ExpertMedium1 markMultiple Choice
ACCA · Question 61 · Interpretation of financial statements
Section B - Case 2: Single Entity Accounts & Ratio Analysis
*Scenario: Horizon Wind Farms Ltd has prepared draft financial statements for the year ended 31 December 20X8. The draft net profit is $850,000. Draft Revenue is $4,000,000 and Cost of Sales is $2,200,000. The following adjustments have not yet been processed:
- Depreciation on new turbines of $50,000 was omitted.
- An annual insurance premium of $12,000 paid on 1 July 20X8 was expensed in full.
- Closing inventory was overvalued by $30,000.
- An irrecoverable debt of $15,000 needs to be written off.
Equity comprises Share capital $1,000,000 and Retained earnings $2,000,000. There is a long-term loan of $1,500,000.*
If the adjusted closing inventory is $250,000, what is the Inventory Turnover period (in days)? (Use adjusted Cost of Sales of $2,230,000 and a 365-day year. Round to the nearest whole day).
Section B - Case 2: Single Entity Accounts & Ratio Analysis
*Scenario: Horizon Wind Farms Ltd has prepared draft financial statements for the year ended 31 December 20X8. The draft net profit is $850,000. Draft Revenue is $4,000,000 and Cost of Sales is $2,200,000. The following adjustments have not yet been processed:
- Depreciation on new turbines of $50,000 was omitted.
- An annual insurance premium of $12,000 paid on 1 July 20X8 was expensed in full.
- Closing inventory was overvalued by $30,000.
- An irrecoverable debt of $15,000 needs to be written off.
Equity comprises Share capital $1,000,000 and Retained earnings $2,000,000. There is a long-term loan of $1,500,000.*
If the adjusted closing inventory is $250,000, what is the Inventory Turnover period (in days)? (Use adjusted Cost of Sales of $2,230,000 and a 365-day year. Round to the nearest whole day).
Answer options:
A.
23 days
B.
41 days
C.
46 days
D.
9 days
How to approach this question
Formula: (Closing Inventory / Cost of Sales) * 365.
Full Answer
B.41 days✓ Correct
Inventory Turnover Days = (Inventory / Cost of Sales) * 365.
Days = ($250,000 / $2,230,000) * 365 = 40.919... days.
Rounded to the nearest whole day = 41 days.
Common mistakes
Using Revenue instead of Cost of Sales as the denominator.
Practice the full ACCA FA — Financial Accounting Practice Exam 1
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