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 elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

Sale of inventory for cash will cause the current ratio to __________.

  1. increase

  2. decrease

  3. remain unchanged

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

Current ratio = Current assets / Current liabilities

When inventory is sold for cash then, the amount of inventory decreases and simultaneously the cash balance increases and there would be no net effect on the current asset figure. And so the current ratio will remain unchanged.

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

Which of the following transactions will change the current ratio?

  1. Purchase of goods for cash.

  2. Plant acquired on account.

  3. Sold goods on credit.

  4. Debentures converted into equity capital.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
  1. When goods are purchased for cash the stock would increase and the cash balance would decrease and so there would be no effect on the current ratio.
  2. When plant is acquired on account the fixed asset would increase and there would be increase in the creditors amount, hence the current ratio would decrease.
  3. When goods are sold on credit the stock would decrease and the debtors would increase and hence there would be no effect on current ratio.
  4. When debentures are converted into equity capital there would be no changes in current assets and current liabilities  and so no change in current ratio.
Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

Current ratio may be increased by                    .

  1. Overstating the current assets

  2. Overstating the current liabilities

  3. Understating current assets

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

Current ratio = Current assets/ current liabilities

So when current assets = $Rs 150000$ and current liabilities = $Rs. 100000$ then,
Current ratio = $100000 / 50000$
                       = $2 : 1$
Now if we overstate the current assets by $Rs. 50000$ then ,
Revised Current ratio = $150000/50000$
                                     = $3: 1 $
So, the current ratio may be increased if we overstate the current assets. 

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

For calculation of current ratio which of the following is relevant ?

  1. Current assets and Fixed liabilities.

  2. Current assets and Current liabilities.

  3. Fixed asset and Fixed liabilities.

  4. Fixed liabilities and Current liabilities.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The current ratio is a liquidity ratio that measures whether a firm has enough resources to meet its short-term obligations. It compares a firm's current assets to its current liabilities, and is expressed as follows: The current ratio is an indication of a firm's liquidity.

Multiple choice elements of accounts ratio analysis liquidity ratios accounting ratio's accounting ratios

When current ratio is $2 : 1$, an equal increase in current assets and current liabilities would                .

  1. Increase the current ratio

  2. Decrease the current ratio

  3. No change in current ratio

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

When the current ratio is $2 : 1$ , an equal increase in current assets and current liabilities would decrease the current ratio. Let us understand this through an example;

Current Assets = $Rs. 100000$ and Current Liabilities = $Rs. 50000$
Current ratio = Current assets/ Current liabilities
                       = $100000/50000$
                       = $2 : 1 $ 
Now let us increase the current assets and current liabilities by $Rs. 50000$ and calculate the new current ratio ;
 Current ratio = $150000/100000$
                        = $1.5 : 1$.

Multiple choice economics basic concepts of national income macroeconomic theories some basic concepts of macroeconomics introduction to macroeconomics

Which of the following is a stock?

  1. Savings

  2. Production

  3. Consumption of fixed capital

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

Capital is a stock since it is measured at a point of time. Capital is not time dimensional. It is not measured over a specified period of time like flow. Therefore, capital is a stock concept.

Multiple choice economics basic concepts of national income macroeconomic theories some basic concepts of macroeconomics introduction to macroeconomics

The following statements true or false? Give reasons.
Both 'Expected Obsolescence' and 'Unexpected Obsolescence' are considered for determining the amount of depreciation.

  1. True

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

Both 'Expected Obsolescence' and 'Unexpected Obsolescence' are considered for determining the amount of depreciation- this is a false statement since only expected obsolescence is considered for determining the amount of depreciation. It has two components: loss of value of fixed assets due to change in technology and change in demand.

Multiple choice economics basic concepts of national income macroeconomic theories some basic concepts of macroeconomics introduction to macroeconomics

Depreciation means ___________________.

  1. Destruction of a plant in a fire accident

  2. Loss of fixed assets overtime due to wear and tear

  3. Loss of fixed assets in an earthquake

  4. Closure of the plant due to lockout
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Depreciation means loss of fixed assets overtime due to wear and tear. Depreciation is also called consumption of fixed capital. Loss of fixed assets happen on account of normal wear and tear, normal rate of accidental damages and expected obsolescence.

Multiple choice economics basic concepts of national income macroeconomic theories some basic concepts of macroeconomics introduction to macroeconomics

Depreciation of fixed capital assets refers to _______________.

  1. Normal wear and tear

  2. Foreseen obsolescence

  3. Normal wear & tear & foreseen obsolescence

  4. Unforeseen obsolescence
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Depreciation of fixed capital assets refers to normal wear and tear and foreseen obsolescence. Depreciation is also called consumption of fixed capital. Loss of fixed assets happen on account of normal wear and tear, normal rate of accidental damages and expected obsolescence.

Multiple choice economics basic concepts of national income macroeconomic theories some basic concepts of macroeconomics introduction to macroeconomics

Unforeseen obsolescence of fixed capital assets during production is ________________.

  1. Consumption of Fixed Capital

  2. Capital Loss

  3. Income Loss

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

Unforeseen obsolescence of fixed capital assets during production is capital loss. Unforeseen obsolescence which may happen due to natural calamity is not taken into account while calculating depreciation and hence, it causes capital loss.