Q-1 The accounting process involves in recording:

A) Quantifiable economic event

B) Non quantifiable economic event
C) All of them
D) None of them

Q-2 In accounting an Economic event is referred to as:

A) Cash
B) Bank statement
C) Transaction
D) Exchange of money

Q-3 Identify the correct sequence of accounting process

A) Communicating→Recording→Identifying
B) Recording→Communicating→Identifying
C) Identifying→communicating→recording
D) Identifying→recording→communicating

Q-4 Bookkeeping mainly concerns with which part of accounting process?

A) Analysing
B) Preparing financial statements
C) Recording financial information
D) Auditing the books of accounts

Q-5 Financial accounting provides financial information to all of the following external
users except:

A) Government agencies
B) investors
C) Creditors
D) Managers

Q-6 For which step of accounting process the accountants of business entity prepare
financial statements?

A) Identification of economic event

B) Communication of financial information
C) Recording financial information
D) Making decisions about business

Q-7 Keeping the log of financial information in books of original entries is called
A) Recording
B) summarizing
C) Grouping
D) Processing

Q-8 Auditing is what?

A) Reporting the financial information

B) Examination of financial statements
C) Preparation financial statements
D) maintaining the ledger records

Q-9 Which of the following is the external user of financial statements?

A) Manager of the business

B) CEO of the business
C) Creditor of the business
D) Controller of the business

Q-10 Which of the following is the internal user of financial statements?

A) Creditor of the business

B) Government agency
C) Shareholder of the business
D) Manager of the business

Q-11_________ is the first phase of accounting cycle

A) Identifying an economic event or transaction

B) Preparing journals
C) Posting entries to ledger accounts
D) Making decisions about business

12)

Q-12 Financial statements differ from management account because

A) They are mainly prepared for external users of financial information

B) They are more complex and hard to prepare
C) The are the summary of accounting data
D) The are prepared on basis of actual concept

Q-13 ________ is a separate legal entity that Total capital can be divided in many
shares

A) Partnership
B) Sole proprietorship
C) Company
D) Non-profit organization

Q-14 An asset posses which of the following?

A) Future economic benefits for the business

B) All kind of benefits for the business
C) Expenses for the business
D) Merits and Demerits for the business

Q-15 Liabilities are which of the following?

A) Resources
B) Obligations
C) Future benefits
D) Expenses

Q-16 ________ is the gross inflow of economic benefits

A) Assets
B) Liabilities
C) Income
D) Expenses

Q-17 The gross decrease in economic benefits for the business are what?

A) Expenses
B) Obligations
C) Creditors
D) Income or gain

Q-18 An asset must be _______ by the business to be shown as an asset in its

"balance sheet"

A) Possessed
B) Owned
C) Controlled
D) Used

Q-19 Liability are arisen from which of the following events?

A) Present event
B) Future event
C) Past event
D) Non of them

Q-20 Which of the following can be considered as the most important phase of
accounting cycle and it is the primarily objective of financial accounting?

A) Identifying transactions
B) Preparing "T Accounts"
C) Preparing financial statements
D) Preparing trial balances

Q-21 Which is the most important characteristic that all assets of a business have?

A) Long life of assets

B) Value of assets
C) Intangible nature of assets
D) Future economic benefits

Q-22 What is the basic accounting equation?

A) Capital+Liabilities=Assets
B) Assets+ liabilities =Capital
C) Capital+assets=liabilities
D) Liabilities+Capital

Q-23 Which of the following is a liability?

A) Cash
B) Equipment
C) Debtors
D) Creditors

Q-24 What is equity?

A) Cash from the business

B) liability of a business
C) Owner's claim on total assets
D) Owner's claim on total liabilities

Q-25 Identify the asset from the following

A) Cash and cash equivalent

B) Creditors
C) Notes payable
D) Bank loan

Q-26 _______ the withdrawal of cash and goods by the owner of the busienss for
his/her personal use

A) Depreciation
B) Drawings
C) Outflow of cash
D) Appreciation

Q-27 Net loss occurs when

A) Expenses are greater than Income

B) Expenses are less than Income
C) Expenses=Income
D) Liabilities are greater than income

Q-28 Double entry implies that

A) Recording entries in journal

B) Recoding entries in Ledger account
C) Recording two aspects of every transaction
D) Recording every transaction in books

Q-29 Identify the nominal account

A) Machinery account
B) Building account
C) Creditors account
D) Rent expenses account

Q-30 Which of the following accounts can be classified as a real account?

A) Rent expenses account

B) Rent income account
C) insurance expenses account
D) Cash account
 1 A 2 C 3 D 4 C 5 D 6 B 7 A 8 B 9 C 10 D

11 A 12 A 13 C 14 A 15 B 16 C 17 A 18 C 19 C 20 C

21 D 22 A 23 D 24 C 25 A 26 B 27 A 28 C 29 D 30 D

Q-1 Which of the following specialised journals records "goods returned by

customers"?

A) Purchase journal
B) Sales journal
C) Purchases return journal
D) Sales return journal

Q-2 Sales on credit is recorded in which of the following journal?

A) Purchase journal
B) Sales journal
C) Purchases return journal
D) Sales return journal

Q-3 Transactions that a BUSINESS doesn't record in any specialised journal

are recorded in which of the following journals or day books?

A) Cash payments journal

B) Cash receipts journal
C) Purchases return journal
D) General journal

Q-4 Another name of journal is

A) Specialized journal
B) Day book
C) Cash book
D) Record book

Q-5 Which of the following specialised journals will record "goods returned by
the BUSINESS "?
A) Purchase journal
B) Sales journal
C) Purchases return journal
D) Sales return journal

Q-6 Sales and purchase journal don't record

A) Credit sales
B) Credit purchases
C) Credit sales and purchases
D) Cash sales and purchases

Q- 7Cash received from debtor is recorded in which of the following

SPECIALIZED journals?

A) Purchase journal
B) Sales journal
C) Cash receipts
D) Cash payments journal

Q-8 Which of the following is a type of cash receipt journal + cash payment
journal?

A) Bank statement
B) Statement of cash flow
C) Cash book
D) Cash documents

9. Cash purchases is recorded in which of the following specialized journals?

A) Purchase journal
B) Sales journal
C) Purchases return journal
D) Cash payments journal

10. A brief explanation recorded below every entry in general journal is

commonly known as

A) Narration
B) Explanation
C) Summary
D) Other information

11. Credit purchase of plant and machinery is recorded in which of the

following journals?

A) General journal
B) Cash journal
C) Purchase journal
D) Purchase return journal
12. Debit note is the basis for recoding a transaction in which of the following
journals?

A) General journal
B) Cash journal
C) Purchase journal
D) Purchase return journal

13. SALE of old furniture" will be recorded in which of the following

specialised journals?

A) Purchase journal
B) Sales journal
C) General journal
D) Cash receipt journal

14. Credit note is the basis for recording a transaction in which of the
following SPECIALIZED journals?

A) Purchase journal
B) Sales return journal
C) General journal
D) Cash receipt journal

15. Specialized journals are more adequate for which TYPE OF BUSINESSES ?

A) Small businesses
B) Big businesses
C) Sole proprietorship
D) Partnership

16. Which of the following is known as an evidence that a transaction took

place?

A) Cash receipts journal

B) General journal
C) Source document
D) Cash book

17. BUSINESS paid rent amounting to $100" which of the following

specialized journals records this transaction?

A) Cash receipts journal

B) Cash payments journal
C) Sales journal
D) Purchase journal

Q-18 Credit memo or credit note No. is entered in which of the following
journal?
A) General journal
B) Cash journal
C) Purchase journal
D) Sales return day book

1 D 2 B 3 D 4 B 5 C 6 D 7 C 8 C 9 D 10 A
11 A 12 A 13 C 14 B 15 B 16 C 17 B 18 A.

1.The process of recording is done

A) Two times a year
B) once a year
C) Frequently during the accounting period
D) At the end of a accounting period

2.General journal is a book of _______ entries

A) First
B) Original
C) Secondary
D) Generic

3. The process of recording transactions in different journals is called

A) Posting
B) Entry making
C) Adjusting
D) Journalizing

4. Every business transaction affects at least ________ accounts

A) One
B) Two
C) Three
D) Infinite

5. Discount allowed is a kind of deduction from

A) Account payable
B) Account receivable
C) Cash account
D) Discount account

6. The other name of journal is

A) Ledger
B) T account
C) Day book
D) Cash book

7. A journal entry in which two or more account is debited or credited is

referred as

A) Journal entry
B) Multi entry
C) Additional entry
D) Compound entry

8. The term 2/10-n/30 implies that ______ % discount will be given if the
payment is made within days or full amount is receivable within 30 days
A) 2,10
B) 10,2
C) 10,30
D) 3,15

9. Goods returned by customer should be debited to which of the following

accounts?

A) Sales income account

B) Sales account
C) Return inward account
D) Expenses account

10. Discount allowed is

A) Expense of business
B) Income of business
C) Loss of business
D) Abnormal loss of business

11. _________ is the evidence that a transaction took place

A) Source documents
B) Ledger
C) Bonds
D) Journals

12. Which of the following will be debited if a business purchases goods on

credit?

A) Cash
B) Debtor
C) Creditor
D) Purchases

13. Which of the following accounts will be debited if the business's owner
withdraws cash from business for his personal use?

A) Drawings
B) Cash
C) Business
D) Stock

14. Journals are also referred as

A) Book of entries
B) Book of original entries
C) T account
D) Books of economic event
15.The standard format of journal does not include which of the following?

A) Assets column
B) Date column
C) Description column
D) Amount column

16. In which of the following orders data is entered in journal?

A) Alphabetical order
B) Numeric order
C) Bullets order
D) Chronological order

17. Which of the following accounts will be credited if a company purchases

building for cash?

A) Capital account
B) Fixed assets account
C) Building account
D) Cash account

18. Discount for quick repayment of debt is normally referred as

A) Trade discount
B) Prompt payment discount
C) Cash discount
D) Bulk discount

19. The first step in accounting process is

A) Recording the transaction

B) Identifying the transaction
C) Posting the transaction
D) Preparing the source documents

20. A chart of accounts generally start with which of the following types of
accounts?

A) Assets accounts
B) liability accounts
C) Cash accounts
D) Revenue account

1 C 2 B 3 D 4 B 5 B 6 C 7 D 8 A 9 C 10 A 11 A 12 D 13
A 14 B 15 A 16 D 17 D 18 C 19 B 20 A.
1)

The Basic accounting equation is

A) Asset=Expense +Income

B) Assets=Cash+Capital

C) Assets=Capital+Liabilities

D) Assets=Expenses+Capital
2)

Find out the value of assets if: Liabilities=$5000 and Capital=$1000

A) $4000

B) $6000

C) $7000

D) $3000

3)

Calculate the amount of cash if: Total assets=$10,000 Total liabilities=$10,000

Total Capital=$5000

A) $6000

B) $10,000
C) $5000

D) $1000

4)

Capital increases if ______ increases

A) Expenses

B) Drawings

C) Interest on capital

D) Revenue

5)

Capital of a business decreases if there is an increase in

A) Drawings
B) Income

C) Gains

D) Fresh capital

6)

If the total liabilities of a business decrease by $5000 what will be the

effect on total asset?

(assuming the amount of capital remain same)

A) Remain constant

B) Decrease by $5000

C) Increase by $5000

D) Increase by $10,000

7)
If the business's owner withdraws cash for his/her personal use what will be the
effect on capital?

A) Increase in capital

B) Remain the same

C) Decrease in capital

D) No effect on capital

8)

Net income equal to Revenues minus

A) Gains

B) Depreciation

C) Expenses

D) Capital expenditures
9)

Collection of account receivable will

A) Increase assets and decrease assets

B) Increase assets and decrease liabilities

C) Increase assets and increase capital

D) Increase assets and increase cash

10)

Payment of expenses will ______ the assets

A) Increase

B) Reduce

C) apportion
D) Overstate

11)

Which of the following is the practical implementation of the

accounting equation?

A) Cash flow statement

B) Income statement

C) Statement of changes in equity

D) Statement of financial position

12)

Which of the following accounting equation is correct?

A) Cash+Other assets=Capital-Liabilities

B) Capital+ Liabilities=Assets+Income

C) Assets-Liabilities=Capital
D) Assets+Capital=Liabilities

13)

Fresh capital introduction will increase

A) Assets and liabilities

B) Assets and equity

C) Liabilities and equity and bank balance

D) Capital and liabilities

14)

Cash received for services rendered will

A) Increase cash and liability

B) Increase equity and liability

C) Increase fixed assets and cash

D) Increase cash and equity

15)

Which of following best describes the increase in equity expands_______

A) Business operations

B) cash outflows

C) Inflows of cash

D) Appropriation expenses

16)

If Cash=$1000 inventories=$4000 Debtors=$5000 fixed assets=?

Capital+Liabilities=$15000 What is the Amount of total assets?

A) $5000

B) $10,000

C) $15,000

D) $20,000

17)

Depreciation decreases

A) Liabilities

B) Cash

C) Bank

D) Capital

18)
An increase in provision for bad debt will

A) Decrease net income

B) Decrease liabilities

C) Increase net income

D) Increase liabilities

19)

Current assets - Current liabilities=?

A) Capital

B) Absorbed capital

C) Net assets

D) Net working capital

20)

Assets-Liabilities=?

A) Cash

B) Equity

C) Net income

D) Net expenses

Answer:

1 c 2 b 3 c 4 d 5 a 6 b 7 c 8 c 9 a 10 b 11 d 12 c 13 b 14 d 15 a

16 a 17 d 18 a 19 d 20 b.
1)

Transferring entries from journal to ledger account is commonly known

as

A) Recording

B) Transferring

C) Posting

D) Entry making

2)
An account records the ___________ in the balance of an item

A) Increase

B) Decrease

C) Increase or decrease

D) Appreciation

3)

If credit side of a bank account is greater than the debit side, it indicates
which of the following?

A) Bank overdraft

B) Cash at bank

C) Bank balance

D) Current Asset
4)

If debit side of a bank account is greater than credit side it indicates

which of the following?

A) Cash at bank

B) Bank understatement

C) Bank overdraft

D) Balance overstatement

5)

_________ will be credited if goods are given as charity

A) Cash

B) Charity

C) Purchases
D) Sales

6)

Which of the following is known as the base for preparing trial balance?

A) Journal

B) Cash account

C) Ledger account

D) Balance sheet

7)

If debit balance is greater than creadit balance then the account blance
will be:

A) Credit balance
B) Debit and credit balance

C) Cash balance

D) Debit balance

8)

The normal balance of capital account is

A) Credit balance

B) Debit balance

C) Cash balance

D) Neither debit nor credit balance

9)

The normal balance of asset account is

A) Credit balance

B) Debit balance

C) Cash balance

D) Neither debit nor credit balance

10)

The normal balance of liability account is

A) Debit balance

B) Credit balance

C) Cash balance

11)

Which of the following statements is incorrect regarding capital

account?
A) Debit increases the capital account balance

B) Credit increases the capital account balance

C) Fresh capital increases the capital account balance

D) Net income increases the capital account balance

12)

Which of the following is the normal balance of a rent expense

account?

A) Credit balance

B) Cash balance

C) Overdraft

D) Debit balance

13)
Revenue and expense accounts are referred as

A) Nominal accounts

B) Real account

C) Cash accounts

D) Banks account

14)

The real accounts are accounts of Assets, liabilities and ________

A) Expenses

B) Revenues

C) Capital

D) Drawing
15)

Building account is classified as _________ account

A) Nominal

B) Real

C) Cash

D) Capital

16)

Office equipments account is classifed as _________ account

A) Nominal

B) Real

C) Cash
D) Capital

17)

___________ helps business to classify transactions according to their

nature

A) General journal

B) Real accounts

C) Ledger accounts

D) Cash accounts

18)

Which of the following is a real account?

A) Office equipment

B) Rent expenses
C) Rent income

D) Insurance expense

19)

Which of the following accounts are closed at the end of an accounting

period?

A) Nominal accounts

B) Balance sheet accounts

C) Real accounts

D) None of them

20)

Which of the following is the closing balance of a ledger account?

 A) Blance c/d

B) Balance b/d

C) Balance e/d

D) Balance f/c

Answers:

1 c 2c 3 a 4 a 5 c 6 c 7 d 8 a 9 b 10 b 11 a 12 d 13 a 14 c 15 b 16 b 17 c 18 a 19 a
20

Trial balance Mcqs

1)

Trial balance is prepared to check accuracy of

A) Ledger accounts balances

B) Balance sheet balances

C) Income statement balances

D) Cash flow statement balances

2)

If a transaction is completely omitted from the books of accounts, will it affect the
agreement of a trial balance?

A) Yes

B) No

C) Transactions can't be omitted

3)

________ is the common base for preparing a trial balance

A) Ledger accounts

B) General Journal

C) Specialized journals
D) Balance sheet

4)

Which of the following is true about a trial balance?

A) It lists down the balances of accounts

B) It lists down the balances of a balance sheet

C) It is a kind of financial statement

D) It is not a part of accounting cycle

5)

Debit balance = Credit balance in a trial balance indicates that

A) No error in recording transactions

B) No error in posting entries to ledger accounts

C) Account balances are correct

D) Mathematically Capital+Liabilities=Assets

6)

Trial balance is commonly prepared

A) Frequently during the year

B) At the end of an accounting period

C) At the end of a month

D) At the end of a year

7)

Which of the following will affect the agreement of a trial balance?

A) Complete omission of a transaction

B) Partial omission of a transaction

C) Error of principle

D) Compensating errors

8)

If debit balances = credit balances, trial balance only shows or check the
____________

and it does not indicate that no errors were made during recording and posting

A) Arithmetic accuracy

B) Errors of commission

C) Omissions of economic events

D) Understatements of balances

9)

Which of the following account with normal balance is shown at the debit side of a
trial balance?
 A) Rent income account

B) Creditors account

C) Unearned income account

D) Cash account

10)

Which of the following account with normal balance is shown at the credit side of a
trial balance?

A) Cash account

B) Bank account

C) Equipment account

D) Accrued expenses account

Answers :
1 a 2 b 3 a 4 a 5 d 6 b 7 b 8 a 9 d 10 d.

Book of original entries - Cash book MCQs

1)

The closing balance of petty cash book is considered as

A) Liability

B) Asset

C) Expenses

D) Income

2)
Payment of rent expenses is recorded on which side of cash book?

A) Receipts

B) Payments

C) Income

D) Expense

3)

An entry which is made on both sides of a cash book is called

A) Cash entry

B) Contra entry

C) Payment entry

D) Compound entry
4)

A cash book with cash, bank and discount column is commonly referred as

A) Cash book

B) Two columns cash book

C) Three columns cash book

D) Petty cash book

5)

Cash book records

A) Cash payments

B) Cash receipts

C) Cash payments and cash receipts

D) Neither cash payments nor cash receipts

6)

Cash discount is allowed on _______ repayment of debt

A) Lump sum

B) Prompt

C) Actual

D) None of them

7)

Cash book is prepared by

A) Bank

B) Accountant of business

C) Manager of a company
D) Bank's cashier

8)

The most common imprest system is the ________ system

A) petty cash

B) Cash book

C) Cash receipt

D) Discount

9)

Discount received is recorded on which of the following side of a cash book?

A) Receipts

B) Payments
C) Incomes

D) Expenditures

10)

Drawings by owner of business are generally recorded on which of the following side of a
cash book?

A) Receipts

B) Payments

C) Incomes

D) Expenditures

11)

Introduction capital by owner of business is recorded on which side of a cash book?

A) Receipts
B) Payments

C) Incomes

D) Expenditures

12)

Cash book with cash and discount column is mostly referred as

A) Simple cash book

B) Two column cash book

C) Three column cash book

D) Petty cash book

13)

A cash book that is used to record the small payments of cash is generally referred as
A) Simple cash book

B) Two column cash book

C) Three column cash book

D) Petty cash book

14)

A simple or one column cash book usually has which of the following main columns?

A) Bank

B) Payments

C) Discount

D) Cash

15)
Purchase of office equipment for cash will be recorded on which of the following sides of a
cash book?

A) Receipts

B) Payments

C) Incomes

D) Expenditures

16)

Postdated checks are considered as

A) Cash

B) Bank balance

C) Accounts receivable

D) Cash reserve
17)

Postage stamps on hand are considered as

A) Bank

B) Prepaid expenses

C) Accounts receivable

D) Creditor

18)

Petty cash fund is supposed to be replenished

A) Every day

B) Every half year

C) Every year
D) At the end of every accounting period

19)

Which of the following is generally not the party to a check?

A) Payee

B) Payer

C) Bank

D) Seller

20)

A credit balance in cash book indicates

A) Bank balance

B) Cash at bank
 C) Bank overdraft

D) Bank underdraft

Answers:

1 B 2 B 3 B 4 C 5 C 6 B 7 B 8 A 9 B 10 B 11 A 12 B 13 D 14 D 15

B 16 C 17 B 18 D 19 D 20 C.

Bank reconciliation statement MCQs

1)

Favourable balance of cash book implies that

A) Credit balance of cash book

B) Debit balance of cash book

C) Bank overdraft

D) Adjusted balance of cash book

2)

A cash deposit made by business appears on the bank statement as

_______ balance

A) Debit

B) Credit

C) Expenses

D) Liability
3)

Bank reconciliation statement is the comparison of a bank statement (sent

by bank) with the _________ (prepared by business)

A) Cash receipt journal

B) Cash payment journal

C) Cash book

D) Financial statements

4)

A check returned by bank marked "NSF" means that

A) Bank can't verify your identity

B) There are not sufficient funds in your account

C) Check has been forged

D) Check can't be cashed being illegal

5)

In the Bank reconciliation statement "Deposit in transit" is usually

A) Subtracted from bank balance

B) Added to bank balance

C) Added to Cash book balance

D) Subtracted from cash book balance

6)

Bank reconciliation statement is prepared by

A) Accountant of the business

B) Manager of the business

C) Controller of the bank

D) Accountant of the bank

7)

Which of the following error results in unadjusted cash book balance?

A) Outstanding checks

B) Unpresented checks

C) Deposit in transit

D) Omission of Bank charges

8)

Bank charges amounting to $5000 was not entered in the cash book. Identify
the correct adjustment in cash book

A) Bank charges will be debited in cash book

B) Bank charges will be added to cash book balance

C) Bank charges will be credited in cash book

D) Bank charges need no adjustment in cash book

9)

Unpresented checks also referred as

A) Uncollected checks

B) Uncredited checks

C) Outstanding checks

D) Bounced checks

10)
________ are checks that are issued by the business but not yet presented
to bank

A) Uncollected checks

B) Uncredited checks

C) Outstanding checks

D) Bounced checks

11)

_________ Checks that are presented to bank but not yet credited by the
bank

A) Unpresented checks

B) Uncredited checks

C) Outstanding checks

D) Bounced checks
12)

Uncollected checks also referred as

A) Unpresented checks

B) Uncredited checks

C) Outstanding checks

D) Bounced checks

13)

Favourable balance of bank statement implies that

A) Credit balance

B) Debit balance

C) Bank overdraft

D) Adjusted balance
14)

Standing orders are ________

A) Credited in the cash book

B) Debited in the cash book

C) Entered in the bank statement

D) Entered in the petty cash balance

15)

A company was entered in hire purchase agreement and had to pay $1000
per month.Three payments were made via bank account but no entry was
found in cash book. Identify the correct adjustment in cash book

A) $1000 will be added to cash book balance

B) $2000 will be deducted from cash book balance

C) $3000 will be added to cash book balance

D) $3000 will be subtracted from cash book balance

16)

$5000 deposited in bank account was entered twice in the cash book.
Identify the correct adjustment in cash book

A) $5000 will be credited

B) $5000 will be debited

C) $10,000 will be credited

D) $10,000 will be debited

17)

Bank sent debit advice of $500 to company being interest on overdraft. It

wasn't entered in cash book. Identify the correct adjustment in cash book

A) $500 will be debited

B) $500 will be credited

C) Non-adjustable

D) $1000 will be subtracted

18)

In bank reconciliation statement the amount of outstanding checks is added

to ________ balance of cash book

A) Adjusted

B) Unadjusted

C) Understated

D) Overstated

19)
Balance as per cash book(adjusted)=$1000, Unpresented checks=$2000,
Uncredited checks=$500, Deposit in transit=$500. Compute the balance as
per bank statement

A) $2000

B) Zero

C) $3000

D) $2500

20)

A discount of $2000 was given to a supplier on his prompt repayment of

debt but the cashier entered the gross amount in cash book. What should
be the adjustment in cash to work out the correct balance of cash book?

A) $2000 will be debited in cash book

B) $2000 will be credited in cash book

C) $4000 will be debited in cash book

D) $4000 will be credited in the cash book

 ANSWERS.

1B 2B 3C 4B 5B 6A 7A 8C 9C 10 C

11 B 12 B 13 A 14 A 15 D 16 A 17 B 18 A 19 A 20 B

MCQ FOR FINANCIAL ACCOUNTING

1. Which English alphabet is similar to the shape of an account?

(a) I
(b) T

(c) H

(d) None

2. Gross Profit is the difference between

(a) Net Sales and Cost of goods sold

(b) PAT and Dividends

(c) Net Sales and Cost of production

(d) Net Sales and Direct costs of productions

[Hints: (a) Trading account is prepared to find out the Gross Profit due to the
operations of a

business. It is the difference between the Net Sales (i.e., Sales less sales return) and
the Cost of

goods sold. Cost of goods sold= Opening Stock+ Net Purchases – Closing Stock +
Direct expenses.

Hence option (a) is the right option. Option (c) is incorrect because cost of production
does not

consider the opening stock and closing stock adjustment. Similarly option (d) ignores
stock

balance adjustment.]

3. Recording of Capital contributed by the owner as liability ensures the adherence

of principle of

(a) Double Entry

(b) Going Concern

(c) Separate Entry

(d) Materiality

[Hints: (c) Recording of capital contributed by the owner as liability ensures the
adherence of

principle of the ―Separate entity or Business entity concept‖. The concept requires
the business to

be treated as distinct from the persons who own it; then it becomes possible to
record transactions

of the business with the proprietor also. Without such a distinction, the affairs of the
firm will be

mixed up with the private affairs of the proprietor and the true picture of the firm will
not be
available.

Under the Going Concern Concept, it is assumed that the business will exit for a long
time and

transactions are recorded from this point of view. It is this that necessitates
distinction between

expenditure that will render benefit over a long period and that whose benefit will be
exhausted

quickly.

Under Double-entry or Dual aspect concept, each transaction has two aspects, if a
business has

acquired an asset, it must have resulted in one of the following:

 Some other asset has been given up.

 The obligation to pay for it has arisen.

 There has been a profit, leading to an increase in the amount that the business
owes to the

proprietor.

 The proprietor has contributed money for the acquisition of the asset.

 The concept of Materiality requires all the material items to be recorded and
disclosed

separately.]
4. The basic concepts related to Balance Sheet are

(a) Cost Concept

(b) Business Entity Concept

(c) Accounting Period Concept

(d) Both (a) and (b) above

[Hints: (d) Cost concept requires the transactions to be recorded in the books of
accounts at the

amounts actually involved. Suppose a firm purchases a piece of land for ` 1,50,000
but considers its

worth ` 3,00,000. The purchase will be recorded at ` 1,50,000. Business entity

concept requires the

business to be treated as distinct from the persons who own it; then it becomes
possible to record

transactions of the business with the proprietor also. Without such a distinction, the
affairs of the firm

will be mixed up with the private affairs of the proprietor and the true picture of the
firm will not be

available. Accounting period concept is applicable to the Profit & Loss Account which
is prepared
for the year ending and cannot be applied to Balance Sheet as it is a statement
prepared as on a

particular date. Therefore, cost and entity concepts are related to Balance Sheet.]

5. The basic concepts related to P & L Account are

(a) Realization Concept

(b) Matching Concept

(c) Cost Concept

(d) Both (a) and (b) above

[Hints: (d) Under Realization concept, accounting is a historical record of

transactions and unless

money has been realized – either cash has been received or a legal obligation to pay
has been

assumed by the customer- no sale can be said to have taken place and no profit can
be said to

have arisen. Matching concept requires that all the revenues must be matched with
the expenses.

Therefore, the above concepts are related to the Profit & Loss Account.]
6. Which of the following is (are) characteristic(s) of Bad Debt?

(a) It is a definite loss to the business

(b) It must be shown in Profit & loss account

(c) No provision is necessary for it

(d) All of the given options

7. Only the significant events which affect the business must be recorded as per the
principle of

(a) Separate Entity

(b) Accrual

(c) Materiality

(d) Going Concern

[Hints: (c) The concept of materiality requires that only the significant events that
affect the
business must be recorded.]

8. P & L Account is prepared for a period of one year by following

(a) Consistency Concept

(b) Conservatism Concept

(c) Accounting Period Concept

(d) Cost Concept

[Hints: (c) P&L A/C is prepared for a period of one year by following the concept of
Accounting

Period.]

9. If the Going Concern concept is no longer valid, which of the following is true?

(a) All prepaid assets would be completely written-off immediately

(b) Total contributed Capital and Retained Earnings would remain unchanged
(c) Intangible Assets would continue to be carried at net Amortized historical cost

(d) Land held as an Investment would be valued at its realizable value

[Hints: (d) Under the Going Concern Concept, it is assumed that the business will
exit for a long

time and transactions are recorded from this point of view. It is this that necessitates
distinction

between expenditure that will render benefit over a long period and that whose
benefit will be

10. Under which of the following concepts are shareholders treated as creditors for
the amount they

paid on the shares they subscribed to?

(a) Cost Concept

(b) Duality Concept

(c) Business Entity Concept

(d) Since the shareholders own the business, they are not treated as creditors

[Hints: (c) Under business entity concept, the shareholders are treated as creditors
of the company.

It is also known as separate entity concept.]

Answers:

1 b 2 a 3 c 4 d 5 d 6 d 7 c 8 c 9 d 10 c

11. The underlying accounting principle(s) necessitating amortization of intangible

asset(s) is/are

(a) Cost Concept

(b) Realization Concept

(c) Matching Concept

(d) Both (a) and (c) above

[Hints: (c) The matching concept requires that all the revenues must be matched with
the

expenses incurred during the accounting period. The expenses relating to intangible
assets are

amortized over the periods in which the benefit from intangible assets accrue and
therefore the

underlying principle is the matching concept.]

12. Which of the following practices is not in consonance with the convention of
conservatism?

(a) Creating Provision for Bad debts

(b) Creating Provision for Discount on Creditors

(c) Creating Provision for Discount on Debtors

(d) Creating Provision for tax

[Hints: (b) The principle of conservatism seeks provisions for all the probable losses.
Creating

provision for discount on creditors tantamount to recognition of probable gain in the

form of
discount and hence it is not in consonance with conservatism.]

13. The accounting measurement that is not consistent with the Going Concern
concept is

(a) Historical Cost

(b) Realization

(c) The Transaction Approach

(d) Liquidation Value

[Hints: (d) Liquidation value is the value of the business when the business is wound
up and is under

liquidation whereas the going concern concept assumes that the business will
continue over a

long time and therefore the accounting measurement ―Liquidation Value‖ is

inconsistent with

going concern concept.]

14. Recording of Fixed Assets at cost ensures adherence of

(a) Conservatism Concept

(b) Going Concern Concept

(c) Cost Concept

(d) Both (a) and (b) above

[Hints: (c) Cost concept requires the transactions to be recorded in the books of
accounts at the

amounts actually involved. Suppose a firm purchases a piece of land for ` 1,50,000
but considers its

worth ` 3,00,000. The purchase will be recorded at ` 1,50,000. Therefore, recording

of fixed assets at

cost ensures the adherence of cost concept.]

15. Omission of paise and showing the round figures in financial statements is based
on

(a) Conservatism Concept

(b) Consistency Concept

(c) Materiality Concept

(d) Realization Concept

[Hints: (c) Omission of paise and showing the round figure in financial statements is
based on the

concept of materiality.]

16. X Ltd., purchased goods for ` 5 lakh and sold 9/10th of the value of goods for ` 6
lakh. Net expenses

during the year were ` 25, 000. The company reported its net profit as ` 75,000.
Which of the

following concept is violated by the company?

(a) Realization

(b) Conservation

(c) Matching

(d) Accrual

[Hints: (c) Matching concept requires the expenses must relate to the goods and
services sold

during that period to arrive at the net profits of the enterprise. Hence matching
concept requires

the recognition of revenue and expenses on a comparable basis. In the above

question that

amount of ` 75,000 as net profit was arrived at by deducting ` 5,00,000 ( being cost
of purchases )

+ ` 25,000 expenses from the sale proceeds of ` 6,00,000. This does not follow
matching concept

since the cost of goods sold is to be deducted and not the cost of purchases, since
some

purchases have been left in stock. So the net profit using matching concept is `
6,00,000 less cost

of goods ` 4,50,000 (i.e. ` 5,00,000 x 9/10) less expenses of ` 25,000 = ` 1,25,000.]

17. Accounting does not record non- financial transactions because of

(a) Entity Concept

(b) Accrual Concept

(c) Cost Concept

(d) Money Measurement Concept

[Hints: (d) The money measurement concept: Accounting records only those
transactions which

are expressed in monetary value, though quantitative records are kept. Hence,
accounting does

not record non – financial transactions.]

18. Mr. Rohit, owner of Rohit Furniture Ltd., owns a personal residence that cost `
6,00,000, but has a market value of ` 9,00,000. During preparation of the financial
statement for the business, the entire value of property was ignored and was not
shown in the financial statements. The principle that

was followed was

(a) The concept of the Business Entity

(b) The concept of the Cost Principle

(c) The concept of Going Concern Principle

(d) The concept of Duality Principle

[Hints: (a) Business entity concept requires the business to be treated as a separate
entity.]

19. Provision for bad debt is made as per the

(a) Entity Concept

(b) Conservatism Concept

(c) Cost Concept

(d) Going Concern Concept

[Hints: (b) Provision for bad debts is made as per the concept of conservatism.]

20. Fixed Assets and Current Assets are categorized as per concept of

(a) Separate Entity

(b) Going Concern

(c) Consistency

(d) Time

Answers:

11 c 12 b 13 d 14 c 15 c 16 c 17 d 18 a 19 b 20
101. Total depreciation of an asset cannot exceed its:

(a) Scrap value

(b) Residual value
(c) Market value
(d) Depreciable value

102. Amount paid to Gagan posted to the credit side of his account would affect

(a) Gagan's account

(b) Cash account
(c) Cash account and Gagan's account
(d) None of these

103. Which of the following statements is/are true ?

(a) A sale of an asset is recorded in the Sales Book

(b) Total of Return Outward Book is debited to Return Outward Account
(c) The balance of Petty Cash Book is a liability
(d) Cash Book is a subsidiary book as well as a ledger

[Hints: (d) The sale of an asset is recorded in the Asset Account and not in the Sales
book (which
pertains to sale of goods). Statement (a) is false.
Total of Return Outwards book (being purchase return) has a credit balance. The
total is transferred
at the end of the period to the credit of the Purchase Account and not debited to
Return
Outwards Account. Statement (b) is false.
The balance of Petty Cash book is not a liability, it is an asset as it is the balance of
cash left with
the petty cashier. Statement (c) is incorrect.
Cash Book is both a subsidiary book or book of original entry where all cash
transactions are
directly recorded and a ledger, it plays the role as a Cash Account (a ledger). Hence
statement
(d) is true.

104. Which of the following is true regarding closing entries?

(a) They must be followed by reversing entries

(b) They transfer the balances in all of the Nominal Accounts to the Trading and
Profit and Loss
Account
(c) They must be made after the reversing entries but before the adjusting entries
(d) They must be made after the adjusting entries but before the reversing entries
[Hints: (d) Closing entries are required to transfer the nominal accounts to the Profit
& Loss Account
and the Trading account. Real accounts and personal account are not closed to
Profit & Loss
Account or Trading Account. Their balance is carried in the Balance Sheet and
appears as
opening Balance in the next accounting period.]

105. Closing stock is generally valued at

(a) Cost Price

(b) Market Price
(c) Cost price or Market price whichever is higher
(d) Cost price or Market price whichever is lower
[Hints: (d) Para 5, of AS-2 states that inventories should be valued at the lower of
cost and net
realizable value.]

106. Which of the following assets is/are to be valued at the lower of cost and net
realizable value?

(a) Goodwill
(b) Inventories
(c) Investments
(d) Both (b) and (c) above.

[Hints: (b) Inventories (b) are to be valued at the lower of cost and net realizable
value. All the
other assets stated in other alternatives are valued as per the cost concept. Goodwill
(a) is a fixed
intangible asset and is shown at the cost of its acquisition. Investments (c) are
valued at cost or
market value whichever is less. The combination of (b) and (c) is incorrect because a
correct
answer with incorrect answer is an incorrect answer. Thus, the correct answer is (b).

107. A few errors committed in Ahhiwalia's books of account are given below. State
which errors would affect the Trial Balance.

(a) Sales of `950 to Ram completely omitted from books of account

(b) Purchases of `720 from Shyam entered in the purchases journal as `700
(c) Purchases Journal is overcast by `1,000
(d) Sales returns journal is undercast by `200
(e) Amount paid to Agarwal wrongly posted to the debit to Mittal's account
(f) Bank overdraft shown under debit column in the Trial Balance
(g) Sales of `500 to Sadiq entered in sales journal as sales to Mushtaq
(h) Wages paid for installation of machinery debited to wages account
(a) a, c and g
(b) c, d and f
(c) c, d, e and h
(d) c, d, f and h

108. Which of the following methods is not a practical way of realizing revenue?

(a) Delivery method

(b) Percentage-of-completion method
(c) Production method
(d) Moving average method
[Hints: (d) The following methods are the practical ways of realizing revenue applying
the
conservatism concept and realization concept and the (a) Delivery method in case of
sale of
goods, (b) Percentage-of-completion method in case of rendering of services and (c)
Production
method in case of agriculture produce. Thus, these are the various ways of
recognizing revenue
and the methods adopted to recognize revenue. Moving average method (d) is the
method of
valuing inventory and it is not the method adopted to recognize revenue. Thus, (d) is
the correct
answer.]

109. The amount payable to a person as consideration for the use of rights vested in
him is

(a) Dividend
(b) Royalty
(c) Purchase consideration
(d) Installment

[Hints: (b) The amount paid to the landlord for use of rights vested in him is the
royalty. Dividend is
the amount paid for the investment made in an enterprise and is not the correct
answer. Purchase
consideration is the price paid for receiving a title of a property moveable and
immoveable and is
not the correct answer. Installment is the payment of amount in stages and is not the
amount paid
for using the rights vested in the landlord and is not the correct answer.]

110. Buildings account is debited with an amount towards repairs. This is an

example of

(a) Error of commission

(b) Error of principle
(c) Error of omission
(d) Compensating error
[Hints: (b) Buildings account debited with an amount towards repairs is an error of
principle. Error of principle is a wrong classification of expenditure or receipt.]
111. The concept of conservatism will have the effect of

(a) Overstatement of Assets

(b) Understatement of Assets
(c) Overstatement of Liabilities
(d) Understatement of Liabilities

[Hints: (b) The concept of conservatism will have the effect of understatement of
assets since the
financial statements are usually drawn up on rather a conservative basis. Window-
dressing i.e.,
showing a position better than what it is, is not permitted.

112. During the year 2011-2012, the value of closing inventory was overstated by `
25,000. Which of the following is true?

(a) The cost of goods sold was overstated during 2011-2012 and income will be
understated during
2012-2013
(b) The income was overstated during 2011-12 and closing inventory will be
overstated during
2012-2013
(c) The retained earnings was overstated during 2011-2012 and retained earnings
will be
understated during 2012-2013
(d) The cost of goods sold was understated during 2011-2012 but retained earnings
will not be
affected during 2012-2013

[Hints: (c) Closing Stock‘s overstatement increases the profit of the current period
and results in the
increase of retained earnings relating to the current accounting period. It decreases
the profit and
thereby retained earnings of the next accounting period since the closing stock of the
current
accounting period becomes the opening stock of the next accounting period, the
overstatement
of which has the effect of decreasing the profits and retained earnings.]

113. Which of the following errors is an error of omission?

(a) Sale of ` 100 was recorded in the Purchases Journal

(b) Wages paid to Mohan have been debited to his account
(c) The total of the sales journal has not been posted to the Sales Account
(d) Repairs to buildings have been debited to buildings account

[Hints: (c) Error of omission occurs when a transaction is entirely omitted from record
in the original
books partially omitted while posting. Therefore, omission of posting of the sales
journal to the Sales
Account is an error of omission.]

114. Which of the following statements is /are true?

(a) Entering wrong amount in the subsidiary book affects the agreement of the Trial
Balance
(b) Undercasting or overcastting of a subsidiary book is an example or error of
commission
(c) Errors of principle do not affect the agreement of Trial Balance
(d) Both (b) and (c) above

[Hints: (d) Entering wrong amount in the subsidiary book does not affect the
agreement of the Trial
Balance as the same amount is posted in both the accounts affected. Undercasting
or
overcastting of a subsidiary book is an error of commission. Errors of principle do not
affect the
agreement of the Trial Balance. Hence both (b) and (c ) options are true.]

115. Which of the following is true?

(a) Error of casting affects personal accounts

(b) Omission of a transaction from a subsidiary record affects only one account
(c) Error of carry forward affects two accounts
(d) Error of principle involves an incorrect allocation of expenditure or receipt
between capital
and revenue

[Hints: (d) Errors of casting can appear in any account and not personal accounts
alone. Hence
statements (a) is false. Omission of a transaction from subsidiary affects two
accounts are subsidiary
books are books of original entry hence posting in two accounts is omitted.
Statement (b) is false.
Error of carry forward affects only one account i.e., the account in whose an error
has been made.
Statement (c) is false. Errors of principle involve incorrect allocation of an item
between capital
and revenue. Hence statement (d) is true.]

116. Journal proper is meant for recording

(a) Credit purchase of fixed assets

(b) Return of goods
(c) All such transactions for which no special journal has been kept by the business
(d) None of these

117. Closing stock in the Trial Balance implies that

(a) It is already adjusted in the opening stock

(b) It is adjusted in the Purchase A/c
(c) It is adjusted in the Cost of Sale A/c
(d) It is adjusted in the Profit &Loss A/c

[Hints: (b) Closing Stock appearing in the Trial Balance implies that it has already
been adjusted in
the Purchases Account and hence appears as an asset in the Balance Sheet.]

118. Which of the following statements is true?

(a) If a Trial Balance tallies, it always means that none of the transactions has been
completely
omitted
(b) A Trial Balance will not tally if a transaction is omitted
(c) A customer to whom goods have been sold on credit cannot avail himself of a
cash discount
(d) A credit balance in the Pass Book indicates excess of deposits over withdrawals
[Hints: (d) A credit balance in the Pass Book implies a favourable balance indicates
excess of
deposits over withdrawals and a debit balance in the Pass Book implies unfavorable
balance i.e., a
overdraft. Hence statement (d) is the true statement.]

119. The adjustment to be made for income received in advance is:

(a) Add income received in advance to respective income and show it as a liability
(b) Deduct income received in advance from respective income and show it as a
liability
(c) Add income received in advance to respective income and show it as asset
(d) Deduct income received in advance from respective income and show it as an
asset in the
Balance Sheet

[Hints: (b) Income received in advance given as an adjustment requires a deduction

of the same
from the income amount and disclosure of the same as a liability in the Balance
Sheet]

120. Which of the following statements is correct?

(a) The Trial Balance is prepared after preparing the Profit and Loss Account
(b) The Trial Balance shows only balances of Assets and Liabilities
(c) The Trial Balance shows only nominal account balances
(d) The Trial Balance has no statutory importance from the point of view of law

[Hints: (d) A Trial Balance is a summary of all General Ledger Balances outstanding
as on a
particular date. All the debit balances from the ledger are shown on one side and all
the credit
balances are shown on the other side. A Trial Balance is prepared before Final
Accounts are
prepared. From the point of view of law, a Trial Balance has no statutory
importance.]

121. While finalizing the current year‘s accounts, the company realized that an error
was made in the
calculation of closing stock of the previous year. In the previous year, closing stock
was valued
more by ` 50,000. As a result

(a) Previous year‘s profit is overstated and current year‘s profit is also overstated.
(b) Previous year‘s profit is understated and current year‘s profit is overstated.
(c) Previous year‘s profit is overstated and current year‘s profit is understated.
(d) There will be no impact on the profit of either the previous year or the current
year.

[Hints: (c) Closing stock overstatement and opening stock understatement increases
the profits
and vice versa is also equally true.]

122. Which of the following is not correct?

(a) Errors which affect one account can be errors of posting

(b) Errors of omission arise when any transaction is left to be recorded
(c) Errors of carry forward from one year to another year affect both Personal and
Real A/c
(d) Errors of commission arise when any transaction is recorded in a fundamentally
incorrect
manner

[Hints: (d) Error of Commission arises because of wrong recording, wrong casting,
wrong carry
forward, wrong posting, wrong balancing etc.]

123. Which of the following errors is an error of omission?

(a) Purchase of ` 2,000 has been recorded in the Sales Return Book
(b) Repairs to machinery has been debited to Machinery Accounts
(c) The total of purchase journal has not been posted to the Purchase Account
(d) Legal charges paid to Mr. Lawyer have been debited to his account
[Hints: (c) Error of complete omission arises when a particular transaction is
completely or partially
omitted to be recorded in the books of accounts.]

124. If goods worth ` 1,750 returned to a supplier is wrongly entered in sales return
book as ` 1,570 , then

(a) Net Profit will decrease by ` 3,140

(b) Gross Profit will increase by ` 3,320
(c) Gross Profit will decrease by ` 3,500
(d) Gross Profit will decrease by ` 3,320

125. For the past 3 years, DK Ltd. has failed to accrue unpaid wages earned by
workers during the last
week of the year. The amounts omitted, which were considered material, were as
follows:
March 31,2010 - ` 56,000
March 31, 2011 - ` 51,000
March 31, 2012 - ` 64,000
The entry on March 31, 2012 to rectify these omissions would include a

(a) Credit to wage expense for ` 64,000

(b) Debit to wage expense for ` 64,000
(c) Debit to wage expense for ` 51,000
(d) Debit to wage expense for ` 13,000

126. Purchase journal is kept to record

(a) All purchases of goods

(b) All credit purchases of goods
(c) All credit purchases
(d) None of these

127. The beginnings inventory of the current year is overstated by ` 5,000 and
closing inventory is
overstated by ` 12,000.
These errors will cause the net income for the current year by

(a) ` 17,000 (overstated)

(b) ` 12,000 (understated)
(c) ` 7,000 (overstated)
(d) ` 7,000 (understated)

[Hints: (c) Overstatement of closing stock results in overstatement of profit and

overstatement of
opening stock results in understatement of profit. In the instant case, there will be
overstatement of
profit by ` 12,000 - ` 5,000= ` 7,000.]

128. The accountant of Leo Ltd. recorded a payment by cheque to a creditor for
supply of materials as `
1,340.56. The bank recorded the cheque at its correct amount of ` 3,140.56. The
Company has not
passed any rectification entries and the error is not detected through the bank
reconciliation. The
impact of this error is

(a) The Trial Balance will not agree

(b) The balance of creditors is understated
(c) The purchases are understated
(d) The favorable bank balance as per Pass Book is less than the Bank balance as
per Cash book

[Hints: (d) The favourable bank balance as per Pass Book will be less than the bank
balance as per
Cash Book, since the debit in the bank account is more than the debit in the Cash
Book (d). As
debit and credit are for equal amount there is no disagreement of the Trial Balance;
Creditors
balance is overstated but not understated: The favourable bank balance as per Pass
Book will be
less than the Bank balance as per Cash Book, since the debit in the Bank Account is
more than the
debit in the Cash book. Purchases are not affected, as it is a payment to the creditor.
Thus, the
correct answer is (d).]

129. Which of the following errors affects the agreement of a Trial Balance?

(a) Mistake in balancing an account

(b) Omitting to record a transaction entirely in the subsidiary books
(c) Recording of a wrong entry in the subsidiary books
(d) Posting an entry on the correct side but in the wrong account

[Hints: (a) The mistake in balancing an account affects the agreement of a Trial
Balance (a) is the
correct answer. The other mistakes do not affect the agreement of Trial Balance.
The omission to
record a transaction entirely in the subsidiary books (b) will not affect the agreement
of a Trial
Balance because both the aspects of a transaction are omitted to be recorded.
Recording of a
wrong entry in the subsidiary books (c ) will not cause disagreement of a Trial
Balance because,
the wrong entry so recorded has the effect of posting the transaction in the manner it
is recorded.
Posting an entry on the correct side in the wrong account (d) does not affect the
tallying of a Trial
Balance because the aspect of the transaction is posted to the correct side of an
account. Thus
(a) is the correct answer.]

130. Which of the following statements is/are true?

(i) An error in casting the subsidiary books is an error of commission

(ii) An error in wrong casting of the sales day book will not affect the personal
accounts of debtors
(iii) Mistake in transferring the balance of an account to the Trial Balance will not
affect the
agreement of the Trial Balance
(iv) The mistake of treating a liability as an income or vice versa will not affect the
agreement of a
Trial Balance

(a) Only (i) above

(b) Only (ii) above
(c) Both (i) and (ii) above
(d) (i),(ii) and (iv) above

[Hints: (d) An error in casting the subsidiary books is an error of commissions (i), an
error in wrong
casting of the sales day book will not affect the personal accounts of debtors (ii) and
the mistake
of treating a liability as an income or vice versa will not affect the agreement of a
Trial Balance (iv)
are the true statements and the combination of these statements alternatives (d) is
the correct
answer. The other alternatives are incurrence because (a) states only the statement
in (i); (b) states
only the statement (ii) and the alternative (c) is the combination of (i) and (ii) which is
incomplete.
Thus, the correct answer is (d).]

131. Which of the following should not be treated as revenue expenditure?

(a) Interest on loans and debentures

(b) Annual fire insurance premiums on Plant and Equipment
(c) Sales tax paid in connection with the purchase of office equipment
(d) Small expenditures on long- lived assets, such as ` 20 for a paper weight.

[Hints: (c) A revenue expenditure is an expenditure whose benefit expires within the
current
accounting period and is in the nature of recurring and is therefore written off to P&L
A/c. Sales tax
paid in connection with the purchase of office equipment is a non-recurring
expenditure whose
benefit is going to last for more than one accounting period and hence not a revenue
expenditure.

132. Capital expenditure is an expenditure which

(a) Benefits the current accounting period

(b) Will benefit the next accounting period
(c) Results in the acquisition of a permanent asset
(d) Results in the acquisition of a current asset

[Hints: (c) A capital expenditure is a non- recurring expenditure whose benefit lasts
for more than
one accounting period. Example is the acquisition of a fixed or permanent assets.]
133. Which of the following is not a deferred revenue expenditure?

(a) Expenses in connection with issue of equity shares

(b) Preoperative expenses
(c) Heavy advertising expenses to introduce a new product
(d) Legal expenses incurred in defending a suit for breach of contract to supply
goods

[Hints: (d) Deferred revenue expenditure is a revenue expenditure whose benefit

lasts for more
than one accounting periods and is therefore written off during the periods over
which the benefit
lasts(However, AS 26 requires that Deferred revenue expenditure is expensed
wholly in the year of
incurrence). Legal expenses incurred in defending a suit for breach of contract for
supply of goods
does not satisfy the prerequisites of a deferred revenue expenditure.]

134. Any donation received for a specific purpose is a

(a) Liability
(b) Assets
(c) Revenue receipts
(d) Capital receipts

135. Which of the following is an item of capital expenditure?

(a) Research and development costs during the year

(b) Interest on borrowed fund utilized for acquisition of Office Furniture
(c) Installation charges paid in conjunction with the purchase of Office Equipment
(d) Monthly rent of a machinery used in the business

[Hints: (c) A capital expenditure is a non- recurring expenditure whose benefit lasts
for more than
one accounting period. Installation charges paid in conjunction with the purchase of
office
equipment is an one-time expenditure whose benefit lasts for more than one
accounting period.]

136. Which of the following statements is true?

(a) Provision for doubtful debts represents the amount that cannot be collected
(b) The distinction between capital and revenue items is important because it is of
fundamental
importance to the determination of profits
(c) Goods lost by fire need not be accounted for since they are not sales
(d) Free samples received are business gains

137. The balance of which of the following accounts do not disappear, once they are
debited/credited
to Trading Account.

(a) Sales
(b) Purchases
(c) Inward returns
(d) Closing stock

[Hints: (d) The closing stock (d) is the value of goods which remain unsold at the end
of the period
whose balance appears once in Trading Account and once in Balance Sheet of the
business. All
other accounts sales (a), purchases (b) and Inward Returns (c) are closed once they
are absorbed
by the Trading Account. Thus (d) is the correct answer.]

138. Which one of the following should be considered a revenue expenditure?

(a) `1000 paid for the execution of a new plant

(b) Loss of `10,000 incurred in increasing the sitting accommodation of a hotel
(c) Damage paid on account of breach of a contract to supply certain goods
(d) Repair to machinery purchased, second hand.

139. Which of the following statements are / is true? ―Events after Balance Sheet‖
are

(a) All the significant events after the Balance Sheet date
(b) The events after Balance Sheet date but before submitting it to the Registrar of
Companies
(c) The events after Balance Sheet date but before its approval by the board
(d) All changes after Balance Sheet date before its approval

[Hints: (c) Events occurring after the Balance Sheet date are those significant
events, both
favourable and unfavourable, that occur between the Balance Sheet date and the
date on which
the financial statements are approved by the Board of Directors in the case of a
company, and by
the corresponding approving authority in the case of any other entity.]

140. Which one of the following is a capital expenditure?

(a) Compensation paid to Directors on termination of their services

(b) Expenditure incurred in connection with the renewal of a Trade Mark.
(c) Gratuities paid to Directors on termination of their services.
(d) Royalty paid in installments for the purchase of rights to manufacture and sell
patient
medicines.

141. Which of the following enhances the earning capacity of an asset?

(a) Increase in working capacity of an asset
(b) Reduction in operating costs
(c) Replacing damaged parts of an asset
(d) Both (a) and (c) above

[Hints: (d) Enhancement of earning capacity can be by way of replacement of worn

out or
damaged parts which retarded the earning capacity and increase in the working
capacity
increases the earning capacity of the asset.]

142. Which of the following items should not be capitalized relating to fixed assets?

(a) Interest payable on loans or deferred credits taken for the acquisition or
construction of fixed
assets before they are ready for use
(b) Stand by equipment and servicing equipment
(c) Expenditure incurred on test runs and experimental production
(d) Administration and general expenses

[Hints: (d) Only those expenses which relate to and specifically attributable to the
asset are
capitalized. Administration and general expenses cannot be specifically attributable
to the asset
and hence cannot be capitalized.]

143. Which of these errors affect only one account

(a) Errors of casting

(b) Errors of carry forward
(c) Errors of posting
(d) All the three

144. Which of these errors affect two or more accounts

(a) Errors of complete omission

(b) Errors of principle
(c) Errors of posting to wrong account
(d) All the three

145. Which of the following error is an error of principle

(a) ` 5,000 received from Sham credited to Ram A/c

(b) ` 5,000 incurred on installation of new plant debited to travelling expenses A/c
(c) ` 500 paid for wages debited to salary A/c
(d) ` 500 being purchase of raw material debited to purchase A/c ` 50

146. Which of the following is an one sided error

(a) ` 500 purchase of old equipment not recorded in the books of A/c at all
(b) ` 500 being expense on travelling expense credited to travelling expenses
(c) Both
(d) None

147. Any gain on the sale of non-current assets should be _________ from the net
profit and the loss
must be _________to the net profit in determining fund from operation

(a) Added, Reduced

(b) Added, Added
(c) Deducted, Added
(d) Deducted, Deducted

148. Cash book records—

(a) Only cash sales

(b) All types of cash receipts and payments
(c) Only revenue receipts
(d) Only capital receipts

149. In a three column cash book ---------- does not exist

(a) Cash column

(b) Bank column
(c) Petty cash column
(d) Discount column

150. Which of these transactions will not be recorded in cash book—

(a) Cash received from debtors

(b) Cash paid to creditors
(c) Salary remained outstanding
(d) Cash deposited with bank

151. The closing balance of a petty cash book is a / an —

(a) Liability
(b) Gain
(c) Assets
(d) Loss

152. Which column of a cash book will not have credit balance —

(a) Bank column

(b) Discount column
(c) Cash column
(d) None
153. Petty cash balance is a/an —

a) Assets
(b) Expenditure
(c) Liability
(d) None

154. Which of these is a Part of cash in hand

(a) Postage stamps

(b) B/R
(c) Cheque Deposited with Bank
(d) B/R endorsed

155. Which of the following is a Real A/c

(a) Salary A/c

(b) Bank A/c
(c) Building A/c
(d) Goodwill A/c

156. Which of the following is a Personal A/c

(a) Outstanding Salary A/c

(b) Rent A/c
(c) SBI A/c
(d) Bad debts A/c

157. Which of the following is a representative Personal A/c

(a) Outstanding Salary A/c

(b) Rent A/c
(c) SBI A/c
(d) Bad debts A/c

158. Which of the following is a Nominal A/c

(a) Outstanding Salary A/c

(b) Rent A/c
(c) SBI A/c
(d) Debtors A/c

159. Goodwill A/c is a/an —

(a) Nominal A/c

(b) Tangible Asset
(c) Intangible Asset
(d) Fictitious Asset

160. Posting is the process of —

(a) Posting the letters in drop box
(b) Posting suitable person to a suitable job
(c) Entering in the ledger the information contained in the ledger
(d) All the three

161. A book wherein various accounts are opened is called—

(a) Subsidiary books

(b) Journal
(c) Ledger
(d) Trial Balance

162. Which of these is not a special purpose journal

(a) Cash journal

(b) Purchase journal
(c) Debtors journal
(d) Sales journal

163. The periodic total of sales day book is posted to —

(a) Sales A/c

(b) Cash sales A/c
(c) Sales return A/c
(d) Credit sales A/c

164. The periodic total of purchase day book is posted to —

(a) Purchase register

(b) Purchase A/c
(c) Cash purchase A/c
(d) Credit purchase A/c

165. Capital expenses are shown in —

(a) Balance Sheet

(b) Profit and Loss A/c
(c) Trading A/c
(d) None of these

166. Revenue receipts are shown in —

(a) Balance Sheet

(b) Profit and Loss appropriation A/c
(c) Manufacturing A/c
(d) Trading and Profit and Loss A/c

167. Revenue is generally recognised as being earned at that point of time when
(a) sale is effected
(b) cash is received
(c) production is completed
(d) debts are collected

168. Which of the following is a revenue expenses

(a) Raw material consumed

(b) Plant purchased
(c) Long term loan raised from bank
(d) Share Capital

169. Which of the following is a capital expenditure

(a) Repair of plant and machinery

(b) Salary paid to workers
(c) Cost of stand by equipment
(d) Annual whitewash of the office building

170. Which of these types of expenditure would not be treated as a Capital

Expenditure

(a) Acquisition of an Asset

(b) Extension of an Asset
(c) Improvement of the existing Asset
(d) Maintenance of the Asset

171. Expenses of the following nature are treated as a Revenue expenses except —

(a) Expenses for day to day running of the business

(b) Putting the new asset in working condition
(c) Depreciation
(d) Purchase of raw material

172. Cash received from debtors would be deemed as ………… of funds.

(a) No flow
(b) Sources
(c) Uses
(d) Gain

173. Purchase day book records

(a) All cash purchases

(b) All credit purchases
(c) Only credit purchase of raw material or goods purchased for resale
(d) All purchases

174. Journal is also known by —

(a) Memorandum A/c
(b) Kaccha books
(c) Books of original entry
(d) Proper books

175. Generally the term fund is used to mean the difference between

(a) Current assets and current liabilities

(b) Profit and loss A/C and Balance sheet
(c) Current assets and non-current liabilities
(d) Current liabilities and non-current liabilities

176. The periodic total of purchase day book is posted to —

(a) Creditors A/c

(b) Debtors A/c
(c) Purchase A/c
(d) None

177. Which of these documents is not required for Bank Reconciliation

(a) Bank column of Cash Book

(b) Bank Pass Book
(c) Bank Statement
(d) Trial Balance

178. Which of these will not affect Bank and Cash balance

(a) Cash received from X credited to Y

(b) Cheques issued to A but debited to B
(c) Cheques deposited and cleared on the same date
(d) All the three

179. Which of these items are taken into consideration for preparation of adjusted
Cash Book

(a) Mistake in Cash Book

(b) Mistake in Pass Book
(c) Cheque issued but not presented for payment
(d) Cheques deposited but not cleared

180. Credit balance as per Cash Book mean-

(a) Surplus cash

(b) Bank overdraft
(c) Terms deposits with bank
(d) None of these

181. Debit side of Bank Pass book corresponds to –

(a) Credit side of Cash Book
(b) Debit side of Cash Book
(c) Debit side of Trial Balance
(d) Credit side of Balance Sheet

182. Difference in Bank Balance as per Pass Book and Cash Book may arise on
account of

(a) Cheque issued but not presented

(b) Cheque issued but dishonoured
(c) Cheque deposited and credited by bank
(d) All of (a) and (b) above

[Hints: (d) Differences in Bank Balance as per Bank Pass Book and Cash Book arise
due to many
reasons. Few of them are Cheques issued (a credit entry in Cash Book made) but
not presented for
payment (so no corresponding entry in Pass Book).
Cheques issued (a credit entry in Cash Book made) but dishonoured (so no
corresponding entry
made in Pass Book).
In case of cheques deposited and credited by bank, entries in both Cash Book and
the Bank Pass
book are made, hence no difference arises.
Hence option (d) is the right option. Only in situations (a) and (b) result in difference.]

183. Which of the following statements is/are true?

(a) When there are cheques deposited but not collected by the banker, overdraft
balance as per
Pass Book will be less than that as per Cash Book
(b) When the payment side of the Cash Book is undercast, overdraft balance as per
Cash Book
will be more than overdraft balance as per Pass Book
(c) When reconciliation is to be done with the extracts of the Cash Book and Pass
Book relating to
the same period, the transactions which do not figure in one of the extracts are to be
noted
(d) Bank interest debited in the Pass Book is to be added to Overdraft Balance as
per Pass Book to
arrive at the Overdraft balance as per Cash Book

[Hints: (c) Statement (a) is false, since when cheques are deposited at bank, the
existing overdraft
balance as per Cash Book decreases whereas when the cheques have not been
collected the
overdraft balance as per Pass book is more that of Cash book.
Statement (b) is false, when the payments side of the Cash Book is undercast
results in
undercasting of overdraft balance, hence the overdraft balance as per Cash Book
will be less,
than the overdraft balance as per Pass Book.
Statement (c) is true, since when extracts of Cash Book and extracts of the Pass
Book relating to
same period are taken and compared, the entries which do not figure in both the
extracts imply
that these entries create the difference in the balances, hence are to be noted for the
preparation of reconciliation statement.
Statement (d) is false, since Bank interest debited in the Pass Book increases the
overdraft balance
hence to arrive at the balance as per cash, since the above corresponding entry is
not made in
the Cash Book, the interest amount is to be deducted from the overdraft balance as
per Bank Pass
Book.
Hence only option (c) is true, all other options are false.]

184. The Bank Reconciliation Statement is prepared

(a) To rectify the mistakes in the Cash Book

(b) To arrive at the Bank Balance
(c) To arrive at the Cash Balance
(d) To bring out the reasons for the difference between the Balance as per Cash
Book and the
Balance as per Bank Statement

[Hints: (d) The basic objective of the preparation of the Bank Reconciliation
Statement is to locate
the reasons for differences between the balance as per Cash book and the balance
as per Bank
Statement. The ancillary benefits during this process of preparation can be said to be
rectification
of mistakes in cash book, rectification of mistake in bank statement etc. Hence
option (d) is the
right choice.]

185. Which of the following statements is false?

(a) When the bank column of a Cash Book shows a credit balance, it means an
amount is due to
the bank
(b) When Pass Book shows a debit balance, it means overdraft as per Pass Book
(c) While preparing Bank Reconciliation Statement, cheques paid into bank but not
yet cleared
are deducted from the Debit balance as per Cash Book to arrive at the balance as
per Pass
Book
(d) A Bank Reconciliation Statement is a part of Pass Book

[Hints: (d) A credit balance in the Cash Book(bank column) denotes an overdraft
balance. It
implies that the business is due to the bank respect of that amount it has overdrawn.
Hence option
(a) is true.
A credit balance in the Pass book refers to favourable balance and a debit balance in
the pass
book refers to Unfavorable balance or overdraft. Hence option (b) is true.
When preparing a BRS, where there is a debit balance or favourable balance in the
Cash book
(bank column), cheques paid into bank but not yet cleared are deducted from the
cash book
(bank column) balance to arrive at the balance in the bank Pass book. Hence
statement (c ) is
true.
A Bank Reconciliation Statement does not form part of pass book. It is prepared by
the business to
reconcile the balances as per Pass Book or Bank Statement and the Cash Book
(bank column).
Hence statement (d) is false.]

186. Which of the following statements is true?

(a) Bank charges increase debit balance shown as per Bank Column of the Cash
Book.
(b) Bank charges increase debit balance as per Bank pass book.
(c) A cash sale of a non-trading asset is recorded in the journal proper.
(d) Cash discount allowed by the business will appear on the debit side of the
debtor‘s account.

[Hints: (b) Bank charges increase debit balance as per Bank Pass Book (b) is the
correct answer.
The debit balance as per Bank Pass Book indicates the overdraft balance and the
bank charges
being the expenditure increase the debit balance. The alternative (a) is incorrect
because the
bank charges decrease the debit balance shown as per Bank column of the Cash
Book and do
not increase the debit balance as per Cash Book signifies the favourable balance. A
cash sale of a
non-trading asset is recorded in the Journal Proper is incorrect (c) because all in
transactions
involving cash receipts and payments are recorded in the Cash book cash discount
allowed by
the business will appear on the debit side of the debtor‘s account (d) is incorrect
because, the
cash discount allowed is a reduction in the balance of a debtor‘s account which
appears on the
credit side. Thus (b) is the correct answer.]

187. Bank reconciliation is a statement prepared to reconcile—

(a) Trial balance
(b) Cash book
(c) Bank A/c
(d) Cash as per cash book with bank balance as per bank pass book

188. Bank reconciliation statement is a part of —

(a) Cash book

(b) Trial balance
(c) Auditors report
(d) None of these

189. Benefits of preparing Bank Reconciliation Statement includes —

(a) It bring out any errors committed in preparation of Cash book / Bank Pass Book
(b) Highlights under delay in clearance of cheques deposited but not credited
(c) Help know actual bank balance
(d) All the three

190. Debit balance as per bank pass book mean —

(a) Surplus cash

(b) Bank Overdraft
(c) Terms deposits with bank
(d) None of these

191. Which of the following is not a cause of difference in balance as per cash book
and balance as
per bank pass book—

(a) Errors in cash book

(b) Errors in pass book
(c) Cheques deposited and cleared
(d) Cheques issued but not presented for payment

192. Provision is created for —

(a) Unknown Liabilities

(b) Known Liabilities
(c) Creation of Secret Reserves
(d) All the Three

193. Which of the following is not a method of charging depreciation

(a) Straight line Method

(b) Written down value Method
(c) Discounted present value Method
(d) Sum of digits Method
194. A second hand car is purchased for ` 2,00,000 and sold at ` 1,40,000 after two
years. If
depreciation is charged @ 10% on SLM method, find the profit or loss on sale of the
car.

(a) ` 20,000 Loss

(b) ` 20,000 Profit
(c) ` 10,000 Loss
(d) ` 10,000 Profit

195. In the above question if the depreciation is charged @10% on written down
value method, find the profit or loss on sale of the Second hand car.

(a) Loss of ` 20,000

(b) Loss of ` 22,000
(c) Loss of ` 11,000
(d) Profit of ` 11,000

196. The term ― Reserve‖ has been defined in ------ of the Companies Act, 1956

(a) Part III Schedule VI

(b) Part III Schedule V
(c) Part II Schedule VI
(d) Part I Schedule I

197. Which of the following is true with respect to providing depreciation under
diminishing balance
method?

(a) The amount of depreciation keeps increasing every year while the rate of
depreciation keeps
decreasing
(b) The amount of depreciation and the rate of depreciation decrease every year
(c) The amount of depreciation decreases while the rate of depreciation remains the
same
(d) The amount of depreciation and the rate of depreciation increases every year

[Hints: (c) Under the written down value method of depreciation, the rate of
percentage of
depreciation is fixed, but it applies to the value of the asset at which the asset stands
in the books
in the beginning of the year. Therefore, the amount of depreciation decreases as the
fixed rate of
depreciation is charged on written down values of the asset.]

198. Which of the following statements best describes the purpose of depreciation?

(a) Regular reduction of asset value to correspond to changes in market value as the
asset ages
(b) A process of correlating the market value of an asset with its gradual decline in
physical
efficiency
(c) Allocation of cost in a manner that will ensure that Plant and Equipment items are
not carried
on the Balance Sheet in excess of net realizable value
(d) Allocation of the cost of an asset to the periods in which services are received
from the asset

[Hints: (d) AS-6 defines depreciation as a measure of the wearing out, consumption
or other loss of
value of a depreciable asset arising from use, effluxion of time or obsolescence
through
technology and market changes. Depreciation is allocated so as to change a fair
proportion of
the depreciable amount in each accounting period during the expected useful life of
the asset.
Depreciation includes amortization of assets whose useful life is predetermined.
The ultimate outcome of accounting for depreciation is cash available to replace the
asset;
however this cannot be the purpose of depreciation.]

199. The main objective of providing depreciation is to

(a) Calculate the true profit

(b) Show the true financial position in the Balance Sheet
(c) Provide funds for replacement of fixed assets
(d) Both (a) and (b) above

[Hints: (d) The main objective of providing depreciation is to find out the true Net
Profit or Loss for
an accounting period and to present a true and fair view of the state of affairs of the
business.
Providing funds for replacement is only an ancillary objective and not the main
objective.]

200. Depreciation is a process of

(a) Valuation
(b) Valuation and allocation
(c) Allocation
(d) Appropriation

[Hints: (c) AS-6 on depreciation accounting defines ‗depreciation‘ as the measure of

wearing out,
consumption or other loss of a value of a depreciable asset arising from use,
effluxion of time or
obsolescence through technology and market changes. Depreciation is allocated so
as to charge
a fair proportion of the depreciable amount in each accounting period during the
expected
useful life of the asset. Depreciation includes amortization of assets whose useful life
is
predetermined.

Answers:

101 a 102 a 103 d 104 d 105 d

106 b 107 b 108 d 109 b 110 b 111 b 112 c
113 c 114 d 115 d 116 c 117 b 118 d 119 b
120 d 121 c 122 d 123 c 124 d 125 d 126 b
127 c 128 d 129 a 130 d 131 c 132 c 133 d
134 d 135 c 136 b 137 d 138 c 139 c 140 a
141 d 142 d 143 d 144 d 145 b 146 b 147 c
148 b 149 c 150 c 151 c 152 c 153 a 154 a
155 c 156 c 157 a 158 b 159 c 160 c 161 c
162 c 163 a 164 b 165 a 166 d 167 a 168 a
169 c 170 d 171 b 172 a 173 c 174 c 175 a
176 c 177 d 178 d 179 a 180 b 181 a 182 d
183 c 184 d 185 d 186 b 187 d 188 a 189 d
190 b 191 c 192 b 193 c 194 a 195 b 196 a
197 c 198 d 199 b 200 c

201. The portion of the acquisition cost of the asset yet to be allocated is known as

(a) Written down value

(b) Accumulated value
(c) Salvage value
(d) Residual Value

202. Which of the following statements is true with regard to written down value
method of
depreciation?

i. The rate at which the asset is written off reduces year after year
ii. The amount of depreciation provided reduces from year to year
iii. The rate of depreciation as well as the amount of depreciation reduce year after
year
iv. The value of the asset gets reduced to zero over a period of time

(a) Only (i) above

(b) Only (ii) above
(c) Both (i) and (ii) above
(d) (i),(ii) and (iii) above

203. The accounting process of gradually converting the unexpired cost of fixed
assets into expenses
over a series of accounting periods is

(a) Depreciation
(b) Physical deterioration of the asset
(c) Decrease in market value of the asset
(d) Valuation of an asset at a point of time

204. Which of the following factors are primarily considered to determine the
economic life of an asset?

(a) Passage of time, asset usage, and obsolescence

(b) Tax regulations and SEBI guidelines
(c) Tax regulations and asset usage
(d) SEBI guidelines and Asset usage

205. In which of the following methods, the cost of the asset is spread over in equal
proportion during its useful economic life?

(a) Straight-line method

(b) Written down value method
(c) Units-of-production method
(d) Sum-of-the years‘-digits method

206. Which of the following statements is correct?

(a) Depreciation cannot be provided in case of loss in a financial year

(b) Depreciation is a charge against profit
(c) Depreciation is provided in the books only when there is profit
(d) Depreciation is an appropriation of profit

[Hints: (b) Depreciation is provided as a charge against profits. It is not an

appropriation of profit. It
is provided irrespective of whether the business is making a loss or a profit. Hence
statement (b) is a
true statement.]

207. Depreciation is calculated on the

(a) Cost price of asset
(b) Market price
(c) Cost+ Transport+ Installation expenses
(d) Cost or market values whichever is less

208. Which of the following is an external cause of depreciation

(a) Routine repair and maintenance

(b) Misuse
(c) Obsolescence
(d) Wear and tear

209. Depreciation is a process of —

(a) Valuation of fixed assets

(b) Allocation of cost over the useful life of assets
(c) Generating funds replacements of the assets
(d) Avoidance of tax

210. Which of the following is not depreciated

(a) Building
(b) Land
(c) Plant and Machinery
(d) Office equipment

211. Schedule XIV of the Companies Act specifies —————— as minimum rate of
depreciation (WDV) on ship fishing vessels

(a) 27%
(b) 33%
(c) 10%
(d) 15%

212. —————— is also known as Appraisal system of depreciation

(a) Inventory system

(b) Survey system
(c) Annuity system
(d) Insurance

213. Bad debts recovered account will be transferred to

(a) Debtor‘s Account

(b) Profit and Loss Account
(c) Provision for Doubtful Debt Account
(d) Either (b )or (c) above

[Hints: (d) When Bad debts are recovered the entry is

Cash A/c ……………………………………………………Dr.
To Bad debts recovered A/c
This A/c can either be transferred to P& L A/c or Provisions for Doubtful Debts A/c.]

214. The entry for creating a Provision for bad debts is

(a) Debit Provision for Bad Debts A/c and credit Debtors A/c
(b) Debit Debtors A/c and credit Provision for Bad Debts A/c
(c) Debit Provision for Bad Debts A/c and credit Profit & Loss A/c
(d) Debit Profit and Loss A/c and credit Provision for Bad Debts A/c.

[Hints: (d) Provision for bad debt is a charge against profit and therefore, the entry
for creating
provision for bad debts is done by debiting P&L A/c and crediting provision for bad
debts
account.]

215. When a person purchasing goods on credit he becomes a………….. in the

books of the seller-

(a) Debtor
(b) Creditor
(c) Defaulter
(d) Offender
216. Which of these is not a Business expense-

(a) Fire Insurance of other building

(b) LIC Premium of proprietor
(c) Interest on Capital
(d) Commission on sales

217. Cost of goods sold excludes-

(a) Opening Stock

(b) Carriage inward
(c) Wages & Salary
(d) Postage & Stamps

218. Tax deducted at source A/c appears in-

(a) Assets side

(b) Liability side
(c) Profit & Loss A/c
(d) Debited to Capital A/c

219. Investment in own share A/c appears in –

(a) Asset side

(b) Liability side
(c) Netted from Capital
(d) Profit & Loss A/c
220. Payments received in advance from a customer for a contract can be

(a) Shown as a deduction from contract work-in-progress on asset side

(b) Shown as a liability
(c) Credited to P&L A/c
(d) Either (a) or (b) above

221. If a company has contingent liabilities, they appear in the

(a) Balance Sheet

(b) Directors‘ report
(c) Notes on account to Balance Sheet
(d) Chairman‘s report

[Hints: (c) Contingent liabilities are disclosed in the notes to Balance Sheet.]

222. Recent developments have made much of a company‘s inventory obsolete.

This obsolete
inventory should be

(a) Written down to zero or its scrap value

(b) Shown in the Balance Sheet at its replacement cost
(c) Shown in the Balance Sheet at cost, but classified as a non-current asset
(d) Carried in the accounting records at cost until it is sold

223. Which of the following is not classified as inventory in the financial statements?

(a) Finished goods

(b) Work-in-process
(c) Stores and spares
(d) Advance payments made to suppliers for raw materials

224. Which of the following statements is true?

(a) Inventory valuation affects only the income statement

(b) Undercasting or overcastting of subsidiary book is an example of error of
commission
(c) Capital expenditure wrongly treated as revenue is an example of error of
commission
(d) Inventories should be valued at lower of historical cost and current replacement
cost

225. Which of the following statements is / are not correct?

(a) Provision for bad debts appears as a liability on the Balance Sheet
(b) The provision for bad debts is owed to the proprietor
(c) Bad debts could be less than the provision for bad debts
(d) Bad debts could exceed the provision for bad debts
[Hints: (b) Provision for bad debts is created to adjust the loss of future bad debts.
This account is
created by a debit to the Profit & Loss Account i.e., a charge against profits. This
account shows a
credit balance and appears on the liabilities side of the Balance Sheet. Actual bad
debts for a
particular period may exceed the provision provided or may be less than the
provision made.]

226. If actual bad debts are more than the provision for bad debts, then there will be
a

(a) Credit balance of Provision for Bad Debts Account

(b) Debit balance of Provision for Bad Debts Account
(c) Debit balance of Bad Debts Account
(d) Debit balance of Discount on Debtors Account

[Hints: (b) Provision for Bad Debts Account is created for writing off bad debts. Since
the provision
for bad debts is a credit balance account, If the actual bad debts exceed the
provision created
then there will be debit balance of provision for bad debts account.]

227. The creation of provision for doubtful debts given as an adjustment requires

(a) Debit Profit and Loss Account and deduct the provision from debtors
(b) Credit Profit & Loss Account and deduct the provision from debtors
(c) Credit Profit and Loss Account and add the provision to debtors
(d) Debit Profit & Loss Account and add the provision to debtors

[Hints: (a) The adjustment for provision for bad debts account given in the
adjustments is to debit
P&L A/c and deduct from Sundry Debtors, the amount of provision for bad debts.
Provision for bad
debts is created against Sundry Debtors and therefore deducted from Sundry
Debtors and Debited
to P&L A/c as it is a charge against P&L A/c.]

228. Under the direct write-off method of recognizing a bad debt expense. Which of
the following
statements is/are true?

(a) The bad debt expense is not matched with the related sales
(b) Revenue is overstated in the year of sales
(c) It violates the matching principle of accounting
(d) All of the above

[Hints: (d) Under the direct write off method of recognizing a bad debt expense, the
alternative (d)
is the correct answer which the combination of the following statements (a) The bad
debt expense
is not matched with the related sales because the expense is written off in the year
of occurrence
and it is not matching with the related sales. (b) Revenue is overstated in the year of
Sales as a
result not making any provision for possible loss on account of non- recoverable
account. (c) It
violates the matching principle of accounting as the expense of bad debt is not
matched for the
same period of income. Thus, (d) is the correct answer.

229. At the time of preparation of financial accounts, bad debt recovered account will
be transferred to

(a) Debtors A/c

(b) Profit & Loss A/c
(c) Profit & Loss Adjustment A/c
(d) Profit & Loss Appropriation A/c

[Hints: (b) Bad debt recovered is a windfall gain and it is transferred to Profit & Loss
Account at the
time of preparation of Final Accounts. If provisions account is there in the books it
will be transferred
to Provision A/c and the balance if any in the provision account will be transferred to
Profit & Loss
Account. It is recovery of bad debt written off and hence it is not transferred to
Debtors Account. It
is not transferred to Profit & Loss Adjustment Account. It is not an appropriation to be
transferred to
Profit & Loss Appropriation Account. Thus, the answer is (b).]

230. The balance of Revaluation Reserve pertaining to an asset that has been
disposed off or retired can be transferred to

(a) General Reserve A/c

(b) Profit & Loss A/c
(c) Asset A/c
(d) Capital Reserve A/c

[Hints: (d) According to AS-10 on disposal of a previously revalued item of fixed

asset, the
difference between net disposal proceeds and the net book value should be charged
or credited
to the Profit & Loss Statement except that to the extent that such a loss is related to
an increase
which was previously recorded as a credit to revaluation reserve and which has not
been
subsequently reversed or utilized, it may be charged directly to that account.
This balance (no longer needed) being of capital nature should be transferred to
Capital Reserve
Account.]

231. Property, Plant and Equipment are conventionally presented in the Balance
Sheet at

(a) Replacement cost – Accumulated Depreciation

(b) Historical cost – Salvage Value
(c) Historical cost – Depreciation portion thereof
(d) Original cost adjusted for general price-level changes

[Hints: (c) As per AS-10 on fixed assets, property plant equipment should be
presented in the
Balance Sheet at historical cost (gross book value) less depreciation = net book
value.]

232. Outstanding salaries is shown as

(a) An Asset in the Balance Sheet

(b) A Liability
(c) By adjusting it in the P & L A/c
(d) Both (b) and (c) above

[Hints: (d) Outstanding salaries is the expense relating to the current accounting
period but has not
been paid yet and therefore, it is a current liability.]

233. Insurance prepaid is shown as

(a) Current Asset

(b) Current Liability
(c) Fixed Asset
(d) Income

[Hints: (a) Prepaid insurance is the expense relating to the next accounting period
but has been
paid in the current accounting period and hence it is a current asset. The adjustment
would be to
deduct it from the respective expense account in the P&L A/c and show it as a
current asset in the
Balance Sheet.]

234. Depreciation appearing in the Trial Balance should be

(a) Debited to P&L A/c

(b) Shown as liability in Balance Sheet
(c) Reduced from related asset in Balance Sheet
(d) Both (a) and (c) above

[Hints: (a) Any item appearing in the Trial Balance will have one effect i.e.,
depreciation appearing
in the Trial Balance will be debited to the Profit & Loss Account. However, if
depreciation is given in
the adjustments, it will have double effect i.e., it should be debited to P&L A/c and
deducted from
the gross fixed asset block in the Balance Sheet also.]

235. A club paid subscription fees of `1,400. Out of which ` 200 is prepaid. In such
case

(a) P&L A/C is debited with ` 1,400

(b) P&L A/C is debited with ` 1,200
(c) ` 200 is shown as current asset
(d) Both (b) and (c) above

[Hints: (d) Adjustments for prepaid subscription fees:

P& L A/c Extract
Total subscription fees paid 1,400
Less: Subscription fees prepaid
Relating to next A/c period 200
Subscription fees 1200
The prepaid subscription fees of ` 200 will be shown as a current asset in the
Balance Sheet as it is
an expense relating to the next accounting period but has been paid in the current
accounting
period.]

236. Bad debts recovered is

(a) Credited to P&L A/c

(b) Debited to P&L A/c
(c) Reduced from debtors in Balance Sheet
(d) Added to debtors in Balance Sheet

[Hints: (a) Bad debts earlier written–off and later recovered is a profit to the firm and
hence they
are transferred to Profit & loss Account.]

237. The adjustment to be made for prepaid expenses is

(a) Add prepaid expenses to respective expenses and show it as an asset

(b) Deduct prepaid expenses from respective expenses and show it as an asset
(c) Add prepaid expenses to respective expenses and show it as a liability
(d) Deduct prepaid expenses from respective expenses and show it as a liability

[Hints: (b) Prepaid expense is an expense relating to the next accounting period but
has been paid
in the current accounting period and hence it is a current asset. The adjustment
would be to
deduct it from the respective expense account in the P&L A/c and show it as a
current asset in the
Balance Sheet.]

238. On scrutiny of a firm‘s books of accounts, it was observed that the following
errors have occurred in
the previous years but have not yet been rectified.
i. Depreciation for 2011-2012- ` 7,000 understated
ii. Accrued expenses as at March 31, 2013 - ` 10,000 understated
The impact of this on the reported net income for the year ending March 31, 2013 is
(a) ` 7,000 Overstated
(b) ` 10,000 Overstated
(c) ` 17,000 Understated
(d) ` 17,000 Overstated

[Hints: (b) Net income will be overstated by ` 10,000 because the accrued expense
are
understated. Under/ Overstatement of depreciation of the year 2011-2012 does not
affect the net
income of current year i.e., 2012-13.]

239. Which of the following entries is correct in respect of reserve for discounts on
accounts payable?

(a) Debit P&L A/c and Credit Reserve for Discount on Accounts Payable A/c
(b) Debit Accounts Payable A/c and Credit P&L A/c
(c) Debit Reserve for Discount on Accounts Payable A/c and Credit P&L A/c
(d) Debit Reserve for Discount on Accounts Payable A/c and credit Accounts
Payable A/c

[Hints: (c) The entry will be as follows:

Reserve for Discount on Creditors A/c……………………………………………… Dr.
To Profit & Loss A/c
It will be shown on the credit side as a separate item and will be shown on the
Liabilities side by
way of deduction from the Sundry Creditors.]

240. Sundry debtors as per Trial Balance is ` 43,000 which includes ` 2,200 due from
‗H‘ in respect of goods sent to him on approval basis, the cost price of which is `
1,800. Rectification would involve:

(a) Adding ` 2,200 to closing stock

(b) Deducting ` 1,800 from closing stock and deducting ` 2,200 each from debtors
and sales
(c) Adding ` 1,800 to closing stock and deducting ` 2,200 each from debtors and
sales
(d) Deducting ` 1,800 from debtors

241. Goods in stock worth ` 800 are destroyed by fire and the Insurance Co. is
accepted the claim for
600. Adjustment would involve:
(a) Debit of ` 800 to Trading Account and credit of ` 600 and ` 200 to insurance
company and
Profit and Loss Account respectively
(b) Deduct the ` 800 from closing stock in the Trading Account
(c) Credit insurance company for ` 600
(d) Debit of ` 600 and ` 200 to insurance company and Profit and Loss Account
respectively and
credit of ` 800 to Trading Account

242. Prepaid expenses are valued on the Balance Sheet at

(a) Replacement cost

(b) Current cost
(c) Cost to acquire less accumulated amortization
(d) Cost less expired portion

[Hints: (d) Prepaid expenses are the expenses which relate to the unexpired portion
of the benefit
of the expense. Hence, these are valued on the Balance Sheet at the cost less
expired portion.]

243. Which of the following relationships is/are false?

(a) Net Profit = Gross Profit – Administration and Other expenses

(b) Net Profit = Gross Profit + Administration expenses and Other expenses
(c) Opening Stock + Purchases – Closing Stock = Cost of Sales
(d) Both (b) and (c) above

[Hints: (d) Net Profit= Gross Profit- Administration and other expenses. Hence option
(b) is false.
Opening stock+ Purchases-Closing stock= Cost of material consumed not cost of
sales.
Option (c ) is false.]

244. Gross Profit is equal to

(a) Sales – Cost of goods sold

(b) Sales – Closing Stock + Purchases
(c) Opening Stock + Purchases – Closing Stock
(d) None of the above

245. Which of the following shall not be deducted from net profit while calculating
managerial
remuneration?

(a) Loss on sale of undertaking

(b) Debts considered bad and written off
(c) Liability arising from a breach of contract
(d) Director‘s remuneration
[Hints: (d) Director‘s remuneration shall not be deducted from net profit while
calculating
managerial remuneration.]

246. Which of the following equations is correct?

(a) Gross Profit+ Sales+ Direct expenses+ Purchases+ Closing stock = Opening
stock
(b) Gross Profit+ Sales+ Direct expenses+ Purchases- Closing stock = Opening
Stock
(c) Gross Profit + Opening Stock + Direct expenses + Purchases- Closing stock =
Sales
(d) Gross Profit – Opening Stock + Direct expenses + Purchases +Closing stock =
Sales

247. Which of the following is not true with regard to preparation of Profit & Loss
Account?

(a) Profit & Loss Account is prepared for a certain period and hence it is an interim
statement
(b) Profit & Loss Account does not disclose the effect of non-financial items
(c) Net Profits are ascertained on the basis of current costs
(d) Net Profits as disclosed by P&L Account is not absolute

248. The Profit and Loss Account shows the

(a) Financial results of the concern for a period

(b) Financial position of the concern on a particular date
(c) Financial results of the concern on a particular date
(d) Cost of goods sold during the period

[Hints: (a) A profit and Loss Account is prepared for the period ending which shows
the financial or
operating results of the concern for a period.]

249. Which of the following statements is true?

(a) Provision for doubtful debts represents the amount that cannot be collected
(b) Cash balance on hand shows whether the business has earned Profit or Loss
(c) Free samples received are business gains
(d) The WDV of an asset depreciated on the reducing balance method can never
become zero

250. Cash Profit is

(a) Net profit – Non-trading Profit – Depreciation and provision

(b) Gross Profit – Non-trading Profit + Depreciation and provision
(c) Net Profit + Depreciation and provision
(d) Gross Profit – Operational expenses
[Hints: (c) Cash Profit is the Net Profit + Depreciation and Provision. Depreciation is
a non- cash
outflow which is deducted from the profit and therefore, it is added back to the net
profit to arrive
at the net cash profit.]

251. Which of the following statements is false?

(a) Provision for discount on debtors can be estimated only after computing the
provision for
doubtful debts
(b) All pre-received incomes under the cash system of accounting are current gains
(c) Cash balance on hand shows whether the business has earned Profit or Loss
(d) Capital expenditure should be shown in the books by debiting asset account and
crediting
supplier or cash account

252. Which of the following will not appear in Profit and Loss Account of a business?

(a) Drawings
(b) Bad debts
(c) Accrued expenses
(d) Reserve for discount on Sundry Creditors

[Hints: (a) Profit and Loss Account is an income statement which depicts all
incomes/gains and
expenses/losses during an accounting period. Drawings are neither an income nor
an expense to
be recorded in Profit and Loss Account. Thus (a) is the correct answer. The items in
other
alternatives are either expenses or accrued expenses or probable income of
discount on sundry
creditors. The depreciation, bad debts and provision for doubtful debts and accrued
expenses
appear in the Profit and Loss Account and provision for income i.e., provision for
discount on sundry
creditors. Hence (a) is the correct answer.]

253. Which of the following is not a financial statement?

(a) Profit and Loss Account

(b) Balance Sheet
(c) Funds Flow Statement
(d) Trial Balance

[Hints: (d) Trial Balance (d) is not a financial statement. It is a list of all accounts
showing
outstanding balances at the end of the accounting period. It helps in the preparation
of financial
statements. The Profit and Loss Account (a); Balance Sheet (b) and Funds Flow
statement (c) are
the financial statements prepared by a business entity. Funds flow statement though
categorized
as one of the financial statements, its preparation is not mandatory. Thus (d) is the
correct answer.]

254. If unexpired insurance appears in the Trial Balance, it should be

(a) Credited to the Profit & Loss Account

(b) Debited to the Profit & Loss Account
(c) Shown on the liabilities side of the Balance Sheet
(d) Shown on the assets side of the Balance Sheet

[Hints: (d) Unexpired insurance or prepaid insurance must be shown on the assets
side of the
Balance Sheet, because it is an asset. It cannot be shown on the liabilities side of
the Balance
Sheet. It cannot be debited to Profit & Loss A/c. Also it cannot be credited to Profit &
Loss A/c.
Hence (d) is true.]

255. Which of the following are/is not a fixed asset?

(a) Stock
(b) Vehicle
(c) Fixed deposit in bank
(d) Both (a) and (c) above

256. Which of the following are/is a current asset?

(a) Sundry Debtors

(b) Stock
(c) Prepaid insurance
(d) All of (a), (b) and (c) above

257. Tax deducted at source appears in the Balance Sheet

(a) On the assets side under current assets

(b) On the assets side under loans and advances
(c) On the liabilities side under current liabilities
(d) On the liabilities side under provisions

258. Which of the following statements is false?

(a) Balance Sheet discloses financial position of the business

(b) A person who owes to the business is called Debtor
(c) Decrease in the value of the asset could decrease the value of a liability
(d) Assets are to be shown in the Balance Sheet at the realizable value
[Hints: (d) AS-10 on Accounting for Fixed Assets states that fixed assets are to be
shown in the
Balance Sheet at their actual cost.]

259. Which of the following statements is true?

(a) The balance of the goods account shows the value of stock in hand
(b) Balancing of all accounts must be done at the end of each day
(c) Assets which are to remain in business for continuous use and not meant for
conversion into
cash are fixed assets
(d) Balance Sheet discloses income position of the business

260. The Balance Sheet gives information regarding the

(a) Results of operations for a particular period

(b) Financial position during a particular period
(c) Profit earning capacity for a particular period
(d) Financial position as on a particular date

261. Which of the following accounts appear(s) in the Balance Sheet of a business?

i. Stock at the end of the financial year

ii. Stock at the beginning of the financial year
iii. Drawings
iv. Prepaid Rent
v. Interest received but not yet earned
(a) Only (i) above
(b) Only (iii) above
(c) Both (i)and (iii) above
(d) (i), (iii), (iv) and (v) above

[Hints: (d) Stock at the end of the financial year is the closing stock, drawings are the
amounts
withdrawn by the owner of the business for personal use; and prepaid rent is the
amount of rent
which is paid in advance of the current financial year and interest received but not
yet earned is
the amount of interest received which does not pertain to the current year are the
items that
appear in the Balance Sheet of a business. Stock at the beginning of the financial
year is the
opening stock that appears in Trading Account of a business and not in the Balance
Sheet. Thus
(d), the combination of all the accounts in alternatives (i), (iii), (iv) and (v) is the
correct answer.]

262. Computers taken on hire by a business for a period of twelve months should be
classified as
(a) Current assets
(b) Intangible assets
(c) Deferred revenue expenditure
(d) Not an asset

[Hints: (d) Computers taken on hire by a business for a period of twelve months is
not an asset
because it is not owned by the business to be classified as asset. Thus, the correct
answer is (d).
Since it is not an asset it cannot be classified as any asset and other alternatives are
not the correct
answers.]

263. Which of the following is not an intangible asset?

(a) Trade mark

(b) Franchise
(c) Accounts Receivable
(d) Secret Profit

[Hints: (c) An accounts receivable is not an intangible asset. It is the amount that the
business has
to receive from its debtors. The other assets mentioned in alternatives a, b, and d-
trademark,
franchises and secret processes are intangible assets. Hence, the correct answer is
(c).]

264. Which of the following is a current liability?

(a) Prepaid expenses

(b) Trademark
(c) Discount on issue of shares
(d) Outstanding Salaries

[Hints: (d) Outstanding salaries are short term obligations expected to be paid off
during the short
period of time. So, it is a current liability. Prepaid expenses, trademark and discount
on issue of
shares are assets. Hence, (d) is correct answer.]

265. Based on which of the following concepts, is Share Capital Account shown on
the liabilities side of a Balance Sheet?

(a) Business entity concept

(b) Money measurement concept
(c) Going concern concept
(d) Matching concept

[Hints: (a) Share capital is the contribution made by the owner(s) and is regarded as
a liability to
the business in the nature of owner‘s equity. The underlying feature for this treatment
is the
distinction between the owner(s) and that of the business owned by them. According
to business
entry concept whenever an owner brings capital into the business, the business in
turn is deemed
to owe the capital to the owner. As such the share capital account is treated as a
liability to the
business and shown under liabilities. The other concepts are not correct because,
(b) Money measurement concept explains that in financial accountancy, a record is
made only of
information that can be expressed in monetary terms and ignores other events,
however significant
they may be. It is silent about the treatment of share capital account.
(c) Going concern concept explains that the resources of the concern would continue
to be used
for the purposes for which they are meant to be used. The very categorization of
assets into fixed
and current presupposes the going concern concept. It does not deal about the
treatment of
share capital account.
(d) Conservatism concept: The theme behind this principle is that recognition of
revenue requires
better evidence than recognition of expenses. It deals with revenues and expenses
and not the
share capital account.]

266. Which of the following is not a contingent liability?

(a) Debts included in Sundry Debtors which are doubtful in nature

(b) Uncalled liability on partly paid shares
(c) Claims against the company not acknowledged as debts
(d) Arrears of fixed cumulative dividend

[Hints: (a) A contingent liability is the loss which will be known or determined only on
the
occurrence or non- occurrence of one or more future uncertain events. Debts of
debtors is not an
uncertain event but only the realization of a part of the debt in doubtful for which
provision must
be provided and hence it is not a contingent liability. Items in other alternatives
uncalled liability on
partly paid shares (b) may be called up in the event of necessity, claims against the
company not
acknowledged as debts (c ) they may or may not turn out to be debts in future.
Arrears of
cumulative fixed dividend (d) are contingent liabilities.]

267. Which of the following are current assets of a business?

i. Income received in advance
ii. Stock
iii. Debtors
iv. Pre-paid expenses
v. Accrued income

(a) Both (i) and (iv) above

(b) Both (ii) and (iii) above
(c) (i),(ii) and (iii) above
(d) (ii),(iii),(iv) and (v) above

268. Which of the following statements is true?

(a) Bad Debts Recovered Account is transferred to Sundry Debtors Account

(b) Bill of exchange is drawn by the purchaser
(c) Trial Balance establishes the arithmetical accuracy of the accounting records
(d) A well maintained asset need not be depreciated

[Hints: (c) Bad debts recovery amount will be transferred to Profit & Loss Account
and not to Sundry
Debtors Account. Hence (a) is not correct. Bill of exchange is drawn by the drawer
i.e., the seller
and not the purchaser. According to Companies Act, all assets must be depreciated.
Hence (a),
(b) and (d) are not true. By tallying Trial Balance always proves the arithmetical
accuracy of the
accounting records. Hence (c) is correct.]

269. Closing entries are generally passed —

(a) At the time of opening new books of account

(b) At the time of closing the accounts
(c) During the course of accounting period any time
(d) After certification of accounts

270. Closing stock appearing in the Trial Balance is shown in –

(a) Trading A/c and Balance Sheet

(b) Profit and Loss A/c
(c) Balance Sheet only
(d) Trading A/c only

271. Depreciation Account appearing in the Trial Balance is shown in —

(a) Profit and Loss A/c

(b) Trading A/c
(c) Deducted from the concerned assets A/c
(d) Shown on the liability side
272. Profit on sale of old plant is shown –

(a) In Trading A/c

(b) In Profit and Loss Appropriation A/c
(c) Profit and Loss A/c
(d) Being a non operating item ignored

273. Carriage on goods purchased is shown in —

(a) Profit and Loss A/c

(b) Capitalized with work in progress
(c) Trading A/c
(d) Shown in Balance Sheet

274. Which of these is not an operating income

(a) Income from sale of trading goods

(b) Bad debts recovered
(c) Interest on FDs
(d) None

275. ABC holds an average inventory of ` 36,000(CP) with an inventory turnover of 5

times. If the firm makes a gross profit of 25% on sales, find the total sales of the
company

(a) ` 2,40,000
(b) ` 2,10,000
(c) ` 2,00,000
(d) ` 1,80,000

276. From the following details what will be the partners‘ commission?
Net profit before charging partners‘ commission `65,000. Partners‘ commission @
11% after
charging such commission

(a) 6441
(b) 5431
(c) 7654
(d) 9876

277. From the following details what will be the partners‘ commission?
Net profit before charging partners‘ commission `65,000. Partners‘ commission 11%
before
charging such commission

(a) 6441
(b) 5431
(c) 7150
(d) 5876
278. Arrangement of Balance Sheet in a logical order is known as —

(a) Dressing Balance Sheet

(b) Marshalling Balance Sheet
(c) Formatting Balance Sheet
(d) Make up of Balance Sheet

279. Improper valuation of inventory effects—

(a) Profitability
(b) Financial position
(c) Both
(d) Cash inflows

280. Find the cost of goods sold if goods are sold for ` 2,000 at 25% profit on cost

(a) ` 1,600
(b) ` 1,500
(c) ` 1,000
(d) ` 1,800

281. Find the value of opening stock from the following data.
Purchases ` 1,50,000, Closing stock ` 30,000 , Sales `2,20,000, Gross profit `
40,000.

(a) ` 50,000
(b) ` 55,000
(c) ` 60,000
(d) ` 65,000

282. A Bill of Exchange is drawn on 1st April, 2012 payable after 3 months. The due
date of the bill is

(a) 30th June,2012

(b) 1 st July,2012
(c) 4 th July,2012
(d) 4 th August,2012

[Hints: (d) Bill drawn on 1st April, 2012 payable after 3 months. The due date is 1st
April, 2012 + 3
months + 3 days of grace = 4th July, 2012.]

283. Which of the following statements is/are true?

(a) Noting charges are paid by the holder of the bill on the date of default
(b) A bill can be endorsed only thrice
(c) On renewal of bill the old bill is canceled
(d) Both (a) and (c) above
[Hints: (d) Noting charges are paid by the holder of the bill to get the bill noted for
dishonour on the
date of its dishonour. Statement (a) is true.
A bill can be endorsed any number of times, there is no limit to the number of
endorsements.
Statement (b) is false.
Renewal of bill takes place when the acceptor requests the drawer to cancel the old
bill and draw
a new bill. Hence statement (c ) is true.
Hence option (d) stating that statement (a) and (c) are the right choice.]

284. When bill discounted with the bank is dishonoured?

(a) Acceptor‘s Account is debited in the books of drawer

(b) Bills Receivable Account is credited in the books of drawer
(c) Bank Account is debited in the books of drawer
(d) Bills Payable Account is debited in the books of drawer

[Hints: (a) When a bill discounted with bank has been dishonoured, the drawer debits
the
Acceptors Account (restores the acceptor status a debtor for the amount due) and
credits the
Bank Account or Cash Account (the amount he pays to bank).
The acceptor debits the Bills Payable Account, the noting charges and credits the
Drawer‘s
Account (Restores the status quo of the creditor to whom he is due to pay).
Hence option (a) is correct. All other options are incorrect.]

285. Which of the following statements is/are false?

(a) Accommodation bills are drawn for the benefit of drawer only
(b) Bills sent for collection is an asset
(c) Bills of exchange cannot be drawn on a banker
(d) Both (a) and (c) above

[Hints: (d) Accommodation bills are drawn for the benefit of both the parties to the
bill. Hence
statement (a) is false.
Bills sent for collection in the books of the drawer is an asset replacing the Bills
Receivable (asset).
A cheque is a bill of exchange which is drawn on a banker, payable at sight. Hence
option (c ) is
false.
Hence option (d) the statements (a) and (c ) are false, is the right choice.]

286. In the books of the drawer, the accounting treatment involved on receipt of a bill
of exchange duly accepted by the drawee is

i. Debit Bills Receivable Account

ii. Debit Drawee‘s Account
iii. Credit Drawee‘s Account
iv. Credit Sales Account

(a) Only (i) above

(b) Both (ii) and (iv) above
(c) Both (i) and (iii) above
(d) Both (i) and (iv) above

[Hints: (c) In the books of the drawer, the accounting treatment involved on receipt of
a bill of
exchange duly accepted by the drawee is debit Bills Receivable Account and credit
Drawee‘s
Account .i.e., the combination of statements in (i) and (iii) alternative (c) is the correct
answer. The
other alternatives are incorrect because the combination of one correct answer with
the
statement of incorrect answer. Drawee‘s Account is debited (ii) as soon as a sale is
made or any
advances is made and Drawee‘s Account is not debited when the bill of exchange is
accepted
and sales is credited (iv) when the sale is made and not at the time of acceptance of
bill of
exchange. Thus, the alternatives (a), statement (i) (b), combination of (ii) and (iv) (d)
combination
of (i) and (iv) are incorrect.]

287. The noting charges levied on dishonour of an endorsed bill by the Notary Public
are to be borne by

(a) The drawer of the bill

(b) The person responsible for dishonour
(c) The holder of the bill
(d) The endorser of the bill

[Hints: (b) The noting charges are the charges paid to Notary Public for presenting a
bill for
payment and to note the fact of dishonour. The charges are to be borne by the
person responsible
for dishonour who is none other than the drawee. Thus, the correct answer is (b).
The drawer of the bill (a) is incorrect answer because the drawer may pay the
charges initially but
ultimately they are to be borne by the drawee. The holder of the (c) is entitled to
receive the
payment of the bill and to bear the noting charges on the bill. The endorser (d) may
be the drawer
of the bill in which case he will recover the noting charges from the drawee of the bill.
Thus (b) is
the correct answer.]

288. The drawer of a trade bill passes relevant entries with regard to the transaction
involved in it. But, in
case of an accommodation bill, he passes an entry in addition to the usual entries.
The additional
entry so passed is with respect to

(a) Discounting of the bill with the bank

(b) Payment of the bill on due date
(c) Remitting or receiving the amount
(d) Sending the bill to bank for collection

[Hints: (c ) In case of accommodation bills, the additional entry that is to be passed

other than the
usual entries passed with regard to trade bills in the books of the drawer is in respect
of (c )
remitting or receiving the amount at the time of discounting the bill and honouring the
bill at
maturity. The entries passed are the same in case of discounting the bill with the
bank (a) and no
additional entry is passed except for sending the share of proceeds to the drawee.
On payment of
the bill on due date (b) no additional entry is passed in the books of the drawer. If the
bill is sent to
the bank for collection, (d) the purpose behind the accommodation bill is defeated.
However, no
additional entry is required to be passed at the time of sending the bill to the bank for
collection
(d). Thus, (c) is the correct answer.]

289. Under which of the following situations, is journal entry not passed in the books
of the drawer?

(a) When a discounted bill is honoured by the drawee on the due date
(b) When a bill is sent to the bank for collection
(c) When a bill is renewed at the request of the drawee
(d) When a debtor accepts a bill drawn by the drawer

[Hints: (a) When a discounted bill is honoured by the drawee on the due date, (a) no
journal entry
is passed in the books of the drawer. The entry is passed at the time of discounting
of the bill itself
and no entry is required if the discounted bill is honoured on due date. Hence, (a) is
the correct
answer. The other alternatives are incorrect because, when a bill is sent to the bank
for collection
(b) a journal entry debiting bills sent to bank for collection and crediting Bills
Receivable is passed.
When a bill is renewed at the request of the drawee (c) a journal entry is passed
canceling the old
bill and raising a new bill with interest. When a debtor accepts a bill drawn by the
drawer (d) when
a debtor is converted to bills receivable and debtors balance is reduced and Bills
Receivable
account is increased to extent of the amount passing a journal entry to that effect.
Thus, (a) is the
correct answer.]

290. Which of the following is not a feature of a promissory note?

(a) It must be in writing

(b) It contains an unconditional promise to pay
(c) It is payable to the bearer
(d) It must be signed by the maker

[Hints: (c) According to the Negotiable Instrument Act, promissory note is not
payable to the
bearer. It must contain an order to pay. So this is not the characteristic of promissory
note. Other
options are the characteristics of promissory note.]
281 c 282 c 283 d 284 a 285 d 286 c 287 b
288 c 289 a 290 c

291. How many parties are generally found in a Bill of Exchange

(a) 4
(b) 2
(c) 3
(d) 5

292. X draws a Bill of Exchange on Y for ` 10,000 on 1-1-2013 for 3 months. The due
date of the bill will be —

(a) 4-4-2013
(b) 3-4-2013
(c) 1-4-2013
(d) 31-3-2013

293. When a B/R is endorsed by the Drawer what entry is passed by the Drawee—

(a) B/R A/c Dr. to Drawer A/c Cr.

(b) B/P A/c Dr. to Drawer A/c Cr.
(c) 3
rd Party‘s A/c Dr. to B/P A/c Cr.
(d) No entry at all

294. When a B/R is discounted, what entry is passed by the Drawee—

(a) Bank A/c Dr. to B/R Cr.

(b) Drawer A/c Dr. to B/R A/c Cr.
(c) B/R A/c Dr. to B/P A/c Cr.
(d) No entry
295. Noting charges are ultimately borne by—

(a) Drawee
(b) Drawer
(c) Payee
(d) None

296. Negotiable Instrument Act was enacted in—

(a) 1981
(b) 1881
(c) 1871
(d) 2001

297. Which of these is not an essential feature of a bill of exchange

(a) Unconditional
(b) Certainty of amount
(c) In writing
(d) Amount to be paid in foreign currency

298. A foreign bill of exchange is generally drawn up in —

(a) Triplicate
(b) Duplicate
(c) Single
(d) Quadruplicate

299. Which of these are not required in a promissory note

(a) Acceptance
(b) Unconditional promise to pay
(c) Properly stamped
(d) Payment to be made legal currency

300. Accommodation bills are generally for —

(a) Genuine trade reasons

(b) For mutual financial accommodation
(c) To help augment money supply
(d) All the three

Answers:

201 a 202 b 203 a

204 a 205 a 206 b 207 c 208 c 209 b 210 b
211 a 212 a 213 d 214 d 215 a 216 b 217 d
218 a 219 a 220 d 221 c 222 a 223 d 224 b
225 b 226 b 227 a 228 d 229 b 230 d 231 c
232 d 233 a 234 a 235 d 236 a 237 b 238 b
239 c 240 c 241 d 242 d 243 d 244 a 245 d
246 c 247 a 248 a 249 d 250 c 251 c 252 a
253 d 254 d 255 d 256 d 257 c 258 d 259 c
260 d 261 d 262 d 263 c 264 d 265 a 266 a
267 d 268 c 269 b 270 c 271 a 272 c 273 c
274 c 275 a 276 a 277 c 278 b 279 c 280 a
281 c 282 c 283 d 284 a 285 d 286 c 287 b
288 c 289 a 290 c 291 c 292 a 293 d 294 d
295 a 296 b 297 d 298 a 299 a 300 b 301 b