Tag: company final accounts

Questions Related to company final accounts

A reserve is a ______________ against Profits.

elements of accounts company final accounts reserves provisions provisions and reserves

  1. Charge

  2. Deducted

  3. Added

  4. Appropriation

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Correct Option: D
Explanation:

Distribution of Profits against a reserve head to meet future needs are called appropriations. Eg. General Reserve, Revenue Reserve. 

 Reserve is created after the calculation of_______.

elements of accounts company final accounts reserves provisions provisions and reserves

  1. Net loss

  2. Net profit

  3. Gross profit

  4. Capital

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Correct Option: B
Explanation:

Reserves & surplus fund is created out of profits that are to be shared between the partners or share holders. Therefore fund created out of profit is a liability to the company and can be created only after the calculation of profit. Reserves & Surplus fund is created to meet future contingencies. If the contingency does not arise as expected this fund can be distributed among partners or distributed as dividends among shareholders. It can be used for issuing bonus shares. The decision how to make use of the funds will be done by the partners or in the case of a company in the AGM. 

Creation of reserve reduces taxable profits of the business.

elements of accounts company final accounts reserves provisions provisions and reserves

  1. True

  2. False

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Correct Option: B
Explanation:

Since reserves are neither expenses nor losses, so these are not charged to profit & loss Account rather these are debited to Profit & Loss Appropriation Account which is prepared after Profit and Loss Account.

Creation of reserve does not reduce the net profit but only reduces the divisible profits.

Which of the following is correct?

commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

  1. Operating profit = Operating profit - Non-operating expenses - Non-operating incomes

  2. Operating profit = Net profit + Non-operating expenses + Non-operating incomes

  3. Operating profit = Net profit + Non-operating expenses - Non-operating incomes

  4. Operating profit = Net profit - Non-operating expenses + Non-operating incomes

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Correct Option: C
Explanation:

Operating profit is the profit earned through the operating activities of the firm. This has been calculated as:


Gross Profit - Operating expenses = Operating Profit 

Net Profit = Operating Profit - Non Operating Expenses + Non Operating Income.

Else,

Operating Profit = Net Profit + Non Operating Expense - Non Operating income

While calculating operating profit, the following are not taken into account:

commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

  1. Normal transactions

  2. Direct expenses

  3. Expenses of purely financial nature

  4. Both (ii) and (iii)

  5. Both (i) and (iii)

Show answer
Correct Option: C
Explanation:

Operating profit is calculated by deducting the operating expenses from the operating income. Operating expenses are those which are directly related to the core business activity. 

Expense of purely financial nature are not taken in to account while calculating the operating profit. 

If the total of the credit side of the profit and loss account is more than the total of the debit side, the difference is the net profit.

commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

  1. True

  2. False

Show answer
Correct Option: A
Explanation:

Excess of credit over debit in profit and loss account is net profit generated by the business. This can be shown as follows:


                                                 Profit & Loss Account
Particulars                               Amount                Particulars                 Amount
To Rent                                    5000                 By Gross Profit             75000
To Rent                                   15000
To Insurance                           12000
To Stationery                            4000
To Other Expense                    4000
To Net Profit                            35000
                                              --------------                                                 --------------
                                                 75000                                                     75000
                                              --------------                                                 ---------------

The companies globalize their operations through defficient means ________________.

elements of accounts company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

  1. Exporting directly

  2. Licensing / Franchising

  3. Joint venture

  4. All of the above

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Correct Option: D

Which of the following statements is true in case of Joint Venture?

elements of accounts company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

  1. The Joint Venture can be formed by a single person only.

  2. A legal deed should be drafted before forming Joint Venture.

  3. The profit is shared between the venturers in agreed ratio.

  4. Joint Venture follows going concern concept.

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Correct Option: C

___________ is the part of income statement, which is prepared to ascertain the profit/loss for a given accounting period.

elements of accounts company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

  1. Manufacturing A/c

  2. Profit & Loss A/c

  3. Balance Sheet

  4. All of the above

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Correct Option: B

The ___________ measure net profit/loss by matching revenues and expenses according to the accounting principles.

elements of accounts company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

  1. Trading A/c

  2. Manufacturing Account

  3. Profit & Loss A/c

  4. None of the above

Show answer
Correct Option: C
Explanation:

The P&L statement reveals the company's realized profits or losses for the specified period of time by comparing total revenues to the company's total costs and expenses. Over time, it can show a company's ability to increase its profit, either by reducing costs and expenses, or by increasing sales.