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Difficulty: MediumApplication of Mark-up and Margin in Estimating Cost of Goods Sold and Stock

Tari, a provisions merchant in Port Harcourt, keeps incomplete accounting records. For the financial year ended 31st December 2025, his records showed an opening stock of ₦18,000\text{₦}18,000 and total purchases of ₦142,000\text{₦}142,000. Total sales revenue for the year was ₦180,000\text{₦}180,000, and goods were priced at a mark-up of 20%20\% on cost. What is the estimated value of Tari's closing stock at the end of the year in Naira?

Answer: 10000 ₦

Answer

The estimated value of the closing stock at the end of the year is ₦10,000.
To calculate the closing stock from incomplete records, first convert mark-up to find Cost of Goods Sold (COGS). Dividing total sales revenue (₦180,000) by 1.20 gives a COGS of ₦150,000. Adding opening stock (₦18,000) to purchases (₦142,000) yields total goods available for sale of ₦160,000. Subtracting COGS (₦150,000) from total goods available (₦160,000) results in an estimated closing stock of ₦10,000.

Step-by-Step Solution

1
Calculate the Cost of Goods Sold (COGS) using the mark-up rate
COGS = ₦180,000 ÷ (1 + 0.20) = ₦150,000
Since mark-up is 20% on cost, Selling Price is equal to 120% of cost.
2
Determine the Total Goods Available for Sale
Goods Available for Sale = ₦18,000 + ₦142,000 = ₦160,000
Total goods available for sale during the year is the sum of opening stock and net purchases.
3
Deduce the Closing Stock figure
Closing Stock = ₦160,000 - ₦150,000 = ₦10,000
Closing stock is estimated by subtracting Cost of Goods Sold from total goods available for sale.

Key Concept

Application of mark-up on cost to determine Cost of Goods Sold and estimate missing closing stock in incomplete records.
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Topics

Application of Mark-up and Margin in Estimating Cost of Goods Sold and Stock

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