ACCA Applied Knowledge · Financial Accounting · Inventories
A company's year end is 31 December. A physical inventory count took place on 5 January and valued inventory at $85,000 at cost. Between 31 December and 5 January, sales of $14,000 were made at a mark-up of 25% on cost, and goods costing $6,000 were received from suppliers. What is inventory at 31 December?
Sales of $14,000 at a 25% mark-up cost $11,200. Starting from the $85,000 counted on 5 January, add back the goods sold at cost of $11,200 and deduct the $6,000 goods received. Inventory at 31 December is therefore $90,200.
- A$90,200Correct
- B$79,000
- C$90,000
- D$102,200
Explanation
Cost of sales in the period = 14,000 x 100/125 = $11,200. Working back: inventory at 31 Dec = 85,000 + 11,200 - 6,000 = $90,200. Using sales of $14,000 instead of cost gives $93,000 less 6,000 = $87,000... the main error is ignoring the mark-up.
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