Tunde Enterprises extracted a trial balance at year-end showing Purchases of \text{₦}450,0… — JAMB UTME

Tunde Enterprises extracted a trial balance at year-end showing Purchases of $\text{₦}450,000$ and Opening Inventory of $\text{₦}60,000$ . Closing Inventory was valued at $\text{₦}80,000$ . During the financial period, the proprietor withdrew goods costing $\text{₦}25,000$ (with a retail selling price of $\text{₦}35,000$ ) for private use, but no entry was made in the accounting books. What is the corrected Cost of Goods Sold for the period in Naira?

Answer: 405000 ₦

Answer

The corrected Cost of Goods Sold is ₦405,000.

When an owner withdraws goods for personal use, the transaction must be recorded at cost price (₦25,000) by crediting Purchases (subtracting from Purchases) and debiting Drawings. The adjusted Purchases figure is ₦450,000 - ₦25,000 = ₦425,000. Applying the Cost of Goods Sold formula (Opening Inventory + Adjusted Purchases - Closing Inventory) gives ₦60,000 + ₦425,000 - ₦80,000 = ₦405,000.

Step-by-Step Solution

Calculate the adjusted Purchases figure by removing goods taken for personal use at cost price

Adjusted Purchases = ₦450,000 - ₦25,000 = ₦425,000

According to accounting principles, goods withdrawn by the owner must be recorded at cost price by debiting Drawings and crediting Purchases.

Calculate the corrected Cost of Goods Sold

Cost of Goods Sold = ₦60,000 + ₦425,000 - ₦80,000 = ₦405,000

Cost of Goods Sold equals Opening Inventory plus net Purchases minus Closing Inventory.

Key Concept

Goods Withdrawn by Owner for Personal Use

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