Examkin

Question

Difficulty: MediumBar Trading and Special Activities Account

Metro Recreation Club extracted the following financial information regarding its bar operations for the year ended 31 December 2025:

ItemAmount (₦)
Bar takings240,000
Bar inventory (1 Jan 2025)35,000
Bar inventory (31 Dec 2025)42,000
Payments to bar suppliers130,000
Bar creditors (1 Jan 2025)18,000
Bar creditors (31 Dec 2025)22,000
Bar steward's wages paid25,000
Bar steward's wages accrued (31 Dec 2025)3,000

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

  1. ₦85,000Answer
  2. B
    ₦89,000
  3. C
    ₦91,000
  4. D
    ₦113,000

Answer

The net profit from bar operations to be transferred to the Income and Expenditure Account is ₦85,000.
The correct answer of ₦85,000 is arrived at by calculating total purchases (₦134,000), subtracting closing inventory from opening inventory plus purchases to get COGS (₦127,000), finding gross profit (₦113,000), and deducting total wages expense including accruals (₦28,000).

Step-by-Step Solution

1
Calculate total credit purchases of bar inventory
Total Purchases = Payments to Bar Suppliers + Closing Bar Creditors - Opening Bar Creditors = ₦130,000+₦22,000−₦18,000=₦134,000\text{₦}130,000 + \text{₦}22,000 - \text{₦}18,000 = \text{₦}134,000
Cash payments must be adjusted for unpaid supplier balances at the beginning and end of the period to determine true purchases.
2
Calculate the Cost of Goods Sold (COGS)
COGS = Opening Bar Inventory + Purchases - Closing Bar Inventory = ₦35,000+₦134,000−₦42,000=₦127,000\text{₦}35,000 + \text{₦}134,000 - \text{₦}42,000 = \text{₦}127,000
Cost of goods sold measures the actual cost of bar inventory consumed during the trading period.
3
Calculate Bar Gross Profit
Bar Gross Profit = Bar Takings - COGS = ₦240,000−₦127,000=₦113,000\text{₦}240,000 - \text{₦}127,000 = \text{₦}113,000
Gross profit represents revenue generated from sales over the direct cost of inventory sold.
4
Calculate total Bar Wages expense and Bar Net Profit
Total Bar Wages = Wages Paid + Wages Accrued = ₦25,000+₦3,000=₦28,000\text{₦}25,000 + \text{₦}3,000 = \text{₦}28,000
Bar Net Profit = Bar Gross Profit - Total Bar Wages = ₦113,000−₦28,000=₦85,000\text{₦}113,000 - \text{₦}28,000 = \text{₦}85,000
Accrued expenses must be added to amounts paid, and net profit from bar trading is transferred as income to the Income and Expenditure Account.

Key Concept

Bar Trading Account Profit Determination and Accrual Adjustments
Rate this question

Topics

Bar Trading and Special Activities Account

More questions from this topic