Financial
Accounting Multiple Choice Questions (MCQS) Page 10. The Following Financial
Accounting Mcqs are Collected from different Past papers and from Accounting
Mcqs Bank. These Mcqs are very helpful for the Preparation of
various posts of Senior Auditor, Junior Auditor, Accountant and for
Cost Accountant.
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
