Preparation and presentation of Statement of Profit or Loss

1. 
   Preparation and presentation of Statement of Profit or Loss
   

2. Which of the following statements about inventory valuation are correct?
1) Average cost and first in first out are both acceptable methods of arriving at the cost of
inventories
2) Inventories of finished goods may be valued at labour and materials costs only, without including overheads
3) Inventories should be valued at the lowest of cost, net realisable value and replacement
cost
4 ) It may be acceptable for inventories to be valued at selling price less estimated profit
margin
A) 1 and 3, B) 2 and 3, C) 1 and 4 , D) 2 and 4

3.The following figures are extracted from the financial statements of Giggs:

What is the percentage mark up on cost of sales?
4. Arthur had net assets of $19,000 at 30 April 20X7. During the year to 30 April 20X7, he introduced $9,800 additional capital into the business and his profit for the year was $8,000.
During the year ended 30 April 20X7 he withdrew $4,200.
What was the balance on Arthur’s capital account at 1 May 20X6?
Answers
1.Preparation and presentation of Statement of Profit or Loss

A profit and loss statement (P&L), or income statement is a financial report that provides a summary of a company’s revenues, expenses, and profits/losses over a given period of time. The P&L statement shows a company’s ability to generate sales, manage expenses, and create profits. It is prepared based on accounting principles that include revenue recognition, matching, and accruals, which makes it different from the cash flow statement.
An income statement is one of the three important financial statements used for reporting a company’s financial performance over a specific accounting period. The other two key statements are the balance sheet and the cash flow statement.
The income statement focuses on the revenue, expenses, gains, and losses of a company during a particular period. Also known as the profit and loss (P&L) statement or the statement of revenue and expense, an income statement provides valuable insights into a company’s operations, the efficiency of its management, underperforming sectors, and its performance relative to industry peers.
2. Which of the following statements about inventory valuation are correct?

Correct answer is A

3. 
   What is the percentage mark up on cost of sales?
   

Mark up = Gross profit/cost of sales * 100 %
Mark up = 20 000/80 000*100%= 25 %

3. 
   What was the balance on Arthur’s capital account at 1 May 20X6?
   

$
Balance b/f x
Additional capital 9800
Profit for the year 8000
Withdraw (4200)
________
Balance c/f 19000

Balance b/f= 19000 – 9800 – 8000 + 4200= 5400