ACCA Applied Knowledge · Financial Accounting · Incomplete records
Hana's business sells goods at a constant mark-up of 25% on cost. Opening inventory was $10,000, purchases were $86,000 and sales were $100,000. Inventory worth $4,000 at cost was destroyed by fire and none was recovered. What is the closing inventory at cost that should be in the statement of financial position, after allowing for the fire loss?
Cost of sales is sales divided by 1.25, which is 80,000. Goods available were 96,000, so 16,000 should remain before the fire. Deducting the 4,000 destroyed leaves closing inventory of $12,000.
- A$12,000Correct
- B$16,000
- C$20,000
- D$8,000
Explanation
Cost of sales = 100,000/1.25 = 80,000. Goods available = 10,000 + 86,000 = 96,000. Inventory that should be on hand = 96,000 - 80,000 = 16,000. Less fire loss 4,000 gives 12,000 remaining. Answer 16,000 forgets the fire loss.
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