Quiz 5: Accounting for Merchandising Businesses

Business

In a corporation A there is a business of retailing done online through internet. And another in a corporation N there is rental DVD are streamlined on renting basis. Both have different nature of business. Its assets turnover ratio is computed and analyses with considering all factors. a.Major assets used in any company are common like land, building, equipment in tangibles and software and goodwill as intangible assets. That is depreciated, amortized and added further over period of time. Assets used by incorporation A are many diversified as it regulates its business throughout world at global level. Following are three major; 1. Internal software, which is used to manage inventory and most important intangible asset. It regulates all the orders placed and deliveries done on daily basis. It manages all cancelations and availability of goods at one location and arranges transit of same. 2. Building includes warehouses majorly, as it uses internet to advertise and sale so they do not need buildings at each location. Only warehouses are needed to keep goods. 3. Property and Equipment is another which is used at each location for deliver to all delivery men and managers. Recording is done through electronic gadgets, which is also an asset to company a.Three major assets used by incorporation N are as following; 1. Information technology, which is major, used to create inventory and most important intangible asset. It keeps all records created, edited and channelized on daily basis. It manages availability of services at different location and arranges transit of same. 2. Fixed assets include building, furniture and fixtures majorly, as company N need it at each location. Outlets and spaces are needed to keep goods. 3. Operational Equipment is another which is used at each location for deliver to all delivery men and managers. Recording is done in electronic medium, which is current asset to company N. b.Asset turnover is a ratio where proportion of total sales is to average of assets from beginning to end. Basically average asset from beginning to end means that how much resources are consumed for the current year is taken. Following is formula used for calculating asset turnover ratio;. img Using above formula, computation of asset turnover ratio of company A is as follows; img Asset at beginning of year is $40,159 and at end is $54,505 using which average assets are computed using formula mentioned above is $67,411.5. Hence, asset turnover ratio is img . Using above formula, computation of asset turnover ratio of company N is as follows; img Asset at beginning of year is $40,159 and at end is $54,505 using which average assets are computed using formula mentioned above is $67,411.5. Hence, asset turnover ratio is img . c.Both the companies are doing different nature of business so there domains to comparison is unfair due to matching concept. In both companies, company A is using its assets more efficiently than company N.

Gross profit is amount of profit generated from the direct production of a product. In other words, gross profit is total sales net of returns minus cost of goods sold net of stock in hand at beginning and end.As per facts there are two types of sales, one is in cash and another is on account. On account means sales made on credit basis. Cost of goods sold (COGS) =$2,835,000 img img Hence, the amount of gross profit is img .

A merchandising business differs from a service business in multiple ways. First, merchandising involves the buying and selling of goods while a service business involves providing services to customers for a fee. Second, the income statement for a merchandising business deducts the cost of the goods from the sales to determine gross profit. After that it then deducts operating expenses to determine net income. A service business only deducts operating expenses from fees earned. There is no cost of goods sold for them.

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