Inventory and change of estimating policy

Australia Discussion in 'Exams and Studying' started by Jayde Cantamessa, Oct 19, 2016.

1. Jayde Cantamessa

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hi everyone,

I'm new to the industry and studying my first foundation exam to get into the cpa program.

I've attached a question and answer from my study manual that has me stumped. I cannot understand how they have one to their answer with the information provided.

How does the change in inventory (I'm assuming it's not sold) affect the cost of good sold in this example?

Help explaining how they arrive at the new figures would be appreciated!

Thank you!

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Jayde Cantamessa, Oct 19, 2016

2. Triest123VIP Member

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"The increase in the value of opening inventory" will result in increasing the value of the cost of goods sold.

"The increase in the value of closing inventory" will result in decreasing the value of the costs of goods
sold

Triest123, Oct 21, 2016

3. Jayde Cantamessa

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Thank you. I'm still unsure how they've arrived at those figures using the info provided!!!

Jayde Cantamessa, Oct 21, 2016
4. Triest123VIP Member

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In the year 20x6
The decrease in value of opening inventory:
2,800 -2,700 = 100

The decrease in value of closing inventory:
2,900 - 2,750 = 150

So, the value of cost of goods sold was increased by : 150 - 100 = 50

The cost of goods sold for the year 20x6 was
24,000 + 50 = 24,050

Triest123, Oct 21, 2016
5. Jayde Cantamessa

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Thanks so much for your time. Is your information in " " in your first post a generally accepted accounting rule is it? As I'm new to accounting these things are foreign to me so I need to get my head around it!

Jayde Cantamessa, Oct 21, 2016

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