Page 67 - Accountancy_F5

Solution 2.9
Corrected statement of profit or loss

Details 31 Dec. 2022 31 Dec. 2023
st
st
TZS TZS TZS TZS
Sales 800,000 1,200,000
FOR ONLINE READING ONLY
Cost of goods sold:
Opening inventory 140,000 240,000
(100,000 + 40,000)
Add: Purchases 720,000 980,000
LANGUAGE EDITING
Cost of goods available for sale 860,000 1,220,000
Less: Closing inventory 240,000 620,000 180,000 1,040,000
(200,000 + 40,000)

Goss profit 180,000 160,000
Less: Operating expenses 80,000 140,000
Operating profit 100,000 20,000

Building on the information provided in Example 2.7, prepare an accurate statement of
profit or loss for the years 2022 and 2023, taking into account the following inventory
discrepancies:
(a) The closing inventory for the year ending 31 Dec. 2022 was understated by TZS
st
35,500,
(b) Both the opening and closing inventories for the year ending 31 Dec. 2022 were
st
overstated by TZS 35,500.

Inventory estimation

Inventory estimation is the process employed when a business does not use a perpetual
inventory system and physical inventory-taking. This situation is when the perpetual
inventory taking system are either impractical or not desired. In the periodic inventory
system, for example, it can be administratively cumbersome and costly to determine
the quantity of inventory on hand without conducting a physical inventory-taking at
that specific time. This challenge may arise due to the lack of detailed inventory flow
records in this system. To address this issue, businesses may estimate the figures for lost
inventory to achieve different objectives.

Estimation proves useful when financial statements are prepared on a monthly or
quarterly basis. Similarly, estimation can facilitate insurance claims arising from incidents
of loss of goods due to theft, fire, breakages, natural deterioration, or evaporation. In
such situations, physically counting all items in the store can be difficult and costly,

Student’s Book Form Five
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