IGCSE Accounting Paper-1: Specimen Questions with Answers 305 - 306 of 338

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Passage

Iqbal is a trader whose financial year ends on 30 June. All the purchases and sales are on credit basis.

He provides the following information for the year ending 30 June 2019.

 1 July 2018- \$ Inventory 4600 Debtors 6000 30 June 2019- 5600 Debtors During the year- Cheque received from debtors 54300 Discount Allowed 2400 Carriage Inward 1300 Bad debts written off 250 Total Purchases 42650

On 30 June, some goods were stolen from the warehouse of Iqbal and goods worth \$ 1300 were left. The profit mark up of Mr. Iqbal is 20 % .

Question 305 (1 of 4 Based on Passage)

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Write in Short

State what does the inventory turnover ratio measure and what is the average age of inventory? (Marks 2)

Explanation

• Inventory Turnover Ratio measures the speed with which the inventory is converted into sales. It is the number of times inventory is sold in a year. Greater inventory turnover implies faster sales and indicates efficiency in inventory management whereas lower turnover shows inefficiency or overstocking.
• Average Age of Inventory is the average time it takes to sell an inventory. It is calculated by dividing 12 months or 365 days by the inventory turnover. Greater turnover implies lower inventory age and vice versa.

Question 306 (2 of 4 Based on Passage)

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Write in Short

Prepare the Trading A/c of Iqbal for the year and find out the value of inventory stolen. (Marks 8)

Explanation

Ans

Iqbal

Trading A/c for the year ended 30 June 2019

 \$ \$ \$ Sales 56550 Cost of Goods Sold: Opening Inventory 4600 Purchases 42650 Carriage Inward 1300 48550 Closing Inventory Left in warehouse (1300) Stolen (125) (1425) 47125 Gross Profit 9425

Working Notes:

(I) Cost of Goods Sold - Since gross profit is 20 % of Cost of Goods Sold, Cost of Goods Sold will be equal to -

(II) Closing Inventory

(III) Closing Inventory Stolen (Loss by theft)

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