Question

Rafael Ron trades as Goal Company. He buys and sells professional soccer balls. For the April of 2017, the following details of his business are available:

• ·  Opening inventory of balls (on 1st April 2017): 150 pieces at total cost of £1,200
• ·  Purchased in April: 180 pieces of balls at £7.5 each
• ·  During April he sold 190 pieces for £17 each (£3,230 in total)

• ·  Closing stock is valued at £7.5 per piece
• ·  Rent for the storehouse is paid in advance: the fee is £420 for a quarter year.
• ·  His assistant, Amy, receives £200 a month; it is always paid on the second workday of

the following month.

• ·  Postage costs were £1500 in total for the whole year.
• ·  On 10th of May the Goal Company received the £800 invoice of the firm’s marketing

advisor in connection with services provided in April.

Show your step by step calculations and answer the following questions:

1. 5.1) Prepare an Income Statement for Rafael Ron’s business for the month of April 2017.
2. 5.2) Please create/give two hypothetical business transaction that can have effect on the profit of the company (try to match them to the profile of the company). Explain how the transactions will affect the revenues and expenses .

Answer 1

5.1

Goal Company
Income statement for the month ended April ,2017
Sales revenue		3230
Less: Cost of goods sold		1500
Gross Profit		1730
Expenses:
Rent	140
Salary	200
Postage	125
Marketing	800
Total expenses		1265
Net Income		465

Workings:

Opening inventory of balls	150	1200
Purchased [ 180*7.5]	180	1350
Total units available for sale	330	2550
Less: Units sold [ 2550-1050]	190	1500
Closing stock [140*7.5]	140	1050

5.2 The following can have effect of the profit of the company:

(i) Packing charges of the soccer balls in custom made bags can increase the profit when the company charges additional money per unit for the packing. This can increase the revenues as well as profits if the firm is able to negotiate costs as well.

(ii) Maintenance of closing stock i.e. storage, insurance and labor costs can increase the expenses and reduce the profits.