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CMA Intermediate · Financial Accounting · Financial Statements from Incomplete Records

A trader keeps no sales records. Cost of goods sold was Rs 6,00,000 and the firm sells at a margin of 20% on sales. Opening stock was Rs 70,000 and closing stock Rs 1,00,000. What is the sales figure and the purchases figure?

Sales are Rs 7,50,000 and purchases Rs 6,30,000. A 20% margin on sales means cost is 80% of sales, so sales are 6,00,000 divided by 0.8. Purchases equal cost of goods sold plus closing stock less opening stock, which is 6,30,000.

  1. ASales Rs 7,20,000; purchases Rs 6,30,000
  2. BSales Rs 7,50,000; purchases Rs 6,30,000Correct
  3. CSales Rs 7,50,000; purchases Rs 5,70,000
  4. DSales Rs 7,20,000; purchases Rs 5,70,000

Explanation

Margin 20% on sales means cost is 80% of sales, so sales = 6,00,000 / 0.8 = 7,50,000. Purchases = cost of goods sold + closing stock - opening stock = 6,00,000 + 1,00,000 - 70,000 = 6,30,000. Check: 70,000 + 6,30,000 - 1,00,000 = 6,00,000. Treating 20% as markup on cost gives 7,20,000, which is wrong.

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