Question 1

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)

Accepted Answer

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.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Treating the 25% mark-up as a 25% margin on sales (which would make COS $112,500).

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 5

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