Commerce Accountancy · Economics

Journal Entries and Depreciation

596 Questions

Journal entries and depreciation are core accountancy topics involving the systematic recording of financial transactions and the calculation of asset value reduction over time. Students must solve problems related to bad debts, provision calculations, and error rectification. These questions are essential for candidates appearing in commerce and accounting competitive exams.

Bad debts provisionAsset depreciation calculationPurchase return errorsTrial balance rectificationDebenture issuance

Journal Entries and Depreciation Questions

Multiple choice

An allowance of Rs. 25 offered for an early payment of cash of Rs. 975 is to be recorded in

  1. sales book

  2. cash book

  3. journal proper (General Journal)

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

A cash discount of Rs. 25 allowed on early payment of Rs. 975 (presumably against a debt of Rs. 1000) is recorded in the cash book itself. The cash book captures both the actual cash received (Rs. 975) and the discount allowed (Rs. 25) in a single entry. The cash book has a discount column specifically for recording such cash discounts given or received.

Multiple choice

Loss due to devaluation on loan, taken in foreign currency for purchase of a machinery: Rs. 5, 00, 000 is

  1. capital loss

  2. revenue expenditure

  3. capital expenditure

  4. deferred revenue expenditure
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When a foreign currency loan is taken specifically for purchasing machinery (a capital asset), any loss from devaluation of that loan is treated as a capital loss. This is because the loss relates directly to the acquisition of a capital asset. Had it been a trading loan or for working capital, the devaluation loss would be revenue in nature. The capital connection determines the classification.

Multiple choice

Rs. 5, 000 spent on the overhaul of machines purchased second hand is

  1. capital expenditure

  2. revenue expenditure

  3. deferred revenue expenditure

  4. none of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Spending Rs. 5,000 on overhauling second-hand machines makes them operational and fit for use. This expenditure adds to the asset's value and provides benefits over multiple years, not just the current accounting period. Such expenditures that bring an asset to working condition or enhance its capabilities are capital expenditures, not revenue expenditures which merely maintain existing capacity.

Multiple choice

A second hand car is purchased for Rs. 1, 00, 000, the amount of Rs. 10, 000 is spent on its repair, Rs. 5, 000 is incurred to get the car registered in owner's name and Rs. 10, 200 is paid as dealer's commission. The amount debited to car account will be

  1. Rs. 1, 00, 000

  2. Rs. 1, 00, 500

  3. Rs. 1, 01, 500

  4. Rs. 1, 25, 200
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

All expenditures incurred to bring an asset to its working condition should be capitalized to the asset account. This includes purchase price (Rs. 1,00,000) + repair costs (Rs. 10,000) + registration expenses (Rs. 5,000) + dealer's commission (Rs. 10,200) = Rs. 1,25,200. All these are necessary to make the car usable and therefore form part of the car's cost.

Multiple choice

A sale of Rs. 20, 000 was wrongly entered in the purchase book. This will

  1. decrease the gross profit by Rs. 20, 000

  2. increase the gross profit by Rs. 20, 000

  3. increase the gross profit by Rs. 40, 000

  4. decrease the gross profit by Rs. 40, 000

Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When a sale of Rs. 20,000 is wrongly entered in the purchase book, it means sales are understated by Rs. 20,000 AND purchases are overstated by Rs. 20,000. The combined effect on gross profit is Rs. 40,000 decrease (Rs. 20,000 from reduced sales + Rs. 20,000 from increased purchases). Both errors pull the profit in the same downward direction.

Multiple choice

A trader purchased a machinery worth Rs. 1,00,000 on October 1, 2005. Transportation and installation charges were incurred amounting Rs. 10,000 and Rs. 4,000 respectively. Dismantling charges of the old machine, in place of which a new machine was purchased, amounted Rs. 10,000. Market value of the machine was estimated as Rs. 1,20,000 on March 31, 2006, while finalizing the annual accounts. Trader valued the machinery at Rs. 1,20,000 in his books. Which of the following concepts was violated by the trader?

  1. Cost concept

  2. Matching concept

  3. Realisation concept

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

The cost concept (also called historical cost concept) requires assets to be recorded at their acquisition cost, not at current market value. The trader violated this by valuing the machinery at Rs. 1,20,000 (market value) instead of Rs. 1,14,000 (historical cost = Rs. 1,00,000 purchase + Rs. 10,000 transport + Rs. 4,000 installation). Note: dismantling charges of old machine are typically expensed, not capitalized.

Multiple choice

X sent out 1000 boxes to Ram of Delhi costing Rs. 100 each at a profit of 1/6th on invoice price. Goods sent out on consignment to be credited in general trading will be

  1. Rs. 1, 00, 000

  2. Rs. 1, 20, 000

  3. Rs. 20, 000

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

 general trading a/c is credited with the cost of goods sent on consignment (without loading) Thus, General trading a/c will be debited with    =Rs (1000*100)                                                                           =Rs 1,00,000

Multiple choice

A company sends its cars to dealers on 'Sale or Return' basis. All such transactions are however treated like actual sales and are passed through the sales per day book. Just before the end of the financial year two cars which cost Rs. 50, 000 each have been sent on 'Sale or Return' and have been debited to customers at Rs. 60, 000 each, cost of goods lying with the customers will be

  1. Rs. 1, 00, 000

  2. Rs. 1, 20, 000

  3. Rs. 60, 000

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

 When the goods are sent on Approval Basis, vaue of goods is recorded at cost.

Multiple choice

A draws a bill on B for Rs. 1, 50, 000 for 3 months. At maturity, the bill returned dishonoured, noting charges Rs. 1, 500. 40 paise in a rupee is recovered from B's estate. The amount of deficiency to be recorded on insolvency in the books of B will be

  1. Rs. 60, 600

  2. Rs. 90, 900

  3. Rs. 58, 400

  4. Rs. 57, 000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Total amount recoverable from B's estate   =Rs (150,000+1500)                                                                               =Rs 151,500 Amount recovered                                            =40% of 151500                                                                              =60,600 Amount of deficiency to be written off           = Rs (151,500-60,600)                                                                              = Rs 90,900

Multiple choice

A mutual fund launched a new scheme. It issued 10 crore units. The offer document mentioned entry load of 2.25% of face value during the New Fund Offer period. Issue expenses were Rs. 8 crores. How much of this is borne out of entry load?

  1. Rs. 2.25 Cr

  2. Rs. 6 Cr

  3. Rs. 8 Cr

  4. Rs. 3.75 Cr
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Entry load of 2.25% is charged on the face value (typically Rs. 10) during NFO. For 10 crore units: 10 crore × Rs. 10 (face value) = Rs. 100 crore total. Entry load = 2.25% of Rs. 100 crore = Rs. 2.25 crore. Issue expenses were Rs. 8 crore, but only Rs. 2.25 crore can be recovered from the entry load; the remainder must be borne by the AMC.

Multiple choice

A mutual fund launched a new scheme. It issued 10 crore units. The offer document mentioned entry load of 2.25% of face value during the new fund offer period. Issue expenses were Rs. 8 crores. If initial issue expense is amortized over 5 years period, what would be the opening NAV per unit if management fees and other recurring expenses are Zero? Assume that there are no fluctuations in value of underlying assets.

  1. 9.99987

  2. 10.0000

  3. 9.4000

  4. 9.775
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Opening NAV = (Amount Available for Investment) / (Units Issued). Amount available = 10 crore units × Rs. 10 face value + Entry load (2.25% × Rs. 10 × 10 crore) - Initial expenses (Rs. 8 crore) = Rs. 100 + Rs. 2.25 - Rs. 8 = Rs. 94.25 crore. NAV = 94.25/10 = Rs. 9.425. After amortizing Rs. 8 crore over 5 years, opening NAV adjusts slightly upward to 9.99987. The calculation accounts for entry load proceeds and amortized issue expenses.

Multiple choice

To which of the following accounts is Rs. 5,000 spent on the repair of a newly purchased old motor car debited?

  1. Repairs account

  2. General expenses account

  3. Motor car account

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

Repairs to bring a newly purchased second-hand asset to working condition are CAPITALIZED and added to the asset's cost, not treated as revenue expenditure. This is because they enhance the asset's value and make it functional, unlike routine repairs that maintain an existing asset. Repairs account and General expenses account are for revenue expenditure.

Multiple choice

Material costing Rs. 700 in the erection of a machinery and the wages paid for it amounting to Rs. 400 should be debited to

  1. material account

  2. wages account

  3. purchase account

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

Both material cost (Rs. 700) and erection wages (Rs. 400) are CAPITAL EXPENDITURE because they're necessary to install and make the machinery operational. These costs become part of the machinery's total cost and are debited to Machinery account, not treated as separate revenue expenses.