Financial Statements - I

State True or False: (i) Gross profit is total revenue. (ii) 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. (iii) Rent, rates and taxes is an example of direct expenses. (iv) 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.

The financial statements consist of:

Choose the correct chronological order of ascertainment of the following profits from the profit and loss account:

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

Which of the following is correct:

Arrange the following items in the order of both permanence and liquidity. Also group them under logical heads: Liabilities: Long-term loans, Bank overdraft, Bills payable, Owner’s equity, Short-term loans, Sundry creditors. Assets: Building, Cash in hand, Cash at bank, Bills receivable, Sundry debtors, Land, Finished goods, Work in progress, Raw material.

What are the objectives of preparing financial statements?

What is the purpose of preparing trading and profit and loss account?

Explain the concept of cost of goods sold?

What is a balance sheet. What are its characteristics?

Distinguish between capital and revenue expenditure and state whether the following statements are items of capital or revenue expenditure: (a) Expenditure incurred on repairs and whitewashing at the time of purchase of an old building in order to make it usable. (b) Expenditure incurred to provide one more exit in a cinema hall in compliance with a government order. (a) Registration fees paid at the time of purchase of a building (b) Expenditure incurred in the maintenance of a tea garden which will produce tea after four years. (c) Depreciation charged on a plant. (d) The expenditure incurred in erecting a platform on which a machine will be fixed. (e) Advertising expenditure, the benefits of which will last for four years.

What is an operating profit?

What are financial statements? What information do they provide.

What are closing entries? Give four examples of closing entries.

Discuss the need of preparing a balance sheet.

What is meant by Grouping and Marshalling of assets and liabilities. Explain the ways in which a balance sheet may be marshalled.

From the following balances taken from the books of Simmi and Vimmi Ltd. for the year ending March 31, 2017, calculate the gross profit. Closing stock: ₹2,50,000; Net sales during the year: ₹40,00,000; Net purchases during the year: ₹15,00,000; Opening stock: ₹15,00,000; Direct expenses: ₹80,000.

From the following balances extracted from the books of M/s Ahuja and Nanda. Calculate the amount of: (a) Cost of goods available for sale (b) Cost of goods sold during the year (c) Gross Profit Balances: Opening stock ₹25,000; Credit purchases ₹7,50,000; Cash purchases ₹3,00,000; Credit sales ₹12,00,000; Cash sales ₹4,00,000; Wages ₹1,00,000; Salaries ₹1,40,000; Closing stock ₹30,000; Sales return ₹50,000; Purchases return ₹10,000.

Calculate the amount of gross profit and operating profit on the basis of the following balances extracted from the books of M/s Rajiv & Sons for the year ended March 31, 2017. 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.

Operating profit earned by M/s Arora & Sachdeva in 2016-17 was ₹17,00,000. Its non-operating incomes were ₹1,50,000 and non-operating expenses were ₹3,75,000. Calculate the amount of net profit earned by the firm.