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Amity Campus Uttar Pradesh India 201303
ASSIGNMENTS PROGRAM: BFIA
SEMESTER-VI
Subject Name: FINANCIAL ACCOUNTING
Study COUNTRY: SOMALIA
Permanent Enrollment Number (PEN)
A40010214649
Roll Number (Reg. No.): MFC001512014-2016091
Student Name: MOHAMED ABDULLAHI KHALAF
INSTRUCTIONS
a) Students are required to submit all three assignment sets.
ASSIGNMENT DETAILS MARKS
Assignment A Five Subjective Questions 10
Assignment B Three Subjective Questions + Case Study 10
Assignment C Objective or one line Questions 10
b) Total weight-age given to these assignments is 30%. OR 30 Marks c) All assignments are to be completed as typed in word/pdf. d) All questions are required to be attempted. e) All the three assignments are to be completed by due dates and need to be submitted for evaluation by Amity University. f) The students have to attach a scanned signature in the form.
Signature : _________________________
Date: 06, January, 2015
( √ ) Tick mark in front of the assignments submitted
Assignment A’ Assignment ‘B’ Assignment ‘C’
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FINANCIAL ACCOUNTING
ASSIGNMENT (A)
Q: 1). Define Accounting. How does it differ from book-keeping?
Answer:
Definition: “Accounting is an Art of Recording, classifying, summarizing & reporting of transactions with the aim of showing the financial health of an entity- a business unit, a club, a charitable organization, etc one which has its incomes & expenses”
Thus, the process of accounting involves recording, classifying and summarizing of past events and transactions of financial nature, with a view to enabling the user of accounts to interpret the resulting summary.
Accounting means reckoning or recounting. In an organizational context too, ‘accounting’ has more or less the same meaning. As an organization comes into being and commences operations, one would like to evaluate the organizations past performance for various reasons. However, in order to be able to do so, it is necessary that as far as possible whatever has transpired in the organization be ‘reckoned’ or ‘recounted’ in a summarized form in monetary terms. Thus, the process of accounting involves recording, classifying and summarizing of past events and transactions of financial nature, with a view to enabling the user of accounts to interpret the resulting summary.
The American Institute of Certified Public Accountants defines accounting as “the art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events which are, in part at least, of a financial character, and interpreting the results thereof”.
Book-keeping is a part of Accounting and an Accounting is a part of Accountancy.
Accountancy: refers to a systematic knowledge of accounting.
Accounting: Refers to the actual process of preparing & presenting the accounts.
Accountancy
Accounting
Book-Keeping
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Book-keeping: is the part of accounting & is concerned with record keeping or maintaining of books of accounting which is often routine & clerical in nature.
The difference between Accounting and book-keeping:
Accounting is broader in scope than bookkeeping, which is merely concerned with orderly record keeping. Going beyond the narrow confines of bookkeeping, accounting involves analysis and judgment at different stages such as recording of transactions, classification, summarization and interpretation.
Distinction between Accounting and Book-keeping in Tabular form:
Basis of Distinction Book-keeping Accounting
1 Scope
It involves identification, measurement, recording & classification of transaction
In addition it involves summarizing classified transactions. Analyzing, interpreting & communicating the same.
2 Stage It’s a primary stage It’s a secondary stage, starts where book-keeping ends
3 Basic Objective To maintain systematic records
To ascertain net results of operations & financial position of the co
4 Who Performs Performed by junior staff By senior staff
5 Knowledge level
Not required a high level of knowledge
It needs a high level of knowledge
6 Analytical Skill Not required Required
7 Nature of Job Routine & clerical Analytical
8 Supervision & Checking
Supervised by an accountant
Whereas its work is not supervised by a book-keeper
Q: 2). What is basic accounting equation?
The basic accounting equation, also called the balance sheet equation, represents the relationship between the assets, liabilities, and owner's equity of a business. It is the foundation for the double-entry bookkeeping system.
Under the duality concept of accounting, sources of funds must always equal to uses of funds and from this equality was derived the fundamental accounting equation.
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Basic Accounting Equation is an accounting principle and rule which states that the business resources (assets) are attributable to the amount owed to creditors (liabilities) and capital invested by the owners (equity/capital). It is formulated as follows:
ASSETS = CAPITAL + LIABILITIES
Asset pertains to the resources available and used in sustaining the operation of the business. It includes cash, accounts receivable, inventory, office supplies, equipment, building, land, goodwill, patent, etc.
Liability refers to the amount of debts owed to outside person or entity, known as creditors. It represents the claim of creditors in the assets of the business. It includes accounts payable, loans payable, notes payable, bonds payable, unearned revenue, etc.
Capital/Equity is the amount of capital or resources invested in the business by the owner(s). It represents the claim of owners in the assets of the business. It consist of capital, drawing, common stock, additional paid in capital, preferred stock, retained earnings, net income, net loss.
Q: 3). What is Journalizing? Give a format of Journal & briefly explain its content.
Answer:
A journal records all daily transactions of a business in the order of their occurrence. A journal may, therefore, be defined as a book containing a chronological record of transactions. It is also called a book of prime entry or original entry. Thus, journalizing is concerned with the recording of identified and measured financial transactions in an orderly manner into the journal.
The Format of Journal looks like this
The journal consists of five columns:
1) Date Column: The date on which transactions have taken place is entered in the date column.
2) Particulars Column: Two aspects of the transaction are recorded in the particulars column. A brief description of the transaction is also given in the particulars column.
3) L.F. Column: The Ledger Folio (L.F.) column is meant for writing the number of the page in the ledger in which the particular transaction is entered.
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4) Debit Column: The amount to be debited is entered in the debit column. 5) Credit Column: The amount to be credited is entered in the credit column.
Q: 4). What are the advantages of special Journal & list them.
Answer:
When the number of transactions is large, it is practically impossible to record all the transactions through one journal. Special journal refer to journals meant for specific transactions of similar nature. Special journals are also known as subsidiary books or day books. Special journals are constructed to achieve great efficiencies in journalizing transactions. The Performa & number of special journals vary according to the requirements of each enterprise. In any large organization following special journals are generally used:
Name of special journal Specific transactions to be recorded
1 Cash Journals
(a) Simple cash book
(b) cash book with discount column
© cash book with bank & discount column
(d) petty cash book
Cash transactions
Cash & discount transactions
Cash, bank & discount transactions
Petty cash transactions
2 Goods Journals
(a) Purchase book
(b) Sales book
© Sales return book (return inward book)
(d) Purchase return book (return outward book)
Credit purchases of goods
Credit sales of goods
Goods returned by those customers to whom goods were sold on credit
Goods returned to those customers from whom goods were purchased on credit
3. Bills Journals
(a) Bills receivable book
(b) Bills payable book
Bills receivable drawn
Bills payable accepted
4 Journal Proper Those transactions which do not fall within the scope of special journal
Advantages of Special Journals (Subsidiary Books)
1) Facilitates division of work 2) Permits the installation of internal check system 3) Permits the use of specialized skill
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4) Time & labour saving in journalizing & posting
Q: 5). State the reasons for the difference between the cash book balance & pass book balance.
Answer:
Cash book is a subsidiary book which records the receipts and payment of cash. With the help of cash book cash and bank balance can be checked at any point of time.
On the other hand, Pass Book is a book issued by Bank to an account holder. It is almost a copy of the account of the customer in the books of bank. The bank keeps the customer informed of the entries made in his account through Pass Book. It is the customer’s duty to check the entries and immediately inform the bank of any error that he may have noticed.
The cash Book and Pass Book are prepared separately. The Businessman prepares the Cash Book and the Pass Book is prepared by the Bank. But as both the books are related to one person and same transactions are recorded in both the books so the balance of both the books should match i.e. the balance as per Pass Book should match to balance at bank as per cash book. But many a times these two balances do not agree then, it becomes necessary to reconcile them by preparing a statement which is called Bank Reconciliation Statement. A BANK RECONCILIATION STATEMENT may be defined as a statement showing the items of differences between the cash Brook balance and the pass book balance, prepared on any day for reconciling the two balances.
A transaction relating to bank has to be recorded in both the books i.e. Cash Book and Pass Book but sometimes it happens that a bank transaction is recorded only in one book and not recorded simultaneously in other book this causes difference in the two balances.
Reasons of difference between cash book & pass book balance are:
1) Cheque Issued But Not Presented For Payment:
When cheque is issued then immediately make entry in the cash book. The cheque issued can be presented for payment to the bank within six month from the date of cheque as per banking law. The cheque is presented for payment after the expiry of the above period then payment is refused by the bank. This cheque is also known as stale cheque. It is possible at the time when the balances of the two books are being compared, thus more chances of causing a disagreement between the two balances.
2) Cheque Paid Into The Bank But Not Yet Cleared:
As soon as the cheque is deposited into the bank, the immediately entry is passed in the cash book. This will make entry in pass book only when cheque is cleared. It is possible at the
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time when the balances of the two books are being compared, thus more chances of causing a disagreement between the two balances.
3) Interest Allowed By The Bank:
Bank might have credited the account of the customer with the interest and may have made the entry in the pass book. It is possible that the entry of such interest may not have been made by the customer in the cash book, thus causing a disagreement between the two balances.
4) Interest And Bank Charges Debited By Bank:
Sometime bank charges interest from the customer then immediately entry in the pass book but not in cash book. So, in this case when check the balance between cash and bank book then disagreement between the two balances. So, it is the main reason to create difference between two books.
5) Interest, Dividend Collected By The Bank:
Sometime interest on government security or dividend on share is collected by the bank and is credited to customer account. If the entry does not appear in the cash book then balance will differ.
6) Direct Payment By Bank:
Sometimes, understanding instruction from the clients certain payment like insurance premium, club fees installment etc. are made by the bank. Then this entry is recorded only in the pass book. This entry is made in the cash book only when the necessary intimation to that effect is received from the bank by the client. The entries in the cash and pass book may be on different dates.
7) Direct Payment Into The Bank By A Customer:
Sometimes, our customer deposit money direct into the account in the bank. It is only recorded in the pass book not in the cash book. It is possible at the time when the balances of the two books are being compared, thus more chances of causing a disagreement between the two balances.
8) Dishonour Of Bill Discounted With The Bank:
Sometimes, customer gets their bills discounted with the bank. If the bank is not able to get payment of these bills on the due date, it will debit the customer account with the amount of the bills together with the nothing charges if any. The customer will pass the entry in the
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cash book only. When balances of the two books are being compared, thus more chances of causing a disagreement between the two balances.
9) Dishonour Of Cheque:
When the received cheque is deposited into bank, these are immediately recorded in the cash book. As a result cash book balance is increased. But the deposited cheque is dishonoured due to lack of funds or due to other reasons. Bank does not credit the amount of the depositor. As a result disagreement between the two balances.
10) Error And Omissions:
If any error is committed either by the bank or by a customer in the cash book while recording a transaction in their respective books, it causing a disagreement between the two balances.
The error may be:
1. Under cast/overcast of receipt side or payment side.
2. Bank charges omitted from the banks or recorded twice in the books.
3. Wrong carry forward of cash book balance.
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ASSIGNMENT ‘B’
Q: 1). Define depreciation. Differentiate, with suitable example, between Diminishing Balance Method & Straight Line Method of charging depreciation.
Answer:
Depreciation refers to gradual decrease or loss in the value of asset due to usage, passage of time and normal wear and tear. This gradual fall in the value of the asset is of permanent nature which cannot be made good by normal repair and maintenance.
International Accounting Standard Committee defines depreciation as “the allocation of the depreciable amount of an asset over its estimated life”.
Whereas Accounting Standard (AS-6) issued by Institute of Chartered Accounting of India defines depreciation as follows: “Depreciation is measure of wearing out consumption or other loss of value of 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 assets”.
Provision is created in a company’s account towards depreciation to account for the wear and tear of its assets caused by usage, passage of time, technological obsolescence, etc. while depreciation does not involve payment of money to any third party; it is nevertheless an accounting entry in the books.
Depreciation is the acquisition cost of an asset (less the expected salvage value) spread over the economic life of that asset.
The purpose of charging depreciation over the economic life of the asset is to match the cost of the asset over the period for which revenue is earned by using the asset.
The two methods basically used for charging depreciation are:
1) Straight Line Method
Under the straight-line method, the net acquisition cost or construction cost is charged off in equal proportion during the useful economic life and the quantum of the depreciation is arrived at by dividing the net acquisition or construction cost by the number of years of useful economic life. The net acquisition or construction cost is calculated by deducting salvage value from the acquisition or construction cost.
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For example, if the cost of an asset is Rs.1,00,000, the expected salvage value is Rs.20,000 and the estimated useful life is 8 years, the annual depreciation would be = Rs.10,000 or 10% per annum.
2) Diminishing Balance Method
Under this method the depreciation charged in the various years will not be equal over the useful life of the asset.
This is because the depreciation charge every year is calculated as a percentage of the outstanding balance of the asset as at the beginning of that particular year and not on the original cost of the asset.
The percentage of depreciation to be charged under the declining balance method can be determined as under
Where,
r = rate of depreciation under the written down value method
n = estimated useful life of the asset in years
s = residual value or scrap value of the asset
c = original cost of the asset.
Please note that if the residual or scrap value of an asset is zero, the rate of depreciation cannot be determined using the above formula.
For example:
Original Cost of the Machine- Rs.1,00,000
Estimated Scrap Value - Rs.30,000
Useful Life - 6 years
The calculation of depreciation for each of the years would be as follows:
r = 1 – (30,000/1,00,000)1/6 = 18%
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Year Calculation of depn. Depreciation Written down value
1 1,00,000 x 18% 18,000 82,000
2 82,000 x 18% 14,760 67,240
3 67,240 x 18% 12,103 55,137
4 55,137 x 18% 9,925 45,212
5 45,212 x 18% 8,138 37,074
6 37,074 x 18% 6,673 30,401
Comparison between Strait Line Method Diminishing Balance Method of Depreciation
Explanation:
In the above diagram we see that irrespective of the time period the amount of depreciation charged is same under the straight line method. But in case of written down value method the amount of depreciation charged falls down as the time period increases.
The depreciation charged under this method is more in the initial years and keeps on falling as the number of years of usage increase.
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Differences between the diminishing balance and straight line method
Straight Line Diminishing Balance
1 A fixed amount of depreciation is charged A fixed rate of depreciation is charged
2 The asset may or may not have scrap value The asset must have a significant scrap value
3 The amount of depreciation per year is same The amount of depreciation goes on reducing with each passing year.
4 In the first year, the depreciation is charged on the cost of the asset, less scrap value, if any
In the first year, the depreciation is charged on the asset
5 At the end of its life, the book value of the asset becomes zero
The book value of the asset never reduces to zero.
Q: 2). Define Bills of Exchange and explain the parties involved in it.
Answer:
The Negotiable Instruments Act defines a Bill Of Exchange as “an instrument in writing, containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument”.
The features of bills of exchange are:
1) It is a written document.
2) It is an unconditional order to pay a certain sum of money.
3) It is signed by the maker (or drawer) of the bill.
4) It must be dated and properly stamped.
5) The amount must be payable to a definite person or to his order or the bearer of the instrument.
6) It must be accepted by the drawee.
The person who draws the bill is called the Drawer. The person who accepts the order is known as drawee and the person to whom the amount has to be paid is known as the payee. Drawer and the payee can be the same person.
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Q: 3). Distinguish between capital expenditure & revenue expenditure.
Answer:
Capital Expenditure refers to expenditure that the benefit of which is not fully derived in one year but spread over several periods. Examples for capital expenditure are – acquisition of assets for the purpose of earning, additions to fixed assets to improve its capacity, expenditure resulting in long-term benefit to the business, etc. Expenses like Preliminary expenses, Research and Development expenditure, Interest paid during Construction period, etc. are taken to assets side of Balance Sheet and shown under ‘Miscellaneous Expenditure’.
A capital expenditure is an amount spent to acquire or improve a long-term asset such as equipment or buildings. Usually the cost is recorded in an account classified as Property, Plant and Equipment. The cost (except for the cost of land) will then be charged to depreciation expense over the useful life of the asset.
Revenue Expenditure is an expenditure incurred and the benefit of which is derived in the year in which the expenditure was incurred. Examples are – raw materials, repairs, depreciation, rent, wages, etc. Such expenses are debited to Profit and Loss account. Any incomes and gains are credited to Profit and Loss account. Examples are – Commission received, Dividend received, Interest received etc. Net Profit is transferred to capital account in the balance sheet.
Revenue expenditure is an amount that is expensed immediately—thereby being matched with revenues of the current accounting period. Routine repairs are revenue expenditures because they are charged directly to an account such as Repairs and Maintenance Expense. Even significant repairs that do not extend the life of the asset or do not improve the asset (the repairs merely return the asset back to its previous condition) are revenue expenditures.
Expenditure on fixed assets may be classified into Capital Expenditure and Revenue Expenditure. The distinction between the nature of capital and revenue expenditure is important as only capital expenditure is included in the cost of fixed asset.
Capital Expenditure
Capital expenditure includes costs incurred on the acquisition of a fixed asset and any subsequent expenditure that increases the earning capacity of an existing fixed asset.
The cost of acquisition not only includes the cost of purchases but also any additional costs incurred in bringing the fixed asset into its present location and condition (e.g. delivery costs).
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Capital expenditure, as opposed to revenue expenditure, is generally of a one-off kind and its benefit is derived over several accounting periods. Capital Expenditure may include the following:
Purchase costs (less any discount received) Delivery costs Legal charges Installation costs Up gradation costs Replacement costs
As capital expenditure results in increase in the fixed asset of the entity, the accounting entry is as follows:
Debit Fixed Assets
Credit Cash/Payable
Revenue Expenditure
Revenue expenditure incurred on fixed assets include costs that are aimed at 'maintaining' rather than enhancing the earning capacity of the assets. These are costs that are incurred on a regular basis and the benefit from these costs is obtained over a relatively short period of time. For example, a company buys a machine for the production of biscuits. Whereas the initial purchase and installation costs would be classified as capital expenditure, any subsequent repair and maintenance charges incurred in the future will be classified as revenue expenditure. This is so because repair and maintenance costs do not increase the earning capacity of the machine but only maintains it (i.e. machine will produce the same quantity of biscuits as it did when it was first put to use).
Revenue costs therefore comprise of the following:
Repair costs Maintenance charges Repainting costs Renewal expenses
As revenue costs do not form part of the fixed asset cost, they are expensed in the income statement in the period in which they are incurred. The accounting entry to record revenue expenditure is therefore as follows:
Debit Revenue Expense (Income Statement)
Credit Cash/Payable
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Q: 4). Case Study:
The following is the Trial Balance of Gupta as on 30th June, 2001 Trial Balance of Gupta for the year ending
30th June, 2001 Dr. Cr.
Particulars Rs. Particulars Rs.
Cash
Cash at Bank
Purchases
Return inwards
Wages
Fuel and power
Carriage on sales
Carriage on Purchases
Inventory (1st July, 2000)
Buildings
Freehold land
Machinery
Patents
Salaries
General expenses
Insurance
Drawings
Accounts receivable
540
2,630
40,675
680
8,480
4,730
3,200
2,040
5,760
32,000
10,000
20,000
7,500
15,000
3,000
600
5,245
14,500
Sales account
Returns outwards
Capital
Accounts payable
Rent
98,780
500
62,000
6,300
9,000
1,76,580 1,76,580
Taking into account the following adjustments prepare the Trading, Profit and Loss account as on 30th June, 2001.
1) Inventory on hand on 30th June, 2001 is Rs.6,800 2) Machinery is to be depreciated at the rate of 10% and Patents at the rate of 20%. 3) Salaries for the month of June 2001amounting to Rs.1,500 were unpaid. 4) Insurance includes an annual premium of Rs.170 on a policy expiring on 31st
December, 2001. 5) Bad debts to be written off are Rs.725. 6) Rent receivable Rs.1,000.
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SOLUTION:
1) Trading Account:
Gupta Trading Account
30th June, 2001
Particulars Rs Particulars Rs
To Opening Inventory
To Purchases 40,675
Less: Returns 500
To wages
To carriage on purchase
To factory fuel & power
To Gross Profit c/d
5760
40,175
8,480
2,040
4,730
43,715
By Sales 98,780
Less: Returns 680
By Closing Inventory
98,100
6,800
1,04,900 1,04,900
2) Profit and Loss account
Gupta Profit and Loss Account
For the year ending 30th June, 2001
Particulars Rs Particulars Rs
To Carriage on sales To Salaries 15,000 Add: Outstanding 1,500 To General Expenses To Insurance 600 Less: Unexpired insurance 85 To Depreciation on: Machinery 2,000 Patents 1,500 To Bad debts
To Net Profit transferred to Capital a/c
3200
16,500 3,000
515
3,500 725
26,275
By Gross Profit b/d By rent 9000 Add: Accrued rent 1000
43,715
10,000
53,715 53,715
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ASSIGNMENT ‘C’ OBJECTIVE QUESTIONS
In each of the following cases indicate the alternative which you consider to be correct:
Q: 1). Which of the following financial statements is prepared as of a particular date?
a) Profit and loss account
b) Balance sheet () c) Cash flow statement d) Income and expenditure statement e) Profit and loss appropriation account.
Q: 2). Based on which of the following concepts, share capital account is shown on the liability side of balance sheet?
a) Business entity concept () b) Money measurement concept c) Cost concept d) Going concern concept e) Conservatism concept.
Q: 3). Which of the following is not an accounting transaction?
a) Sale of goods for cash b) Payment of salary of office staff
c) Agreement to sell () d) Purchase of office furniture e) Repayment of bank loan.
Q: 4). Which of the following is false?
a) Taking the favourable balance as per pass book as the starting point, the amount in respect of charges made by the bank will be added to the pass book balance
b) Taking the favourable balance as per pass book as the starting point, the amount in respect of dividends received directly will be deducted from the pass book balance
c) Bank charges recorded twice in cash book will be added to the overdraft as
per cash book in the preparation of reconciliation statement () d) Cheque issued but not presented for payment will be added when favourable
balance as per cash book is the starting point e) The amount of the undercasting of the credit side of the bank column of the cash
book will be deducted from the overdraft as per pass book.
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Q: 5). From the books of Mr. Neelam, it was observed that cheques amounting to Rs. 2,40,000 were deposited in the bank, out of which cheques worth Rs. 20,000 were dishonored and cheques worth Rs. 40,000 are still in the process of collection. The treatment of this while preparing Bank Reconciliation Statement is
a) Deduct Rs.60,000 from bank balance as per pass book b) Add Rs.20,000 and deduct Rs.40,000 from overdraft balance as per cash book
c) Deduct Rs.60,000 from overdraft balance as per pass book () d) Add Rs.60,000 to overdraft balance as per pass book e) Deduct Rs.40,000 and add Rs.20,000 from overdraft balance as per pass book.
Q: 6). Which of the following is true?
a) Bank account is a personal account () b) Stock of stationery account is a nominal account c) Returns inward account is a personal account d) Outstanding rent account is a nominal account e) Capital account is a real account.
Q: 7). A sales day book is to record
a) all credit sales only b) All cash sales only c) all credit and cash sales
d) credit sales of goods and trade discount () e) All cash and credit sales and trade discount.
Q: 8). Which of the following is a liability of a firm?
a) Debit balance of discount column of cash book b) Credit balance of bank pass book c) Debit balance of bank column of cash book d) Debit balance of cash column of cash book
e) Credit balance of bank column of cash book ()
Q: 9). Which of the following accounts will invariably have a debit balance?
I. Accounts receivable. II. Accounts payable.
III. Purchases account. IV. Bank account. V. Prepaid expenditure.
a) Only (III) above b) Both (II) and (III) above c) Both (I) and (III) above
d) (I), (III) and (V) above () e) (I), (III), (IV) and (V) above.
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Q: 10). The following is not a book of original entry
a) Purchase book b) Journal proper c) Cash book
d) General ledger () e) sales book
Q: 11). The Accountant of a company is recording the transactions of the day in various Books of Original Entry. Which of the following transactions is recorded in the wrong book?
a) Goods purchased on credit - Purchase Book b) Goods sold on credit - Sales Book c) Wages paid in cash - Cash Book
d) General Stationery purchased on credit - Purchase Book () e) Office Equipment purchased on credit - Journal Proper
Q: 12). The impact on assets, profit and liabilities of a firm, on account of salary paid will be
Assets Profit Total Liabilities a) No effect Decreases Decreases b) Decreases No effect Decreases
c) Decreases Decreases Decreases () d) Increases No effect Increases e) Decreases Increases Decreases.
Q: 13). Which of the following is true?
a) Discount columns in cash book are totaled and not balanced () b) A petty cash book in which a separate column is provided to record payment
under each head is called imprest system c) The total of purchases book is posted periodically on the credit side of sundry
creditors account d) The total of sales book is posted periodically on the debit side of sundry debtors
account e) Petty cash book is used to record all cash transactions.
Q: 14). Total of sales day book at the end of the month indicates
a) The total sales for the month
b) The total credit sales for the month () c) Total cash sales of the month d) Total amount due to suppliers e) Total amount receivable from credit sales.
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Q: 15). Which of the following is true?
a) Cash book may be defined as the record of transactions concerning cash
receipts and payments () b) Discount account should be balanced in the cash book c) The ledger is the book of original entry d) Sales journal is used for recording cash sales e) Purchase return book is used for recording the return of goods purchased from
suppliers against cash.
Q: 16). Journal entry for receiving interest in cash from Mr. Prashant against the loan given to him
a) Interest on loan account Dr. To Prashant account
b) Prashant account Dr. To Interest account
c) Cash account Dr. To Prashant account
d) Cash account Dr.
To Interest on loan account () e) Cash account Dr.
To Loan account.
Q: 17). Which of the following entries recorded in the books of the drawee of a bill is false?
a) When a bill is accepted, the account to be debited is drawer’s a/c b) When a bill is discharged, the account to be debited is bills payable a/c c) When a bill presented for payment by a bank is dishonored, the account to be
debited is bills payable a/c d) When noting charges of a dishonored bill is paid by the endorsee ,the account to
be debited is noting charges a/c e) At the time of retirement of a bill the account to be debited is the drawer’s
a/c ()
Q: 18). Which of the following is true?
a) A bill sent for collection by bank when dishonored, the drawer will credit bank a/c
b) At the time of renewal of bill interest a/c is credited in the books of the drawee c) Accommodation bills are drawn, accepted and endorsed for some consideration d) Refusal by the acceptor to make payment of the bill on due date is called
dishonor () e) When a bill is endorsed, the drawer credits the drawee’s a/c.
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Q: 19). Bills receivable account is a
a) Nominal account b) Personal account c) Intangible asset
d) Real account () e) Representative Personal account.
Q: 20). Closing stock is generally valued at
a) Cost price b) Replacement cost c) Market price d) Realisable value
e) Cost price or market price whichever is lower ()
Q: 21). The provision for discount on debtors is calculated on the amount of debtors
a) Before deducting the provision for doubtful debts b) Left after deducting the provision for doubtful debts c) Before deducting the actual bad debts d) After deducting the actual bad debts e) After deducting the actual bad debts and the provision for doubtful debts
()
Q: 22). Consider the following information of Thumbs-up Company for the year 2006-2007:
Opening balance of provision for debtors account Rs. 20,000 Bad debts during the year Rs. 18,000 Closing balance of Sundry debtors Rs.2,65,000 Estimated provision for doubtful debts 4% The amount to be debited to profit and loss account to make the estimated provision is
a) Rs. 8,600 () b) Rs.10,400 c) Rs.10,520 d) Rs.10,600 e) Rs.10,680.
Q: 23). At the time of preparation of final accounts, bad debts recovered account will be transferred to
a) Debtor’s account
b) Profit & loss account () c) Profit & loss adjustment account d) Profit & loss appropriation account e) Provision for discount on debtors account.
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Q: 24). Which of the following is false about diminishing balance method of depreciation?
a) Higher amount of depreciation is charged when the machine is more efficient b) It recognizes the risk of obsolescence by higher amount of depreciation in the
early years c) The total amount of depreciation and repairs is almost uniformally distributed
over the useful life d) It results in better cash flow through tax deferral as taxable income is lower in the
initial years
e) Depreciation amount throughout the useful life will be uniform ()
Q: 25). The following is not an example of fixed asset
a) Plant and machinery b) Land and building
c) Royalty () d) Patent e) Office furniture.
Q: 26). Under depletion method, depletion per unit is calculated as
a) Acquisition cost divided by average production units per annum b) Acquisition cost divided by actual production units in the year c) Acquisition cost minus residual value divided by average production units per
annum d) Acquisition cost minus residual value divided by the actual production units in the
year e) Acquisition cost minus residual value divided by the total production units
over the useful life ()
Q: 27). Which one of the following is a capital expenditure?
a) Compensation paid to Directors on termination of their services b) Expenditure for renewal of trade mark c) Gratuity paid to employees d) Installments paid for the purchase of patent for manufacture and sale of
medicine () e) Compensation paid to workers on retirement.
Q: 28). Entries passed for outstanding expenses, depreciation, interest on capital etc. are
a) Opening entries b) Journal entries
c) Adjustment entries () d) Rectification entries e) Closing entries.
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Q: 29). Which of following transactions does not change the total amount of liabilities in the balance sheet?
a) Purchase of office furniture on credit b) Payment of bank loan c) Issue of debentures
d) Acceptance of bills from creditors() e) Redemption of preference shares.
Q: 30). Which of the following is false?
a) Capital plus liabilities will be equal to assets
b) The difference between assets and liabilities is bank borrowing () c) Capital account is a personal account d) Investment account is a real account e) Outstanding rent account is a representative personal account.
Q: 31). The expenses and incomes pertaining to full trading period are taken to the Profit and Loss account of a business, irrespective of their actual payment or receipt. This is in recognition of
a) Time period concept b) Business entity concept c) Going concern concept
d) Accrual concept () e) Duality concept.
Q: 32). Which of the following statements can be used to assess the liquidity of a company?
a) Balance sheet () b) Profit and loss account c) Profit and loss appropriation account d) Bank reconciliation statement e) Manufacturing account.
Q: 33). Which of the following state that “Anticipate no profit and provide for all possible losses”?
a) Convention of materiality b) Convention of consistency c) Convention of disclosure
d) Convention of conservatism () e) Convention of matching.
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Q: 34). Which of the following statements is/are true?
I. Drawings account is a nominal account. II. Capital account is a real account.
III. Sales account is a nominal account. IV. Outstanding salaries account is a nominal account. V. Patents account is a personal account.
a) Only (I) above
b) Only (III) above () c) Both (II) and (IV) above d) (II), (IV) and (V) above e) (I), (II), (III) and (IV) above.
Q: 35). RS Ltd., makes purchases on credit. If the purchases are not as per the specifications, the company returns them to the suppliers. The book, that is used to record such returns is
a) Returns inward book
b) Returns outward book () c) Cash book d) Journal proper e) Purchases day book.
Q: 36). Which one of the following is not a reason for discrepancy in the balance as per cash book and bank pass book of a company?
a) Cheque issued to suppliers may not have been presented b) Cheque deposited in the account may not have been realized
c) Bill discounted with bank is not due for payment () d) Customers may have directly deposited money in the company’s account e) Bank charges not accounted.
Q: 37). The bank balance in the cash book of Mr.Avinash, a proprietor showed a credit balance of Rs.10,500 on March 31, 2008. On comparing it with his pass book he discovered the following discrepancies.
i. Cheque No. 51 for Rs.540 in favour of Mr.Raman has not yet been presented. ii. A bill of Rs.1,000 was retired by the bank under a rebate for Rs.15, but the full
amount of the bill was credited to bank account in cash book.
The balance as per pass book is
a) Rs.11,025 (Dr.)
b) Rs. 9,945 (Dr.) () c) Rs. 9,945 (Cr.) d) Rs. 9,975 (Dr.) e) Rs. 9,975 (Cr.).
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Q: 38). The total cost of goods available for sale with a company during the current year is Rs.12,00,000 and the total sales during the period are Rs.13,00,000. If the gross profit margin of the company is 25% on sales, the closing inventory during the current year is
a) Rs.4,00,000 b) Rs.3,40,000
c) Rs.2,25,000 () d) Rs.1,60,000 e) Rs.1,00,000
Q: 39). Unearned income account is
a) A current asset
b) A current liability () c) An expense d) An income e) Deferred expense.
Q: 40). The essentials of double entry book-keeping in sequential order are
a) Passing journal entries, posting in ledger, appropriate adjusting entries, trial balance, Profit & Loss a/c and Balance-sheet
b) Passing journal entries, posting ledger, trial balance, Profit & Loss a/c and Balance-sheet, passing adjusting entries.
c) Passing journal entries, posting ledger, passing adjusting entries, Profit & Loss a/c and Balance sheet, trial balance
d) Passing adjusting entries, passing journal entries, trial balance, posting in ledger, Profit & Loss a/c and Balance-sheet
e) Passing journal entries, posting in ledger, trial balance, passing adjusting
entries, Profit & Loss a/c and Balance-sheet ().