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# Trading, Profit & Loss Account and Balance Sheet

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• Published : March 28, 2011

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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

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:

FirmStock turnover ratio = Cost of goods sold / Average stock

10 = COGS / \$18,000

COGS = \$18,000*10

= \$1, 80,000.

IndustryStock 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:

FirmAssume sales = \$100 COGS Sales
Less: gross profit = \$2575100
Cost of goods sold \$751,80,000?

= 1,80,000*100/75
=2,40,000.

IndustryAssume sales = \$100 COGS Sales
Less: gross profit = \$2377100
Cost of goods sold \$771,44,000?

= 1,44,000*100/77
=1,87,013.

(V) Net profit:

Net profit ratio = net profit / net sales

Firm9%= N.P/2,40,000

Net Profit= 2,40,000*9%

Net Profit= 21,600.

Industry6%= N.P/1,87,013

Net Profit= 1,87,013*6%

= 11,221.

Explanation: Here in the table we have given net profit ratio so we can use formula of it for this we have require the net profit & net sales both are we have.

(VI) Fixed asset:

Firm salesfixed asset
10025
2,40,000?

= 2,40,000*25/100

= 60,000.

Industry salesfixed asset
10022
1,87,013?

= 1,87,013*22/100

= 41,143.

Explanation: In the example we have given the fixed asset to sales is given so we can easily find fixed asset from using the formula.

(VII) Debtors:

It can be found out on the basis on debtors’ turnover ratio or debt collection Period.

Debt collection period = 365 days / Debtors’ turnover ratio

36 days = 360 days/ D.T.R

D.T.R = 360/36

D.T.R = 10 times.

On the basis of debtors’ turnover ratio, we can easily find out the debtors.

Debtors’ turnover ratio= Net credit sales / Average Debtors

10 = 2,40,000 / Average debtors Average Debtors= 2,40,000 / 10

= 24,000.

Industry

30 days= 360 days/ D.T.R

D.T.R= 360 / 30

D.T.R= 12 times.

Debtors’ turnover ratio = Net credit sales / Average Debtors

12 = 1,87,013 / Average debtors

Average debtors= 1,87,013 / 12

= 15,584.

(VIII) Closing capital employed:

It can be found on the basis of the return...