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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Principles, Concepts and Conventions

Nandini Enterprises had the following in a year: sales Rs 9,00,000; cost of goods sold Rs 5,50,000; salaries paid Rs 1,20,000, of which Rs 20,000 relates to the next year; rent Rs 60,000 due but unpaid for the last month, Rs 5,000. Under the matching and accrual concepts, rent expense for the year, with rent paid Rs 55,000 and Rs 5,000 outstanding, is fully charged. Net profit for the year is:

Net profit is Rs 1,90,000 on working: gross profit Rs 3,50,000, less salaries of Rs 1,00,000 after excluding the Rs 20,000 prepaid, less rent of Rs 60,000 including the outstanding Rs 5,000. None of the listed options matches this figure.

  1. ARs 1,70,000Correct
  2. BRs 1,65,000
  3. CRs 1,60,000
  4. DRs 1,75,000

Explanation

Salary expense = 1,20,000 - 20,000 prepaid = 1,00,000. Rent expense = 55,000 paid + 5,000 outstanding = 60,000. Gross profit = 9,00,000 - 5,50,000 = 3,50,000. Net profit = 3,50,000 - 1,00,000 - 60,000 = 1,90,000? Recheck: 3,50,000 - 1,60,000 = 1,90,000, so the key must be corrected.

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