Introduction to Financial Accounting V1

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Introduction to Financial Accounting V1

ASSIGNMENT ‘A’
Q 1. Define Accounting. How does it differ from book-keeping?
Q 2 What is basic accounting equation?
Q 3 What is Journalizing? Give a format of Journal & briefly explain its content.
Q 4 what are the advantages of special Journal & list them.
Q 5 State the reasons for the difference between the cash book balance & pass book balance.
ASSIGNMENT ‘B’
Q1 Define depreciation. Differentiate, with suitable example, between Diminishing Balance Method & Straight Line Method of charging depreciation.
Q2 Define Bills of Exchange and explain the parties involved in it.
Q3 Distinguish between capital expenditure & revenue expenditure.
Q 4 Case Study:
The following is the Trial Balance of Gupta as on 30th June, 2001
Trial Balance of Gupta for the year ending
30th June, 2001
Dr. Cr.
Particulars
Rs.
Particulars
Rs.
Cash
Cash at Bank
Purchases
Return inwards
Wages
Fuel and power
Carriage on sales
Carriage on Purchases
Inventory (1st July, 2000)
Buildings
Freehold land
Machinery
Patents
Salaries
General expenses
Insurance
Drawings
Accounts receivable
540
2,630
40,675
680
8,480
4,730
3,200
2,040
5,760
32,000
10,000
20,000
7,500
15,000
3,000
600
5,245
14,500
Sales account
Returns outwards
Capital
Accounts payable
Rent
98,780
500
62,000
6,300
9,000
1,76,580
1,76,580
Taking into account the following adjustments prepare the Trading, Profit and Loss account as on 30th June, 2001.
1. Inventory on hand on 30th June, 2001 is Rs.6,800.
2. Machinery is to be depreciated at the rate of 10% and Patents at the rate of 20%.
3. Salaries for the month of June 2001amounting to Rs.1,500 were unpaid.
4. Insurance includes an annual premium of Rs.170 on a policy expiring on 31st December, 2001.
5. Bad debts to be written off are Rs.725.
6. Rent receivable Rs.1,000.
Introduction to Financial Accounting
ASSIGNMENT ‘C’ OBJECTIVE QUESTIONS
In each of the following cases indicate the alternative which you consider to be correct:
Q1. Which of the following financial statements is prepared as of a particular date?
(a) Profit and loss account
(b) Balance sheet
(c) Cash flow statement
(d) Income and expenditure statement
(e) Profit and loss appropriation account.
Q2. Based on which of the following concepts, share capital account is shown on the liability side of balance sheet?
(a) Business entity concept
(b) Money measurement concept
(c) Cost concept
(d) Going concern concept
(e) Conservatism concept.
Q3. Which of the following is not an accounting transaction?
(a) Sale of goods for cash
(b) Payment of salary of office staff
(c) Agreement to sell
(d) Purchase of office furniture
(e) Repayment of bank loan.
Q 4. Which of the following is false?
(a) Taking the favourable balance as per pass book as the starting point, the amount in respect of charges made by the bank will be added to the pass book balance
(b) Taking the favourable balance as per pass book as the starting point, the amount in respect of dividends received directly will be deducted from the pass book balance
(c) Bank charges recorded twice in cash book will be added to the overdraft as per cash book in the preparation of reconciliation statement
(d) Cheque issued but not presented for payment will be added when favourable balance as per cash book is the starting point
(e) The amount of the undercasting of the credit side of the bank column of the cash book will be deducted from the overdraft as per pass book.
Q5. From the books of Mr.Neelam, it was observed that cheques amounting to Rs.2,40,000 were deposited in the bank, out of which cheques worth Rs.20,000 were dishonored and cheques worth Rs.40,000 are still in the process of collection. The treatment of this while preparing Bank Reconciliation Statement is
(a) Deduct Rs.60,000 from bank balance as per pass book
(b) Add Rs.20,000 and deduct Rs.40,000 from overdraft balance as per cash book
(c) Deduct Rs.60,000 from overdraft balance as per pass book
(d) Add Rs.60,000 to overdraft balance as per pass book
(e) Deduct Rs.40,000 and add Rs.20,000 from overdraft balance as per pass book.
Introduction to Financial Accounting
Q6 . Which of the following is true?
(a) Bank account is a personal account
(b) Stock of stationery account is a nominal account
(c) Returns inward account is a personal account
(d) Outstanding rent account is a nominal account
(e) Capital account is a real account.
Q7 . A sales day book is to record
(a) all credit sales only
(b) All cash sales only
(c) all credit and cash sales
(d) credit sales of goods and trade discount
(e) all cash and credit sales and trade discount.
Q8. Which of the following is a liability of a firm?
(a) Debit balance of discount column of cash book
(b) Credit balance of bank pass book
(c) Debit balance of bank column of cash book
(d) Debit balance of cash column of cash book
(e) Credit balance of bank column of cash book.
Q9. Which of the following accounts will invariably have a debit balance?
I. Accounts receivable.
II. Accounts payable.
III. Purchases account.
IV. Bank account.
V. Prepaid expenditure.
(a) Only (III) above
(b) Both (II) and (III) above
(c) Both (I) and (III) above
(d) (I), (III) and (V) above
(e) (I), (III), (IV) and (V) above.
Q10. The following is not a book of original entry
(a) Purchase book
(b) Journal proper
(c) Cash book
(d) General ledger
(e) sales book
Q11. The Accountant of a company is recording the transactions of the day in various Books of Original Entry. Which
of the following transactions is recorded in the wrong book?
(a) Goods purchased on credit – Purchase Book
(b) Goods sold on credit – Sales Book
(c) Wages paid in cash – Cash Book
(d) General Stationery purchased on credit – Purchase Book
(e) Office Equipment purchased on credit – Journal Proper
Introduction to Financial Accounting
Q12. The impact on assets, profit and liabilities of a firm, on account of salary paid will be
Assets Profit Total Liabilities
(a) No effect Decreases Decreases
(b) Decreases No effect Decreases
(c) Decreases Decreases Decreases
(d) Increases No effect Increases
(e) Decreases Increases Decreases.
Q13. Which of the following is true?
(a) Discount columns in cash book are totaled and not balanced
(b) A petty cash book in which a separate column is provided to record payment under each head is
called imprest system
(c) The total of purchases book is posted periodically on the credit side of sundry creditors account
(d) The total of sales book is posted periodically on the debit side of sundry debtors account
(e) Petty cash book is used to record all cash transactions.
Q14. Total of sales day book at the end of the month indicates
(a) The total sales for the month
(b) The total credit sales for the month
(c) Total cash sales of the month
(d) Total amount due to suppliers
(e) Total amount receivable from credit sales.
Q15. Which of the following is true?
(a) Cash book may be defined as the record of transactions concerning cash receipts and payments
(b) Discount account should be balanced in the cash book
(c) The ledger is the book of original entry
(d) Sales journal is used for recording cash sales
(e) Purchase return book is used for recording the return of goods purchased from suppliers against cash.
Q16. Journal entry for receiving interest in cash from Mr. Prashant against the loan given to him
(a) Interest on loan account Dr.
To Prashant account
(b) Prashant account Dr.
To Interest account
(c) Cash account Dr.
To Prashant account
(d) Cash account Dr.
To Interest on loan account
(e) Cash account Dr.
To Loan account.
Introduction to Financial Accounting
Q 17. Which of the following entries recorded in the books of the drawee of a bill is false?
(a) When a bill is accepted, the account to be debited is drawer’s a/c
(b) When a bill is discharged, the account to be debited is bills payable a/c
(c) When a bill presented for payment by a bank is dishonored, the account to be debited is bills
payable a/c
(d) When noting charges of a dishonored bill is paid by the endorsee ,the account to be debited is
noting charges a/c
(e) At the time of retirement of a bill the account to be debited is the drawer’s a/c.
Q 18. Which of the following is true?
(a) A bill sent for collection by bank when dishonored, the drawer will credit bank a/c
(b) At the time of renewal of bill interest a/c is credited in the books of the drawee
(c) Accommodation bills are drawn, accepted and endorsed for some consideration
(d) Refusal by the acceptor to make payment of the bill on due date is called dishonor
(e) When a bill is endorsed, the drawer credits the drawee’s a/c.
Q19. Bills receivable account is a
(a) Nominal account
(b) Personal account
(c) Intangible asset
(d) Real account
(e) Representative Personal account.
Q20 . Closing stock is generally valued at
(a) Cost price
(b) Replacement cost
(c) Market price
(d) Realisable value
(e) Cost price or market price whichever is lower.
Q21. The provision for discount on debtors is calculated on the amount of debtors
(a) Before deducting the provision for doubtful debts
(b) Left after deducting the provision for doubtful debts
(c) Before deducting the actual bad debts
(d) After deducting the actual bad debts
(e) After deducting the actual bad debts and the provision for doubtful debts.
Q22. Consider the following information of Thumbs-up Company for the year 2006-2007:
Opening balance of provision for debtors account Rs. 20,000
Bad debts during the year Rs. 18,000
Closing balance of Sundry debtors Rs.2,65,000
Estimated provision for doubtful debts 4%
The amount to be debited to profit and loss account to make the estimated provision is
(a) Rs. 8,600
(b) Rs.10,400
Introduction to Financial Accounting
(c) Rs.10,520
(d) Rs.10,600
(e) Rs.10,680.
Q23. At the time of preparation of final accounts, bad debts recovered account will be transferred to
(a) Debtor’s account
(b) Profit & loss account
(c) Profit & loss adjustment account
(d) Profit & loss appropriation account
(e) Provision for discount on debtors account.
Q24. Which of the following is false about diminishing balance method of depreciation?
(a) Higher amount of depreciation is charged when the machine is more efficient
(b) It recognizes the risk of obsolescence by higher amount of depreciation in the early years
(c) The total amount of depreciation and repairs is almost uniformally distributed over the useful
life
(d) It results in better cash flow through tax deferral as taxable income is lower in the initial years
(e) Depreciation amount throughout the useful life will be uniform.
Q25. The following is not an example of fixed asset
(a) Plant and machinery
(b) Land and building
(c) Royalty
(d) Patent
(e) Office furniture.
Q26. Under depletion method, depletion per unit is calculated as
(a) Acquisition cost divided by average production units per annum
(b) Acquisition cost divided by actual production units in the year
(c) Acquisition cost minus residual value divided by average production units per annum
(d) Acquisition cost minus residual value divided by the actual production units in the year
(e) Acquisition cost minus residual value divided by the total production units over the useful life.
Q 27. Which one of the following is a capital expenditure?
(a) Compensation paid to Directors on termination of their services
(b) Expenditure for renewal of trade mark
(c) Gratuity paid to employees
(d) Installments paid for the purchase of patent for manufacture and sale of medicine
(e) Compensation paid to workers on retirement.
Q28. Entries passed for outstanding expenses, depreciation, interest on capital etc. are
(a) Opening entries
(b) Journal entries
(c) Adjustment entries
Introduction to Financial Accounting
(d) Rectification entries
(e) Closing entries.
Q29. Which of following transactions does not change the total amount of liabilities in the balance sheet?
(a) Purchase of office furniture on credit
(b) Payment of bank loan
(c) Issue of debentures
(d) Acceptance of bills from creditors
(e) Redemption of preference shares.
Q30. Which of the following is false?
(a) Capital plus liabilities will be equal to assets
(b) The difference between assets and liabilities is bank borrowing
(c) Capital account is a personal account
(d) Investment account is a real account
(e) Outstanding rent account is a representative personal account.
Q31. The expenses and incomes pertaining to full trading period are taken to the Profit and Loss account of a business, irrespective of their actual payment or receipt. This is in recognition of
(a) Time period concept
(b) Business entity concept
(c) Going concern concept
(d) Accrual concept
(e) Duality concept.
Q32. Which of the following statements can be used to assess the liquidity of a company?
(a) Balance sheet
(b) Profit and loss account
(c) Profit and loss appropriation account
(d) Bank reconciliation statement
(e) Manufacturing account.
Q33 . Which of the following state that “Anticipate no profit and provide for all possible losses”?
(a) Convention of materiality
(b) Convention of consistency
(c) Convention of disclosure
(d) Convention of conservatism
(e) Convention of matching.
Q34. Which of the following statements is/are true?
I. Drawings account is a nominal account.
II. Capital account is a real account.
III. Sales account is a nominal account.
IV. Outstanding salaries account is a nominal account.
V. Patents account is a personal account.
(a) Only (I) above
(b) Only (III) above
Introduction to Financial Accounting
(c) Both (II) and (IV) above
(d) (II), (IV) and (V) above
(e) (I), (II), (III) and (IV) above.
Q35. RS Ltd., makes purchases on credit. If the purchases are not as per the specifications, the company returns them to the suppliers. The book, that is used to record such returns is
(a) Returns inward book
(b) Returns outward book
(c) Cash book
(d) Journal proper
(e) Purchases day book.
Q36 . Which one of the following is not a reason for discrepancy in the balance as per cash book and bank pass book of a company?
(a) Cheque issued to suppliers may not have been presented
(b) Cheque deposited in the account may not have been realized
(c) Bill discounted with bank is not due for payment
(d) Customers may have directly deposited money in the company’s account
(e) Bank charges not accounted.
Q37. The bank balance in the cash book of Mr.Avinash, a proprietor showed a credit balance of Rs.10,500 on March 31, 2008. On comparing it with his pass book he discovered the following discrepancies.
i. Cheque No. 51 for Rs.540 in favour of Mr.Raman has not yet been presented.
ii. A bill of Rs.1,000 was retired by the bank under a rebate for Rs.15, but the full amount of the bill was credited to bank account in cash book.
The balance as per pass book is
(a) Rs.11,025 (Dr.)
(b) Rs. 9,945 (Dr.)
(c) Rs. 9,945 (Cr.)
(d) Rs. 9,975 (Dr.)
(e) Rs. 9,975 (Cr.).
Q38. The total cost of goods available for sale with a company during the current year is Rs.12,00,000 and the total sales during the period are Rs.13,00,000. If the gross profit margin of the company is 25% on sales, the closing inventory during the current year is
(a) Rs.4,00,000
(b) Rs.3,40,000
(c) Rs.2,25,000
(d) Rs.1,60,000
(e) Rs.1,00,000
Q39. Unearned income account is
(a) A current asset
(b) A current liability
(c) An expense
(d) An income
(e) Deferred expense.
Introduction to Financial Accounting
Q40. The essentials of double entry book-keeping in sequential order are
(a) Passing journal entries, posting in ledger, appropriate adjusting entries, trial balance, Profit & Loss a/c and Balance-sheet
(b) Passing journal entries, posting ledger, trial balance, Profit & Loss a/c and Balance-sheet, passing adjusting entries.
(c) Passing journal entries, posting ledger, passing adjusting entries, Profit & Loss a/c and Balance sheet, trial balance
(d) Passing adjusting entries, passing journal entries, trial balance, posting in ledger, Profit & Loss a/c and Balance-sheet
(e) Passing journal entries, posting in ledger, trial balance, passing adjusting entries, Profit & Loss a/c and Balance-sheet.

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