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.]
