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CBSE Questions for Class 11 Commerce Accountancy Financial Statements 2 Quiz 1 - MCQExams.com
CBSE
Class 11 Commerce Accountancy
Financial Statements 2
Quiz 1
Provision for cash discount on debtors is a percentage of _________________.
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0%
Debtors
0%
Net debtors
0%
Net debtors less provision for doubtful debts
0%
Net sales
Explanation
Discounts
allowed to the existing
debtors
in the next year are debited to the
Provision
for
Discount
Account and not to the Profit and loss Account.In other words, the amount of the
provision
for
discount
is calculated after deducting
bad debts
and
provision for doubtful debts
from sundry
debtors
.
If value of final sales is
48000 and net realizab levalue is
48000 and net realizab levalue is
35000, then value of sales costs would be ____________.
Report Question
0%
$35, 000
0%
$13, 000
0%
$83, 000
0%
$48, 000
If there is no partnership deed then interest on capital will be charged at ______p.a.
Report Question
0%
6%
0%
8%
0%
9%
0%
NIL
Explanation
When there is no partnership deed then interest on capital will not be charged. There will be no interest provided on the capital.
Interest on partners capital is___________.
Report Question
0%
An Expenditure
0%
An appropriation
0%
A Gain
0%
None of these
Explanation
Interest on capital account is an appropriation. Appropriation means it is paid only and only if there is profit. It is not a charge and hence, will not be provided if there is loss or if there are profits will be provided only till the extent of profits.
After all closing entries have been posted, the balance of the P & L Account will be ________________.
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0%
A debit if a net income has been earned
0%
A debit if a net loss has been incurred
0%
A credit if a net loss has been incurred
0%
Zero
Explanation
The term profit and loss (P&L) statement refers to a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, usually a quarter or fiscal year.
Journal Entry for net loss
Net loss A/c Dr. XXX
To profit and loss A/c XXX
Therefore, B is the correct answer.
Under varying $${k}_{e}$$ theory __________________.
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0%
$${K}_{e}$$ varies at different levels of debt
0%
$${K}_{e}$$ varies at different levels of credit
0%
$${D}_{m}$$ varies at different levels of debt
0%
$${K}_{o}$$ varies at different levels of debt
Explanation
First Stage: Increasing Value
In
the first stage the cost of equity (
ke
) either remains constant or rises slightly with increase
in debt
. At this stage, the increase
in
cost of equity is less than the advantage
in
cost due to lower cost of
debt
than equity.
Financial capital is also referred to ______________.
Report Question
0%
Money capital
0%
Current assets
0%
Fluid
0%
Long term debt
Explanation
Financial capital is the money used to help pay for the acquisition of plants, equipment, and other items needed to build products or offer services. Hence, it can be referred to money capital.
Short cut method for determination of cost of debt:
Report Question
0%
$${ k }_{ d }=\cfrac { 1 }{ { S }_{ v } } \left( 1-t \right) $$
0%
$${ k }_{ d }=\cfrac { I(1-t)+(f+d+{ p }_{ r }-{ p }_{ i })/{ N }_{ m } }{ (Rv+Sv)/2 } $$
0%
$${ k }_{ d }=\cfrac { { S }_{ v } }{ (1-t) } $$
0%
None of the above
Del Credere commission is allowed to the consignee to bear __________.
Report Question
0%
Normal loss
0%
Abnormal loss
0%
Risk of bad debts
0%
Profit on account of sender
Explanation
Its a special commission given by the consignor to the consignee. When the del credere commission is given, the consignee undertakes the risk of bad debts arising out of the credit sale.
Reserve for doubtful debts appearing in the trial balance should be _______________.
Report Question
0%
Credited to P & L A/c
0%
Shown in liability side in balance sheet
0%
Reduced from related asset in the balance sheet
0%
Both A and C
Explanation
Reserve for doubtful debt is created on conservatism concept. Conservatism concept assumes that all the anticipated losses should be recorded in books of account to know the true profitability.
Adjustment for Reserve for doubtful debts is to be done while preparing the profit & loss account.
If the reserve is appearing in trial balance, that means an adjustment entry has already been passed in books of account. This has to be shown in credit side of profit & loss account and will appear in liability side of balance sheet.
A Company purchased 8% bonds at a cost of Rs. 12,00,000(face value Rs. 10,00,000) on January 1,Half yearly interest is payable on this investment on June 30 and December 31st each year. The company closes its accounts on 31-3-The amount of accrued interest shown in profit and loss account for the year ended is?
Report Question
0%
Rs. 40,000
0%
Rs. 60,000
0%
Rs. 20,000
0%
Rs. 80,000
Explanation
Amount of accrued interest = Face value * Rate/100 * 3/12
= 1000000 * 8/100 * 3/12
= Rs 20000
Bad debt amount should be credited to the _________ account.
Report Question
0%
Debtors
0%
Bad debts
0%
Sales
0%
Creditors
Explanation
Bad debts are the amount due from the debtors which are either declared as bad or doubtful. Bad debt is a loss to the organization and should be debited to profit & loss account as indirect expenses by reducing the amount of debtors.
Accounting entry to be passed on account of bad debt is as under:
Bad Debts A/c Dr.
To sundry Debtors
Consider the following statements.
I. Incase of the marine insurance, the insurable interest must exist at the time the loss occurs.
II. Incase of fire insurance, insurable interest must exist both at the time of the contract and at the time of loss.
Which of the statements given is/are correct?
Report Question
0%
I only
0%
II only
0%
Both I and II
0%
Neither I nor II
Explanation
In a
marine insurance
contract the presence of
insurable interest
is necessary only at the
time
of the
loss
. It is immaterial whether he has or does not have any
insurable interest
at the
time
when the
marine insurance policy
was taken.
A person cannot insure the property of a third party, because he does not have an
insurable interest
in it.
In case of fire insurance
,
insurable interest must exist both at the time
of
contract and at the time of loss
.
It is not necessary that he
should
have
insurable interest
at the
time
of maturity also.
Match the following
List I
(1) Debt-equity ratio
(2) Debt ratio
(3) Times-Interest earned ratio
(4) Extent of financial leverage
List- II
(a) $$\cfrac { Total\quad debt }{ Total\quad assets } $$
(b) $$\cfrac { \\ Debt }{ Equity } $$
(c) $$\cfrac { percent\quad change\quad in\quad earnings\quad after\quad taxes }{ percent\quad change\quad in\quad earnings\quad before\quad interest\quad aned\quad taxes } $$
(d) $$\cfrac { Earnings\quad before\quad interest\quad and\quad taxes }{ Annual\quad interest\quad charges } $$
Report Question
0%
1-a; 2-c; 3-d; 4-b
0%
1-b; 2-a; 3-d; 4-c
0%
1-a; 2-b; 3-c; 4-d
0%
1-d; 2-b; 3-c; 4-a
Explanation
List 1
List 2
1
Debt-equity ratio
$$\cfrac { \\ Debt }{ Equity } $$
2
Debt ratio
$$\cfrac { Total\quad Debt }{ Total\quad Assets } $$
3
Times-Interest earned ratio
$$\cfrac { Earnings\quad before\quad Interest\quad and\quad taxes }{ Annual\quad Interest\quad charges } $$
4
Extent of financial leverage
$$\cfrac { Percent\quad change\quad in\quad earnings\quad after\quad taxes }{ Percent\quad change\quad in\quad earnings\quad before\quad interest\quad aned\quad taxes } $$
While making an adjustment entry in respect of interest on capital, credit is made to _______________.
Report Question
0%
Capital account
0%
Interest on capital account
0%
Profit & loss account
0%
Interest account
Explanation
Interest on Capital
has the following two effects on final accounts: It is an expense of the business, therefore; it will be recorded on the debit side of Profit and Loss Account. On the other hand, it is an income of the owner, therefore; it will be added in the
Capital
Account in Balance Sheet.
The amount of prepaid expense is ________ from the total of the particular expense.
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0%
added
0%
deducted
0%
neutralized
0%
None of the Above
Explanation
There are several items of expense which are paid in advance in the normal course of business operations. At the end of the accounting period, it is found that the benefits of such expense are not yet been fully received; a portion of its benefit would be received in the next accounting year. This portion of expense, is carried forward to the next year and is termed as prepaid expenses. The necessary adjustment in respect of prepaid expenses is:
Prepaid expense A/c Dr.
To Concerned expense A/c
The effect of the above adjustment entry is that the amount of prepaid part is deducted from the total of the particular expense, and the new account of prepaid expense is shown on the liabilities side of the balance sheet.
Final Accounts should represent ___________ view.
Report Question
0%
True & fair
0%
Correct
0%
True
0%
Right & error less
Explanation
The Companies Act requires that every balance sheet of a company should
give
a
true
and
fair view
of the state of affairs of the company as at the end of the
financial
year and every profit and loss of a company should
give
a
true
and
fair view
of the profit or loss of the company for the
financial
year.
Expenses which are paid in advance is termed as _____.
Report Question
0%
Prepaid expense
0%
Outstanding expense
0%
Unpaid expense
0%
None of the above
Explanation
There are several items of expense which are paid in advance in normal course of business operations. At the end of the accounting year, it is found that the benefits of such expenses have not been fully received; a portion of its benefit would be received in the next accounting year. This portion of expense, is carried forward to the next year and is termed as prepaid expenses. The necessary adjustment in respect of prepaid expenses is made by recording the following entry:
Prepaid Expense A/c Dr.
To Concerned Expense A/c
The effect of the above adjustment entry is that amount of prepaid part is deducted from the total of the particular expense, and the prepaid account is shown on the assets side of the balance sheet.
_________ are adjusted at the time of preparing financial statements.
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0%
Depreciation on fixed assets
0%
Interest on capital
0%
Closing stock
0%
All of the above
Explanation
According to accrual concept of accounting, the profit or loss for an accounting year is not based on the revenues realised in cash and the expenses paid in cash during the year because there may be some receipts of income and payments of expenses during the current year which may partially relate to the previous year or the next year. There are certain items which are not recorded on day-to-day basis such as depreciation on fixed assets, interest on capital, etc. These are adjusted at the time of preparing financial statements. The purpose of making various adjustments is to ensure that the final accounts reveal the true profit or loss and the true financial position of the business. The items which usually need adjustments are:
1. Closing stock
2. Outstanding expenses
3. Prepaid/Unprepaid expenses
4. Accrued income
5. Income received in advance
6. Depreciation
7. Bad debts
8. Provision for doubtful debts
9. Provision for discount on debtors
10. Manager's commisssion
11. Interest on capitral
Discuss the effect of the following transaction:
Ms. Pooja earns Rs.
2,000 per month. Her salary account is debited by Rs. 30,000 at the end of the year.
Report Question
0%
Rs. 6,000 is the outstanding expense
0%
Rs. 30,000 is asset
0%
Rs. 6,000 is the prepaid expense
0%
Rs. 30,000 is liabilities
Explanation
The necessary adjustment in respect of prepaid expenses is made by recording the following entry:
Prepaid expense A/c Dr.
To Concerned expense A/c
The effect of the above adjustment entry is that the amount of prepaid part is deducted from the total of the particular expense, and the new account of prepaid expense is shown on the assets side of the balance sheet.
Ms. Pooja earns Rs. 2,000 per month. Her salary account is debited by Rs. 30,000 at the end of the year. This implies that Pooja has over payment of Rs. 6,000 in his salary account. Hence, correct expense on account of salary during the current period will be Rs. 24,000 instead of Rs. 30,000.
Rs. 24,000 is to be shown as expense on account of salary in profit and loss account and recognize a current asset of Rs. 6,000 as an advance salary.
It will be termed as prepaid expense.
The closing stock of the year becomes the ______ of the next year.
Report Question
0%
Liabilities
0%
Asset
0%
Opening stock
0%
Dead stock
Explanation
The closing stock represents the cost of unsold goods lying in the stores at the end of the accounting period. The adjustment for the closing stock is done by crediting it to the trading profit and loss account and by showing it on the asset side of the balance sheet. The closing stock of the current year becomes the opening stock of the next year and is reflected in the trial balance.
Amount which has accrued but is still to be received.
Report Question
0%
Outstanding Income
0%
Outstanding Expense
0%
Prepaid Income
0%
Prepaid Expense
Explanation
It may happen that certain items of income such as interest on loan, commission, rent, etc. are earned during the current accounting year but have not been actually received by the end of the same year. Such incomes are known as accrued income. It is also known as Outstanding income. The adjusting entry for accrued income is:
Accrued Income A/c Dr.
To Concerned Income A/c
The amount of accrued income will be added to the related income in the profit and loss account and the new account of accrued income will appear on the asset side of the balance sheet.
Amount of Rs. 1,000 is paid on July 01, 2017 towards insurance premium. Therefore, amount belonging to the year ending March 31, 2018, will be ____.
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0%
Rs. 400
0%
Rs. 1,000
0%
Rs. 250
0%
Rs. 300
Explanation
For the preparation of financial statements, it is necessary that all the adjustments arising out of the accrual basis of accounting are made at the end of the accounting period. Another important consideration in preparation of final accounts with adjustment, is the distinction between capital and revenue items. Entries which are recorded to give effect to these adjustments are known as adjusting entries. Final accounts represents true and fair view of the state of affairs of the business.
An amount of Rs. 1,000 is paid on July 01, 2017 towards premium. Any general insurance premium paid usually covers a period of 12 months.
Suppose the accounting period ends on March 31, 2018, one-fourth of the insurance premium is paid on July 01, 2017 which is Rs. 250.
All adjustments are reflected in the final accounts at ______ place to complete the double entry.
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0%
three
0%
two
0%
one
0%
five
Explanation
Adjustments become necessary in respect of certain incomes received in advance and those which have accrued but are still to be received. Apart from these, there are certain items which are not recorded on day-to-day basis such as depreciation on fixed assets, interest on capital, etc. These are adjusted at the time of preparing financial statements.
The purpose of making various adjustments is to ensure that the final accounts reveal the true profit and loss and the true financial position of the business.
It may be noted that when we prepare the financial statements, we are provided with the trial balance and some other additional information in respect of the adjustments to be made. Like all other entries, even the adjustments are to be made with a dual effect and hence, they are reflected in final accounts at 2 places.
The prepaid expense is shown on the _______ side of the balance sheet.
Report Question
0%
Assets
0%
Liabilities
0%
Debit
0%
Credit
Explanation
There are several items of expense which are paid in advance in the normal course of business operations. At the end of the accounting year, it is found that the benefits of such expense have not yet been fully received; a portion of its benefit would be received in the next accounting year. This portion of expense, is carried forward to the next year and is termed as prepaid expenses. The necessary adjustment in respect of prepaid expenses is made by recording he following journal entry:
Prepaid Expense A/c Dr.
To Concerned Expense A/c
Th effect of the above adjustment entry is that the amount of prepaid part is deducted from the total of the particular expense, and the prepaid expense is shown on the assets side of the balance sheet.
Give effect of the following adjustment entry:
The accrued rent is Rs. 1,900.
Report Question
0%
Rent A/c Dr. 1,900
To Accrued Rent A/c 1,900
0%
Accrued Rent A/c Dr. 1,900
To Rent A/c 1,900
0%
Accrued Rent A/c Dr. 1,900
To Asset A/c 1,900
0%
None of the above
Explanation
It may happen that certain items of income such as interest on loan, commission, rent, etc. are earned during the accounting year but have not been actually received by the end of the year. Such incomes are known as accrued income. The adjustment entry for accrued income is:
Accrued Income A/c Dr.
To Concerned Income A/c
The amount of accrued income will be added to the related income in the profit and loss account and the new account of accrued income will appear on the asset side of the balance sheet.
The effect of adjustment entry for accrued rent of Rs. 1,900 is:
Accrued Rent A/c Dr. 1,900
To Rent A/c 1,900
Accrued income is also called ________.
Report Question
0%
Outstanding income
0%
Outstanding expense
0%
Prepaid income
0%
Prepaid expense
Explanation
It may happen that certain items of income, such as interest on loan, commission, rent, etc., are earned during the current accounting year but have not been received by the end of the same year. Such incomes are known as accrued income. It is the income that has been earned during a particular accounting period, also known as outstanding income.
Examples include accrued interest, accrued rent (to be received), etc. Accrued income is recorded in the books at the end of an accounting period to show the true numbers of a business.
Depreciation is treated as a business expense and is debited to ________.
Report Question
0%
Trading account
0%
Profit and loss account
0%
Both of the above
0%
None of the Above
Explanation
Depreciation is the decline in the value of assets on account of wear and tear and passage of time. It is treated as a business expense and is debited to profit and loss account. This, in effect, amounts to writing-off a portion of the cost of an asset which has been used in the business for the purpose of earning profits. The entry for providing depreciation is:
Depreciation A/c Dr.
To Concerned Asset A/c
In the balance sheet, the asset will be shown at cost minus the amount of depreciation.
Amount earned during the current accounting year but have not been actually received by the end of the same year is known as ___________.
Report Question
0%
Prepaid expense
0%
Prepaid income
0%
Outstanding expense
0%
Outstanding Income
Explanation
It may happen that certain items of income such as interest on loan, commission, rent, etc. are earned during the current accounting year but have not been actually received by the end of the same year. Such incomes are known as accrued income, outstanding income or incomes earned but not yet received. Common examples of such incomes are commission receivable, income on investments due but not yet received etc. The adjusting entry for accrued income is:
Accrued Income A/c Dr.
To Concerned Income A/c
The amount of accrued income will be added to the related income in the profit and loss account and the new account of accrued income will appear on the asset side of the balance sheet.
Income received in advance will be shown as ________.
Report Question
0%
Current asset
0%
Current liabilities
0%
Fixed asset
0%
Fixed l
iabilities
Explanation
Sometimes, a certain income is received but the whole amount of it does not belong to the current period. The portion of the income which belongs to the next accounting period is termed as income received in advance or an Unearned Income. Income received in advance is adjusted by recording the following entry:
Concerned Income A/c Dr.
To Income Received in Advance A/c
The effect of this entry will be that the balance in he income account will be equal to the amount of income earned for the current accounting period, and the new account of income received in advance will be shown as a liability in the balance sheet.
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