Commerce Accountancy · Banking Financial Awareness

Corporate Profit and Loss

226 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 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.

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

The part of production that does not meet dimensional or quality specifications of a product, but which can be reworked by additional application of materials, labour etc. is called as

  1. waste

  2. spoilage

  3. scrap

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

Right answer because defectives represent the part of production that does not meet dimensional or quality specifications of a product but which can be reworked by additional applications of material, labour etc. and made into saleable condition. 

Multiple choice

When two or more products of equal economic importance arise in the course of processing and none of them can be treated as major product they are known as

  1. joint products

  2. co-products

  3. by -products

  4. none of these

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

Joint Products are the products when two or more products arise simultaneously in the course of processing, each of which has equal significant sales value and so neither/none of the product can be treated as a major product. For example in the process of meat processing meat,hides, bones etc. arise simultaneously each of which has equal significant sales value or economic importance.

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

Directions: Choose the correct option for the given question.

Which of the following methods is not used for calculating purchase consideration?

  1. Net Asset Value

  2. Share Exchange Method

  3. Net Payment Method

  4. None of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

All three listed methods are valid for calculating purchase consideration in business amalgamation: (1) Net Asset Value Method - values assets minus liabilities, (2) Net Payment Method - actual payment made, (3) Share Exchange Method - shares issued based on exchange ratio. Therefore 'None of these' (implying all are valid) is correct.

Multiple choice

Royal Bank of Scotland has expected its annual loss this time about____

  1. 6 bn pounds

  2. 7 bn pounds

  3. 8 bn pounds

  4. 9 bn pounds
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Royal Bank of Scotland reported massive losses during the 2008-2009 global financial crisis. The £9 billion figure aligns with the scale of losses reported by major UK banks during this period. The lower options underestimate the crisis impact on RBS.