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ACCA Applied Knowledge · Financial Accounting · Statement of profit or loss and other comprehensive income

Kappa Co's draft figures for the year ended 31 December are: revenue $800,000; opening inventory $50,000; purchases $400,000; closing inventory $70,000; depreciation of $30,000 on plant (to be included in cost of sales) and $10,000 on office equipment (administrative); distribution costs $45,000; other administrative expenses $75,000; loan interest $12,000; income tax $26,000. Also, a gain of $15,000 on revaluing land has been recorded. Which amount is profit for the year, and which is reported as cost of sales?

Cost of sales is $410,000 and profit for the year is $222,000, with the land gain excluded as OCI. Since no option shows $222,000, this item is invalid.

  1. AProfit $162,000; cost of sales $380,000
  2. BProfit $162,000; cost of sales $410,000Correct
  3. CProfit $177,000; cost of sales $410,000
  4. DProfit $152,000; cost of sales $410,000

Explanation

Cost of sales = 50,000 + 400,000 - 70,000 + 30,000 = 410,000. Gross profit = 390,000. Less distribution 45,000, admin 85,000 (75,000 + 10,000) = 260,000; less interest 12,000 = 248,000; less tax 26,000 = 222,000. Check: 800,000 - 410,000 - 45,000 - 85,000 - 12,000 - 26,000 = 222,000.

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