Fundamentals of Accounting – Practice Test:
Which of the following are of capital nature?
(a) Purchase of a goods
(b) Cost of repair
(c) Wages paid for installation of machinery
(d) Rent of a factory
Abhishek purchased a computer on 1-4-16 for Rs.60,000 and another on 1-10-77 for Rs. 40, 000. He charged depreciation @ 20% p.a under straight line method. What will be the balance as on 31-03-19
(a) Rs.40,000
(b) Rs.64,000
(c) Rs.52,000
(d) Rs.48,000
Contra entries are passed only when
(a) Double column cash book is prepared
(b) Three-column cash book is prepared
(c) Simple cash book is prepared
(d) None of these
While finalizing the current year’s profit, the company realized that there was an error in the valuation of closing stock of the previous year. In the previous year, closing stock was valued more by Rs.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 understated and current year’s profit is also understated
(d) Previous year’s profit is overstated and current year’s profit is understated
Which of the following provide frame work and accounting policies so that the financial statements of different enterprises become comparable?
(a) Business Standards
(b) Accounting Standards
(c) Market Standards
(d) None of these
Which of the following statements regarding manufacturing accounts is correct?
(a) All manufacturing companies must prepare a manufacturing account.
(b) A manufacturing account is useful as an aid to financial reporting for manufacturing companies.
(c) A management accounting system is needed to produce a manufacturing account.
(d) Manufacturing accounts are always produced annually by manufacturing companies.
Securities premium used for the purpose of
(a) Dividends
(b) fully paid bonus shares
(c) capital loss
(d) none of these
The portion of the acquisition cost of the asset, yet to be allocated is known as ___
(a) Written down value
(b) Accumulated value
(c) Realisable value
(d) Salvage value
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At the time of death of a partner, firm gets ________ from the insurance company against the Joint Life Policy taken jointly for all the partners.
(a) Policy Amount
(b) Surrender Value
(c) Policy Value for the dead partner and Surrender Value for the rest
(d) Surrender Value for all the partners
Purchased the asset for Rs. 2,00,000 with available discount 20% then what amount should be credited to debentures A/c, when the purchase consideration is discharged by the issue of debentures.
(a) Rs.2,00,000
(b) Rs.1,80,000
(c) Rs. 1,60,000
(d) Rs.2,40,000
The credit balance in the ledger account shows
(a) revenue or an asset
(b) expense or an asset
(c) expense or an liability
(d) revenue or an liability
Working capital is ____
(a) Current Assets – Current liabilities
(b) Fixed Assets- Current liabilities
(c) Fixed Assets – liabilities
(d) Fixed Assets – Current Assets
An ordinary share dividend is:
(a) Part of the company profits used to reward the shareholders for their investment
(b) Interest on money lent to the company by its shareholders
(c) An expense of running the company
(d) The directors’ remuneration
As per Section 37 of the Indian Partnership Act, 1932, the executors would be entitled at their choice to the interest calculated from the date of death till the date of payment on the final amount due to the dead partner at ________ percentage per annum.
(a) 7
(b) 4
(c) 6
(d) 12
Ruchi paid Rs.1,200 on 1-7-18 towards yearly subscription (July 1, 2018 to June 30, 2019) of a newspaper. It means she has to make adjustment of _____ expenses for finalization of a/c for the year ended 31-3-19
(a) Rs.300 as prepaid
(b) Rs.300 as outstanding
(c) Rs.200 as prepaid
(d) Rs.200 as outstanding
Which of the following is not a method of pricing raw material issues from stock?
(a) Standard costing
(b) Unit cost
(c) Marginal cost
(d) Continuous weighted average
Which of the following statement is not true:
(a) If del-creder’s commission is allowed, bad debt will not be recorded in the books of consignor
(b) If del-creder’s commission is allowed, bad debt will be debited in consignment account
(c) Del-creder’s commission is allowed by consignor to consignee
(d) Del-creder’s commission is generally relevant for credit sales
Cost of goods sold Rs.10,000, Opening stock Rs.2,000 and Closing stock Rs. 3,000. Find the amount of purchases _____
(a) Rs.10,000
(b) Rs.11,000
(c) Rs.15,000
(d) Rs.9,000
Provision for bad and doubtful debts should be deducted in balance sheet from
(a) Capital
(b) Cash
(c) Debtors
(d) Creditors
Direct expenses are those which can be identified with particular products. Which of the following items is a direct cost?
(a) The rent of the factory in which products are made.
(b) The wages of the production supervisor.
(c) A royalty paid to the holder of a patent after each item is produced.
(d) The cost of the glue used to attach labels to the products.
The preparation of a trial balance is for:
(a) Locating errors of commission
(b) Locating errors of principle
(c) Locating clerical errors
(d) All of these
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The owner of the consignment stock is ________
(a) Consignor
(b) Consignee
(c) Debtors
(d) Debtors
Liability on bills discounted at the time of final accounts is treated as ____
(a) not an liability
(b) current liability
(c) differed liability
(d) contingent liability
Which of the following factors is likely to be an area of difficulty in a large multinational group of companies?
(a) Compliance with international accounting standards.
(b) Foreign currency translation.
(c) The preparation of the group financial statements.
(d) All of the above.
The sale __ is completed with reserved price
(a) sale by sample
(b) sale by description
(c) sale by auction
(d) sale by staple
On the death of partner, profit (or) loss on revaluation of assets and liabilities is transferred to the capital accounts of partners as per ____
(a) Sacrificing Ratio
(b) Gaining ratio
(c) New profit sharing ratio
(d) Old profit sharing ratio
If a concern proposes to discontinue its business from March 2023 and decides to dispose off all its assets within a period of 4 months, the Balance Sheet as on March 31, 2023 should indicate the assets at their ___
(a) Historical cost
(b) Net realizable value
(c) Cost less depreciation
(d) Cost price or market value, whichever is lower
A profit-making service sector entity records what is originally contributed by its shareholders in which account?
(a) Income and expenditure
(b) Accumulated fund
(c) Capital
(d) Members
Change in accounting estimate means
(a) Differences arising between certain parameters estimated earlier and reestimated during the current period.
(b) Differences arising between certain parameters estimated earlier and actual results achieved during the current period.
(c) Both
(d) None
Which of the following statements is correct in relation to a trial balance?
(a) It shows the financial position of a business.
(b) All the balances in the trial balance will be summarized on the business balance sheet.
(c) It is a list of balances and forms the starting point for the preparation of the business accounts.
(d) It is part of the published accounts of a business.
The current ratio is an indicator of which following characteristic of an organization?
(a) The current level of profitability
(b) The future level of profitability
(c) The investment potential
(d) The liquidity in the short term
Cash a/c is a ______
(a) Real a/c
(b) Nominal
(c) Personal
(d) None
__ is divided in current account and capital account
(a) Balance of Payment
(b) Customer Stock
(c) Credit
(d) Balance of Trade
RPC Ltd. follows the written down value method of depreciating machinery year after year due to
(a) Comparability
(b) Convenience
(c) Consistency
(d) All of these
Which of the following statements is correct?
(a) Accounting profit is the difference between cash receipts and cash paid in a period.
(b) Accounting profit is the total of cash sales in the year less the expenses for the period.
(c) Accounting profit is the difference between revenue income and expenses for the period.
(d) Accounting profit is the difference between revenue income and cash payments for the period.
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Which of the following is not a sub-field of accounting?
(a) Management accounting
(b) Cost accounting
(c) Financial accounting
(d) Book-keeping
A change in accounting policy is justified
(a) To comply with accounting standard
(b) To ensure more appropriate presentation of the financial statement of the enterprise
(c) To comply with law
(d) All of these
Which account is the odd one out?
(a) Office Furniture & Equipment
(b) Freehold Land and Buildings
(c) Stock of raw materials
(d) Plant and Machinery
In a cash flow statement a bonus issue will:
(a) be included in cash flow from investing activities
(b) be included in cash flow from financing activities
(c) not appear as no cash flow occurs as a result of a bonus issue
(d) be included as part of cash flow from operations
The balance of the petty cash is ____
(a) an expense
(b) income
(c) an asset
(d) liability
In Double Entry System of Book-keeping every business transaction affects:
(a) Two accounts
(b) Two sides of the same account
(c) The same account on two different dates
(d) All of these
Which of the following statements is true?
The main accounts of a debating society will consist of the following:
(a) An income and expenditure account and a balance sheet.
(b) A trading account, a profit and loss account and a balance sheet.
(c) A profit and loss account and a balance sheet.
(d) A trading account, an income and expenditure account and a balance sheet.
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Purchases book records:
(a) All cash purchases
(b) All credit purchases
(c) None of these
(d) Credit purchases of goods in trade
Interest on capital will be paid to the partners if provided for in the agreement but only from____
(a) Profits
(b) Reserves
(c) Accumulated Profits
(d) Goodwill
The double entry required to write off a specific bad debt is:
(a) Debit sales, credit trade debtor
(b) Debit profit and loss, credit trade debtor
(c) Debit trade debtor, credit profit and loss
(d) Debit profit and loss, credit provision for bad debts
Ans:Â (b)
If a venturer draws a bill on his co-venturer and if the drawer discounts the bill with same sets of books maintained, the discounting charges will be borne by__
(a) The discounting charges will be recorded in memorandum account
(b) The drawer of the bill
(c) The drawer of the bill
(d) The discounting charges will be borne by bank
Discount on issue of debentures is a _____
(a) Revenue loss to be charged in the year of issue
(b) Capital loss to be written off over the tenure of the debentures
(c) Capital loss to be shown as goodwill
(d) Capital loss to be written off from capital reserve
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Sales for the year ended 31st March, 2022 amounted to Rs. 10,00,000. Sales included goods sold to Mr. A for Rs. 50,000 at a profit of 20% on cost. Such goods are still lying in the warehouse at the buyer’s risk. Therefore, such goods should be treated as part of
(a) Sales
(b) Closing stock
(c) Goods in transit
(d) liability
Which of the following items is unlikely to be found in the directors’ report for a limited company?
(a) A description of the accounting policies of the company
(b) Details of corporate donations to charities
(c) Details of corporate donations to political parties
(d) Details of the company’s health and safety policy
Which of the following types of information are found in subsidiary ledgers, but not in the general ledger?
(a) Total cost of goods sold for the period
(b) The quantity of a particular product sold during the period
(c) The amount owed to a particular creditor
(d) The portion of total current assets that consist of cash
In the absence of any provision in the partnership agreement, profits and losses are shared
(a) In the ratio of capitals
(b) Equally
(c) In the ratio of loans given by them to the partnership firm
(d) None of these
If there is no agreement in between the partners for sharing profits & losses then they share profits or losses in the ratio of ___
(a) capital ratio at the beginning
(b) equally
(c) capital ratio at the ending
(d) none of the above
Which of the following statements best describes the purpose of financial accounting in a limited liability company?
(a) To assist in the day-to-day management of the company
(b) To enable the business to pay the correct amount of tax
(c) To ensure that the business pays the correct dividend
(d) To help the directors discharge their obligations to the shareholders
Revenue from sale of products, is generally, realized in the period in which
(a) Cash is collected
(b) Sale is made
(c) Products are manufactured
(d) None of these
A Bank Reconciliation Statement is prepared to know the causes for the difference between:
(a) the balance as per bank column of Cash Book and the Pass Book
(b) the balances as per cash column of Cash Book and the Pass Book
(c) the balance as per bank column of Cash Book and balances as per cash column of Cash Book
(d) None of these
An audit of most limited company financial statements is required because:
(a) The Cadbury Report into corporate governance recommended that one should be undertaken.
(b) The shareholders of a company usually request one.
(c) It is required by the Companies Act.
(d) Banks or other lenders usually request one to be carried out.
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Under inflationary conditions, ________ method will show highest value of closing stock?
(a) FIFO
(b) LIFO
(c) Weighted Average
(d) None of these
Fundamental accounting assumptions are
(a) Materiality
(b) Going concern
(c) Dual aspect
(d) Business entity
As per accrual concept, which of the followings is not true
(a) revenue – expenditure = profit
(b) revenue – profit = expenditure
(c) sales + gross profit = revenue
(d) revenue = profit + expenditure
In the case of downward revaluation of an asset, which is for the first time revalued, _______ account is debited.
(a) Fixed Asset
(b) Revaluation Reserve
(c) Profit & Loss account
(d) General Reserve
The determination of expenses for an accounting period is based on the principle of
(a) Objectivity
(b) Materiality
(c) Matching
(d) Periodicity
Calls in advance are recorded under which heading of the balance sheet?
(a) Share capital
(b) Reserves & Surplus
(c) Miscellaneous Expenditure
(d) none
Present liability of uncertain amount, which can be measured reliably by using a substantial degree of estimation, is termed as ___
(a) Provision
(b) Liability
(c) Contingent liability
(d) None of these
It is essential to standardize the accounting principles and policies in order to ensure
(a) Transparency
(b) Consistency
(c) Comparability
(d) All of these
In sale by description, subject matter can be in the form of
(a) sample words
(b) symbols
(c) numbers
(d) all of the above
When preparing a Bank Reconciliation Statement, if you start with a debit balance as per the Cash Book, then cheques issued but not presented within the period are _____
(a) Added
(b) Deducted
(c) Not required to be adjusted
(d) None of these
Which of the following errors are not revealed by the Trial Balance:
(a) compensating errors
(b) errors of commission
(c) wrong balancing of an account
(d) wrong totaling of an account
Statements of Standard Accounting Practice and Financial Reporting Standards should be complied with when preparing the final accounts of a limited company because:
(a) The Companies Act 1985 demands that they are used.
(b) The auditors will insist they are followed.
(c) The directors are under a legal obligation to ensure they are followed.
(d) They ensure that the accounts present a ‘true and fair view’.
The number of production or similar units expected to be obtained from the use of an asset by an enterprise is called as ____
(a) Unit life
(b) Useful life
(c) Production life
(d) Expected life
Loss on issue of debentures is treated as ___
(a) Intangible asset
(b) Current asset
(c) Current liability
(d) Miscellaneous expenditure
The liability of a partner in a firm to outside is _____
(a) Unlimited
(b) Unlimited up to their capital sharing ratio
(c) Unlimited up to their guaranteed amount
(d) Unlimited up to their profit sharing ratio
In the books of manufacturing concern, opening stock consists of
(a) Raw materials
(b) Work-in-progress
(c) Finished goods
(d) All of these
Dividends are usually paid as a percentage of ______
(a) Authorized share capital
(b) Net profit
(c) Paid-up capital
(d) Called-up capital
Dishonour of a cheque deposited in bank is recorded in:
(a) Returns inward book
(b) Bills receivable book
(c) Cash Book
(d) Sales book
Which statement is not correct in context to inflation accounting?
(a) It is not acceptable by the tax authority
(b) It may sometimes result in arbitrary profits
(c) Financial statements lose their credibility as the objectivity concept is violated
(d) Comparison of figures over a period of time cannot be done easily
According to _______personal expenses paid by owner from his own pocket should not be recorded in accounting books.
(a) Going concern Concept
(b) Cost Concept
(c) Business Entity Concept
(d) Conservatism
Which of the following accounting concepts are being followed when a company operates a provision for bad debts account?
(a) Consistency, prudence, accruals, going concern
(b) Accruals, consistency, going concern
(c) Prudence, consistency, going concern
(d) Prudence, accruals, going concern
Which of the following is not a feature of current cost accounting method?
(a) Stocks are shown at their replacement value
(b) Depreciation is calculated at the current value of assets
(c) Inventory consumed is valued at the price at the date of consumption
(d) Fixed assets are shown at their depreciated original cost
Overcastting of sales books could be rectified by
(a) Debiting suspense account and crediting sales account
(b) Debiting sales account and crediting suspense account
(c) Debiting cash account and crediting sales account
(d) Debiting sales account and crediting cash account
The buyer refused to take delivery and the seller refused to take return then the goods are
(a) Deemed to be in transit
(b) Not deemed to be in transit
(c) both
(d) none of these
Which of the following comes first in accounting cycle?
(a) Recording in subsidiary books
(b) Preparing trading account
(c) Posting in ledger accounts
(d) Entering in trial balance
Goods withdrawn by owner for his personal use will be
(a) Debited to goods account
(b) Debited to drawing account
(c) Debited to capital account
(d) Debited to cash account
If there has been an over recovery of overheads, at the end of the accounting period the amount concerned should be?
(a) Debited to the company profit and loss account.
(b) Credited to the company profit and loss account.
(c) Carried forward to the next accounting period as a cost saving.
(d) Used to reduce next period’s overhead recovery rate.
