Commerce Accountancy

Accounting Principles and Practice

1,227 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 book keeping and accountancy adjustments in preparation of financial statements outstanding and prepaid expenses outstanding expenses need for adjustment, closing stock and outstanding expenses

Prepaid expenses are valued on the Balance Sheet at.

  1. Replacement cost

  2. Current cost

  3. Cost to acquire less accumulated amortization

  4. Cost less expired portion
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Prepaid expenses represent costs paid in advance for services or goods not yet received. On the balance sheet, they are recorded at their original cost minus the portion that has already expired or been consumed.

Multiple choice book keeping and accountancy adjustments in preparation of financial statements outstanding and prepaid expenses outstanding expenses need for adjustment, closing stock and outstanding expenses

Prepaid Expense of Financial Year related with ___________.

  1. Previous Financial Year

  2. Following Financial Year

  3. Current Financial Year

  4. None
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Prepaid expenses are payments made in the current period for benefits that will be received in a future or following financial year.

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

Reserves are created to meet future expenses or losses the amount of which is not certain.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Option B is the correct one.
Reserve accounting. A reserve is profits that have been appropriated for a particular purpose. Reserves are sometimes set up to purchase fixed assets, pay an expected legal settlement, pay bonuses, pay off debt, pay for repairs and maintenance, and so forth.The board of directors is authorized to create a reserve.

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

In purchase method, the excess of net asset of the transferor company acquired by the transferee company over the purchase consideration should be recognized as ________.

  1. P & L

  2. Goodwill

  3. General reserve

  4. Capital reserve
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

For the purpose of accounting for amalgamation, we are essentially guided by AS-14 'Accounting for Amalgamations'. Para (3)g of AS 14 deines the term purchase consideration as "the aggregate of the shares and other securities issued and the payments made in the form of cash or other assets by the transferee companyto the sharegolders of the transferor company." in simple words it is the price apyable by the transferee company to the transferor companyfor taking overt the buiness of the transferor company.

There are two methods of accounting for amalgamation:
1. Pooling of interest method
2. Purchase method
Purchase method - In this method the assets and liabilities of the transferor company should be incorporated at their existing carrying amounts or the purchase consideration should be allocated to individual identifiable assets and liabilities on the basis of their fair values at the date of amalgamation.
No reserves, other than statutory reserves, of the transferor company should 
be incorporatedb in the financial statements of the transferee company.
Any excess of the amount of purchase consideration over the value of net assets of the transferor company acquired by the transferee company should be recognised as goodwill in the financial statement of the transferee comapany. Any short fall should be shown as a capital reserve.

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

Banks are required to transfer _________of their profits to statutory reserve.

  1. 20%

  2. 25%

  3. 10%

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

Under Section 17, every banking company incorporated in India is required to transfer at least 25% of its current profit to its reserve fund. It is known as statutory reserve. Only those banks get exemptions from this legal condition whose reserve along with share premium if any become equal to paid up capital.

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

While preparing the books of the transferee company in purchase method, the difference between purchase consideration and share capital of the transferor company should be adjusted in _______.

  1. Share capital

  2. Reserves

  3. Assets

  4. Liabilities
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

For the purpose of accounting for amalgamation, we are essentially guided by AS-14 'Accounting for Amalgamations'. Para (3)g of AS 14 defines the term purchase consideration as "the aggregate of the shares and other securities issued and the payments made in the form of cash or other assets by the transferee company to the shareholders of the transferor company." in simple words it is the price payable by the transferee company to the transferor company for taking over the business of the transferor company.


Any excess of the amount of purchase consideration over the value of net assets of the transferor company acquired by the transferee company should be recognised as goodwill in the financial statement of the transferee comapany. Any short fall should be shown as a capital reserve.

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

When investment in own debentures is cancelled the profit on cancellation is credited to ___________________.

  1. Sinking fund account

  2. Debenture Redemption reserve account

  3. Capital reserve account

  4. Any of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When investment in own debenture is cancelled the profit on cancellation is credited to - Debenture Redumption Reserve Account.Because working capital of tge company is adversely affected, it is desirable that the amount equal to the nominal value of the debenture cancelled should be transferred to the debenture redemption reserve a/c out of the profit of the company.

  This will help in maintaing the working capital of the company by noy paying as dividend as part of the profit set aside.

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

_________ are known as an amount kept aside and retained in the business for future needs.

  1. Reserves

  2. Provisions

  3. Asset

  4. Liability
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Reserves are appropriations against profits, they are created from profits for future applications. Net profit at the end of the year is transferred in specific proportions to Reserves keeping a side this parts of profits.

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

___________ is created out of revenue profits from business operations.

  1. Revenue Reserves

  2. General Reserve

  3. Reserve Fund

  4. Dividend equalisation Reserve
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Revenue profit means Profit earned in normal course of business and reserve created out of this undistributed profits are called revenue reserves.

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

____________ is created out of capital profits arising from non operating activities.

  1. Capital Reserve

  2. Securities Premium

  3. Capital Redemption Reserve

  4. None
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The capital reserve is the reserve which is created out of the profits of the company generated from its non-operating activities during a period of time and is retained for the purpose of financing the long term project of the company or write off its capital expenses in future.

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

Which of the following is not an objective for Reserves?

  1. Meeting a Future Contingency

  2. Strengthening the general financial position of the business

  3. Redeeming a long term liability

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

Reserves are created to strengthen the business organisation, for contingencies and liquidity. As per accounting principles assets can only be appreciated under re-constitutional conditions.

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

Following are shown under the head Reserves and Surpluses.

  1. General reserve

  2. Workmen compensation fund

  3. Investment fluctuation fund

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
Reserves are the amounts set aside out of profits. It is an appropriation of profits or accumulated profits to strengthen the financial position of the business. Reserves are not set aside to meet a liability or depreciation in the value of assets but is set aside to meet known or unknown contingency that may arise in future. For e.g., General Reserve, Reserve for Expansion etc.
it is created as a matter of prudence out of profits.
Following are the examples of reserve - General reserve, Workmen compensation fund, investment fluctuation fund, Capital redemption reserve, Debenture redemption reserve, etc.
Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

Whenever any provision is created __________ is debited.

  1. Profit and loss A/c

  2. Trading A/c

  3. Cash A/c

  4. None of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Provisions  are created for anticipated losses or towards the expenses which are due and payable. 

All provisions are created out of profits hence while creating the provision account, profit & loss account is debited. 

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

Reserves are the __________.

  1. Appropriations of profit

  2. Appropriations of loss

  3. Recognition of loss

  4. All of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Reserves are the amounts set aside out of profits. It is an appropriation of profits or accumulated profits to strengthen the financial position of the business. Reserves are not set aside to meet a liability or depreciation in the value of assets but is set aside to meet known or unknown contingency that may arise in future. For e.g., General Reserve, Reserve for Expansion etc.