Theory question 110
Business CalculationsCommerce 2 (essay)
The following information is from the books of Auntie Justie, who sells books, for the year ended 31/12/05 (Le):
Sales – 220,000
Stock 1/1/05 – 60,000
Purchases – 180,000
Stock 31/12/05 – 70,000
Salaries and wages – 8,000
Debtors – 16,000
Transport – 6,000
Rent – 5,000
Calculate (showing all workings) the:
(a) gross profit;
(b) average stock;
(c) net profit,
Show the model answer
Model answer
(a) Cost of goods sold = 60,000 + 180,000 − 70,000 = Le 170,000; gross profit = 220,000 − 170,000 = Le 50,000.
(b) Average stock = (60,000 + 70,000) ÷ 2 = Le 65,000.
(c) Expenses = salaries and wages 8,000 + transport 6,000 + rent 5,000 = Le 19,000; net profit = 50,000 − 19,000 = Le 31,000. (Debtors are an asset, not an expense.)
Explanation
Leave debtors out; they are not an expense.