The following information is available from the trial balance of Powerage Ltd as at 31 Dec Year 2:
$$\begin{array} { l c c }
& \text { Debit } & \text { Credit } \
&£& £ \
\text { Sales revenue }&& 260,000\
\text { Inventory at 31st Dec Year 1 } & 9,000 \
\text { Purchases } & 29,000 &
\end{array}$$

Closing inventory as at 31st Dec year 2 is £6,000.Calculate the gross profit.

Question

The following information is available from the trial balance of Powerage Ltd as at 31 Dec Year 2:
$$\begin{array} { l c c } 
& \text { Debit } & \text { Credit } \
 &£& £ \
\text { Sales revenue }&& 260,000\
\text { Inventory at 31st Dec Year 1 } & 9,000  \
\text { Purchases } & 29,000 &
\end{array}$$

Closing inventory as at 31st Dec year 2 is £6,000.Calculate the gross profit.

Quizplus · Accepted Answer

Gross profit is calculated by subtracting cost of goods sold from revenue. Cost of goods sold can be calculated as opening inventory + purchases - closing inventory. Therefore, cost of goods sold = £525,000 + £285,000 - £6,000 = £804,000. Revenue - cost of goods sold = gross profit = £1,032,000 - £804,000 = £228,000. Therefore, the correct option is C.

The Following Information Is Available from the Trial Balance of Powerage