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ACCA Applied Knowledge · Financial Accounting · The main elements of financial statements

Kestrel Co has the following results for the year ended 31 December: revenue $900,000; cost of sales $540,000; distribution costs $60,000; administrative expenses $90,000; finance costs $20,000; investment income $10,000. Income tax for the year is $35,000. What is profit for the year?

Profit for the year is $165,000. Gross profit of $360,000 less distribution and administrative costs gives $210,000, plus investment income of $10,000 less finance costs of $20,000 gives $200,000 before tax, and deducting tax of $35,000 leaves $165,000.

  1. A$165,000Correct
  2. B$175,000
  3. C$155,000
  4. D$200,000

Explanation

Gross profit = 900,000 - 540,000 = 360,000. Operating profit = 360,000 - 60,000 - 90,000 = 210,000. Add investment income 10,000 and deduct finance costs 20,000 = 200,000 profit before tax. Deduct tax 35,000 = 165,000. $200,000 is profit before tax, and $175,000 omits the investment income and finance costs net effect incorrectly (ignores finance costs adjustment of tax).

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