(a) Explain the following: (i) turnover (ii) rate of turnover (iii) net profit
(b) The following information is taken from the balance sheet of XYZ Ltd:
N
opening stock 1,000
purchases 10,000
sales 15,000
wages 1,000
closing stock 5,000
You are required to calculate:
(i) the cost of goods sold
(ii) the rate of turnover
(iii) net profit
(a)(i) Turnover is the total net sales of a business during a given period of time. It is calculated as the total gross sales of a business less returns inwards, i.e, Total gross sales - Return inwards.
(ii) Rate of turnover is the number of times the average stock of a business is sold during a given period of time.
(iii) Net profit is defined as the gross profit of a business less its expenses, i.e., Gross profit - Expenses
(b) Calculation: (i) Cost of goods sold is calculated as opening stock + purchases - closing stock
N
Opening stock 1,000
Purchases 10,000
11,000
Less closing stock 5,000
6,000
(ii) Rate of turnover is calculated as follows:
Find average stock = opening stock + closing stock
2
= N1,000 + 5,000 = N6,000 = 3,000
2 2
Divide Cost of goods sold
average stock
= 6,000 = 2 times
3000
(iii) Net profit is calculated as gross profit less expenses, while gross profit can be arrived at by deducting cost of goods sold from sales
i.e. Net profit = Gross profit - expenses and
Gross profit = sales - cost of goods sold
Sales 15,000
Less cost of goods sold 6,000
Gross profit 9,000
Less wages - 1,000
Net profit 8,000
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