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Difficulty: EasyPreparation of Company Statement of Profit or Loss

Zentith Global Plc had a gross profit of ₦120,000 for the financial year ended 31 December 2025. Total administrative expenses paid during the year amounted to ₦35,000, which excludes an accrued electricity bill of ₦5,000 at the end of the year. What is the net profit before taxation for the year?

  1. ₦80,000Answer
  2. B
    ₦85,000
  3. C
    ₦90,000
  4. D
    ₦155,000

Answer

The net profit before taxation is ₦80,000.
Under the accruals concept, expenses incurred during the financial period must be recognized regardless of whether payment has been made. The accrued electricity expense of ₦5,000 is added to the ₦35,000 expenses paid, bringing total administrative expenses to ₦40,000. Subtracting total expenses of ₦40,000 from the gross profit of ₦120,000 yields the correct net profit before taxation of ₦80,000.

Step-by-Step Solution

1
Calculate total administrative expenses including accruals
Total Expenses = ₦35,000 + ₦5,000 = ₦40,000
Accrued expenses incurred during the accounting period must be added to expenses paid under the accruals concept.
2
Deduct total expenses from gross profit to find net profit before tax
Net Profit = ₦120,000 - ₦40,000 = ₦80,000
Net profit is calculated by subtracting total operating expenses from gross profit.

Key Concept

Accrual principle adjustment in Company Statement of Profit or Loss
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Preparation of Company Statement of Profit or Loss

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