Step 1: Identify revenue and cost of goods sold to calculate gross profit. Revenue: Sales: $1,500,000$ Cost of Goods Sold: Opening Inventory: $200,000$ Purchases: $800,000$ Closing Inventory: $300,000$ Cost of Goods Sold = Opening Inventory + Purchases - Closing Inventory Cost of Goods Sold = $200,000 + 800,000 - 300,000 = 700,000$ Step 2: Calculate gross profit. Gross Profit = Revenue - Cost of Goods Sold Gross Profit = $1,500,000 - 700,000 = 800,000$ Step 3: Identify operating expenses. Salaries and Wages: $150,000$ Rent: $50,000$ Utilities: $20,000$ Depreciation: $30,000$ Insurance: $10,000$ Total Operating Expenses = $150,000 + 50,000 + 20,000 + 30,000 + 10,000 = 260,000$ Step 4: Calculate operating profit. Operating Profit = Gross Profit - Total Operating Expenses Operating Profit = $800,000 - 260,000 = 540,000$ Step 5: Identify other income and expenses. Interest Income: $5,000$ Interest Expense: $15,000$ Step 6: Calculate profit before tax. Profit Before Tax = Operating Profit + Interest Income - Interest Expense Profit Before Tax = $540,000 + 5,000 - 15,000 = 530,000$ Step 7: Calculate income tax expense. Income Tax Expense: $106,000$ Step 8: Calculate net profit. Net Profit = Profit Before Tax - Income Tax Expense Net Profit = $530,000 - 106,000 = 424,000$ Profit and Loss Account | Description | Amount ($) | | :---------------------- | :--------- | | Revenue | | | Sales | $1,500,000$ | | Less: Cost of Goods Sold | $(700,000)$ | | Gross Profit | $800,000$ | | Operating Expenses | | | Salaries and Wages | $(150,000)$ | | Rent | $(50,000)$ | | Utilities | $(20,000)$ | | Depreciation | $(30,000)$ | | Insurance | $(10,000)$ | | Operating Profit | $540,000$ | | Other Income/(Expenses) | | | Interest Income | $5,000$ | | Interest Expense | $(15,000)$ | | Profit Before Tax | $530,000$ | | Less: Income Tax Expense| $(106,000)$ | | Net Profit | $424,000$ |