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

Question

Asked on May 26, 2026Accounting

This accounting problem is solved step by step below, with detailed explanations to help you understand the method and arrive at the correct answer.

Accepted Answer · 2026-05-26T17:28:48.753Z

You're on a roll — here are the calculations for question 14: Part a: Calculate the net income. Step 1: Calculate tax on the first KShs 20,000. Tax_1 = 10\% × 20,000 = 0.10 × 20,000 = 2,000 KShs Step 2: Calculate tax on the next KShs 30,000. Tax_2 = 15\% × 30,000 = 0.15 × 30,000 = 4,500 KShs Step 3: Calculate the remaining income. Remaining income = 60,000 - (20,000 + 30,000) = 60,000 - 50,000 = 10,000 KShs Step 4: Calculate tax on the remaining income. Tax_3 = 25\% × 10,000 = 0.25 × 10,000 = 2,500 KShs Step 5: Calculate the total tax. Total Tax = Tax_1 + Tax_2 + Tax_3 = 2,000 + 4,500 + 2,500 = 9,000 KShs Step 6: Calculate the net income. Net Income = Annual Income - Total Tax = 60,000 - 9,000 = 51,000 KShs The net income is 51,000 KShs. Part b: 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 COGS = 20,000 + 200,000 - 40,000 = 180,000 KShs Gross Profit: Given Gross profit mark up is 50% of COGS. Gross Profit = 50\% × COGS = 0.50 × 180,000 = 90,000 KShs Sales Revenue: Sales Revenue = COGS + Gross Profit Sales Revenue = 180,000 + 90,000 = 270,000 KShs Now we can calculate the required items: b.i. Average stock. Step 1: Use the formula for average stock. Average Stock = Opening Stock + Closing Stock2 Step 2: Substitute the values and calculate. Average Stock = (20,000 + 40,000)/(2) = (60,000)/(2) = 30,000 KShs The average stock is 30,000 KShs. b.ii. Rate of stock turned over. Step 1: Use the formula for stock turnover ratio. Rate of Stock Turned Over = Cost of Goods SoldAverage Stock Step 2: Substitute the calculated values and compute. Rate of Stock Turned Over = (180,000)/(30,000) = 6 times The rate of stock turned over is 6 times. b.iii. Gross profit margin. Step 1: Use the formula for gross profit margin. Gross Profit Margin = Gross ProfitSales Revenue × 100\% Step 2: Substitute the calculated values and compute. Gross Profit Margin = (90,000)/(270,000) × 100\% = (1)/(3) × 100\% ≈ 33.33\% The gross profit margin is 33.33\%. b.iv. Return on capital. Step 1: Calculate Net Profit. Net Profit = Gross Profit - Expenses Net Profit = 90,000 - 60,000 = 30,000 KShs Step 2: Use the formula for return on capital. Return on Capital = Net ProfitCapital × 100\% Step 3: Substitute the values and compute. Return on Capital = (30,000)/(150,000) × 100\% = (1)/(5) × 100\% = 20\% The return on capital is 20\%. Drop the next question!

Accepted Answer · 2026-05-26T17:28:48.753Z

You're on a roll — here are the calculations for question 14: Part a: Calculate the net income. Step 1: Calculate tax on the first KShs 20,000. Tax_1 = 10\% × 20,000 = 0.10 × 20,000 = 2,000 KShs Step 2: Calculate tax on the next KShs 30,000. Tax_2 = 15\% × 30,000 = 0.15 × 30,000 = 4,500 KShs Step 3: Calculate the remaining income. Remaining income = 60,000 - (20,000 + 30,000) = 60,000 - 50,000 = 10,000 KShs Step 4: Calculate tax on the remaining income. Tax_3 = 25\% × 10,000 = 0.25 × 10,000 = 2,500 KShs Step 5: Calculate the total tax. Total Tax = Tax_1 + Tax_2 + Tax_3 = 2,000 + 4,500 + 2,500 = 9,000 KShs Step 6: Calculate the net income. Net Income = Annual Income - Total Tax = 60,000 - 9,000 = 51,000 KShs The net income is 51,000 KShs. Part b: 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 COGS = 20,000 + 200,000 - 40,000 = 180,000 KShs Gross Profit: Given Gross profit mark up is 50% of COGS. Gross Profit = 50\% × COGS = 0.50 × 180,000 = 90,000 KShs Sales Revenue: Sales Revenue = COGS + Gross Profit Sales Revenue = 180,000 + 90,000 = 270,000 KShs Now we can calculate the required items: b.i. Average stock. Step 1: Use the formula for average stock. Average Stock = Opening Stock + Closing Stock2 Step 2: Substitute the values and calculate. Average Stock = (20,000 + 40,000)/(2) = (60,000)/(2) = 30,000 KShs The average stock is 30,000 KShs. b.ii. Rate of stock turned over. Step 1: Use the formula for stock turnover ratio. Rate of Stock Turned Over = Cost of Goods SoldAverage Stock Step 2: Substitute the calculated values and compute. Rate of Stock Turned Over = (180,000)/(30,000) = 6 times The rate of stock turned over is 6 times. b.iii. Gross profit margin. Step 1: Use the formula for gross profit margin. Gross Profit Margin = Gross ProfitSales Revenue × 100\% Step 2: Substitute the calculated values and compute. Gross Profit Margin = (90,000)/(270,000) × 100\% = (1)/(3) × 100\% ≈ 33.33\% The gross profit margin is 33.33\%. b.iv. Return on capital. Step 1: Calculate Net Profit. Net Profit = Gross Profit - Expenses Net Profit = 90,000 - 60,000 = 30,000 KShs Step 2: Use the formula for return on capital. Return on Capital = Net ProfitCapital × 100\% Step 3: Substitute the values and compute. Return on Capital = (30,000)/(150,000) × 100\% = (1)/(5) × 100\% = 20\% The return on capital is 20\%. Drop the next question!

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

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

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