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Difficulty: Very hardBar Trading and Special Activities Account

The following information relates to the bar operations of Harmony Social Club for the year ended 31 December 2025:

ItemAmount (₦)
Bar inventory (1 January 2025)25,000
Bar inventory (31 December 2025)30,000
Cash paid to bar creditors140,000
Bar creditors (1 January 2025)18,000
Bar creditors (31 December 2025)24,000
Returns outward to bar suppliers5,000
Bar takings (sales)220,000
Bar steward's salary paid12,000
Bar license fee paid8,000
Depreciation of bar equipment4,000

Additional information:
1. Bar steward's salary owing at 31 December 2025 was ₦3,000.
2. Bar license fee paid includes ₦2,000 prepaid for the 2026 financial year.

Calculate the net profit from bar trading operations (in ₦) to be transferred to the Income and Expenditure Account for the year ended 31 December 2025.

Answer: 59000 ₦

Answer

The net profit from bar trading operations to be transferred to the Income and Expenditure Account is ₦59,000.
The net bar profit of ₦59,000 is calculated by deriving net purchases (₦141,000), computing the cost of goods sold (₦136,000), determining the gross profit (₦84,000), and deducting adjusted operating expenses (₦25,000).

Step-by-Step Solution

1
Calculate total purchases from bar creditors
Total Purchases = ₦146,000
Purchases are calculated by taking cash paid to creditors plus closing creditors minus opening creditors: 140,000+24,000−18,000=146,000140,000 + 24,000 - 18,000 = 146,000.
2
Calculate net purchases by deducting returns outward
Net Purchases = ₦141,000
Returns outward are deducted from total purchases: 146,000−5,000=141,000146,000 - 5,000 = 141,000.
3
Calculate Cost of Bar Goods Sold
Cost of Goods Sold = ₦136,000
Cost of goods sold combines opening inventory, net purchases, and closing inventory: 25,000+141,000−30,000=136,00025,000 + 141,000 - 30,000 = 136,000.
4
Determine Bar Gross Profit
Bar Gross Profit = ₦84,000
Gross profit is calculated by subtracting Cost of Goods Sold from Bar Takings: 220,000−136,000=84,000220,000 - 136,000 = 84,000.
5
Adjust and sum all bar operating expenses
Total Bar Expenses = ₦25,000
Expenses include accrued steward's salary (12,000+3,000=15,00012,000 + 3,000 = 15,000), prepaid license fee (8,000−2,000=6,0008,000 - 2,000 = 6,000), and depreciation (4,0004,000): 15,000+6,000+4,000=25,00015,000 + 6,000 + 4,000 = 25,000.
6
Subtract total expenses from bar gross profit
Net Bar Profit = ₦59,000
Net profit transferred to Income and Expenditure account is Gross Profit minus Total Bar Expenses: 84,000−25,000=59,00084,000 - 25,000 = 59,000.

Key Concept

Calculation of Net Profit from Bar Operations in Non-Profit Organizations
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Topics

Bar Trading and Special Activities Account

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