Gross Profit and Closing Stock calculation problem

Mathew_Hill

Hi everyone

Just doing a practice exam paper and am having problems calculating the Gross Profit and Closing Stock figures.

The information given is :

• This is the companys first year of trading (therefore no opening stock)
• Sales 89750
• Payments to trade creditors 59400
• Wages 8105
• General Expenses 7550
• Drawings 11000
• Fixtures 5000
• Value of stock at ened of year is unknown but the profit margin achieved on sales is a third

From using the above information can someone explain how they would go about calculating the gross profit and closing stock?

Thanks in advance

Matt

kazseera

this is incomplete records isnt it...argggh i hate doing this.. id like to know how this would be worked out aswell please

agatha

In the example gross profit is third of Sales.
Cost of Sale 2/3
Gross Profit 1/3
Sales 3/3

is Sales= 87750 Gross profit= 87750 x 1/3= 29250
and cost of sales= 87750 x 2/3= 58500

Cost of sales is mad up of:
Opening stock Nil
Purchases 59400
Less closing stock (x)

0+59400- x= 58500
x= 59400-58500
x= 900
closing stock = 900
:confused1: you think its right?

Mathew_Hill

Thanks Agatha

The sales figure is 89,700 as opposed to the 87,700 figure you used.

Did you do anything to the 89,700 figure or was this just a typing error?

I worked through the Closing stock the same as you did but using the 89,700 figure and got a closing stock of -433!

Matt

Richard

Hi Matt,

Are you doing the David Nix/ABC Traders exam in the Osborne book?

I've had a quick look at it and calculate the GP to be 31,300 and closing stock is 6,120.

I've calculated as follows:

Cash Account

Cash banked = 89,750

Gen Expenses = 2,150

Wages = 1,900

Closing balance = 100 (this is your cash float)

therefore, sales income must be 89,750 + 2,150 + 1,900 + 100 = 93,900


Gross profit is 1/3 of 93,900 = 31,300, so cost of sales will be 62,600.


Purchases will be 59,400 paid to creditors plus 9,320 creditors outstanding = 68,720


Sales = 93,900

Opening stock 0 + purchases 68720 less cost of sales 62,600 = 6,120 closing stock figure.


I hope this makes it clearer for you.

MattW

Hi Matt,

I make it £400 as the closing stock figure based on a figure of £89700 for sales:

you say a profit margin of 1/3 is acheived on sales, therefore -

89700 x 1/3 = a gross profit of £29900

if 1/3 is profit, then the remaining 2/3's must be cost of sales.

from the trading account on the profit and loss account we know:

Sales less Cost of Sales = Gross profit

As a note - Cost of sales is calculated as Opening Stock plus Purhases, Less Closing stock.

so, we have £89700 - 59800 (which is 2/3 x Sales, Cost of Sales ) = £29900 (1/3 x Sales, Gross profit)


So my reasoning as £400 for the closing stock is if total cost of sales is 59800 upon drawing up a total creditors account and using 59400 as the cash to suppliers figure my balancing figure is 59800 - 59400 = 400... which is basically the same as Agatha has done but with the £89700 sales figure......

That's my shot at it, anyone else?


Matt

MattW

Ah just looked at Richard's reply, that would make a lot more sense if it's "cash banked" at £89700 rather than actual sales at 89700.... I did wonder why info of expenses paid out was given!

Mathew_Hill

Thanks Richard/Matt

I am indeed doing the David Nix exam!

Could you please explain why general expenses, wages and the cash float were added to the cashed banked figure?

Are general expenses and wages not money going out rather than in?

Cheers,

Matt

Richard

The cash account is similar to the bank account in that any payments made are on the credit side, if you think about the double entry the gen expenses and wages accounts will already have been debited. The question states that £100 float is kept in the till, which we will use as our balancing figure. These payments have been taken out of the cash received from sales so need to be added back on to the banked figure (only the cash that remained after expenses was banked).

It may help if you draw up a T account for the cash book - money received on the dr side, payments, bankings and balancing figure on the cr side.

sainty

Task 1.6

I'm not sure how to calculate the updated Gross Profit figure, do i include the stolen stock or just the figure given £3650.00

Richard

I would use the figure given.

sainty

Thank you for your help.
:001_smile:

PAMDILL

agatha wrote: »

In the example gross profit is third of Sales.
Cost of Sale 2/3
Gross Profit 1/3
Sales 3/3

is Sales= 87750 Gross profit= 87750 x 1/3= 29250
and cost of sales= 87750 x 2/3= 58500

Cost of sales is mad up of:
Opening stock Nil
Purchases 59400
Less closing stock (x)

0+59400- x= 58500
x= 59400-58500
x= 900
closing stock = 900
:confused1: you think its right?

Payment to Trade Creditors would include VAT at 17.5%, therefore that should be deducted from the figure.

If the figure shown was Purchases from the nominal it would not have VAT in figure but if the figure is taken from the cashbook or Purchase Ledger it will have VAT included.