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 elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

A sale of goods to Ram should be debited to ____________.

  1. Ram

  2. Cash

  3. Sales

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

Ram is the Receiver of goods, as such, his personal account has been debited According to the rule of personal account, i.e., “Debit the Receiver”. Sales A/c will be credited according to the rule of Nominal account.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Changing the value of closing stock from cost to expected selling price might be an application of which accounting concept?

  1. Going Concern

  2. Prudence

  3. Historical cost

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

The Prudence (or Conservatism) concept dictates that anticipated losses should be recognized, while anticipated gains should not. Valuing stock at the lower of cost or market price is a direct application of this.

Multiple choice elements of book keeping and accountancy trial balance develop the skill of preparing trial balance by balance method methods of preparing trial balance preparation of trial balance

A lease which is generally not cancellable and covers full economic life of the asset is known as:

  1. Sale and Leaseback

  2. Operating Lease

  3. Finance Lease

  4. Economic Lease
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Capital lease is a lease agreement in which the lessor agrees to transfer the ownership rights to the lessee after the completion of the lease period. Capital or finance leases are long term and non cancellable in nature.

Multiple choice elements of book keeping and accountancy trial balance develop the skill of preparing trial balance by balance method methods of preparing trial balance preparation of trial balance

Under the provisions of AS-19 'Leases', a leased asset is shown in the balance sheet of:

  1. Manufacturer

  2. Lessor

  3. Lessee

  4. Financing bank
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The liability component is reported in the liabilities section of the balance sheet as a "capital lease" line item. The amount is equal to the discounted present value of the lease payments over the lease term plus any interest accrued between the previous lease payment and the balance sheet date.

Multiple choice elements of book keeping and accountancy trial balance develop the skill of preparing trial balance by balance method methods of preparing trial balance preparation of trial balance

Accrued Income means _______.

  1. income not earned

  2. income earned but not received in cash

  3. income received in advance but not earned

  4. income earned but realization doubtful
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Accrued income is income which has been earned but not yet received. Income must be recorded in the accounting period in which it is earned. Therefore, accrued in, a corresponding income must be recognized in the accounting period in which it arises rather than in the subsequent period in which it will be received. As income will be credited to record  the accrued income, a corresponding receivable mist be created to account for the debit side of the transaction. The accounting entry to record accrued income will be as follows: 

Debit-Income Receivable and Credit-Income 

Multiple choice elements of book keeping and accountancy trial balance develop the skill of preparing trial balance by balance method methods of preparing trial balance preparation of trial balance

When an error is found in the trial balance of last year which affects the profit of the company then __________.

  1. suspense's account is prepared

  2. profit and loss adjustment account is prepared

  3. it is left undisturbed

  4. Balance sheet adjustment account is prepared
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Ideally, errors of accounting need to be rectified in the same financial year to show a true and fair view of the financial statement. 

If the errors are not located and carried to the subsequent year, rectification of errors are to be done through profit & loss adjustment account. 

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

Depletion term is used in case of intangible assets.

  1. True

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

The term 'Depletion' refers to the physical deterioration by the exhaustion of natural resources (ore-deposits in mines, oil wells, quarries, timber stands etc.)

For the purpose of intangible assets, the term 'Amortization' is used. It refers to the economic deterioration by the expiation of intangible assets such as patents, goodwill etc. 

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

Depreciation is to be calculated from the date of _____________________.

  1. Asset put to use

  2. Purchase order of asset

  3. Receipt of asset at business premise

  4. Invoice of assets.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The expense is recognized and reported when the asset is placed into use and is calculated for each accounting period and reported under Accumulated Depreciation on the balance sheet and Depreciation Expense on the income statement. The amount reduces both the asset's value and the accounting period's income.

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

Depletion method depreciation is normally applied in case of _________ assets.

  1. Intangible

  2. Tangible

  3. Wasting

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

Wasting Assets are the asset that has a limited life and thus decreases in value (depreciates) over time.

The term depletion is used in the context of extraction of natural resources like mines, quarries, etc. that reduces the availability of the quantity of the material or asset.

Hence Depletion method depreciation is normally applied in case of wasting assets.

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

Which one of the following depreciation methods is most suitable for a coal mine?

  1. Diminishing balance method

  2. Depletion method

  3. Fixed instalment method

  4. Sum of year's digits method
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Depletion method of depreciation is most suitable for coal mine. This method is specially used for those assets which deplete with use. The cost of the asset is divided by total workable deposits. For example :

If a mine has 2 lakh tons of coal and the value of mine is Rs. 5 lakhs, each ton of coal will cost Rs. 2½. The quantity of coal taken out of the mine in a period will be multiplied by the rate per ton, i.e., Rs. 2½ and the resultant figure will be the amount of depreciation.

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

__________ reduces the availability of the quantity of the material or asset.

  1. Depletion

  2. Amortisation

  3. Depreciation

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

Depletion.

Depletion is an accounting and tax concept used most often in mining, timber, petroleum, or other similar industries. The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. Depletion is similar to depreciation in that it is a cost recovery system for accounting and tax reporting.

Depletion for both accounting purposes and united states tax purposes, is a method of recording the gradual expense or use of natural resources over time. Depletion is using up of natural resources by mining, drilling, or felling.

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

_____________________  refers to writing-off the cost of intangible assets.

  1. Valuation

  2. Depreciation

  3. Appreciation

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

Amortization is an accounting term that refers to the process of allocating the cost of an intangible asset over a period of time. 

The main difference between depreciation and amortization is that the depreciation depreciation is used for tangible asset and amortization is used for intangible asset. 

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

Depreciation is always charged on ______ Assets.

  1. Current

  2. Fixed

  3. Fictitious

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

Fixed Asset are those which provides benefits to the business in future years to come. Fixed Asset looses its value due to normal wear & tear and usage. Every year an amount is charged as depreciation on each of the fixed asset. 

Depreciation is always charged on fixed assets. 

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

The money value which is obtained after selling an asset is called __________.

  1. Cost of sales

  2. Scrap value

  3. Sales

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

Below are the three main factors which affect the calculation of depreciation:

  • Cost of Asset
  • Scrap Value 
  • Estimated life of asset

Depreciation is calculated by considering the scrap value of asset.  The money value which is obtained after selling an asset is called scrap value.