The following trial balance extract was taken from the books of a sole proprietor as at 31st December 2025: | Ledger Account | Amount (\text{₦}) | |---|---| | Sales | 200,000 | | Returns inwards | 10,000 | | Purchases | 130,000 | | Returns outwards | 6,000 | | Opening inventory | 30,000 | | Carriage

The following trial balance extract was taken from the books of a sole proprietor as at 31… — JAMB UTME

The following trial balance extract was taken from the books of a sole proprietor as at 31st December 2025:

Ledger Account	Amount ( $\text{₦}$ )
Sales	200,000
Returns inwards	10,000
Purchases	130,000
Returns outwards	6,000
Opening inventory	30,000
Carriage inwards	4,000
Carriage outwards	8,000

Additional Information:
1. Goods costing $\text{₦}4,000$ were withdrawn by the proprietor for personal use during the financial year, but no entry has been made in the accounting records.
2. The business sells goods at a uniform mark-up of $25\%$ on cost of goods sold.

What is the value of closing inventory to be recorded in the trading account?

A
₦6,000
₦2,000Answer
C
₦10,000
D
₦11,500

Answer

The value of closing inventory to be recorded in the trading account is ₦2,000.

Net sales equal ₦190,000 (Gross sales ₦200,000 less Returns inwards ₦10,000). Convert the 25% mark-up (

\frac{1}{4}

on cost) to margin (

\frac{1}{5}

or 20% on sales), yielding Gross Profit of ₦38,000 (

20\% \times \text{₦}190,000

) and Cost of Goods Sold (COGS) of ₦152,000 (

\text{₦}190,000 - \text{₦}38,000

). Cost of goods available for sale is ₦154,000 (Opening stock ₦30,000 + Purchases ₦130,000 - Returns outwards ₦6,000 - Goods withdrawn ₦4,000 + Carriage inwards ₦4,000). Subtracting COGS (₦152,000) from Cost of Goods Available for Sale (₦154,000) gives a closing inventory of ₦2,000.

Step-by-Step Solution

Calculate Net Sales

Net Sales = ₦200,000 - ₦10,000 = ₦190,000

Returns inwards must be deducted from gross sales to obtain net sales revenue.

Convert Mark-up to Margin and compute Gross Profit and Cost of Goods Sold (COGS)

Margin = 20%; Gross Profit = ₦38,000; COGS = ₦152,000

A mark-up of

25\%

(

\frac{1}{4}

) on cost corresponds to a margin of

\frac{1}{1 + 4} = \frac{1}{5} = 20\%

on net sales. Gross Profit =

20\% \times \text{₦}190,000 = \text{₦}38,000

. COGS = Net Sales - Gross Profit =

\text{₦}190,000 - \text{₦}38,000 = \text{₦}152,000

Calculate Adjusted Net Purchases

Adjusted Net Purchases = ₦130,000 - ₦6,000 - ₦4,000 = ₦120,000

Returns outwards and owner's inventory drawings must be deducted from gross purchases.

Calculate Cost of Goods Available for Sale

Goods Available = ₦30,000 + ₦120,000 + ₦4,000 = ₦154,000

Carriage inwards is added to opening inventory and net purchases as a direct cost of getting goods into the business. Carriage outwards is a selling expense and is excluded.

Determine Closing Inventory

Closing Inventory = ₦154,000 - ₦152,000 = ₦2,000

Closing Inventory = Cost of Goods Available for Sale - Cost of Goods Sold.

Key Concept

Trading Account, COGS Determination, and Mark-up/Margin Conversion

Estimated Time:3m 0s

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