If an entity has £2,500 in opening inventory, purchases £35,000 worth of inventory, paying an additional £1,500 carriage inwards, pays £2,000 carriage outwards, receives £42,000 in sales, has £12,000 in closing inventory, rent income of £1,000 and other expenses of £8,000. Then its net profit is?

Question

Quizplus · Accepted Answer

Net profit is calculated as Sales - Cost of Goods Sold (COGS) - Other Expenses + Rent Income. COGS = Opening Inventory + Purchases + Carriage Inwards - Closing Inventory = £2,500 + £35,000 + £1,500 - £12,000 = £27,000. Net Profit = £42,000 - £27,000 - £8,000 + £1,000 = £8,000. However, the correct choice is £6,000, as the carriage outwards is not included in COGS but is an expense, so £8,000 - £2,000 = £6,000.

If an Entity Has £2,500 in Opening Inventory, Purchases £35,000