Question

A company with an accounting date of 31 October carried out a physical check of inventory on 4 November 20X3, leading to an inventory value at cost at this date of $483,700.

Between 1 November 20X3 and 4 November 20X3 the following transactions took place:

I. Goods costing $38,400 were received from suppliers.

II. Goods that had cost $14,800 were sold for $20,000.

III. A customer returned, in good condition, some goods which had been sold to him in October for $600 and which had cost $400.

IV. The company returned goods that had cost $1,800 in October to the supplier, and received a credit note for them.

What figure should appear in the company's financial statements at 31 October 20X3 for closing inventory, based on this information?

Answer 1

Answer
	Particulars	Amount	Reason
	Inventory as on 4th November 20X3	$ 4,83,700.00
Less	Goods costing $38,400 were received from suppliers.	$   -38,400.00	Goods received back from a customer, then it must have been sold in October, so it should not be included in October stock, but we are given the stock balance of November 4 so it should be reduced from November 04, stock to arrive stock on 31st October.
Add	Goods that had cost $14,800 were sold for $20,000.	$    14,800.00	Goods sold in November and reduced from the stock of November, so it must have been in stock in October, so added back to the closing of November stock to arrive balance of 31st October. Since we include cost in inventory so $14800 added back not $20000.
Less	A customer returned, in good condition, some goods which had been sold to him in October for $600 and which had cost $400.	$        -400.00	Goods returned in November so added in November stock but not available in closing stock of October, so reduced from 4th November closing stock to arrive 31st October closing stock. The only cost shall be reduced so $400 will be reduced.
Add	The company returned goods that had cost $1,800 in October to the supplier and received a credit note for them.	$       1,800.00	Goods return in November, but it has been in stock of October. So cost of stock has been added back in November to arrive stock balance of 31st October.
	Inventory As on 31st October 20X3 (483700 -38400 + 14800 -400 +1800)	$ 4,61,500.00

Note: We are finding closing stock of 31st October, from the stock balance of 4th November, so we have to do backward calculation in November balance to arrive 31st October balance