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 $280,000 on 30 June 2025. What is the company’s total expenses for the period from 1 July 2024 to 30 June 2025? Ignore tax. $280,000 $396,000 None of the options are correct $326,000 $226,000 ResetMaximum marks: 1 Flag question undefined

Question

BlackTom AI · Accepted Answer

We start by organizing the information and tracking how expenses arise during the period from 1 July 2024 to 30 June 2025.

First, determine the cost of goods sold (COGS). In a perpetual system, COGS for a sale equals the cost of the inventory that was sold. The data states:
- Beginning inventory: 250,000
- Purchases: 200,000
- Cost of goods sold recorded on the sale: 150,000
If ending inventory is measured at net realisable value (NRV) 280,000, then the ending inventory cost should align with the lower of cost and NRV. Here, cost available for ending inventory is 250,000 + 200,000 − 150,000 = 300,000. Since NRV is 280,000, a write-down of 20,000 is required to bring ending inventory to NRV. This write-down increases expenses.

Therefore, ending inventory should be 280,000, and COGS becomes: Beginning+Purchases−Ending = 250,000+200,000−280,000 = 170,000. This 170,000 is the cost portion associated with the goods sold.

Next, accumulate operating expenses recognized in the period besides COGS:
- Salaries paid: 156,000 (cash outflow, expense) → 156,000 of expenses.
- Dividends are a distribution of profits and are not recorded as an expense; they reduce equity and do not count as an expense in the income statement. Therefore, the 70,000 dividend should not be added to expenses.
- Other items in the data (revenues from sales, unearned revenue movements) affect revenues or liabilities, not expenses directly, for the purpose of the expense calculation here.

With COGS = 170,000 and salaries = 156,000, total expenses total 326,000.

Now compare with each option:
- '$280,000': This figure resembles the NRV-based ending inventory amount, not total expenses. It omits the 170,000 COGS and the 156,000 salaries that together form the expense total. It is therefore not the correct total expense.
- '$396,000': This could result from summing 170,000 COGS, 156,000 salaries, and an incorrect inclusion of dividends (70,000) as an expense, giving 396,000. Since dividends are not expenses, this overstates expenses.
- 'None of the options are correct': This would be chosen only if 326,000 were not among the listed choices. However, 326,000 is one of the options, so this option would be incorrect.
- '$326,000': This matches the computed total expenses (170,000 COGS + 156,000 salaries) without including dividends, aligning with standard treatment of dividends as equity transactions, not expenses.
- '$226,000': This could reflect counting only COGS (170,000) plus maybe a portion of salaries (56,000) or misallocating items, but it does not align with the full expense calculation derived from beginning inventory, purchases, ending NRV-adjusted inventory, and salary expense.

In summary, the correct accounting approach yields total expenses of 170,000 (COGS) plus 156,000 (salaries) = 326,000. The dividends do not belong in the expense total, and the NRV adjustment creates the 20,000 write-down that contributes to the 170,000 COGS, not to the separate expense count beyond COGS.

Thus, evaluating the options with this reasoning shows that the '$326,000' choice aligns with the calculations, while the other figures reflect common misapplications (treating NRV as expense directly, including dividends in expenses, or mis-summing).

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