Tag: meaning, need and format of profit and loss account

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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

Operating profit is calculated as:
 Net profit + Non operating incomes - Non operating Expenses.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Operating profit is the profit earned through the normal operations and activities of the business. Operating profit is the excess of operating revenue over operating expenses. Operating profit is calculated as:

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

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

Calculate operating profit:
operating revenue = Rs. 10,000,000; COGS = Rs. 4,000,000; general and administrative expenses = Rs. 3,000,000; interest expense= Rs. 4,000,000; and income taxes = 900,000.

  1. Rs. 2,500,000

  2. Rs. 4,000,000

  3. Rs. 2,000,000

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

Operating profit = Operating revenue - COGS - General and administration expenses
                          = Rs. 10,000,000 - Rs. 4,000,000 - Rs. 3,000,000
                          = Rs. 3,000,000.

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

A second hand machinery was purchased for $Rs. 10,00,000$ five years ago and was overhauled by carrying out some current repairs at a cost of $Rs. 1,00,000$. It has also an accumulated depreciation of $Rs. 5,00,000$. It has been desposed of in the beginning of the sixth year for $Rs. 6,00,000$. Profit/loss on such disposal shall be_________. 

  1. Profit of $Rs. 1,00,000$

  2. Loss of $Rs. 5,00,000$

  3. Loss of $Rs. 4,00,000$

  4. No profit, no loss
Reveal answer Fill a bubble to check yourself
D Correct answer
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 one of the following will lead to under statement of net profit?

  1. Amortization of fictitious assets

  2. Treating capital expenditure as revenue expenditure

  3. Treating revenue expenditure as capital expenditure

  4. Creation of general reserve
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Treating capital expenditure (which should be an asset) as revenue expenditure (an expense) results in an overstatement of expenses, which directly leads to an understatement of net 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

In the case of downward revaluation of an asset which is for the first time, the account to be debited is _________.

  1. Fixed Asset A/c

  2. Revaluation Reserve A/c

  3. Profit and Loss A/c

  4. General Reserve A/c
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When an asset is revalued downward for the first time, the loss in value is treated as an expense and debited to the Profit and Loss account.

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 NOT true with regard to preparation of Profit & Loss Account?

  1. Profit & Loss Account is prepared for a certain period and hence it is an interim statement

  2. Profit & Loss Account does not disclose the effect of non-financial items

  3. Net Profits are ascertained on the basis of current costs

  4. Net Profit as disclosed by Profit & Loss Account is not absolute
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The Profit and Loss account is a final account prepared at the end of the year, not an interim statement. Interim statements are typically prepared for shorter periods like quarters.

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

The Profit and Loss A/c shows the ________________.

  1. Financial results of the concern for a period

  2. Financial position of the concern on a particular date

  3. Financial results of the concern on a particular date

  4. Cost of goods sold during the period
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The Profit and Loss account shows the financial performance (results) of a business over a specific period. The Balance Sheet shows the financial position at a specific date.

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

Cash Profit is?

  1. Net profit$-$Non-trading Profit$-$Depreciation and provision

  2. Gross-Profit$-$Non-trading Profit$+$Depreciation and provision

  3. Net Profit$+$Depreciation & provision

  4. Gross Profit$-$Operational expenses
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Cash profit is calculated by adding non-cash expenses, such as depreciation and provisions, back to the net profit, as these expenses reduce accounting profit but do not involve cash outflows.

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 preparing final account, to record loss in stock due to fire or accidents which of the following adjustment entry will passed?

Stock A/cTo Creditors A/c Dr.
Profit & Loss A/cTo Stock A/c Dr.
Stock A/cTo Capital A/c Dr.
Debtors A/cTo Stock A/c Dr.

  1. A

  2. B

  3. C

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

When stock is lost due to fire, the stock account is credited to reduce the inventory, and the Profit and Loss account is debited to record the loss.

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

During the year goods destroyed by fire was Rs. $10,000$. This insurance company accepted the claim for Rs. $6,000$ and paid the money after the close of financial year. In relation to this which of the following statement is correct?

  1. Trading A/c will be credited by Rs. $10,000$, Profit & Loss A/c will be debited by Rs. $6,000$ and in balance sheet insurance claim will be shown at Rs. $4,000$

  2. Trading A/c will be credited by Rs. $10,000$, Profit & Loss A/c will be debited by Rs. $10,000$

  3. Trading A/c will be credited by Rs. $10,000$, Profit & Loss A/c will be debited by Rs. $4,000$ and in balance sheet insurance claim will be shown at Rs. $6,000$

  4. None of the statement is correct
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The total loss of 10,000 is credited to the Trading account. The insurance claim of 6,000 is an asset (receivable), and the remaining 4,000 is the net loss debited to the Profit and Loss account.