Accounting MCQs / Q&A

Which of the following statements are / is true? – Events after Balance Sheet are?

A. All the significant events after the Balance Sheet date
B. The events after Balance Sheet date but before submitting it to the Registrar of Companies
C. The events after Balance Sheet date but before its approval by the board
D. All changes after Balance Sheet date before its approval

Events occurring after the Balance Sheet date are those significant events, both favorable and unfavorable, that occur between the Balance Sheet date and the date on which the financial statements are approved by the Board of Directors in the case of a company, and by the corresponding approving authority in the case of any other entity.

Which one of the following should be considered a revenue expenditure?

A. 1000 paid for the execution of a new plant
B. Loss of 10,000 incurred in increasing the sitting accommodation of a hotel
C. Damage paid on account of breach of a contract to supply certain goods
D. Repair to machinery purchased, second hand.

The balance of which of the following accounts do not disappear, once they are debited/credited to Trading Account?

A. Sales
B. Purchases
C. Inward returns
D. Closing stock

The closing stock D. is the value of goods which remain unsold at the end of the period whose balance appears once in Trading Account and once in Balance Sheet of the business.
All other accounts sales A., purchases B. and Inward Returns C. are closed once they are absorbed by the Trading Account. Thus D. is the correct answer.

Which of the following is an item of capital expenditure?

A. Research and development costs during the year
B. Interest on borrowed fund utilized for acquisition of Office Furniture
C. Installation charges paid in conjunction with the purchase of Office Equipment
D. Monthly rent of a machinery used in the business

A capital expenditure is a non- recurring expenditure whose benefit lasts for more than one accounting period. Installation charges paid in conjunction with the purchase of office equipment is an one-time expenditure whose benefit lasts for more than one accounting period.

Any donation received for a specific purpose is a_________?

A. Liability
B. Assets
C. Revenue receipts
D. Capital receipts

Which of the following is not a deferred revenue expenditure?

A. Expenses in connection with issue of equity s
B. Preoperative expenses
C. Heavy advertising expenses to introduce a new product
D. Legal expenses incurred in defending a suit for breach of contract to supply goods

D. Deferred revenue expenditure is a revenue expenditure whose benefit lasts for more than one accounting periods and is therefore written off during the periods over which the benefit lasts(However, AS 26 requires that Deferred revenue expenditure is expenses wholly in the year of incurrence). Legal expenses incurred in defending a suit for breach of contract for supply of goods does not satisfy the prerequisites of a deferred revenue expenditure.

Capital expenditure is an expenditure which

A. Benefits the current accounting period
B. Will benefit the next accounting period
C. Results in the acquisition of a permanent asset
D. Results in the acquisition of a current asset

A capital expenditure is a non- recurring expenditure whose benefit lasts for more than
one accounting period. Example is the acquisition of a fixed or permanent assets.

Which of the following should not be treated as revenue expenditure?

A. Interest on loans and debentures
B. Annual fire insurance premiums on Plant and Equipment
C. Sales tax paid in connection with the purchase of office equipment
D. Small expenditures on long- lived assets, such as ` 20 for a paper weight.

C. A revenue expenditure is an expenditure whose benefit expires within the current
accounting period and is in the nature of recurring and is therefore written off to P&L A/c. Sales tax
paid in connection with the purchase of office equipment is a non-recurring expenditure whose
benefit is going to last for more than one accounting period and hence not a revenue
expenditure

Which of the following errors affects the agreement of a Trial Balance?

A. Mistake in balancing an account
B. Omitting to record a transaction entirely in the subsidiary books
C. Recording of a wrong entry in the subsidiary books
D. Posting an entry on the correct side but in the wrong account

A. The mistake in balancing an account affects the agreement of a Trial Balance A. is the
correct answer. The other mistakes do not affect the agreement of Trial Balance. The omission to
record a transaction entirely in the subsidiary books B. will not affect the agreement of a Trial
Balance because both the aspects of a transaction are omitted to be recorded. Recording of a
wrong entry in the subsidiary books (c ) will not cause disagreement of a Trial Balance because,
the wrong entry so recorded has the effect of posting the transaction in the manner it is recorded.
Posting an entry on the correct side in the wrong account D. does not affect the tallying of a Trial
Balance because the aspect of the transaction is posted to the correct side of an account. Thus
A. is the correct answer.

The accountant of Leo Ltd. recorded a payment by cheque to a creditor for supply of materials as 1,340.56. The bank recorded the cheque at its correct amount of 3,140.56. The Company has not passed any rectification entries and the error is not detected through the bank reconciliation. The impact of this error is

A. The Trial Balance will not agree
B. The balance of creditors is understated
C. The purchases are understated
D. The favorable bank balance as per Pass Book is less than the Bank balance as per Cash book

D. The favourable bank balance as per Pass Book will be less than the bank balance as per Cash Book, since the debit in the bank account is more than the debit in the Cash Book D.. As debit and credit are for equal amount there is no disagreement of the Trial Balance; Creditors balance is overstated but not understated: The favourable bank balance as per Pass Book will be less than the Bank balance as per Cash Book, since the debit in the Bank Account is more than the debit in the Cash book. Purchases are not affected, as it is a payment to the creditor. Thus, the correct answer is D.