SECTION B - CASE 2: BioHarvest Agri

BioHarvest Agri Co operates commercial vineyards. The year-end is 30 September 20X6.
If BioHarvest incorrectly valued its closing wine inventory at $150,000 instead of the correct value calculated previously, what would be the impact on the Gross Profit Margin and Current Ratio for the year ended 30 September 20X6?

Trace the impact of overstated closing inventory. 1. Cost of Sales = Opening Inventory + Purchases - Closing Inventory. If Closing Inventory is too high, Cost of Sales is too low. 2. Gross Profit = Sales - Cost of Sales. If Cost of Sales is too low, Gross Profit is too high. 3. Current Ratio = Current Assets / Current Liabilities. If Inventory (a current asset) is too high, the Current Ratio is too high.