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ACCA Applied Skills · Financial Reporting · Preparation of single entity financial statements

Delta Co's trial balance at 31 December 20X5 shows: revenue $900,000; opening inventory $60,000; purchases $520,000; carriage inwards $10,000; carriage outwards $15,000; closing inventory per count $80,000. Included in the closing inventory count is an item that cost $12,000 and which, after the year end, was sold for $9,000 with selling costs of $1,000. What is Delta Co's gross profit for the year, treating carriage outwards as a distribution cost?

Inventory is valued at the lower of cost and net realisable value, so the damaged item is written down by $4,000 to $8,000. Closing inventory becomes $76,000, cost of sales $514,000 and gross profit $386,000. Carriage outwards is a distribution cost, not part of cost of sales.

  1. A$368,000Correct
  2. B$370,000
  3. C$372,000
  4. D$380,000

Explanation

The item must be carried at the lower of cost ($12,000) and net realisable value ($9,000 - $1,000 = $8,000), so closing inventory is $80,000 - $4,000 = $76,000. Cost of sales = 60,000 + 520,000 + 10,000 - 76,000 = 514,000. Gross profit = 900,000 - 514,000 = 386,000. Checking the options: none equals 386,000, so the answer must be recomputed: the correct figure is $386,000, which is not listed.

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