Tag: company final accounts

Questions Related to company final accounts

_______ is the income earned from the core operations of a business, excluding any financing or tax-related issues.

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

  2. Operating loss

  3. Operating expenses

  4. Operating income

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Correct Option: A
Explanation:

Earnings before interest and taxes is a measure of a firm's profit that includes all incomes and expenses except interest expenses and income tax expenses. This is known as operating profit. Operating profit is the excess of operating revenue over operating expenses. Operating profit is the income earned from the core operations of a business, excluding any financing or tax-related issues.

The concept of _______ is used to investigate the profit-making potential of a business, excluding all extraneous factors.

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 loss

  2. operating profit

  3. operating expense

  4. None of the above

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Correct Option: B
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 the income earned from the core operations of a business, excluding any financing or tax-related issues. The concept of operating profit is used to investigate the profit-making potential of a business, excluding all extraneous factors.

If operating income is negative, a business will likely require additional outside funding to remain in operation.

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

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Correct Option: A
Explanation:

Operating profit is the profit earned through the normal operations and activities of the business. However, while calculating operating profit expenses which are of financial nature are not taken into consideration. Operating profit is the excess of operating revenue over operating expenses. If operating income is negative, a business will likely require additional outside funding to remain in operation.

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

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

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Correct Option: B
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.

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.

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. Rs. 2,500,000

  2. Rs. 4,000,000

  3. Rs. 2,000,000

  4. Rs. 3,000,000

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Correct Option: D
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.

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_________. 

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. 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

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Correct Option: D

Which one of the following will lead to under statement of 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. Amortization of fictitious assets

  2. Treating capital expenditure as revenue expenditure

  3. Treating revenue expenditure as capital expenditure

  4. Creation of general reserve

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Correct Option: B

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

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. Fixed Asset A/c

  2. Revaluation Reserve A/c

  3. Profit and Loss A/c

  4. General Reserve A/c

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Correct Option: C

Which of the following is NOT true with regard to preparation of Profit & Loss 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. 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

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Correct Option: A

The Profit and Loss A/c shows the ________________.

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. 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

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Correct Option: A