Theory question 110
Business CalculationsCommerce 2 (essay)
Leonard is a retailer who deals in cement. He started business on 1st January, 2011. The following information was extracted from his books (Le):
Rent – 25,000
Sales – 850,000
Returns outwards – 15,000
Purchases – 400,000
Return inwards – 25,000
Insurance – 45,000
Fixtures and fittings – 15,000
Wages and salaries – 112,000
Transport – 6,000
From the above information calculate the:
(a) Turnover;
(b) Cost of goods sold;
(c) Gross Profit;
(d) Net Profit;
(e) Rate of stockturn.
Show the model answer
(a) Turnover (net sales) = sales − returns inwards = 850,000 − 25,000 = Le 825,000.
(b) Cost of goods sold = purchases − returns outwards = 400,000 − 15,000 = Le 385,000 (no opening or closing stock is given, as business started in 2011).
(c) Gross profit = 825,000 − 385,000 = Le 440,000.
(d) Expenses = rent 25,000 + insurance 45,000 + wages and salaries 112,000 + transport 6,000 = 188,000; net profit = 440,000 − 188,000 = Le 252,000. (Fixtures and fittings are a fixed asset, not an expense.)
(e) Rate of stockturn = cost of goods sold ÷ average stock; no opening or closing stock figures are given (average stock is nil), so the rate cannot be worked out from this information.
Leave fixtures and fittings out of expenses; they are an asset.