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**Calculate gross profit if gross profit rate is 20% on sales and cost of goods is**

Rs.1, 20,000.

(a) Rs.24000

(b) Rs.30,000

(c) Rs.20,000

(d) None of the above

The rate of gross profit = 20% on sales, So, If sale is 100, profit is 20 (20%). So, cost is 100-20=80. So, profit ratio on Cost is 20/80 = 1/4 i.e 1/4th of cost

Hence, the amount of gross profit = Cost of good sold x (1/4) = Rs.1,20,000 x (1/4) = Rs.30,000

Hence option (b) is correct.**Opening Stock= Rs. 8,500, Purchases= Rs. 30,700, Direct Expenses= Rs. 4,800, Indirect Expenses = Rs. 5,200, Closing Stock= Rs. 9,000, Calculate Cost of goods sold**

(a) Rs.30,000

(b) Rs.35,000 √

(c) Rs.32,000

(d) Rs.40,000

Cost of good sold = (Opening stock + purchases + only direct expenses – closing stock)

i.e. Rs.(8,500 + 30,700 + 4,800 – 9,000) = Rs.35,000. Hence option (b) is correct.**A company wishes to earn a 20% profit margin on selling price ———- is the profit marks up on cost, which will achieve the required profit margin?**

(a) 33%

(b) 25%

(c) 20%

(d) None of the above.

Company earn 20% profit on sales, If sale is 100, profit is 20 (20%). So, cost is 100-20=80. So, profit ratio on cost is 20/80 = 1/4 i.e 1/4th of cost = (1/4) x 100% = 25%. Hence option (b) is correct.**Capital introduced in beginning by Ram Rs.40, 000. Further capital introduced during the year Rs.1, 000. Drawings Rs.200 per month and closing capital is Rs.53, 600. The amount of profit and loss for the year is:**

(a) Rs.15, 000 Profit.

(b) Rs.5,000 Loss

(c) Rs.20,000 Profit

(d) Can’t say.

Opening capital + Capital introduced + Profit – Drawings = Closing Capital

So, Profit = Closing Capital – Capital introduced + Drawings – opening capital

= Rs.[53600 – 1,000 + (200 x 12) – 40,000] = Rs.( 53,600 – 41,000 + 2,400 ) = Rs.15,000

Hence option (a) is correct.**Sundry Debtors on 31st March, 2006 are Rs.55, 200. Further Bad Debts are Rs.200:**

Provisions for doubtful debts are to be made on debtors @ 5% and also provision of discount is to be made on debtors @ 2%. The amount of provision for discount on debtors will be:

(a) Rs.1,045

(b) Rs.2,750

(c) Rs.1,100

(d) None of the above

Net Sundry Debtor = 55,200 (Total Debtor) – 200 Bad Debts = 55,000

Provision for doubtful debts @ 5% = 5% of 55,000= 2750

So, provision for discount = 2% of (55,000-2750) = 2% of 52250=1045. Hence option (a) is correct.**The provision for bad debts is made by crediting:**

(a) Trading A/c

(b) Profit & Loss Account

(c) Debtors Account

(d) Provision for bad debts account.

The journal entry for previous for bad debts is

Profit and loss A/c Dr.

To Provision for bad debts A/c

Hence option (d) is correct**A firm purchased goods of Rs.90, 000 and spent Rs.6, 000 on freight towards it. At the end of the year the cost of goods still unsold was Rs.12, 000. Sales during the year Rs.1, 20,000. What is the gross profit earned by the firm?**

(a) Rs.36,000

(b) Rs.18,000

(c) Rs.42,000

(d) Rs.38,000

Gross profit = (Sales during the year + closing stock) – (Purchases during the year + all direct expenses i.e. freight) = Rs.(1,20,000 + 12,000) – (90,000 + 6,000) = Rs.1,32,000 – 96,000 = Rs.36,000 (profit). So, option (a) is correct**Sundry debtors of M/S Santosh amount to Rs.25, 000 and bad debts Rs.3, 000. They provide for doubtful debts @ 2% and for discount @ 1% the amount of net debtors to be shown in the balance sheet will be:**

(a) Rs.21,000

(b) Rs.22,000

(c) Rs.21,780

(d) Rs.21, 344.

Net debtors = 25000 (Total Debtors) – 3000 (Bad Debts) = 22,000

Provision for doubtful debts = 2% of 22000=440

Provision for Discount on Debtors = 2% of (22000-440) = 1% of 21560=216.

So, net amount of Debtors in Balance Sheet would be 21560-216=21344. Hence option (d) is correct**Opening Stock= Rs.5,000, Purchases= Rs.15,000, Direct Expenses= Rs.2,000, Closing Stock= Rs.2,500. Calculate Cost of goods sold**

(a) Rs.20,000

(b) Rs.19,500

(c) Rs.21,500

(d) Rs.22,000

Cos of goods sold = Opening Stock + Purchases + Direct Expenses – Closing stock = 5000+15000+2000-2500=19500. Hence option (b) is correct**The balance in books of X, a sole proprietor was:**

Opening Stock Rs.17, 000, Purchase Rs.52, 000, Wages Rs.46, 500, Fuel Rs.15, 000. Sales Rs.1, 45,000 and Closing Stock Rs.25, 000 whose Net Realizable value was Rs.28, 000. Find the Gross Profit:

(a) Rs.39,500

(b) Rs.42,500

(c) Rs.54,500

(d) Rs.57,000

Gross profit = Closing Stock + Sales – Purchases – Direct expenses – Opening Stock = 25000+1,45,000- 52000 – (46500+ 15000) – 17000 = 39,500. Hence option (c) is correct

Cost of inventory or realizable value whichever is lower is considered. So, Rs 25000 inventory value is considered which is lower than realizable value of 28000.**Opening debtors = Rs.3, 000, Credit sales = Rs.80, 000, Cash received from debtors = 60,000, Closing Debtors?**

(a) Rs.30,000

(b) Rs.32,000

(c) Rs.23,000

(d) Rs.20,000

Closing Debtors = Opening Debtors + Credit Sales – Cash received from debtors = 3000+80000-60000=23,000. Hence option (c) is correct**A person started a business with capital of Rs.50, 000 and he takes loan from his relative Rs.5, 000. Profit for the year is Rs.10, 000 and drawings Rs.9, 000. What will be the amount of closing capital?**

(a) Rs.60,000

(b) Rs.51,000

(c) Rs.56,000

(d) Rs.61,000

Closing Capital = Opening capital + Capital introduced + Profit – Drawings = 50000+10000-9000 = 51000. Hence option (b) is correct (Note : Loan is not part of capital).**A person started a business with capital of Rs.50, 000, gives his personal furniture worth Rs 10,000 to the business. He takes personal loan of Rs 5,000 from relative, Profit for the year is Rs.10, 000 and drawings Rs.9, 000. What will be the closing capital?**

(a) Rs.60,000

(b) Rs.51,000

(c) Rs.56,000

(d) Rs.61,000

Closing Capital = Opening capital + Capital introduced + Profit – Drawings = 50000+10000+10000-9000 = 61000. Hence option (d) is correct (Note : Personal Loan is not part of Business, Furniture contributed to business is added to his capital).**Cost of goods sold = Rs.15,00,000, Gross Profit = 20% on sales. Calculate the amount of sales.**

(a) Rs.18,25,000

(b) Rs.18,75,000

(c) Rs.18,50,000

(d) Rs.19,00,000

Company earn 20% profit on sales, i.e. 20/100 = 1/5 on sales

If sale is 100, profit is 20 (20%). So, cost is 100-20=80. So, profit ratio on sale is 20/80 = 1/4 i.e 1/4th of cost = (1/4) x 100% = 25%. So, profit = 15,00,000 x (1/4) = 3,75,000

So, Sales is 15,00,000+3,75,000 = 18,75,000, Hence option (b) is correct**Drawings are deducted from**

(a) Purchase

(b) Sales

(c) Returns outward

(d) Capital

Drawings are deducted from capital. Hence option (d) is correct**Income tax paid by Mr. X amounts to Rs.4,000. The accounting treatment is to be**

(a) Deducted from Owner’s Capital

(b) Debited to the Trading Account

(c) Credited to the Profit and Loss Account

(d) None of the above.

Income tax is not business expenses. It is liability of proprietor. Hence it should be deducted from capital. Hence option (a) is correct.**Assets which is easily convertible into cash are called**

(a) Floating Asset.

(b) Fixed Asset

(c) Liquid Asset

(d) Al of the above

Assets which is easily convertible into cash are called Liquid asset. Hence option (c) is correct**Which one of the following is correct in respect of cost of good sold**

(a) Opening Stock + Closing Stock – Purchase = Cost of good sold.

(b) Opening Stock + Purchase – Closing Stock = Cost of good sold.

(c) Purchases + Closing Stock – Opening Stock = Cost of goods sold.

(d) Closing Stock – Purchases – Opening Stock = Cost op good sold.

Cost of good sold. = Opening Stock + Purchase – Closing Stock Hence option (b) is correct**The works manager gets commission of 10% on the profits after a charging such commission. If the profit is Rs.2,200, what is the amount of his commission?**

(a) Rs.220

(b) Rs.200

(c) Rs.240

(d) Rs.24,444

Let us suppose C= Commission, P=Profit. So C= (P-C) /10. Or Cx10 = P-C, or 11XC = P, So, 2200= 11 x C. Or C= 2200/11 = 200. Hence option (d) is correct.**if profits are 25% of the selling price, what is the percentage of profit on cost price?**

(a) 20%

(b) 25%

(c) 30%

(d) 33.33%

P= Sx25/100=S/4, S=C+P , So S= C+ S/4. or, C= S- S/4, or C=3S/4, So, ratio of Profit to Cost = S/4 : 3S/4 = 1:3 = 100 / 3% = 33.33 %. Hence option (d) is correct.**Find amount of purchases when Opening Stock = Rs.5,000, Closing Stock=Rs.2,700, Cost of good sold – Rs.28,000**

(a) Rs.25,300

(b) Rs.25,700

(c) Rs.22,700

(d) Rs.15,300

Closing stock = Opening stock + purchase – cost of goods sold.. So, purchase = Closing stock – opening stock + cost of goods sold = 2700 – 5000 +28000 = 25700

So, option (b) is correct.