S1: The Trading Account is prepared to ascertain gross profit. S2: The Trading Account includes indirect expenses. Which statement(s) is/are correct? MCQ with Answer and Explanation
S1: The Trading Account is prepared to ascertain gross profit. S2: The Trading Account includes indirect expenses. Which statement(s) is/are correct?
A. Neither S1 nor S2
B. Both S1 and S2
C. S1 only
D. S2 only
Answer: Option C
Solution (By JKSSB Mock Tests)
The Trading Account is prepared to calculate Gross Profit by matching direct expenses with net sales. Indirect expenses (like office rent, salaries) are recorded in the Profit and Loss Account, not the Trading Account. S1 is correct, S2 is incorrect.
Goodwill of a firm is valued at 2 years purchase of average profits of last 4 years. Profits: 2019- ₹20,000; 2020- ₹30,000; 2021- ₹40,000; 2022- ₹50,000 (including speculative profit ₹10,000). Average profit for goodwill will be:
Explanation:
Speculative profit is excluded. Normal profit for last year = 40,000 - 10,000 = 30,000. Total profits: 25,000 + 30,000 + 35,000 + 30,000 = 1,20,000. Average = ₹30,000.
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