Tag: elements of book keeping and accountancy

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Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Which of the following is not included in cost of inventory?

  1. Purchase Cost

  2. Transport in Cost

  3. Import Duty

  4. Selling Costs
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Selling cost is an indirect cost which does not have any direct association with the cost of production. 

Selling cost should be included and selling & distribution cost.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Inventory, is generally valued as lower of ________________.

  1. Market Price and Replacement Cost

  2. Cost and Net Realizable Value

  3. Cost and Sales Value

  4. Sales Value and Profit
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Financial accounting is based on certain conventions , conservatism is one of them. Conservatism convention is based on the the concept "playing safe". Accordingly firms are recording all anticipated losses in books of account.


Valuation of inventory on the basis of cost or net realizable value is also based on the conservatism convention. 

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Which one out of the following is not an inventory valuation method?

  1. FIFO

  2. LIFO

  3. Weighted Average

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

FIFO, LIFO, and Weighted Average are standard methods for valuing inventory. EOQ (Economic Order Quantity) is a formula used to determine the optimal order quantity to minimize total inventory costs, not a valuation method.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

ABC analysis of inventory __________________________.

  1. Is useful for companies having different items in an inventory with different quantities and values.

  2. Segregates items with smaller value in the category A

  3. Segregates items which are larger in number with small rupee investment into category C.

  4. Both (A) and (C) above

  5. Both (A) and (B) above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

ABC is an inventory management technique in which inventory is segregated into three groups - A, B and C on the basis of value of annual usage. The A items are those in which it has the largest rupee investment, the B group consists of items accounting for the next largest investment and the C group consists of a large number of items accounting for a small rupee investment,

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Goods lost by fire is debited to Goods A/c.

  1. True

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

Goods lost by fire is a loss to the organization and to be debited to profit & loss account. Goods are moving out from the business. Hence, they need to be credited. 

Accounting entry will be as under:

Profit & Loss A/c                       Dr.
           To Goods A/c 

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Rs 1500 being LIC premium of proprietor paid by the firm will be debited to ________________.

  1. Income tax a/c

  2. Drawing a/c

  3. Profit and loss a/c

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

LIC premium is a personal liability of the proprietor. Hence, any amount paid or withdrawn from the business for personal purposes is to be debited to drawing account.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Under inflationary conditions, which of the following method of inventory valuation will show lowest cost of goods sold ?

  1. LIFO

  2. FIFO

  3. HIFO

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

FIFO results in the highest ending inventory, the lowest cost of goods sold, and the highest net income. This is because the oldest and lowest costs are allocated to cost of goods sold.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Accounting policy for inventories of an enterprise is, ' Inventories are valued at the lower of cost determined on weighted average basis or the net realizable value.' Which accounting principle is followed by the enterprise?

  1. Materiality

  2. Prudence

  3. Substance over form

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

The principle of prudence (or conservatism) dictates that assets should not be overstated. Valuing inventory at the lower of cost or net realizable value ensures that potential losses are recognized, while potential gains are not.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Under FIFO method, in times of rising prices, the charge to production is _______.

  1. stationary

  2. unduly low

  3. unduly high

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

In  case of First In First Out method of Inventory, material is issued to the production on first in first out basis. It means the material received first has to be issued first and so on. 

If the prices are rising, the charge to production will be unduly low as the lower cost material received earlier is issued to the production. 

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Goods sold by other co-venturer is debited to which account ________________.

  1. Joint venture A/c

  2. Other co-venturer's personal A/c

  3. Joint bank A/c

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

In a joint venture, when one co-venturer sells goods, the transaction is recorded in the joint venture account, but the personal account of the other co-venturer is debited to track the liability or settlement between them.