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 functional area of management financial management nature and significance of management organisation of commerce and management business studies

An expansion of business which is a result of capital budgeting decision is likely to affect virtually all items in the __________ account of the business.

  1. Balance sheet

  2. Trading

  3. Profit and loss

  4. Trading and profit and loss
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

All items in the Profit and Loss Account, e.g., Interest, Expense, Depreciation, etc. and an expansion of business which is a result of capital budgeting decision is likely to affect virtually all items in the profit and loss account of the business.

Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

The quantum of ________ assets as well as its break-up is an aspect affected by finance.

  1. current

  2. non-current

  3. tangible

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

The above statement is used to describe the function of financial management. The quantum of current assets and its breakup into cash, inventory and receivables means financial management decisions regarding how much to invest in current assets and its breakup into cash, inventory i.e stock, debtors.

Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

Under the amount of long term and short term financing to be used, the underlying assumption is that current liabilities cost _______ than long term liabilities.

  1. more

  2. less

  3. equal

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

Current liabilities have high interest rates with shorter duration to pay off hence,

Under the amount of long term and short term financing to be used, the underlying assumption is that current liabilities cost less than long term liabilities.

Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

The size as well as the composition of _______ assets of the business is an aspect affected by finance.

  1. current

  2. fixed

  3. non-current

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

Finance decisions, particularly capital budgeting, are heavily concerned with the acquisition and management of fixed assets, as these represent long-term investments that dictate the company's productive capacity.

Multiple choice economics income-output determination unemployment and employment generation the short run fixed price analysis of the product market liquidity preference and profit

_____________ refers to the minimum amount of sales proceeds which entrepreneurs expect to receive from the sale of output at any given point level of employment.

  1. Aggregate revenue

  2. Aggregate supply

  3. Aggregate income

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

Aggregate supply refers to the sales proceeds from the desired level of output in the economy during an accounting year. It is through this output only that the producer sector generates income in the economy at any given level of employment. Therefore, aggregate supply= consumption + savings.

Multiple choice economics income determination unemployment and employment generation the short run fixed price analysis of the product market liquidity preference and profit

Inventory investment refers to investment in fixed capital assets. 

  1. True

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

Inventory investment refers to the change in the stock of unsold goods, raw materials, and work-in-progress held by firms, whereas fixed capital investment refers to assets like machinery and buildings.

Multiple choice book keeping and accountancy bill of exchange (trade bill) dishonour of a bill dishonour of bills bills of exchange advantages of bill of exchange

Which of the following is not correct ?

  1. Discount on bills discounted is treated as financial expense and is debited to P and L Account.

  2. For unsold stock lying with the consignee, no entry is made in his books.

  3. Loss of stock is said to be abnormal when such loss is natural and is due to inherent characteristics of the commodities.

  4. The abnormal loss on consignment is credited to Consignment Account.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Abnormal loss is defined as loss due to accidents or unforeseen events, not inherent characteristics of the commodity. Inherent losses are considered normal losses.

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

If the rate of depreciation is same then the amount of depreciation is same then the amount of depreciation under straight line method vis-a-vis written down value method will be:

  1. Equal in all years

  2. Equal in first year but higher in subsequent years.

  3. Equal in the first year but lower in subsequent years.

  4. Lower in the first year but equal in subsequent years.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Fixed Installment Method or Equal Installment Method or Straight Line Method or Fixed Percentage on Original Cost Method: In this method a fixed or equal amount of depreciation written off as depreciation at the end of each year, during the life time of the asset.

Written-down value can be calculated by a method of depreciation that is sometimes called the diminishing balance method. This accounting technique reduces the value of an asset by a set percentage each year.  When selling the asset, the book value is used to help determine the minimum value for which it will be sold.

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

Useful life of a depreciable asset should be estimated after considering certain factors. Which of the following factors is not mentioned by Accounting Standard-6 ?

  1. Expected physical wear and tear

  2. Fall in market price

  3. Obsolescence

  4. Legal or other limit on the sue of the asset
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Accounting standard 6 deals with depreciation accounting. The useful life of a depreciable  assets should be estimated after considering the following factors:

1) Expected physical wear & tear
2) Obsolescence
3) Legal or other limits on the use of asset

But the fall in market price is not mentioned in the Accounting Standard 6. 

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

Method of depreciation selected __________.

  1. must be applied consistently till end of life

  2. may be changed by the enterprise whenever it wants

  3. may be changed only under special circumstance

  4. may be changed with the permission of the authorities
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Concept of consistency of accounting defines that the accounting methods used by the organization has to be consistent. Like if the depreciation is charged on written down value method, this has to followed consistently year on year basis. 

Change of method has to be done only under special circumstance.  If  due to change of method, any material change happened, this has to be notified under notes to account. 

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

Complete the formula by filling the correct option in the numerator:

Rate of depreciation =  ____________________________   * 100
                                                    Acquisition cost

  1. Annual depreciation cost

  2. Cost of asset

  3. Asset - Liabilities

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

Depreciation is provided on fixed assets on account of were and tear of the asset by suing them. Depreciation is provided on assets based on the useful life of the assets.  


Depreciation rate is calculated as:

Rate of Depreciation= Annual depreciation cost  *100
                                         Acquisition cost

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

 Under Written Down Value Method depreciation is charged on ________ of the asset.

  1. Historical cost

  2. Written down value

  3. Original cost

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

Under the written down value method, depreciation calculated at a fixed percentage on the original cost (in the first year) and on the written down value, (in subsequent years) of fixed depreciable asset is written off during each accounting period over the expected useful life of asset. Under this method, the rate of deprecition remains constant year after year whereas the amount of depreciation goes on decreasing.

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

The amount of depreciation charged on a machinery will be debited to:

  1. Machinery account

  2. Depreciation account

  3. Cash account

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

Depreciation is the permanent and continuous decrease in the book value of a depreciable fixed asset due to use, effluxion of time, obsolescence, expiration of legal rights or any other cause.

Journal entry for charging depreciation is :
   Depreciation A/c       Dr. 
          To Asset/ Machinery A/c

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

The amount realised at the end of working life of an asset is known as ____________ .

  1. Residual value

  2. Market price

  3. Original cost

  4. Written down value
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In accounting, the residual value is an estimated amount that a company can acquire when they dispose off an asset at the end of its useful life

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

The books value of an asset is obtained by deducting depreciation from its __________.

  1. Market value

  2. Market + Cost price

  3. Cost

  4. Scrap value
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Book value is the value of a security or asset as entered in the firm's books. Book value is the value of an asset according to its balance sheet balances. An asset's initial book value is its acquisition cost. Every year depreciation is deducted from that value. 

So the book value of an asset is obtained by deducting depreciation from its cost price.