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

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.

Multiple choice

Super profits are

  1. actual profits

  2. normal profits

  3. excess of actual profits over normal profits

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

The excess of actual profits over normal profits is' super profits'. Those who earn excess profits, enjoy goodwill.

Multiple choice

Average profit is calculated as

  1. total of goodwill / number of years

  2. total products of profits / total of weights

  3. total of profits / number of years

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

It is used to calculate average profits of a number of  years. For example - the profits in the last three years are Rs 12,000 , Rs 15000, Rs18000. Average Profit = Rs 12,000 + Rs 15,000 + Rs 18,000     = Rs 15,000                                                                                                          3 

Multiple choice

The total cost of goods available for sale with a company during the current year is Rs. 12,00,000 and the total sale during the period is Rs. 13,00,000. The gross profit margin of the company is 33 1/3% on cost.

What is the value of closing inventory during the current year?

  1. Rs. 4,00,000

  2. Rs. 3,00,000

  3. Rs. 2,25,000

  4. Rs. 2,60,000

  5. Rs. 2,55,000
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Given profit percentage = 33 1/3% on cost, i.e. 25% on sales Gross profit = 25% of 13,00,000 = Rs. 3,25,000 Value of closing inventory can be calculated as follows: Cost of goods available for sale + Gross profit = Sales + Closing stock Closing stock = Cost of goods available for sale + Gross profit - Sales = 12,00,000 + 32,50,000 - 13,00,000 Closing stock = Rs. 2,25,000

Multiple choice

Opening stock is Rs. 22,000 Closing stock is Rs. 25,000 Purchases less returns is Rs. 1,10,000 Gross profit margin (on sales) is 20%

What will be the amount of sales?

  1. Rs. 1,41,250

  2. Rs. 1,35,600

  3. Rs. 1,33,750

  4. Rs. 1,28,400

  5. None of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Cost of goods sold = Opening stock + Purchases - Closing stock = 22,000 + 1,10,000 - 25,000 = Rs. 1,07,000 Gross profit = 1/5 on Sales = 1/4 on Cost = 1/4*1,07,000 = Rs. 26,750 COGS = Rs. 1,07,000 Profit = Rs. 26,750 Thus, sales = 1,07,000 + 26,750 = Rs. 1,33,750

Multiple choice

Consider the following for Q Co. for the year 2014-15: Cost of goods available for sale is Rs. 1,00,000 Total sales are Rs. 80,000 Opening inventory of goods is Rs. 20,000 Gross profit margin is 25% on sales

Ascertain the value of the closing inventory for the year ending 2014-15.

  1. Rs. 80,000

  2. Rs. 60,000

  3. Rs. 40,000

  4. Rs. 36,000

  5. None of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Sales = Rs. 80,000 Less: Profit margin = 1/4th of 80,000 = Rs. 20,000 COGS = Rs. 60,000 COGS = Cost of goods available for sale - Closing stock 60,000 = 100,000 - Closing stock Closing stock = Rs. 40,000

Multiple choice

Consider the following data pertaining to R Ltd. for June 2015: Opening inventory is Rs. 30,000 Closing inventory is Rs. 40,000 Purchases are Rs. 5,60,000 Returns outward is Rs. 15,000 Returns inward is Rs. 20,000 Carriage inward is Rs. 5,000

If the gross profit margin is 20% of net sales, what will be the amount of gross sales for June 2015?

  1. Rs. 6,95,000

  2. Rs. 6,75,000

  3. Rs. 5,40,000

  4. Rs. 6,68,750

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

Cost of goods sold = Opening stock + Purchases + Direct expenses - Closing stock Putting the respective values in the above formula, we get COGS = 30,000 + (5,60,000 - 15,000) + 5,000 - 40,000 COGS = Rs. 5,40,000 Let the amount of net sales = x Sales = Cost of goods sold + Gross profit x = 5,40,000 + (x * 20%) Solving the above equation for x, we get x = 6,75,000 Gross sales = Net sales + Returns inward = 6,75,000 + 20,000 = Rs. 6,95,000

Multiple choice

If the household expenses of Rs. 25,000 of a proprietor are shown as business expenses, what is the impact on the value of profit & the total of balance sheet?

  1. Increase in profit & decrease in the total of balance sheet.

  2. Decrease in both profit and the total of balance sheet.

  3. Decrease in profit and no impact on the total of balance sheet.

  4. No impact on profit and on the total of balance sheet.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Personal expenses deductable from the capital & here no deduction so, the value of capital not affected & profit decreased. So, both amounts adjusted each other which mean no impact on the total of balance sheet.

Multiple choice

If the closing stock during a particular period is understated by Rs. 15,500 while the opening stock is overstated by Rs. 20,500, then profits are

  1. overstated by Rs. 36,000

  2. understated by Rs. 36,000

  3. overstated by Rs. 5,000

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

When closing stock is understated, profit is reduced by Rs. 15,500 and opening stock overstated by Rs. 20,500 further reduces the profits by Rs. 20,500. Thus, overall profit is understated by Rs. 36,000.