ACCA FA · Chapter 11 · Question 8 of 12
A shop's inventory was partly destroyed by a flood. Records show opening inventory of $22,000, purchases of $139,000 and sales of $180,000. The shop sells all goods at a mark-up of 25% on cost. Undamaged inventory at the date of the flood was valued at $12,500. What was the cost of inventory lost in the flood?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $4,500
Explanation
Cost of sales = $180,000 x 100/125 = $144,000. Expected inventory = $22,000 + $139,000 - $144,000 = $17,000. Inventory lost = $17,000 - $12,500 = $4,500. Treating 25% as a margin gives a cost of sales of $135,000, expected inventory of $26,000 and a loss of $13,500.
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