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Ltd

Chapter 4: Profit and Loss Account

Multiple Choice Questions:
1. Sri Shyam Limited earned a Profit After Tax of `421 million during 2011 after charging `108 million towards interest and `95 million towards depreciation and amortization. The tax provisions for the year amounted to `142 million. The EBITDA for the company during the year 2011 is: a. `529 million b. `624 million c. `766 million d. `482 million e. None of the above 2. ABC Limited paid `134.54 million towards employees cost during the year 2011 which includes `13.44 million towards salaries for the year 2010. At the year-end 2011 salaries outstanding amounted to `24.89 million. Salaries paid include a salary advance of `1 million given to two of its employees. The amount to be expensed in the Profit & Loss Account for the year 2011 towards salaries is: a. `144.99 million b. `146.99 million c. `171.87 million d. `122.09 million e. `134.54 million 3. The tax liability for XYZ Limited for the year 2010-11 amounted to `233.45 Crores. The company also needs to recognize deferred tax assets of `62.15 Crores and deferred tax liabilities of `48.65 Crores. The net impact on Profit and Loss Account for the year 201011 towards tax expenses amounts to: a. `233.45 Crores b. `219.95 Crores c. `122.65 Crores d. `246.96 Crores e. `344.25 Crores 4. The PAT of SST Limited for the year ended 31st March 2012 amounted to `580.42 million. The company has 10 million Preference Shares of the face value `10 each on which dividend @10% is payable. The equity share capital of the company consists of 30

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million equity shares of `10 each. The company has also issues 2 million ESOP to its employees which will get converted into 2 million equity shares in future. The Basic EPS of SST Limited is: a. `13.58 b. `17.83 c. `19.01 d. `13.82 e. `14.51 5. Based upon the information provided in 4 above the diluted EPS of SST Limited is: a. `13.58 b. `17.83 c. `19.01 d. `13.82 e. `14.51 6. Cure Fast Pharmaceutical Limited spent `43 million on research and `107 million towards development expenses during the year. The amount to be expensed during the year amounts to: a. `43 million b. `107 million c. `150 million d. Any of the above depending upon the accounting policy of the company. Revenue to be recognized during an accounting period is given by the following equation: a. Revenue Received during the year + Due in the beginning Due in the end b. Revenue Received during the year + Due in the beginning Due in the end + Received in advance at the end c. Revenue Received during the year + Due in the beginning Due in the end + Received in advance in the current year Received in current period but earned in the earlier period d. Revenue Received during the year - Due in the beginning + Due in the end Received in advance in the current year - Received in current period but earned in the earlier period 8. Expenses to be recognized during an accounting period is given by the following equation: a. Expenses paid during the year + Outstanding in the end Outstanding in the beginning Prepaid at the end Prepaid in the beginning 7.

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Financial Accounting for Managers

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd

b. Expenses paid during the year - Outstanding in the end + Outstanding in the beginning + Prepaid at the end Prepaid in the beginning c. Expenses paid during the year + Outstanding in the end Outstanding in the beginning Prepaid at the end + Prepaid in the beginning d. Expenses paid during the year - Outstanding in the end Outstanding in the beginning Prepaid at the end + Prepaid in the beginning e. Expenses paid during the year - Outstanding in the end Outstanding in the beginning Prepaid at the end Prepaid in the beginning 9. Which of the following statement is true: a. Interest payment is an appropriation of profit b. Transfer to reserves is an appropriation of profit c. Dividend payment is an appropriation of profit d. Provisions for warranties is an appropriation of profit e. Only b) and c) are appropriation of profit 10. The PAT of TTT Limited for the calendar year 2011 is `280 million. The company has 140 million equity shares outstanding at the end of the year. On 1st July 2011 the company issued bonus shares in the ratio of 3:1 (3 new share for one existing). The basic EPS for the year is: a. `2.00 b. `8.00 c. `2.60 d. `3.20 11. MOB Limited issued 100,000 ESOP to its employees at an exercise price of `200 per share. The market price of the share at the time of issue of ESOP is `230. Each ESOP can be converted into one equity share at the end of 3 years. a. No expense need to be recognized towards ESOP b. An amount of `30,00,000 will be debited to Profit & Loss A/c at the time of issue of ESOP c. An amount of `30,00,000 will be debited to Profit & Loss A/c at the time of exercise of ESOP d. An amount of `10,00,000 will be debited to Profit & Loss A/c every year over the vesting period of ESOP e. An amount of `10,00,000 will be credited to Profit & Loss A/c every year over the vesting period of ESOP 12. Which of the following will cause a difference between Basic EPS and Diluted EPS: a. Bonus Shares

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b. c. d. e.

Preference Shares Stock Split Convertible Debentures Issue of new equity shares

Name Them:
1. Errors and omission of earlier years accounted for in the current accounting period 2. Expenses or incomes that are non-recurring in nature 3. Retirement benefits for the employees that are in the nature of fixed contribution to designated funds 4. Higher taxes paid in the current year that will get reversed in future 5. Dividend paid between two balance sheet dates 6. Excess of operating revenue over cost of goods sold or services provided 7. Lower taxes paid in the current year that will get reversed in future

True or False
1. Deferred tax assets and liability are recognized due to permanent difference in the taxable income and reported profits 2. Dividends on Preference Shares is a charge on profit 3. Revenue may be recognized either on cash basis or accrual basis at the discretion of the management 4. For a manufacturing company interest earned is a part of Other Income 5. If the ESOPs are granted at an exercise price equal to the current market price the intrinsic value of option is zero. 6. Amortization is a non-cash expense 7. Advance payment of tax is debited to Profit & Loss Account 8. Stock split does not impact the Earnings Per Share

Answers to Multiple Choice Questions

1. c: EBITDA = PAT + Tax+ Interest +Depreciation & Amortization = `421 +`142 +`108 + `95 = `766 million 2. a: `134.54-`13.44+`24.89-`1.00 = `144.99 million 3. b: `233.45 `62.15 + `48.65 = `219.95 Crores. 4. c: (`580.42 -`10)/30 = `19.01. Preference dividend is deducted from PAT and is divided by number of equity shares outstanding.

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5. b: (`580.42 -`10)/(30+2) = `17.83. Preference dividend is deducted from PAT and is divided by number of equity shares outstanding plus dilutive equity shares. 6. a: only research expenses are taken to Profit & Loss A/c, development expenses are capitalized. 7. d 8. c 9. e: Interest and Provisions for Warranties are expenses and not appropriations of profit. 10. a:`280 million/140 million = `2. In case of bonus issue, year- end number of shares is taken in the denominator and not on proportionate basis. 11. d: the intrinsic value of ESOP ({230-200} x 100,000) will be spread over the vesting period of 3 years. 12. d: only convertible debentures will cause a difference between basic and diluted EPS. All others will be considered while calculating basic EPS.

Answers to Name them

1. 2. 3. 4. 5. 6. 7. Prior period items Extra-ordinary items Fixed contribution plans Deferred tax assets Interim Dividend Gross Profit Deferred tax liability

Answers to True or False

1. 2. 3. 4. 5. 6. 7. 8. False : Arise due to timing difference False : An appropriation of profit False: Accrual is mandatory True True: Intrinsic Value = Market Price Exercise Price True False: Provision for tax is debited to Profit & Loss A/c False: EPS reduces due to stock split as the number of shares o up.

Sanjay Dhamija

Financial Accounting for Managers