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Analyze the income statement for 2022 and 2023, calculating the sales increase, gross profit margin for 2022, and expenses as a percentage of sales for 2023.

Accounting

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6.1 Income Statement Analysis

6.1.1 By how much did sales increase in 2023?

  1. Identify sales for 2022 and 2023.

    Sales 2022 = R 550 000550\,000
    Sales 2023 = R 680 000680\,000

  2. Calculate the increase in sales.

    Sales Increase=Sales2023−Sales2022\text{Sales Increase} = \text{Sales}_{2023} - \text{Sales}_{2022} Sales Increase=R 680 000−R 550 000\text{Sales Increase} = \text{R } 680\,000 - \text{R } 550\,000 Sales Increase=R 130 000\text{Sales Increase} = \text{R } 130\,000

    The sales increased by R 130 000.

    6.1.2 Calculate the gross profit margin for 2022.

  3. Identify gross profit and sales for 2022.

    Gross Profit 2022 = R 180 000180\,000
    Sales 2022 = R 550 000550\,000

  4. Calculate the gross profit margin.

    Gross Profit Margin=Gross ProfitSales×100%\text{Gross Profit Margin} = \frac{\text{Gross Profit}}{\text{Sales}} \times 100\% Gross Profit Margin=R 180 000R 550 000×100%\text{Gross Profit Margin} = \frac{\text{R } 180\,000}{\text{R } 550\,000} \times 100\% Gross Profit Margin≈0.32727×100%\text{Gross Profit Margin} \approx 0.32727 \times 100\% Gross Profit Margin≈32.73%\text{Gross Profit Margin} \approx 32.73\%

    The gross profit margin for 2022 is approximately 32.73%.

    6.1.3 Calculate the expenses as a percentage of sales for the 2023 financial year.

  5. Identify expenses and sales for 2023.

    Expenses 2023 = R 148 000148\,000
    Sales 2023 = R 680 000680\,000

  6. Calculate expenses as a percentage of sales.

    Expenses as % of Sales=ExpensesSales×100%\text{Expenses as \% of Sales} = \frac{\text{Expenses}}{\text{Sales}} \times 100\% Expenses as % of Sales=R 148 000R 680 000×100%\text{Expenses as \% of Sales} = \frac{\text{R } 148\,000}{\text{R } 680\,000} \times 100\% Expenses as % of Sales≈0.217647×100%\text{Expenses as \% of Sales} \approx 0.217647 \times 100\% Expenses as % of Sales≈21.76%\text{Expenses as \% of Sales} \approx 21.76\%

    The expenses as a percentage of sales for 2023 is approximately 21.76%.

    6.2 What effect will shrinkage have on the profit of the business?
    Shrinkage refers to the loss of inventory due to theft, damage, or obsolescence. It will decrease the profit of the business because it either increases the cost of goods sold or is recorded as an expense, thereby reducing both gross profit and net profit.

    6.3 Bruyn Waves Projects - Income and Net Profit

    6.3.1 Calculate the gross income for the year.

  7. Identify all income items.

    Services rendered = R 30 00030\,000
    Rent income = R 5 0005\,000
    Discount received = R 8 0008\,000
    Interest received = R 3 0003\,000

  8. Sum the income items to find the gross income.

    Gross Income=Services rendered+Rent income+Discount received+Interest received\text{Gross Income} = \text{Services rendered} + \text{Rent income} + \text{Discount received} + \text{Interest received} Gross Income=R 30 000+R 5 000+R 8 000+R 3 000\text{Gross Income} = \text{R } 30\,000 + \text{R } 5\,000 + \text{R } 8\,000 + \text{R } 3\,000 Gross Income=R 46 000\text{Gross Income} = \text{R } 46\,000

    The gross income for the year is R 46 000.

    6.3.2 Calculate the net profit for the year.

  9. Identify all expense items.

    Water and electricity = R 1 0001\,000
    Telephone and fax = R 5 0005\,000
    Wages = R 12 00012\,000
    Insurance = R 2 4002\,400
    Advertising = R 1 5001\,500

  10. Calculate total expenses.

    Total Expenses=R 1 000+R 5 000+R 12 000+R 2 400+R 1 500\text{Total Expenses} = \text{R } 1\,000 + \text{R } 5\,000 + \text{R } 12\,000 + \text{R } 2\,400 + \text{R } 1\,500 Total Expenses=R 21 900\text{Total Expenses} = \text{R } 21\,900

  11. Calculate net profit.

    Net Profit=Gross Income−Total Expenses\text{Net Profit} = \text{Gross Income} - \text{Total Expenses} Net Profit=R 46 000−R 21 900\text{Net Profit} = \text{R } 46\,000 - \text{R } 21\,900 Net Profit=R 24 100\text{Net Profit} = \text{R } 24\,100

    The net profit for the year is R 24 100.

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