NPTEL Online Certification Courses

Indian Institute of Technology Kharagpur

Entrepreneurship Essentials
Assignment- Week 07
TYPE OF QUESTION: MCQ/MSQ
Number of questions: 10 Total mark: 10 X 1 = 10
______________________________________________________________________

QUESTION 1:
Use the following data to answer the question following them: (All figures are in Rupees
except when specifically mentioned otherwise)
Sales: 3,000
Purchase of equipment: 50
Closing Stock: 500
Opening Stock: 1,000
Payment of electricity bill: 30
Purchase of goods: 1500
What is the gross profit?
a) 1500
b) (-) 500
c) 1,000
d) 970
Answer: c

Detailed solution

Gross profit = Sales – Cost of goods sold.

Cost of goods sold = Opening stock + Purchase of goods during the year – Closing
stock = 1,000 + 1500 – 500 = 2,000.

Gross profit = 3,000 – 2,000 = 1,000

 NPTEL Online Certification Courses
Indian Institute of Technology Kharagpur

QUESTION 2:
The following data are related to a company for the financial year 2021-2022. (All
figures are in Rupees except when specifically mentioned otherwise)

Amortization: 100
Interest payment: 200
Income tax: 100
Depreciation: 50
Other operating expenses: 500
Dividend: 200
Gross profit: 1,200
What is the operating profit for the year 2021-22? (be mindful of excess data)
a) 400
b) 350
c) 550
d) 250
Answer: c
Detailed solution

Gross profit = Sales – Cost of goods sold = 1,200 (Given).

Operating profit = Gross profit – Operating expenses.

Operating expenses = 100 + 50 +500 = 650

Operating profit = 1,200 – 650 = 550

 NPTEL Online Certification Courses
Indian Institute of Technology Kharagpur

QUESTION 3:
The following data are related to a company for the financial year 2021-2022. (All
figures are in Rupees except when specifically mentioned otherwise)

Gross profit: 500

Interest payment: 50
Amortization: 50
Other operating expenses: 200
Dividend: 100
The book value of the fixed asset of the company as of 31-3-2021 is Rs.1,300. The
depreciation rate is 10% using the declining value method (this is the method followed
in practice sum). The company purchases machinery worth Rs. 700 during the year
2021-22 and does not sell any of its fixed assets during the year. What is the book value
of the fixed assets as of 31.03.2022? Be mindful of excess data.

a) 1800
b) 1870
c) 1880
d) 1700

Answer: a

Detailed solution
Book value as of 31.03.2021: Rs. 1,300
Purchase of new fixed assets during the year: Rs. 700
Fixed assets sold during the year: Nil
Total fixed assets (depreciable assets): 1,300 + 700 = 2,000
Depreciation = 10% of 2,000 = 200
Book value of the fixed asset as on 31.03.2020 (after one year) = 2,000 – 200 =1800
 NPTEL Online Certification Courses
Indian Institute of Technology Kharagpur

QUESTION 4:
Which of the following is not part of the operating expense?
a) Interest
b) Salary
c) Amortization
d) Depreciation
Answer: a

Detailed solution
Interest is not part of operating expenses.

QUESTION 5:
Identify the correct statement

a) Both the balance sheet and profit & loss account pertain to a financial year.
b) The cash flow statement pertains to a period of time
c) The balance sheet of a company pertains to a period of time such as a financial
year
d) The profit & loss account pertains to a particular date
e) The cash flow statement pertains to a particular date

Answer: b
Detailed solution
Balance sheet refers to a particular date or time. Profit & Loss statement is for a period
of time and so is the cash flow statement.
 NPTEL Online Certification Courses
Indian Institute of Technology Kharagpur

QUESTION 6:
A company sells pens. Following information pertains to its operation in a particular year
(All data are in Rupees except when otherwise mentioned):
Per unit selling price of pen: ₹ 10
Number of pens sold during the year: 100 (number)
Closing Stock: ₹ 100
Depreciation: ₹ 100
Opening Stock: ₹ 50
Amortization: ₹100
Purchase of goods: ₹ 800
What is the gross profit margin during this period?
a) 15%
b) 35%
c) 30%
d) 25%
Correct Answer: d

Detailed Solution:

Gross profit = Sales minus cost of goods sold (CoGS). CoGS = Opening stock +
Purchase during the period – closing stock. Sales = number of pen sold multiplied by
the selling price of each pen = 100*10 = 1,000. Depreciation and amortization are not
part of the CoGS.

CoGS = 50+800-100 = 750. GP = 10*100 – 750 = 250

GP Margin = 250/1,000*100 = 25%

______________________________________________________________________
 NPTEL Online Certification Courses
Indian Institute of Technology Kharagpur

QUESTION 7:
Following data are related to a company for the financial year 2016-2017. (All figures
are in Rupees except when specifically mentioned otherwise)

Gross profit: 1,000

Interest payment: 50
Depreciation: 50
Salary: 250
Rent: 50
Other operating expenses: 200
Dividend: 100
What is the operating profit for the company during 2016-17?
a) 40%
b) 45%
c) 30%
d) 35%

Correct Answer: b
Detailed Solution:

Operating profit = Gross profit – operating expenses. Operating expenses include all
expenses including salary, rent, depreciation & amortization but excluding interest.
Dividend is not an expense. The dividend is paid to owners out of net profit.

Operating profit = 1,000 – (50+250+50+200) = 1,000 – 550 = 450

OP margin = 450/1000*100 = 45%

______________________________________________________________________
 NPTEL Online Certification Courses
Indian Institute of Technology Kharagpur

QUESTION 8:
Following data are related to a company for the financial year 2021-2022. (all figures
are in Rupees except when specifically mentioned otherwise)

Gross profit: 800

Interest payment: 50
Depreciation: 50
Other operating expenses: 400
Dividend: 100

Assume that the company doesn’t pay any income tax, what is the retained profit?
a) 300
b) 400
c) 100
d) 200
Correct Answer: d

Detailed Solution:

Retained profit = operating profit – interest – income tax – dividend. In this case, the
company does not pay any income tax.

Operating profit = Gross profit – operating expenses.

Retained profit = 800 (Gross profit) – [(400 + 50) (operating expense) – 50 (interest) –
100 (dividend)] = 200

______________________________________________________________________
 NPTEL Online Certification Courses
Indian Institute of Technology Kharagpur

QUESTION 9:
Following data are related to a company for the financial year 2021-2022. (all figures
are in Rupees except when specifically mentioned otherwise)

Gross profit: 600

Amortization: 10
Interest payment: 50
Depreciation: 40
Other operating expenses: 200
Dividend: 100
If the income tax is 30% what is the EBITDA?

a) 350
b) 400
c) 300
d) 200

Correct Answer: b

Detailed Solution:

Retained earnings is equal to net profit minus dividend. Net profit is equal to profit
before tax minus income tax. Profit before tax is equal to operating profit minus interest
payment. Operating profit = Gross profit – Operating expenses.

EBITDA = Gross profit – Operating expenses other than depreciation and amortization.
Income tax and dividend are not to be deducted = 600 – 200 = 400

_______________________________________________________________
 NPTEL Online Certification Courses
Indian Institute of Technology Kharagpur

QUESTION 10:
The following data are related to a company for the financial year 2021-2022. (All
figures are in Rupees except when specifically mentioned otherwise)

Gross profit: 950

Interest payment: 50
Depreciation: 50
Other operating expenses: 250
Dividend: 100
Reserves and surplus as of 31-3-2021: 900
The company pays income tax @30%
What is the reserves and surplus of the company as of 31-3-2020?
a) 1,220
b) 1,170
c) 1,500
d) 1,400
Correct Answer: a

Detailed Solution:

Reserves & Surplus is equal to the previous year balance plus the retained earnings.
Retained earnings is equal to net profit minus dividend. Net profit is equal to profit
before tax minus income tax. Profit before tax is equal to operating profit minus interest
payment. Operating profit = 950 – (50+50+250) = 600. Income tax = 600*.3 = 180. Net
profit = 600 – 180 = 420. Transferred to Reserves & Surplus = 420 – 100 = 320.
Previous reserves = 900. Present reserves = 900 + 320 = 1,220

************END*******