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Hi,
Please explain this question of Mark up and margin.
Neha’s warehouse was damaged by fire on 5 November 2010 and most of the goods was destroyed. The goods that were salvaged was valued at $12000.
Neha has provided the following information to enable the cost of the goods lost to be calculated.Extracts from the statement of Financial Position at 30 June 2010:
Inventory $47000
Trade receivables $16000
Trade payables $23000Further information for the period 30 June 2010 to 5 November 2010.
Receipts from debtors $122000
Cash sales $17000
Payments to suppliers $138000
at 5 November: Trade receivables $ 37000
Trade payables $ 28000Neha’s markup on goods sold is 33 1/3%
my confusion basically is,that an example has been given in a book of a question like this, in which an easy way is to make control accounts.However, in control accounts, we do not add cash sales, right? with that said, the answer in the book has added the cash sales in the calculation.
Could you please tell me any other way to solve this question? like different workings perhaps?
You are correct in saying that in ‘real life’ cash sales do not appear in the control account.
However as workings it doesn’t matter what you do.
If you prefer then prepare the control account ignoring cash sales (as you would do in practice) and then you should get credit sales to be 143,000. If you then add on the cash sales you get total sales of 160,000 (which I am assuming is what is in the answer you have – if not then I have made an arithmetic mistake 🙂Once you know total sales, then you can work out the cost of the goods sold. Since the mark-up is 1/3 of cost, then the sales are 1 + 1/3 = 4/3 x cost. So the cost is 3/4 x 160,000 = 120,000. (If this bit is not clear, then our free lectures on mark-ups and margins will help you).
The way I calculate the cost of the goods lost is as follows:
Calculate the purchases. For this you need to prepare a payables account and you should get purchases to be 143,000 (but again, check my arithmetic!).
Then calculate what the cost of goods sold would have been on the figures given – opening inventory plus purchases less closing inventory.
This comes to 47,000 + 143,000 – 12000 = 178,000.Since the ‘true’ cost of the goods sold was 143,000, it means that the cost of the goods lost must be 178,000 – 143,000 = 35,000.
I hope that helps.
Do let me know if that is the answer in your book (because if not then I have made a silly arithmetic mistake (or your book has 🙂 ).The answer in my book is something like this.
sales $160 000
less cost of goods sold:
Inventory at 30 June 2010 $47 000
Purchases (your arithmetic is fine) $143 000Less stock at 5 Nov 2010 (70 000)
The answer is 120,000 which we deduct from sales obviously and thus, the gross profit is $40,000.
Cost of stock lost in fire : $ ( 70 000 – 12000) = $58 000
And Yes I have watched the lecture, still this question left my confused.Thank you very much for you help 🙂
I have one more question of Incomplete records viz. calculating the profit at the year end.
while preparing the statement of affairs, should any new personal asset brought into the business during the year be added in assets and deducted from the capital at the year-end?
There is no such term as “statement of affairs” 🙂
I assume that you mean the statement of financial position (i.e, the balance sheet)If so, then if a sole trader brings in a personal asset into the business, the it increases the assets and increases (not reduces) the capital.
please explain me whether this calculation is right or not? It’s the same question I asked you first
sales $160 000
less cost of goods sold:
Inventory at 30 June 2010 $47 000
Purchases (your arithmetic is fine) $143 000Less stock at 5 Nov 2010 (70 000)
The answer is 120,000 which we deduct from sales obviously and thus, the gross profit is $40,000.
Cost of stock lost in fire : $ ( 70 000 – 12000) = $58 000
And Yes I have watched the lecture, still this question left my confused.Thank you very much for you help ?
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