ITPEC IP October 2018 Question 68

Advertising cost is a selling expense deducted in calculating operating profit. Operating profit is derived from gross profit after subtracting selling, general, and administrative expenses incurred in ordinary business operations.

Answer (a)

Why not others:
- loss on disposal of fixed assets is generally a non-operating or extraordinary loss
- interest paid is a financing expense below operating profit
- corporate tax is deducted after pre-tax income is determined

Key rule: Operating profit reflects ordinary core operations before financing results, unusual non-operating items, and income taxes.

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