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 accountancy depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

Loss on sale of asset is ___________ to profit and loss A/c.

  1. Debited

  2. Credited

  3. No Effect

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

Following are the journal entries in respect of sale of fixed assets :

1. Cash/ Bank  A/c      Dr.
        To Asset A/c
(Being the asset sold)
2. Profit & Loss A/c   Dr. 
        To Asset A/c
(Being the transfer of loss on sales).

Multiple choice accountancy depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

During sale of Asset the accumulated Depreciation in Provision Account is transferred to _______.

  1. Liabilities Account

  2. Asset Account

  3. Expense A/c

  4. Income A/c
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Option B is correct. . When depreciation charged is not deducted from assets it is recorded in a separate account named provision for depreciation account. The asset account appears in its book at its original value. At the time of sale of asset, accumulated depreciation from this account is transferred to asset account. 

Multiple choice accountancy depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

While charging depreciation during sale of asset, ________ is Credited.

  1. Asset A/c

  2. Depreciation A/c

  3. Profit and loss A/c

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

As per the golden rules of accounting for nominal account all expenses and losses are debited and all income and gains are credited and for rael account, what comes in debit and what goes out is credit.

In the light of above rule, journal entry for providing depreciation and charging it to profit and losss A/c is -
1. Depreciation A/c     Dr.
        To Asset A/c 
(Being depreciation chargedd to asset)
2. Profit and loss A/c  Dr.
         To Depreciation A/c 
(Being depreciation expense transferred to P&L A/c).

Multiple choice accountancy depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

Any addition or extension to asset must be ________ its useful life of that asset.

  1. Depreciated

  2. Appreciated

  3. Ignored

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

Option A is the Correct one.

Depreciation is must on every Fixed assets and on its addition or extension 
for that there are three basic condition.
1.The Assets must be Fixed Tangible Assets
2.The Assets must be used for Business Purpose

3.The must have limited life
Note :- Land has not limited or specific life therefore we can't calculate depreciation on Land.

Multiple choice accountancy depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

The amount of depreciation charged on machinery is debited to ________ account.

  1. Depreciation

  2. Machinery

  3. Provision of Depreciation

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

Depreciation is charged on a certain percentage on each of the asset every year. Depreciation is an indirect cost for which the following entry will be passed:


Depreciation A/c                            Dr.
     To Asset A/c 

Later on, depreciation a/c will be transferred to profit & loss a/c. 

Multiple choice accountancy depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

The Profit on Sale of an asset is debited to ________ Account.

  1. Profit and Loss

  2. Reserve

  3. Asset

  4. Balance Sheet
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

On sale of any asset, there must be some profit/loss as the amount realized on sale may be more or less compared to the written down value. If the sale proceed is more than the written down value, there will be a profit and if the sale proceed is less than the written down value, there will be a loss. 


Profit on sale of asset is debited to asset and credited to profit & loss a/c. 

Multiple choice accountancy depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

Revaluation of assets is carried out through _________.

  1. profit and loss A/c

  2. profit and loss adjustment A/c

  3. profit and loss appropriation A/c

  4. general reserve A/c
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

b'whenever a partner exits a partnership, the books of accounts of such a firm have to be settled. the outgoing partner or his legal representative have to be paid their dues. so that revaluation of assets is carried out through profit and loss account.'

Multiple choice accountancy depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

Loss on disposal of assets is credited to _____________.

  1. Depreciation a/c

  2. Assets a/c

  3. Loss on sale of assets a/c

  4. Profit and loss a/c
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The disposal of assets involves eliminating assets from the accounting records. This is needed to completely remove all traces of an assets from the balance sheet. An asset disposal may require the recording of a gain or loss on the transaction in the reporting period when the disposal occurs. The journal entry recorded as Debit cash for the  amount received , debit all accumulated depreciation, debit  the loss on sale of asset account, and credit the fixed asset.

Multiple choice accountancy depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

If a concern proposes to discontinue its business from March 2015 and decides to dispose of all its assets within a period of $4$ months, the Balance Sheet as on March 31, 2015 should indicate the assets at their ______.

  1. Historical cost

  2. Net realizable value

  3. Cost less depreciation

  4. Cost price or market value, whichever is lower
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When a business is discontinuing and liquidating assets within a short period, the going concern assumption is no longer valid. Assets are valued at their net realizable value, which is the expected selling price minus disposal costs.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

Which of the following is true with respect to sources and uses of funds?

  1. Depreciation and decrease in NWC are sources of funds

  2. Depreciation and decrease in NWC are uses of funds

  3. Depreciation is a source of fund but decrease in NWC is use of fund

  4. Depreciation in a use of fund but decrease in NWC is source of fund.

  5. Depreciation and increase in NWC are uses of funds.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

As per the accounting principles to ascertain the profits of the firm, depreciation on fixed assets should be charged against the revenue of the fir by debiting to the profit and loss account. This reduces the profits of the firm. But charging depreciation does not involves any fund. Therefore, the amount of depreciation charged against the revenue of the firm should be  added back to the net profit to estimate the funds from operations, which is a source of fund. Decrease in net working capital is a source of fund.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

The Principal sources of capital at the earliest stages of the firm ______________.

  1. Equity capital

  2. Short term debts

  3. Long term debts

  4. Both (a) and (b)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Early-stage firms often rely on a mix of equity capital (from founders or investors) and short-term debt (like trade credit or bank loans) to manage initial operations.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

Working capital of an enterprise is used for holding current assets such as ________.

  1. Stock of material

  2. Bills receivables

  3. Only A

  4. Both A and B
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Working capital of an enterprise is used for holding current assets such as stock of material and bills receivables. Working capital refers to the capital which are needed to run day-to-day activities.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

A trading concern for example, may require ____ amount of fixed capital as compared to a manufacturing concern.

  1. Large

  2. Small

  3. Fixed

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

A trading concern for example, may require small amount of fixed capital as compared to a manufacturing concern since trading does not involve physical assets for production purpose. Whereas, manufacturing sector requires huge amount of investment.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

The increase in profit return resulting from borrowing capital at a low rate and employing it in a business yielding at a higher rate ____________.

  1. Operating leverage

  2. Trading on equity

  3. Asset leverage

  4. Return on investment leverage
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Trading on equity refers to the strategy of using debt (borrowed capital) to increase the return on equity for shareholders, provided the return on assets exceeds the cost of debt.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

State the following statement is True or False:
A minimum amount of capital to be collected by company at initial stages is minimum subscription.

  1. True

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

A minimum amount of capital to be collected by company at initial stages is minimum subscription- this is a true statement. The minimum shares the company needs to get from the public out of the total issue by the date of closure is known as minimum subscription.