5.5 Rufford presents you with the following information for the year to 31 March 2005:

£

Purchases 48000 Purchases returns 3000 Sales 82000 Sales returns 4000 Stock at 1 April 2004 4000 He is not sure how to value the stock as at 31 March 2005. Three methods have been suggested. They all result in different closing stock values, namely:

£

Method 1 8000 Method 2 16000 Method 3 4000 Required:

(a) Calculate the effect on gross profit for the year to 31 March 2005 by using each of the three methods of stock valuation; and

(b) state the effect on gross profit for the year to 31 March 2006 if method 1 is used instead of method 2.