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

A security is issued on 1st March 2010, its first interest date is 31st August 2010 with a coupon rate of 10% and par value of 1000 rupees. Settlement date for security is 1st May 2010 with 30/360 basis value.If the initial cost of the asset value is changed to 5,00,000 with the lifetime of 10 years, which function can be used to calculate the depreciation in the first year with fixed decimal places?

  1. DDB function

  2. DB function

  3. DISC function

  4. DGET function

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

DB function provides the required calculation for the first year depreciation with fixed decimal places.

Multiple choice

Depreciation on loose tools of 20%, which is Rs. 2,000, will be shown in

  1. Contra voucher

  2. Payment voucher

  3. Journal voucher

  4. Receipt voucher
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

It will be shown in journal voucher. In journal voucher, we show all transactions not concerned with cash; and charging of depreciation on loose tools of Rs. 2,000 is a transaction in which neither cash comes in nor cash goes out of the firm.

Multiple choice

A and B jointly owe C Rs. 1,000. A pays C the due amount. B, not knowing A has paid, also pays C Rs. 1. C is obliged to return the money under

  1. contract

  2. quasi contract

  3. trust

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

A and B jointly owe C, Rs. 1,000. A pays C the amount due B, not knowing B has paid, also pays C Re 1. C is obliged to return the money under quasi contract. Quasi contract is an obligation of one party to another imposed by law independently of an agreement between the parties.

Multiple choice

The original cost of a machinery is Rs. 4,15,000. The estimated life of an asset is 20 years and net scrap value is estimated to be Rs. 65,000. What will be the amount of depreciation to be charged every year? Use straight line method to calculate the answer.

  1. Rs. 20750

  2. Rs. 24000

  3. Rs. 17500

  4. Rs. 3250

  5. Rs. 128
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Depreciation =cost of machinery- net scrap value / estimated life 415000 - 65000 = 3500035000/20= 17500 It is the correct answer

Multiple choice

A sales of Rs. 7800 to Raheem has been posted to Ramlal. Which of the following journal entries will correct this error?

  1. Debit Ramlal's account and credit Raheem's account with Rs. 15600.

  2. Debit Raheem's account and credit sales account with Rs. 7800.

  3. Debit Raheem's account and credit Ramlal's account with Rs. 7800.

  4. Debit sales account and credit Ramlal's account with Rs. 7800.

  5. None of the above entries will correct the error.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

This is error of omission and transfer needs to be made between both the accounts . This journal entry is required to be transferred so that their is no unauthorized transfer between two accounts.

Multiple choice

The original cost of a machinery is Rs. 4,15,000. The estimated life of asset is 20 years and net scrap value is estimated to be Rs. 65,000. What will be the amount of depreciation to be charged every year? Use straight line method to calculate the answer.

  1. Rs. 20,750

  2. Rs. 24,000

  3. Rs. 17,500

  4. Rs. 3,250

  5. Rs. 128
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Depreciation =cost of machinery - net scrap value / estimated life 415000 - 65000 = 3500035000/20= 17500 It is the correct answer.

Multiple choice

The inventory in the starting of current year is overstated by Rs. 5,000 and closing inventory is overstated by Rs. 12,000. The net income for current year will be ___________.

  1. Rs. 12,000 (understated)

  2. Rs. 17,000 (overstated)

  3. Rs. 7,000 (overstated)

  4. Rs. 7,000 (understated)

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

Overstatement of closing stock results in overstatement of profit and overstatement of opening stock results in understatement of profit. In the instant case, there will be overstatement of profit by Rs 12,000 - Rs 5,000= Rs 7,000.

Multiple choice

The annual accounts have shown the following: Profit for 2010 = Rs. 50,000 (after charging loss on sale of machinery of Rs. 90,000) Loss for 2011 = Rs. 30,000 (after charging loss by fire of Rs. 1, 10,000) Profit for 2012 = Rs. 50,000 (after crediting profit on sale of investment of Rs. 30,000) Calculate the goodwill, which is valued at 4 years purchase of average 3 years' profits:

  1. Rs. 4, 00, 000

  2. Nil

  3. Rs. 3, 20,000

  4. Rs. 1,80,000
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

This is correct answer. Normal profits for 2010 will be: 1, 40,000 (50,000 + 90,000), for 2011: (-) 30,000 + 1, 10,000 = 80,000 and for 2012: 50,000 - 30,000 = 20,000. Thus, average proift is (1, 40,000 + 80,000 + 20,000)/3 = Rs. 80,000. Value of goodwill will be 80,000 * 4 = Rs. 3, 20,000

Multiple choice

The book value of investment is Rs. 1, 20,000 and investment fluctuation fund is appearing at Rs. 15,000. The realisable value of investment is Rs. 1, 00,000. How to show this adjustment in revaluation account?

  1. Rs. 20000 will be debited ro revaluation account.

  2. Rs. 5,000 will be debited ro revaluation account.

  3. Rs. 20,000 will be credited to revaluation account.

  4. Rs. 5,000 will be credited to revaluation account.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

It is the correct answer. The loss on investment is Rs. 20,000 but Rs. 15,000 will be adjusted from investment fluctuation fund and the rest will be debited to revaluation account.

Multiple choice

The debtors and provision for doubtful debts are appearing in the balance sheet at Rs. 2, 00,000 and Rs. 18,000 respectively. The firm decided to maintain provision in the books at 5% of debtors. How can it be shown in revaluation account?

  1. Rs. 8,000 will be credited to revaluation account.

  2. Rs. 8,000 will be debited to revaluation account.

  3. Rs. 10,000 will be debited to revaluation account.

  4. Rs. 10,000 will be credited.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

It is the correct answer. The doubtful debts are to be shown as Rs. 10,000 but Rs. 18,000 are already appearing. So, Rs. 8,000 will be credited.

Multiple choice

A machinery is purchased on August 1, 2011 for Rs. 1,20,000. It was put into use with effect from October 1, 2011. If it is to be depreciated @ 25% p.a, what should be the amount of depreciation for the year ended on March 31, 2012?

  1. Rs. 30,000

  2. Rs. 20,000

  3. Rs. 1,500

  4. Rs. 15,000
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

This is the correct answer. The amount of depreciation is charged for 6 months, i.e. October 1 to  March 31 as: 1,20,000 * 25% * 6/12 = Rs. 15,000

Multiple choice

A machinery is purchased on April 1, 2009 for Rs. 2,00,000. It is depreciated @ 10% p.a. on straight line method. It is sold on December 31, 2011 at 80% of book value. The books are closed on 31 March every year. What is the resultant profit or loss at the time of sale of machinery?

  1. Rs. 15,000 profit

  2. Rs. 29,000 loss

  3. Rs. 29,000 profit

  4. Rs. 33,000 loss
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Cost of machine is Rs. 2,00,000. The depreciation is to be charged for 2 years, 9 months. The depreciation per year is Rs. 20,000. Thus, it is total Rs. 55,000 for the said period. The WDV is now Rs. 1,45,000. The selling price is Rs. 145000 * 80%, i.e. Rs. 116000. Thus, loss is Rs. 29,000.

Multiple choice

A machinery was purchased for Rs. 4,00,000 on April 1, 2008 and it was depreciated @ 10% p.a. on straight line basis. The method was changed w.e.f year 2011-12 and depreciation chargeable on March 31, 2011 was calculated on written down value basis. It was decided to implement it with retrospective effect. Calculate the amount to be debited or credited to profit and loss account for difference in depreciation amount.

  1. Credit Rs. 11,600

  2. Debit Rs. 11,600

  3. Debit Rs. 4,000

  4. Credit Rs. 4,000

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

Original cost of machine = Rs. 4,00,000 Depreciation as per straight line method for 2008-09 and 2009-10 = Rs. (40,000 + 40,000 + 40,000) = Rs. 1,20,000 Thus, WDV = Rs. 2,80,000 Depreciation for 2008-09, 2009-10 and 2010-11 as per written down value method = Rs. (40,000 + 36000 + 32400) = Rs. 1,08,400 Thus, WDV = Rs. 2,91,600 So, amount to be debited to machinery = Rs. 11,600.