The Hilltop Social Club operates a bar for its members. The following information relates to the bar for the year ended 31 March 2025. Item $ Bar inventory ...
Question 1 Report
The Hilltop Social Club operates a bar for its members. The following information relates to the bar for the year ended 31 March 2025.
| Item | $ |
|---|---|
| Bar inventory at 1 April 2024 | 1 250 |
| Bar inventory at 31 March 2025 | 1 480 |
| Bar purchases (paid by cheque) | 8 600 |
| Bar sales (cash received) | 14 200 |
| Bar wages | 2 400 |
| Bar equipment at 1 April 2024 | 6 000 |
| Depreciation of bar equipment (10% straight-line) | 600 |
| Bar supplies owing at 31 March 2025 | 350 |
(a) Prepare the bar trading account for the year ended 31 March 2025, showing clearly the gross profit and net profit on bar activities. [12]
(b) Calculate the bar profit margin (gross profit as a percentage of sales). Give your answer to one decimal place. [2]
(c) State where the bar profit would appear in the club's financial statements. [2]
(d) Explain why a club would operate a bar or refreshment facility for its members. State two reasons. [4]
Answer Details
(a) Bar Trading Account for the year ended 31 March 2025
Many clubs operate income-generating activities such as a bar or refreshment facility. A separate trading account is prepared to measure the profit from this activity.
| Bar Trading Account - Year ended 31 March 2025 | |
|---|---|
| Bar sales | 14 200 [1] |
| Less: Cost of goods sold | |
| Opening inventory | 1 250 [1] |
| Add: Bar purchases | 8 600 [1] |
| Less: Closing inventory | (1 480) [1] |
| Cost of goods sold | 8 370 [1] |
| Gross profit on bar | 5 830 [1] |
| Less: Bar expenses | |
| Bar wages | 2 400 [1] |
| Depreciation of bar equipment | 600 [1] |
| Bar supplies owing | 350 [1] |
| Total bar expenses | 3 350 [1] |
| Net profit on bar | 2 480 [1] |
Note: Bar supplies owing of $350 is an accrued expense - it has been incurred during the year but not yet paid. It is included as a bar expense and will appear as a current liability in the statement of financial position. [1]
(b) Bar profit margin
Bar profit margin (gross) = Gross profit / Bar sales x 100
= 5 830 / 14 200 x 100 = 41.1% [2]
This means that for every $1 of bar sales, the club retains approximately 41 cents after covering the cost of the drinks and refreshments sold.
(c) Where bar profit appears in the financial statements
The net bar profit of $2 480 would be shown as income in the income and expenditure account. [1] It is added to other sources of income such as subscriptions, donations, and fundraising proceeds. [1]
(d) Two reasons for operating a bar
- To generate additional income for the club to help fund its activities, maintain facilities, and cover running costs, potentially reducing the subscription rate members need to pay. [1] [1]
- To provide a service that enhances the social experience for members, encouraging membership retention and attracting new members. [1] [1]
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