Commerce Accountancy · Banking Financial Awareness

Corporate Profit and Loss

189 Questions

Corporate profit and loss questions evaluate financial literacy through profitability ratios and investment returns. These concepts help assess the financial health of a business entity. The topic is essential for commerce students and banking aspirants.

Profitability index ratiosReturn on equityNet earnings formulasGross profit analysisAdvertising ROI calculations

Corporate Profit and Loss Questions

Multiple choice general knowledge

How many companies listed in BSE

  1. Over 3500

  2. Less than 4500

  3. Over 4900

  4. 3000
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The Bombay Stock Exchange (BSE) has over 4,900 companies listed on its platform. As one of the largest stock exchanges in the world by market capitalization, it provides trading facilities for a vast number of companies across various sectors of the Indian economy.

Multiple choice general knowledge math & puzzles

An analyst has calculated the following ratios for a company: Number of days of receivables 48 Number of days of inventory 37 Number of days of payables 28 The cash conversion cycle for the company is closest to:

  1. 57 days

  2. 85 days

  3. 113 days

  4. 65
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The cash conversion cycle (CCC) measures the time between paying for raw materials and receiving cash from customers. The formula is CCC = Days of Receivables + Days of Inventory - Days of Payables. Substituting: 48 + 37 - 28 = 57 days. A shorter CCC indicates more efficient working capital management. Option B (85) would result from adding all three components instead of subtracting payables.

Multiple choice general knowledge math & puzzles

An analyst gathers the following information about two companies for the year ending 31 December 2008: Company 1 Company 2 Dividend payout ratio 37.5% 40.0% Return on assets 12% 10.0% Financial leverage 1.6 2.0 Which of the following best describes the expected growth rate of Company 1? The expected growth rate of Company 1 compared to Company 2 is

  1. lower.

  2. greater.

  3. the same

  4. none of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The sustainable growth rate formula is g = ROA × Financial Leverage × (1 - payout ratio). For Company 1: 12% × 1.6 × (1 - 0.375) = 12% × 1.6 × 0.625 = 12%. For Company 2: 10% × 2.0 × (1 - 0.40) = 10% × 2.0 × 0.60 = 12%. Both companies have identical expected growth rates of 12%. Despite different individual ratios, the combined effect produces the same result.

Multiple choice

Cost of goods sold Rs. 6, 69, 600, sales Rs. 7, 44, 000, closing stock Rs. 50, 400.The gross profit for the year ending on 31st March 20X2 is

  1. Rs. 1, 24, 800

  2. Rs. 74, 400

  3. Rs. 94, 800

  4. none of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Gross profit = Sales - Cost of goods sold = Rs. 7,44,000 - Rs. 6,69,600 = Rs. 74,400. Closing stock (Rs. 50,400) is extra information not needed for this calculation. Option B correctly shows the gross profit. Note that the year ending date is irrelevant to the calculation.

Multiple choice

Suppose that a sole proprietorship is earning a total revenue of Rs. 1,00,000 and is incurring explicit cost of Rs. 75,000. If the owner could work for another company for Rs. 30,000 a year, we would conclude that

  1. the firm is incurring an economic loss

  2. implicit costs are Rs. 25,000

  3. the total economic costs are Rs. 1,00,000

  4. the individual is earning an economic profit of Rs 25,000
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Economic profit = Total Revenue - (Explicit Costs + Implicit Costs). Here: TR = Rs. 1,00,000, Explicit costs = Rs. 75,000, Implicit cost (owner's forgone salary) = Rs. 30,000. Total economic cost = 75,000 + 30,000 = Rs. 1,05,000. Economic profit = 1,00,000 - 1,05,000 = -Rs. 5,000 (a loss). The owner earns Rs. 25,000 accounting profit but less than their opportunity cost, so economic loss.

Multiple choice

If profit is greater than zero, it means

  1. abnormal profit

  2. super normal profit

  3. both (1) & (2)

  4. either (1) or (2)

Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When profit is greater than zero, the firm earns more than its total costs including opportunity costs. In economics terminology, this is called 'abnormal profit' or 'supernormal profit' - these terms are synonymous. Normal profit (zero economic profit) occurs when total revenue equals total costs including implicit costs.

Multiple choice

Mohan purchased goods for Rs. 15,00,000 and sold 4/5th of the goods amounting Rs. 18,00,000 and paid expenses amounting Rs. 2,70,000 during the year 2005. He paid Rs. 5000 for an electricity bill in December 2004 and advance salaries amounting Rs. 15,000 were paid in the month of January in year 2006. He counted net profit as Rs. 3,50,000. The profit calculated by him is correct according to which of the following concepts?

  1. Entity concept

  2. Periodicity concept

  3. Matching concept

  4. Conservatism concept

Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Under matching concept, only expenses related to current period's revenue should be recognized. Mohan excluded the prior period expense (Rs. 5,000 electricity from Dec 2004) and advance payment (Rs. 15,000 January 2006 salaries), correctly matching only the Rs. 2,70,000 current year expenses to current year revenue. Profit = Rs. 6,00,000 (gross) - Rs. 2,70,000 = Rs. 3,30,000. The stated Rs. 3,50,000 appears to be a typographical error in the question.

Multiple choice

The profit of last five years are Rs. 1, 70, 000, Rs. 1, 80, 000, Rs. 1, 40, 000, Rs. 2, 00, 000 and Rs. 1, 60, 000. Find the value of goodwill, if it is calculated on average profit of last five year on the basis of three years purchase.

  1. Rs. 1, 70, 000

  2. Rs. 5, 10, 000

  3. Rs. 5, 30, 000

  4. Rs. 5, 70, 000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Average profit = (1,70,000 + 1,80,000 + 1,40,000 + 2,00,000 + 1,60,000) / 5 = Rs. 1,70,000. Goodwill at 3 years purchase = 1,70,000 x 3 = Rs. 5,10,000. Option A is just the average profit, not goodwill value.