Can You Help to Solve This Exercise? I Am Very Confused

[accayub]

Given the following data: Gross profit £6700, Carriage inwards £400; Carriage outwards £250, Rent received £575 and Other expenses £3600, the net profit for the firm would be:

[Acid]

Hi Accayub,


The answer is :



£

Gross Profit 6700

Rent rcvd 575

Carriage outward (250)

Other expenses (3600)

Net Profit 3425




ACCAYub . The carriage inward is already included when we calculate the GROSS PROFIT Figure .. So we dont take it again as an expense when we deduct expenses to calculate the net profit.

I hope this clears your query.

Good luck...

Acid

[siddharth]

Hi ACCAyub

we take carriage inwards in gross profit calculation because it relates to arriving at cost of production figure.

gross profit = sales - cost of production

sales = sales - sales returns

cost of production = opening stock + purchases + carriage inwards - closing stock

so in your case we should decide from the question whether it is included in gross profit computation or not. if the question is silent then we can assume in 2 ways, either included or excluded in gross profit computation. BUT ALWAYS GIVE A NOTE HOW YOU ARE TREATING THESE KIND OF ITEMS. examiner will understand it

Regards