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

Vale Co's trial balance shows the following: revenue $900,000, cost of sales $540,000, distribution costs $60,000, administrative expenses $110,000, and a loan note interest accrual still to be recorded of $8,000. In addition, the audit fee of $12,000 for the year has not yet been accrued and is an administrative expense. What is profit from operations?

Profit from operations is $178,000. Gross profit of $360,000 is reduced by distribution costs of $60,000 and administrative expenses of $122,000 including the unrecorded $12,000 audit fee. Loan interest is a finance cost, so it is excluded from operating profit.

  1. A$178,000Correct
  2. B$190,000
  3. C$198,000
  4. D$170,000

Explanation

Profit from operations = revenue 900,000 - cost of sales 540,000 - distribution 60,000 - administrative (110,000 + 12,000 audit fee) = 178,000. Loan interest is a finance cost and is below operating profit, so the 8,000 is not deducted here. Deducting it would give 170,000, which is wrong.

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