The draft accounts of Sellas plc for the year ended 31 December 2016 show a net profit before tax of $327,900 and closing trading stock at cost of $253,850 following a physical stock count.

During the audit of the accounts the following matters have come to light:

1. Stock costing $28,000 has been omitted from the closing stock figure.
2. Items included in stock at $13,400, and which would normally be sold for $19,800, were in a damaged state and were worth only $5,200.
3. Sellas plc received an order on 23 December 2016 to supply goods at a total price of $63,000. The goods, which had cost $34,000, were moved on the following day from the stores to the packing department and were despatched on 2 January 2017 when the customer was invoiced. Sellas plc had included the order in sales for 2016 and had excluded the goods from closing stock.
4. 4,200 items costing $12 each were recorded on the stock sheets in error as 2,400 items at $22 each.
5. Stock costing $15,000 was lost in a fire in the warehouse during the year. The company’s insurers have agreed to pay Sellas plc $17,300 in respect of its insurance claim. No entry has yet been made in the accounting records.
6. Included in purchases is $37,400 for goods purchased in December and which were received into the warehouse on 2 January 2017.
7. Stock costing $22,000 has error been treated as a fixed asset and depreciation of 12% of cost has been provided for.
8. Returned stock costing $825 has been treated in the accounting records as a return outward instead of a return inward.
9. An item is included in the closing stock valuation at its selling price of $10,200. The gross profit margin on this item is 60%.

Required:

1. Calculations to show the correct figure for Sellas plc for:

1. Net profit before tax for 2016, and
2. Trading stock at 31 December 2016.
3. Your answer to the following questions posed by the purchasing directors of Sellas plc:

‘Prices are rising all the time and I think we should change our stock valuation method from FIFO and LIFO or average cost. What do you think about this? Can we do it?’

Answer rating: 100% (QA)

ANswer i Calculation of Revised Profit Particulars Amount Net Profit Before tax 253850 Add Closing s... View the full answer