Question

QUESTION ONE. (30 MARKS) A. Having gone through the principles II class, imagine you are an intem at Floro agro florists and its end year. The Warehouse Manager is overwhelmed with work and realizes that you can just be the perfect person to help him with inventory related issues after he realizes a glitch in some year's records. The information for the years in question has been provided as follows; 2018 2019 2020 Current Assets Non-Current Assets Total Assets Long term Liabilities Revenue Cost of Sales 1,000 1.250 1,750 5,000 6,250 8.750 6,000 7,500 10,500 2,000 2,500 3,500 1.000 1.250 1,750 40% on cost for all the Years Assume that ending Inventory was overstated by K1, 500 in 2018 and Understated by K10, 000 ends of 2019. Required a. Calculate the Cost of goods sold for the years 2018, 2019, and 2020 (6 Marks) b. Calculate the Owners Equity value for the years 2018, 2019 and 2020 (3 Marks) c. Calculate the correct values for the below listed items in 2018 and 2019 indicating the effect with an explanation. (21 Marks) i. Current Assets ii. Non-current Assets Total Assets iv. Long term Liabilities Owners Equity vi. Revenue Cost of sales Gross Profit 111 V. vii. V111.

Answer 1

The answers to various question is given below in the table with explanations and reason and working:

2018 2019 Answer Particulars Current Assets Non-Current Assets Total Assets Long Term Liabilities Revenue 1,000 5,000 6,000 2,000 1,000 1,250 6,250 7,500 2,500 1,250 2020 Explanation 1,750 8,750 10,500 3,500 1,750 Cost of Sale is given as 40% of Cost. This is not possible to calculate. we have cost of sales as 40% of Sales Cost of Sales-40% of Cost 1,500 a Overstatement of Inventory Understatement of Inventory Cost of Goods Sold Owners Equity Correct Value 600 4,000 10,000 750 5,000 1,050 7,000 Total Assets- Long term Liabilities b с Current Assets -500 9,750 Non-Current Assets 5,000 6,250 Total Assets 4,500 16,000 Long Term Liabilities Owners Equity Revenue 2,000 2,500 1,000 2,500 13,500 1,250 Overstatement of Inventory is reduced 11,750 from 2018 and 2019. Understatement of Inventory is added to 2019 and 2020 8,750 No Impact Aggregate of Current Asset and Non- 20,500 Current Asset 3,500 17,000 Total Assets-Long term Liabilities 1,750 No Impact Overstatement of Inventory at the end is added to arrive at revised cost of sales for 2018. For 2019, overstatement of 10,700 inventoty of 2018 and understatement of inventory of 2019 is reduced from cost of slales -8,950 Cost of Sales 1,900 -11,000 Gross Profit -900 12,250
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