Trading Account
JUP
Posts: 1Registered
I have a question which I came across on AAT website AQ16 Level 3 FAPR Practice assessment CBT 2, task 1.2.
A question is as below:
The total cost of goods sold for the year ended 31 March 2007 was £120,960.
Inventory decreased by £550 during the year.
Calculate the total value of purchases net of VAT for the year end.
And answer shown on AAT is £120,410.
My confusion:
Here we have to find Purchases of the year, cost of goods sold given, and the information given as “Inventory decreased by £550 during the year” I understood as inventory decreased of the last year by £550, which is closing inventory (not purchases) so purchased should be £241,390, not £120,410, as below workout
Closing Inventory 120410 (inventory decreased by £550)
Cost of Sales 120960 (given in question)
Purchases 241390 (Because of above information, Cost of Sales + Closing inventory)
Please clarify correct understanding, why I should treat inventory decreased is meant purchases not closing inventory of the last year.
A question is as below:
The total cost of goods sold for the year ended 31 March 2007 was £120,960.
Inventory decreased by £550 during the year.
Calculate the total value of purchases net of VAT for the year end.
And answer shown on AAT is £120,410.
My confusion:
Here we have to find Purchases of the year, cost of goods sold given, and the information given as “Inventory decreased by £550 during the year” I understood as inventory decreased of the last year by £550, which is closing inventory (not purchases) so purchased should be £241,390, not £120,410, as below workout
Closing Inventory 120410 (inventory decreased by £550)
Cost of Sales 120960 (given in question)
Purchases 241390 (Because of above information, Cost of Sales + Closing inventory)
Please clarify correct understanding, why I should treat inventory decreased is meant purchases not closing inventory of the last year.
Answers
The most important information is the decrease in inventory of £550.
Op inv + purchases - cl inv = COS
We know that cl inv - op in = -550
Swap the above formula gives
COS + cl inv - op inv = purchases
120,960 - 550 = 120,410
No need to over complicate the question.