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Trading Account

JUPJUP Registered Posts: 1
in Final Accounts Preparation
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.
IrinaD

Answers

  • PeterCPeterC Registered, Tutor Posts: 164
    The question does not tell us the opening inventory, so how did you calculate the closing inventory?
  • Zoynal98Zoynal98 MAAT, AATQB Posts: 65
    Could you post the full question please?

  • N4TN4T AAT Student Posts: 191
    As @PeterC said you cannot work out the closing inventory because you are not given opening inventory. The figures can be anything and you don't need to know either inventory figures to work out the answer.

    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.
    amber8382
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