Question1(g) ABC Ltd uses a perpetual inventory system. Opening balance information as of 1 July 2024 for ABC Ltd is as follows (Note: only some accounts have been given here – if not in this list, you can assume the opening balance is zero): [table]
• | Cash | 300,000 • | Accounts receivable | 350,000 • | Inventory | 250,000 • | Accounts payable | 350,000 • | Unearned consulting revenue | 100,000 • | Share capital | 150,000
[/table] The following transactions occurred during the period from 1 July 2024 to 30 June 2025:Additional shares worth $75,000 were issued to shareholders. Paid $270,000 in cash to reduce their accounts payable. Purchased $200,000 of inventory on credit. Sold inventory to a customer on credit for $300,000. The goods sold by ABC Ltd cost $150,000. Collected $305,000 in cash that was owed from customers throughout the year. ABC Ltd declared and paid dividends totalling $70,000 during the year. Paid employees $156,000 for salaries in cash during the year. Unearned consulting revenue had a closing balance of $10,000 on 30 June 2025. Net realisable value of closing inventory was $250,000 on 30 June 2025. What is the company’s total expenses for the period from 1 July 2024 to 30 June 2025? (1 mark)Ignore tax. $306,000 $356,000 $280,000 $396,000 $226,000 ResetMaximum marks: 1 Flag question undefined

Question

BlackTom AI · Accepted Answer

Expenses are the outflows and losses incurred to generate revenue; here they comprise cost of goods sold, operating expenses (salaries), and any inventory write-down to net realisable value.

1. Relevant knowledge points
- Under a perpetual inventory system: Closing inventory = Opening inventory + Purchases − Cost of goods sold (COGS).
- If closing inventory’s NRV < carrying amount, recognise an inventory write-down (expense) for the difference.
- Dividends, share issues, collections of receivables and repayments of payables are financing/asset-liability transactions, not expenses.
- Unearned revenue changes affect revenue recognition, not expenses.

2. Step-by-step reasoning and calculations
- Opening inventory = 250,000
- Purchases during year = 200,000
- COGS (goods sold cost) = 150,000

Compute closing inventory at cost:
- Closing inventory (cost) = 250,000 + 200,000 − 150,000 = 300,000

Given NRV of closing inventory = 250,000, inventory must be written down:
- Inventory write-down = Closing inventory (cost) − NRV = 300,000 − 250,000 = 50,000

Other expense:
- Salaries paid = 156,000

Total expenses = COGS + Salaries + Inventory write-down
- Total expenses = 150,000 + 156,000 + 50,000
- Total expenses = 356,000

3. Why this is correct
Each component is an expense: COGS represents the cost of inventory sold; salaries are operating expenses; the inventory write-down is a loss/expense required to report inventory at NRV. Other transactions (share issue, dividend payments, collection of receivables, payment of payables, changes in unearned revenue) do not create expenses.

4. Why other choices are incorrect
- $306,000 equals 150,000 (COGS) + 156,000 (salaries) but omits the 50,000 inventory write-down, so it’s incomplete.
- $280,000, $396,000, $226,000 do not match the required sum of the identifiable expenses above and cannot be reconciled with the given expense items.

5. Conclusion
Total expenses for the period are $356,000, which matches the provided correct answer.

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