Trading, Profit & Loss Account and Balance Sheet

INDEX

Sn.No Topics Page No.

1. Cover Page……………………………………………………………………1

2. Contents. ………………………………………………………………….2

3. Computing the Amounts……………..……………………………3

4. Trading, Profit & Loss Account and Balance Sheet….9

5. Comments on the Performance of the Business…….10

6. Explaining the Limitation of Comparison…………...….12

7. References………………………………………………..……………..13

(A) Compute the following amounts:

(I) Average Stock:

Average stock = opening stock + closing stock / 2

= $22,000 + $14,000 /2

= $36,000/2

= $18,000.

Explanation: Here, in the top of the example, we are given the opening stock of the company is $22,000. Also saying that the opening stock of the company is reduced $8,000 during the year so finally our closing stock = $22,000 - $8000 =$14,000.

(II) Cost of goods sold:

Firm Stock turnover ratio = Cost of goods sold / Average stock

10 = COGS / $18,000

COGS = $18,000*10

= $1, 80,000.

Industry Stock turnover ratio = Cost of goods sold / Average stock 8 = COGS / $18,000

COGS = $18,000*8

= $1, 44,000.

Explanation: In the table we have given the stock turnover ratio. For finding of cost of good sold, we have required Average stock & stock turn over ratio. Both of we have. We cannot find ratio without the formula of stock turn over ratio.

(III) Gross profit:

Gross profit = sales – cost of goods sold

Firm = $2, 40,000 - $1, 80,000

= $60,000.

Industry = $1, 87,013 - $1, 44,000

= $43,013.

Explanation: In the formula we have required the sales & cost of goods sold. But we have not sales. So first we have to find out the sales.

(iv) Sales:

Firm Assume sales = $100 COGS Sales Less: gross profit = $25 75 100 Cost of goods sold $75 1,80,000 ?

= 1,80,000*100/75