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Saturday, 11 May 2019

Financial Accounting MCQs /Page 10


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.]


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