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Financial
Accounting Multiple Choice Questions (MCQS) Page 11. 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.
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
