mcq accounts with answers

7/27/2019 mcq accounts with answers

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MCQs on Cash & Accrual accountingand Depreciation


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1. Which of the following statements is associated

with the accrual basis of accounting?

a) The timing of cash receipts and disbursements isemphasized.

b) A minimum amount of record keeping is required.c) This method is used less frequently by businesses

than the cash method of accounting.d) Revenues are recognized in the period they are

earned, regardless of the time period the cash isreceived.


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2. An accrued expense is an expense that:

a) Has been incurred but has not been paid .

b) Has been paid but has not been incurred.c) Has been incurred for which payment has been made

in installments.

d) Will never be paid.


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3. In reviewing some adjusting entries, you

observe an entry which contains a debit toPrepaid Insurance and a credit to InsuranceExpense. The purpose of this journal entry isto record a(n):

a) Accrued expenseb) Deferred expense

c) Expired Cost

d) Prepaid Revenue


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4. An adjusting entry to record an accruedexpense involves a debit to a (n):

a) Expense account and a credit to a prepaid account

b) Expense account and a credit to cash.c) Expense account and a credit to a liability accountd) Liability account and a credit to an expense account.


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5. The failure to properly record an adjustingentry to accrue an expense will result in an:

a) Understatement of expenses and an understatementof liabilities

b) Understatement of expenses and an overstatementof liabilities

c) Understatement of expenses and an overstatementof assets

d) Overstatement of expenses and an understatementof assets


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6. Which of the following properly describes adeferral?

a) Cash is received after revenue is earned.b) Cash is received before revenue is earned .c) Cash is paid after expense is incurred

d) Cash is paid in the same period that an expense is

incurred.


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7. An adjusting entry to allocate a previouslyrecorded asset to expense involves a debit toan:a) Asset account and a credit to cash.

b) Expense account and a credit to cashc) Expense account and a credit to an asset

account.

d) Asset account and a credit to an expenseaccount.


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8. Which of the following adjusting entries willcause an increase in revenues and a decreasein liabilities?

a) Entry to record an accrued expense

b) Entry to record an accrued revenuec) Entry to record the consumed portion of an expense

paid in advance and initially recorded as an asset.

d) Entry to record the earned portion of revenue

received in advance and initially recorded asunearned revenue.


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9. The failure to properly record an adjustingentry to accrue a revenue item will result inan:

a) Understatement of revenues and a over statement of liabilities

b) Overstatement of revenues and an overstatement of liabilities

c) Overstatement of revenues and an overstatement of assets.

d) Understatement of revenues and an understatementof assets.


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10. The failure to properly record an adjusting entry

for the expiration of insurance coverage willresult in an (assume the account PrepaidInsurance was charged when the premiums werepaid.):

a) Overstatement of assets and an overstatement of ownersequity.

b) Understatement of assets and an understatement of ownersequity .

c) Overstatement of assets and an overstatement of liabilitiesd) Overstatement of liabilities and an understatement of

ownersequity .


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11. The omission of the adjusting entry to recorddepreciation expense will result in an:

a) Overstatement of assets and an overstatement of owners equity .

b) Understatement of assets and an understatement of owners equity.

c) Overstatement of assets and an overstatement of liabilities

d) Overstatement of liabilities and an understatement of owners equity.


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12. An auditor is examining an adjusting entry that

reduces liabilities and increases owners equity.Which of the following adjusting entries couldthat be?

a) Entry to record an accrued revenue.

b) Entry to record the earned portion of revenue received inadvance and previously recorded as Unearned RentRevenue .

c) Entry to record an accrued expense.d) Entry to record the expired portion of expense paid in

advance and previously recorded as Prepaid Expense.e) Entry to record bad debts expense.


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13. The Office Supplies on Hand account had a balance atthe beginning of year 3 of Rs. 1,600. Payments foracquisitions of office supplies during year 3 amountedto Rs. 10,000 and were recorded by a debit to the assetaccount. A physical count at the end of year 3 revealedsupplies costing Rs. 1,900 were on hand. The requiredadjusting entry at the end of year 3 will include a debitto:

a) Office supplies expense for Rs. 300b) Office supplies on hand for Rs. 300

c) Office supplies expense for Rs. 9,700d) Office supplies on hand for Rs. 1,900


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14. The book value of a piece of equipment is

the:

a) Original cost of the equipment.b) Current replacement cost of the used equipment.

c) Current market value of the used equipment.d) Difference between the original cost of the

equipment and its related accumulated depreciation .


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15. The purpose of recording closingentries in the books of account is to:

a) Reduce the number of nominalaccounts.

b) Enable the accountant to prepare theraw trial balance.

c) Enable the accountant to work out cost

of goods sold.d) Establish new balances in some asset

and liability accounts.


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16. If ending accounts receivable exceedsbeginning accounts receivable:a) Cash collections during the period exceed the

amount of revenue earned.

b) Net income for the period is less than theamount of cash basis income.

c) No cash was collected during the period.d) Cash collections during the year are less than the

amount of revenue earned


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17. The Camp. & Company made cash sales of services of Rs. 5,000 and credit sales of servicesof Rs. 4,200 during the month of July. Thecompany incurred expenses of Rs. 6,000 duringJuly of which Rs. 2,000 was paid in cash and theremainder was expected to be paid in August.Using the accrual method of accounting, netincome for July amounts to:

a) Rs. 7,200b) Rs. 5,200c) Rs. 3,200d) Rs. 3,000


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18. Dr. Handa keeps his accounting records on thecash basis. During 2012, Dr. Handa collected Rs.

660,000 in fees from his patients. At December31, 2012, the doctor had accounts receivable of Rs. 50,000 and unearned fees of Rs. 6,000. AtDecember 31, 2011, he had accounts receivable

of Rs. 68,000 and unearned fees of Rs. 4,000.The amount of fees earned on the accrual basisby Dr. Handa during 2012 was:

a) Rs. 640,000b) Rs. 680,000c) Rs. 724,000d) Rs. 676000


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19. Which of the following facts regarding the statementof financial position would not be true?

a) It is unnecessary to make any estimates or judgementswhen preparing a statement of financial position.

b) The statement of financial position reveals how abusiness is funded.

c) intangible assets are often missing from the statement of financial position.

d) The statement of financial position separately identifieslong-term and short-term assets and liabilities


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20. For an asset owned for more than one year, the

depreciation charge for the year, calculated usingthe reducing-balance basis at the rate of 35%,would be arrived at as follows:

a) 35% x cost of the asset.b) 35% x (cost of the asset - accumulated depreciation).c) 35% x accumulated depreciation.d) 35% x (cost of the asset + accumulated

depreciation).


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21. Misha bought a machine for Rs.39,000,which she expects to have a useful life of fouryears and a residual value of Rs.4,000 at theend of that time. If depreciation is to be

provided on the straight-line basis, the netbook value after two years will be:a) Rs. 17,500.b) Rs.19,500.

c) Rs.21,500.d) Rs.30,250.


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22. Brun & Co. buys two motor vans costingRs.41,000 in total. They are depreciated on thereducing-balance basis at the rate of 40% perannum. Which of the following statements is not true?

a) The WDV of the vans after one year will beRs.24,600.b) The WDV of the vans after two years will be

Rs.14,760.c) The charge to the income statement for

depreciation in Year 2 will be Rs.26,240.d) The charge to the income statement for

depreciation in Year 3 will be Rs.5,904.


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23. Mattil & Associates bought a delivery van forRs. 14,000 on 1 July 2012. It is expected to have auseful life of 4 years and a value at the end of that time of Rs. 3,000. If depreciation is to beprovided at 30% on the reducing-balance basis,the depreciation charge for the year ended 30

June 2014 will be: a) Rs. 2,940. b) Rs. 1,260. c) Rs. 4,200. d) Rs. 2,310.


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24. Which of the following interpretations of theprudence concept is not true:

a) The prudence concept requires preparers of accounts to anticipate all income.

b) The prudence concept requires preparers of accounts to anticipate all costs.

c) The prudence concept requires preparers of accounts to take a cautious approach to accountspreparation.

d) The prudence concept underpins the need forbusinesses to create a provision for doubtful debts.


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25. Dilip's account balances at the business year endshow a figure for trade receivables of Rs. 103,100.Included in this figure is an amount of Rs. 6,500 owedby Reece, which will not be received. Dilip usuallycreates a provision for doubtful debts of 2% of tradereceivables. The figure for trade receivables on thestatement of financial position at the year end shouldbe:

a) Rs. 94,538. b) Rs. 101,038. c) Rs. 107,408. d) Rs. 94,668 .


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26. If the trial balance at Laurie's year end shows tradereceivables of Rs. 19,900 and bad debts of Rs. 600 writtenoff during the year, which of the following statements istrue?

a) The income statement should include a bad debtexpense of Rs. 600 and trade receivables of Rs. 19,300

should be included on the statement of financial position. b) The income statement should include no bad debtexpense and trade receivables of Rs. 19,900 should beincluded on the statement of financial position.

c) The income statement should include no bad debt

expense and trade receivables of Rs. 19,300 should beincluded on the statement of financial position. d) The income statement should include a bad debt

expense of Rs. 600 and trade receivables of Rs. 19,900should be included on the statement of financial position.


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27. If an asset cost Rs. 27,000 with salvage value

Rs. 10125 and the annual depreciation chargecalculated using the straight-line method is Rs.6,750 per annum, then depreciation is being

charged at the rate of: a) 67.5%. b) 25%. c) 6.75%. d) 40%.


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28. Eva & Co. has purchased a machine for Rs. 300,000. Thecompany will depreciate it either at 20% on the straight-

line basis or at 30% on the reducing-balance basis. Whichmethod will lead to the highest combined profits in the firsttwo years that the machine is owned?

a) The straight-line basis will lead to the highest combinedprofits.

b) The reducing-balance basis will lead to the highestcombined profits.

c) The choice of depreciation method will not affect thecombined profit figures.

d) Both the straight line basis at 20% per annum and thereducing balance basis at 30% per annum will lead to thesame combined profit figure for the first two years.


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29. Eva &Co. has purchased a machine for Rs.300,000. The Company will depreciate it at 20%

on the straight-line basis in the books of accountand at 30% on the reducing-balance basis basedon Income Tax. The In come Statement andBalance Sheet at the end first year will report:

a) Positive Deferred Tax and Deferred Tax Asset in the IncomeTax and Balance Sheet respectively

b) Negative Deferred Tax and Deferred Tax Asset in theIncome Tax and Balance Sheet respectively

c) Positive Deferred Tax and Deferred Tax Liability in theIncome Tax and Balance Sheet respectively

d) Negative Deferred Tax and Deferred Tax Liability in theIncome Tax and Balance Sheet respectively


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30. Amit Private Limited purchased a machineryof 1.01.2012 for Rs. 12,00,000/-. Installationexpenses incurred to operate it from1.01.2012 was Rs. 100000/- and the residualvalue of Rs. 50000/- was estimated with useful

life ten years. In July 2012, Rs. 20000/- wasspent on repair of the machinery.Depreciation during 2012 under SLM is:

a) Rs. 127000/-

b) Rs. 135000/-c) Rs. 130000/-d) Rs. 125000/-


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31. If a concern is no longer going concern in the

year 2012, the balance sheet as of 31st

Dec2012 should indicate the assets at their:

a) Historical costb) Net realisable valuec) Cost less depreciationd) Cost price or market value, whichever is lower.


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32. The portion of the acquisition cost of the

asset, yet to be charged off to the incomestatement is known as:

a) Written Down Valueb) Accumulated valuec) Salvage Value

d) Realisable value


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33. In the year 2011, there is a timing difference of Rs. 10000/- in Current Tax and Tax Expenseresulting therein DTL of Rs. 10000/-. What shouldbe the Tax Expense as per GAAP if actual taxpayable is Rs. 340000/- during 2012.

a) Rs. 10000/-b) Rs. 340000/-

c) Rs. 350000/-d) Rs. 330000/-


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34. Deferred tax should be accounted for in relationto certain differences between taxable profit andaccounting profit. The differences which requirean enterprise to account for deferred tax are:

a) Temporary Differencesb) Permanent differencesc) Both temporary and permanent differences

d) Neither temporary differences nor permanentdifferences


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35. A companys financial statements for the year31 st March 2012 show a pretax profit aftercharging depreciation of Rs 100000/- is Rs.500000/-. Depreciation for the tax purposes is Rs.170000/- Assuming the that the tax rate for thecompany is 30%, the required transfer to thecompany deferred tax account is:

a) A debit of Rs. 21000/- to the deferred tax accountb) A credit of Rs. 21000/- to the deferred tax accountc) A debit of Rs. 51000/- to the deferred tax accountd) A credit of Rs. 51000/- to the deferred tax account


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36. A companys financial statements for the year31 st March 2012 show a pretax profit aftercharging depreciation of Rs 170000/- is Rs.500000/-. Depreciation for the tax purposes is Rs.100000/- Assuming the that the tax rate for thecompany is 30%, the required transfer to thecompany deferred tax account is:

a) A debit of Rs. 21000/- to the deferred tax accountb) A credit of Rs. 21000/- to the deferred tax accountc) A debit of Rs. 51000/- to the deferred tax accountd) A credit of Rs. 51000/- to the deferred tax account


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37. Unpaid expenses are shown in the companysstatement of financial position as a currentliability of Rs. 30000/-. These expenses havealready been deducted when computingaccounting profit but will not be deducted for taxpurposes until they are paid. Assuming that thecompany pays tax @ 20%, the resulting deferredtax is:

a) Deferred Tax Asset of Rs 30000/-b) Deferred tax asset of Rs. 6000/-c) Deferred tax liability of Rs. 6000/-d) Rs. 0/-


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38. The same rate of depreciation charged underSLM and RM on a fixed asset with same cost andsame salvage value would result into:

a) The same estimated useful lifeb) The estimated useful life in SLM works out higher

then that in RMc) The estimated useful life in SLM works out lower

then that in RMd) Cant say in the absence of adequate details


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39. Which of accounting standard is applied forinventory valuation:

a) AS 2

b) AS 6c) AS 10

d) AS 22


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40. Which of accounting standards is applied forAccounting for Income Tax:

a) AS 2

b) AS 6c) AS 10

d) AS 22


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41. Which of accounting standards is applied forAccounting for Fixed assets:

a) AS 2

b) AS 6c) AS 10

d) AS 22


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42. Which of accounting standards is applied forDepreciation?:

a) AS 2

b) AS 6c) AS 10

d) AS 22


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43. If Deferred Tax Liability of Rs. 500 lakhs as of 31 st March 2012 is to be reduced in thesubsequent years because of timingdifference, the deferred tax of Rs. 45 lakhspertaining to the year 2013 would be:

a) Added to arrive at accounting taxes

b) Deducted to arrive at accounting taxes

c) No change in the accounting taxesd) None of the above


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45. A company estimated that 2% of their creditsales of Rs. 550 lakhs is likely to be non-

recoverable as of 31st

March 2012 and the samehas been accounted for in the books under theprinciple of prudence. In 2013, Rs. 9.50 lakhs hasactually not been recovered and the remaininghas been collected. What is the impact of thisevent in the Income statement of 2013 if thecompany is profit making?a) Profit has been reduced by Rs. 9.50 lakhsb) Profit has been reduced by Rs. 2 lakhs

c) Profit has been increased by Rs. 11.00 lakhsd) Profit has been increased by Rs. 2 lakhs


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46. As at 31st March 2013 M Limited has issued100 million equity shares of Rs. 10 each, Rs.

8/- called and paid up. On that day, Tarun paidRs. 12 per share to buy 4,000 equity sharesfrom Lohan. In the event M Limited becomesinsolvent and is unable to meet in full itsdebts, what is the maximum amount Tarunmay be required to pay from his personalresources?

a) Rs80000b) Rs. Nothingc) Rs.40000d) Rs.8000


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47 Rs. 120,000 recorded in the Cash Book, upon issuing

100,000 equity shares of Re 1/- each, should becredited to which account or accounts:

a) To the share premium accountb) Rs. 100,000 to share capital account and Rs. 20,000

to the share premium accountc) To a suspense accountd) To the share capital account


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48. Rs. 360,000 being the proceeds of issuing

600,000 equity shares of 50p each, has been postedfrom the cash book to the credit of the share capitalaccount. How should this error be corrected?

a) Dr cash account Rs. 360,000, Cr share capital account Rs.300,000 and Cr share premium Rs. 60,000

b) Dr share capital account Rs. 300,000, Cr share premiumaccount Rs. 360,000

c) Dr share capital account Rs. 60,000, Cr share premium Rs.60,000d) Dr suspense account Rs. 360,000 Cr Share Capital a/c Rs.

300,000 and Cr Share premium Rs. 60,000


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49. X YZ Limited offered for issue ten million equityshare of Rs. 1 each at Rs. 1.20p per share.Application were received, however for only ninemillion shares and the directors proceeded to allotthe shares applied for. Expenses of the issueamounted to Rs. 3,00,000. What will be the balancein the share premium account, after thesetransactions are accounted from?

a) Rs. 1,997,000 b) Rs. 1,797,000 c) Rs. 2,000,000 d) Rs. 1,800,000


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50. Rs. 15,000 still to be received, by the year end, outof the total amount receivable from a share issueshould be reported on that companys financialstatements, as:

a) An asset on the statement of financial positionb) A loss on the statement of incomec) An income in the statement of incomed) A liability on the statement of financial position


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51. You are holding a Financial Asset for trade purposes at Rs.2500/- as of 31/3/2011. What accounting entry would youprocess in the year ending 13/03/2013, assuming the fairmarket values as of 31/03/12 & 31/03/2013 are Rs. 2400/-and Rs. 2650/- respectively using FVTPL method?

a) Debit Financial asset with Rs. 250/- and credit P & LAccount with the same amount .

b) Debit Financial asset with Rs. 150/- and credit P & LAccount with the same amount.

c) Credit Financial asset with Rs. 250/- and debit P & LAccount with the same amount.

d) Credit Financial asset with Rs. 150/- and debit P & LAccount with the same amount.


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52. The calendar year-end trial balance of QT Limited

reports Rs. 400,000 at 8% Loan Notes (issued 2006) andRs. 16,000 as interest paid. In this regard identify theamounts to be reported as expense in the Statement of income for the year ended 31.12.2013 and as current

liability on the Statement of financial position

a) Interest expense: Rs.48,000; Current liability: Rs. 16,000

b) Interest expense: Rs.32,000; Current liability: Rs. 16,000

c) Interest expense: Rs.32,000; Current liability: Rs.32,000d) Interest expense: Rs. 16,000; Current liability: Rs. 32,000


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55. Cash & Cash Equivalent includes as per AS 3:

a) Cash & Bank Balanceb) Marketable Securities

c) Overdraft in Bank Accountd) (a) & (b)e) (a), (b) and (c)


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56. Dividend paid by a manufacturing firm isconsidered in Cash Flow Statement as :

a) Operating Activityb) Investing Activity

c) Financing Activity

d) All the above


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58. Bad debt written off by a manufacturing

company is considered in Cash FlowStatement as:

a) Operating Activityb) Investing Activity

c) Financing Activity

d) None of the above


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59. Positive opening Cash & cash equivalent

and negative closing Cash & cash equivalentimplies that:

a) The surplus cash generated during the periodb) There is a cash deficit during the periodc) Either (a) or (b)d) The information given in the question is

inadequate

60 For a recent year a corporation's financial


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60. For a recent year a corporation's financialstatements reported the following:

Net Income Rs. 100,000 Depreciation Expense Rs. 10,000 Increase in Accounts Receivable Rs. 30,000 Decrease in Accounts Payable Rs. 15,000

Based on the above information, what amount will thecorporation report as Cash Provided by OperatingActivities on the cash flow statement?

a) Rs. 75000/-

b) Rs. 115000/-c) Rs. 85000/-d) Rs. 65000/-


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61. A corporation reported the following information forthe past year:

Net Income Rs. 200,000 Depreciation Expense Rs. 30,000 Gain on Sale of Truck Rs. 5,000 Proceeds from Sale of Truck Rs. 8,000 Decrease in Accounts Receivable Rs.10,000

Assuming these are the only facts, what amount will thecorporation report as the Cash Provided by OperatingActivities on the cash flow statement?

a) Rs. 240000/-b) Rs. 235000/-c) Rs. 190000/-d) Rs. 205000/-


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62. A corporation reported the following information forthe past year:

Net Income Rs. 200,000 Depreciation Expense Rs. 30,000 Gain on Sale of Truck Rs. 5,000 Proceeds from Sale of Truck Rs. 8,000 Decrease in Accounts Receivable Rs.10,000

Assuming these are the only facts, what amount will thecorporation report as the Cash flow from operatingactivities on the cash flow statement?

a) Rs. 3000/-b) Rs. 13000/-c) Rs. 5000/-d) Rs. 8000/-


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63. XYZ Ltd made a profit in 2012 but hasincreased its borrowing during the year. Which

of the following factors could explain this:

(a) Taking extended periods of credit from its

suppliers.(b) Additional investment in purchased fixed assets.(c) Reducing its depreciation charge for the year.

(d) Reducing the period of credit allowed to itscustomers.


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64. Which of the following statements iscorrect?

(a) Accounting profit is the difference between cashreceipts and cash paid in a period.

(b) Accounting profit is the total of cash sales in the yearless the expenses for the period. (c) Accounting profit is the difference between revenue

income and expenses for the period.

(d) Accounting profit is the difference between revenueincome and cash payments for the period.


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65. A business has the following items in its accounts at itsyear end 31 December 2012

Opening stock at 1 January 2012 = Rs. 5 lakhs Purchases for 2012 = Rs. 90 lakhs Purchase returns in 2012 = Rs. 2 lakhs Cost of goods sold without considering sales return = 80 lakhs Sales Returns in 2012 (Cost 5 lakhs) = 8 lakhs

Which is the correct figure for closing inventory as of 31 st Dec. 2012?

(a) Rs. 15 lakhs

(b) Rs. 23 lakhs (c) Rs. 18 lakhs (d) Rs. 13 lakhs


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66. A business has the following items in its accountsat its year end 31 December 2012

Opening stock at 1 January 2012 = Rs. 5 lakhs Purchases for 2012 = Rs. 90 lakhs Purchase returns in 2012 = Rs. 2 lakhs Cost of goods sold net of sales return = 80 lakhs Sales Returns in 2012 (Cost 5 lakhs) = 8 lakhs

Which is the correct figure for closing inventory as of 31 st Dec. 2012?

(a) Rs. 15 lakhs


67 A business receives a cheque from a customer


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67. A business receives a cheque from a customerfor Rs. 256 in full agreed settlement of an accountwhich showed a debit balance of Rs.270. Which of the following entries correctly records thistransaction?

(a) Credit bank Rs.256, credit discount received Rs.14,debit debtor 270. (b) Debit bank Rs.256, debit discount received Rs.14,

credit debtor Rs.270. (c) Debit bank Rs.256, debit discount allowed Rs.14,

credit debtor Rs.270. (d) Debit bank Rs.256, debit discount allowed Rs.14,

credit creditor Rs.270.


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68. A business has the following items in its accounts at itsyear end 31 December 2012

Opening stock at 1 January 2012 = Rs. 5 lakhs Purchases for 2012 = Rs. 90 lakhs Purchase returns in 2012 = Rs. 2 lakhs Closing stock as of 31 st Dec 2012 without considering sales

return = 18 lakhs Sales Returns in 2012 (Cost 5 lakhs) = 8 lakhs

Which is the correct figure for cost of goods sold in 2012? (a) Rs. 70 lakhs


69 A b i h d i f fi i l


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69. A business has prepared its accounts for a financialyear and these show a profit of Rs. 500 000. Theaccounts do not include the following items:

a likely loss on a contract of Rs. 25 000 a possible Court ruling in favour of the company which is

likely to increase profits by Rs. 10 000 a possible Court ruling against the company which could

result in damages of between Rs. 5 000 to Rs. 15 000.

Having regard to the fundamental accounting concepts,which of the following revised profit figures is correctwhen the above factors are taken in to account?a) Rs. 480 000.

b) Rs. 460 000.c) Rs. 510 000.d) Rs. 475 000.

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