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GCE Financial Accounting 1990 Question 11

Question 11

Incomplete Records

Use the following information extracted from TOM's books:
Stock at 1st January 1901: ₦6,500
Stock at 31st December 1901: ₦5,500
Creditors at 1st January 1901: ₦4,000
Creditors at 31st December 1901: ₦5,000
Cash paid for goods during the year: ₦20,000
Gross Profit: 25% on cost.
Administrative and selling expenses: ₦2,750

The gross profit for the year is

  1. A.₦6,625
  2. B.₦6,250
  3. C.₦6,000
  4. D.₦5,500
  5. E.₦5,000.
Show the answer and explanation

Answer: D (₦5,500)

Explanation

Cost of sales = 6,500 + 21,000 − 5,500 = 22,000; gross profit = 25% × 22,000 = ₦5,500.