Profit/Statement of Comprehensive Income Exam Questions (2)

Calculate the Gross Profit (2 marks)

Calculate the Profit for the year (2 marks)

Ruksana has been offered a contract to supply flowers to a local business. The contract is worth £5 000 in revenue. She must supply 800 bunches of flowers which will cost her £3 600. She will have to pay an additional £600 in fixed costs.

Calculate the amount of profit the order will be worth (2 marks)

Lowri depreciates her non-current assets using the reducing balance method at a rate of 10% per annum.

Using the 31 December 2018 net book value (NBV) of £122 220, calculate the expected net book value of her non-current assets at 31 December 2019.

Assume that no other non-current assets are bought and that none are sold (2 marks)

At the end of January 2019, Lowri discovers that she cannot use the existing machinery to produce the notebooks. She will have to purchase new machinery. She knows that the business had £14 200 retained profit at 31 December 2018. She also knows that half of her sales are credit sales of up to 60 days.

Tick the advantages of using retained profit to purchase the new machine. (6 marks)

• It is a method of finance which does not incur interest and does not need to be repaid

• Finance may be available immediately – no need for alternative sources of finance

• The £14 200 of retained profit may not be enough to purchase the machinery

• Half of her sales are on credit so this money has not been received despite it increasing profits

• Less risky than borrowing - loans often require security

Which of these is true of cost of sales? (2 marks)

• The formula is Opening Inventory + Purchases - Closing Inventory

• It is the costs directly related to producing the product

• It is also known as direct costs

• It is taken off net profit to get profit for the year

What can a business do to improve Gross Profit? (6 marks)

• Reduce costs of sales by getting cheaper suppliers

• Switch to a Just in Time approach for stock

• Increase sales revenue by doing more promotion and marketing

• Reduce the wage bill by making staff redundant

• Move to a cheaper premises and thereby reduce the rent

What is taken off Operating Profit to get Profit for the year (Retained Profit)? (2 marks)

• Rent

• Wages

• Interest

• Taxation

• Cost of Sales

What is Operating Profit? (1 mark)

• Profit after both direct and indirect expenses have been taken off

• Profit after direct expenses have been taken off

• Profit after Cost of Sales has been taken off

• Profit after direct/indirect expenses, interest and taxation has been taken off

The formula for Costs of Sales is ......?

• Closing Inventory + Purchases - Closing Inventory

• Opening Inventory + Purchases - Closing Inventory

• Purchases + Closing Inventory - Opening Inventory

• Gross Profit - Expenses