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 standards: concept and objectives accounting standards accounting standards (as) and ifrs accounting systems and reporting standards

Valuation of inventory is dealt with in ______.

  1. $AS - 1$
  2. $AS - 2$
  3. $AS - 3$
  4. $AS - 4$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

As per AS-2, Valuation of inventories prescribed the accounting treatment for inventories and sets the guidance to determine the value at which the inventories are carried in the financial statement. 

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs. 

The cost of inventories should comprise all costs of purchase, Costs of conversion and other costs incurred in bringing  the inventories to their present location and condition. 

As per AS-2, "Inventories should be valued at the lower of cost and net realisable value."

Multiple choice book keeping and accountancy accounting standards: concept and objectives accounting standards accounting standards (as) and ifrs accounting systems and reporting standards

Accounting standard on inventory valuation is not applicable to _____________.

  1. Construction contracts

  2. Inventories of livestock, agricultural and forest products

  3. Stock of mineral oils, ores and gases

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

AS-2 explicitly excludes certain types of inventories from its scope, including construction contracts, livestock, and mineral ores, as these are covered by other specific standards.

Multiple choice book keeping and accountancy accounting standards: concept and objectives accounting standards accounting standards (as) and ifrs accounting systems and reporting standards

Which of the following is not required to be disclosed according to $AS-6$?

  1. The depreciation methods used

  2. The total depreciation for the period for each class of assets

  3. The gross amount of each class of depreciable assets and the related accumulated depreciation

  4. Depreciated value of the assets
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

AS-6 (now superseded by AS-10) required disclosure of methods, total depreciation, and gross/accumulated values. The 'depreciated value' (Net Book Value) is a result of the calculation, not a specific disclosure requirement in the same sense as the others.

Multiple choice book keeping and accountancy accounting standards: concept and objectives accounting standards accounting standards (as) and ifrs accounting systems and reporting standards

$AS-6$ deals with depreciation accounting and applies to all depreciable assets, except _____________.

  1. Forests, plantations and similar regenerative natural resources

  2. Wasting assets and expenditure on research and development

  3. Goodwill and livestock

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

AS-6 excludes assets like forests, wasting assets, and goodwill because they are subject to different valuation or depletion methods rather than standard depreciation.

Multiple choice book keeping and accountancy accounting standards: concept and objectives accounting standards accounting standards (as) and ifrs accounting systems and reporting standards

Choose the correct statement.

  1. According to $AS-6$ depreciation is to be provided on land
  2. According to $AS-6$ depreciation is not to be provided on land under any situation
  3. According to $AS-6$ depreciation is not to be provided on land unless it has a limited useful life of the enterprise
  4. $AS-6$ is silent on the questions providing depreciation on land
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Land is generally not depreciated because it has an unlimited useful life. However, if land has a limited useful life to the enterprise, it may be depreciated.

Multiple choice book keeping and accountancy accounting standards: concept and objectives accounting standards accounting standards (as) and ifrs accounting systems and reporting standards

According to $AS-6$, 'Depreciable assets' are assets which __________.

  1. are expected to be used during more than one accounting period

  2. have a limited useful life

  3. are held by an enterprise for use in the production or supply of goods and services, for rental to others, or for administrative purposes and not for the purpose of sale in the ordinary course of business

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

According to AS-6, depreciable assets are defined by their usage, limited useful life, and the fact that they are held for production or administrative purposes rather than sale.

Multiple choice book keeping and accountancy accounting standards: concept and objectives accounting standards accounting standards (as) and ifrs accounting systems and reporting standards

According to AS-6 "Depreciation Accounting", issued by the ICAI, change in method is permitted _____________.

  1. Prospectively

  2. Retrosecpectively

  3. Negatively

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

Under AS-6, a change in the method of depreciation is treated as a change in accounting policy and is applied retrospectively to the date of the asset's acquisition.

Multiple choice book keeping and accountancy accounting standards: concept and objectives accounting standards accounting standards (as) and ifrs accounting systems and reporting standards

The standard given by ICAI for calculation of depreciation is ________.

  1. Accounting standard 5 depreciation accounting

  2. Accounting standard 6 depreciation accounting

  3. Accounting standard 7 depreciation accounting

  4. Accounting standard 4 depreciation accounting
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

AS-6 was the specific standard issued by the ICAI to deal with depreciation accounting.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

Cash basis considers the revenue as realized, when the goods are produced. 

  1. True

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

 The major difference between the accrual accounting method and the cash accounting method is the way in which revenue and expenses are recorded in the accounts of the business. This difference consequently leads to a different profit result for a given period depending on the approach adopted. 

· Cash-basis - Using the cash-basis, revenue is only recorded when the cash is actually exchanged i.e. when revenue is received as cash and when expenses are actually paid.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

If the change in accounting policy has a material effect in current period and the effect of change is ascertainable in part _________________.

  1. The amount of change should be disclosed

  2. The fact of change should be disclosed

  3. The fact of change should not be disclosed

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

When an accounting policy change has a material effect, the entity must disclose the fact of the change to ensure transparency. While the amount of the change is also relevant, the fundamental requirement is to disclose that a change has occurred.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

All of the following are valuation principles except ___________________.

  1. Historical cost

  2. Current cost

  3. Realizable value

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

Historical cost, current cost, and realizable value are standard valuation principles used in accounting. Future value is a financial calculation concept rather than a primary valuation principle for assets in financial statements.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

Overvaluation of opening stock in financial accounting results _____________.

  1. decreases costing profit

  2. decreases financial accounts profit

  3. increases costing profit

  4. increases financial accounts profit
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Opening stock is a debit item in the trading account. Overvaluing it increases the total debits, which in turn decreases the calculated gross profit for that period.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

Interest on performing assets should be recognized on ___________ basis.

  1. actually received

  2. standard

  3. accrual

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

Banks are to recognize their income on accrual basis in respect of income on performing assets and on cash basis in respect of income on non-performing assets (NPA). Any interest accrued and credited to income account must be cancelled by a reverse entry once the credit facility comes under the category of NPAs.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

According to which of the following concepts, revenue is recognised when it is earned rather than when it is collected and recognises when assets or benefits are used rather than they are paid for?

  1. Accrual concept

  2. Realisation concept

  3. Cost concept

  4. Money measurement concept
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The accrual concept dictates that revenue is recognized when earned and expenses are recognized when incurred, matching them to the period they relate to.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

Accrued income refers to that income which has been _______________.

  1. received but not earned during the current accounting period

  2. earned but not received during the current accounting period

  3. earned but not earned during the previous accounting period

  4. received and earned during the current accounting period
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Accrued income is income that has been earned by providing goods or services during the period, but for which payment has not yet been received.