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7115 · 5.3

Income statements — practice questions

Practice and worked examples for 7115 Income statements. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

Revenue $820 000; cost of sales $492 000; operating expenses $218 000; finance cost $12 000; tax 24000.24 000.

Calculate gross profit, operating profit, and profit for the year.

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Gross profit = 820 000 − 492 000 = **328000∗∗328 000**

Operating profit = 328 000 − 218 000 = **110000∗∗110 000**

Profit for the year = 110 000 − 12 000 − 24 000 = **74000∗∗74 000**

Worked example 2

Urban Threads Ltd, a clothing retailer, provides the following financial data:

  • Revenue (Year 1): 500,000500,000
  • Revenue (Year 2): 600,000600,000
  • Gross Profit Margin (Year 1): 40%
  • Cost of Sales (Year 2): 390,000390,000
  • Operating Expenses (Year 1): 120,000120,000
  • Operating Expenses (Year 2): 150,000150,000

Calculate the Gross Profit and Operating Profit for both Year 1 and Year 2.

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Year 1 Calculations:

  1. Calculate Gross Profit (Year 1): This is 40% of revenue. $500,000 (Revenue) × 0.40 = $200,000 (Gross Profit)
  2. Calculate Operating Profit (Year 1): Subtract operating expenses from gross profit. $200,000 (Gross Profit) - $120,000 (Operating Expenses) = $80,000 (Operating Profit)

Year 2 Calculations:

  1. Calculate Gross Profit (Year 2): Subtract cost of sales from revenue. $600,000 (Revenue) - $390,000 (Cost of Sales) = $210,000 (Gross Profit)
  2. Calculate Operating Profit (Year 2): Subtract operating expenses from gross profit. $210,000 (Gross Profit) - $150,000 (Operating Expenses) = $60,000 (Operating Profit)

Summary:

  • Year 1: Gross Profit = $200,000; Operating Profit = $80,000
  • Year 2: Gross Profit = $210,000; Operating Profit = $60,000

(Note: Although revenue and gross profit increased, operating profit fell, suggesting a significant rise in overheads that needs investigation.)

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