Tag: forms of statements of profit and loss

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

Which of the following is correct?

  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
Reveal answer Fill a bubble to check yourself
C Correct answer
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

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

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

  1. Normal transactions

  2. Direct expenses

  3. Expenses of purely financial nature

  4. Both (ii) and (iii)

  5. Both (i) and (iii)
Reveal answer Fill a bubble to check yourself
C Correct answer
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. 

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

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.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
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
                                              --------------                                                 ---------------

Multiple choice 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

The companies globalize their operations through defficient means ________________.

  1. Exporting directly

  2. Licensing / Franchising

  3. Joint venture

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Companies use various strategies to enter foreign markets, including direct exporting, licensing, franchising, and forming joint ventures, to expand their global footprint.

Multiple choice 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

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

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

A joint venture is a business arrangement where two or more parties agree to pool their resources for a specific task, and they share the profits and losses according to a pre-agreed ratio.

Multiple choice 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

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

  1. Manufacturing A/c

  2. Profit & Loss A/c

  3. Balance Sheet

  4. All of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The Profit and Loss Account is the specific financial statement used to summarize revenues and expenses over a period to determine the net profit or loss of a business.

Multiple choice 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

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

  1. Trading A/c

  2. Manufacturing Account

  3. Profit & Loss A/c

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

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

While calculating operating profit, which of the following is not taken into account?

  1. Normal transactions

  2. Abnormal items

  3. Expenses of a purely financial nature

  4. Both a and c
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Operating profit is intended to reflect the performance of core business activities. Abnormal items, which are non-recurring and not related to normal operations, are excluded from this calculation.

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

While calculating operating profit, the incomes and expenses of purely financial nature are ________into account.

  1. taken

  2. not taken

  3. partially taken

  4. both a and c
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Financial items, such as interest expenses or investment income, are not part of the core operating activities of a business and are therefore excluded when calculating operating profit.

Multiple choice 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

_______ profit is the profit earned through the normal operations and activities of the business.

  1. Net

  2. Gross

  3. Operating

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

Operating profit specifically measures the profit derived from the primary, day-to-day operations of the business, excluding financial and non-operating income/expenses.