Accounting Online Program Certification Practice Test

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Prepare for the Accounting Online Program Certification Test. Use flashcards and multiple choice questions with detailed explanations. Ace your accounting certification exam with confidence!

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What is Plym plc's gross profit for the year if they made sales of £89,400 excluding VAT and had purchases of £69,600 including VAT?

£31,400
£20,000
£25,000
£35,000

The correct answer is: £31,400

To calculate Plym plc's gross profit for the year, you first need to determine the correct sales figure and cost of goods sold (COGS). Starting with the sales, the amount of £89,400 is stated as excluding VAT. In this case, we will consider the sales figure as is, because it’s already provided in net terms. Next, we need to deal with the purchases. The purchase amount is £69,600 but includes VAT. To find the net purchases, we must remove VAT from this amount. Assuming a VAT rate of 20%, you would first determine the VAT element: VAT portion = £69,600 / 1.20 = £58,000 (net purchases) Now that we have both figures, we can calculate gross profit: Gross Profit = Sales - Cost of Goods Sold Gross Profit = £89,400 - £58,000 Gross Profit = £31,400 This calculation shows that the gross profit for Plym plc for the year is indeed £31,400, aligning with the correct choice.