Incomeplete Records

[adgunny]

Hi..can anyone help
Which of the following factors could cause a company’s gross profit percentage on sales to fall below the expected
level?
1 Understatement of closing inventories.
2 The incorrect inclusion in purchases of invoices relating to goods supplied in the following period.
3 The inclusion in sales of the proceeds of sale of non-current assets.
4 Increased cost of carriage charges borne by the company on goods sent to customers.
A 3 and 4
B 2 and 4
C 1 and 2
D 1 and 3
my answer is D, can anyone tell if im right or wrong?..thnx

[Acid]

Hi

I also think that D is the right answer. As , in 2 It talks about sales in FOLLOWING period and not this period and 3 would cause the Gross profit margin to increase , thus If the logic applied is correct then then 2 and 3 are eliminated and the answer comes out to be 1 and 4 .

Good luck

[bluewednesday]

I disagree.

I think 1 and 2 are correct. A lower closing stock will increase cost of sales and therefore lower gross profit margin.

Likewise purchases relating to the following period included in this period will increase cost of sales and decrease profit margin.

Carriage costs out to customers are an expense (carriage in forms part of cost of sales) so will affect the net not the gross profit.

I believe the answer is C.

[Acid]

Hi there

bluewednesday's answer above is absolutely correct.

[prasanthishibu]

yes , blue wednesday's answer is correct. And presented in a good way. Thanx

[MWaqasJJ]

Thanks bluewednesday