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Saturday, 11 May 2019

Financial Accounting MCQs /Page 12

179.        Which of these items are taken into consideration for preparation of adjusted Cash Book
(a)  Mistake in Cash Book
(b)  Mistake in Pass Book
(c Cheque issued but not presented for payment
(d)  Cheques deposited but not cleared

180.        Credit balance as per Cash Book mean-
(a)  Surplus cash
(b Bank overdraft
(c)  Terms deposits with bank
(d None of these

181.        Debit side of Bank Pass book corresponds to -
(a)  Credit side of Cash Book
(b Debit side of Cash Book
(c Debit side of Trial Balance
(d)  Credit side of Balance Sheet

182.        Difference in Bank Balance as per Pass Book and Cash Book may arise on account of
(a)  Cheque issued but not presented
(b)  Cheque issued but dishonoured
(c Cheque deposited and credited by bank
(d)  All of (a) and (b) above
[Hints: (d) Differences in Bank Balance as per Bank Pass Book and Cash Book arise due to many reasons. Few of them are Cheques issued (a credit entry in Cash Book made) but not presented for payment (so no corresponding entry in Pass Book). Cheques  issued  (a  credit  entry  in  Cash  Book  made)  but  dishonoured  (so  no corresponding entry made in Pass Book).
In case of cheques deposited and credited by bank, entries in both Cash Book and the
Bank Pass book are made, hence no difference arises.
Hence option (d) is the right option. Only in situations (a) and (b) result in difference.]

183.        Which of the following statements is/are true?
(a)  When there are cheques deposited but not collected by the banker, overdraft balance as per Pass Book will be less than that as per Cash Book
(b)  When the payment side of the Cash Book is undercast, overdraft balance as per
Cash Book will be more than overdraft balance as per Pass Book
(c)  When reconciliation is to be done with the extracts of the Cash Book and Pass Book relating to the same period, the transactions which do not figure in one of the extracts are to be noted
(d Bank interest debited in the Pass Book is to be added to Overdraft Balance as per
Pass Book to arrive at the Overdraft balance as per Cash Book
[Hints: (c) Statement (a) is false, since when  cheques are deposited at bank, the existing overdraft balance as per Cash Book decreases whereas when the cheques




have not been collected the overdraft balance as per Pass book is more that of Cash book.
Statement (b) is false, when the payments side of the Cash Book is undercast results in undercasting of overdraft balance, hence the overdraft balance as per Cash Book will be less, than the overdraft balance as per Pass Book.

Statement (c) is true, since when extracts of Cash Book and extracts of the Pass Book relating to same period are taken and compared, the entries which do not figure in both the extracts imply that these entries create the difference in the balances, hence are to be noted for the preparation of reconciliation statement.

Statement (d) is false, since Bank interest debited in the Pass Book increases the overdraft balance hence to arrive at the balance as per cash, since the above corresponding entry is not made in the Cash Book, the interest amount is to be deducted from the overdraft balance as per Bank Pass Book.
Hence only option (c) is true, all other options are false.]

184.        The Bank Reconciliation Statement is prepared
(a)  To rectify the mistakes in the Cash Book
(b)  To arrive at the Bank Balance
(c)  To arrive at the Cash Balance
(d)  To bring out the reasons for the difference between the Balance as per Cash Book and the Balance as per Bank Statement
[Hints:  (d)  Thbasic  objective  of  the  preparation  of  the  Bank  Reconciliation Statement is to locate the reasons for differences between the balance as per Cash book and the balance as per Bank Statement. The ancillary benefits during this process  of  preparation  can  be  said  to  be  rectification  of  mistakes  in  cash  book,
rectification of mistake in bank statement etc. Hence option (d) is the right choice.]

185.        Which of the following statements is false?
(a)  When the bank column of a Cash Book shows a credit balance, it means an amount is due to the bank
(b)  When Pass Book shows a debit balance, it means overdraft as per Pass Book
(c)  While preparing Bank Reconciliation Statement, cheques paid into bank but not yet cleared are deducted from the Debit balance as per Cash Book to arrive at the
balance as per Pass Book
(d)  A Bank Reconciliation Statement is a part of Pass Book
[Hints: (d) A credit balance in the Cash Book(bank column) denotes an overdraft balance. It implies that the business is due to the bank respect of that amount it has overdrawn. Hence option
(a) is true.
A credit balance in the Pass book refers to favourable balance and a debit balance in the pass book refers to Unfavorable balance or overdraft. Hence option (b) is true. When preparing a BRS, where there is a debit balance or favourable balance in the Cash book (bank column), cheques paid into bank but not yet cleared are deducted from the cash book (bank column) balance to arrive at the balance in the bank Pass book. Hence statement (c ) is true.
A Bank Reconciliation Statement does not form part of pass book. It is prepared by




the business to reconcile the balances as per Pass Book or Bank Statement and the
Cash Book (bank column). Hence statement (d) is false.]

186.        Which of the following statements is true?
(a Bank charges increase debit balance shown as per Bank Column of the Cash
Book.
(b Bank charges increase debit balance as per Bank pass book.
(c)  A cash sale of a non-trading asset is recorded in the journal proper.
(d Cash discount allowed by the business will appear on the debit side of the debtor's account. [Hints: (b) Bank charges increase debit balance as per Bank Pass Book (b) is
the correct answer. The debit balance as per Bank Pass Book indicates the overdraft balance and the bank charges being the expenditure increase the debit balance. The alternative  (a)  is  incorrecbecause  the  bank  charges  decrease  the  debit  balance shown as per Bank column of the Cash Book and do not increase the debit balance as per Cash Book signifies the favourable balance. A cash sale of a non-trading asset is recorded in the Journal Proper is incorrect (c) because all in transactions involving cash receipts and payments are recorded in the Cash book cash discount allowed by the business will appear on the debit side of the debtor's account (d) is incorrect because, the cash discount allowed is a reduction in the balance of a debtor's account
which appears on the credit side. Thus (b) is the correct answer.]

187.        Bank reconciliation is a statement prepared to reconcile
(a)  Trial balance
(b)  Cash book
(c Bank A/c
(d)  Cash as per cash book with bank balance as per bank pass book

188.        Bank reconciliation statement is a part of
(a)  Cash book
(b)  Trial balance
(c)  Auditors report
(d None of these

189.        Benefits of preparing Bank Reconciliation Statement includes
(a It bring out any errors committed in preparation of Cash book / Bank Pass Book
(b Highlights under delay in clearance of cheques deposited but not credited
(c Help know actual bank balance
(d)  All the three

190.        Debit balance as per bank pass book mean
(a)  Surplus cash
(b Bank Overdraft
(c)  Terms deposits with bank
(d None of these

191.         Which of the following is not a cause of difference in balance as per cash book and balance as per bank pass book
(a Errors in cash book




(b Errors in pass book
(c Cheques deposited and cleared
(d)  Cheques issued but not presented for payment

192.        Provision is created for
(a Unknown Liabilities
(b Known Liabilities
(c Creation of Secret Reserves
(d)  All the Three

193.        Which of the following is not a method of charging depreciation
(a)  Straight line Method
(b)  Written down value Method
(c Discounted present value Method
(d)  Sum of digits Method

194.        A second hand car is purchased for ' 2,00,000 and sold at ' 1,40,000 after two years.
If depreciation is charged @ 10% on SLM method, find the profit or loss on sale of the car.
(a)  ' 20,000 Loss (b)  ' 20,000 Profit (c)  ' 10,000 Loss
(d)  ' 10,000 Profit

195.         In the above question if the depreciation is charged @10% on written down value method, find the profit or loss on sale of the Second hand car.
(a Loss of ' 20,000 (b Loss of ' 22,000 (c Loss of ' 11,000
(d Profit of ? 11,000

196.        The term Reserve” has been defined in  of the Companies Act, 1956
(a Part III Schedule VI
(b Part III Schedule V
(c Part II Schedule VI
(d Part I Schedule I

197.        Which of the following is true with respect to providing depreciation under diminishing balance method?
(a)  The amount of depreciation keeps increasing every year while the rate of depreciation keeps decreasing
(b)  The amount of depreciation and the rate of depreciation decrease every year
(c)  The amount of depreciation decreases while the rate of depreciation remains the same
(d)  The amount of depreciation and the rate of depreciation increases every year
[Hints: (c) Under the written down value method of depreciation, the rate of percentage of depreciation is fixed, but it applies to the value of the asset at which the asset stands in the books in the beginning of the year. Therefore, the amount of




depreciation decreases as the fixed rate of depreciation is charged on written down values of the asset.]

198.        Which of the following statements best describes the purpose of depreciation?
(a Regular reduction of asset value to correspond to changes in market value as the asset ages
(b)  A process of correlating the market value of an asset with its gradual decline in physical efficiency
(c)  Allocation of cost in a manner that will ensure that Plant and Equipment items are not carried on the Balance Sheet in excess of net realizable value
(d Allocation of the cost of an asset to the periods in which services are received from the asset [Hints: (d) AS-6 defines depreciation as a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, effluxion of time or obsolescence through technology and market changes. Depreciation is allocated so as to change a fair proportion of the depreciable amount in each accounting period during the expected useful life of the asset. Depreciation includes amortization of assets whose useful life is predetermined.
The ultimate outcome of accounting for depreciation is cash available to replace the
asset; however this cannot be the purpose of depreciation.]

199.        The main objective of providing depreciation is to
(a)  Calculate the true profit
(b)  Show the true financial position in the Balance Sheet
(c Provide funds for replacement of fixed assets
(d Both (a) and (b) above
[Hints: (d) The main objective of providing depreciation is to find out the true Net Profit or Loss for an accounting period and to present a true and fair view of the state of affairs of the business. Providing funds for replacement is only an ancillary objective and not the main objective.]

200.        Depreciation is a process of
(a)  Valuation
(b)  Valuation and allocation
(c)  Allocation
(d)  Appropriation
[Hints: (c) AS-6 on depreciation accounting defines depreciation' as the measure of wearing out, consumption or other loss of a value of a depreciable asset arising from use, effluxion of time or obsolescence through technology and market changes. Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting period during the expected useful life of the asset. Depreciation includes amortization of assets whose useful life is predetermined.]

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
[Hints: (a) The portion of the acquisition cost of the asset yet to be allocated is known




as written down value (a). Accumulated value (b) is the value of a thing accumulated over a period of time and not the correct answer. Salvage value (c) is the value of an asset that remains as scrap value after its usage over a period of time and is not the correct answer. Residual value (d) is the value remaining residue and is not the correct answer. Alternative (a) is the correct answer.]

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
[Hints: (b) Under written down value method of depreciation, the amount on which depreciation is provided reduces from year to year. Thus the statement under alternative  (b)  is  the  correct  answer.  Thstatements  in  other  alternatives  are incorrect because, the rate of depreciation does not change year after year it remains fixed (a). The rate of depreciation and the amount of depreciation reduce from year to year is incorrect because only the amount of depreciation reduces and not the rate. Thus, the alternative with the combination of statements (i) and (iii) is incorrect. Under diminishing balance method of depreciation, the amount of the asset never becomes to zero over a period of time. Thus, the alternatives (a),(c ), (d) and (e) are incorrect.]

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
[Hints: (a) The accounting process of gradually converting the unexpired cost of fixed assets into expenses over a series of accounting periods is called depreciation (a). Physical deterioration of the asset (b) is the wear and tear of the asset on account of its usage and it is not any accounting process involved in it and it is not the correct answer. Decrease in market value of the asset (c) is not the accounting process and is not the correct answer. The allotment of cost of an asset over its estimated useful life is not the valuation of an asset (d) at a point of time is not the correct answer. Thus, (a) is the correct answer.]

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 [Hints: (a) The economic life of an asset should be estimated on the basis of passage of time, asset usage and obsolescence of the asset. It will not consider the factors like tax regulations, SEBI guidelines, management and external factors. Hence (a) is true.]

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
[Hints: (a) Under straight line method of depreciation, the depreciable asset whether tangible or intangible is depreciated over its useful life with an equal amount of depreciation in each period. This is the widely used approach of recognizing an equal amount of depreciation expense in each period of a depreciable asset's useful life. Thus,  alternative  (a)  is  the  correct  answer.  Alternative  (b)  Written  down  value method is incorrect because where the asset is depreciated on diminishing balance of the asset where in the depreciation expense is not equal in each period. Alternative (c) double declining method is incorrect because, under this method depreciation expenses is not equal like under written down value method and it is more in the initial stages of the acquisition of the asset and less in the later periods. The method of recording depreciation under sum of the years' digits method (d) is not equal in each period it is also more in the early periods of acquisition of the asset and less in the later periods.]

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

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