We read your photo as:

Calculate the net income and financial metrics for Mr. Kalulu's business, given his annual income, tax brackets, opening stock, purchases, and closing stock.

Accounting

ScanSolve AI Answer

Step-by-step solution

15 steps

here are the calculations for question 14:

Part a· 6 steps

Calculate the net income.

  1. Calculate tax on the first KShs 20,000.

    Tax1=10%×20,000=0.10×20,000=2,000 KShs\text{Tax}_1 = 10\% \times 20,000 = 0.10 \times 20,000 = 2,000 \text{ KShs}

  2. Calculate tax on the next KShs 30,000.

    Tax2=15%×30,000=0.15×30,000=4,500 KShs\text{Tax}_2 = 15\% \times 30,000 = 0.15 \times 30,000 = 4,500 \text{ KShs}

  3. Calculate the remaining income.

    Remaining income=60,000−(20,000+30,000)=60,000−50,000=10,000 KShs\text{Remaining income} = 60,000 - (20,000 + 30,000) = 60,000 - 50,000 = 10,000 \text{ KShs}

  4. Calculate tax on the remaining income.

    Tax3=25%×10,000=0.25×10,000=2,500 KShs\text{Tax}_3 = 25\% \times 10,000 = 0.25 \times 10,000 = 2,500 \text{ KShs}

  5. Calculate the total tax.

    Total Tax=Tax1+Tax2+Tax3=2,000+4,500+2,500=9,000 KShs\text{Total Tax} = \text{Tax}_1 + \text{Tax}_2 + \text{Tax}_3 = 2,000 + 4,500 + 2,500 = 9,000 \text{ KShs}

  6. Calculate the net income.

    Net Income=Annual Income−Total Tax=60,000−9,000=51,000 KShs\text{Net Income} = \text{Annual Income} - \text{Total Tax} = 60,000 - 9,000 = 51,000 \text{ KShs}

    The net income is 51,000 KShs\boxed{\mathbf{51,000 \text{ KShs}}}.

Part b· 9 steps

Calculate the financial metrics for Mr. Kalulu's business.

First, we need to calculate Cost of Goods Sold (COGS), Gross Profit, and Sales Revenue.

  • Cost of Goods Sold (COGS):

    COGS=Opening Stock+Net Purchases−Closing Stock\text{COGS} = \text{Opening Stock} + \text{Net Purchases} - \text{Closing Stock} COGS=20,000+200,000−40,000=180,000 KShs\text{COGS} = 20,000 + 200,000 - 40,000 = 180,000 \text{ KShs}

  • Gross Profit: Given Gross profit mark up is 50% of COGS.

    Gross Profit=50%×COGS=0.50×180,000=90,000 KShs\text{Gross Profit} = 50\% \times \text{COGS} = 0.50 \times 180,000 = 90,000 \text{ KShs}

  • Sales Revenue:

    Sales Revenue=COGS+Gross Profit\text{Sales Revenue} = \text{COGS} + \text{Gross Profit} Sales Revenue=180,000+90,000=270,000 KShs\text{Sales Revenue} = 180,000 + 90,000 = 270,000 \text{ KShs}

Now we can calculate the required items:

b.i. Average stock.

  1. Use the formula for average stock.

    Average Stock=Opening Stock+Closing Stock2\text{Average Stock} = \frac{\text{Opening Stock} + \text{Closing Stock}}{2}

  2. Substitute the values and calculate.

    Average Stock=20,000+40,0002=60,0002=30,000 KShs\text{Average Stock} = \frac{20,000 + 40,000}{2} = \frac{60,000}{2} = 30,000 \text{ KShs}

    The average stock is 30,000 KShs\boxed{\mathbf{30,000 \text{ KShs}}}.

    b.ii. Rate of stock turned over.

  3. Use the formula for stock turnover ratio.

    Rate of Stock Turned Over=Cost of Goods SoldAverage Stock\text{Rate of Stock Turned Over} = \frac{\text{Cost of Goods Sold}}{\text{Average Stock}}

  4. Substitute the calculated values and compute.

    Rate of Stock Turned Over=180,00030,000=6 times\text{Rate of Stock Turned Over} = \frac{180,000}{30,000} = 6 \text{ times}

    The rate of stock turned over is 6 times\boxed{\mathbf{6 \text{ times}}}.

    b.iii. Gross profit margin.

  5. Use the formula for gross profit margin.

    Gross Profit Margin=Gross ProfitSales Revenue×100%\text{Gross Profit Margin} = \frac{\text{Gross Profit}}{\text{Sales Revenue}} \times 100\%

  6. Substitute the calculated values and compute.

    Gross Profit Margin=90,000270,000×100%=13×100%≈33.33%\text{Gross Profit Margin} = \frac{90,000}{270,000} \times 100\% = \frac{1}{3} \times 100\% \approx 33.33\%

    The gross profit margin is 33.33%\boxed{\mathbf{33.33\%}}.

    b.iv. Return on capital.

  7. Calculate Net Profit.

    Net Profit=Gross Profit−Expenses\text{Net Profit} = \text{Gross Profit} - \text{Expenses} Net Profit=90,000−60,000=30,000 KShs\text{Net Profit} = 90,000 - 60,000 = 30,000 \text{ KShs}

  8. Use the formula for return on capital.

    Return on Capital=Net ProfitCapital×100%\text{Return on Capital} = \frac{\text{Net Profit}}{\text{Capital}} \times 100\%

  9. Substitute the values and compute.

    Return on Capital=30,000150,000×100%=15×100%=20%\text{Return on Capital} = \frac{30,000}{150,000} \times 100\% = \frac{1}{5} \times 100\% = 20\%

    The return on capital is 20%\boxed{\mathbf{20\%}}.

Was this helpful?

Still stuck on this one?

Ask a follow-up, and the answer starts from this question.

Got a different question?Ask your own question

More Accounting Questions

QCalculate Mr. Mambo's total annual income from rent, commissions, and dividends.QCalculate the margin for Chombo Wholesalers, including the Cost of Goods Sold and Gross Profit.QHence, calculate Mr Buti's monthly net income.QPrepare a multi-step income statement for the year ended December 31, 20X9, assuming opening stock…QPrepare an operating budget for Nakumart supermarket, showing projected income, expenses, and net…
See all Accounting questions →
Got a syllabus? Photograph it and I'll tell you what's due and what's worth the most.