Question

1) Gross profit is defined in the book as the difference between total revenue and total cost of goods sold. It is said that the big component separating gross profit from net profit is overhead costs. Does this mean that net profit is total revenue minus TCOGS and all overhead costs?

2) Noncurrent assets are considered long term assets (held for more than one fiscal year) and generally, they cannot be liquidated quickly. However, I didn't quite understand what would be categorized as an "Other noncurrent assets". What falls into this category outside of the specified subcategory and how is this broken down?

Answer 1

Answer 1

Yes. Net profit is total revenue minus TCOGS and all overhead costs. Net profit = total revenues - Total expenses. Total expenses include all expenses both direct and indirect expenses. If overhead costs are eliminated, then there would be no difference between net profit and gross profit.

Answer 2

Noncurrent assets are the assets which lasts in the business for more than one year and not liquid in nature. On the other hand, the life of current assets is one year or less. Noncurrent assets include Property, plant and equipment, Intangible assets and other Noncurrent assets. Other Noncurrent assets include bond sinking fund, long term investments, construction in progress. Property plant and equipment includes land, buildings, equipment, furniture, vehicles, etc. The assets classified under PP&E are physical in Nature. Intangible assets include goodwill, copyright, patent, etc. The assets classified under intangible assets are not physical in nature.