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Hengist,a sole trader, has calculated that his cost of sales for the year is $144000. His revenue figure for the year includes an amount of $2016 being the amount paid by Hengist himself into the business bank account for goods withdrawn for private use. The figure of $2016 was calculated by adding a mark-up of 12% to the cost of goods. His gross profit on all other goods was 20%. What is the total figure of revenue for the year?
For this question i am getting the answer as option A but when i look at the answer at the back of the book it is option C. So could i get help on how the correct answer is C and not A
The $2016 should not be in sales and its cost should not be in cost of sales. The proper treatment of goods taken for private use is:
Dr Drawings Cr Purchases with the cost of the goods.
These goods would have cost 2016 x 100/112 = 1,800.
The true cost of sales is therefore 144,000 – 1,800 = 142,200
If the GP% is 20%, 142,200 is 80% of the sales figure, so revenue should be:
142,200/0.8 = 177,750
I think it is therefore answer B