(a) Explain the following: (i) turnover (ii) rate of turnover (iii) net profit (b) The...

Explanation

(a)(i) Turnover is the total net sales of a business during a given period of time. It is calculated as the total gross sales of a business less returns inwards, i.e, Total gross sales - Return inwards.

(ii) Rate of turnover is the number of times the average stock of a business is sold during a given period of time.

(iii) Net profit is defined as the gross profit of a business less its expenses, i.e., Gross profit - Expenses

(b) Calculation: (i) Cost of goods sold is calculated as opening stock + purchases - closing stock

N

Opening stock 1,000

Purchases10,000

11,000

Less closing stock 5,000

6,000

(ii) Rate of turnover is calculated as follows:

Find average stock =opening stock + closing stock

2

= N1,000 + 5,000= N6,000= 3,000

2 2

DivideCost of goods sold

average stock

= 6,000 = 2 times

3000

(iii) Net profit is calculated as gross profit less expenses, while gross profit can be arrived at by deducting cost of goods sold from sales

i.e. Net profit = Gross profit - expenses and

Gross profit = sales - cost of goods sold

Sales 15,000

Less cost of goods sold 6,000

Gross profit 9,000

Less wages - 1,000

Net profit 8,000