Estimating Purchases in Incomplete Records Accounting

Steps:

• Calculate cost of sales (COGS) as sales × (1 - gross margin).
• Add opening inventory to COGS to include stock available at start.
• Subtract closing inventory from the total to exclude unsold stock at end.
• The result gives estimated purchases.

Why B is correct:

• It applies the rearranged trading account formula: purchases = COGS + opening inventory - closing inventory, where COGS = sales × (1 - margin), ensuring accurate estimation without full records.

Why the others are wrong:

• A subtracts both inventories, double-counting stock reduction and understating purchases.
• C uses markup instead of margin; markup applies to cost, not sales, yielding incorrect COGS.
• D uses markup (wrong base) and reverses inventory adjustment, overstating purchases.

Final answer: B