Saturday 11 May 2019

Financial Accounting MCQs /Page 9

102.  Amount paid to Gagan posted to the credit side of his account would affect
(a)  Gagan's account
(b)  Cash account
(c)   Cash account and Gagan's account
(d)   None of these

103.  Which of the following statements is/are true ?
(a)  A sale of an asset is recorded in the Sales Book
(b)  Total of Return Outward Book is debited to Return Outward Account
(c)  The balance of Petty Cash Book is a liability
(d)  Cash Book is a subsidiary book as well as a ledger
[Hints: (d) The sale of an asset is recorded in the Asset Account and not in the Sales book (which pertains to sale of goods). Statement (a) is false.

Total of Return Outwards book (being purchase return) has a credit balance. The total is transferred at the end of the period to the credit of the Purchase Account and not debited to Return Outwards Account. Statement (b) is false.

The balance of Petty Cash book is not a liability, it is an asset as it is the balance of cash left with the petty cashier. Statement (c) is incorrect.

Cash Book is both a subsidiary book or book of original entry where all cash transactions are directly recorded and a ledger, it plays the role as a Cash Account (a ledger). Hence statement
(d) is true.

104.  Which of the following is true regarding closing entries?
(a)  They must be followed by reversing entries
(b)  They transfer the balances in all of the Nominal Accounts to the Trading and
Profit and Loss Account
(c)  They must be made after the reversing entries but before the adjusting entries
(d)  They must be made after the adjusting entries but before the reversing entries
[Hints: (d) Closing entries are required to transfer the nominal accounts to the Profit
& Loss Account and the Trading account. Real accounts and personal account are not closed to Profit & Loss Account or Trading Account. Their balance is carried in the Balance Sheet and appears as opening Balance in the next accounting period.]
105.  Closing stock is generally valued at
(a)  Cost Price
(b)  Market Price
(c)   Cost price or Market price whichever is higher
(d)  Cost price or Market price whichever is lower
[Hints: (d) Para 5, of AS-2 states that inventories should be valued at the lower of cost and net realizable value.]

106.  Which of the following assets is/are to be valued at the lower of cost and net realizable
(a)  Goodwill
(b)   Inventories
(c)   Investments
(d)   Both (b) and (c) above.
[Hints: (b) Inventories (b) are to be valued at the lower of cost and net realizable value. All the other assets stated in other alternatives are valued as per the cost concept. Goodwill (a) is a fixed intangible asset and is shown at the cost of its acquisition. Investments (c) are valued at cost or market value whichever is less. The combination  of  (b)  and  (c)  is  incorrect  because  a  correct  answer  with  incorrect answer is an incorrect answer. Thus, the correct answer is (b).]
107.  A few errors committed in Ahhiwalia's books of account are given below. State which
errors would affect the Trial Balance.
(a)   Sales of '950 to Ram completely omitted from books of account
(b)   Purchases of '720 from Shyam entered in the purchases journal as '700
(c)   Purchases Journal is overcast by '1,000
(d)  Sales returns journal is undercast by '200
(e)  Amount paid to Agarwal wrongly posted to the debit to Mittal's account
(f)   Bank overdraft shown under debit column in the Trial Balance
(g)  Sales of 7500 to Sadiq entered in sales journal as sales to Mushtaq (h)   Wages paid for installation of machinery debited to wages account (a)  a, c and g
(b)  c, d and f
(c)   c, d, e and h
(d)  c, d, f and h

108.  Which of the following methods is not a practical way of realizing revenue?
(a)   Delivery method
(b)   Percentage-of-completion method
(c)   Production method
(d)  Moving average method
[Hints:  (d)  The  following  methods  are  the  practical  ways  of  realizing  revenue applying the conservatism concept and realization concept and the (a) Delivery method  in  case of  sale of  goods,  (b) Percentage-of-completion  method  in  case  of rendering of services and (c) Production method in case of agriculture produce. Thus, these are the various ways of recognizing revenue and the methods adopted to recognize revenue. Moving average method (d) is the method of valuing inventory and  it  is  not  the  method  adopted  to  recognize  revenue.  Thus,  (d)  is  the  correct answer.]

109.  The amount payable to a person as consideration for the use of rights vested in him is
(a)   Dividend
(b)   Royalty
(c)   Purchase consideration

(d)   Installment
[Hints: (b) The amount paid to the landlord for use of rights vested in him is the royalty. Dividend is the amount paid for the investment made in an enterprise and is not the correct answer. Purchase consideration is the price paid for receiving a title of a property moveable and immoveable and is not the correct answer. Installment is the payment of amount in stages and is not the amount paid for using the rights vested in the landlord and is not the correct answer.]
110.  Buildings account is debited with an amount towards repairs. This is an example of
(a)   Error of commission
(b)   Error of principle
(c)   Error of omission
(d)  Compensating error
[Hints: (b) Buildings account debited with an amount towards repairs is an error of principle. Error of principle is a wrong classification of expenditure or receipt.]
111.  The concept of conservatism will have the effect of
(a)  Overstatement of Assets
(b)   Understatement of Assets
(c)   Overstatement of Liabilities
(d)   Understatement of Liabilities
[Hints: (b) The concept of conservatism will have the effect of understatement of assets since the financial statements are usually drawn up on rather a conservative basis.  Window-dressing  i.e.,  showing  a  position  better  than  what  it  is,  is  not permitted.]
112.  During the year 2011 -2012, the value of closing inventory was overstated by ? 25,000.
Which of the following is true?
(a)  The cost of goods sold was overstated during 2011 -2012 and income will be understated during 2012-2013
(b)  The income was overstated during 2011-12 and closing inventory will be overstated during 2012-2013
(c)  The retained earnings was overstated during 2011-2012 and retained earnings will be understated during 2012-2013
(d)  The cost of goods sold was understated during 2011-2012 but retained earnings will not be affected during 2012-2013
[Hints: (c) Closing Stock's overstatement increases the profit of the current period and results in the increase of retained earnings relating to the current accounting period. It decreases the profit and thereby retained earnings of the next accounting period since the closing stock of the current accounting period becomes the opening stock of the next accounting period, the overstatement of which has the effect of decreasing the profits and retained earnings.]
113.  Which of the following errors is an error of omission?
(a)  Sale of ? 100 was recorded in the Purchases Journal
(b)  Wages paid to Mohan have been debited to his account
(c)  The total of the sales journal has not been posted to the Sales Account

(d)   Repairs to buildings have been debited to buildings account
[Hints: (c) Error of omission occurs when a transaction is entirely omitted from record in the original books partially omitted while posting. Therefore, omission of posting of the sales journal to the Sales Account is an error of omission.]

Find more