The draft Trading Account of Kalu Enterprises showed the following balances at year-end:
- Opening Inventory: ₦40,000
- Purchases: ₦250,000
- Carriage Inwards: ₦10,000
- Sales: ₦400,000
- Closing Inventory: ₦45,000
It was later discovered that goods costing ₦15,000 withdrawn by the owner for personal use had been incorrectly credited to the Sales Account at their selling price of ₦20,000. What is the corrected gross profit for the year?
- ₦140,000Answer
- B₦145,000
- C₦160,000
- D₦110,000
Answer
₦140,000
To determine the corrected gross profit, two rectifications are required. First, the selling price of ₦20,000 must be deducted from Sales, resulting in corrected Sales of ₦380,000. Second, the cost price of ₦15,000 must be deducted from Purchases, resulting in corrected Purchases of ₦235,000. Adding Opening Inventory (₦40,000) and Carriage Inwards (₦10,000) to corrected Purchases (₦235,000) and subtracting Closing Inventory (₦45,000) gives a Cost of Goods Sold of ₦240,000. Subtracting ₦240,000 from ₦380,000 yields the correct gross profit of ₦140,000.
Step-by-Step Solution
Key Concept
Accounting treatment for goods withdrawn by owner misclassified as sales
Estimated Time:2m 0s