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Difficulty: MediumBar Trading and Special Activities Account

Evergreen Social Club maintains a separate Bar Trading Account for its refreshments service. For the year ended 31 December 2025, bar sales were N150,000\text{N}150,000, opening bar inventory was N20,000\text{N}20,000, bar purchases amounted to N95,000\text{N}95,000, and closing bar inventory was valued at N25,000\text{N}25,000. Bar steward wages of N5,000\text{N}5,000 were accrued at the end of the year. What is the net profit from the bar operations to be transferred to the Income and Expenditure Account?

  1. N55,000\text{N}55,000Answer
  2. B
    N65,000\text{N}65,000
  3. C
    N45,000\text{N}45,000
  4. D
    N60,000\text{N}60,000

Answer

The net profit from the bar operations to be transferred to the Income and Expenditure Account is N55,000\text{N}55,000.
The correct net profit is computed by taking total bar revenue of N150,000\text{N}150,000, subtracting the cost of goods sold of N90,000\text{N}90,000 (N20,000+N95,000−N25,000\text{N}20,000 + \text{N}95,000 - \text{N}25,000) to yield a gross profit of N60,000\text{N}60,000, and then subtracting the accrued steward wages of N5,000\text{N}5,000. This leaves a net bar profit of N55,000\text{N}55,000 to be credited to the Income and Expenditure Account.

Step-by-Step Solution

1
Calculate the Cost of Goods Sold for the bar
Cost of Goods Sold=Opening Inventory+Purchases−Closing Inventory=N20,000+N95,000−N25,000=N90,000\text{Cost of Goods Sold} = \text{Opening Inventory} + \text{Purchases} - \text{Closing Inventory} = \text{N}20,000 + \text{N}95,000 - \text{N}25,000 = \text{N}90,000
Determining the direct cost of refreshments sold during the financial period.
2
Calculate the Bar Gross Profit
Gross Profit=Bar Sales−Cost of Goods Sold=N150,000−N90,000=N60,000\text{Gross Profit} = \text{Bar Sales} - \text{Cost of Goods Sold} = \text{N}150,000 - \text{N}90,000 = \text{N}60,000
Evaluating the trading surplus generated before deducting operational expenses.
3
Deduct accrued operating expenses to find Bar Net Profit
Net Profit=Gross Profit−Accrued Steward Wages=N60,000−N5,000=N55,000\text{Net Profit} = \text{Gross Profit} - \text{Accrued Steward Wages} = \text{N}60,000 - \text{N}5,000 = \text{N}55,000
Applying the accrual concept to charge all period expenses relating to bar management.

Key Concept

Bar Trading Account Profit Determination and Transfer
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Topics

Bar Trading and Special Activities Account

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