Tag: elements of book keeping and accountancy

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Multiple choice elements of book keeping and accountancy accounting from incomplete records preparation of final accounts from incomplete records preparation of statement of affairs ascertaining profit or loss from incomplete records introduction to single entry system and difference between single entry and double entry system

Balance of interest on calls-on-advance account is transferred to the ___________ at the end of the year.

  1. Share capital account

  2. Calls in advance account

  3. Securities premium account

  4. Profit & loss account
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Sometimes a shareholder pays a portion or whole on the unpaid amount on the shares held by him in advance. In such a case, money so received in advance is transferred to Calls-in- advance account. It is important to note that calls-in-advance does not form part of share capital. In-spite of this, according to Section 93 dividend may be paid on calls in advance, if authorized by the Articles.

Disclosure in Balance Sheet:

Calls in advance is shown separately, in the Balance Sheet as liability of the company under the heading ‘Current Liabilities’ until the calls are made and the amount actually becomes payable by the shareholder.

Interest on Calls-in-advance:

Since the amount received as calls-in-advance is a liability of the company, it is liable to pay interest on the calls-in-advance from the date of receipt of the amount till the date when the call becomes due for payment. If the Articles of the Company are silent about the rate of interest on calls-in-advance, then rate of interest is 6% p.a. Such an interest is a charge on profits and has to be paid to the concerned shareholder even if there is no profit.

The accounting treatemt for interest on calls in advance is as follows:

1. For interest due

 Interest on calls in advance A/c     Dr.

                To sundry shareholder's  A/c

2. For interest paid

 Sundry shareholder A/c                  Dr.

                To Bank A/c

3. For transfer of balance of interest to profit and loss A/c

  Profit and Loss A/c                            Dr.

                  To Interest on calls in advance A/c

Multiple choice elements of book keeping and accountancy accounting from incomplete records preparation of final accounts from incomplete records preparation of statement of affairs ascertaining profit or loss from incomplete records introduction to single entry system and difference between single entry and double entry system

From the following find out the total drawing during the year.
Total assets at the beginning of the year Rs.20,000, total assets at the end of the year 15,000, net profit during the year Rs.7000. 

  1. Rs. 7000

  2. Rs.12,000

  3. Rs. 8000

  4. Rs.80000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Calculation of total assets at the end of the year :- 

 Assets in the beginning of the year =Rs 20000
 Add : Net profit for the year                     7000
Less : Assets at the end of the year        (15000)
                                                            = Rs 12000

Multiple choice elements of book keeping and accountancy commission,brokerage and discount advantages of bill of exchange definition, characteristics and parties of bills of exchange simple transactions related to bills of exchange

On 1.3.2006 X draws a bill on Y for 3 months for Rs20,000. On 4.5.2006, Y pays the bill to X at 12% discount. The amount of discount will be __________.

  1. Rs. 200

  2. Rs. 400

  3. Rs. 600

  4. Rs. 100
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The discount is calculated on the face value of the bill for the period it is held before maturity. Here, the bill is for 20,000 at 12 percent per annum for 3 months: 20,000 * 0.12 * (3/12) = 600. However, the question asks for the discount on the amount paid on 4.5.2006, which is 1 month before maturity (due date is 4.6.2006). 20,000 * 0.12 * (1/12) = 200.

Multiple choice elements of book keeping and accountancy commission,brokerage and discount advantages of bill of exchange definition, characteristics and parties of bills of exchange simple transactions related to bills of exchange

When a bill of exchange is drawn by one of co-venturer on the other co-venturer, discount charges are borne by drawee.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In a joint venture, if a bill is discounted, the discount charges are considered a joint expense and are shared by the co-venturers in their profit-sharing ratio, not solely borne by the drawee.

Multiple choice elements of book keeping and accountancy commission,brokerage and discount advantages of bill of exchange definition, characteristics and parties of bills of exchange simple transactions related to bills of exchange

Cancelling the original bill and drawing a fresh acceptance is known as __________.

  1. Retiring under rebate

  2. Renewal

  3. Discounting

  4. Bill sent to bank for collection
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Sometimes the acceptor of the bill foresees that it may be difficult to meet the obligation of the bill on maturity and may, therefore, approach the drawer with the request for extension of time for payment.  In such cases the old bill is cancelled and fresh bill with new terms of payment is drawn it is called as renewal of bill. 

Multiple choice elements of book keeping and accountancy commission,brokerage and discount advantages of bill of exchange definition, characteristics and parties of bills of exchange simple transactions related to bills of exchange

While preparing P/L account, rebate on bills discounted to be provided shall be deducted from discount received is ________.

  1. Schedule 16

  2. Schedule 15

  3. Schedule 14

  4. Schedule 13
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Rebate on Bills Discounted is also known as Discount Received in Advance, or, Unexpired Discount or, Discount Received but not earned.

Its treatment is same as we do in the case of Interest Received in Advance.

Multiple choice elements of book keeping and accountancy commission,brokerage and discount advantages of bill of exchange definition, characteristics and parties of bills of exchange simple transactions related to bills of exchange

Rebate on bills discounted is also called_____.

  1. Unexpired discount

  2. Earned discount

  3. Expired discount

  4. Received discount
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Rebate on Bills Discounted is also known as Discount Received in Advance, or, Unexpired Discount or, Discount Received but not earned. Its treatment is same as we do in the case of Interest Received in Advance.

Multiple choice elements of book keeping and accountancy commission,brokerage and discount advantages of bill of exchange definition, characteristics and parties of bills of exchange simple transactions related to bills of exchange

Encashment of bill before due date ________________.

  1. Retirement of bill

  2. Discounting of bill

  3. Honouring of bill

  4. Endorsing of bill
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When bill is sold to the bank at a discounted rate it is called discounting the bill of exchange.
As cash is received on discounting the bill it is also called encashment.

Multiple choice elements of book keeping and accountancy commission,brokerage and discount advantages of bill of exchange definition, characteristics and parties of bills of exchange simple transactions related to bills of exchange

Which of the following is not a correct statement ?

  1. A bill given to a creditor is called Bill Payable

  2. Del-Credere commission is normally calculated o total sales

  3. Discount at the time of retirement of a Bill is a given for the drawee

  4. The owner of a shop feels that he has made a loss due to closing stock being zero
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Closing stock is an asset. If it is zero, it does not represent a loss in the accounting sense; rather, it reflects that all goods were sold or otherwise disposed of. The other statements are standard accounting definitions.

Multiple choice elements of book keeping and accountancy commission,brokerage and discount advantages of bill of exchange definition, characteristics and parties of bills of exchange simple transactions related to bills of exchange

Mr. X accepted a bill of exchange of $Rs. 1500$ drawn by Y and payable in $3$ months. He got it discounted from bank at $2$% discount. The discounting charges amounted to __________.

  1. $30$

  2. $25$

  3. $7.5$

  4. $22$
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A bill is drawn by the drawer(debtor) on the drawee (creditor) so as to give him a sense of  security for the receivables. But in case the drawer does not want to wait till the maturity period of the bill or rather he has some urgent need of funds, what he will do is get the bill discounted by a bank. When the bill is discounted by the bank, it pays the drawer an amount after deducting a certain percentage, because they are giving the drawer the funds he needs before the date of maturity of the bill and the discount is a type of fee for their service. So here in this case the amount of discount is calculated as follows:

Discount = $Rs. 1500$ x $2/100$= $Rs. 30$
Remember here the discount percentage is in not expressed as per annum so do not multiply it with the number of months.