Chapter 7

A business has opening inventory of £7,200 and closing inventory of £8,100. Purchases for the year were £76,500 delivery inwards was £50 and delivery outwards was £180.

The figure for cost of sales is:

• £75,550

• £75,650

• £75,830

• £77,450

Platoon plc is preparing its financial statements for the year ended 30 April 20X1, having extracted an initial trial balance.

It had no opening inventory, its purchases in the period were £686,880 and closing inventories were valued at £18,647 on 30 April 20X1.

Which two of the following journal entries are required to record cost of sales and closing inventories at 30 April 20X1?

• Dr Cost of sales £686,880 ; Cr Inventories £686,880

• Dr Purchases £686,880 ; Cr Cost of sales £686,880

• Dr Cost of sales £686,880 ; Cr Purchases £686,880

• Dr Inventories £18,647 ; Cr Cost of sales £18,647

• Dr Cost of sales £18,647 ; Cr Inventories £18,647

Muse plc began trading on 1 January 20X8 and had zero inventories at that date. During 20X8 it made purchases of £455,000, incurred delivery inwards of £24,000, and delivery outwards of £29,000. Closing inventories at 31 December 20X8 were £52,000.

In the statement of profit or loss for the year ended 31 December 20X8, the cost of sales figure is:

• £456,000

• £427,000

• £432,000

• £531,000

Boomerang Co had 200 units in inventory at 30 November 20X1 valued at £800. During December it made the following purchases and sales.

2/12 Purchased 1,000 @ £5.00 each

5/12 Sold 700 @ £7.50 each

12/12 Purchased 800 @ £6.20 each

15/12 Purchased 300 @ £6.60 each

21/12 Sold 400 @ £8.00 each

28/12 Sold 500 @ £8.20 each

Which of the following is the closing inventory amount using FIFO?

• £4,460

• £4,340

• £4,620

• £3,500

At its year end Crocodile plc has 6,000 items of Product A, and 2,000 of product B, costing £10 and £5 respectively. The following information is available:

Product A - 500 are defective and can only be sold at £8 each

Product B - 100 are to be sold for £4.50 each with selling expenses of £1.50 each

What figure should be shown in Crocodile plc's statement of financial position for inventory?

• £57,000

• £68,950

• £68,800

• £70,000

Indicate whether the following statements are true or false.

In a period of rising prices, applying the FIFO method to determine the cost of inventories will give a lower gross profit figure than AVCO method.

• True

• False

Closing inventory is a debit in the statement of profit or loss.

• True

• False

Your firm has calculated the cost of inventory using AVCO. At 1 June 20X8 there were 60 units in inventory at a cost of £12 each. On 8 June, 40 units were purchased for £15 each, and a further 50 units were purchased for £18 each on 14 June. On 21 June, 75 units were sold for £20.00 each.

The cost of closing inventory at 30 June 20X8 was:

• £1,110

• £1,010

• £900

• £1,125

Your firm has calculated the cost of inventory using AVCO. AT 1 June 20X8 there were 60 units in inventory at a cost of £12 each. On 8 June, 40 units were purchased for £15 each, and a further 50 units were purchased for £18 each on 14 June. On 21 June, 75 units were sold for £20.00 each.

The cost of closing inventory at 30 June 20X8 was:

• £1,110

• £1,010

• £900

• £1,125

Which two of the following may be included when arriving at the cost of finished goods inventory for inclusion in the financial statements of a manufacturing company?

• Delivery inwards

• Delivery outwards

• Production line wages

• Depreciation of delivery vehicles

• Finished goods storage costs