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ACCA Applied Knowledge · Financial Accounting · Events after the reporting period

At 30 June 20X4 Rowan Co had inventory in its records at cost of $85,000. In August 20X4, before the financial statements were authorised, part of this inventory that cost $20,000 was sold for $14,000 net of selling costs, because it had been damaged before the year end. Rowan's draft profit for the year was $400,000. What is the adjusted profit for the year?

Adjusted profit is $394,000. The post-year-end sale proves the damaged inventory's net realisable value was $14,000 against a cost of $20,000, so inventory is written down by $6,000, reducing the draft profit of $400,000.

  1. A$394,000
  2. B$386,000Correct
  3. C$380,000
  4. D$400,000

Explanation

Inventory is valued at the lower of cost and net realisable value. The damaged inventory has NRV of $14,000 against cost of $20,000, so a write-down of $6,000 is needed, giving profit of $400,000 - $6,000 = $394,000. Wait: the correct adjusted profit is $394,000.

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