CHAPTERS 4.1–4.

THE INCOME STATEMENT AND INVENTORIES

Question 1

Gross Profit = Revenue $340 000 less Goods sold

(Purchases $200 000 less closing stock $20 000)
= $340 000 less $180 000

Gross Profit is $160 000

Question 2

Gross Profit = Revenue $660 000 less Goods sold

(Purchases $450 000 less closing stock $40 000)
= $660 000 less $410 000

Gross Profit is $250 000

Question 3

Calculating the value of goods actually sold

$
Inventory at the beginning of the year 20 000
Add purchases 480 000
Total of goods that COULD be sold 500 000
Less inventory of unsold goods at end of year (60 000)
Value of goods ACTUALLY sold (cost of sales) 440 000

$ $
Revenue 710 000
Less value of goods actually sold
Opening inventory 20 000
Purchases 480 000
500 000
less closing inventory (60 000)
(440 000)
Gross profit 270 000

Question 4

Calculating the value of goods actually sold

$
Inventory at the beginning of the year 80 000
Add purchases 880 000
Total of goods that COULD be sold 960 000
Less inventory of unsold goods at end of year (50 000)
Value of goods ACTUALLY sold (cost of sales) 910 000

$ $
Revenue 1 200 000
Less value of goods actually sold
 Opening inventory 80 000
Purchases 880 000
960 000
less closing inventory (50 000)
(910 000)
Gross profit 290 000

Question 5

Income Statement for the year ended 30 November 2018

$ $ $
Revenue 551 000
less sales returns (3 700)
547 300
Opening inventory 45 200
Add Purchases 365 800
less purchases returns (4 100)
361 700
406 900
Closing inventory (56 900)
Cost of sales (350 000)
Gross profit 197 300

Dr Inventory account Cr
2013 2018
Dec 1 Balance 45 200 Nov 30 Income statement 45 200
2014
Nov 30 Income statement 56 900

Question 6

Income Statement for the year ended 31 December 2018

$ $ $
Revenue 945 600
less sales returns (7 200)
938 400
Opening inventory 48 000
Add Purchases 568 300
less purchases
returns (9 500)
558 800
606 800
Closing inventory (39 000)
Cost of sales (567 800)
Gross profit 370 600

Dr Inventory account Cr
2014 2018
Jan 1 Balance 48 000 Dec 31 Income statement 48 000
Dec 31 Income statement 39 000
Question 7

GENERAL JOURNAL
Date Details Dr Cr
$ $
Drawings 600
Purchases 600
Withdrawal of goods taken for private use by owner

Income Statement for the year ended 31 October 2018

$ $ $
Revenue 351 000
less purchases returns (2 400)
348 600
Opening inventory 11 300
Add Purchases ($176 000 less
goods taken for own use $600) 175 400
Less sales returns (1 900)
173 500
184 800
Closing inventory (13 500)
Cost of sales (171 300)
Gross profit 177 300

Question 8

GENERAL JOURNAL
Date Details Dr Cr
$ $
Drawings 3 700
Purchases 3 700
Withdrawal of goods taken for private use by owner

Income Statement for the year ended 31 August 2018

$ $ $
Revenue 777 400
less sales returns (4 700)
772 700
Opening inventory 29 300
Add Purchases ($365 800 less
goods taken for own use $3 700) 362 100
less purchases returns (5 900)
356 200
385 500
Closing inventory (28 200)
Cost of sales (357 300)
Gross profit 415 400
Question 9

Income Statement for the year ended 30 June 2018

$ $ $
Revenue 200 000
less sales returns (3 000)
197 000
Opening inventory 7 000
Add Purchases 105 000
less purchases returns (4 000)
101 000
Carriage inwards 8 000
109 000
116 000
Closing inventory (6 000)
Cost of sales (110 000)
Gross profit 87 000

Dr Inventory account Cr
2013 2018
July 1 Balance 7 000 June 30 Income statement 7 000
2014
June 30 Income statement 6 000

Question 10

Income Statement for the year ended 31 July 2018

$ $ $
Revenue 184 000
less sales returns (2 000)
182 000
Opening inventory 10 000
Add Purchases 98 000
less purchases returns (5 000)
93 000
Carriage inwards 3 000
96 000
116 000
Closing inventory (14 000)
Cost of sales (102 000)
Gross profit 80 000

Dr Inventory account Cr
2013 2014
Aug 1 Balance 10 000 July 31 Income statement 10 000
2014
July 31 Income statement 14 000
Question 11

a Cost of damaged items = 24 x $37 = $888

b Net realisable value of damaged items = 24 x $35 (i.e. $43 - $8) =

$840

c Statement of total value of inventory at 30 September 2018

Undamaged items 8 240

Damaged items at lower of cost or

net realisable value (i.e. net realisable value) 840

Total value 9 080

Question 12

Original cost of damaged items: 35 x $72 =$2 520

Net realisable value of damaged items after repackaging: $88 - $9 = $79 per item

14 of these items do not need further repair, so they will be valued at lower of
cost $72 and nrv (after repackaging) $79, i.e. $72

21 items need further repair. Their net realisable value will be $79 - $10 = $69
per item. So these items will be revalued at lower of cost $72 and nrv $69, i.e.
$69 per item.

Total value of damaged items:

$
14 items at cost $72 each 1 008
21 items at nrv $69 each 1 449
Total value 2 457