ExpertMedium2 marksShort Answer
ACCA · Question 16 · Preparing Basic Financial Statements
Section A
A fire destroyed the warehouse of a sole trader. The following information is available:
Opening inventory: $25,000
Sales: $150,000
Closing inventory (salvaged): $5,000
The trader applies a uniform mark-up of 25% on cost.
What was the value of purchases during the period? (Enter the number only)
Section A
A fire destroyed the warehouse of a sole trader. The following information is available:
Opening inventory: $25,000
Sales: $150,000
Closing inventory (salvaged): $5,000
The trader applies a uniform mark-up of 25% on cost.
What was the value of purchases during the period? (Enter the number only)
How to approach this question
1. Find Cost of Sales using the mark-up. If mark-up is 25% on cost, Sales = 125%. Cost of Sales = Sales × (100/125). 2. Use the Cost of Sales formula: Opening Inventory + Purchases - Closing Inventory = Cost of Sales. Solve for Purchases.
Full Answer
Sales = $150,000 (125%).
Cost of Sales = $150,000 × (100/125) = $120,000.
Cost of Sales = Opening Inventory + Purchases - Closing Inventory
$120,000 = $25,000 + Purchases - $5,000
$120,000 = $20,000 + Purchases
Purchases = $100,000.
Common mistakes
Treating the 25% mark-up as a 25% margin on sales (which would make COS $112,500).
Practice the full ACCA FA — Financial Accounting Practice Exam 5
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