MCQs / Q&A

Buildings account is debited with an amount towards repairs. This is an example of?

A. Error of commission
B. Error of principle
C. Error of omission
D. Compensating error

B. Buildings account debited with an amount towards repairs is an error of principle. Error of principle is a wrong classification of expenditure or receipt.

The amount payable to a person as consideration for the use of rights vested in him is

A. Dividend
B. Royalty
C. Purchase consideration
D. Installment

B. The amount paid to the landlord for use of rights vested in him is the royalty. Dividend is the amount paid for the investment made in an enterprise and is not the correct answer. Purchase consideration is the price paid for receiving a title of a property moveable and immoveable and is not the correct answer. Installment is the payment of amount in stages and is not the amount paid for using the rights vested in the landlord and is not the correct answer.

Which of the following methods is not a practical way of realizing revenue?

A. Delivery method
B. Percentage-of-completion method
C. Production method
D. Moving average method

D. The following methods are the practical ways of realizing revenue applying the conservatism concept and realization concept and the A. Delivery method in case of sale of goods, B. Percentage-of-completion method in case of rendering of services and C. Production method in case of agriculture produce. Thus, these are the various ways of recognizing revenue and the methods adopted to recognize revenue. Moving average method D. is the method of valuing inventory and it is not the method adopted to recognize revenue. Thus, D. is the correct answer.

A few errors committed in Ahhiwalia’s books of account are given below. State which errors would affect the Trial Balance.

(a). Sales of `950 to Ram completely omitted from books of account
(b). Purchases of `720 from Shyam entered in the purchases journal as `700
(c). Purchases Journal is overcast by `1,000
(d). Sales returns journal is undercast by `200
(e) Amount paid to Agarwal wrongly posted to the debit to Mittal’s account
(f) Bank overdraft shown under debit column in the Trial Balance
(g) Sales of `500 to Sadiq entered in sales journal as sales to Mushtaq
(h) Wages paid for installation of machinery debited to wages account
A. a, c and g
B. c, d and f
C. c, d, e and h
D. c, d, f and h

Which of the following assets is/are to be valued at the lower of cost and net realizable value?

A. Goodwill
B. Inventories
C. Investments
D. Both B. and C. above.

Inventories B. are to be valued at the lower of cost and net realizable value. All the other assets stated in other alternatives are valued as per the cost concept. Goodwill A. is a fixed intangible asset and is shown at the cost of its acquisition. Investments C. are valued at cost or market value whichever is less. The combination of B. and C. is incorrect because a correct answer with incorrect answer is an incorrect answer. Thus, the correct answer is B

Closing stock is generally valued at______________?

A. Cost Price
B. Market Price
C. Cost price or Market price whichever is higher
D. Cost price or Market price whichever is lower

[Hints: D. Para 5, of AS-2 states that inventories should be valued at the lower of cost and net realizable value.]

Which of the following is true regarding closing entries?

A. They must be followed by reversing entries
B. They transfer the balances in all of the Nominal Accounts to the Trading and Profit and Loss Account
C. They must be made after the reversing entries but before the adjusting entries
D. They must be made after the adjusting entries but before the reversing entries

Closing entries are required to transfer the nominal accounts to the Profit & Loss Account and the Trading account. Real accounts and personal account are not closed to Profit & Loss Account or Trading Account. Their balance is carried in the Balance Sheet and appears as opening Balance in the next accounting period.

Amount paid to Masood posted to the credit side of his account would affect___________?

A. Masood’s account
B. Cash account
C. Cash account and Gagan’s account
D. None of these

A. Scrap value
B. Residual value
C. Market value
D. Depreciable value