Author: Buy Khmer Book

You are preparing the financial statements for a business. The cost of the items in closing inventory is $10,469. This includes some items which cost $490 and which were damaged in transit. You have estimated that it will cost $90 to repair the items, and they can then be sold for $300.

What is the correct inventory valuation for inclusion in the financial statements?

Answer

Inventories are measured at the lower of cost and net realisable value (NRV).

Net realisable value = estimated selling price in the ordinary course of business – the estimated costs of completion – the estimated costs necessary to make the sale

  $

Original inventory valuation  ……..10,469 

Cost of damaged items   …………..(490)

NRV of damaged items (300 – 90)   210  

Correct inventory valuation     10,189 

The financial year of XYZ Co ended on 31 December 20X2. An inventory count on January 10 20X3 gave a total inventory value of $131,825.

The following transactions occurred between January 1 and January 10.

    $

Purchases of goods    1,975 

Sales of goods (gross profit margin 30% on sales)    3,750

Goods returned to a supplier    200

What inventory value should be included in XYZ Co’s financial statements at 31 December 20X2?

Answer

    $

Inventory count, 10 January 20X3 …………………….131,825 

Purchases since end of year …………………………….(1,975)

Cost of sales since end of year (3,750 x 70%) …….. 2,625

Purchase returns since end of year …………………….  200     

Inventory at 31 December 20X2…………………… 132,675

A company with an accounting date of 31 October carried out a physical check of inventory on 4 November 20X2, leading to an inventory value at cost at this date of $241,850.

Between 1 November 20X2 and 4 November 20X2 the following transactions took place:

1Goods costing $19,200 were received from suppliers.

2Goods that had cost $7,400 were sold for $10,000.

3A customer returned, in good condition, some goods which had been sold to him in October for $300 and which had cost $200.

4The company returned goods that had cost $900 in October to the supplier, and received a credit note for them.

What figure should appear in the company’s financial statements at 31 October 20X2 for closing inventory, based on this information?

Answer

  $

Inventory check balance ……………. 241,850

Less: goods from suppliers ………..(19,200)

Add: goods sold …………………………7,400

Less: goods returned ………………….(200)

Add: goods returned to supplier ….900

Closing Inventory  ……………………230,750 

A company values its inventory using the first in, first out (FIFO) method. At 1 May 20X5 the company had 1,200 engines in inventory, valued at $280 each.

During the year ended 30 April 20X6 the following transactions took place:

20X5

10 July   : Purchased 180 engines at $230 each

12 November :  Sold 500 engines for $320,000

20X6

13 February :  Purchased 220 engines at $300 each

14 April :   Sold 650 engines for $250,000

What is the value of the company’s closing inventory of engines at 30 April 20X6?

Answer

Total purchase and beginning inventory in unit

= 1,200 +180+ 220 =1,600 units

Total sale in unit =500 + 650 = 1,150 units

Closing inventory in unit = 1,600-1,150= 450 units

Closing inventory in US$ = ?

  $

50 @ $280  :  14,000 

180 @ $230:    41,400

220 @ $300 :    66,000

 Total…………121,400

The inventory value for the financial statements of ABC Co for the year ended 31 May 20X6 was based on a inventory count on 6 June 20X6, which gave a total inventory value of $190,000.

Between 31 May and 6 June 20X6, the following transactions took place.

  $

Purchase of goods   2,350

Sale of goods (mark up on cost at 15%)   2,990 

Goods returned by ABC Co to supplier    300 

What figure should be included in the financial statements for inventories at 31 May 20X6 ?

Answer Ending Inventory = 190,000 – 2,350 + 300 + (2,990 x 100/115) = $190,550

Sales (including sales tax) amounted to $6,903, and purchases (excluding sales tax) amounted to $ 4,500. What is the balance on the sales tax account, assuming all items are subject to sales tax at 14.5%?

Answer

Output sales tax 6,903 x 14.5 /114.5 = $874.18

Input sales tax 4,500 x 14.5% = $652.50

Balance on sales tax a/c (credit) = 874.18 – 652.50 = 221.68

A business commenced with capital in cash of $ 3,000. Inventory costing $2,400  plus sales tax is purchased on credit, and half is sold for $3,000 plus sales tax, the customer paying in cash at once. The sales tax rate is 10%.

What would the accounting equation after these transactions show?

Answer

  $

Assets

Opening cash ………………………………3,000

Cash received $(3,000 + 300 sales tax)…3,300

Closing cash………………………………6,300

Inventory $(2,400 – 1,200) …………….1,200

Total Assets…………………………….7,500  

Liabilities

Opening liabilities   –

Sales tax payable $(300 – 240)……………60

Trade payable $(2,400 + 240 sales tax)…2,640

Closing liabilities ……………………….2,700

Capital

Opening capital……………………………….3,000

Profit on sale of inventory $(3,000 – 1,200)..1,800

Closing capital………………………………4,800

At 31 December 20X5 XYZ’s trial balance included the following balances:

     $

Machinery at cost   …………………6,450 

Accumulated depreciation ………….4,480 

Inventory ……………………………2,882 

Trade receivables …………………..5,878 

Trade payables ……………………….3,920 

Bank overdraft …………………………843 

Cash at bank ………………… ………….80 

What is the value of XYZ’s current assets at 31 December 20X5?

Answer

Inventory………………………2,882

Trade receivables………………5,878

Cash at bank…………………….. 80 

 Total Current Asset……………8,840 

ABC Company has extracted the following list of balances from general ledger

at 31 July 20X9:

       $

Sales   64,636

Opening inventory   2,413

Purchases   35,740

Expenses   8,710

Non-current assets (carrying amount)   15,991

Receivables   7,937

Payables   3,467

Cash at bank   447

Capital   3,132

What is the total of the debit balances in ABC’s trial balance at 31 July 20X9?

Answer

The debits are as follows:

     $

Opening inventory      ………………2,413 

Purchases   ……………………………35,740  

Expenses   …………………… …….. 8,710 

Non-current assets  …………… 15,991

Receivables ………………………..7,937 

Cash at bank    ……………………   447 

Total Debit Balances ………… 71,238

The following totals appear in the day books for June 20X6.

  $

Sales day book   10,000

Purchases day book   5,000

Returns inwards day book   500

Returns outward day book   1,000

Opening and closing inventories are both $ 750.

What is the gross profit for June 20X6?

Answer

$   $

Sales   ………………………………………10,000

Returns inwards   ………………………(500)

Net sale…………………………………………………..9,500

Opening inventory  …………………. 750

Purchases ………………………………  5,000

Returns outwards  ……………….. (1,000)

Closing inventory  ………………… (750)

 Cost of sale……………………………………… (4,000)

Gross profit………………………………………   5,500

You are given the following information:

Receivables at 1 January 20X7   $ 30,000 

Receivables at 31 December 20X7      $ 15,000 

Total receipts during 20X7 (including cash sales of $ 10,000 )   $ 90,000 

What are sales on credit during 20X7?

Answer

Step 1:

Closing Account Receivable = opening AR + total sale – cash received

So, Total sale = closing AR – opening AR + cash received = 15,000-30,000+90,000=75,000

Step 2:

Total sale = cash sale + credit sale

So, Credit sale = total sale – cash sale = 75,000-10,000=65,000

Credit sales =$65,000

The net assets of David, a trader, at 1 January 20X4 amounted to $16,000. During the year to 31 December 20X4 David introduced a further $6,250 of capital and made drawings of $6,000. At 31 December 20X4 David’s net assets totaled $23,000.

What is David’s total profit or loss for the year ended 31 December 20X4?

Answer

Closing Capital  = opening capital + profit(loss) + Additional Capital – drawing

Profit(loss)= Closing Capital – opening capital- Additional Capital + drawing

Profit(loss)= 23,000-16,000-6,250+6,000 = $6,750