FRA Help needed

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:30AM in AAT student discussion
I'm working through a specimen exam and theres a question about Closing Stock. The Closing stock figure is given in the TB but you have to make adjustments to it to take into account lower NRV etc. The effect of this is to lower the closing stock figure by £510. The question asks what is the effect on profit? I've worked it out that in the P&L it will increase your gross profit, but the answer on the exam paper says it reduces profit.<BR><BR>Can anyone help?

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    FRA Help needed

    Hi Kath.<BR><BR>When you are working out your cost of sales you deduct closing stock. If your closing stock figure is lower - your cost of sales will be higher - thus reducing the profit figure.<BR><BR>Write out some examples, it might help the penny to drop. We had a similar question in our PEV exam yesterday - i had to write it out before deciding what effect it would have on the profit!<BR><BR>Scott.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    FRA Help needed

    lowering the closing stock... increases the costs of goods sold so decreases the profit as:<BR><BR>Sales 50,000<BR><BR>Cost of goods sold<BR>Opening stock 3,000<BR>Purhases 30,000<BR>Closing Stock ( 5,000)<BR> _____<BR> 28,000<BR><BR>Gross profit 22,000<BR><BR><BR><BR><BR>Sales 50,000<BR><BR>Cost of goods sold<BR>Opening stock 3,000<BR>Purhases 30,000<BR>Closing Stock ( 3,500)<BR> _____<BR> 29,500<BR><BR>Gross profit 20,500<BR><BR><BR><BR>Hope this helps<BR><BR>
  • System
    System Posts: 100,534 🤖 Admin 🤖
    FRA Help needed

    Thanks very much for your help!

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