Accounting 9706 · AS & A Level · Preparation of financial statements
Preparation of financial statements — practice question
Hamza runs a retail business whose financial year finishes on 31 December. At 31 December 2022, inventory was recorded at $15330. That total included 30 damaged items, each with a cost price of $32. From the damaged items, 23 are to be scrapped and will have no value. The other 7 items need repairs costing $126 in total before they can be sold at the normal price of $48 each.
(a)[2]
Explain, using an accounting concept, the way damaged inventory should be valued.
(b)[4]
Calculate the revised inventory valuation at 31 December 2022.
(c)[15]
Prepare the statement of profit or loss for the year ended 31 December 2022. Write your workings in the space provided on page 5.
(d)[2]
State the double entry used to record goods withdrawn by an owner for personal use.
Debit: __________
Credit: __________
(e)[7]
Advise Hamza on which option he ought to choose. Support your answer by weighing up both financial and non-financial factors.
Worked solution & mark scheme
This 30-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Inventory should be measured at the lower of cost or net realisable value” …