Lesson Note on Profit: Meaning, Types and Calculations for SS 2

Class: Senior Secondary School 2 (SS2 / SSS2)
Term: 3rd Term
Week: 2
Age: 16 years
Duration: 45 minutes
Subject: Commerce
Curriculum Theme: Financial Accounting / Business Management
Previous Lesson: Credit: Instruments, Functions and Credit Problems.
Topic: PROFIT
Subject Matter: Meaning of profit (excess of income over expenses), types of profit (gross profit, net profit), calculation of gross and net profit from given data, calculation of gross profit to turnover, calculation of net profit to turnover

Specific Objectives

By the end of the lesson, pupils should be able to:

Cognitive Domain:

• Define profit as the excess of income over expenses.
• State the two main types of profit.
• Explain how to calculate gross profit and net profit.
• Identify the formulas for calculating gross profit to turnover and net profit to turnover.

Affective Domain:

• Appreciate the importance of profit in business operations.
• Show interest in analyzing business financial data.
• Value the role of accurate profit calculation in decision-making.

Psychomotor Domain:

• Compute gross profit from given sales and cost of goods sold.
• Compute net profit from given gross profit and operating expenses.
• Calculate gross profit to turnover ratio using appropriate data.
• Calculate net profit to turnover ratio using appropriate data.

Social Domain:

• Participate actively in group discussions on profit calculation.
• Collaborate with peers to solve profit-related problems.
• Communicate their understanding of profit concepts clearly.

Reference Materials

The following resources were used in planning this lesson:

• Senior Secondary Schools Education Curriculum
• State Unified Scheme of Work
• Adeleke, F.O. (2018). Comprehensive Commerce for Senior Secondary Schools. University Press PLC.
• Anyanwuocha, R.A. (2019). Mastering Commerce for Senior Secondary Schools. Africana First Publishers PLC.

Instructional Materials

The teacher will teach this lesson with the aid of:

• Whiteboard and markers
• Charts showing profit and loss account formats
• Sample sales and cost data
• Calculators

Rationale for the Lesson

Understanding profit is fundamental for pupils to grasp how businesses operate and succeed. This lesson enables pupils to learn how to calculate different types of profit, which is essential for evaluating business performance and making informed financial decisions in real-world scenarios.

Prerequisite/Previous Knowledge

Pupils have some basic understanding of business, income, and expenses from previous Commerce lessons.

Lesson Content/Board Summary

Profit

Meaning of Profit

Profit is the financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something. It represents the excess of income (revenue) over expenses incurred in generating that income.

Types of Profit

The two main types of profit are:

• Gross Profit: This is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with its services. It is calculated before operating expenses are deducted.
• Net Profit: This is the amount of profit left after all operating expenses, interest, and taxes have been deducted from a company’s total revenue. It is the ‘bottom line’ profit.

Calculation of Gross Profit

Gross Profit is calculated using the formula:

Gross Profit = Sales Revenue – Cost of Goods Sold (Cost of Sales)

Where:

• Sales Revenue (Turnover): The total income generated from selling goods or services.
• Cost of Goods Sold (Cost of Sales): The direct costs attributable to the production of the goods sold by a company.

Calculation of Net Profit

Net Profit is calculated using the formula:

Net Profit = Gross Profit – Operating Expenses

Where:

• Gross Profit: The profit calculated before operating expenses.
• Operating Expenses: Costs incurred in running the business, such as salaries, rent, utilities, advertising, etc.

Worked Examples for Profit Calculation

Example 1: Calculating Gross Profit

A business had sales revenue of N850,000 and its cost of goods sold was N480,000. Calculate the Gross Profit.

Step 1: Identify the given values.

• Sales Revenue = N850,000
• Cost of Goods Sold = N480,000

Step 2: Apply the Gross Profit formula.

Gross Profit = Sales Revenue – Cost of Goods Sold

Gross Profit = N850,000 – N480,000

Gross Profit = N370,000

Therefore, the Gross Profit is N370,000.

Example 2: Calculating Net Profit

Using the Gross Profit from Example 1 (N370,000), if the operating expenses for the business were N150,000, calculate the Net Profit.

Step 1: Identify the given values.

• Gross Profit = N370,000
• Operating Expenses = N150,000

Step 2: Apply the Net Profit formula.

Net Profit = Gross Profit – Operating Expenses

Net Profit = N370,000 – N150,000

Net Profit = N220,000

Therefore, the Net Profit is N220,000.

Profitability Ratios

Profitability ratios measure the ability of a business to generate profit from its sales.

• Gross Profit to Turnover Ratio: This ratio indicates the percentage of sales revenue that is left after deducting the cost of goods sold. It shows how efficiently a business is managing its production costs.
• Net Profit to Turnover Ratio: This ratio indicates the percentage of sales revenue that is left after all expenses, including operating expenses, interest, and taxes, have been deducted. It shows the overall efficiency of the business.

Formulas for Profitability Ratios

Gross Profit to Turnover Ratio = (Gross Profit / Sales Revenue) x 100%

Net Profit to Turnover Ratio = (Net Profit / Sales Revenue) x 100%

Worked Example for Profitability Ratios

Example 3: Calculating Profitability Ratios

A company recorded Sales Revenue of N1,000,000, Cost of Goods Sold of N600,000, and Operating Expenses of N200,000. Calculate the Gross Profit to Turnover Ratio and the Net Profit to Turnover Ratio.

Step 1: Calculate Gross Profit.

Gross Profit = Sales Revenue – Cost of Goods Sold

Gross Profit = N1,000,000 – N600,000 = N400,000

Step 2: Calculate Net Profit.

Net Profit = Gross Profit – Operating Expenses

Net Profit = N400,000 – N200,000 = N200,000

Step 3: Calculate Gross Profit to Turnover Ratio.

Gross Profit to Turnover Ratio = (Gross Profit / Sales Revenue) x 100%

Gross Profit to Turnover Ratio = (N400,000 / N1,000,000) x 100%

Gross Profit to Turnover Ratio = 0.4 x 100% = 40%

Step 4: Calculate Net Profit to Turnover Ratio.

Net Profit to Turnover Ratio = (Net Profit / Sales Revenue) x 100%

Net Profit to Turnover Ratio = (N200,000 / N1,000,000) x 100%

Net Profit to Turnover Ratio = 0.2 x 100% = 20%

Therefore, the Gross Profit to Turnover Ratio is 40% and the Net Profit to Turnover Ratio is 20%.

Teaching Methods/Instructional Techniques

Discussion, Lecture, Demonstration, Question and Answer, Visual Aids

Instructional Procedures

Step 1: Introduction

Time: 5 minutes
Teaching Skill: Set Induction
Teacher’s Activity: The teacher asks pupils about their understanding of what happens when a business sells goods for more than it cost to acquire them. The teacher relates this to making money.
Pupils’ Activity: Pupils share their ideas and relate them to making money or profit.
Learning Point: Pupils are introduced to the concept of profit in a simple way.

Step 2: Meaning of Profit

Time: 7 minutes
Teaching Skill: Explanation/Definition
Teacher’s Activity: The teacher defines profit as the excess of income over expenses and writes the definition on the board.
Pupils’ Activity: Pupils listen, take notes, and ask questions for clarity.
Learning Point: Pupils understand the basic definition of profit.

Step 3: Types of Profit

Time: 7 minutes
Teaching Skill: Explanation/Categorization
Teacher’s Activity: The teacher explains the two main types of profit: Gross Profit and Net Profit, defining each and highlighting their differences.
Pupils’ Activity: Pupils listen, take notes, and differentiate between gross and net profit.
Learning Point: Pupils identify and distinguish between gross and net profit.

Step 4: Calculation of Gross Profit

Time: 8 minutes
Teaching Skill: Demonstration/Problem Solving
Teacher’s Activity: The teacher writes the formula for Gross Profit on the board and works through Example 1 from the board summary, explaining each step clearly.
Pupils’ Activity: Pupils copy the formula and the worked example, paying attention to the steps and asking questions.
Learning Point: Pupils learn how to calculate Gross Profit.

Step 5: Calculation of Net Profit

Time: 8 minutes
Teaching Skill: Demonstration/Problem Solving
Teacher’s Activity: The teacher writes the formula for Net Profit on the board and works through Example 2 from the board summary, explaining how to use the gross profit to arrive at net profit.
Pupils’ Activity: Pupils copy the formula and the worked example, ensuring they understand the deduction of operating expenses.
Learning Point: Pupils learn how to calculate Net Profit.

Step 6: Profitability Ratios (Gross Profit to Turnover and Net Profit to Turnover)

Time: 5 minutes
Teaching Skill: Explanation/Demonstration
Teacher’s Activity: The teacher introduces the concepts of Gross Profit to Turnover Ratio and Net Profit to Turnover Ratio, provides their formulas, and works through Example 3 from the board summary.
Pupils’ Activity: Pupils listen, copy the formulas, and follow the steps in the worked example.
Learning Point: Pupils understand how to calculate and interpret profitability ratios.

Step 7: Evaluation/Review

Time: 5 minutes
Teaching Skill: Questioning/Assessment
Teacher’s Activity: The teacher evaluates the learning by asking the following questions:

1. Define profit in your own words.
2. State the two main types of profit.
3. If Sales Revenue is N750,000 and Cost of Goods Sold is N400,000, what is the Gross Profit?
4. Given a Gross Profit of N350,000 and Operating Expenses of N120,000, calculate the Net Profit.
5. State the formula for calculating Net Profit to Turnover Ratio.

Pupils’ Activity: Pupils answer orally and in writing.
Learning Point: Pupils demonstrate understanding of the lesson.

Step 8: Conclusion

Time: 3 minutes
Teaching Skill: Summarization/Assignment
Teacher’s Activity: The teacher summarizes the key points of the lesson, emphasizing the importance of accurate profit calculation. The teacher then assigns homework from the textbook.
Pupils’ Activity: Pupils listen to the summary and copy the homework assignment.
Learning Point: Pupils consolidate their learning and prepare for further practice.

Lesson Keywords

• Profit – The financial gain, especially the difference between the amount earned and the amount spent.
• Gross Profit – Profit before operating expenses are deducted.
• Net Profit – Profit after all expenses, including operating expenses, are deducted.
• Turnover – Total sales revenue of a business.
• Cost of Goods Sold – Direct costs of producing goods sold.
• Operating Expenses – Costs incurred in running a business (e.g., rent, salaries).

Differentiation

For pupils who grasp the concepts quickly, the teacher will provide additional complex problems involving more variables or multi-step calculations. For pupils needing more support, the teacher will provide simpler examples with fewer variables and offer one-on-one guidance, focusing on the basic formulas and definitions.

Note for teachers using this lesson plan

Teachers should ensure pupils have a good grasp of basic arithmetic and percentage calculations before this lesson. Encourage the use of calculators for accuracy in computations. Provide ample practice questions from textbooks or past examination papers. Emphasize the practical application of profit calculation in everyday business scenarios.