for the 1st task of the test # 19.3 in F3 (FA) BPP Revision Kit 2020 states that the opening inventory of the financial year does not belong to P/L. However, F3 (FA) BPP Study Text 2020 states otherwise in Chapter 7 – 2.2 Ledger accounting for inventories – page 115:
“As it happens, the $1,800
closing inventory was the only entry in the inventory account – there was no figure for opening inventory.
If there had been, it would have been eliminated by transferring it as a debit balance to the income and
expenditure account, ie:
DEBIT P/L account (with value of opening inventory)
CREDIT Inventory account (with value of opening inventory)
The debit in the profit or loss account would then have increased the cost of sales, ie opening inventory
is added to purchases in calculating cost of sales.”Please help me understand why there is no contradiction between the test an the study text.
In future, please ask in the Ask the Tutor Forum if you want me to answer – this forum is for students to help each other 🙂
It is the cost of sales that appears in the SOPL. The opening and closing inventories are needed to calculate the cost of sales, but only for that calculation – they do not appear as separate items in the SOPL.
I do explain this in my free lectures. The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
So even if opening inventory appears in the profit or loss account it still does not belong to the SOPL because the latter shows the result of the calculation of the cost of sales in one line, did I get it right?
I will ask all my questions in the Ask the Tutor Forum in the future and check out your lectures.
Thank you very much for your answer!
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