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ACCA Applied Knowledge · Financial Accounting · Statement of profit or loss and other comprehensive income

Kestrel Ltd had opening inventory of $18,000, purchases of $142,000, carriage inwards of $3,000, purchase returns of $5,000 and closing inventory of $21,000. What is the cost of sales for the year?

Cost of sales is $137,000. Opening inventory, purchases and carriage inwards are added, then purchase returns and closing inventory are deducted. Carriage inwards is a cost of bringing goods to their location, so it belongs in cost of sales rather than in distribution costs.

  1. A$137,000Correct
  2. B$134,000
  3. C$137,000 plus carriage outwards
  4. D$140,000

Explanation

Cost of sales = opening inventory 18,000 + purchases 142,000 + carriage inwards 3,000 - purchase returns 5,000 - closing inventory 21,000 = 137,000. Option $140,000 ignores the purchase returns. Option $134,000 wrongly deducts carriage inwards instead of adding it.

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