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Financial Statements 1 Test 19

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Financial Statements 1 Test 19
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  • Question 1
    1 / -0
    The Trial Balance shows
    Debtors Rs. 2400, Bad Debts Rs 221, Bad Debts Reserve Rs 324. For creating a Reserve for Doubtful Debts @ $$10\%$$ on debtors, the P & L A/c will be debited by :
    Solution
    New reserve to be created = 2,400 x 10/100
                                                  = RS-240.
    P & L A/c to be debited ;-
    = New reserve - (Old reserve - Bad debts)
    = 240 - (324 - 221)
    = 240 - 103
    = Rs-137. 
  • Question 2
    1 / -0
    A decrease in the provision for doubtful debts would result in ______________.
    Solution

    Provision for Doubtful Debts means the expense reported on the income statement or profit and loss A/c. If Provision for Doubtful Debts is the current period expense associated with the losses from normal credit sales, it will appear as an operating expense usually as part of Selling, General and Administrative Expenses (SG&A). If a provision for doubtful debts would decrease then debit balance of profit and loss A/c would decrease and ultimately net profit would increase.

  • Question 3
    1 / -0
    While calculating _______, the incomes and expenses of a purely financial nature are not taken into account.
    Solution
    Operating profit is the excess of operating revenue over operating expenses. While calculating operating profit, the incomes and expenses of purely financial nature are not taken into account. Thus, operating profit is profit before interest and tax (EBIT).
  • Question 4
    1 / -0
    Excess of gross profit over operating expenses is known as __________.
    Solution
    Operating profit is the profit earned through the normal operations and activities of the business. Excess of gross profit over operating expenses is known as operating profit. Formula for calculating operating profit is:
    Operating profit = Net profit + Non operating expenses - Non operating incomes.
  • Question 5
    1 / -0
    The item closing inventory is shown in balance sheet under "________".
  • Question 6
    1 / -0
    The capital of a sole trader would change as a result of ____________________.
    Solution
    The capital would change only when there is a cash transaction. 
    Fixed assets and raw materials are purchased on credit basis so they do not affect the cash holdings of business and hence the capital. 
    But, wages are paid in cash so there will be a decrease in cash holdings and correspondingly capital too.
  • Question 7
    1 / -0
    If sales are Rs. 6,000 and the rate of gross profit on cost of goods sold is 25%, then the cost of goods sold will be ___________.
    Solution
    Sales = 6,000
    Gross Profit = 25% of Cost
         Cost           100
    (+) Profit           25
       _______    _____
         Sales           125

    Hence, cost of goods sold = 6,000 X 100/125 = 4,800

  • Question 8
    1 / -0
    Considering the following information, answer the question given below :
    particular1st January
          Rs    		31st December
         Rs
    Stock of raw materials17,40018,100
    Work-in-progress12,20012,400
    Stock of finished goods44,50043,700
    During the year manufacturing overhead expenses amounted to Rs.61,000, manufacturing wages to Rs.40,500 and purchase of raw materials to Rs.93,900. There were no other direct expenses.
    (i) The manufacturing cost of finished goods produced were ______________.
  • Question 9
    1 / -0
    In case the opening stock was Rs. 5,000, purchases Rs.15,000, direct expenses Rs.2,000 and closing stock Rs. 2500, the cost of goods sold had been _______________.
    Solution
    cost of goods sold = opening stock + purchase + direct expenses - closing stock
                                    = 5,000 + 15,000 + 2,000 - 2,500      
                                    = 19,500

  • Question 10
    1 / -0
    Sales
       Rs.    		Opening Stock
        Rs.    		Purchases
          Rs.    		Closing Stock
        Rs.    		Cost of goods sold
          Rs.    		Gross Profit
        Rs.    		Trading Expenses
          Rs.    		Net Profit
       Rs.
    30,000  12,000  20,000      ?   18,000      ?    8,000    ?
    From the above answer following :
    (i) Gross profit will be 
    Solution
                                                Trading A/c For the year ended..
    Particular  Amt Particular Amt
     To opening stock A/c 12000 By Sales A/c30000 
     To Purchase A/c 20000 By Closing stock A/c 22000
     To trading expenses A/c 8000  
     To Gross Profit transferred A/c 12000  
      52000  52000
    To Ascertain Gross profit , we need to find out the value of closing stock :
    Let us take "x" as closing stock 
     COGS = opening stock + purchase + direct expenses - closing stock
      18000= 12000+ 20000 + 8000 - X
    X = 40000 - 18000
        = 22000.
                                        
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