1. FINANCIAL ACCOUNTING LECTURE NOTES BY MR. S
FINANCIAL ACCOUNTING LECTURE NOTES BY MR. S. NDHLOVU TOPIC 5: PROFIT DETERMINATION
There are instances when we do not have complete information in preparation of financial statements, yet we are still required to prepare the final accounts. For instance, we may know the profit figure, but yet the cost of goods sold figure is not known or vice versa. Therefore, in such cases, there is need to compute the missing figures so that we have a complete financial statement.

2. PROFIT DETERMINATION CONT’D
Important terms to know
Mark – up: this is when gross profit is calculated as a percentage or fraction of the cost price.
Mark up = Profit/Cost of sales
Margin: this is when gross profit is calculated as a percentage or fraction of selling price i.e
Margin = Gross Profit/Selling Price
Gross profit: Selling price- cost of sales
Cost of sales= the cost of the goods sold. selling price - gross profit. It can also be calculated as follows: opening inventory + purchases- closing inventory.
Selling price= cost price + gross profit
Purchases= price at which the goods were bought. ( Closing Inventory- Opening inventory = Purchases)

3. PROFIT DETERMINATION CONT’D
Calculation of the missing figures:
Example 1
Mr. Haboola does not keep full accounting records, but the following information is available in respect of his accounting year ended 31st December 2015.
1st January 2015 trade payables (credit suppliers) K3,728
Payment made to credit suppliers(trade payable) during the year K31,479
31st December 2015, trade payables (credit suppliers) ,645
Required: Calculate the purchases figure.

4. CALCULATION OF THE MISSING FIGURES CONT’D:
Example 2 Mr. Haboola does not keep full accounting records, but the following information is available in respect of his accounting year ended 31st December 2015 K Cash purchases during the year 3,900 Cash paid for goods supplied on credit 27,850 Trade accounts payable(credit suppliers) at 1st January Trade accounts payable(credit suppliers) at 31st December Required: calculate the value of purchases

5. CALCULATION OF THE MISSING FIGURES CONT’D
Example 3 The following figures are for financial year 2015 for Mr. Haboola. K Inventory ,000 Inventory ,000 Purchases 5,200,000 A uniform rate of margin of 25% is applied. Required: Calculate the gross profit and sales figure.

6. CALCULATION OF THE MISSING FIGURES CONT’D:
Example 4 The following figures are for financial year 2015 for Mr. Haboola. K Inventory ,000 Inventory ,000 Sales 6,400,000 A uniform rate of margin of 25% is in use. Required: Calculate the gross profit, cost of sales and purchases figures.

7. CALCULATION OF THE MISSING FIGURES CONT’D
Example 5
On this part, we will look at the relationship that exist between mark- up and margin. For instance if the mark- up is known then you want to get the margin, what should we do?
If the mark- up is known, to find the margin take the same numerator to be numerator of the margin, then for the denominator of the margin take the total of the mark-up’s denominator plus the numerator
Mark- up Margin
⅟ ⅟ = ⅟5

8. CALCULATION OF THE MISSING FIGURES CONT’D
If the margin is known, to find the mark-up take the same numerator to be the numerator of the mark-up, then for the denominator of the mark-up take the of the margin’s denominator less the numerator.
Margin Mark-up
⅟ ⅟6 – 1 = ⅟5
Mr. Haboola is trader who sells all of his goods at 30% above cost. His books give the following information at 31st December 2015 K
Inventory 1 January ,000
Inventory 31st December ,000
Sales for the year ,000
Required:

9. CALCULATION OF THE MISSING FIGURES CONT’D
Required:
Ascertain cost of goods sold
Show the value of purchases during the year
Calculate the profit made by Mr. Haboola
Exercise
Clara is a business lady. The following information relates to the performance of her business: Inventory turnover is 10 times per year, Average inventory K14,000, Mark-up 40% and expenses at 60% of gross profit.