Answer to Question #196562 in Accounting for joshua muendo

Question

b)   Mr. Eze has provided you the following information as at 30 June 2019.Stock 1 july 2018 ksh6000, purchases 54,000.

Eze’s mark-up is 50% on cost of goods sold. His average stock during the year was Sh12,000. Draw up a trading and profit and loss account for the year ended 30 June 2019.

i)      Calculate the closing stock as at 30 June 2019.

ii)     State the total amount of profit and loss expenditure Jones must not exceed if he is to maintain a net profit on sales of 10%. 

Answer 1

i). Calculate the closing stock as at 30^th June 2019:

Opening stock = 6,000

Average stock during the year = 12,000

Average stock = $\frac{Opening\;Stock +Closing\;Stock}{2}$

$12,000 = \frac{6,000 +Closing\;Stock}{2}$

24,000 = 6,000 + closing stock

Closing stock = 24,000 - 6,000 = 18,000

Mark-up is 50% on the cost of goods sold:

Cost of goods sold = $100\%$

Sales = $150\%$

Cost of goods sold = Opening stock + Purchases – Closing Stock

Cost of goods sold = 6,000 + 54,000 – 18,000 = 60,000 – 18,000 = 42,000

Sales = $150\%\times 42,000 = 63,000$

The trading profit and loss account is as below:

ii). Net profit = Sales – Expenses

Sales = 63,000

Net profit to be maintained = $63,000\times 10\% = 6,300$

Therefore, the total amount of profit and loss expenditure that Jones must not exceed = 63,000 – 6,300 = 56,700