Question

Peep Stores and all its suppliers are registered VAT vendors, and VAT is calculated at 14%. The following information was extracted from the ledger of Peep Stores for the reporting period ended 28 February 2018:

Trade inventories (1 March 2017) R277 500

Purchases R820 000

Freight (in) R80 000

Freight (out) R120 000

Total sales R1 252 500

Additional information:

R

277 500 820 000 80 000 120 000 1. 1 252 500

1. During June 2017 goods were sold on a “sale” at a discount of 20% on selling price. The total sales figure provided above includes sales of R140 000 (excluding VAT) in respect of goods sold duringthe June “sale”.

2. Peep Stores maintains a consistent mark-up (except for the June sale).

3. On 12 March 2018 a fire erupted while the shop was closed for the lunch hour and almost all the inventories were destroyed.

4. Peep Stores is insured for R136 800 for “loss of inventories” in terms of a policy which contains anaverage clause.

5. The following information is available for March 2018:

Trade inventories March 01 R147 500

Purchases (VAT included) March 02 R79 800

March 17 R 153 900

March 20. R228 000

Sales (VAT included) March 05 R125 400

March 23. R182 400

6. The value of trade inventories was determined by a physical count on 31 March 2018 and amounted to R258 800. The insurance company paid the claim on 31 March 2018.

REQUIRED:

1. a) Calculate the gross profit percentage on sales for the year ended 28 February 2018. (10)

Answer 1

Inventory as on 1st March 2017 = R 277500
Inventory as on 28th Feb 2018 = R 147500
Purchases = R 820000
Freight In = R 80000
Total Sales = R 1252500

Sales include R 140000 which is at 20% discount,
Sales at original rate = 140000 / 80% = R 175000

Sales at original price = R 1252500 + 175000 - 140000 = R 1287500

Cost of Goods Sold = Beginning Inventory + Purchases + Freight In - Ending Inventory
= R 277500 + 820000 + 80000 - 147500 = R 1030000

Gross Profit = Sales - Cost of Goods Sold
= R 1287500 - R 1030000 = R 257500

Gross Profit percentage = Gross Profit / Sales x 100
= R 257500 / R 1287500 x 100 = 20%