Deck 2: The Statement of Profit or Loss

Question 1

If sales are £200,000, opening inventory is £20,000, purchases for the year are £100,000 and gross profit is £110,000, what is the figure for closing inventory?

A) £10,000
B) £30,000
C) £80,000
D) £90,000

Answer 1

£30,000

Question 2

At 31 March 2022, the following balances for the financial year have been extracted from Rupinder's books: Sales: £435,000, Purchases: £278,000, Quantity discounts received: £1,800, Closing inventory: £41,500, Discounts allowed not taken up by customers: £2,900, Opening inventory: £37,800. What is Rupinder's gross profit for the year ended 31 March 2022?

A) £160,700
B) £162,500
C) £163,600
D) £165,400

Answer 2

£165,400

Question 3

Martin pays his business rates at quarterly intervals during the year. He paid £2,100 on 1 April 2021, £2,400 on 1 July 2021, £2,800 on 1 October 2021, £3,000 on 1 January 2022 and £3,300 on 1 April 2022. How much business rates expense should Martin recognize in his statement of profit or loss for the financial year ended 31 May 2022?

A) £10,300
B) £11,100
C) £11,500
D) £13,600

Answer 3

£11,100

Question 4

Which one of the following statements is not true?

A) There are three sources of income in the statement of profit or loss.
B) Depreciation is a deduction from the cost of non-current assets charged as an expense in the statement of profit or loss in each accounting period in which the asset is used within the business to generate income and cash.
C) The income statement records large irregular costs as exceptional expenditure.
D) Cost + depreciation = carrying amount.

Question 5

During the financial year ended 31 July 2021, O R Egon Enterprises, a mining company, sold its head office building for £25m. The head office building had originally been acquired twenty years ago at a cost of £15m. O R Egon Enterprises depreciate buildings on the straight-line basis over 50 years. How much profit on this transaction will O R Egon Enterprises recognise as revenue in its statement of profit or loss for the financial year ended 31 July 2021?

A) £Nil
B) £10m
C) £16m
D) £25m

Question 6

The Tiny Tennis Club leases its club house and tennis courts from the local council. At 1 October 2020, the club had paid rent in advance on the club house and tennis courts of £1,500. During the financial year to 30 September 2021, the club paid rent on the club house and tennis courts of £15,400. At 30 September 2021, the club owed rent on the club house and tennis courts of £3,200. What is the charge for rent of the club house and tennis courts that the tennis club will present in its statement of profit or loss for the financial year ended 30 September 2021?

A) £13,700
B) £15,400
C) £17,100
D) £20,100

Question 7

Recognizing closing inventory as a deduction from cost of sales and as an asset in the statement of financial position is an application of which accounting principle?

A) Accruals
B) Business entity
C) Prudence
D) Realisation

Question 8

A sports club buys maintenance machinery for £500,000. The club's directors estimate that the maintenance machinery will have a four year useful life. At the end of the four years, the directors expect the club will be able to sell the maintenance machinery for £100,000. Depreciation will be charged on the maintenance machinery over its four year useful life. If the sports club sells the maintenance machinery for £160,000 after 3½ years, what will the carrying amount of this maintenance machinery be at this time?

A) £10,000
B) £62,500
C) £150,000
D) £160,000

Question 9

Charging depreciation on non-current assets will:

A) Increase the carrying amount of non-current assets, decrease the depreciation expense.
B) Decrease the carrying amount of non-current assets, increase the depreciation expense.
C) Increase the carrying amount of non-current assets, increase the depreciation expense
D) Decrease the carrying amount of non-current assets, decrease the depreciation expense