Question

Small Mart has closing stock of several retail items having a MRP (Maximum Retail Price) of 20,000 The average rate of gross profit on cost is 25% Calculate the cost of closing stock using the Retail Method.

this question is from First year Bachelor in Accounting and Finance.
please answer and explain every step. I need it​

Answer 1

₹16,000

Explanation:

first, we have to find gross profit on sales because we are given MRP

average rate of gross profit on cost = 25%

let cost be ₹100, then gross profit on cost = 100*25/100 = 25

sale = cost + gross profit

       = 100 + 25 = 125

average rate of gross profit on sales = 25/125*100 = 20%

gross profit on sales = 20000 * 20% = 4000

cost of closing stock using retail method =

                                closing stock at MRP - gross profit at sales

                                                     = 20,000 - 4000

                                                     = ₹ 16,000.