Tag: illustrations on journal entries

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Multiple choice elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

Mohan purchased a machinery amounting Rs.10,000 on 1.4.2010.
On 31.3.2019, similar machinery could be purchased for Rs.20,000 but the realizable value of the machinery (purchased on 1.4.2010) was estimated at Rs.15,000. The present discounted value of the future net cash inflows that the machinery was expected to generate in the normal course of business, was calculated as Rs 12,000.
The current cost of the machinery is _____________.

  1. Rs 10,000

  2. Rs 20,000

  3. Rs 15,000

  4. Rs 12,000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Current cost accounting defines the current cost as the amount of cash that would have to be paid if the same or an equivalent asset were acquired currently. The cost to purchase similar machinery today is Rs 20,000.

Multiple choice elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

Book-keeping is mainly concerned with _________.

  1. recording of financial data relating to business operations

  2. designing the system in recording, classifying, summarizing the recorded data

  3. interpreting the data for internal and external end users

  4. only for internal purpose
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Book keeping is that branch of knowledge which tells us how to keep a record of financial transaction of a business. Book keeping is a clerical job. Book keeping is concerned with recording and classifying the data and accounting is concerned with interpreting and analysing of transactions.

Multiple choice elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

Consider the following statements.
I. Workmen's compensation and third party insurance are examples of guarantee insurance.
II. Re-insurance is more common under fire and marine insurance.
Which of the statement given is/are correct?

  1. I only

  2. II only

  3. Both I and II

  4. Neither I nor II
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Both the statements are correct.

1. Guarantee insurance indemnifies the employer and protects against employees and third parties.
2.Insurance of Insurance companies is re-insurance, the claims are high in case of fire and marine insurance and hence, re-insurance is common under them.

Multiple choice elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

In accounting, profit prior to incorporation is treated as _________.

  1. Revenue Reserve

  2. Secret Reserve

  3. Capital Reserve

  4. General Reserve
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A capital reserve is a type of account on a municipality's or company's balance sheet that is reserved for long-term capital investment projects or other large and anticipated expenses that will incurred in the future. 

Profit prior to incorporation is the profit earned or loss suffered during the period before incorporation. It is not legally available for distribution as dividend because a company cannot earn a profit before it comes into existence
Hence, Profit prior to incorporation is treated as Capital Reserve.

Multiple choice elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

The term 'Internal Reconstruction' includes _______________.

  1. Reduction of Share Capital

  2. Variation in Shareholder's rights

  3. Alteration of Share Capital

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

 

Internal reconstruction is a method in which the reconstruction is undertaken without winding up the company and forming a new one. It involves a reduction in the share capital of the company. It also relieves the company from its debts and losses through negotiation with the creditors. Thus, we can say that it is the internal rearrangement of the financial structure of the company.

The various methods of internal reconstruction are:

1. Alteration of Share Capital: The alteration in the share capital can be done either by sub-division and consolidation of shares or by conversion of shares into stock or stock into shares.

2. Variation of Shareholder’s rights: As per Section 47(7) of the Companies Act, 1956 the company can vary the rights of the shareholders with the consent in writing of the holders of three-fourths of the issued and outstanding shares of that class.  It can also do so with the sanction of a resolution passed by a majority of the votes cast at a separate general meeting.

3. Reduction of Share Capital: The Company can reduce share capital by share cancellations or buybacks.

4. Compromise/Arrangement: Under this method, an agreement is made between the company and its members and outside liabilities in case of financial crisis whereby a sacrifice is made by the shareholders, creditors or debenture holders.

 5. Surrender of Shares: In this method, the shareholders are made to surrender their shares so that these can be allotted to debenture holders and creditors so as to reduce their liabilities.

Thus, the correct answer is D.

Multiple choice elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

Accounting measures the business transactions in terms of ________units.

  1. Non-monetary

  2. Monetary

  3. Personal

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

Accounting records financial transactions in terms of a common unit of measure to ensure consistency and comparability. This unit is the monetary unit of the country where the business operates.

Multiple choice elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

Deepti wants to buy a building for her business today.Which of the following is the relevant data for his decision ? 

  1. Similar business acquired the required building in 2,000 for Rs. 10,00,000

  2. Building cost details 2003

  3. Building cost details 1998

  4. Similar building cost in August,2005 Rs. 25,00,000
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

This is the information which in identifying the historical cost of the building and now the price can be compared in present context. 

Multiple choice elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

ABC starts a business by investing Rs. 5 lakh and purchases goods worth Rs. 2.5 lakh. This is a/an _____ .

  1. event

  2. transaction

  3. dealing

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

The operations are generally performed for business firms for e.g. ABC started business with Rs. 5 lakh and purchased goods worth Rs. 2.5 lakh is an operation of business. 

Multiple choice elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

During the life-time of an entity, accountants prepare financial statements at a point of time in accordance with which basic accounting principles?

  1. Cost-benefit

  2. Periodicity

  3. Conservatism

  4. Matching

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

The correct answer is periodicity. Periodicity means that accountants will assume that a company's ongoing activities can be presented(or reported)annually, monthly or quarterly.  

Multiple choice elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

Maintaining records of various properties helps _____________.

  1. in ascertaining profit or loss of the business

  2. to ensure there is no unauthorised use or disposal of any asset or property of the business

  3. in fulfilling the statutory obligation

  4. in giving the look of a professionally managed company
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Assets purchased for the business are to be recorded in the books of account of the business. This is mandatory to keep a proper records of all such assets to ensure that the business assets are used for business purposes only. No unauthorized uses for business assets should be done.