Tag: accountancy

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Questions Related to accountancy

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

Consider the following data and identify the amount which will be deducted from sundry debtors in balance sheet.

Particulars Rs.
Bad debts(from trial balance) $1,600$
Provision for doubtful debts(old) $2,000$
Current years' provision(new) $800$

  1. Rs. $400$

  2. Rs. $800$

  3. Rs. $2,000$

  4. Rs. $2,400$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In the balance sheet, the new provision for doubtful debts (the current year's provision) is the amount deducted from the sundry debtors.

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

If an accumulated provision for depreciation account is in use then the entries for the year's depreciation would be ________.

  1. debit Asset Account, credit Profit and Loss Account

  2. credit Profit and Loss Account, debit Provision for Depreciation Account

  3. credit Asset Account, debit Provision for Depreciation Account

  4. credit Provision for Depreciation Account, debit Profit and Loss Account
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When using an accumulated provision for depreciation account, the depreciation expense is debited to the Profit and Loss account and credited to the Provision for Depreciation account.

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

Which of the following statement is/are NOT correct?

  1. Provision for bad debts appears as a liability on the balance sheet

  2. The provision for bad debts is owed to the proprietor

  3. Bad debts could be less than the provision for bad debts

  4. Bad debts could exceed the provision for bad debts
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A provision for bad debts is a contra-asset account, not a liability. It is an estimate of uncollectible accounts and is not owed to the proprietor, making statement B the incorrect one.

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

Pick the odd one ________.

  1. Reserve for discount on creditors is credited to profit & loss account.

  2. Provision for discount on creditors is always made.

  3. Discount on creditors should be deducted from Sunday creditors in balance sheet.

  4. Both A & C.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Provision for Discount on Creditors. When the business makes prompt payments of its debts, it is bound to receive Discounts from its creditors.  A Provision for such discount is made in the current year itself so that that the discounts thus earned may be credited to the Profit and Loss Account of the current year.

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

Making Provision for depreciation is an example of __________.

  1. Increase in Asset & Owner's Liability

  2. Decrease in Asset & Owner's Liability

  3. Increase in Liability & Owner's Liability

  4. Decrease in Liability & Increase in Owner's Liability

  5. Increase in Liability & Decrease in Owner's Liability
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Provision for depreciation means wherein the depreciation of an asset is accumulated in a different account called provision for depreciation. 

Making a provision would decrease the asset and owner's equity.

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

The Provision for discount on debtors is calculated _______________________.

  1. Before deducting additional Bad Debts

  2. Before deducting additional discount

  3. Before deducting provision for doubts from debtors

  4. After deducting provision for doubtful debts from debtors
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The provision for doubtful debts is the estimated amount of bad debt that will arise from accounts receivable that have been issued but not yet collected. Later, when you identify a specific customer invoice that is not going to be paid, eliminate it against the provision for doubtful debts.

In other words, the amount of the provision for discount is calculated after deducting bad debts and provision for doubtful debts from sundry debtors. Suppose, sundry debtors total Rs. 20, 000; provision for doubtful debts is required at 5% and provision for discounts at 2 ½ %.

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

The provisions relating to inter-corporate loans are inter-alia laid down in :

  1. Section 370 of the Companies Act 1956

  2. Section 372 of the Companies Act 1956

  3. Section 372A of the Companies Act 1956

  4. Section 371 of the Companies Act 1956
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

As per Section 370 of the companies Act 1956 had the provisions related to inter-corporate loans. According to this section No company (the lending company") shall make any loan to, or give any guarantee, or provide any security, in connection with a loan made by any other person to, or to any other person by, anybody corporate , unless the making of such loan, the giving of such guarantee or the provision of such security has been previously authorised by a special resolution of the lending company.


Further, Section 370 of companies Act 1956 has been repealed by Section 186 of New Companies Act 2013

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

Give journal entry for:
For creating provision for doubtful debts.

  1. Provision for doubtful debts A/c    Dr.

    To Profit and Loss A/c

  2. Profit and Loss A/c      Dr.

    To Provision for doubtful debts A/c

  3. Bad debts A/c    Dr.

    To Sundry debtors A/c

  4. Profit & Loss A/c    Dr.

    To Bad debts A/c
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Provision for doubtful debt is created for the anticipated loss due to non recovery of the debtors amount. It is a charge to the profit & loss account. 

Following journal entry will be passed:

Profit & Loss A/c                                      Dr.
  To Provision for doubtful debts A/c

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

Which of the following is created by debiting the Profit and Loss Account ?

  1. Provision.

  2. Sinking fund for redemption of debentures.

  3. Dividend equalization fund.

  4. All of these.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Provisions are created for anticipated or estimated future losses or against the expenses which are due but not paid. 

Provisions are always created from the profit & loss account.