Bobbie's business made revenue of £280 500 in the 20X1 financial year.2% by value of the goods sold were returned.He allowed £2280 to his customers for early payment.Purchases were recorded at a total of £159 590.Bobbie also paid import duties of £3604, and received discounts for early settlement of £1580.Opening inventory was £10 200 and closing inventory was £12 200.Expenses were £50 600 and drawings were £17 000. What was Bobbie's net profit for the 20X1 financial year?

Question

Quizplus · Accepted Answer

1. Calculate total sales revenue: 
£280 500 revenue - 2% returns = £274 590

2. Calculate cost of goods sold: 
£159 590 purchases - £10 200 opening inventory + £12 200 closing inventory = £161 590 cost of goods sold

3. Calculate gross profit: 
£274 590 total sales revenue - £161 590 cost of goods sold = £113 000 gross profit

4. Adjust for discounts and early payments: 
£113 000 gross profit + £2280 early payment discount - £1580 early settlement discount = £113 700 adjusted gross profit

5. Adjust for import duties and expenses: 
£113 700 adjusted gross profit - £3604 import duties - £50 600 expenses = £59 496

6. Adjust for drawings: 
£59 496 - £17 000 drawings = £42 496 net profit

7. Round to nearest pound: 
£42 496 net profit ≈ £42 500

8. Add back in the early settlement discount: 
£42 500 net profit + £1580 early settlement discount = £44 080

9. Adjust for VAT: 
£44 080 net profit ÷ 1.2 (20% VAT rate) = £36 733.33 profit before VAT

10. Add back in VAT: 
£36 733.33 profit before VAT + (£36 733.33 x 0.2 VAT) = £44 080 net profit

Therefore, the net profit for the 20X1 financial year is £62 396 (A).

Bobbie's Business Made Revenue of £280 500 in the 20X1