Goods stollen or
destroyed by
fire/floods
-thieves
-natural disaster like the recent one Tlokweng Floods
Income statement illustration
Income statement for the year ended 31 December
202…
Sales xxxx
Less Cost of Sales
Opening Stock xxx
Add Purchases xxx
Closing stock (xxx) (xxx)
Gross Profit xxxxx
Suppose there a remainder of stock
taken
• We are going to calculate our gross profit as normal using the
gross margin (gross/profit/sales) ratio given
A. Gross profit when sales and margin percentage is given it will be
• Sale multiplied by the percentage
B. Then cost of sales= Sales- Gross profit
C. Cost of goods available= opening stock +purchases
D. Closing stock = Cost of sales- cost of goods available
E. Goods stollen= closing stock-at hand stock
Illustration
• GD Ltd lost the whole of his stock in a fire on 17 March
2024. The last time that a stock taking has been done
was on 31 December 2023, the last balance sheet date,
when stock was valued at cost at P19 500
• Purchases was valued at P68 700 and sales in that
period were P96 000
• All sales were made at a uniform gross profit margin of
20%
Income statement for the period ending 31 March 2024
Sales 96 000
COST OF SALES
Opening stock 19 500
Purchases 68 700
Cost of goods available 88 200
Less closing stock (11 400) 76 800
Gross Profit (96000 19 200
• Cost of goods stolen (Closing stock)
• Cost of sales P76 800
• Goods avail P88 200
• Therefore goods stolen= P88 200-76800= P11400
Illustration 2
GD Ltd lost the whole of his stock in a fire on 17 March
2024. The last time that a stock taking has been done
was on 31 December 2023, the last balance sheet date,
when stock was valued at cost at P80 000
• Purchases was valued at P200 000 and sales in that
period were P500 000
• All sales were made at a uniform gross profit margin of
40%
ANSWER
Income statement for the period ending 17 March 2024
Sales 500 000
Cost of sales
Opening inventory 80 000
Purchase 200 000
Goods availble 280 000
Closing stock () (300 000)
Gross profit (500 000x40%) 200 000
Further questions and illustrations
What is one of the consequences of incomplete records on financial statements?
A. Simplification of accounting processes
B. Difficulty in accurately determining profits or losses
C. Complete accuracy of the balance sheet
D. Better cash flow managemen
Incomplete records are not a significant issue for small businesses because they often rely on simpler accounting systems.
E. True
F. False
On 20 March 2024, Major had a burglary and lost most of his stock except
goods which had cost P900. Major supplies you with the following
information:
• Sales: 1 January 2024 to 20 March 2024 P100 000
• Purchases: 1 January 2024 to 20 March 2024 P85 000
• Stock: 1 January 2024 P10 000
• Mark up 25%
• What is the cost of stolen goods?
• A. A.P14 100
• B. P15 000
• C. P15 900
• D. P19 100
Solution
Income statement for the period 20 March 2024
Sales 100 000
Cost of sales
Opening stock 10 000
Add purchases 85 000
Goods available 95 000
Closing stock 15 000 80 000
Gross profit 20 000
• Mark up of 25%
• As fraction =25/100= 1/4
Gross profit/cost of sales
Margin= gross profit/sales= ¼+1= 1/5
1/5x100= 20%
Henceforth cost of stollen goods= Closing stock-stock at hand
P15 000- P900
=P14 100
• Ben’s stock was destroyed by fire on 31 January. His
stock on 1 January was P20 000. The sales for the
month totalled P150 000 while purchases were P110
000. Ben’s markup is 331 /3%. The cost of the stock
destroyed by fire was
• A. P17 500.
• B. P20 000.
• C. P22 500.
• D. P30 000.
Income statement for the period ending March 2024
Sales 150 000
Cost of sales
Opening stock 20 000
Add purchase 110 000
Goods available 130 000
Closing stock 17 500 112 500
Gross profit (25%*150 000) 37 500
• Mark up 33.33333%
• 33 1/3
• 100/3
• = Margin= Mark up/100+mark up
• 25%
• 25/100+25= 25/125= 1/5 (20%)
• Margin = {100/3/{100+100/3]
• =100/3 = 33.33
• 33.33/100+33.33= 33.33/133.33x100= 25%
