ITPEC FE Morning October 2020 Question 79

Ordinary profit — operating profit plus the non-operating result gives the profit from a company's regular activities.

A Japanese income statement builds profit in stages:

1. Gross profit = sales − cost of sales
2. Operating profit = gross profit − selling, general and administrative expenses
3. Ordinary profit = operating profit + non-operating revenue − non-operating expense
4. Current net profit before taxes = ordinary profit + extraordinary profit − extraordinary loss
5. Current net profit = profit before taxes − corporate taxes

The expression in the question is stage 3. Non-operating items are recurring but outside the main business, such as interest and dividends received or interest paid.

Answer (d)

Why not others:

• •(a) Current net profit — the bottom line, after extraordinary items and taxes as well
• •(b) Current net profit before taxes — adds extraordinary profit and subtracts extraordinary loss on top of ordinary profit
• •(c) Extraordinary profit — not a profit stage at all but a line item: one-off gains such as the sale of fixed assets

Key rule: Each profit stage adds one layer: main business gives operating profit, recurring financial items give ordinary profit, one-off items give profit before taxes, taxes give net profit.

Corporate Activities · AI-written, may contain errors