Page 145 - Book-keeping for Secondary Schools Student’s Book Form One
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Basic financial statements
of the period or beginning of the period or both. The following examples uses basic
computation and apply data in different stages. Therefore, it will help to understand the
implication of an inventory on the calculation of the cost of good sold.
Example 7.1
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The scenario with no inventory
Agatha groceries have the following results for the year 2020
Net sales TZS 54,620,000
Net purchases TZS 29,885,000
Calculation of a gross profit for the period would be:
Gross profit = Net sales – cost of goods sold
Cost of goods sold = Net purchases
Gross Profit = TZS (54,620,000 – 29,885,000)
= TZS 24,735,000
Example 7.2
Presence of inventory at the end of the period
Suppose in the example 7.1, Agatha had an inventory worth TZS 4,683,000 in the store
at the end of the year. If there is an inventory at the end, it simply means that not all
the goods purchased during the period were sold. The cost of goods sold will therefore
be calculated by deducting the figure of the ending inventory from the net purchases
figure.
In the case of Agatha, the cost of goods sold will be calculated as follows:
Cost of goods sold = Net purchases – ending inventory
= TZS 29,885,000 – 4,683,000
= TZS 25,202,000
It follows that Gross profit = TZS (54,620,000 – 25,202,000)
= TZS 29,418,000
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Book Keeping Form 1 New 2024 FINAL.indd 137 18/10/2024 10:14
