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
value?
(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.]
