Accounting , CPT – Chapter 6 CA PRATHAP SS

Relationship of Cost, Profit & Sales

Cost 100 Profit 20 Sales 120

+ =

As a ratio, the relationship of profit to cost is 20/100 ie. 1/5th on Cost and the relationship of Profit to

Sales is 20/120 ie. 1/6th on Sales

Therefore Profit = 1/5th on Cost is

the same as1/6th on Sales

Relationship of Cost, Profit & Sales – contd….

Cost 90 Profit 30 Sales 120

+ =

Ratios are Profit =30/90 on Cost = 1/3 on Cost Profit = 30/120 on Sales =1/4 on Sales

Therefore Profit = 1/3th on Cost is

the same as1/4th on Sales

Relationship of Cost, Profit & Sales – contd….

Cost 100 Profit 25 Sales 125

+ =

Ratios are Profit =25/100 on Cost = 1/4 on Cost Profit = 25/125 on Sales =1/5 on Sales

Therefore Profit = 1/4th on Cost is

the same as1/5th on Sales

Relationship of Cost, Profit & Sales – contd….

Cost 100 Profit 50 Sales 150

+ =

Ratios are Profit =50/100 on Cost = 1/2 on Cost Profit = 50/150 on Sales =1/3 on Sales

Therefore Profit = 1/2th on Cost is

the same as1/3th on Sales

To Summarize

Profits are

½ on Cost = 1/3 on Sales ie. 50% on Cost = 33 1/3% on Sales

1/3 on Cost = ¼ on Sales

ie. 33 1/3% on Cost = 25% on Sales

¼ on Cost = 1/5 on Sales i.e.. 25% on Cost = 20% on Sales

To Summarize – contd…

So, the relationship of Sales Ratio will always be one digit more than Cost in the denominator as Sales is a greater figure

than Cost.

A. Rs.24,000/-

B. Rs.30,000/-

C. Rs.20,000/-

D. None Of These

Answer: B

Solution

Formula Used Relationship Of Cost, Profit and Sales

Gross Profit = 20% on sales = 1/5 on sales. Therefore, Gross Profit will be ¼ on Cost.

Gross Profit = ¼ * 1,20,000/- =Rs.30,000/-

A. Rs.30,200/-

B. Rs.35,000/-

C. Rs.32,000/-

D. Rs. 39,800/-

Answer : B

Solution

Formula Used Cost Of Goods Sold = Opening Stock+ Purchases+

Direct Expenses-Closing Stock

Cost Of Goods Sold = Rs.8,500+ Rs.30,700 +Rs.4,800 -Rs.9,000

Cost Of Goods Sold = Rs.35,000/-

Indirect Expenses will not be part of Cost Of Goods Sold. It will be debited to Profit & Loss A/c

A. 33%

B. 25%

C. 20%

D. None of these

Answer : B

Solution

Gross Profit = 20% on sales = 1/5 on sales. Therefore, Gross Profit will be ¼ on Cost.

So, on cost, profit margin will be 1/4x100 =25%

A. Rs.1,41,250/-

B. Rs.1,35,600/-

C. Rs.1,33,750/-

D. Rs.1,28,400/-

Answer:

Solution

To Opening Stock 22,000

To Purchases 1,10,000

To Gross Profit = 20% on Sales =25% on Cost =25% of Rs.1,07,000

26,750

By Closing Stock 25,000

Cost Of Goods Sold = Rs.22,000+Rs.1,10,000-Rs.25,000 = Rs.1,07,000

By Sales (Balancing Figure)

1,33,750

1,58,750 1,58,750

Trading A/c

A. Rs.15,000/- Profit

B. Rs. 5,000/- Loss

C. Rs. 20,000/- Profit

D. Cant Say

Answer: A

Solution

Statement Of Affairs Opening Capital Rs.40,000

+Additional Capital Introduced Rs.1000

-Drawings Rs.200*12 = Rs.2,400

+Profit Rs.15,000 (balancing figure)

Closing Capital Rs. 53,600

A. Rs.1045/-

B. Rs. 2750/-

C. Rs. 1,100/-

D. Rs. 2,760/-

Solution

Sundry Debtors 55200 -

=

Bad Debts 200 55,000

- Provision For Doubtful Debts =5/100* 55,000 2750

Good Debtors 52,250

- Provision For Discount On Debtors

=2/100* 50,000 2750

Answer is Option B – Rs.2,750/-

A. Rs. 1,90,000/-

B. Rs. 2,50,000/-

C. Rs. 2,40,000/-

D. Rs. 2,00,000/-

Answer:

Solution

Total Sales

Normal Sales Abnormal Sales

Rs.10,00,000 Rs.20,000

Cost = Rs.30,000

Loss = Rs.10,000

Gross Profit = 1/3rd on Cost =1/4th on Sales Gross Profit ¼*Rs.10,00,000 =Rs.2,50,000

Recouping it with the loss

occurred in the abnormal sales, the Gross Profit

will be Rs.2,50,000-

Rs.10,000 = Rs.2,40,000

A. Rs.4,000/-

B. Rs.5,000/-

C. Rs.6,500/-

D. Rs.3,500/-

Answer:

Solution

To Bad Debts 3,000

To Closing Balance 4,000

By Opening Balance 3,500

By P/L (Balancing Figure)

3500

7,000 7,000

A. Rs.36,000/-

B. Rs.18,000/-

C. Rs.42,000/-

D. Rs.38,000/-

Answer:

Solution

To Purchases 90,000

To Direct Expenses 6,000

To Gross Profit (balancing figure)

36,000

By Closing Stock 12,000

By Sales 1,20,000

1,32,000 1,32,000

Trading A/c

A. Rs.21,560/-

B. Rs.22,000/-

C. Rs.21,780/-

D. Rs.21,344

Answer:

Solution

Sundry Debtors 25000 -

=

Bad Debts 3000 22000

- Provision For Doubtful Debts =2/100* 22,000 440

Good Debtors 21560

- Provision For Discount On Debtors

=1/100* 21,560 216

Closing Sundry Debtors 21344

A. Rs.20,000/-

B. Rs.19,500/-

C. Rs.21,500/-

D. Rs.22,000/-

Answer:

Solution

Formula Used Cost Of Goods Sold = Opening Stock+ Purchases+

Direct Expenses-Closing Stock

Cost Of Goods Sold = Rs.5,000+ Rs.15,000 +Rs.2,000 -Rs.2,500

Cost Of Goods Sold = Rs.19,500/-

A. Rs. 39,500/-

B. Rs.42,500/-

C. Rs.54,500/-

D. Rs.57,000/-

Answer :

Solution

To Opening Stock 17,000

To Purchases 52,000

To Gross Profit (balancing figure)

39,500

By Closing Stock 25,000

By Sales 1,45,000

1,70,000 1,70,000

Trading A/c

To Wages 46,500

To Fuel 15,000

A. Rs.30,000/-

B. Rs.32,000/-

C. Rs.23,000/-

D. Rs.20,000/-

Answer :

Solution

Sundry Debtors A/c

To balance b/d 3,000

To Credit Sales 80,000

23,000

By cash received from debtors

60,000

By balance c/d (closing debtors) (balancing figure)

83,000 83,000

A. Rs.60,000/-

B. Rs.51,000/-

C. Rs.56,000/-

D. Rs.46,000/-

Answer:

Solution

Statement Of Affairs Opening Capital Rs.50,000

+Additional Capital Introduced NIL

-Drawings Rs.9,000

+Profit Rs.10,000

Closing Capital Rs. 51,000 (balancing figure)

Loan from relative is not considered to be a part of the capital.

A. Rs.18,25,000/-

B. Rs. 18,75,000/-

C. Rs. 18,50,000/-

D. Rs. 19,00,000/-

Answer:

Solution

Gross Profit = 20% on Sales =25% on Cost =25% of Rs.15,00,000 =Rs.3,75,000

Step 1: To calculate Gross Profit by using the

relationship of Cost, Profit and Sales

Step 2: To determine the amount of sales using the below mentioned

Formula

Cost Of Goods Sold +Profit = Sales

Sales = Rs.15,00,000 +Rs.3,75000 = Rs.18,75,000

A. Rs.15,300/-

B. Rs. 44,700/-

C. Rs. 64,700/-

D. Rs. 35,700/-

Answer:

Solution Sundry Debtors A/c

To balance b/d 35,000

To Credit Sales 80,000

44,700

By cash received from debtors

30,000

By balance c/d (closing debtors) (balancing figure)

1,15,000 1,15,000

By Bills Receivable 40,000 By Discount Allowed 300

Only Credit Sale and cash received against credit sale will appear in the Sundry Debtors A/c. Cash sales will appear only in the cash book.

Total Sales

Cash Sales Credit Sales

20% of Total sales = Rs.20,000

80% of Total sales = Rs.80,000

A. Rs. 95,000/-

B. Rs. 1,01,000/-

C. Rs. 83,000/-

D. Rs. 91,000/-

Answer:

Solution Cash A/c

To balance b/d 4,000

To Bills Receivable Discounted 9,000

7,000

By Payment to Creditors 80,000

By balance c/d

1,08,000 1,08,000

By Sundry Expenses 3,000 By Drawings 12,000

By Bills Payable Matured 6,000

To Amount Received From Debtors (balancing figure)

95,000

A. 33 1/3%

B. 20%

C. 40%

D. 50%

Answer:

Solution

33 1/3% on Cost = 25% on Sales

1/3rd on Cost = 1/4th on Sales

A. Rs.20,000/-

B. Rs.24,000/-

C. Rs.16,000/-

D. Rs.12,000/-

Answer:

Solution

To Opening Stock 20,000

To Purchases 2,40,000

To Gross Profit (20% on Sales) (20% on Rs.3,00,000)

60,000 By Closing Stock (balancing figure)

20,000

By Sales 3,00,000

3,20,000 3,20,000

Trading A/c

A. Rs.1,77,000/-

B. Rs.1,83,000/-

C. Rs.2,03,000/-

D. None Of The Above

Answer:

Solution

Net Profit before Adjustments Rs.1,80,000 -

=

Outstanding Salaries Rs.10,000 Rs.1,70,000

+ Prepaid Insurance Rs.13,000

Profit After Adjustments Rs.1,83,000

A. Rs.7,70,000/-

B. Rs.7,85,000/-

C. Rs.6,15,000/-

D. Rs.6,30,000/-

Answer:

Q.21 Find out the corrected Net Profits: Profit before taking into account following adjustments was Rs.7,00,000/-

•Rs.1,00,000/- spent on purchase of motor car for business purpose, treated as expense in Profit & Loss A/c •Rs.15,000/- per month rent outstanding for the month of February and March not taken into account.

Solution

Net Profit before Adjustments Rs.7,00,000 +

=

Capital Expense (purchase of motor car wrongly debited to P/L, now rectified)

Rs.8,00,000 Less Rent Outstanding not

recorded Rs.30,000

Profit After Adjustments Rs.7,70,000

Rs.1,00,000

Rs.15,000X 2

A. Rs.1,10,000/-

B. Rs.90,000/-

C. Rs.89,000/-

D. None

Answer :

Solution

Gross Profit = 1/10th on Cost = 1/11th on Sales

=1/11 of Rs.11,000 =Rs.1,000/-

Concept is: From Closing Stock, we have to reduce only Cost Of Goods Sold and not the Sale

Price. From Sale Price, only profit margin has to be reduced.

Cost Of Goods Sold = Sales – Gross Profit

= Rs.11,000 – Rs.1000 = Rs.10,000

Closing Stock before adjustments is Rs.1,00,000. Rs.10,000 of Cost Of Goods Sold must be deducted to arrive at

the Closing Stock after adjustments. Therefore closing stock after adjustments is Rs.90,000

A. Rs.5,000/-

B. Rs.5,200/-

C. Rs.1,050/-

D. Rs. 950/-

Answer :

Solution

Total Sales

Normal Sales Abnormal Sales

Rs.5,000 Rs.500

Sales = Rs.200

Loss = Rs.300

Gross Profit = 25% on Cost

Gross Profit ¼*Rs.5000 =Rs.1,250

Recouping it with the loss

occurred in the abnormal sales, the Gross Profit

will be Rs.1,250-

Rs.300 = Rs.950

A. 20%

B. 30%

C. 33 1/3%

D. 40%

Answer:

Solution

25% on Cost = 20% on Sales

A. Rs.1,21,000/-

B. Rs. 79,000/-

C. Rs. 21,000/-

D. None of the above

Answer:

Solution

To Opening Stock 50,000

To Purchases 1,00,000

To Gross Profit

By Closing Stock

By Sales 2,00,000

Less: Returns 29,000 71,000

? ?

A trading account cannot be closed without closing stock. And, there are 2 unknowns – Gross Profit and Closing Stock. So, Trading account

cannot be closed. Answer is Option D – None Of The Above

Trading A/c