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Difficulty: MediumBar Trading and Special Activities Account

Unity Social Club provides the following information regarding its bar operations for the year ended 31st December 2025:

- Bar takings (sales): ₦150,000
- Bar inventory (1st January 2025): ₦20,000
- Bar inventory (31st December 2025): ₦25,000
- Payments made to bar suppliers: ₦80,000
- Bar creditors (1st January 2025): ₦12,000
- Bar creditors (31st December 2025): ₦15,000
- Bar steward salary paid: ₦10,000
- Bar steward salary accrued (31st December 2025): ₦2,000

What is the net bar profit to be transferred to the Income and Expenditure Account?

  1. ₦60,000Answer
  2. B
    ₦64,000
  3. C
    ₦66,000
  4. D
    ₦63,000

Answer

The net bar profit to be transferred to the Income and Expenditure Account is ₦60,000.
To find the net bar profit transferred to the Income and Expenditure Account, total purchases are calculated first as ₦80,000 + ₦15,000 - ₦12,000 = ₦83,000. Cost of goods sold is ₦20,000 + ₦83,000 - ₦25,000 = ₦78,000, yielding a bar gross profit of ₦150,000 - ₦78,000 = ₦72,000. Deducting the accrued bar steward salary expense (₦10,000 + ₦2,000 = ₦12,000) gives the correct net profit of ₦60,000.

Step-by-Step Solution

1
Calculate total bar purchases
Total Purchases = ₦80,000 (payments) + ₦15,000 (closing creditors) - ₦12,000 (opening creditors) = ₦83,000
Creditors adjustments must be applied to cash payments to determine total credit purchases.
2
Calculate cost of goods sold (COGS)
COGS = ₦20,000 (opening inventory) + ₦83,000 (purchases) - ₦25,000 (closing inventory) = ₦78,000
Cost of goods sold represents the net cost of inventory consumed during the period.
3
Calculate bar gross profit
Bar Gross Profit = ₦150,000 (bar takings) - ₦78,000 (COGS) = ₦72,000
Gross profit is revenue generated minus direct cost of goods sold.
4
Calculate total bar expense and net profit
Bar Steward Salary Expense = ₦10,000 + ₦2,000 = ₦12,000; Net Bar Profit = ₦72,000 - ₦12,000 = ₦60,000
Accrued expenses must be added under the accrual concept before deducting total expenses from gross profit.

Key Concept

Bar Trading Account Net Profit Determination
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Topics

Bar Trading and Special Activities Account

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