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 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

In which method of calculating depreciation, interest on the cost of the asset is taken into account?

  1. Annuity method.

  2. Fixed installment.

  3. Insurance policy.

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

Depreciation is defined as the expensing of the cost of an asset involved in producing revenues throughout its useful life.

There are various method of calculating depreciation such as straight line method, Wriiten down value of assets method, sinking fund method, Annuity method, etc.

The annuity method of depreciation is a process used to calculate depreciation on an asset by calculating its rate of return as if it was an investment. This method requires the determination of the internal  rate of return (IRR) on the cash inflows and outflows of the asset. The IRR is then multiplied by the initial book value of the asset, and the result is subtracted from the cash flow for the period in order to find the actual amount of depreciation that can be taken. It is commonly used with assets that have a large purchase price and long 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

Which of the following statement is correct?

  1. A company need not provide for depreciation if it does not want to declare dividends.

  2. Depreciation has to be provided for if dividends are to be declared

  3. The fact that depreciation has not been provided for together with the quantum of arrears of depreciation must be stayed by way of notes.

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

Section 123 of the Companies Act 2013 says that a company can declare dividend from:

  • Out of profits (after depreciation) or out of accumulated profits (after depreciation) or from both
  • Out of the money provided by the government if guarantee given by the government
  • Out of free reserves
  • Depreciation to be provided according to schedule II of the act
Considering the above clause of Section 123, all the given 3 statements are correct.

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

Total depreciation during the life cannot exceed _____________.

  1. its book value

  2. its replacement value

  3. its depreciable value

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

The main purpose of depreciation is to reduce the value of an asset over its useful life in such a systematic way that such reduction corresponds with the rate at which depreciation is charged. So the total depreciation over the period of use or simply accumulated depreciation cannot exceed the net book value of the asset or depreciable value. 

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 principal factor in measurement of depreciation is/are __________.

  1. total cost

  2. residual value

  3. useful life

  4. all the three
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life. Principle factor in measurement of depreciation are total cost of asset, useful life of asset, residual value of the asset.

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

For charging depreciation, on which of the following assets the depletion method is adopted?

  1. Plant machinery.

  2. Land and building.

  3. Goodwill.

  4. Wasting assets like mines and quarries.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
Depletion method is used in case of mines, quarries etc. containing only a certain quantity of product. The depreciation is calculated by dividing the cost of asset by the estimated quantity of product likely to be available. Annual depreciation will be the quantity extracted multiplied by the rate per unit.
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

Which of the following are generally the inventories of a service business _________.

  1. Finished goods inventories

  2. Purchased goods

  3. Raw materials inventories

  4. Work in process inventories
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Service businesses do not typically hold finished goods or raw materials for resale. Instead, they hold work in process inventories, which represent the costs of services currently being performed but not yet billed or completed.

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 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

Which of the following errors will not affect the agreement of trial balance?

  1. Errors of Complete Omission

  2. Compensatory Errors

  3. Errors of Principle

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

Even after the trial balance tallies, that doesn’t means there is no error in the preparation.

  • Errors of complete omission - if a transaction is completely omitted or not recorded in the journal or any subsidiary books , it is termed as error of omission.  Such error will not effect the trial balance as it is not recorded on the debit side of an account nor on the credit side of another account.

  • Compensatory errors - compensating errors is when the effect of one error is neutralized by some other errors. For example, if Ram’s account is debited with 500 instead of 5000 and on the other hand Shyam’s  account is debited with 5000 instead of 500. This situation would not have any effect on the trial balance .

  • Error of principle – when the fundamental principle of accounting is violated while preparing the accounts, this is known as error of principle. These errors are made when there’s no proper distinction between capital and revenue items i.e., capital expenditure being treated as revenue expenditure and vice versa.

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.