To determine the gross profit or loss, we need to follow a systematic approach using the information provided. Let's break it down step-by-step.
Step 1: Understand the Components
- Sales: This is the total revenue generated from selling goods. In this case, it is Le 120,000.
- Purchases: This is the total cost of goods that were bought for resale. Here, it is Le 100,000.
- Opening Stock: This is the value of inventory at the beginning of the period, which is Le 10,000.
- Closing Stock: This is the value of inventory at the end of the period, which is Le 20,000.
Step 2: Calculate Cost of Goods Sold (COGS)
The formula for calculating the Cost of Goods Sold (COGS) is:
[
\text{COGS} = \text{Opening Stock} + \text{Purchases} - \text{Closing Stock}
]
Now, substituting the values:
[
\text{COGS} = 10,000 + 100,000 - 20,000
]
Calculating this step-by-step:
-
First, add Opening Stock and Purchases:
[
10,000 + 100,000 = 110,000
]
-
Then, subtract Closing Stock:
[
110,000 - 20,000 = 90,000
]
So, the Cost of Goods Sold (COGS) is
Le 90,000.
Step 3: Calculate Gross Profit
Gross Profit is calculated using the formula:
[
\text{Gross Profit} = \text{Sales} - \text{COGS}
]
Substituting the values we have:
[
\text{Gross Profit} = 120,000 - 90,000
]
Calculating this gives:
[
\text{Gross Profit} = 30,000
]
Step 4: Determine Profit or Loss
Since the Gross Profit is a positive number (Le 30,000), this indicates that the business made a profit.
Conclusion
The correct answer is
A. Le 30,000 profit.
Explanation of Other Options
-
Option B (Le 20,000 profit): This is incorrect because it does not reflect the correct calculation of Gross Profit based on the provided figures.
-
Option C (Le 10,000 loss): This is incorrect as it suggests that the business incurred a loss, which contradicts our calculation showing a profit.
-
Option D (Le 30,000 loss): This is also incorrect for the same reason as Option C; it indicates a loss when we have calculated a profit.
Common Pitfalls
- Miscalculating COGS: It's crucial to remember to adjust for both opening and closing stock when calculating COGS.
- Confusing Gross Profit with Net Profit: Gross Profit does not account for operating expenses, taxes, or other costs; it only reflects the profit from sales after deducting COGS.
Revision Summary
- Gross Profit is calculated as Sales minus Cost of Goods Sold (COGS).
- COGS is determined by adjusting Opening Stock with Purchases and Closing Stock.
- The correct answer to the question is Le 30,000 profit.
- Always ensure to carefully follow the formulas and check calculations to avoid errors.