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 machinery was purchased on April 1, 2009 for Rs. 5,00,000. It was depreciated @ 20% p.a. on reducing balance method. If 1/4th of it was sold on January 1, 2012 for Rs. 70,000, calculate profit or loss on the sale of machinery.

  1. Rs. 2,000 profit

  2. Rs. 2,000 loss

  3. Rs. 13,750 profit

  4. Rs. 2,02,000 loss
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Cost of 1/4th of machinery = Rs. 1,25,000 Depreciation for the 1st year = Rs. 25000 and WDV = Rs. 1,00,000 Depreciation for the 2nd year = 20% of Rs. 1,00,000 = Rs. 20,000 and WDV = Rs. 80,000 Depreciation for 9 months in the 3rd year = 20% of Rs. 80,000 = Rs.12,000 Thus, WDV = Rs. 68,000, Sale price = Rs. 70,000 Thus, profit on the sale of machinery is Rs. 2,000.

Multiple choice

Goods are purchased for Rs. 20,000 from Rahul on 1st January for which Rs. 5,000 are paid in cash to Rahul immediately. The combined effect of both these transactions will

  1. increase in working capital by Rs. 20,000

  2. have no effect on the working capital

  3. decrease in working capital by Rs. 5,000

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

There will be no effect on the working capital.
Stock coming in is of Rs. 20,000 and cash paid is of Rs. 5000, i.e. current assets are increased by Rs. 15,000. However, the creditors, i.e. current liabilities are also increased by Rs. 15,000. Thus, the net effect on working capital is nil.

Multiple choice

A machinery is purchased on long term credit for Rs. 1, 00,000 on 1st January 2010. The depreciation till 30th June 2010 is Rs. 5,000. It is sold on 30th June 2010 at a loss of Rs. 4,000 for cash. What will be the resultant net cash flow?

  1. Inflow of cash of Rs. 90,000

  2. Outflow of cash of Rs. 91,000

  3. Inflow of cash of Rs. 91,000

  4. Decrease in working capital by Rs. 4,000
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

It would result in inflow of cash of Rs. 91,000.
Since the machine is purchased for Rs. 1,00,000 and the depreciation till 30th June is Rs. 5,000. Hence, the value of machinery on 30th June is (Purchase price -  Depreciation), hence value is, (Rs. 1, 00,000 -  Rs. 5,000 Rs.=  95,000) It is sold at a loss of Rs. 4,000. Hence, the selling price would be Value Loss. Value = Rs. 95,000 Loss = Rs. 4,000 Hence, selling price would be 95000 - 4000 = Rs. 91000

Multiple choice

Calculate the working capital from the following information: Stock = Rs. 5,000 Debtors = Rs. 4,000 Cash at Bank = Rs. 3,000 Creditors = Rs. 3,000 Overdraft = Rs. 1,000 Outstanding liabilities = Rs. 500

  1. Rs. 8,000

  2. Rs. 7,500

  3. Rs. 8,500

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

It is Rs. 7,500 The working capital is excess of current assets over current liabilities. Current assets are stock, debtors and cash at bank.
The stock is of Rs. 5,000; Debtors are of Rs. 4,000; Cash at Bank is of Rs. 3,000. Hence, total current assets = Rs. 5,000 + Rs. 4,000 +  Rs. 3,000 =  Rs. 12,000 Current liabilities are creditors, overdraft and outstanding liabilities. Hence, total current liabilities = Rs. 3,000 + Rs. 1,000 +  Rs. 500  = Rs. 4,500 Therefore, working capital is of Rs. 12,000 -  Rs. 4,500 = Rs. 7,500

Multiple choice

A charitable trust decided to maintain a sports fund to organise matches. The donations received in the fund during the year amounted to Rs. 30,000. An interest of Rs. 2000 was received for placing these funds in a bank account. An amount of Rs. 35,000 was paid for organising various matches. Which of the following statements is correct?

  1. Rs. 30,000 will be shown in sports fund on the liabilities side in the balance sheet and nothing will be shown in the income and expenditure account.

  2. Only Rs. 3000 will be debited from the income and expenditure account.

  3. Rs. 35,000 will be debited from the income and expenditure account.

  4. Rs. 35,000 will be debited from the income and expenditure account and Rs. 2000 will be credited to it.

  5. Rs. 33,000 will be debited from the income and expenditure account.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Receipts on account of funds including interest are Rs. 32,000 (Rs. 30,000 donations and Rs. 2000 interest), whereas Rs. 35,000 are the expenses. Thus, an excess of Rs. 3000 paid will be debited from the income and expenditure account.

Multiple choice

The book value of furniture at the beginning of an year on 1st April was Rs. 1,50,000. During the year, furniture with original book value of Rs. 30,000 was sold for Rs. 25,000 on 1st January and furniture worth Rs. 20,000 was purchased. If the rate of depreciation is 10% per annum, what will be the value of furniture on 31st March?

  1. Rs. 1,35,000

  2. Rs. 1,08,000

  3. Rs. 1,53,000

  4. Rs. 1,30,500

  5. Rs. 1,26,000
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

Book value of furniture at the end = 1,50,000 + 20,000 - 30,000 = Rs. 1,40,000 less depreciation @ 10%, i.e. Rs. 1,26,000.

Multiple choice

Stationery purchased during a year amounted to Rs. 12,000. Stationery credits at the beginning and at the end of the year were Rs. 2000 and Rs. 3000, respectively. Calculate the amount to be shown on the expenditure side of the stationery account. Stationery stock at the beginning and end of the year amounted to Rs. 3500 and Rs. 5000, respectively.

  1. Rs. 11,500

  2. Rs. 12,500

  3. Rs. 13,000

  4. Rs. 10,500

  5. Rs. 12,000
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

It is correct. Stationery purchased is Rs. 12,000.                 Add: creditors (closing) = Rs. 3000 Less: creditors (opening) = Rs. 2000 Add: opening stock = Rs. 3500 Less: closing stock = Rs. 5000 will be Rs. 11,500.

Multiple choice

Ludhiana Club has a bar inside the club. Purchases on the account of bar during the previous month were Rs. 15,000. Opening stock was Rs. 1000 and closing stock was Rs. 500 more than the opening stock. There was an outstanding credit at the end of the month of Rs. 3500. Total bar takings during the period was Rs. 22,000 cash with Rs. 3000 accrued at the end. Calculate the profit or loss of the bar.

  1. Profit Rs. 7000

  2. Loss Rs. 7000

  3. Profit Rs. 4000

  4. Profit Rs. 10,500

  5. Profit Rs. 8000
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Total bar takings = 22,000 + 3000 = Rs. 25,000. Bar expenses = purchases + opening stock - closing stock + outstanding at the end = 15,000 + 1000 - 1500 + 3500 = Rs. 18,000 Thus, profit = Rs. (25,000 - 18,000) = Rs. 7000

Multiple choice

A club made an investment of Rs. 1,10,000 in 8% debentures from an open market of face value Rs. 1,00,000 on 1st July, 2015. Interest is due on 30th June and 31st December. Interest due on 31st December is duly received on time. Which of the following statements is correct if the accounts are maintained on mercantile basis?

  1. Interest income of Rs. 6600 and an accrued interest of Rs. 2200 will be credited to the income and expenditure account on the assets side of the balance sheet.

  2. Interest income of Rs. 6000 and accrued interest of Rs. 2000 will be credited to the income and expenditure account on the assets side of the balance sheet.

  3. Interest income of Rs. 4400 and accrued interest of Rs. 2200 will be credited to the income and expenditure account on the assets side of the balance sheet.

  4. Interest income of Rs. 4000 and accrued interest of Rs. 2000 will be credited to the income and expenditure account on the assets side of the balance sheet.

  5. Interest income of Rs. 8000 and accrued interest of Rs. 2000 will be credited to the income and expenditure account on the assets side of the balance sheet.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Interest has to be calculated on face value of Rs. 1,00,000, which amounts to 1,00,000 * 8% * 9/12, i.e. Rs. 6000. An amount of Rs. 4000 will be received on 31st December and the rest, i.e. Rs. 2000 is accrued.

Multiple choice

An amount of Rs. 35,000 is paid to stationery creditors. Credits at the beginning and end of the year amounted to Rs. 12,000 and Rs. 7000. Stock of stationery at the starting and end of the year was Rs. 2500 and Rs. 4500, respectively. Credit purchase is 75% of total amount of purchase. What will be the amount of stationery shown in income and expenditure account?

  1. Rs. 35,000

  2. Rs. 30,000

  3. Rs. 40,000

  4. Rs. 38,000

  5. Rs. 42,000
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Total credit purchase = 35,000 + 7000 - 12,000 = Rs. 30,000 Total purchase = 30,000 * 100/75 = Rs. 40,000 Stationery expenses to be shown by adding opening stock and subtracting closing stock = 40,000 + 2500 - 4500 = Rs. 38,000

Multiple choice

A club has the following balances at the beginning of a year:

Subscription outstanding: Rs. 15,000 Subscription in advance: Rs. 4000 Stock of stationery: Rs. 11,000 8% on fixed deposits of Rs. 45,000 (for which interest of 3 months is due) Prepaid water bill: Rs. 2000 Billiards table: Rs. 20,000 (original cost Rs. 25,000)

Calculate the amount of capital fund.

  1. Rs. 89,000

  2. Rs. 94,900

  3. Rs. 89,900

  4. Rs. 97,900

  5. Rs. 85,900
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Capital fund = Assets - Liabilities. Assets are o/s subscription, stationery stock, fixed deposits, interest accrued, prepaid bill and billiards table at book value, i.e. 15,000 + 11,000 + 45,000 + 900 + 2000 + 20,000 = Rs. 93,900. Liabilities are an advance subscription of Rs. 4000. Thus, capital fund = 93,900 - 4000