Paper: 5 Financial Accounting Multiple Choice Question/Answer
(1) Which of the following is a resource owned by the business with the purpose of using it for generating future profits?
a) Loan from Bank.
b) Owner's Capital.
c) Trade Mark.
d) All of the above.
(2) Chandu & Co.'s Account is a
a) Real Account.
b) Nominal Account.
c) Representative Personal Account.
d) Artificial Personal Accounts.
(3) Purchase of a laptop for office use wrongly debited to Purchase Account. It is an error of
a) Omission.
b) Commission.
c) Principle.
d) Misposting.
(4) Which of the following term is most suitable for writing off Patent?
a) Depletion.
b) Amortization.
c) Depreciation.
d) All of the above.
(5) Memorandum Joint Venture Account is prepared when
a) the separate set of books is maintained for Joint Venture.
b) the each Co-venturer keeps records of all transactions.
c) the each Co-venturer keeps records of their own transactions only.
d) All of the above cases.
(6) Which of the following commission is allowed by the consignor to the consignee to encourage the consignee for putting-up hard work in introducing new product in the market?
a) Del-credere Commission.
b) Over-riding Commission.
c) Hard work Commission.
d) Ordinary Commission.
(7)If Ram's acceptance which was endorsed by us in favour of Saleem is dishonoured, then the amount will be debited in our books to
a) Saleem.
b) Ram.
c) Bills Receivable Account.
d) None of the above.
(8) In case of a Club, the excess of expenditure over income is called as
a) Surplus.
b) Deficit.
c) Capital Fund.
d) Investment in Fixed Assets.
(9) A Charitable Institution has 250 members with a annual subscription of 5,000 each. The subscription received during 2018-19 were 11,25,000, which include 65,000 and 25,000 for the years of 2017-18 and 2019-20 respectively. Amount of outstanding subscription for the 2018-19 will be:
a) Rs. 90,000.
b) Rs. 1,25,000.
c) Rs. 2,15,000.
d) Rs. 1,90,000.
(10) The following are details of closing stock items in Aarvi Limited:
Items | Historical Cost (Rs. in Lakh) | Net Realisable Value (Rs. in Lakh) |
A | 30 | 27 |
B | 15 | 18 |
C | 35 | 35 |
D | 40 | 45 |
The value of Closing Stock will be
a) Rs. 120 Lakh.
b) Rs. 125 Lakh.
c) Rs. 117 Lakh.
d) Rs. 128 Lakh.
(11) Which of the following is not a Qualitative Characteristics of Financial Statement?
a) Cost Principle.
b) Understandability.
c) Relevance.
d) Reliability.
(12) Name the book in which, entries are recorded on the basis of credit notes issued.
a) Sales Book.
b) Purchase Book.
c) Sales Return Book.
d) Purchase Return Book.
(13) Exception to consistency principle is
a) Cost Principle.
b) Going Concern Principle.
c) Matching Principle.
d) Prudence Principle.
(14) Interest charged by vendor in Hire Purchase System, is calculated on the basis of
a) Outstanding hire purchase price.
b) Outstanding cash price.
c) Instalment amount.
d) Cost price of the asset.
(15) The balance in consignment account shows
a) Amount receivable from consignee.
b) Amount payable to consignee.
c) Profit/ loss on consignment.
d) Closing stock with consignee.
(16) Provision for bad debts is
a) Real Account.
b) Nominal account.
c) Personal account.
d) None of the above.
(17) The business is treated as distinct and separate from its owners on the basis of the
a) Going concern concept.
b) Conservatism concept.
c) Matching concept.
d) Business entity concept.
(18) Due to retrospective effect on revision of salary of employees, the arrears of salary relating to past years, payable in current year is
a) Prior - period item.
b) Extra - ordinary item.
c) Ordinary item requiring separate disclosure.
d) Contingent item.
(19) Discount given in the Sales - Invoice itself is
a) Cash discount.
b) Trade discount.
c) Rebate.
d) Allowance.
(20) Canteen expenses are apportioned among departments in the proportion of
a) Departmental floor space.
b) Departmental direct wages.
c) Departmental sales.
d) Departmental No. of employees.
(21) Both cash and credit transactions are recorded, on the basis of
a) Accounting Period Concept.
b) Going Concern Concept.
c) Business Entity Concept.
d) Accrual Concept.
(22) Which of the following book is both a journal and a ledger?
a) Cash Book.
b) Sales Day Book.
c) Bills Receivable Book.
d) Journal Proper.
(23) Interest received in advance account is a
a) Nominal Account.
b) Real Account.
c) Artificial Personal Account.
d) Representative Personal Account.
(24) Shiva draws a bill on Sanat on 25th October, 2018 for 90 days, the maturity date of the bill will be
a) 27th January, 2019.
b) 26th January, 2019.
c) 25th January, 2019.
d) 28th January, 2019.
(25) Peeru and Simu are entered in the business of buy and sale of food grain for a period of one year and sharing the profit in the ratio of 3 : 2, this agreement is a
b) Partnership.
c) Consignment.
d) Joint-venture.
e) Lease.
(26) At the end of the year 2017-18, Prepaid Insurance Premium Rs. 7,500 appeared in the Trial Balance, it will be shown
a) only in Profit & Loss Account.
b) only in Balance Sheet.
c) both in Profit & Loss Account and in Balance Sheet.
d) not in Both in Profit & Loss Account and in Balance Sheet.
(27) Contingent Liability would appear
a) on the liabilities side of the Balance Sheet.
b) on the assets side of the Balance Sheet.
c) as a note in the Balance Sheet.
d) None of the above.
(28) Debtors Ledger Adjustment Account is opened in the
a) Debtors Ledger.
b) Creditors Ledger.
c) General Ledger.
d) Both Creditors Ledger and General Ledger.
(29) Generally sacrifice ratio is concerned with the situation of
a) Admission of a new partner.
b) Retirement of a partner.
c) Dissolution of firm.
d) Conversion of firm into company.
(30) KCS purchased a machine from JPS on hire purchase system, whose cash price was Rs.8,64,000. Rs.2,16,000 being paid on delivery and balance in three annual instalments of Rs.2,88,000 each. The amount of interest included in first installment would be
a) Rs. 72,000.
b) Rs. 57,600.
c) Rs. 1,08,000.
d) Rs. 36,000.
(31) If an employee of the business files a legal suit on business, it is considered in the books as a
a) Legal Expense.
b) Liability.
c) Contingent Asset.
d) Contingent Liability.
(32) At the end of the accounting year the capital expenditures are shown in the
a) assets side of the Balance Sheet.
b) liabilities side of the Balance Sheet.
c) debit side of the Profit and Loss A/c.
d) credit side of the Profit and Loss A/c.
(33) Which of the following is not a method of charging depreciation?
a) Sinking Fund Method.
b) Sum of years Digit Method.
c) Working hours Method.
d) Asset's Life-cycle Method.
(34) If average inventory is Rs. 1,25,000 and closing inventory is Rs. 10,000 less than opening inventory then the value of closing inventory will be
a) Rs. 1,35,000.
b) Rs. 1,15,000.
c) Rs. 1,30,000.
d) Rs. 1,20,000.
(35) The Accommodation bill is drawn
a) to finance actual purchase or sale of goods.
b) to facilitate trade transmission.
c) when both parties are in need of funds.
d) None of the above.
(36) Balance of X's account in creditors ledger is transferred to X's account in debtors ledger, in this case
a) X's account in debtors ledger will be debited.
b) X's account in creditors ledger will be debited.
c) Suspense account will be debited.
d) None of the above.
(37)Ground rent or surface rent means
a) Minimum rent.
b) Maximum royalty payable.
c) Minimum royalty payable.
d) Fixed rent payable in addition to minimum rent.
(38)Accounting standard in India are issued by
a) Government of India.
b) Reserve Bank of India.
c) The Institute of Chartered Accountants of India.
d) The Institute of Accounting Standard of India.
(39) As on 31st March, 2017 debtors; and additional bad debts are Rs. 8,00,000 and Rs. 10,000 respectively. If the provision for bad debts is made at 5% on debtors then amount of such provision will be:
a) Rs. 40,000.
b) Rs. 50,000.
c) Rs. 39,500.
d) Rs. 40,500.
(40) Income and Expenditure Account is a
a) Nominal Account.
b) Real Account.
c) Personal Account.
d) Artificial Personal Account.
(41) Creditors ledger adjustment account is opened in
a) General Ledger.
b) Debtors Ledger.
c) Creditors Ledger.
d) Either (B) or (C).
(42) Receipts and Payments account is a
a) Nominal Account.
b) Real Account.
c) Personal Account.
d) Artificial Personal Account.
(43) A resource owned by the business with purpose of using it for generating future profit, is known as
a) Capital.
b) Asset.
c) Liability.
d) Surplus.
(44) Outward Invoice issued is a source document of
a) Purchase Book.
b) Sales Book.
c) Return Inward Book.
d) Return Outward Book.
(45) Which of the following is of capital nature?
a) Commission on purchases.
b) Cost of repairs.
c) Rent of factory.
d) Wages paid for installation of machinery.
(46) If any stock is taken by a co-venturer, it will be treated as
a) an income of the joint venture.
b) an expense of the joint venture.
c) to be ignored from joint venture.
d) it will be treated in the personal books of the co-venturer.
(47) Contingent liability would appear
a) on the liability side of the Balance Sheet.
b) on the assets side of the Balance Sheet.
c) do not shown in the books of accounts.
d) as a note in Balance Sheet.
(48)Income statement of a Charitable Institution is known as
a) Statement of profit and loss.
b) Receipts and Payments Account.
c) Income and Expenditure Account.
d) Profit and Loss Account.
(49) Which of the following account is mainly prepared at the time of dissolution of the firm
a) Revaluation A/c.
b) Goodwill A/c.
c) Realization A/c.
d) Memorandum Revaluation A/c.
(50) Advertisement expenses are apportioned among departments in the proportion of
a) sales of each department.
b) purchases of each department.
c) no. of units sold by each department.
d) cost of sales of each department.
(51) The accounting measurement that is not consistent with the Going Concern concept is
(a) Historical Cost
(b) Realization
(c) The Transaction Approach
(d) Liquidation Value
(52) 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)
(53) Depreciation is a process of
(a) Valuation
(b) Valuation and allocation
(c) Allocation
(d) Appropriation
(54) X Ltd., purchased goods for 5 lakh and sold 9/10th of the value of goods for 6 lakh. Net expenses during the year were 25, 000. The company reported its net profit as 75,000. Which of the following concept is violated by the company?
(a) Realization
(b) Conservation
(c) Matching
(d) Accrual
(55) Payment received from Debtor
(a) Decreases the Total Assets
(b) Increases the Total Assets
(c) Results in no change in the Total Assets
(d) Increases the Total Liabilities
(56) Bank Reconciliation Statement is prepared to :
(a) rectify the mistakes in pass book
(b) to rectify the mistakes in cash book
(c) to arrive at balance as per bank statement
(d) to find the reasons to differences in balances as per Cash Book and Bank Statement
(57) Which of the following is a Revenue Expenditure?
(a) Construction of Factory shed
(b) Sales Tax paid in connection with purchase of Office Equipment
(c) Legal Expenses in connection with defending a title to firm’s property
(d) Installation of new Machinery
(58) Capital is shown on the liability side because of :
(a) Business Entity Concept
(b) Conservatism Concept
(c) Accrual Concept
(d) Duality Concept
(59) Depreciation is a process of :
(a) apportionment
(b) valuation
(c) allocation
(d) appropriation
(60) For Sales Return at Branch, in case of dependent branches, entry to be passed in HO books,
(a) Debit Branch Debtors A/c, Credit Branch Stock A/c
(b) Debit Sales A/c, Credit Branch Debtors A/c
(c) Debit Sales A/c, Credit Branch Stock A/c
(d) Debit Branch Stock A/c, Credit Branch Debtors A/c
(61) Which of the following is treated as contingent liability as per AS 4?
(a) Obligations under retirement benefit plan
(b) Commitments arising from long term lease contract
(c) Arrears of fixed cumulative dividends
(d) Liabilities of Life and General Insurance out of policies issued by enterprise
(62) A and B are partners sharing profits in the ratio 1:2. C is admitted and the new profit sharing ratio is 1:2:3. Sacrificing ratio is
(A) 1:3
(B) 2:1
(C) 3:1
(D) 1:2
(63) Total assets of a firm is 1,20,000 outside liability amounted to 60,000, total capital contributed by the partners would be
(A) 60,000
(B) 40,000
(C) 1,00,000
(D) 20,000
(64) What would be the cost of goods sold from the following details:
Opening Stock 4,000
Sales 45,000
Direct Expenses 5,000
Indirect Expenses 6,000
Closing Stock 2,000
Gross Profit 5,000
(A) 28,000
(B) 33,000
(C) 32,000
(D) 27,000
Hint: (B) 33,000 Workings : Cost of Goods Sold = (Sales + Closing Stock) – (Op Stock + Direct Expenses + Gross Profit) = ` 47,000 – ` 14,000 = ` 33,000
(65) PQR Ltd. held an average inventory of finished goods of 40,000 (CP) with an inventory turnover ratio of 5. If the gross profit is 25% on the cost of goods sold. What is the total sales during the year?
(A) 2,00,000
(B) 2,50,000
(C) 1,25,000
(D) 2,40,000
(66) MGS Co. purchased a machine costing 1,25,000 for its manufacturing operations and paid shipping costs of ` 30,000. MGS spent an additional 12,000 testing and preparing the machine for use. What amount should MGS record as the cost of machine? (AS-10)
(A) 1,25,000
(B) 1,55,000
(C) 1,67,000
(D) 42,000
(67) Independent Branch meant when separate account are maintained by :
(A) H. O.
(B) Branch
(C) Both
(D) None of these
(68) Which of the following item of cost is not a part of inventory
(A) Storage expenses
B) Normal wastages
(C) Inward freight
(D) Customs duties
(69) In case of Hire-Purchase the total sum payable by the hire-purchaser as per terms in order to complete the transactions is
(A) Net Cash Price
(B) Net Hire-Purchase Charges
(C) Hire-Purchase Price
(D) Cash Price Instalment.
(70) Which of the following statement is true
(A) The shares are bought back to increase the holding of the promoters
(B) The shares are bought back to improve the financial health of the company
(C) The shares are bought back to increase the Earning per share
(D) All of above.
(71) Both total assets and owners capital are increased by:
(A) Credit Purchase
(B) Retained Earning
(C) Bank Loan
(D) Drawings
(72) The Accounting Standard on ‘the Effect of Changes in foreign exchange rates’ is
(A) AS -11
(B) AS -15
(C) AS -18
(D) None of these
(73) Arrangement of balance sheet in a proper way is known as
(A) Marshalling of Balance Sheet
(B) Formatting of Balance Sheet
(C) Finalization of Balance Sheet
(D) Grouping of Balance Sheet
(74) In accounting equation :
(a) Equity and assets are dependent variables.
(b) Assets and liabilities are dependent variables.
(c) Equity and liabilities are dependent variables.
(d) None of the above.
(75) Payment of Rs. 1,00,000 towards salaries and wages results in :
(a) Increase in equity by Rs. 1,00,000.
(b) Decrease in equity by Rs.1,00,000.
(c) Decrease in equity by Rs. 1,00,000, if it does not include any advance payment of salaries and wages.
(d) None of the above.
(76) Pre-paid insurance premium should be classified as a :
(a) Current asset.
(b) Fictitious asset.
(c) Non-current asset.
(d) None of the above.
(77) Deferred revenue expenditure is expenditure :
(a) That should be recognized as an asset.
(b) That is in the nature of revenue expenditure , but recognition of the same as an expense is deferred as a matter of prudence.
(c) That does not pass the test of asset recognition , but recognition of the same as an expense is deferred to match revenue with expenses.
(d) That though benefiting more than one reporting period ,does not pass the tests of asset recognition.
(78) Realisation account is opened at the time of
(A) Admission of a new partner
(B) Retirement of a partner
(C) Dissolution of the Firm
(D) In all the above situations
(79) In the hire purchase system interest charged by vendor is calculated on the basis of
(A) Outstanding Cash Price
(B) Hire Purchase Price
(C) Instalment amount
(D) None of the above
(80) Bad debts are apportioned among departments in the proportion of
(A) Sales of each department
(B) Number of units sold by each department
(C) Cost of sales of each department
(D) None of the above
(81) The following account has a credit balance
(A) Plant and Equipment A/c
(B) Purchase Returns A/c
(C) Purchase A/c
(D) None of the above
(82) The amortisation of amount of software commences from the date when it is
(A) Available for use
(B) Put to use
(C) Developed upto 75%
(D) None of the above
(83) In the case of non-profit organisation donations received by the organisation are reflected in:
(A) Income and Expenditure Account
(B) Capital Account
(C) Receipts and Payments Account
(D) None of the above
(84) Which of the following items is shown in the Income and Expenditure Account?
(A) Only items of capital nature
(B) Only items of revenue nature which are received during the year
(C) Only items of revenue nature pertaining to the period of accounts
(D) Both the items of capital and revenue nature
(85) A heavy revenue expenditure, which helps to generate revenue over more than one accounting year is termed as
(A) Preliminary Expenditure
(B) Revenue Expenditure
(C) Prepaid Expenditure
(D) Deferred Revenue Expenditure
(86) During the year 96,000 was Debited as salary in the Income Expenditure Account. There was outstanding on Salary Account at the beginning and at the end of the year were 12,000 and 15,000 respectively. The amount of salary paid shown in Receipt and Payments Account would be:
(A) 84,000
(B) 81,000
(C) 93,000
(D) None of the above
(87) Bank Reconciliation Statement is
(A) Ledger Account
(B) Part of Cash Book
(C) A separate statement
(D) A sub-division of Journal
(88) A firm employs 2,00,000 as Capital and the normal rate of return is 10%. If the firm makes an average profit of ` 30,000 per year, the value of Goodwill by considering it as the purchase of 3 years super profit will be:
(A) 25,000
(B) 20,000
(C) 30,000
(D) None of the above
(89) Goods are sent to the Branch at cost plus 25%. The loading on invoice price is
(A) 20%
(B) 25%
(C) 30%
(D) None of the above
(90) Dual concept in accounting results in the following equation :
(A) Capital + Liability = Assets
(B) Revenue = Expenses
(C) Capital + Profit = Assets
(D) Total Assets = Total Liability
(91) Under which of the following heads is claims against a Company not acknowledged as debts shown?
(A) Unsecured Loan
(B) Current Liability
(C) Current Assets
(D) Contingent Liability
(92) From the four alternative answers given against each indicate the correct answer :
(A) Periodic inventory system
(B) Perpetual inventory system
(C) Both of (A) and (B)
(D) None of (A) and (B)
(93) The cost of a Fixed Assets of a business has to be written off over its
(A) Natural Life
(B) Accounting Life
(C) Physical Life
(D) Estimated Economic Life
(94) Shortworkings can be recouped out of
(A) Minimum rent
(B) Excess of actual Royalty over minimum rent
(C) Excess of minimum rent over actual Royalty
(D) Profit and Loss Account
(95) In Hire Purchase system cash price plus interest is known as
(A) Capital value of asset
(B) Book value of asset
(C) Hire purchase price of asset
(D) Hire purchase charges
(96) In partnership when a new Partner brings his share of Goodwill in cash, then the amount of such Goodwill will be credited to Partners’ capitals as per the following ratio :
(A) Old Profit sharing ratio
(B) Sacrifice ratio
(C) Gain ratio
(D) None of the above
(97) The Receipts and Payments Account generally begins with
(A) Credit Balance
(B) Debit Balance
(C) Both Debit and Credit Balance
(D) None of the above
(98) When Sales = 1,80,000, Purchase = 1,60,000, Opening Stock = 34,000 and rate of the Gross Profit is 20% on cost, the Closing Stock would be
(A) 50,000
(B) 44,000
(C) 46,000
(D) None of the above
(99) Goods are transferred from Department X to Department Y at a price so as to include a profit of 33.33% on cost. If the value of closing stock of Department Y is 18,000, then the amount of stock reserve on closing stock will be
(A) 6,000
(B) 4,500
(C) 9,000
(D) None of the above
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