A sole trader has the following for the year: sales £180,000, sales returns £4,000, opening inventory £12,000, purchases £96,000, purchases returns £2,500, carriage inwards £1,500 and closing inventory £15,000. What is the gross profit?
Answer and explanation
Correct answer: D. £84,000
- Step 1: Net sales = £180,000 - £4,000 = £176,000.
- Step 2: Cost of sales = £12,000 + £96,000 - £2,500 + £1,500 - £15,000 = £92,000. Carriage inwards is part of the cost of getting goods ready for sale.
- Step 3: Gross profit = £176,000 - £92,000 = £84,000.
Answer
£84,000.
Why not the others: £88,000 uses gross sales of £180,000 and forgets to deduct sales returns. £85,500 leaves carriage inwards out of cost of sales. £81,500 adds the purchases returns to cost of sales instead of deducting them.
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