MCQs / Q&A

Which of these errors affect two or more accounts

A. Errors of complete omission
B. Errors of principle
C. Errors of posting to wrong account
D. All the three

Which of these errors affect only one account?

A. Errors of casting
B. Errors of carry forward
C. Errors of posting
D. All the three

Which of the following enhances the earning capacity of an asset?

A. Increase in working capacity of an asset
B. Reduction in operating costs
C. Replacing damaged parts of an asset
D. Both A. and C. above

Enhancement of earning capacity can be by way of replacement of worn out or damaged parts which retarded the earning capacity and increase in the working capacity increases the earning capacity of the asset.

Which one of the following is a capital expenditure?

A. Compensation paid to Directors on termination of their services
B. Expenditure incurred in connection with the renewal of a Trade Mark.
C. Gratuities paid to Directors on termination of their services.
D. Royalty paid in installments for the purchase of rights to manufacture and sell patient medicines.

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.