Ibadan Head Office operates a dependent branch in Oyo, invoicing all goods at cost price. For the year ended 31 December 2025, the branch transactions showed:
| Transaction Details | Amount (₦) |
|---|---|
| Branch stock at 1 January 2025 | 8,000 |
| Goods sent to branch | 45,000 |
| Goods returned by branch to Head Office | 3,000 |
| Cash sales at branch | 38,000 |
| Credit sales at branch | 18,000 |
| Branch operating expenses paid by Head Office | 5,200 |
| Branch stock at 31 December 2025 | 10,000 |
What is the net profit earned by the branch for the year ended 31 December 2025?
- A₦4,800
- ₦10,800Answer
- C₦16,000
- D₦800
Answer
The net profit earned by the branch is ₦10,800.
Total turnover generated by the branch is ₦56,000 (₦38,000 cash sales + ₦18,000 credit sales). Net goods received by the branch cost ₦42,000 (₦45,000 - ₦3,000 returned). The cost of goods sold equals ₦40,000 (Opening stock ₦8,000 + Net goods received ₦42,000 - Closing stock ₦10,000). Subtracting the cost of goods sold (₦40,000) from total turnover gives a gross profit of ₦16,000. Finally, deducting operating expenses of ₦5,200 leaves a net profit of ₦10,800.
Step-by-Step Solution
Key Concept
Branch Profit Calculation at Cost Price