The accounting records of Kolawole Enterprises showed the following balances for the year … — JAMB UTME

The accounting records of Kolawole Enterprises showed the following balances for the year ended 31 December 2025:

- Gross Sales: $\text{₦}450,000$
- Returns Inwards: $\text{₦}15,000$
- Opening Inventory: $\text{₦}60,000$
- Purchases: $\text{��}280,000$
- Returns Outwards: $\text{₦}10,000$
- Carriage Inwards: $\text{₦}12,000$
- Carriage Outwards: $\text{₦}8,000$
- Goods withdrawn by owner for personal use: $\text{₦}6,000$

If the closing inventory is valued at $20\%$ of the cost of goods available for sale, what is the Gross Profit of the enterprise in Naira?

Answer: 166200 ₦

Answer

The Gross Profit earned by Kolawole Enterprises is ₦166,200.

To determine the Gross Profit, first calculate Net Sales by deducting Returns Inwards from Gross Sales (₦450,000 - ₦15,000 = ₦435,000). Next, calculate Net Purchases by subtracting Returns Outwards (₦10,000) and Goods Withdrawn for Personal Use (₦6,000) from Purchases (₦280,000), giving ₦264,000. Sum Opening Inventory (₦60,000), Net Purchases (₦264,000), and Carriage Inwards (₦12,000) to find the Cost of Goods Available for Sale (₦336,000). Deduct Closing Inventory (20% of ₦336,000 = ₦67,200) to arrive at Cost of Goods Sold (₦268,800). Subtracting Cost of Goods Sold from Net Sales yields the Gross Profit of ₦166,200.

Step-by-Step Solution

Calculate Net Sales

₦435,000

Net Sales is total sales minus sales returns (returns inwards).

Calculate Net Purchases

₦264,000

Net Purchases is total purchases minus purchases returns (returns outwards) and goods taken by the proprietor for personal use.

Calculate Cost of Goods Available for Sale

₦336,000

Cost of goods available for sale includes opening inventory, net purchases, and direct transport costs on purchases (carriage inwards). Carriage outwards is an operating distribution expense and must be excluded.

Calculate Closing Inventory

₦67,200

Closing inventory is computed as 20% of the total cost of goods available for sale (0.20 × ₦336,000).

Calculate Cost of Goods Sold

₦268,800

Cost of goods sold is cost of goods available for sale minus closing inventory.

Calculate Gross Profit

₦166,200

Gross Profit is Net Sales minus Cost of Goods Sold.

Key Concept

Trading Account and Gross Profit Calculation

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