Commerce Accountancy

Accounting Principles and Practice

1,241 Questions

Accounting principles and practice questions cover core concepts like assets, depreciation, financial statements, and ledger adjustments. These topics are essential for commerce students preparing for academic and competitive exams. Regular practice ensures a strong grasp of standard accounting standards and business operations.

Asset depreciationFinancial statement adjustmentsAccounting standardsSingle entry systemCapital expenditure

Accounting Principles and Practice Questions

Multiple choice

Profit leads to increase in

  1. assets

  2. capital

  3. both (1) and (2)

  4. neither (1) nor (2)
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Profit increases owner's equity (capital) by definition. Profit also increases assets - either cash received or receivables created. Accounting equation: Assets = Liabilities + Capital. When profit occurs, both sides increase - assets rise and capital (retained earnings) rises. 'Neither assets nor capital' would mean no profit at all.

Multiple choice

Depreciation arises because of

  1. fall in the market value of the asset.

  2. fall in the value of money.

  3. physical wear and tear of the asset.

  4. none of these.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Depreciation is systematic allocation of asset cost over useful life due to wear/tear, not market fluctuation. Physical wear and tear (usage, aging) is primary cause. Fall in market value is irrelevant to depreciation calculation. Fall in money value affects inflation accounting, not depreciation. None of these is incorrect since C is correct.

Multiple choice

Change in the method of depreciation is change in

  1. accounting estimate

  2. accounting policy

  3. measurement discipline

  4. none of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Depreciation method (straight line, written down value, units of production) is an accounting policy - the chosen approach for systematic allocation. Accounting estimate involves judgement like useful life or residual value. Changing from SLM to WDV method is policy change. Changing useful life estimate is estimate change. Measurement discipline is not standard terminology.

Multiple choice

Goodwill is

  1. current asset

  2. fictitious asset

  3. tangible asset

  4. intangible asset
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Goodwill represents the intangible value of a business - its reputation, brand recognition, customer loyalty, and other non-physical assets that generate future economic benefits. Since goodwill cannot be physically touched or seen, it is classified as an intangible asset. Current assets are short-term, fictitious assets are deferred revenue expenditures (like preliminary expenses), and tangible assets have physical form - none of which describe goodwill.

Multiple choice

Unclaimed dividend is shown in balance sheet under which of the following?

  1. Assets

  2. Current Liabilities

  3. Reserve and surplus

  4. Provisions

  5. Miscellaneous items
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

According to the Companies Act 1956, unclaimed dividend should be transferred to the Investor education and Protection Fund Account. This is to be shown under Current Liabilities as Unpaid Dividend in the Balance Sheet.

Multiple choice

Which of the following is a correct way to calculate long term liability?

  1. Total liabilities - current liabilities

  2. Revenue - expenses

  3. Net working capital + current liabilities

  4. Current assets - current liabilities

  5. Current assets/current liability
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

This is the correct way to calculate long term liability. Long term liabilities are liabilities with future benefit of 1 year, such as notes payable that mature after one year.

Multiple choice

Interest on capital is payable out of profit

  1. True

  2. False

  3. Partly true

  4. Cannot say
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Under partnership law, interest on capital is only payable out of profits. If the firm incurs losses, no interest can be claimed on capital. This is a standard provision to ensure partners share both profits and losses fairly.

Multiple choice

A company purchased an asset at a cost of 2400 on 18/9/2012. The end of the first period of the asset is on 31/12/2012. The salvage value for the asset is 500 and the depreciation on the asset is 20%. Which function can be used to calculate the depreciation for each accounting period?

  1. AMORLINC function

  2. DURATION function

  3. AMORDEGRC function

  4. ABS function

  5. None of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

This function will calculate the depreciation for each accounting period.

Multiple choice

Winding up of a business involves

  1. realising the assets of the business

  2. paying its liabilities

  3. distributing the surplus, if any, among the partners

  4. All of the above

  5. Both (1) and (2)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Winding up of a business is a process of selling all the assets of the business, paying off creditors, distributing any remaining assets or surpluses to the partners and dissolving the business.

Multiple choice

When Provision for Depreciation Account is maintained, the annual charge for depreciation shall be ____________.

  1. debited to Provision for Depreciation Account and credited to profit and loss acount

  2. debited to Asset Account and credited to profit and loss appropriation account

  3. credited to profit and loss account and debited to asset account

  4. debited to Profit and loss Account and credited to Provision for Depreciation Account

  5. debited to profit and loss account and credited to asset account
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

To record annual charges of depriciation profit and loss account will be debited and provision for depreciation account will be credit because we are maintaining it and is just like liability of business. Like other liabilities, this liability account will be credit.

Multiple choice

The accounting measurement that is not consistent with the Going Concern concept is __________.

  1. historical cost

  2. realization

  3. the transaction approach

  4. liquidation value

  5. none of these

Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Liquidation value is the value of the business when the business is wound up and is under liquidation whereas the going concern concept assumes that the business will continue over a long time and therefore the accounting measurement “Liquidation Value” is inconsistent with going concern concept.

Multiple choice

Capital is the difference between :

  1. Income and expenses

  2. Sales and cost of goods sold

  3. Assets and Liabilities

  4. Only Income

  5. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The difference between the assets and the liabilities is known as equity or the net assets or the net worth