Rufford presents you with the following information for the year to 31 March 2011:

£

Purchases ...............48 000

Purchases returns ............ 3 000

Sales ................82 000

Sales returns ............. 4 000

Stock at 1 April 2010 ......... 4 000

He is not sure how to value the stock as at 31 March 2011. Three methods have been suggested. They all result in different closing stock values, namely:

£

Method 1 ............... 8 000

Method 2 ...............16 000

Method 3 ............... 4 000

Required:

(a) Calculate the effect on gross profit for the year to 31 March 2011 by using each of the three methods of stock valuation.

(b) State the effect on gross profit for the year to 31 March 2012 if Method 1 is used instead of Method 2.