MGT101 GDB 1 Solution

GDB Question:

ABC Brothers have an opening inventory of Rs.7,000 and a closing inventory of

Rs.8,000. Purchases for the year were Rs.90,000, carriage inward was Rs.5,000
and carriage outward was Rs.4,500. ABC Brothers sold some items of inventory
for Rs.2,000 in cash during the year, which was purchased for Rs.2,500. The
owners of business brought an additional capital of Rs.8,000 during the year and
withdrew goods of Rs. 3,000 from the business for his private use. At the end of
the year profit reported in income statement is Rs. 72,000. Owner’s equity at
the beginning of the period was Rs.100,000.

What will be the:

 Cost of goods sold.

 Owners equity at the end of the year.

 Effect of sale of inventory on assets (Just mention the effect as: Increase
in asset by Rs.??? or Decrease in asset by Rs.??? or No Effect on asset).

 Effect of sale of inventory on owners equity of business (Just mention the

effect as: Increase in owners equity by Rs.??? or Decrease in owners
equity by Rs.??? or No Effect on owners equity). Note: only the effect of
sale of inventory on owners equity is required in this part. Effect of given
net profit of Rs. 72,000 on owners equity is not required.

Solution

Cost of Goods Sold

Opening Inventory 7,000

Purchases (Add) 90,000

Carriage Inward (Add) 5,000

Closing Inventory (Less) 8,000

Cost of Goods Sold 94,000

Owner Equity

Opening Owner's equity 100,000

Additional Capital (Add) 8,000

Retained Earnings (Add) 72,000

Drawings (Less) 3,000

Owner Equity 177,000

Effect of sale of Inventory on Assets: The assets that we have decreased, this is
the case given to us above, according to the calculation that we have sold out
the inventory. Sold some items of Inventory Rs, 2000 in cash and which was
purchased for Rs, 2500.

Effect of sale of Inventory on Equity: Our equity will also decrease because our
items were worth 2500 and we sold them for 2000, so there has been a loss of
Rs, 500. If we have profit, then we add it in the form of retained earnings, if we
have loss, then we show it and the loss is minus from owner's equity.