Blog: MCM301 Assignment 02

Semester "Fall 2010"

"Financial Accounting II (MGT401)"

Assignment No. 02 Marks: 10

Question

During 2009, company XYZ Ltd. found that certain items had been included in the inventory at 31^{st Dec, 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:

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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.