MGT401 Solution

Question
During 2009, company XYZ Ltd. found that certain items had been included in the inventory at 31stDec, 2008, valued at Rs.4.5 millions which had in fact been sold before the year end. The following figures were reported for the year 2008:
Rs. (‘000)
Sales 50,400
Cost of goods sold (34,570)
Profit before taxation 15,830
Income tax (4,749)
Net Profit 11,081 While the draft figures for the year 2009 are as follows:
Rs. (‘000)
Sales 70,000
Cost of goods sold (55,800)
Profit before taxation 14,200
Income tax (4,260)
Net Profit 9,940
The cost of goods sold for the year 2009 includes the value of error in inventory equal to Rs.4.5 millions. Income tax is applied on the company by the taxation agency . 30 % p.a.
Requirement
Prepare the restated income statements for the year 2009 and 2008 as comparative by adjusting the aforementioned inventory error. Show the related calculations of inventory error adjustment as it also carry marks.
 

Idea Solution:-

MGT401 Assignment II

Year                                                                             2008                                        2009

Net sales                                                                      (‘000)                                      (‘000)

Cost of Sales or Cost of                                               70000                                      50400

Goods Sold                                                                  60300                                      30070

Profit before Tax                                                          9700                                      20330

Net Profit                                                                       2910                                        6099

Net Profit                                                                      6790                                      14231

In 2008 cost of sales shall be increased as we have subtracted the closing stock of 4.5 million, which ultimately reduced the cost of sales of that year. So we shall add the 4.5 million in 2008.In 2009 since it had been included in the opening stock of 2009 so removing this 4.5 million shall reduce the cost of sales of 2009.

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