### Accounting &amp; Finance for Bankers - 1 (JAIIB)

 Description: Accounting & Finance for Bankers - 1 Number of Questions: 120 Created by: Tags: Rectification of Errors and Adjusting and Closing Entries Trial Balance Scope and Accounting Standards Definition Basic Accountancy Procedures Business Mathematics and Finance Capital Budgeting Banking Operations and Accounting Functions Capital and Revenue Expenditure Principles of Bookkeeping and Accountancy Calculation of Interest and Annuities Final Accounts Principles of Banking Finance Banking Accounts

E-commerce means

1. electronic commerce

2. buying and selling on web

3. a way of enabling business over net

4. All of the above

Answer: 4
Explanation:

E-commerce means availing all the business over net.

In real on-line banking,

1. transactions are entered through the terminal and recorded immediately, but updations are done later on

2. transactions are entered through the terminal and recorded immediately, but authentication, verification and updations are done later on

3. transactions are entered through the terminal and then they are recorded, verified, authenticated and corresponding updations are reflected instantly.

4. None of the above

Answer: 3
Explanation:

The process of online banking follows this process. Transactions are entered through the terminal and then they are recorded, verified, authenticated and corresponding updations are reflected instantly.

For a computerized accounting system, the system means

1. software programs

2. computer peripherals

3. data

4. Both (1) and (2)

Answer: 4
Explanation:

Software programes and computer peripherals both come under computerized accounting.

The instructions fed to the computer to process data are known as

1. softwares

2. hardwares

3. programs

4. information

Answer: 3
Explanation:

Computer programming is a process that leads from an original formulation of a computing problem to executable computer programs.

The twentieth century has been the century of the advent of

1. internet

2. e-mail

3. e-commerce

4. All of the above

Answer: 4
Explanation:

Correct Answer: All of the above

Core banking solutions work on

1. Finance 1

2. Both (1) and (2)

3. None of the above

Answer: 3
Explanation:

Correct Answer: Both (1) and (2)

Under _________, majority of transactions are processed online.

1. transaction processing

2. online processing

3. multiprocessing

4. None of the above

Answer: 2
Explanation:

Under online processing, majority of transactions are processed online.

CRM stands for

1. Consumer Relationship Management

2. Customer Relationship Management

3. Care Relationship Management

4. Cube Relationship Management

Answer: 2
Explanation:

CRM stands for Customer Relationship Management.

________ is one of the main issues that banks face in today’s hyper competitive environment.

1. Managing customers

2. Cut costs

3. Manage competition

4. All of the above

Answer: 4
Explanation:

Competition, costs and competitors all are the factors that are hard to manage these days.

From the following information, find the amount to be debited to Profit & Loss Account for the period ending 31-03-2014.
Provision for doubtful debts - Rs. 800 (on 01-04-2013)
Debtors on 31-03-2014 - Rs. 40,000
Bad debts - Rs. 2,000
Bad debts are to be written off and provision for doubtful debts is to be created at the rate of 5% on debtors.

1. Rs. 3,100

2. Rs. 4,000

3. Rs. 3,200

4. Rs. 3,900

Answer: 1
Explanation:

Provision for bad debts a/c:
&#xA0
|||||
|---|---|---|---|
|Particulars|Debit|Particulars|Credit|
|To Bad debts|2,000|Balance b/d|800|
| | |By P & l (b/f)|3100|
|To balance c/d|1900| | |

Total sales 90,000
Cash sales 20,000
Opening debtors 20,000
Cash received from debtors 20,000
Bad debts 3,000
Return inward 1,000
Bills received from customers 10,000

Debtors at the end will be

1. 56,000

2. 50,000

3. 40,000

4. 65,000

Answer: 1
Explanation:
Particulars Debit Particulars Credit
Balance b/d 20,000 By cash 20,000
credit sales 70,000 By bad debts 3,000
By Return Inwards 1,000
By B/R 10,000
By balance c/d (b/f) 56,000

Capital introduced in the beginning by Dev = Rs. 20,000
Further capital introduced during the year = Rs. 2,000
Drawings Rs. 250 per month and closing capital Rs. 12,750.

The amount of Profit or Loss for the year will be

1. Loss Rs. 6,250

2. Loss Rs. 6,000

3. Profit Rs. 2,000

4. Data insufficient

Answer: 1
Explanation:

Loss = 20,000 + 2,000 - 12,750 = 6,250

On 31st March, 2011, the books of Ajit showed a net profit of Rs. 84,000. Later it was discovered that the closing stock was over valued by 4,000 and the discount received of Rs. 1,500 was treated as an expense. What was the correct net profit of Ajit?

1. Rs. 81,500

2. Rs. 83,000

3. Rs. 89,500

4. Rs. 91,000

Answer: 2
Explanation:

84,000 - 4,000 + 1,500 (Not recorded as profit) + 1500 (because it was rated as an expense). Therefore, the amount of 1,500 discount will be added two times = Rs. 83,000

While taking stock for the purpose of preparation of trading account, stock in hand on the last day of the accounting year should be adjusted for purchases recorded but goods not received, goods sold but not yet delivered and goods that may be out of business premises because of consignment, goods delivered on sale or return basis, and so on.

1. True

2. False because stock in hand at the beginning day of the accounting year should be adjusted

3. False because no adjustment is required for goods delivered on sale or return basis

4. False because of both (2) and (3)

Answer: 1
Explanation:

The given statement is true.

P sold goods to Q for Rs. 2,00,000. Q paid cash Rs. 60,000. P allowed a discount of 2% on the balance. What is the amount of the bill drawn by P on Q?

1. Rs. 1,96,000

2. Rs. 1,37,200

3. Rs. 1,40,000

4. Rs. 1,36,000

Answer: 2
Explanation:

2,00,000 - 60,000 = 1,40,000
2% discount on the balance = 140,000 * 2% = 2,800
Final balance payable = 1,40,000 - 2,800 = 1,37,200

Which of the following entries is correct in respect of reserve for discounts on accounts payable?

(a) Profit & Loss A/c
To Reserve for Discount on Accounts Payable A/c Dr.
(b) Accounts Payable A/c
To Profit& Loss A/c Dr.
(c) Reserve for Discount on Accounts Payable A/c
To Profit & Loss A/c Dr.
(d) Reserve for Discount on Accounts Payable A/c
To Accounts Payable A/c Dr.
1. (a)

2. (b)

3. (c)

4. (d)

Answer: 3
Explanation:

Accounts payable (creditors) carries a credit balance. Hence, a reserve created on creditors will be debited and P & L a/c would be credited against it.

Reserve for Discount on Accounts Payable A/c
To Profit & Loss A/c

Even when two projects are mutually exclusive, capital rationing results in accurate ranking by

1. NPV method only

2. IRR method only

3. NPV as well as IRR method

4. None of the above

Answer: 2
Explanation:

Mutually exclusive projects are projects in which acceptance of one project excludes the others from consideration. In such a scenario, the best project is accepted. NPV and IRR conflict, which can sometimes arise in case of mutually exclusive projects, becomes critical. The conflict either arises due to the relative size of the project or due to the different cash flow distribution of the projects. Since NPV is an absolute measure, it will rank a project adding more dollar value higher regardless of the original investment required. IRR is a relative measure, and it will rank projects offering best investment return higher regardless of the total value added.

In comparing two projects where their cash flows are not the same in terms of volumes and signs,

1. IRR method is helpful

2. IRR method not very helpful

3. IRR method is not applicable at all

4. IRR method is applicable

Answer: 3
Explanation:

IRR method wil not be applicable here as internal rate of return (IRR) is a metric used in capital budgeting measuring the profitability of potential investments. When comparing two projects where their cash flows are not the same in terms of volumes and signs, IRR method is not applicable at all.

Accounting Rate of Return =

1. Average Profit after Tax + Average Book Value of Investment

2. Average Profit after Tax – Average Book Value of Investment

3. Average Profit after Tax $\times$ Average Book Value of Investment

4. Average Profit after Tax $\div$ Average Book Value of Investment

Answer: 4
Explanation:

Accounting rate of return, also known as the average rate of return, or ARR is a financial ratio used in capital budgeting. ARR calculates the return generated from net income of the proposed capital investment.

________ decisions require evaluation of proposals to diversify into new product lines, new markets etc.

1. Replacement and modernization

2. Expansion

3. Diversification

4. Mutually exclusive

Answer: 3
Explanation:

Diversification is a risk management technique that mixes a wide variety of investments within a portfolio.

Consider a bond which offers 10% p.a. rate of interest to be compounded half yearly. What is the effective rate of interest per annum?

1. 10%

2. 10.25%

3. 5%

4. 20%

Answer: 2
Explanation:

Suppose Rs. 100 is invested. The rate per annum is 10%, i.e. 5% per half year. The amount after first half year will be 100 + 5%, i.e. Rs. 105 and amount after second half year, i.e. one year will be 105 + 5%, i.e. Rs. 110.25. Thus, effective rate of interest per annum is 110.25 - 100 = 10.25%.

RTGS stands for

1. Real Time Gross Settlement

2. Reel Time Gross Settlement

3. Real Type Gross Settlement

4. None of the above

Answer: 1
Explanation:

RTGS helps in the transfer of money and securities from one bank to another.

When preparing Bank Reconciliation Statement, if you start with balance as per Pass Book, then cheques paid by bank recorded twice in Pass Book as Rs. 1,050 will be __________.

1. added

2. deducted

3. not required to be adjusted

4. None of the above

Answer: 1
Explanation:

Correct entry would have been subtracting the amount from the pass book, but as the amount has been recorded twice, it means the amount has been subtracted twice, so the amount will be added once to nullify the difference.

An entry has been made in the credit column of a bank statement but not recorded in the cash book. Such a record can possibly be

1. bank charges

2. direct payment

3. credit transfer

4. unpresented cheque

Answer: 3
Explanation:

Credit transfer is a direct payment of money from one bank account to another. The other options are to be debited, not credited.

The bank balance shown in the balance sheet of an organization is

1. balance as per passbook

2. higher than the balance as per passbook

3. corrected balance as per passbook

4. corrected balance as per cash book

Answer: 4
Explanation:

The bank balance which is shown in the balance sheet of an organisation is the balance after matching it with the cash book.

In case of dishonour of cheque/bill receivable, the amount is recorded in the cash book

1. after the entry is posted in the pass book

2. when the cheque is dishonoured

3. when the amount is paid by the bank

4. when the amount is collected by the bank

Answer: 1
Explanation:

The entry will be passed in the cash book after it is posted in the pass book.

________ is a copy of the clients’ account in the bank’s ledger.

1. Passbook

2. Cash book

3. Cheque book

4. Trial balance

Answer: 1
Explanation:

Pass book a book issued by a bank or building society to an account holder, recording sums deposited and withdrawn.

The client can instruct the bank to collect money, say interest or dividend on investments made by the client and to make payments say premiums of insurance policy on his behalf. The bank _______ the client’s account with such collections made and ________ the clients account with such payments.

1. credits, credits

2. debits, debits

3. credits, debits

4. debits, credits

Answer: 3
Explanation:

The bank credits the account when the bank credits amount in the account. On the other hand, when the bank deducts any amount from your account, it debits the account.

Difference in Bank Balance as per Pass Book and Cash Book may arise on account of

1. cheque issued but not presented

2. cheque issued but dishonoured

3. cheque deposited and credited by bank

4. Both (1) and (2)

Answer: 4
Explanation:

The first two entries create a difference between the entries made in cash book and the entries made by the bank. The third entry where the cheques have been deposited by the customer is added in the cash book and credited by bank, i.e. added in the pass book. So, this entry will not show any difference.

Balance as per Pass Book on 31.03.2006 - Rs. 20,000
Cheque issued and presented on 4th April - Rs. 2,300
Cheque sent to bank but not credited - Rs. 2,000
Bills payable paid by bank not entered in cash book - Rs. 800
Balance as per cash book will be

1. Rs. 19,500

2. Rs. 19,000

3. Rs. 19,800

4. Rs. 20,500

Answer: 4
Explanation:

20,000 - 2,300 + 2,000 + 800 = Rs. 20,500

Bank reconciliation is a statement prepared to reconcile

1. trial balance

2. cash book

3. bank account

4. bank balance as per cash book with bank balance as per bank pass book

Answer: 4
Explanation:

Bank reconciliation book is to find if there is any mismatch in the cash book and bank pass book. If there is so, then it is useful in finding the reason of mismatch and correcting it.

S issued cheque worth Rs. 35,000 in March 2013 out of which cheques worth Rs. 15,000 were presented for payment after by 31st March, 2013. What amount should be added to balance as per pass book?

1. Rs. 15,000

2. Rs. 10,000

3. Rs. 25,000

4. None of the above

Answer: 1
Explanation:

Amount deducted when cheques presented = Rs. 35,000
Rs. 15,000 cheques were not presented before the closing of the month, so Rs. 15,000 will be added back.

Banks generally prefer debt equity ratio at

1. 1 : 1

2. 1 : 3

3. 2 : 1

4. 3 : 1

Answer: 3
Explanation:

Debt/equity ratio is a debt ratio used to measure a company's financial leverage. It is calculated by dividing a company's total liabilities by its stockholders' equity.
Therefore, it is considered good when it is 2 : 1.

______ ratio expresses the relationship between what is available as earnings per share and what is actually paid in the form of dividends out of available earnings.

1. Price earning

2. Payout

3. Dividend yield

4. Debt equity

Answer: 2
Explanation:

The payout ratio is the percentage of net income that a company pays out as dividends to common shareholders. The ratio is calculated as the percentage of earnings paid out as dividends.

Proprietary Ratio = $\frac{Shareholder's\ Funds}{?}$

1. Long Term Funds

2. Fixed Assets

3. Total Assets

4. Interest Charges

Answer: 3
Explanation:

Proprietary Ratio = Shareholder's Fund/Total Assets

Debtor collection period depends upon the

1. nature of the industry

2. seasonal character of the business

3. credit policy of the firm

4. All of the above

Answer: 4
Explanation:

Debtor collection period is different in different types of industries. It also differs according to the terms and conditions of the policy and the nature of the product.

The ratio of all operating expenses (i.e. materials used, labour, factory overheads, office and selling expenses) to sales is the _______ ratio.

1. Gross Profit

2. Net Profit

3. Operating

4. Activity

Answer: 3
Explanation:

The operating ratio is a financial term defined as a company's operating expenses as a percentage of revenue.
Operating Ratio = Operating Expense / Net Sales

Capital employed =

1. Net Fixed Assets + Working Capital

2. Net Fixed Assets – Working Capital

3. Net Fixed Assets $\times$Working Capital

4. Net Fixed Assets $\div$ Working Capital

Answer: 1
Explanation:

Capital Employed = Total Assets - Current Liabilities
= Fixed Assets + Current Assets - Current Liabilities
= Fixed Assets + Working Capital

A measure of profitability is the overall measure of efficiency.

1. True

2. False

3. Partly true

4. Partly false

Answer: 1
Explanation:

A measure of profitability is the overall measure of efficiency.

The ratio used by bankers to ascertain the long term solvency of a business is

1. debt equity ratio

2. current ratio

3. debtor turnover ratio

4. net profit ratio

Answer: 1
Explanation:

Long term solvency is judged by the ratios like debt equity ratio, proprietary ratio, total assets to debt ratio.

Ratios act as indicators of

1. financial soundness

2. strength

3. position

4. All of the above

Answer: 4
Explanation:

Ratios act as indicators of good position of the company because it shows the financial position of the company. If a company is sound, it will ultimately result in good position and strength.

The term ___________ means manipulation of accounts in such a way as to conceal vital facts and present the financial statements in such a way as to show a better position than what actually is.

1. window dressing

2. short term solvency

3. long term solvency

4. profitability

Answer: 1
Explanation:

Window dressing means the actions taken to improve the appearance of a company's financial statements. Window dressing is particularly common when a business has a large number of shareholders, so that management can give the appearance of a well-run company to investors who probably do not have much day-to-day contact with the business.

To make provision for bad debts, which of the following journal entries is correct?

1. Debit the profit and loss, and credit the bad debt account

2. Debit the profit and loss account, and credit provision on bad debt account

3. Debit the provision account and credit the bad debt account

4. Debit the provision and credit the account of individual customer

Answer: 2
Explanation:

The provision for doubtful debts is an account receivable contra account, so it should always have a credit balance.
Hence, entry for provision for bad debts is:

Profit and Loss a/c Dr
To Provision for bad and doubtful debt

6,000 debentures of 100 each were discharged by issuing Equity Shares of Rs. 10 each at 20% premium. Find the number of shares issued.

1. 5,000

2. 60,000

3. 50,000

4. 6,000

Answer: 3
Explanation:

6,00,000 / 12 = 50,000

Right shares are issued to

1. promoters for the services

2. holders of convertible debentures

3. existing shareholders

4. All of the above

Answer: 3
Explanation:

A rights issue is a dividend of subscription rights to buy additional securities in a company made to the company's existing security holders.

The shares should be issued in

1. lots as decided by FEMA

2. tradable lot

3. fractional lot

4. odd lot

Answer: 2
Explanation:

Minimum tradable lot is decided according to the existing provision which is contained in the SEBI.

When the shares are not payable in lump sum, they can be called in a number of installments. Here, the first installment is called the

1. application money

2. allotment money

3. first call money

4. final call money

Answer: 1
Explanation:

Share application money is the money received by a company during an IPO.

The prescribed form of the Balance Sheet requires that under the head Issued Capital, _______ should be stated.

1. the different classes of share capital

2. the sub-classes of preference shares

3. Either (1) or (2)

4. None of the above

Answer: 3
Explanation:

Under the head Issued Capital should be stated if the shares are issued, then all the classes of shares. If it's preference share, then all the sub-classes of preference share should be stated.

If assets of Rs. 60,000 are purchased and shares of Rs. 10 each are issued at a premium of 20%, the number of shares to be issued is

1. 60,000

2. 50,000

3. 6,000

4. 5,000

Answer: 4
Explanation:

60,000 / 12 = 5,000

According to Companies Act, 2013, Balance Sheet is prepared as per

1. Part II Schedule VI

2. Part I Schedule Ill

3. Part II Schedule VII

4. Part I Schedule VII

Answer: 2
Explanation:

Balance Sheet is prepared as per Part I Schedule Ill.

X Ltd. acquired assets worth Rs. 7,50,000 from Y Ltd. by issue of shares of Rs. 100 at premium of 25%. The number of shares to be issued by X Ltd. to settle the purchase consideration will be

1. 6,000 shares

2. 7,500 shares

3. 9,375 shares

4. 5,625 shares

Answer: 1
Explanation:

7,25,000/125 = 6,000 shares

The companies which are formed under Special Act are called as

1. chartered companies

2. statutory companies

3. registered companies

4. None of these

Answer: 2
Explanation:

Statutory corporations are public enterprises brought into existence by a Special Act of the Parliament. The Act defines its powers and functions, rules and regulations governing its employees and its relationship with government departments.

X Ltd. purchased an automatic bottling machine from a vendor for Rs. 1,65,000. The company allotted him equity shares at a premium of 10% instead of paying him in cash. The vendor will be allotted__________ equity shares of Rs. 10 each.

1. 15,000

2. 16,500

3. 13,500

4. 16,000

Answer: 1
Explanation:

Premium = 10% = Rupee - 1 Share Price = 11 Rs.
Number of shares issued = 165,000 / 11 = 15,000

Minimum number of Directors in case of a public company is

1. 1

2. 2

3. 3

4. 4

Answer: 3
Explanation:

A Public Company is a company whose shares are traded freely on a stock exchange and the minimum number of directors is 3.

Buildings account is debited with an amount towards repairs. This is an example of

1. error of omission

2. error of principle

3. error of commission

4. error of compensation

Answer: 2
Explanation:

Errors of principle may occur due to wrong allocation between capital and revenue expenditure, or wrong valuation of assets.

Rs. 4,500 is paid to Rohan as salary for the month of December 2012, which was debited from his account. This is an error of _____.

1. principle

2. omission

3. commission

4. compensation

Answer: 3
Explanation:

The errors which are committed while recording or posting a transaction are called errors of commission. Such errors include posting wrong amounts, posting on wrong side of accounts or posting in wrong accounts, wrong totaling or carrying forward, and wrong balancing.

A suspense account is a ___________

1. temporary account

2. permanent account

3. loan account

4. liability account

Answer: 1
Explanation:

Suspense account is an account in the books of an organization in which items are entered temporarily before allocation to the correct or final account.

A trial balance contains the balances of

1. personal account and real account

2. real account and nominal account

3. nominal account and personal account

4. real account, personal account and nominal account

Answer: 4
Explanation:

A trial balance contains balances of all the accounts.

Trial balance is a/an

1. statement

2. account

3. summary

4. ledger

Answer: 1
Explanation:

Trial balance is a statement of all debits and credits in a double-entry accounts book, with any disagreement indicating an error.

Closing stock in the Trial Balance implies that

1. it is already adjusted in the Opening Stock

2. it is adjusted in the Purchase Account

3. it is adjusted in the Cost of Sale Account

4. it is adjusted in the Profit and Loss Account

Answer: 2
Explanation:

It means that the purchases have been reduced to the extent of stock amount at the end of the period.

The term loan of Rs. 50,00,000 was received from IFCI. It was used as under

(i) Rs. 20,00,000 was advanced to supplies for capital work-in-progress
(ii) Rs. 30,00,000 was used for financing the working capital

Choose the correct option.

1. Both (i) and (ii) are capital expenditures.

2. (i) is capital expenditure and (ii) is revenue expenditure.

3. Both (i) and (ii) are revenue expenditures.

4. (i) is deferred revenue expenditure and (ii) is capital expenditure.

Answer: 2
Explanation:

Any capital expenditure will be debited under capital account, and all the day to day expenditures will be debited as revenue expenditure.

Old furniture was purchased for Rs. 40,000. It was repaired for Rs. 400. The repairs account should be debited by

1. Rs. 10,000

2. Rs. 10,100

3. Rs. 100

4. Nil

Answer: 4
Explanation:

It is a capital expenditure as capital expenditure is money invested by a company to acquire or upgrade fixed assets.

Rs. 2,500 spent on the overhauling on purchase of second hand machinery is

1. capital expenditure

2. revenue expenditure

3. deferred revenue expenditure

4. None of the above

Answer: 1
Explanation:

Capital expenditure is money invested by a company to acquire or upgrade fixed, physical, non-consumable assets, such as buildings and equipment or a new business.

For mutual accommodation, A accepted a bill of 2 months for Rs. 10,000 drawn on him by B. B discounted the bill at 12% p.a. Out of the proceeds, A receives

1. Rs. 9,800

2. Rs. 8,100

3. Rs. 4,900

4. Rs. 5,000

Answer: 3
Explanation:

Mutual accommodation means both the persons will receive half the amount, i.e. 10,000.
Charges for discounting = 12% per annum
We need to find for 2 months, which will come out to be Rs. 200.
Rs. 200 will also be divided equally as charges.
Therefore, B's receivables will be 5,000 - 100 = 4,900.

The bill of Rs. 10,000 accepted by Mr. P on 1 July, 2009 was discounted by Mr. R on 15 July, 2009 for Rs. 9,600. On 4 October, 2009, the bill was dishonoured and the bank paid noting charges of Rs. 200 for it. The amount to be received from Mr. P would be

1. Rs. 10,600

2. Rs. 10,000

3. Rs. 10,200

4. Rs. 10,400

Answer: 3
Explanation:

The amount of the bill would be 10,000 + 200 (for bank charges) = Rs. 10,200.

A draws a bill of Rs. 20,000 for 3 months on 1.1.09. The bill was discounted by a banker who charged 100 as discounting charges. At maturity, the bill returned dishonored. With what amount will the bank account be credited in the books of A?

1. 19,000

2. 20,000

3. 20,100

4. 19,900

Answer: 2
Explanation:

When the bill is dishonoured, the full amount of bill is credited to the bank account in the books of the drawer.

Endorsement of bill means

1. transfer of right on the bill from the drawee to the creditors

2. transfer of right on the bill from the creditors to the drawee

3. transfer of right on the bill from the drawer to the creditors

4. transfer of right on the bill from the creditors to the drawer

Answer: 3
Explanation:

Endorsement is the direct transfer of right on the bill from the drawer to the creditors.

A bill of exchange is drawn by Mr. Mahesh on Mr. Mohan for Rs. 10,000 on 30th January, 2012 for one month. The due date of the bill will be

1. 29th February, 2012

2. 2nd March, 2012

3. 3rd March, 2012

4. 4th March, 2012

Answer: 3
Explanation:

After 1 month, the date will be 30th February, but 3 grace days are given to make the payment. So, the date will be 3rd March.

_____ is the date on which a bill falls due for payment.

1. Settlement date

2. Maturity date

3. Payment date

4. Due date

Answer: 2
Explanation:

Maturity date is the date when the bill gets matured or the day when payment becomes due.

Bills payable discounted in cash by creditor will be shown in

1. journal

2. ledger

3. bank book

4. No entry required

Answer: 4
Explanation:

Bills payable discounted in the cash by the creditor need not be recorded.

How many parties are generally found in a Bill of Exchange?

1. 4

2. 2

3. 3

4. 5

Answer: 3
Explanation:

Drawer, Drawee and Payee

A bill of exchange is drawn on 1st April, 2012, payable after 3 months. The due date of the bill is

1. 30th June, 2012

2. 1st July, 2012

3. 4th July, 2012

4. 4th August, 2012

Answer: 3
Explanation:

After three months, the date will be 1st July, 2012.
Adding 3 grace days, the final date will be 4th July, 2012.

On 31st December, the total assets and external liabilities were Rs. 2,00,000 and Rs. 6,000, respectively. During the year, the proprietor had introduced capital of Rs. 20,000 and withdrawn Rs. 12000 for personal use. He made a profit of Rs. 20,000 during the year. Calculate the opening capital as on 1st January.

1. Rs. 1,94,000

2. Rs. 2,22,000

3. Rs. 1,66,000

4. Rs. 1,82,000

Answer: 3
Explanation:

Rs. 2,22,000

Given
|||
|---|---|
| Initial Capital
Assets at the end of
Liabilities at the end
Drawings| Rs. 50,000
Rs. 65,000
Rs. 6,000
Rs. 3,000|

Calculate the Capital :

1. Rs. 59,000

2. Rs. 9,000

3. Rs. 65,000

4. Rs. 12,000

Answer: 1
Explanation:

50,000 + 6,000 + 3,000 = 59,000

The amount which, as a result of operations, is added to the capital is called

1. Revenue

2. Net Profit

3. Drawings

4. Sales Cost of Goods Sold

Answer: 2
Explanation:

Net Profit is the actual profit after working expenses not included in the calculation of gross profit have been paid.

_________ concept requires that assets and profits not be over-stated.

1. Going Concern

2. Prudence

3. Duality

4. Accounting Period

Answer: 2
Explanation:

As per the prudence concept, do not overestimate the amount of revenues recognized or underestimate the amount of expenses.

Which of the following statements is true?

1. Going concern concept assumes that business will be carried on for a definite period.

2. The capital losses need not be deducted to ascertain net income.

3. Provision for bad and doubtful debts is created according to the concept of conservatism.

4. Materiality concept states that all business transactions are to be recorded however insignificant they may be.

Answer: 3
Explanation:

Going concern concept assumes that business will be carried on for an INDEFINITE period.
Capital losses need to be deducted to ascertain net income.
The provision for bad debts is made in accordance with the concept of conservatism.
Materiality concept states that transactions of insignificant value need not be recorded.

Expenses and earnings should not be based on the different years. Which concept states this?

1. Conservatism Concept

2. Consistency Concept

3. Matching Concept

4. Realization Concept

Answer: 3
Explanation:

Matching Concept states that the revenue and the expenses incurred to earn the revenue must belong to the same accounting period.

If the Going Concern concept is no longer valid, which of the following is true?

1. All prepaid assets would be completely written off immediately.

2. Total contributed Capital and Retained Earnings would remain unchanged.

3. Intangible Assets would continue to be carried at net amortized historical cost.

4. Land held as an investment would be valued at its realizable value.

Answer: 4
Explanation:

Financial statements are prepared assuming that a business entity will continue to operate in the foreseeable future without the need or intention on the part of management to liquidate the entity or to significantly curtail its operational activities. If the Going Concern concept is no longer valid, all the assets would be recorded at realisable value, not at cost.

Recording of capital contributed by the owner as liability ensures the adherence of principle of

1. Double Entry

2. Going Concern

3. Separate Entity

4. Materiality

Answer: 3
Explanation:

The separate entity concept is the basic accounting concept which states that we should always separately record the transactions of a business and its owners.

Nominal accounts are related to

1. expenses, losses and incomes

2. debtors and creditors

3. assets and liabilities

4. contingent liabilities

Answer: 1
Explanation:

Nominal accounts in accounting are the temporary accounts, such as the income statement accounts. In other words, nominal accounts are the accounts that report revenues, expenses, gains and losses.

The three columns on each side of the three columnar cash book represent

1. Real and Nominal Accounts

2. Real and Personal Accounts

3. Real, Personal and Nominal Accounts

4. None of the above

Answer: 4
Explanation:

The three columns in the cash book represent Cash column, Bank column and Discount column.

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.

1. Only (i)

2. Only (iii)

3. Both (ii) and (iv)

4. (ii), (iv) and (v)

Answer: 2
Explanation:

Purchases and Sales can be treated as either nominal accounts or real accounts.
GOLDEN RULE: "Debit all expenses and losses; Credit all incomes and gains."

A journal is also known as

1. memorandum account

2. kaccha book

3. book of original entry

4. proper book

Answer: 3
Explanation:

A journal (daybook, book of original entry) is a place for recording transactions as they occur. Journal entries are the first step in the accounting cycle.

A ledger contains various ______________ in it.

1. transactions

2. entries

3. accounts

4. None of these

Answer: 3
Explanation:

A ledger holds account information that is needed to prepare financial statements, and includes accounts for assets, liabilities, owners' equity, revenues and expenses.

Rent due for the month of March is recorded _______ in cash book.

1. on receipts side

2. on payments side

3. as contra

4. nowhere

Answer: 4
Explanation:

A cash book is a financial journal that contains all cash receipts and payments, including bank deposits and withdrawals.
In the given case, no cash is received. Hence, there will be no entry in cash book.

Cash book records

1. only cash sales

2. all types of cash receipts and payments

3. only revenue receipts

4. only capital receipts

Answer: 2
Explanation:

A cash book is a financial journal that contains all cash receipts and payments, including bank deposits and withdrawals.

If the petty cash fund is not reimbursed just prior to year end and an appropriate adjusting entry is not made, then

1. the petty cash account is to be returned to the company’s cashier

2. expenses are overstated and cash is understated

3. cash is overstated and expenses are understated

4. cash is overstated and expenses are overstated

Answer: 3
Explanation:

The cash is overstated and expenses are understated.

________ implies speeding up collection on receivables, if the foreign currency in which they are invoiced, is expected to appreciate.

1. Leading

2. Lagging

3. Netting

4. Matching

Answer: 1
Explanation:

Correct Answer: Leading

The exchange rate between two currencies calculated on the basis of the rate of these two currencies in terms of a third currency is known as

1. Direct quote

2. Indirect quote

3. Cross rate

4. Forward rate

Answer: 3
Explanation:

The rate quoted through the third currency is called cross rate.

In the spot exchange market, the quote may be denoted as

1. direct

2. indirect

3. Both (1) and (2)

4. None of the above

Answer: 3
Explanation:

The spot market or cash market is a public financial market in which financial instruments or commodities are traded for immediate delivery. It is opposite to the futures market in which delivery is due at a later date.

Foreign Exchange Market is also referred to as

1. inter bank

2. over the counter (OTC)

3. Both (1) and (2)

4. None of the above

Answer: 3
Explanation:

Foreign Exchange Market is also known as over the counter (OTC) and inter bank.

AS 7 deals with accounting for

1. construction contracts

2. research and development

3. government grants

4. investments

Answer: 1
Explanation:

AS 7 deals with accounting for construction contracts in the financial statements of enterprises undertaking such contracts (hereafter referred to as 'contractors'). The statement also applies to enterprises undertaking construction activities of the type dealt with in this statement not as contractors but on their own account as a venture of a commercial nature where the enterprise has entered into agreements for sale.

AS 28 should be applied in accounting for impairment of all assets, except

1. inventories (AS 2) and assets arising under construction contracts (AS 7)

2. financial assets including investment covered under AS 13 and deferred tax assets (AS 22)

3. Both (1) and (2)

4. financial assets

Answer: 3
Explanation:

AS 28 should be applied in accounting for impairment of all assets except options 1 and 2 because they are not considered under assets. They are considered under inventories.

AS 11 requires the enterprise to disclose

1. the amount of exchange differences including the net profit or loss for the period

2. the amount of exchange differences adjusted in the carrying amount of fixed assets

3. the amount of exchange differences in respect of forward exchange contracts to be recognized in the profit or loss in one or more subsequent accounting period (over the life of the contract)

4. All of the above

Answer: 4
Explanation:

Correct Answer: All of the above

_________ deals with the treatment and disclosure requirements in the financial statements of events occurring after the balance sheet.

1. AS 4

2. AS 5

3. AS 6

4. AS 7

Answer: 1
Explanation:

AS 4 deals with the treatment and disclosure requirements in the financial statements of events occurring after the balance sheet.

Accounting Standards (ASs) provide

1. framework

2. standard accounting policies

3. Both (1) and (2)

4. None of the above

Answer: 3
Explanation:

Accounting Standards provide an essential supporting structure and standard accounting policies. So, both the options are correct.

The disadvantage of accounting standards is that they

1. facilitate the comparison of non-comparable accounts

2. set the trend towards rigidity and eliminate flexibility

3. override the law of the land

4. None of the above

Answer: 2
Explanation:

Accounting standards set the trend towards rigidity and eliminate flexibility which can prove a disadvantage sometimes.

Accounting Standards Board (ASB) was constituted by

1. lCAl

2. ICSI

3. ICWAI

4. SEBI

Answer: 1
Explanation:

Accounting Standards Board was constituted in India by the Institute of Chartered Accountants in the year 1977.

Accounting standards are written policy documents issued by

1. SEBI

2. Body of Individuals

3. FEMA

4. Expert Accounting Body

Answer: 4
Explanation:

Accounting Standards are written policy documents issued by expert accounting body or by government or regulatory body covering the aspects of recognition, treatment, measurement, presentation and disclosure of accounting transaction and events in the financial statements.

“The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of accounts” has been given by

1. American Institute of Certified Public Accountants (AICPA)

2. American Accounting Association

3. Prof R. J. Chambers

4. Kohier

Answer: 2
Explanation:

The American Accounting Association defines accounting as “the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.”

Abhishek has to receive Rs. 15,000 every year for 15 years. Calculate the present value of annuity assuming interest rate to be 8% p.a. (Calculation from present value to be taken up to four decimal places)

1. Rs. 1,25,000

2. Rs. 1,25,392

3. Rs. 2,25,000

4. Rs. 1,28,288

Answer: 4
Explanation:

The present value at 8% p.a. for 15 years from the standard table is 8.5525 which multiplied by 15,000 amounts to Rs. 1,28,288 approx.

The size of the sinking fund deposit is computed from

1. A = P + A(ni)

2. A = P – A(ni)

3. A = P $\times$ A(ni)

4. A = P $\div$ A(ni)

Answer: 4
Explanation:

A sinking fund is a part of a bond indenture or preferred stock charter that requires the issuer to regularly set money aside in a separate custodial account for the exclusive purpose of redeeming the bonds or shares.

Sania deposited Rs. 50,000 in a bank for two years with the interest rate of 5.5% p.a. What will be the final value of investment?

1. Rs. 50,000

2. Rs. 50,500

3. Rs. 55,500

4. Rs. 55,000

Answer: 3
Explanation:

Interest = 50,000 * 5.5*2 /100 = Rs. 5500
Interest = 5500
Amount = 50000 + 5500 = Rs. 55,500

Banking business mainly consists of

1. lending

2. borrowing

3. purchasing

4. securing

Answer: 1
Explanation:

A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets.

An advance giving income on continuous basis is called

1. performing asset

2. non-performing asset

3. income recognition

4. None of the above

Answer: 1
Explanation:

Performing assets provide a positive return annually.

Under the head Operating Expenses, printing and stationery include

1. books, forms and stationery used by the bank

2. other printing charges which are not incurred by way to publicity expenditure

3. Both (1) and (2)

4. None of the above

Answer: 3
Explanation:

For banks, printing and stationery expenses include the cost of stationery items which are used daily in offices and the printed material for correspondence purposes. For example: business letter heads, business cards, envelopes etc.

_______ contains the total accounts of each ledger.

1. General ledger

2. Profit and Loss ledger

3. Personal ledger

4. Bills register

Answer: 1
Explanation:

A general ledger is a complete record of financial transactions over the life of a company.

The Banking Regulation Act of 1949 came into force on _______ as a result of the long-felt need to regulate the banking business in India and protect the interests of a number of depositors.

1. 14th March, 1949

2. 15th March, 1949

3. 16th March, 1949

4. 17th March, 1949

Answer: 3
Explanation:

The Banking Regulation Act of 1949 came into force on 16th March, 1949.

The stocks that are lying unsold with the consignee under a consignment sale are valued at

1. cost price of the stock

2. sale price of the stock

3. cost price + recurring and non-recurring expenses incurred by the consignee

4. cost price + non-recurring expenses incurred by the consignee and the consignor

Answer: 4
Explanation:

Closing stock is always valued at cost price + direct expenses or market price, whichever is less. Since there is no indication of reduction in the market price of goods in the given question, so option 4 is correct.

What will be the journal entry if credit sales of Rs. 15400 of X Ltd. have been entered in sales day book as Rs. 14500. Which of the following entries will correct this error?

1. Debit X Ltd. account and credit sales account with Rs. 15400

2. Debit X Ltd. account and credit sales account with Rs. 900

3. Debit sales account and credit X Ltd. account with Rs. 900

4. Debit cash account and credit sales account with Rs. 900

5. None of these

Answer: 2
Explanation:

Both sales and X Ltd. accounts are understated by Rs. 900. Entries are required to increase the amount due from X Ltd. and increase sales by crediting the sales account.

An incorrect journal entry is made by posting amount paid for servicing vehicle to motor vehicle account. Which of the following entries can be made to correct the previous entry?

1. Debit motor vehicle account and credit vehicle maintenance account

2. Debit vehicle maintenance account and credit cash account

3. Debit cash account and credit motor vehicle account

4. Debit vehicle maintenance account and credit motor vehicle account

5. Entry cannot be corrected

Answer: 4
Explanation:

Motor vehicle entry needs to be reduced by making credit entry and debit the vehicle maintenance account.

A bad debt of Rs. 1,000 was written off. The correct entry for recovery is

1.
Bad Debts A/c Dr 1,000
To Debtors A/c 1,000
2.
Cash A/c Dr 1,000
To Debtors A/c 1,000
3.
Cash A/c Dr 1,000
To Bad Debts Recovered A/c 1,000
4. None of these

Answer: 3
Explanation:

Cash has been debited, since it has come in. Bad Debts recovered a/c is credited.

Bill received of Rs. 3600, whose maturity date is after 3 months, is discounted today at the rate of 6% p.a. The correct entry is

1.
Bad Debts A/c Dr 3,600
To Cash A/c 3,546
To Discount A/c 54
2.
Cash A/c Dr 3,600
To B/R A/c 3,600
3.
Cash A/c Dr 3546
Discount A/c Dr 54
To B/R A/c 3600
4. None of these

Answer: 3
Explanation:

Cash is received, so it would be debited (3600 - 54 = 3546). Discount is a loss, since the payment is received after deducting it. Hence, it would also be debited.
Discount = 3,600 X 6/100 X 3/12 = Rs. 54.
B/R has gone out, so it would be credited.

Interest charged on drawings is Rs. 1,200. The correct entry is

1.
Capital A/c Dr 1,200
To Interest on drawings a/c 1,200
2.
Drawings A/c Dr 1,200
To Cash A/c 1,200
3.
Interest on drawings A/c Dr 1,200
To Drawings A/c 1,200
4. None of these

Answer: 1
Explanation:

Interest on drawings is an income for business, so it will be credited. And it will be charged from the capital account of partners, so Capital account will be credited.

A bad debt of Rs. 770 is written off. The correct entry is

1.
Bad debts A/c Dr 770
To debtor's A/c 770
2.
Cash A/c Dr 770
To debtor's A/c 770
3.
Debtors A/c Dr 770
To bad debts A/c 770
4. None of these

Answer: 1
Explanation:

Bad debts is a loss and loss is always debited. Since debtors is an asset, and it has decreased, which means it has gone out, so we would credit debtors.

A sum of Rs. 20,000 is taken as a loan from Punjab National Bank. The correct entry is

1.
Punjab National Bank's A/c Dr 20,000
To Cash A/c 20,000
2.
B/R A/c Dr 20,000
To Punjab National Bank's A/c 20,000
3.
Cash A/c Dr 20,000
To Punjab National Bank's A/c 20,000
4. None of these

Answer: 3
Explanation:

Since cash is received, we would debit cash. Punjab National Bank is credited because it is our creditor.

A and B admitted C as a partner by giving him assurance for his profits not to be less than Rs. 1,00,000 in any year. The profit ratio was decided as 5 : 3 : 2. The profits for the year amounted to Rs. 4,00,000. What will be the share of B?

1. Rs. 1,12,500

2. Rs. 1,87,500

3. Rs. 2,00,000

4. Rs. 1,10,000

Answer: 1
Explanation:

As C is to be given a minimum of Rs.1,00,000, the profit being insufficient, so he will get Rs. 1,00,000 and the rest of Rs. 3,00,000 will be divided among A and B in 5 : 3.
Thus, A's share = Rs.1,87,500
B's share = Rs. 1,12,500

A, B and C decide to change their profit sharing ratio from 5 : 3 : 2 to 2 : 3 : 5. Goodwill of the firm is valued at Rs. 30000. What will be the entry?

1. Debit C's capital and credit A's capital by Rs. 9000.

2. Debit A's capital and credit C's capital by Rs. 9000.

3. Debit B's capital and credit A's capital by Rs. 9000.

4. Debit C's capital and credit B's capital by Rs. 9000.

Answer: 1
Explanation:

Sacrifice made by A and gain to C is 3/10.
Thus, gaining partner i.e. C will be debited and sacrificing partner i.e. A will be credited with 30000 x 3/10

When drawings are made by a partner on the last day of every month, interest should be charged from him for ____ months.

1. 5.5

2. 6

3. 6.5

4. 12

Answer: 1
Explanation:

In case of last day of drawings, interest is calculated for 5.5 months.
If drawings are made on first day of month, interest is charged for 6.5 months and for the mid of every month, time period is 6 months.

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