5.6 Consider the following:

Income statement (extract) 2004 2003 2002 EUR EUR EUR Sales 20,000 25,000 24,000 Balance sheet (extract) 31 Dec. 2004 31 Dec. 2003 31 Dec. 2002 EUR EUR EUR Trade and other receivables 1,950 1,900 1,850 Of the total sales, 20 per cent are for cash.

Assuming that VAT is 20 per cent, determine the days to collect trade receivables for the years 2004 and 2003. Comment on the results.

• appreciate connection between cost of sales, inventory valuation and gross profit • determine the value of inventory and cost of sales using different methods: FIFO, LIFO and average cost • explain impact on profit resulting from different valuation methods • determine the value of inventories held at the end of an accounting period by applying the lower of cost and NRV test • show the effects of inventory errors on financial statements • evaluate the gross profit percentage and inventory turnover.