Acca financial Accounting (FA) Study Text ac ca (FA)

Test your understanding 11 

 

Fred lost his entire inventory in a fire. His unsigned insurance policy is 

still in the pocket of his good suit. Fred has supplied you with the 

following information: 

Mark up 25% 

Sales $10,000 

Opening inventory $2,000 

Purchases $7,500 

Based upon the available information, calculate the value of 

inventory destroyed and prepare the journal to record the write-off 

of inventory. 

 

 

 

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Incomplete records 

338

 

KAPLAN PUBLISHING

 

Chapter summary 

 

 

 

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Chapter 18 

KAPLAN PUBLISHING

 

339 

Test your understanding answers 

 

Test your understanding 1 

 

The correct answer is C 

Total assets = share capital + retained earnings + other reserves + total 

liabilities 

$13,400 = $200 + retained earnings + $3,800 

If we re-arrange this formula we end up with: 

$13,400 – $200 – $3,800 = retained earnings 

Retained earnings = $9,400 

Closing retained earnings = prior year retained earnings + current year 

profits: 

$9,400 = $7,350 + current year profits 

$9,400 – $7,350 = current year profits 

=