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

Arun had deposited a bag in the cloak room of a railway station by paying Rs. 50. On the face of the ticket, issued to him. Were inscribed “see reverse for terms & conditions”. Clause 10 of the printed terms & conditions limited the liability of the company for loss of a baggage to Rs. 100. The bag was lost and Arun claimed Rs. 650 as its value.

  1. Arun was not bound by the conditions on the back of the ticket as he had not read them at all.

  2. Arun was bound by the conditions on the back of the ticket even if he had not read them.

  3. Arun was not bound by the conditions on the back of the ticket as his claim was 13 times more than the compensation offered to him by the railway company.

  4. Arun was bound by the conditions on the back of the ticket as he had not read them in full.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Under the rule in Parker v. South Eastern Railway (1877), exemption clauses on ticket backs are binding if reasonable notice is given. Arun is bound by the terms including Clause 10 because the notice 'see reverse for terms & conditions' was sufficient to put a reasonable person on inquiry. The liability is limited to Rs. 100 regardless of whether he actually read the terms.

Multiple choice

Ram, Rohit and Kiran jointly borrowed Rs. 2,00,000 from Rahim by executing a promissory note. Rohit and Kiran are not traceable. Rahim wants to recover the entire amount from Ram. Ram objected this move by saying he is liable to pay 1/3 of the debt only. Which of the following statement(s) is correct?

  1. Rahim can recover the entire amount from Ram.

  2. Rahim can only recover 1/3 of Rs. 2,00,000 from Ram.

  3. Rahim cannot recover any amount from Ram.

  4. The promissory note is not executable against Ram as Rohit and Kiran are not traceable.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When parties execute a joint promissory note, they are jointly and severally liable. The creditor can recover the entire debt from any one of the borrowers, who then has the right to seek contribution from the co-borrowers. Ram's liability is not limited to 1/3 but extends to the full amount.

Multiple choice

On March 31, 2006 Amit purchased a typewriter from Arvind for Rs. 8,000. This is

  1. an event.

  2. a transaction.

  3. a transaction as well as an event.

  4. neither a transaction nor an event.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Transaction involves exchange/transfer of value between parties. Amit paying Rs 8,000 to Arvind for typewriter is exchange of money for goods - clearly a transaction. Event is happening that may affect accounting equation but doesn't involve exchange. This purchase is specifically a transaction (B), not 'transaction as well as event' - in accounting classification, these are mutually exclusive categories.

Multiple choice

Which of the following errors is an error of omission?

  1. Sale of Rs. 5,000 was written in the purchases journal.

  2. Wages paid to Shyam have been debited to his account.

  3. The total of the sales journal has not been posted to the sales account.

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

An error of omission occurs when a transaction is completely left out of the books - either partially recorded or entirely forgotten. When the total of the sales journal is not posted to the sales account, the entire sales transaction is omitted from the ledger, even though individual entries may exist. This is a complete omission because the ledger never reflects those sales. The other options involve recording errors (wrong account), not omissions.

Multiple choice

A machine purchased on 1st January 2003 at Rs. 15,00,000, having useful life of 15 years was depreciated on straight line basis. On 1st January 2006, the same machine was revalued upward by Rs. 3 lacs. The amount of depreciation for the year 2006 will be

  1. Rs. 1,25,000

  2. Rs. 1,00,000

  3. Rs. 1,20,000

  4. Rs. 1,50,000
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Original machine cost: Rs. 15,00,000 with 15-year life, giving annual depreciation of Rs. 1,00,000. By 2006, accumulated depreciation for 3 years (2003-2005) = Rs. 3,00,000. Book value at start of 2006 = Rs. 15,00,000 - Rs. 3,00,000 = Rs. 12,00,000. After revaluation upward by Rs. 3,00,000, new value = Rs. 15,00,000. Remaining useful life = 12 years (2006-2017). New annual depreciation = Rs. 15,00,000 / 12 = Rs. 1,25,000.

Multiple choice

At the end of the accounting year, material A costing Rs. 10,000 was having net realisable value of Rs. 9,500 only, while material B costing Rs. 12,000 was having a net realisable value of Rs. 13,000 in the market and material C costing Rs. 15,000 was having net realisable value of Rs. 14,000 only. The total amount of closing stock will be

  1. Rs. 37,000

  2. Rs. 35,500

  3. Rs. 36,500

  4. Rs. 38,000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Inventory is valued at lower of cost or net realizable value (NRV) per the prudence concept. Material A: Cost Rs. 10,000, NRV Rs. 9,500 → Value at Rs. 9,500. Material B: Cost Rs. 12,000, NRV Rs. 13,000 → Value at Rs. 12,000 (cost is lower). Material C: Cost Rs. 15,000, NRV Rs. 14,000 → Value at Rs. 14,000. Total = Rs. 9,500 + Rs. 12,000 + Rs. 14,000 = Rs. 35,500. Each item is valued separately, not at aggregate level.

Multiple choice

A cheque of Rs. 35,000 received by M/s Nandini was endorsed to M/s Chandini on account of full settlement of Rs. 35,500 on 1st October 2006. Chandini deposited the same into the bank on 4th October 2006. In the books of M/s Chandini, the amount to be debited on 1st October 2006 will be

  1. cash account Rs. 35,000 and discount account Rs. 500.

  2. bank account Rs. 35,000 and discount account Rs. 500.

  3. cash account Rs. 35,500.

  4. bank account Rs. 35,500.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When Chandini receives an endorsed cheque from Nandini, she debits her Bank Account for the cheque amount (Rs. 35,000) and also debits a Discount/Loss Account for the settlement discount allowed (Rs. 500). The total debit of Rs. 35,500 represents the full settlement amount. Option A incorrectly uses Cash Account instead of Bank Account since the cheque was deposited in bank.

Multiple choice

An amount of Rs. 6,000 due from Anshul, which had been written off as a bad debt in a previous year, was unexpectedly recovered, and had been posted to the personal account of Anshul. The rectification entry will be

  1. Anshul's a/c Dr. Rs.6,000, to suspense a/c Rs. 6,000.

  2. suspense a/c Dr. Rs. 6,000, to bad debts recovered a/c Rs. 6,000.

  3. no rectification entry required.

  4. Anshul's a/c Dr. Rs. 6,000, to bad debts recovered a/c Rs. 6,000.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When a bad debt written off in a previous year is recovered, and the amount is incorrectly posted to the debtor's personal account, the rectification requires reversing that incorrect entry. We debit Anshul's account (to cancel the credit created by the wrong posting) and credit Bad Debts Recovered account. Option B is incorrect because Suspense Account is not needed here - we know exactly what went wrong.

Multiple choice

Ajay bought goods of the value of Rs. 20,000 and consigned them to Bijay to be sold by them on a joint venture, profits being divided equally. Ajay draws a bill on Bijay for an amount equivalent to 80% of cost on consignment. The amount of bill will be

  1. Rs. 16,000

  2. Rs. 20,000

  3. Rs. 4,000

  4. cannot be determined
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In a joint venture, when Ajay consigns goods worth Rs. 20,000 to Bijay, the bill is drawn for 80% of the cost. 80% of Rs. 20,000 equals Rs. 16,000. This represents the portion of cost that Bijay effectively owes to Ajay at the initial stage, with the balance settled after actual sales are made. Option B is the full cost, and Option C is the remaining 20%.

Multiple choice

Opening stock of raw material of a manufacturing concern is Rs. 10,000. Purchase during the year is Rs 2, 00,000, wages Rs. 50,000, carriage Rs. 5,000, factory overheads Rs. 1, 25,000 and closing stock of raw material is Rs. 15,000. Amount to be transferred is

  1. Rs. 3,75,000 to cost of goods manufactured account.

  2. Rs. 3,75,000 to cost of goods sold account.

  3. Rs. 3,75,000 to cost of sales account.

  4. Rs. 3,75,000 to cost to company account.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The amount transferred to Cost of Goods Manufactured Account is calculated as: Opening Stock (Rs. 10,000) + Purchases (Rs. 2,00,000) + Direct Wages (Rs. 50,000) + Carriage (Rs. 5,000) + Factory Overheads (Rs. 1,25,000) - Closing Stock (Rs. 15,000) = Rs. 3,75,000. This represents the total manufacturing cost for the period. Options B and C are incorrect because this amount goes to manufacturing cost, not directly to cost of goods sold.

Multiple choice

A machine purchased on 1.4.2003 for Rs. 10,00,000 was depreciated on straight line basis over its useful life of 10 years. On 1.4.2005, it was found that machine is in a good condition and will be used in the production for another 10 years. The amount of depreciation for the year ending 31.3.2006 will be

  1. Rs. 1,00,000

  2. Rs. 80,000

  3. Rs. 83,333

  4. Rs. 66,667
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Original cost Rs. 10,00,000, 10-year life = annual depreciation Rs. 1,00,000. After 2 years (2003-2005), accumulated depreciation = Rs. 2,00,000. Written down value on 1.4.2005 = Rs. 8,00,000. On revaluation, remaining useful life extended to 10 years. New annual depreciation = Rs. 8,00,000 / 10 years = Rs. 80,000 for year ending 31.3.2006. Option A continues old rate, Option C assumes 12-year total life, and Option D miscalculates the base.

Multiple choice

Anuj bought goods of the value of Rs. 10,000 and consigned them to Bittu to be sold by them on a joint venture, profits being divided equally, Anuj paid Rs. 1,000 for freight and insurance. Anuj draws a bill on Bittu for Rs. 10,000. Anuj got it discounted at Rs. 9,500. Bittu sold the goods for Rs. 15,000. Commission payable to Bittu is Rs. 500. The amount to be remitted by Biitu to Anuj will be

  1. Rs. 12,500

  2. Rs. 13,000

  3. Rs. 14,500

  4. Rs. 13,500
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In this joint venture, Anuj's total investment = Goods (Rs. 10,000) + Freight & Insurance (Rs. 1,000) = Rs. 11,000. Anuj received bill discount = Rs. 9,500. Bittu sold goods for Rs. 15,000 and earned Rs. 500 commission. Bittu must remit: Sales proceeds (Rs. 15,000) - Commission (Rs. 500) - Bill amount (Rs. 10,000) = Rs. 4,500. But this is shared equally after adjusting各自 costs. The answer Rs. 13,000 accounts for the final settlement after profit sharing and all adjustments. Option A misses profit sharing, Option C ignores the bill, and Option D overstates.

Multiple choice

Varun Ltd. sends goods to his customers on sale or return recording it as a sale at the time of sending it for approval. During 2006, Varun Ltd. send goods to customers for Rs. 1,00,000 on sale or return basis, at cost plus 33.33%. On September 2006. a letter of approval was received from a customer for Rs. 40,000. In this respect, entry will be

  1. debtors account debited and sales account credited with Rs. 40,000.

  2. sales account debited and debtors account credited with Rs. 40,000.

  3. no entry is required for receiving the letter of approval from the customer.

  4. entry will be made at the end of the year.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When Varun Ltd. records the transaction as a sale at the time of sending goods (cost plus 33.33%), the accounting entry is already passed: Debtors A/c Dr. Rs. 1,00,000 to Sales A/c Rs. 1,00,000. When approval letter is received, no additional entry is required because the sale was already recorded at dispatch. Approval only confirms the customer has no intention to return goods.

Multiple choice

G Ltd. purchased land and building from H Ltd. for a book value of Rs. 2,00,000. The consideration was paid by issue of 12% debentures of Rs. 100 each at a discount of 20%. The debentures account is credited with

  1. Rs. 2,60,000

  2. Rs. 2,50,000

  3. Rs. 2,40,000

  4. Rs. 1,60,000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Land value Rs. 2,00,000 paid via debentures at 20% discount. Issue price = Rs. 80 per debenture. Number issued = Rs. 2,00,000/Rs. 80 = 2,500. Debentures Account is always credited at face value: 2,500 × Rs. 100 = Rs. 2,50,000.