Amity Campus

Uttar Pradesh
India 201303
ASSIGNMENTS
PROGRAM: BFIA
SEMESTER-VI
Subject Name:
Study COUNTRY:
Permanent
Enrollment
Number (PEN)
Roll Number (Reg. No.):
Student Name:

FINANCIAL ACCOUNTING
SOMALIA
A40010214649
MFC001512014-2016091
MOHAMED ABDULLAHI KHALAF

INSTRUCTIONS
a) Students are required to submit all three assignment sets.
ASSIGNMENT
Assignment A
Assignment B
Assignment C

DETAILS
Five Subjective Questions
Three Subjective Questions + Case Study
Objective or one line Questions

MARKS
10
10
10

b) Total weight-age given to these assignments is 30%. OR 30 Marks

c) All assignments are to be completed as typed in word/pdf.
d) All questions are required to be attempted.
e) All the three assignments are to be completed by due dates and need to be
submitted for evaluation by Amity University.
f) The students have to attach a scanned signature in the form.
Signature

: _________________________

Date: 06, January, 2015

( ) Tick mark in front of the assignments submitted
Assignment A

Assignment B

Assignment C

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FINANCIAL ACCOUNTING
ASSIGNMENT (A)
Q: 1).

Define Accounting. How does it differ from book-keeping?

Answer:
Definition: Accounting is an Art of Recording, classifying, summarizing & reporting of
transactions with the aim of showing the financial health of an entity- a business unit, a club,
a charitable organization, etc one which has its incomes & expenses
Thus, the process of accounting involves recording, classifying and summarizing of past
events and transactions of financial nature, with a view to enabling the user of accounts to
interpret the resulting summary.
Accounting means reckoning or recounting. In an organizational context too, accounting
has more or less the same meaning. As an organization comes into being and commences
operations, one would like to evaluate the organizations past performance for various
reasons. However, in order to be able to do so, it is necessary that as far as possible whatever
has transpired in the organization be reckoned or recounted in a summarized form in
monetary terms. Thus, the process of accounting involves recording, classifying and
summarizing of past events and transactions of financial nature, with a view to enabling the
user of accounts to interpret the resulting summary.
The American Institute of Certified Public Accountants defines accounting as the art of
recording, classifying and summarizing in a significant manner and in terms of money
transactions and events which are, in part at least, of a financial character, and interpreting
the results thereof.

Accountancy
Accounting
Book-Keeping

Book-keeping is a part of Accounting and an Accounting is a part of Accountancy.

Accountancy: refers to a systematic knowledge of accounting.
Accounting: Refers to the actual process of preparing & presenting the accounts.
Page | 3

Book-keeping: is the part of accounting & is concerned with record keeping or maintaining
of books of accounting which is often routine & clerical in nature.
The difference between Accounting and book-keeping:
Accounting is broader in scope than bookkeeping, which is merely concerned with orderly
record keeping. Going beyond the narrow confines of bookkeeping, accounting involves
analysis and judgment at different stages such as recording of transactions, classification,
summarization and interpretation.
Distinction between Accounting and Book-keeping in Tabular form:
Basis of Distinction

Book-keeping
It involves identification,
measurement, recording
& classification of
transaction

Accounting
In addition it involves summarizing
classified transactions. Analyzing,
interpreting & communicating the
same.
Its a secondary stage, starts where
book-keeping ends
To ascertain net results of
operations & financial position of
the co

Scope

Stage

Its a primary stage

Basic Objective

To maintain systematic
records

Who Performs
Knowledge
level
Analytical Skill

Performed by junior staff

Not required a high level
of knowledge
Not required

By senior staff

Nature of Job
Supervision &
Checking

Routine & clerical

Supervised by an
accountant

Analytical
Whereas its work is not supervised
by a book-keeper

5
6
7
8

Q: 2).

It needs a high level of knowledge

Required

What is basic accounting equation?

The basic accounting equation, also called the balance sheet equation, represents the
relationship between the assets, liabilities, and owner's equity of a business. It is the
foundation for the double-entry bookkeeping system.
Under the duality concept of accounting, sources of funds must always equal to uses of
funds and from this equality was derived the fundamental accounting equation.

Page | 4

Basic Accounting Equation is an accounting principle and rule which states that the business
resources (assets) are attributable to the amount owed to creditors (liabilities) and capital
invested by the owners (equity/capital). It is formulated as follows:
ASSETS = CAPITAL + LIABILITIES
Asset pertains to the resources available and used in sustaining the operation of the
business. It includes cash, accounts receivable, inventory, office supplies, equipment,
building, land, goodwill, patent, etc.
Liability refers to the amount of debts owed to outside person or entity, known as
creditors. It represents the claim of creditors in the assets of the business. It includes
accounts payable, loans payable, notes payable, bonds payable, unearned revenue, etc.
Capital/Equity is the amount of capital or resources invested in the business by the
owner(s). It represents the claim of owners in the assets of the business. It consist of
capital, drawing, common stock, additional paid in capital, preferred stock, retained
earnings, net income, net loss.
Q: 3).
What is Journalizing? Give a format of Journal & briefly explain its
content.
Answer:
A journal records all daily transactions of a business in the order of their occurrence. A
journal may, therefore, be defined as a book containing a chronological record of
transactions. It is also called a book of prime entry or original entry. Thus, journalizing is
concerned with the recording of identified and measured financial transactions in an orderly
manner into the journal.
The Format of Journal looks like this

The journal consists of five columns:

1) Date Column: The date on which transactions have taken place is entered in the date
column.
2) Particulars Column: Two aspects of the transaction are recorded in the particulars
column. A brief description of the transaction is also given in the particulars column.
3) L.F. Column: The Ledger Folio (L.F.) column is meant for writing the number of
the page in the ledger in which the particular transaction is entered.
Page | 5

4) Debit Column: The amount to be debited is entered in the debit column.

5) Credit Column: The amount to be credited is entered in the credit column.
Q: 4).

What are the advantages of special Journal & list them.

Answer:
When the number of transactions is large, it is practically impossible to record all the
transactions through one journal. Special journal refer to journals meant for specific
transactions of similar nature. Special journals are also known as subsidiary books or day
books. Special journals are constructed to achieve great efficiencies in journalizing
transactions. The Performa & number of special journals vary according to the requirements
of each enterprise. In any large organization following special journals are generally used:
Name of special journal

Specific transactions to be recorded

1 Cash Journals
(a) Simple cash book
(b) cash book with discount column
cash book with bank & discount column
(d) petty cash book

Cash transactions
Cash & discount transactions
Cash, bank & discount transactions
Petty cash transactions

2 Goods Journals
(a) Purchase book
(b) Sales book
Sales return book (return inward book)

Credit purchases of goods

Credit sales of goods
Goods returned by those customers to whom
goods were sold on credit
(d) Purchase return book (return outward Goods returned to those customers from
whom goods were purchased on credit
book)
3. Bills Journals
(a) Bills receivable book
(b) Bills payable book
4 Journal Proper

Bills receivable drawn

Bills payable accepted
Those transactions which do not fall within
the scope of special journal

Advantages of Special Journals (Subsidiary Books)

1) Facilitates division of work
2) Permits the installation of internal check system
3) Permits the use of specialized skill
Page | 6

4) Time & labour saving in journalizing & posting

Q: 5).
State the reasons for the difference between the cash book balance &
pass book balance.
Answer:
Cash book is a subsidiary book which records the receipts and payment of cash. With the
help of cash book cash and bank balance can be checked at any point of time.
On the other hand, Pass Book is a book issued by Bank to an account holder. It is almost a
copy of the account of the customer in the books of bank. The bank keeps the customer
informed of the entries made in his account through Pass Book. It is the customers duty to
check the entries and immediately inform the bank of any error that he may have noticed.
The cash Book and Pass Book are prepared separately. The Businessman prepares the Cash
Book and the Pass Book is prepared by the Bank. But as both the books are related to one
person and same transactions are recorded in both the books so the balance of both the
books should match i.e. the balance as per Pass Book should match to balance at bank as per
cash book. But many a times these two balances do not agree then, it becomes necessary to
reconcile them by preparing a statement which is called Bank Reconciliation Statement. A
BANK RECONCILIATION STATEMENT may be defined as a statement showing the
items of differences between the cash Brook balance and the pass book balance, prepared on
any day for reconciling the two balances.
A transaction relating to bank has to be recorded in both the books i.e. Cash Book and Pass
Book but sometimes it happens that a bank transaction is recorded only in one book and not
recorded simultaneously in other book this causes difference in the two balances.
Reasons of difference between cash book & pass book balance are:
1)

Cheque Issued But Not Presented For Payment:

When cheque is issued then immediately make entry in the cash book. The cheque issued
can be presented for payment to the bank within six month from the date of cheque as per
banking law. The cheque is presented for payment after the expiry of the above period then
payment is refused by the bank. This cheque is also known as stale cheque. It is possible
at the time when the balances of the two books are being compared, thus more chances of
causing a disagreement between the two balances.
2)

Cheque Paid Into The Bank But Not Yet Cleared:

As soon as the cheque is deposited into the bank, the immediately entry is passed in the cash
book. This will make entry in pass book only when cheque is cleared. It is possible at the
Page | 7

time when the balances of the two books are being compared, thus more chances of causing
a disagreement between the two balances.
3)

Interest Allowed By The Bank:

Bank might have credited the account of the customer with the interest and may have made
the entry in the pass book. It is possible that the entry of such interest may not have been
made by the customer in the cash book, thus causing a disagreement between the two
balances.
4)

Interest And Bank Charges Debited By Bank:

Sometime bank charges interest from the customer then immediately entry in the pass book
but not in cash book. So, in this case when check the balance between cash and bank book
then disagreement between the two balances. So, it is the main reason to create difference
between two books.
5)

Interest, Dividend Collected By The Bank:

Sometime interest on government security or dividend on share is collected by the bank and
is credited to customer account. If the entry does not appear in the cash book then balance
will differ.
6)

Direct Payment By Bank:

Sometimes, understanding instruction from the clients certain payment like insurance
premium, club fees installment etc. are made by the bank. Then this entry is recorded only in
the pass book. This entry is made in the cash book only when the necessary intimation to
that effect is received from the bank by the client. The entries in the cash and pass book may
be on different dates.
7)

Direct Payment Into The Bank By A Customer:

Sometimes, our customer deposit money direct into the account in the bank. It is only
recorded in the pass book not in the cash book. It is possible at the time when the balances
of the two books are being compared, thus more chances of causing a disagreement between
the two balances.
8)

Dishonour Of Bill Discounted With The Bank:

Sometimes, customer gets their bills discounted with the bank. If the bank is not able to get
payment of these bills on the due date, it will debit the customer account with the amount of
the bills together with the nothing charges if any. The customer will pass the entry in the

Page | 8

cash book only. When balances of the two books are being compared, thus more chances of
causing a disagreement between the two balances.
9)

Dishonour Of Cheque:

When the received cheque is deposited into bank, these are immediately recorded in the cash
book. As a result cash book balance is increased. But the deposited cheque is dishonoured
due to lack of funds or due to other reasons. Bank does not credit the amount of the
depositor. As a result disagreement between the two balances.
10)

Error And Omissions:

If any error is committed either by the bank or by a customer in the cash book while
recording a transaction in their respective books, it causing a disagreement between the two
balances.

The error may be:

1.

Under cast/overcast of receipt side or payment side.

2.

Bank charges omitted from the banks or recorded twice in the books.

3.

Wrong carry forward of cash book balance.

Page | 9

ASSIGNMENT B
Q: 1).
Define depreciation. Differentiate, with suitable example, between
Diminishing Balance Method & Straight Line Method of charging
depreciation.
Answer:
Depreciation refers to gradual decrease or loss in the value of asset due to usage, passage of
time and normal wear and tear. This gradual fall in the value of the asset is of permanent
nature which cannot be made good by normal repair and maintenance.
International Accounting Standard Committee defines depreciation as the allocation of the
depreciable amount of an asset over its estimated life.
Whereas Accounting Standard (AS-6) issued by Institute of Chartered Accounting of India
defines depreciation as follows: Depreciation is measure of wearing out consumption or
other loss of value of 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 assets.
Provision is created in a companys account towards depreciation to account for the wear
and tear of its assets caused by usage, passage of time, technological obsolescence, etc. while
depreciation does not involve payment of money to any third party; it is nevertheless an
accounting entry in the books.
Depreciation is the acquisition cost of an asset (less the expected salvage value) spread over
the economic life of that asset.
The purpose of charging depreciation over the economic life of the asset is to match the cost
of the asset over the period for which revenue is earned by using the asset.
The two methods basically used for charging depreciation are:
1) Straight Line Method
Under the straight-line method, the net acquisition cost or construction cost is charged off in
equal proportion during the useful economic life and the quantum of the depreciation is
arrived at by dividing the net acquisition or construction cost by the number of years of
useful economic life. The net acquisition or construction cost is calculated by deducting
salvage value from the acquisition or construction cost.

Page | 10

For example, if the cost of an asset is Rs.1,00,000, the expected salvage value is Rs.20,000
and the estimated useful life is 8 years, the annual depreciation would be = Rs.10,000 or
10% per annum.
2) Diminishing Balance Method
Under this method the depreciation charged in the various years will not be equal over the
useful life of the asset.
This is because the depreciation charge every year is calculated as a percentage of the
outstanding balance of the asset as at the beginning of that particular year and not on the
original cost of the asset.
The percentage of depreciation to be charged under the declining balance method can be
determined as under

Where,
r = rate of depreciation under the written down value method
n = estimated useful life of the asset in years
s = residual value or scrap value of the asset
c = original cost of the asset.
Please note that if the residual or scrap value of an asset is zero, the rate of depreciation
cannot be determined using the above formula.
For example:
Original Cost of the Machine- Rs.1,00,000
Estimated Scrap Value - Rs.30,000
Useful Life - 6 years
The calculation of depreciation for each of the years would be as follows:
r = 1 (30,000/1,00,000)1/6 = 18%

Page | 11

Year

Calculation of depn.

Depreciation

Written down value

1,00,000 x 18%

18,000

82,000

82,000 x 18%

14,760

67,240

67,240 x 18%

12,103

55,137

55,137 x 18%

9,925

45,212

45,212 x 18%

8,138

37,074

37,074 x 18%

6,673

30,401

Comparison between
of Depreciation

Strait

Line

Method

Diminishing

Balance

Method

Explanation:
In the above diagram we see that irrespective of the time period the amount of depreciation
charged is same under the straight line method. But in case of written down value method
the amount of depreciation charged falls down as the time period increases.
The depreciation charged under this method is more in the initial years and keeps on falling
as the number of years of usage increase.
Page | 12

Differences between the diminishing balance and straight line method

Straight Line

Diminishing Balance

A fixed amount of depreciation is charged

A fixed rate of depreciation is charged

The asset may or may not have scrap value

The asset must have a significant scrap value

The amount of depreciation per year is same

The amount of depreciation goes on

reducing with each passing year.

In the first year, the depreciation is charged

on the cost of the asset, less scrap value, if
any

In the first year, the depreciation is charged

on the asset

At the end of its life, the book value of the

asset becomes zero

The book value of the asset never reduces to

zero.

Q: 2).

Define Bills of Exchange and explain the parties involved in it.

Answer:
The Negotiable Instruments Act defines a Bill Of Exchange as an instrument in writing,
containing an unconditional order, signed by the maker, directing a certain person to pay a
certain sum of money only to, or to the order of, a certain person or to the bearer of the
instrument.
The features of bills of exchange are:
1) It is a written document.
2) It is an unconditional order to pay a certain sum of money.
3) It is signed by the maker (or drawer) of the bill.
4) It must be dated and properly stamped.
5) The amount must be payable to a definite person or to his order or the bearer of the
instrument.
6) It must be accepted by the drawee.
The person who draws the bill is called the Drawer. The person who accepts the order is
known as drawee and the person to whom the amount has to be paid is known as the
payee. Drawer and the payee can be the same person.

Page | 13

Q: 3).

Distinguish between capital expenditure & revenue expenditure.

Answer:
Capital Expenditure refers to expenditure that the benefit of which is not fully derived in

one year but spread over several periods. Examples for capital expenditure are acquisition
of assets for the purpose of earning, additions to fixed assets to improve its capacity,
expenditure resulting in long-term benefit to the business, etc. Expenses like Preliminary
expenses, Research and Development expenditure, Interest paid during Construction period,
etc. are taken to assets side of Balance Sheet and shown under Miscellaneous Expenditure.
A capital expenditure is an amount spent to acquire or improve a long-term asset such as
equipment or buildings. Usually the cost is recorded in an account classified as Property,
Plant and Equipment. The cost (except for the cost of land) will then be charged to
depreciation expense over the useful life of the asset.
Revenue Expenditure is an expenditure incurred and the benefit of which is derived in the

year in which the expenditure was incurred. Examples are raw materials, repairs,
depreciation, rent, wages, etc. Such expenses are debited to Profit and Loss account. Any
incomes and gains are credited to Profit and Loss account. Examples are Commission
received, Dividend received, Interest received etc. Net Profit is transferred to capital
account in the balance sheet.
Revenue expenditure is an amount that is expensed immediatelythereby being matched
with revenues of the current accounting period. Routine repairs are revenue expenditures
because they are charged directly to an account such as Repairs and Maintenance Expense.
Even significant repairs that do not extend the life of the asset or do not improve the asset
(the repairs merely return the asset back to its previous condition) are revenue
expenditures.
Expenditure on fixed assets may be classified into Capital Expenditure and Revenue
Expenditure. The distinction between the nature of capital and revenue expenditure is
important as only capital expenditure is included in the cost of fixed asset.
Capital Expenditure
Capital expenditure includes costs incurred on the acquisition of a fixed asset and any
subsequent expenditure that increases the earning capacity of an existing fixed asset.
The cost of acquisition not only includes the cost of purchases but also any additional costs
incurred in bringing the fixed asset into its present location and condition (e.g. delivery
costs).

Page | 14

Capital expenditure, as opposed to revenue expenditure, is generally of a one-off kind and its
benefit is derived over several accounting periods. Capital Expenditure may include the
following:

Purchase costs (less any discount received)

Delivery costs
Legal charges
Installation costs
Up gradation costs
Replacement costs

As capital expenditure results in increase in the fixed asset of the entity, the accounting entry
is as follows:
Debit

Fixed Assets
Credit

Cash/Payable

Revenue Expenditure
Revenue expenditure incurred on fixed assets include costs that are aimed at 'maintaining'
rather than enhancing the earning capacity of the assets. These are costs that are incurred on
a regular basis and the benefit from these costs is obtained over a relatively short period of
time. For example, a company buys a machine for the production of biscuits. Whereas the
initial purchase and installation costs would be classified as capital expenditure, any
subsequent repair and maintenance charges incurred in the future will be classified as
revenue expenditure. This is so because repair and maintenance costs do not increase the
earning capacity of the machine but only maintains it (i.e. machine will produce the same
quantity of biscuits as it did when it was first put to use).
Revenue costs therefore comprise of the following:

Repair costs
Maintenance charges
Repainting costs
Renewal expenses

As revenue costs do not form part of the fixed asset cost, they are expensed in the income
statement in the period in which they are incurred. The accounting entry to record revenue
expenditure is therefore as follows:
Debit

Revenue Expense (Income Statement)

Credit

Cash/Payable
Page | 15

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
Cr.
Particulars
Rs.
Particulars
Rs.

Dr.

Cash
Cash at Bank
Purchases

540 Sales account

2,630 Returns outwards
40,675 Capital

Return inwards

680 Accounts payable

Wages

8,480 Rent

Fuel and power

4,730

Carriage on sales

3,200

Carriage on Purchases

2,040

Inventory (1st July, 2000)

5,760

Buildings

32,000

Freehold land

10,000

Machinery

20,000

Patents

7,500

Salaries

15,000

General expenses

500
62,000
6,300
9,000

3,000

Insurance

600

Drawings

5,245

Accounts receivable

98,780

14,500
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)
2)
3)
4)

Inventory on hand on 30th June, 2001 is Rs.6,800

Machinery is to be depreciated at the rate of 10% and Patents at the rate of 20%.
Salaries for the month of June 2001amounting to Rs.1,500 were unpaid.
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.
Page | 16

SOLUTION:
1) Trading Account:
Gupta
Trading Account
30th June, 2001
Rs
Particulars

Particulars
To Opening Inventory

5760 By Sales

To Purchases

40,675

Less: Returns

500

98,780

Less: Returns

680

40,175 By Closing Inventory

To wages

8,480

To carriage on purchase

2,040

To factory fuel & power

4,730

To Gross Profit c/d

Rs
98,100
6,800

43,715
1,04,900

1,04,900

2) Profit and Loss account

Gupta
Profit and Loss Account
For the year ending 30th June, 2001
Particulars
Rs
Particulars
To Carriage on sales
3200 By Gross Profit b/d
To Salaries
15,000
By rent
Add: Outstanding
1,500
16,500 Add: Accrued rent
To General Expenses
3,000
To Insurance
600
Less: Unexpired insurance 85
515
To Depreciation on:
Machinery
2,000
Patents
1,500
3,500
To Bad debts
725
To Net Profit transferred to
Capital a/c

26,275
53,715

Rs
43,715
9000
1000

10,000

53,715

Page | 17

ASSIGNMENT C OBJECTIVE QUESTIONS

In each of the following cases indicate the alternative which you consider to be correct:
Q: 1).
Which of the following financial statements is prepared as of a
particular date?
a)
b)
c)
d)
e)

Profit and loss account

Balance sheet ()
Cash flow statement
Income and expenditure statement
Profit and loss appropriation account.

Q: 2).
Based on which of the following concepts, share capital account is
shown on the liability side of balance sheet?
a)
b)
c)
d)
e)
Q: 3).
a)
b)
c)
d)
e)
Q: 4).

Business entity concept ()

Money measurement concept
Cost concept
Going concern concept
Conservatism concept.
Which of the following is not an accounting transaction?
Sale of goods for cash
Payment of salary of office staff
Agreement to sell ()
Purchase of office furniture
Repayment of bank loan.
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.

Page | 18

Q: 5).
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)
b)
c)
d)
e)
Q: 6).
a)
b)
c)
d)
e)
Q: 7).
a)
b)
c)
d)
e)

Deduct Rs.60,000 from bank balance as per pass book

Add Rs.20,000 and deduct Rs.40,000 from overdraft balance as per cash book
Deduct Rs.60,000 from overdraft balance as per pass book ()
Add Rs.60,000 to overdraft balance as per pass book
Deduct Rs.40,000 and add Rs.20,000 from overdraft balance as per pass book.
Which of the following is true?
Bank account is a personal account ()
Stock of stationery account is a nominal account
Returns inward account is a personal account
Outstanding rent account is a nominal account
Capital account is a real account.
A sales day book is to record
all credit sales only
All cash sales only
all credit and cash sales
credit sales of goods and trade discount ()
All cash and credit sales and trade discount.

Q: 8).

Which of the following is a liability of a firm?

a)
b)
c)
d)
e)

Debit balance of discount column of cash book

Credit balance of bank pass book
Debit balance of bank column of cash book
Debit balance of cash column of cash book
Credit balance of bank column of cash book ()

Q: 9).
I.
II.
III.
IV.
V.

Which of the following accounts will invariably have a debit balance?

Accounts receivable.
Accounts payable.
Purchases account.
Bank account.
Prepaid expenditure.

a)
b)
c)
d)
e)

Only (III) above

Both (II) and (III) above
Both (I) and (III) above
(I), (III) and (V) above ()
(I), (III), (IV) and (V) above.
Page | 19

Q: 10).
a)
b)
c)
d)
e)

The following is not a book of original entry

Purchase book
Journal proper
Cash book
General ledger ()
sales book

Q: 11). 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)
b)
c)
d)
e)

Goods purchased on credit - Purchase Book

Goods sold on credit - Sales Book
Wages paid in cash - Cash Book
General Stationery purchased on credit - Purchase Book ()
Office Equipment purchased on credit - Journal Proper

Q: 12). The impact on assets, profit and liabilities of a firm, on account of

salary paid will be
a)
b)
c)
d)
e)

Assets
No effect
Decreases
Decreases
Increases
Decreases

Q: 13).

Profit Total
Decreases
No effect
Decreases
No effect
Increases

Liabilities
Decreases
Decreases
Decreases ()
Increases
Decreases.

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.
Q: 14).
a)
b)
c)
d)
e)

Total of sales day book at the end of the month indicates

The total sales for the month

The total credit sales for the month ()
Total cash sales of the month
Total amount due to suppliers
Total amount receivable from credit sales.

Page | 20

Q: 15).

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.
Q: 16). 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.

()

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 drawers 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 drawers
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 drawees a/c.

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Q: 19).
a)
b)
c)
d)
e)

Nominal account
Personal account
Intangible asset
Real account ()
Representative Personal account.

Q: 20).
a)
b)
c)
d)
e)

Bills receivable account is a

Closing stock is generally valued at

Cost price
Replacement cost
Market price
Realisable value
Cost price or market price whichever is lower ()

Q: 21). The provision for discount on debtors is calculated on the amount of

debtors
a)
b)
c)
d)
e)

Before deducting the provision for doubtful debts

Left after deducting the provision for doubtful debts
Before deducting the actual bad debts
After deducting the actual bad debts
After deducting the actual bad debts and the provision for doubtful debts
()

Q: 22). 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)
b)
c)
d)
e)

Rs. 8,600 ()
Rs.10,400
Rs.10,520
Rs.10,600
Rs.10,680.

Q: 23). At the time of preparation of final accounts, bad debts recovered

account will be transferred to
a)
b)
c)
d)
e)

Debtors account
Profit & loss account ()
Profit & loss adjustment account
Profit & loss appropriation account
Provision for discount on debtors account.
Page | 22

Q: 24). 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 ()
Q: 25).
a)
b)
c)
d)
e)

The following is not an example of fixed asset

Plant and machinery

Land and building
Royalty ()
Patent
Office furniture.

Q: 26).

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)
b)
c)
d)

Compensation paid to Directors on termination of their services

Expenditure for renewal of trade mark
Gratuity paid to employees
Installments paid for the purchase of patent for manufacture and sale of
medicine ()
e) Compensation paid to workers on retirement.
Q: 28). Entries passed for outstanding expenses, depreciation, interest on
capital etc. are
a)
b)
c)
d)
e)

Opening entries
Journal entries
Adjustment entries ()
Rectification entries
Closing entries.
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Q: 29). Which of following transactions does not change the total amount of
liabilities in the balance sheet?
a)
b)
c)
d)
e)

Purchase of office furniture on credit

Payment of bank loan
Issue of debentures
Acceptance of bills from creditors()
Redemption of preference shares.

Q: 30).
a)
b)
c)
d)
e)

Which of the following is false?

Capital plus liabilities will be equal to assets

The difference between assets and liabilities is bank borrowing ()
Capital account is a personal account
Investment account is a real account
Outstanding rent account is a representative personal account.

Q: 31). 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)
b)
c)
d)
e)

Time period concept

Business entity concept
Going concern concept
Accrual concept ()
Duality concept.

Q: 32). Which of the following statements can be used to assess the liquidity of
a company?
a)
b)
c)
d)
e)

Balance sheet ()
Profit and loss account
Profit and loss appropriation account
Bank reconciliation statement
Manufacturing account.

Q: 33). Which of the following state that Anticipate no profit and provide for
all possible losses?
a)
b)
c)
d)
e)

Convention of materiality
Convention of consistency
Convention of disclosure
Convention of conservatism ()
Convention of matching.
Page | 24

Q: 34).
I.
II.
III.
IV.
V.

Which of the following statements is/are true?

Drawings account is a nominal account.

Capital account is a real account.
Sales account is a nominal account.
Outstanding salaries account is a nominal account.
Patents account is a personal account.
a)
b)
c)
d)
e)

Only (I) above

Only (III) above ()
Both (II) and (IV) above
(II), (IV) and (V) above
(I), (II), (III) and (IV) above.

Q: 35). 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)
b)
c)
d)
e)

Returns inward book

Returns outward book ()
Cash book
Journal proper
Purchases day book.

Q: 36). 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)
b)
c)
d)
e)

Cheque issued to suppliers may not have been presented

Cheque deposited in the account may not have been realized
Bill discounted with bank is not due for payment ()
Customers may have directly deposited money in the companys account
Bank charges not accounted.

Q: 37). 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.
ii.

Cheque No. 51 for Rs.540 in favour of Mr.Raman has not yet been presented.
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)
b)
c)
d)
e)

Rs.11,025 (Dr.)
Rs. 9,945 (Dr.) ()
Rs. 9,945 (Cr.)
Rs. 9,975 (Dr.)
Rs. 9,975 (Cr.).
Page | 25

Q: 38). 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)
b)
c)
d)
e)

Rs.4,00,000
Rs.3,40,000
Rs.2,25,000 ()
Rs.1,60,000
Rs.1,00,000

Q: 39).
a)
b)
c)
d)
e)

Unearned income account is

A current asset
A current liability ()
An expense
An income
Deferred expense.

Q: 40).

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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