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Difficulty: MediumTrading Account and Gross Profit Calculation

The accounting records of Danladi Traders provided the following financial details for the year ended 31 December 2025:

- Sales: ₦320,000\text{₦}320,000
- Opening Inventory: ₦45,000\text{₦}45,000
- Purchases: ₦210,000\text{₦}210,000
- Carriage Inwards: ₦12,000\text{₦}12,000
- Carriage Outwards: ₦18,000\text{₦}18,000
- Returns Outwards: ₦8,000\text{₦}8,000
- Closing Inventory: ₦50,000\text{₦}50,000

What is the Gross Profit of Danladi Traders for the year ended 31 December 2025?

  1. ���111,000\text{���}111,000Answer
  2. B
    ₦93,000\text{₦}93,000
  3. C
    ₦135,000\text{₦}135,000
  4. D
    ₦123,000\text{₦}123,000

Answer

The Gross Profit for Danladi Traders is ₦111,000\text{₦}111,000.
The correct Gross Profit is ₦111,000\text{₦}111,000. Net Purchases equal Purchases (₦210,000)(\text{₦}210,000) plus Carriage Inwards (₦12,000)(\text{₦}12,000) minus Returns Outwards (₦8,000)(\text{₦}8,000), giving ₦214,000\text{₦}214,000. Adding Opening Inventory (₦45,000)(\text{₦}45,000) gives Cost of Goods Available for Sale of ₦259,000\text{₦}259,000. Subtracting Closing Inventory (₦50,000)(\text{₦}50,000) yields Cost of Goods Sold of ₦209,000\text{₦}209,000. Finally, subtracting Cost of Goods Sold from Sales (₦320,000)(\text{₦}320,000) gives ₦111,000\text{₦}111,000. Note that Carriage Outwards is an operating expense and does not affect Gross Profit.

Step-by-Step Solution

1
Calculate Net Purchases
Net Purchases = ₦210,000+₦12,000−₦8,000=₦214,000\text{₦}210,000 + \text{₦}12,000 - \text{₦}8,000 = \text{₦}214,000
Carriage inwards is a direct expense added to purchases, while returns outwards reduce total purchases.
2
Calculate Cost of Goods Available for Sale
Cost of Goods Available = ₦45,000+₦214,000=₦259,000\text{₦}45,000 + \text{₦}214,000 = \text{₦}259,000
Opening inventory is combined with net purchases to find the total goods available for sale.
3
Calculate Cost of Goods Sold (COGS)
COGS = ₦259,000−₦50,000=₦209,000\text{₦}259,000 - \text{₦}50,000 = \text{₦}209,000
Closing inventory is deducted from total goods available for sale.
4
Calculate Gross Profit
Gross Profit = ₦320,000−₦209,000=₦111,000\text{₦}320,000 - \text{₦}209,000 = \text{₦}111,000
Gross profit is determined by subtracting the cost of goods sold from total sales.

Key Concept

Trading Account and Gross Profit Calculation
Estimated Time:1m 30s
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Topics

Trading Account and Gross Profit Calculation

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