Why can't I work this out?

Big Mouth

Well I can but someone else disputing with me, Say for example, you were partners in a shop and it has closed:

The Cash Lodged is 226,000 overall and the amount invoiced from suppliers is 152,000...........the stock balance at closing is 31,500.


Now ex's include only Rent @44,000, wages, esb, rates etc are not included for now

What would be the "profit" left over each between two partners?

I know VAT, Tax and other costs must be considered but forget them for this example please!! Thanks in advance

djk1000

Big Mouth wrote: »

Well I can but someone else disputing with me, Say for example, you were partners in a shop and it has closed:

The Cash Lodged is 226,000 overall and the amount invoiced from suppliers is 152,000...........the stock balance at closing is 31,500.


Now ex's include only Rent @44,000, wages, esb, rates etc are not included for now

What would be the "profit" left over each between two partners?

I know VAT, Tax and other costs must be considered but forget them for this example please!! Thanks in advance

I'm knackered, so I might get this wrong, but here it goes,

Turnover €226,000

Cost of Sale
Opening stock €0
Purchases €152,000
Closing Stock (€31,500) (€120,500)


Gross Profit €105,500

Expenses - Rent Payable (€ 44,000)

Profit before taxes €61,500


So that's the profit to be distributed between partners, they are also left with stock of €31,500 which they can divide up, or sell together.

Gerry Manderer

What about the creditors invoices totalling 152 k this is an outstanding business liability is it not, assuming goods were received on credit?

djk1000

It would be unusual for the business to never of paid suppliers, holding a liability for the entire amount of purchases. Since no creditors figure was given and there is no indication of purchases being on credit, I assumed that the suppliers were paid.

Plus, I was tired and didn't want to have to do a balance sheet extract, keeping it to Income & Expenditure made things easy

backtothebooks

djk1000 wrote: »

I'm knackered, so I might get this wrong, but here it goes,

Turnover €226,000

Cost of Sale
Opening stock €0
Purchases €152,000
Closing Stock (€31,500) (€120,500)


Gross Profit €105,500

Expenses - Rent Payable (€ 44,000)

Profit before taxes €61,500


So that's the profit to be distributed between partners, they are also left with stock of €31,500 which they can divide up, or sell together.

You're profit figure is correct but you're double counting the stock. The profit figure already includes the stock.

Clanket

backtothebooks wrote: »

You're profit figure is correct but you're double counting the stock. The profit figure already includes the stock.

No it doesn't. Profit is only on stock sold.

ianuss

Clanket wrote: »

No it doesn't. Profit is only on stock sold.

Looks like backtothebooks is a very apt username

smcgiff

Big Mouth wrote: »

I know VAT, Tax and other costs must be considered but forget them for this example please!! Thanks in advance

I know you said forget about VAT, but when you say cash lodged, this is definitely VAT inclusive, so are YOU sure you've left VAT out.

Also, bear in mind that the stock left over may have a less than book value when/if ye try to dispose of it in a hurry.

backtothebooks

ianuss wrote: »

Looks like backtothebooks is a very apt username

I'll try and make this easy for you! Purchases are reduced by the stock figure to calculate cost of sales - therefore profit includes the stock!

Now i'll try a little reconciliation to make it easy for you;

Let's all assume that stock at period end is 15,000 and all sales, purchases and expenses are in cash.


sales 150,000
Purchaess (80,000)
Expenses (10,000)
Profit 60,000 (without stock)

Therefore, cash profit (excluding stock) is 60,000 and there is stock to be distributed in addition to this with a value of 15,000. Assuming each partner has a 50% share they are entitled to cash of €30,000 and stock to the value of €7,500 each.

OR

sales 150,000
Purchaeses (80,000)
Stock 15,000
Expenses (10,000)
Profit 75,000

Divided equally gives €37,500 made up of cash €30,000 and stock to the value of €7,500.

So the P&L profit does take account of the stock!!

backtothebooks

Clanket wrote: »

No it doesn't. Profit is only on stock sold.

It does in this situation as the poster said that they are entitled to their share of the profit and they are entitled to their share of the stock. As the stock is included in the calculation of the profit (deducted from COGS) you cant't include it again when calculating the partners share.

ianuss

backtothebooks wrote: »

I'll try and make this easy for you! Purchases are reduced by the stock figure to calculate cost of sales - therefore profit includes the stock!

Now i'll try a little reconciliation to make it easy for you;

Ooooooohh.....

Alan Shore

djk1000 wrote: »

Profit before taxes €61,500


So that's the profit to be distributed between partners, they are also left with stock of €31,500 which they can divide up, or sell together.

To use the OP figures
Turnover €226,000 Cash IN

Purchases (€152,000)
Rent Payable (€ 44,000)
196,000 CASH OUT

Balance left €30,000
So the partners either turn the stock into cash or take it in settlement of the share of profits. They can't take €61500 in cash because its not there at the year end.

Clanket

backtothebooks wrote: »

I'll try and make this easy for you! Purchases are reduced by the stock figure to calculate cost of sales - therefore profit includes the stock!

Now i'll try a little reconciliation to make it easy for you;

Let's all assume that stock at period end is 15,000 and all sales, purchases and expenses are in cash.


sales 150,000
Purchaess (80,000)
Expenses (10,000)
Profit 60,000 (without stock)

Therefore, cash profit (excluding stock) is 60,000 and there is stock to be distributed in addition to this with a value of 15,000. Assuming each partner has a 50% share they are entitled to cash of €30,000 and stock to the value of €7,500 each.

OR

sales 150,000
Purchaeses (80,000)
Stock 15,000
Expenses (10,000)
Profit 75,000

Divided equally gives €37,500 made up of cash €30,000 and stock to the value of €7,500.

So the P&L profit does take account of the stock!!

backtothebooks wrote: »

It does in this situation as the poster said that they are entitled to their share of the profit and they are entitled to their share of the stock. As the stock is included in the calculation of the profit (deducted from COGS) you cant't include it again when calculating the partners share.

You should have used the figures provided by the OP instead of making ones up. And your wording of "Purchases are reduced by the stock figure to calculate cost of sales - therefore profit includes the stock" is incorrect. The profit does not include stock.

Everyone's probably right with their answers but issues re: cash flow v profit. djk1000 should have provided the BS extracts. Lets have a look to clarify.

At the end of the period they have made a profit of €61,500 (on goods sold) as per djk1000.

Assuming no debtors or creditors and everything paid in cash, the balance sheet extracts are as follows:-

Cash €30,000 (€226k - €152k - €44k)
Stock €31,500

Reserves €61,500


So if they were to take the €61,500 in cash they would end up as follows:-

Cash -€31,500 (€30k - €61,500)
Stock €31,500

Reserves €0

So they would have to sell the stock to clear the overdraft.

The reason the overdraft ocurred was because they paid for the stock using cash from last periods profits but when they cleared out all the profits they were left with an overdraft of the stock amount.

They should really split the cash in the bank (€30k) then split the stock between them if they are parting company as per Alan Shore above.

backtothebooks

I don't see how using different figures to highlight my point makes any difference!

You now reckon 'everyone is right' - I'll reiterate my original point - the profit figure was correct and will be split between the partners - the stock was used to arrive at the profit figure so you don't split the stock between the partners in addition to the stock!

Apology accepted!

smcgiff

It's been 4 days since th OP posted this and hasn't been back and I don't like where this is going.

smcgiff

Thread open again for a short while for some last words...

Keep it civil.

smcgiff

For what it is worth I think ye are both looking at it in different ways.

The Profit was €61,500 & the net cash inflow as at when the above was surmised was €30,000.

However, there are still more transactions to conclude the partnership. Say, the 31,500 stock is sold at a 50% loss then the overall profit goes to €45,750, but the Cash inflow increases to €45,750.

In the wind up scenario, neither profit or cash inflow can be finalized until all the stock is disposed of.

Clanket

backtothebooks wrote: »

I don't see how using different figures to highlight my point makes any difference!

Surely you see how it just confuses the matter. It's just as easy to explain your point using the OP's figures.

backtothebooks wrote: »

You now reckon 'everyone is right' - I'll reiterate my original point - the profit figure was correct and will be split between the partners - the stock was used to arrive at the profit figure so you don't split the stock between the partners in addition to the stock!

Apology accepted!

Everyone except you :pac:

To clarify backtothebooks, You're original post was "You're profit figure is correct but you're double counting the stock. The profit figure already includes the stock."

This is an incorrect statement. Profit figure does not include the stock. Profit figure is only on stock sold.

Smcgiff is right. People are looking at it in different ways.