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

The profits of last three years are Rs. 42,000, Rs. 39,000 and Rs. 45,000. Capital employed is Rs. 4,00,000 and normal rate of return is 10%. The amount of goodwill calculated on the basis of super profit method for three years of purchase will be

  1. Rs. 2,000

  2. Rs. 4,000

  3. Rs. 6,000

  4. Rs. 8,000
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Average profit = (Rs. 42,000 + Rs. 39,000 + Rs. 45,000) ÷ 3 = Rs. 42,000. Normal profit on capital employed = Rs. 4,00,000 × 10% = Rs. 40,000. Super profit = Rs. 42,000 - Rs. 40,000 = Rs. 2,000. Goodwill (3 years purchase) = Rs. 2,000 × 3 = Rs. 6,000.

Multiple choice

A firm's average total cost is Rs. 300 at 5 units of output and Rs. 320 at 6 units of output. The marginal cost of producing the 6th unit is

  1. Rs. 20

  2. Rs. 120

  3. Rs. 320

  4. Rs. 420
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

First calculate total cost: TC = ATC × Q. At 5 units: TC5 = 300 × 5 = Rs. 1500. At 6 units: TC6 = 320 × 6 = Rs. 1920. Marginal cost of the 6th unit = TC6 - TC5 = 1920 - 1500 = Rs. 420. Option D is correct. Option A (Rs. 20) is the difference in average costs, not marginal cost. Option B (Rs. 120) and Option C (Rs. 320) are calculation errors.

Multiple choice

If net profit is Rs. 25,000/- after writing off preliminary expenses of Rs. 5000/- then the funds from operation will be:

  1. Rs. 25,000/-

  2. Rs. 30,000/-

  3. Rs. 20,000/-

  4. Rs. 10,000/-
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Funds from operation are calculated by adding back non-cash expenses to net profit. Preliminary expenses (written off Rs. 5,000) are a non-cash item - they don't affect actual cash flow. Therefore, funds from operation = Net profit (Rs. 25,000) + Preliminary expenses written off (Rs. 5,000) = Rs. 30,000. This adjustment is necessary because the expense reduced accounting profit but not cash.

Multiple choice

If total assets = Rs. 12, 00, 000, sales = Rs. 24, 00, 000, total expenses = Rs. 21, 40, 000 and normal rate of return = 12%, find out residual income:

  1. Rs. 1, 44, 000

  2. R. 2, 60, 000

  3. Rs. 1, 16, 000

  4. Rs. 2, 16, 000
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Residual Income = Net Income - (Total Assets × Normal Rate of Return). First, calculate Net Income = Sales - Expenses = Rs. 24,00,000 - Rs. 21,40,000 = Rs. 2,60,000. Then calculate minimum required return = Rs. 12,00,000 × 12% = Rs. 1,44,000. Residual Income = Rs. 2,60,000 - Rs. 1,44,000 = Rs. 1,16,000. This measures performance above minimum expectations.

Multiple choice

Calculate the amount of gross purchases from the data: COGS - Rs. 2,20,000, opening stock - Rs. 35,000, closing stock - Rs. 55,000, purchase return - Rs. 5,000, sales return - Rs. 2,000, carriage inward - Rs. 10,000, carriage outward - Rs. 4,000

  1. Rs. 2,35,000

  2. Rs. 2,30,000

  3. Rs. 2,32,000

  4. Rs. 2,45,000
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

COGS = Opening stock + Net purchases + Direct expenses - Closing stock 2,20,000 = 35,000 + Net purchases + 10,000 - 55,000 Thus, net purchases = Rs. 2,30,000 Gross purchases = Net purchases + Purchase return                              = 2,30,000 + 5,000 = Rs. 2,35,000

Multiple choice

Calculate COGS from the data: Net profit = Rs.1,05,000, carriage inward = Rs. 15,000, carriage outward = Rs. 5,000, opening stock = Rs.25,000, closing stock = double of opening stock and G.P. = 20% of net purchases

  1. Rs. 5,15,000

  2. Rs. 5,40,000

  3. Rs. 12,000

  4. Rs. 5,02,500
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Net profit = Rs. 1,05,000, carriage outward = Rs. 5,000 Thus, G.P. = Rs. 1,10,000 Net purchases = 1,10,000 * 100/20 = Rs. 5,50,000. COGS = Opening stock + Net purchases + Direct expenses - Closing stock             = 25,000 + 5,50,000 + 15,000 - 50,000 = Rs. 5,40,000

Multiple choice

Star Ltd used raw material 'Y' during accounting year amounting to Rs. 6,00,000. The value of opening stock was Rs. 60,000 and the value of closing stock was Rs. 40,000. How many times will be the stock turnover ratio?

  1. 10 times

  2. 12 times

  3. 9 times

  4. 13 times

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

Right answer because It is 12 times Stock Turnover Ratio -      Cost of materials used during the year                                         Average Stock of materials used during the year   Cost of Materials used during the year = Rs 6,00,000   Average Stock  =    Opening Stock  +  Closing Stock                                                   2                            =    60,000  +  40,000   =  Rs 50,000                                             2   Stock Turnover Ratio =   6,00,000        = 12 times                                              50,000 

Multiple choice

Calculate notional profit on a contract undertaken of which 80% work has been completed.

Total expenditure to date - Rs. 95,000 Estimated further expenditure to complete the contract (including contingencies) - Rs. 34,000 Contract price - Rs. 1,83,000 Work certified - Rs. 2,02,000
Work not certified - Rs. 8,500
Cash received - Rs. 81,600

  1. Rs. 1,10,500

  2. Rs. 1,15,500

  3. Rs. 1,12,500

  4. Rs. 1,15,200

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

 It is 1,15,500 Notional Profit -              Work Certified -                                  Rs 2,02,000            + Work Uncertified                                Rs      8,500                  Total Work Done                               Rs 2,10,500   Less - Costs incurred till date                       Rs  95,000            Notional Profit                                       Rs 1,15,000     Note = Rs 34,000 is to be accounted for calculating total estimated profit, not for calculating notional profit.

Multiple choice

Calculate total estimated profit on a contract undertaken of which 80% work has been completed.

Total expenditure to date - Rs. 95,000 Estimated further expenditure to complete the contract ( including contingencies ) - Rs. 34,000 Contract price - Rs. 1,83,000 Work certified - Rs. 2,02,000
Work not certified - Rs. 8,500
Cash received - Rs. 81,600

  1. Rs. 52,000

  2. Rs. 53,000

  3. Rs. 54,000

  4. Rs. 51,000
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

 It is Rs 54,000  TOTAL ESTIMATED PROFIT       Contract Price                                      -    Rs 1,83,000   Less-  Costs Incurred till date -   Rs 95,000          + Estimated further costs till         Completion of contract   -   Rs 34,000     - Rs 1,29,000        Total Estimated Profit                                   - Rs   54,000

Multiple choice

ABC Ltd. is expecting an annual EBIT of Rs. 80,000. The company has 3 lakhs in 10% debentures. The cost of equity capital is 12.5%.

Calculate the total value of firm as per net income approach.

  1. 2 lakhs

  2. 7 lakhs

  3. 10 lakhs

  4. 380,000

  5. None of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

EBIT- 80,000 Int. on debentures - 30,000 (3 lakhs * 10%) Earning of equity - 50,000 Market value of equity - 400,000 (50,000 * 100/12.5) Market value of firm is 700,000 (400,000 + 300,000).

Multiple choice

Stocks and raw material- 30,000 Work in progress- 20,000 Finished goods- 10,000 Cost of goods produced/sold- 400,000 Purchase/consumption of raw material- 200,000

Compute the duration of operating cycle assuming the days to be 360.

  1. Raw material - 54 Work in progress - 18 days Finished goods - 9 days

  2. Raw material - 54 days Work in progress - 18 days Finished goods - 19 days

  3. Raw material - 50 days Work in progress - 20 days Finished goods - 9 days

  4. Raw material - 56 days Work in progress - 34 days Finished goods - 23 days

  5. None of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

RM- 30,000/ 200,000 * 360 = 54 days WIP- 20,000/ 400,000 * 360 = 18 days FG- 10,000/ 400,000 * 360 = 9 days

Multiple choice

Directions: Choose the correct option for the given question.

Few items of P/L account of a company are

Sales (Rs.) 1,60,000 Closing stock 38,000 Non-operating Expenses 800 Non-operating Income 4,800 Net Profit 28,000 What is the Operating Profit Ratio?

  1. 18%

  2. 20%

  3. 15%

  4. 57%
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Operating Profit Ratio = Operating Profit / Sales × 100. Operating profit excludes non-operating items (income and expenses). Operating profit = Net profit + Non-operating expenses - Non-operating income = 28000 + 800 - 4800 = Rs. 24000. Ratio = 24000/160000 × 100 = 15%.

Multiple choice

Directions: Choose the correct option for the given question.

Net profit after tax of Rs. 2,00,000 is Rs. 4,00,000. Share capital is Rs. 8,00,000 and revenue reserve is Rs. 2,00,000. What is the rate of return on equity?

  1. 40%

  2. 50%

  3. 60%

  4. 75%
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The question contains OCR errors in the profit figure. Return on equity = Net Profit after tax / Shareholders' Equity. Equity = Share Capital + Revenue Reserves = Rs. 8,00,000 + Rs. 2,00,000 = Rs. 10,00,000. Using the answer of 40%, we can back-calculate that Net Profit after tax should be Rs. 4,00,000 (40% of Rs. 10,00,000). The text incorrectly states 'Rs. 2,00,000 is Rs. 4,00,000' - the first number appears to be a scanning error.

Multiple choice

Directions: Choose the correct option for the given question.

If Opening Stock Rs. 15,000 Purchases Rs. 37,500 Direct Expenses Rs. 1,500 Closing Stock Rs. 7,500 Operating Expenses Rs. 3,000 Sales are Rs. 60,000 during the year, what is the net profit ?

  1. Rs. 12,000

  2. Rs. 10,500

  3. Rs. 7,500

  4. Rs. 3,000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses - Closing Stock = 15,000 + 37,500 + 1,500 - 7,500 = 46,500. Gross Profit = Sales - COGS = 60,000 - 46,500 = 13,500. Net Profit = Gross Profit - Operating Expenses = 13,500 - 3,000 = 10,500. Operating expenses must be deducted from gross profit, not cost of goods sold.