Opening Inventory Calculation

To calculate the value of the opening inventory, we need to consider the total purchases, total sales, and the closing inventory. Additionally, we are given that goods are sold at a profit of 25% on cost.

Steps:

1. Calculate the Cost of Goods Sold (COGS):
- COGS = Total Purchases - Closing Inventory

In this case, the total purchases are given as 360,000, and the closing inventory is given as 68,000. Therefore,
COGS = 360,000 - 68,000 = 292,000

2. Calculate the Selling Price (SP) of Goods Sold:
- SP = Total Sales / (1 + Profit%) [Profit% is given as 25%]

The total sales are given as 480,000, and the profit percentage is 25%. Therefore,
SP = 480,000 / (1 + 0.25) = 480,000 / 1.25 = 384,000

3. Calculate the Cost Price (CP) of Goods Sold:
- CP = SP - Profit

The profit is calculated as 25% of the cost, so
Profit = 0.25 * COGS = 0.25 * 292,000 = 73,000

Therefore,
CP = SP - Profit = 384,000 - 73,000 = 311,000

4. Calculate the Opening Inventory:
- Opening Inventory = CP - COGS

Substituting the values we calculated earlier,
Opening Inventory = 311,000 - 292,000 = 19,000

Therefore, the value of the opening inventory is 19,000.

Explanation:

The opening inventory represents the value of goods that a company has at the beginning of an accounting period. To calculate the opening inventory, we need to consider the cost of goods sold, total sales, and closing inventory.

The cost of goods sold (COGS) is calculated by subtracting the closing inventory from the total purchases. It represents the cost incurred by the company to produce or acquire the goods that were sold during the accounting period.

Next, we calculate the selling price (SP) of the goods sold. Since the goods are sold at a profit of 25% on cost, we divide the total sales by 1 plus the profit percentage (25%) to obtain the selling price.

To calculate the cost price (CP) of the goods sold, we subtract the profit from the selling price. In this case, the profit is calculated as 25% of the cost of goods sold.

Finally, the opening inventory is calculated by subtracting the cost of goods sold from the cost price. It represents the value of goods that were not sold and were carried over from the previous accounting period.

In summary, the opening inventory is determined by considering the cost of goods sold, total sales, closing inventory, and the profit percentage on cost.