Using the gross profit of £84,000, a sole trader's other items are: wages £31,000, rent £12,000, depreciation £5,400, irrecoverable debts £900 and discounts received £1,200. What is the net profit?
Answer and explanation
Correct answer: A. £35,900
- Step 1: Add discounts received to gross profit because they are income: £84,000 + £1,200 = £85,200.
- Step 2: Deduct the expenses: £31,000 + £12,000 + £5,400 + £900 = £49,300.
- Step 3: Net profit = £85,200 - £49,300 = £35,900.
Answer
£35,900.
Why not the others: £33,500 deducts discounts received instead of adding them. £34,700 ignores the discounts received altogether. £41,300 wrongly adds back depreciation, a genuine expense, as if it were a non-cash item to ignore.
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