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Published on: 06/09/2019
Financial Statements
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Questions + Answers key
Take MCQ Accountancy Test
1.
What do we come to know by preparing trading account?
2.
What does trading account disclose?
3.
What is meant by direct expenses?
4.
Define financial statements.
5.
What is the difference between a Trading Account and Profit and Loss Account?
6.
State the meaning of Closing Entries?
7.
What do you mean by Capital Expenditure?
8.
Calculate the amount of Gross Profit and Operating Profit on the basis of the following balances extracted from the books of M/s Rajiv and Sons for the year ended March 31, 2014:
| Rs | |
|---|---|
| Opening stock | 50,000 |
| Net sales | 11,00,000 |
| Net purchases | 6,00,000 |
| Direct expenses | 60,000 |
| Administration expenses | 45,000 |
| Selling and distribution expenses | 65,000 |
| Loss due to fire | 20,000 |
| Closing stock | 70,000 |
9.
Distinguish between Capital Expenditure and Revenue Expenditure?
10.
Drawings Rs. 15,000, Profit for the year Rs. 25,000, Closing Capital Rs. 70,000. Calculate the Opening Capital.
11.
Compute Cost of Goods Sold for the year 2013 with the help of the following information and prepare Trading Account:
| (Rs.) | |
| Sales | 20,00,00 |
| Purchases | 15,00,000 |
| Wages | 1,00,000 |
| Stock (Apr. 01, 2012) | 3,00,000 |
| Stock (March 31, 2013) | 4,00,000 |
| Freight Inward | 1,00,000 |
12.
(i) Net sales during the year 2016 is 2,85,000. Gross profit of 25% on sale. Find out Cost of Good sold.
(ii) Calculate Net Sales and Gross Profit from the following information: Cost of goods sold Rs. 1,00,000 Gross profit 20% on sales.
13.
Prepare a Trading Account of M/s Pushpanjali from the following information related to 2013-14:
| (Rs.) | |
| Opening stock | 60,000 |
| Purchases | 3,00,000 |
| Sales | 7,50,000 |
| Purchases returns | 18,000 |
| Sales returns | 30,000 |
| Carriage on purchases | 12,000 |
| Carriage on sales | 15,000 |
| Factory rent | 18,000 |
| Office rent | 18,000 |
| Dock and Clearing charges | 48000 |
| Freight and Octroi | 6,500 |
| Coal, Gas and Water | 10,000 |
14.
Rent, rates and taxes is an example of direct expenses
15.
In trading and profit and loss account, opening stock appears on the debit side because it forms the part of the cost of sales for the current accounting year.
16.
Gross profit is total revenue.
17.
Which of the following is correct
Operating profit = Operating profit - Nonoperating expenses - Non-operating incomes
Operating profit = Net profit + Non-operating Expenses + Non-operating incomes
Operating profit = Net profit + Non-operating expenses - Non-operating incomes
Operating profit = Net profit - Non-operating expenses + Non-operating incomes
18.
While calculating operating profit, the following are not taken into account.
Normal transactions
Abnormal items
Expenses of a purely financial nature
(ii)& (iii)
(i)& (ill)
19.
Choose the correct chronological order of ascertainment of the following profits from the profit and loss account:
Operating Profit, Net Profit, Gross Profit
Operating Profit, Gross Profit, Net Profit
Gross Profit, Operating Profit, Net Profit
Gross Profit, Net Profit, Operating Profit
20.
The financial statement consist of
Trial balance
Profit and loss account
Balance sheet
(i)& (iii)
(ii) & (iii)
1.
( )
Gross profit or gross loss
2.
( )
Gross profit or gross loss.
3.
( )
Direct expenses are those expenses which are directly attributable to the purchase of goods and bringing the goods in saleable condition. Examples, factory expenses, wages, etc.
4.
( )
Financial statements may be defined as the reports prepared to present a periodical review of financial performance and the financial position of a business enterprise.
5.
Difference between Trading Account and Profit & Loss Account
| Basis of difference | Trading Account | Profit & Loss Account |
| (i) Nature | Trading Account shows result of buying and selling, i.e., gross profit or gross loss | Profit and Loss Account shows the net result of the business, i.e., net profit or net loss. |
| (ii) Items | Opening stock, net purchases, direct expenses, net sales and closing stock are shown in Trading Account. | Gross Profit/Gross Loss, other incomes and gains, and all indirect expenses are shown in Profit and Loss Account. |
| (iii)Sequence | Trading Account is the first part in income statement. | Profit and Loss Account is second part of income statement and is prepared after trading account. |
| (iv)Transfer of Balance | The balance of Trading Account, i.e., gross profit or gross loss is transferred to Profit and Loss Account. | The balance of Profit and Loss Account, i.e., net profit or net loss is transferred to Capital Account. |
6.
Closing entries are the journal entries which are passed at the end of the year to be closed by transferring their balance to Trading and Profit and Loss Account. The nominal accounts having debit balance are closed by transferring to the debit side of Trading Account or Profit and Loss Account, as the case may be. The nominal accounts having credit balance are closed by transferring to the credit side of the Trading Account or Profit and Loss Account.
7.
Capital expenditure is the expenditure which is incurred on purchase or construction of fixed assets such as building, plant and machinery, furniture and fixtures, etc. It benefits the business for a long period. It helps in generating revenues for the business. Normally the amount involved in capital expenditure is also substantial. Following types of expenditure are generally treated as capital expenditure:
(i) Acquisition of a Fixed asset.
(ii) Expenditure on purchase of or on installation of a fixed asset.
(iii) Overhauling charges of a second hand asset purchased.
(iv) Extension of or improvement in fixed assets.
(v) The purchase of right to carry on business.
(vi) Legal charges incurred in connection with acquiring fixed asset or right or defending a suit for protecting the fixed assets.
8.
| Particulars | Amount Rs | Particulars | Amount Rs |
|---|---|---|---|
| Opening Stock | 50,000 | Net Sales | 11,00,000 |
| Net Purchases | 6,00,000 | Closing Stock | 70,000 |
| Direct Expenses | 60,000 | ||
| Gross Profit | 4,60,000 | ||
| 11,70,000 | 11,70,000 |
Operating Profit = Sales - (Opening Stock + Net Purchases + Direct Expenses + Administration Expenses + Selling and Distribution Expenses) + Closing Stock
= Rs.11,00,000 - Rs.(50,000 + Rs.6,00,000 + Rs.60,000 + Rs.45,000 + Rs.65,000) + Rs.70,000 = Rs.3,50,000
9.
Distinction between Capital Expenditure and Revenue Expenditure
| Basis of Difference | Capital Expenditure | Revenue Expenditure | |
|---|---|---|---|
| (i) | Objective | It is incurred for the purchase of tangible and intangible fixed assets | It is incurred for the conduct of day-to- day business activities |
| (ii) | Period | Capital expenditure benefits the firm for long period, usually more than one year | The benefits of revenue expenditure are derived immediately or within one year. |
| (iii) | Earning | Capital expenditure increase the earning capacity of the business. | It does not increase the earning capacity. It is incurred for generating revenue and maintaining the fixed assets. |
| (iv) | Accounting | Capital expenditure is shown as an asset in the Balance Sheet. | Revenue expenditure is shown on the debit side of Trading and Profit & Loss A/c. |
| (v) | Depreciation | Depreciation is charged on capital expenditure. | No depreciation is charged on revenue expenditure as it is fully written off in the year of incurrence. |
10.
Profit = Closing Capital + Drawings - Additional Capital - Opening Capital.
\(\Rightarrow\) Rs. 25,000 = Rs. 70,000 + Rs. 15,000- 0 - Opening Capital.
\(\therefore\)Opening Capital = Rs. 85,000 - Rs. 25,000
= Rs. 60,000.
11.
| Particulars | Amount(Rs.) |
|---|---|
| Opening stock | 3,00,000 |
| Add: Purchases | 15,00,000 |
| Direct expenses: | |
| Freight inward | 1,00,000 |
| Wages | 1,00,000 |
| 2,00,000 | |
| Less: Closing stock | (4,00,000) |
| Cost of goods sold | 16,00,000 |
In the Book of .................. Trading Account for the period ended 31.3.13
| Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
|---|---|---|---|
| To Opening stock | 3,00,000 | By Sales | 20,00,000 |
| To Purchases | 15,00,000 | By Closing stock | 4,00,00 |
| ToFreight Inward | 1,00,000 | ||
| ToWages | 1,00,000 | ||
| ToGross profit | 4,00,000 | ||
| 24,00,000 | 24,00,000 |
12.
(i) Gross Profit = Net Sales - Cost of goods sold
So, Cost of goods Sold = Net Sales - Gross Profit on sales
= Rs. 2,85,000 - 25/100 x Rs. 2,85,000
= Rs. 2,85,000 - Rs. 71,250
= Rs. 2,13,750
(ii) Let Sales be 100, Gross Profit will be Rs. 20.
Therefore, Cost of goods sold will be = Rs. 100 - Rs. 20 = Rs. 80
When Cost of goods sold is Rs. 80, then sales = Rs. 100
& when the cost of goods sold is Rs. 1, then sales = Rs. 100/80
So when the cost of good sold is Rs. 1,00,000 then sales = 100/80 x 1,00,000 = Rs. 1,25,000
So, Gross profit on sales = 1,25,000 x 20% = Rs. 25,000
13.
| Particulars | Amount(Rs.) | Particulars | Amount(Rs.) | ||
|---|---|---|---|---|---|
| To Opening stock | 60,000 | By Sales | 7,50,00 | ||
| To Purchases | 3,00,000 | Less : Sales returns | 30,000 | 7,20,000 | |
| Less : Purchases returns | 18,000 | 2,82,000 | |||
| To Carriage on purchases | 12,000 | ||||
| To Factory rent | 18,000 | ||||
| To Dock and Clearing charges | 48,000 | ||||
| To Freight and Octroi | 6,500 | ||||
| To Coal, Gas and Water | 10,000 | ||||
| To Gross Profit c/d | 2,83,500 | ||||
| 7,20,000 | 7,20,000 | ||||
14.
(a)
15.
(a)
16.
(b)
17.
(c)
Operating profit = Net profit + Non-operating expenses - Non-operating incomes
18.
(c)
Expenses of a purely financial nature
19.
(c)
Gross Profit, Operating Profit, Net Profit
20.
(e)
(ii) & (iii)
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