Commerce Accountancy · Economics

Journal Entries and Depreciation

650 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

Cost of machinery purchased on 1st April, 2006 Rs. 5, 00, 000 Market value as on 31st March 2007 Rs. 6, 00, 000 As on 31st March 2007, if the company values the machinery at Rs. 6, 00, 000

Which of the following valuation principles is being followed?

  1. Historical cost

  2. Present value

  3. Realisable value

  4. Current cost

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

Let's define each valuation basis: (1) Historical cost = original purchase price paid (Rs. 5,00,000), (2) Present value = discounted future cash flows expected from using the asset, (3) Realisable value = selling price less costs to sell (market value on a specific date), (4) Current cost = replacement cost (cost to acquire same asset now). The question states: Market value as on 31st March 2007 = Rs. 6,00,000. Market value on a specific date IS the realisable value - what you could sell it for on that date. Since the company is valuing at Rs. 6,00,000 (the market value), they are following the Realisable value principle (C). This is NOT going concern valuation (which would use historical cost less depreciation).

Multiple choice

Mr. A purchased a machinery costing Rs. 1,00,000 on 1st October, 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 new machine was purchased amounted to Rs. 10,000. Market value of the machine was estimated at Rs. 1,20,000 on 31st March 2006. While finalising the annual accounts, A valued the machinery at Rs. 1,20,000 in his books.

Which of the following concepts was violated by A?

  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 requires assets to be recorded at their historical acquisition cost, including all necessary expenses to bring the asset to working condition. Here, total cost = Rs. 1,00,000 (purchase) + Rs. 10,000 (transport) + Rs. 4,000 (installation) + Rs. 10,000 (dismantling) = Rs. 1,24,000. Valuing at market value (Rs. 1,20,000) violates the cost concept, which states that assets should not be revalued upwards unless under specific circumstances.

Multiple choice

A businessman purchased goods for Rs. 25,00,000 and sold 80% of such goods during the accounting year ending on 31st March 2005. The market value of the remaining goods was Rs. 4,00,000. He valued the closing stock at cost. Thus, he violated the concept of

  1. money measurement

  2. conservatism

  3. cost

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

The conservatism principle (prudence concept) requires that inventory should be valued at the lower of cost or market value (net realizable value). Here, remaining stock cost is Rs. 5,00,000 (20% of Rs. 25,00,000) but market value is only Rs. 4,00,000. By valuing at cost, the businessman violated conservatism, which anticipates losses but not profits.

Multiple choice

RPG Ltd. purchased an equipment from PQR Ltd. for Rs. 50,000 on 1st April, 2005. The freight and cartage of Rs. 2,000 was spent to bring the asset to the factory and Rs. 3,000 was incurred on installing the equipment to make it possible for the intended use. The market price of machinery on 31st April, 2006 was Rs. 60,000 and the accountant of the company wanted to disclose the machinery at Rs. 60,000 in their financial statements. However, the auditor emphasized that the machinery should be valued at Rs. 55,000 (50,000 + 2,000 + 3,000) according to

  1. money measurement principle

  2. historical cost concept

  3. full disclosure principle

  4. revenue recognition

Reveal answer Fill a bubble to check yourself
C Correct answer
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.

Multiple choice

D.S. Construction Company Ltd. is engaged in the business of purchasing of land and constructing flats by spending on labour, materials and other overheads on the construction of flats. This company sells these flats to the customers on advance booking basis. Which of the following acounting standards shall be applied for the revenue recognition by this real estate company?

  1. AS - 7

  2. AS - 9

  3. AS - 2

  4. AS - 10

  5. AS - 4
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

As per AS - 2 valuation of inventories, FIFO and average method are methods of valuation of inventories. The LIFO (Last in first out method), HIFO (Highest In first out method) and NIFO (Next in first out method) are recognized by the AS - 2 valuation of inventories.