Tag: provisions and reserves

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Questions Related to provisions and reserves

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

While preparing final account, to make provision for discount on debtors. which of the following adjustment entry will be passed?

Provision for Discount on Debtors A/cTo Debtors A/c Dr.
Profit & Loss A/cTo Provision for Discount on Debtors A/c Dr.
Provision for Discount on Debtors A/cTo Trading A/c Dr.
Debtors A/cTo provision for Discount on Debtors A/c Dr.

  1. A

  2. B

  3. C

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

To create or increase a provision for discount on debtors, the Profit & Loss account is debited and the Provision for Discount on Debtors account is credited.

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

It is supposed that on $31-12-2015$, the sundry debtors are amounted to Rs. $40,000$. On the basis of past experience, it is estimated that $5\%$ of the sundry debtors are doubtful. Also suppose that during the year $2014$ actual bad debts were Rs. $1,600$. What entry will be passed to create provision for doubtful debts?

  1. Profit & Loss a/c Rs. $2,000$(Dr.) & Provision for doubtful debts A/c Rs. $2,000$(Cr.)

  2. Provision for doubtful debts A/c Rs. $2,000$(Dr.) & Profit & Loss A/c Rs. $2,000$(Cr.)

  3. Provision for doubtful debts A/c Rs. $1,600$ (Dr.) & Profit & Loss A/c Rs. $1,600$(Cr.)

  4. Profit & Loss A/c Rs. $1,600$(Dr.) & Provision for doubtful debts A/c Rs. $1,600$(Cr.)
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The provision for doubtful debts is calculated as 5% of 40,000, which is 2,000. The entry to create this provision is to debit the Profit & Loss account and credit the Provision for Doubtful Debts account.

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

As per law which enterprise is required to make provisions for depreciation?

  1. Joint stock company

  2. Sole proprietor

  3. Partnership

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

Joint stock companies are legally required by the Companies Act to provide for depreciation on their fixed assets before declaring dividends.

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 %.