Accounting Online Program Certification Practice Test

After correcting the error in inventory valuation, what is Catt plc's updated gross profit for the year to 31 May 20X1?

1. £99,500

2. £99,996

3. £100,000

4. £98,000

The correct answer is: £99,996

To determine the updated gross profit for Catt plc after correcting the inventory valuation error, we must first consider the implications of inventory valuation on gross profit. Gross profit is calculated as sales revenue minus the cost of goods sold (COGS). If there is an error in inventory valuation, it directly affects COGS, thereby impacting gross profit. In this case, correcting the inventory valuation likely resulted in adjusting the COGS figure. If the previously stated inventory value was underestimated, this would mean that the COGS was overstated, leading to a lower gross profit. Conversely, if the inventory was overvalued, the COGS would be understated, possibly inflating the gross profit. Given that the correction brought the gross profit to £99,996, this suggests that the company’s sales revenue minus the newly adjusted COGS correctly reflects the financial position of Catt plc. The adjusted figure accounts for the accurate valuation of inventory, ensuring that the gross profit now presents a true representation of the company's profitability for the year ending on 31 May 20X1. Thus, the updated gross profit at £99,996 correctly factors in the inventory valuation correction, reflecting a more accurate financial outcome for Catt plc. The other figures