Topics for Preparation

8/4/2019 Topics for Preparation

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TOPICS FOR PREPARATION

3 Golden rules of accounting

Define the use of a Balance Sheet and its preparation in detail.

Accounts Payable & Accounts Receivable

Derivative

Hedging

LIFO & FIFO

BANK RECONCILATION STATEMENT

Define Capital Market with relevant concept

What are Mutual funds

Difference between Shares and Debentures

What do we mean by the term Interest and how is it different from Dividend?

Depreciation

Balance Sheet


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3 Golden rules of accounting

REAL ACCOUNTS: DEBIT WHAT COMES IN & CREDIT WHAT GOES OUTNOMINAL ACCOUNTS: DEBIT ALL EXPENSES AND LOSSES & CREDIT ALL INCOMES AND GAINS

PERSONAL ACCOUNTS: DEBIT THE RECEIVER & CREDIT THE GIVER

Define the use of a Balance Sheet and its preparation in detail.

A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specificpoint in time. These three balance sheet segments give investors an idea as to what the company ownsand owes, as well as the amount invested by the shareholders.

The balance sheet must follow the following formula:

Assets = Liabilities + Shareholders' Equity It's called a balance sheet because the two sides balance out.This makes sense: a company has to pay for all the things it has (assets) by either borrowing money(liabilities) or getting it from shareholders (shareholders' equity).

Each of the three segments of the balance sheet will have many accounts within it that document thevalue of each. Accounts such as cash, inventory and property are on the asset side of the balance sheet,while on the liability side there are accounts such as accounts payable or long-term debt. The exactaccounts on a balance sheet will differ by company and by industry, as there is no one set template thataccurately accommodates for the differences between different types of businesses.

Difference between Accounts Payable & Accounts Receivable with suitable examples?

Accounts PayableAn accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. Theaccounts payable entry is found on a balance sheet under the heading current liabilities.

Accounts payable are often referred to as "payables".

Another common usage of AP refers to a business department or division that is responsible for makingpayments owed by the company to suppliers and other creditors.

Accounts payable are debts that must be paid off within a given period of time in order to avoid default.For example, at the corporate level, AP refers to short-term debt payments to suppliers and banks.

Payables are not limited to corporations. At the household level, people are also subject to bill paymentfor goods or services provided to them by creditors. For example, the phone company, the gas companyand the cable company are types of creditors. Each one of these creditors provides a service first and thenbills the customer after the fact. The payable is essentially a short-term IOU from a customer to thecreditor.

Each demands payment for goods or services rendered and must be paid accordingly. If people orcompanies don't pay their bills, they are considered to be in default.


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Accounts Receivable

Money owed by customers (individuals or corporations) to another entity in exchange for goods or servicesthat have been delivered or used, but not yet paid for. Receivables usually come in the form of operatinglines of credit and are usually due within a relatively short time period, ranging from a few days to a year.

On a public company's balance sheet, accounts receivable is often recorded as an asset because thisrepresents a legal obligation for the customer to remit cash for its short-term debtsIf a company has receivables, this means it has made a sale but has yet to collect the money from thepurchaser. Most companies operate by allowing some portion of their sales to be on credit. These types ofsales are usually made to frequent or special customers who are invoiced periodically, and allow them toavoid the hassle of physically making payments as each transaction occurs. In other words, this is when acustomer gives a company an IOU for goods or services already received or rendered.

Accounts receivable are not limited to businesses - individuals have them as well. People get receivablesfrom their employers in the form of a monthly or bi-weekly paycheck. They are legally owed this money forservices (work) already provided.

When a company owes debts to its suppliers or other parties, these are known as accounts payable.

Explain Derivatives?

A security whose price is dependent upon or derived from one or more underlying assets. The derivativeitself is merely a contract between two or more parties. Its value is determined by fluctuations in theunderlying asset. The most common underlying assets include stocks, bonds, commodities, currencies,interest rates and market indexes. Most derivatives are characterized by high leverage.Futures contracts, forward contracts, options and swaps are the most common types of derivatives.Derivatives are contracts and can be used as an underlying asset. There are even derivatives based onweather data, such as the amount of rain or the number of sunny days in a particular region.Derivatives are generally used as an instrument to hedge risk, but can also be used for speculativepurposes. For example, a European investor purchasing shares of an American company off of an American

exchange (using U.S. dollars to do so) would be exposed to exchange-rate risk while holding that stock. Tohedge this risk, the investor could purchase currency futures to lock in a specified exchange rate for thefuture stock sale and currency conversion back into Euros.

What is Hedging?

Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedgeconsists of taking an offsetting position in a related security, such as a futures contract.An example of a hedge would be if you owned a stock, then sold a futures contract stating that you will sellyour stock at a set price, therefore avoiding market fluctuations.

Investors use this strategy when they are unsure of what the market will do. A perfect hedge reduces yourrisk to nothing (except for the cost of the hedge).

What is the difference between hedging and speculation?

Hedging involves taking an offsetting position in a derivative in order to balance any gains and losses to theunderlying asset. Hedging attempts to eliminate the volatility associated with the price of an asset bytaking offsetting positions contrary to what the investor currently has. The main purpose of speculation, onthe other hand, is to profit from betting on the direction in which an asset will be moving.

Hedgers reduce their risk by taking an opposite position in the market to what they are trying to hedge.The ideal situation in hedging would be to cause one effect to cancel out another. For example, assumethat a company specializes in producing jewelry and it has a major contract due in six months, for whichgold is one of the company's main inputs. The company is worried about the volatility of the gold market
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and believes that gold prices may increase substantially in the near future. In order to protect itself fromthis uncertainty, the company could buy a six-month futures contract in gold. This way, if gold experiencesa 10% price increase, the futures contract will lock in a price that will offset this gain. As you can see,although hedgers are protected from any losses, they are also restricted from any gains. Depending on acompany's policies and the type of business it runs, it may choose to hedge against certain businessoperations to reduce fluctuations in its profit and protect itself from any downside risk.

Speculators make bets or guesses on where they believe the market is headed. For example, if aspeculator believes that a stock is overpriced, he or she may short sell the stock and wait for the price ofthe stock to decline, at which point he or she will buy back the stock and receive a profit. Speculators are

vulnerable to both the downside and upside of the market; therefore, speculation can be extremely risky.

Overall, hedgers are seen as risk averse and speculators are typically seen as risk lovers. Hedgers try toreduce the risks associated with uncertainty, while speculators bet against the movements of the market totry to profit from fluctuations in the price of securities.

What is LIFO & FIFO method?

Last In, First Out - LIFO

An asset-management and valuation method that assumes that assets produced or acquired last are theones that are used sold or disposed of first.

LIFO assumes that an entity sells, uses or disposes of its newest inventory first. If an asset is sold for lessthan it is acquired for, then the difference is considered a capital loss. If an asset is sold for more than it isacquired for, the difference is considered a capital gain. Using the LIFO method to evaluate and manageinventory can be tax advantageous, but it may also increase tax liability.

First in, First out - FIFO

An asset-management and valuation method in which the assets produced or acquired first are sold, usedor disposed of first. FIFO may be used by a individual or a corporation.

For taxation purposes, FIFO assumes that the assets that are remaining in inventory are matched to theassets that are most recently purchased or produced. Because of this assumption, there is a number of tax

minimization strategies associated with using the FIFO asset-management and valuation method.

BANK RECONCILATION STATEMENT

Bank reconciliation is the process of comparing and matching figures from the accounting records againstthose shown on a bank statement. The result is that any transactions in the accounting records not foundon the bank statement are said to be outstanding. Taking the balance on the bank statement adding thetotal of outstanding receipts less the total of the outstanding payments this new value should (match)reconcile to the balance of the accounting records.

Bank reconciliation allows companies or individuals to compare their account records to the bank's recordsof their account balance in order to uncover any possible discrepancies. Discrepancies could include:

cheques recorded as a lesser amount than what was presented to the bank; money received but notlodged; or payments taken from the bank account without the business's knowledge. A bank reconciliationdone regularly can reduce the number of errors in an accounts system and make it easier to find missingpurchases and sales invoices.

No we are ready to explore bank reconciliation sample. Below you can find cash book and bank statementof company ABC for January.
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Cash Book

On the cash book you see opening cash balance at the beginning of January. On the left side you have cashinflows, i.e. cash received by the company in January, on the left side you can see cash payments made byABC in January. Final cash book closing balance is $2348.

Bank Statement

On the bank statement you can see details of each transaction. In the Outflow column you can see

payments from ABC bank account cleared by the bank, each such payment if supported by cheque has areference number. In the column Inflow you can see payments received into the bank account of ABC basedon the cheques received. Some payments could be received directly to the bank account.

Adjust Cash Book By Informational Differences

So our first task to solve this bank reconciliation sample is to compare bank statement and cash book andidentify items on the bank statement which are not in the cash book. In the picture below you can seethose items, i.e. circled in red: payment made to British way directly from bank account and paymentreceived from BC Way directly to the bank account. These items are included into the adjusted cash book,which is presented below.


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So how we adjust cash book? We take non-adjusted cash book balance at the end of month, add paymentsreceived directly to the bank account (from BC Way amounting to $1000) and deduct payments madedirectly from bank account (to British way amounting to $100) and get adjusted cash book balanceamounting to $3338.


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Identify Timing Differences

Next what we do is to find items on the cash book which are not on the bank statement. These will betiming differences, i.e. items paid or received by not yet cleared by the bank and they will be includedinto the bank reconciliation sample. Picture below shows such items on the cash book circled in red.

On January 31 $1566 was received from Koala, but not yet cleared by the bank and included into the bankstatement. On January 28 and 31 accordingly ABC company paid to Logypol and Dizzy amountingaccordingly to $234 and $540, which were also not included into the bank statement. These items will beincluded into the bank reconciliation.

Bank Reconciliation Sample

Below based on the above data you can see bank reconciliation sample, which reconciles balance in theadjusted cash book with the bank statement and explains differences.

To make such reconciliation we start from adjusted cash book balance of $3338. Add to this amountcheques not yet presented to the bank, i.e. payments to Logypol and Dizzy amounting accordingly to $234and $540. Intermediate amount is $4112.

Afterwards we deduct from the intermediate amount payments accepted by the bank after the end ofJanuary, i.e. payment from Koala amounting to $1566. By making these calculations we get the finalamount of $2546 which is the same as per bank statement at the end of January.


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So finally in this bank reconciliation sample we have adjusted cash book and reconciles adjusted cash bookbalance with the bank statement explaining differences which are due to different timing of paymentsrecorded on the cash book and bank statement.


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Define Capital Market with relevant concept

The market for long-term funds where securities such as common stock, preferred stock, and bonds aretraded. Both the primary market for new issues and the secondary market for existing securities are part ofthe capital market. Any market in which securities are traded. Capital markets include the stock and bondmarkets. Companies and governments use capital markets to raise funds for their operations; for example,a company may issue an IPO while a government may issue a bond in order to conduct new or expandongoing activities. Investors purchase securities in the capital markets in order to extract a return and earnprofit on the securities. Capital markets include primary markets, such as IPOs that are placed withinvestors through underwriters, and secondary markets, in which all subsequent trading takes place.

Government agencies in different countries regulate local capital markets, though some, especiallyexchanges, play some role in regulating themselves.

What are Mutual funds

A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of a mutual fund asa company that brings together a group of people and invests their money in stocks, bonds, and othersecurities. Each investor owns shares, which represent a portion of the holdings of the fund.

You can make money from a mutual fund in three ways:1) Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all of

the income it receives over the year to fund owners in the form of a distribution.

2) If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also passon these gains to investors in a distribution.

3) If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase inprice. You can then sell your mutual fund shares for a profit.

Funds will also usually give you a choice either to receive a check for distributions or to reinvest theearnings and get more shares.

Advantages of Mutual Funds

Professional Management - The primary advantage of funds is the professional management of your money.Investors purchase funds because they do not have the time or the expertise to manage their ownportfolios. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager tomake and monitor investments.

Diversification - By owning shares in a mutual fund instead of owning individual stocks or bonds, your riskis spread out. The idea behind diversification is to invest in a large number of assets so that a loss in anyparticular investment is minimized by gains in others. In other words, the more stocks and bonds you own,the less any one of them can hurt you (think about Enron). Large mutual funds typically own hundreds ofdifferent stocks in many different industries. It wouldn't be possible for an investor to build this kind of aportfolio with a small amount of money.

Economies of Scale - Because a mutual fund buys and sells large amounts of securities at a time, itstransaction costs are lower than what an individual would pay for securities transactions.

Liquidity - Just like an individual stock, a mutual fund allows you to request that your shares be convertedinto cash at any time.

Simplicity - Buying a mutual fund is easy! Pretty well any bank has its own line of mutual funds, and theminimum investment is small. Most companies also have automatic purchase plans whereby as little as $100can be invested on a monthly basis.
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Difference between Shares and Debentures

When you buy shares, you become one of the owners of the company. Your fortunes rise and fall with thatof the company. If the stocks of the company soar in value, your investment pays off high dividends, but ifthe shares decrease in value, the investments are low paying. The higher the risk you take, the higher therewards you get.

A debenture is an unsecured loan you offer to a company. The company does not give any collateral for thedebenture, but pays a higher rate of interest to its creditors. In case of bankruptcy or financial difficulties,the debenture holders are paid later than bondholders. Debentures are different from stocks and bonds,although all three are types of investment. Below are descriptions of the different types of investmentoptions for small investors and entrepreneurs.

Debentures are more secure than shares, in the sense that you are guaranteed payments with high interestrates. The company pays you interest on the money you lend it until the maturity period, after which,whatever you invested in the company is paid back to you. The interest is the profit you make fromdebentures. While shares are for those who like to take risks for the sake of high returns, debentures arefor people who want a safe and secure income

Redemption of Shares: The process whereby a company can redeem shares through repayment of thenominal value to the shareholder.

Redemption of Debentures: Debenture is a debt instrument to raise funds. It has a maturity periodassociated with it. At the end of the maturity, the company (borrower) should return the interest andprincipal amount. Debenture Redemption Reserve is an amount kept as reserve for paying the debentureholder at the end of the maturity period.


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What is Depreciation?

A noncash expense that reduces the value of an assetas a result of wear and tear, age, or obsolescence.

Most assets lose their value over time (in other words, they depreciate), and must be replaced once the

end of theiruseful life is reached. There are several accounting methods that are used in order to write

off an asset's depreciation cost over the period of its useful life. Because it is a non-cash expense,

depreciation lowers the company's reported earnings while increasing free cash flow.

Basing on the nature of the asset the depreciation will be calculated. There are different methods of

depreciations. They are:

1) Straight line method,

2) Diminishing value method,

3) Sinking fund method,

4) Annuity method,

5) Depletion method. etc.

There are two types of depreciation the straight line method and the written down value method. The

rates of depreciation under the two methods vary as the useful life of the asset remains the same

irrespective of the method of depreciation used. Under straight line method, a fixed percentage is applied

on the original cost of the asset, thereby ensuring that the depreciation per annum over the useful life is

constant. Under written down value method, a fixed percentage is applied on the written down value

(original cost less depreciation charged till the end of the previous year) of the asset. This results in higherdepreciation in the earlier years and lesser depreciation in the later years.

Normally the depreciation rate under written down value is higher than the rate under straight line

method. This ensures creation of depreciation provision over the useful life of the asset.

All the Best........
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Accounting Questionnaire

1. Financial position of the business is ascertained on the basis of:a. Records prepared under book-keeping process

b. Trial balancec. Accounting reportsd. None of the above

2. A businessman purchased goods for $2,500,000 and sold 80% of such goods during theaccounting year ended 31st March, 2005.The market value of the remaining goods was$400,000.He valued the closing stick at cost. He violated the concept of:

a. Money measurementb. Conservatismc. Cost

d.Periodicity

3. Assets are held in the business for the purpose of:

a. Resaleb. Conversion into cash

c. Earning revenued. None of the above

4. If an individual asset is increased there will be corresponding

a. Increase of another asset or increase of capitalb. Decrease of another asset or increase of liabilityc. Decrease of specific liability or decrease of capitald. Increase of drawings and liability

5. Consider the following data pertaining to Alpha Ltd.

Particulars $

Cost of machinery purchased on1st April,2005

1,000,000

Installation charges 100,000Market value as on 31st

March,20061,200,000

While finalizing the annual accounts, if the company values the machinery at $1,100,000.Which ofthe following concepts is followed by the Alpha Ltd?

a. Costb. Matchingc. Realization

d. Periodicity


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6. Which financial statement represents the accounting equation, Assets=Liabilities Ownersequity:

a. Income statementb. Statement of Cash flowsc. Balance Sheet

d. None of the above

7. The debts written off as bad, if recovered subsequently are:

a. Credited to Bad Debts Recovered Accountb. Credited to Debtors Accountc. Debited to Profit and Loss Account

d. None of the Above

8. Journal and Ledger records transaction in:

a. A chronological order and analytical order respectivelyb. An analytical order and chronological order respectivelyc. A chronological order only

d. An analytical order only

9. At the end of the accounting year all the nominal accounts of the ledger book are:

a. Balance but not transferred to profit and loss accountb. Not balanced and also the balance is not transferred to the profit and loss accountc. Balanced and the balance is transferred to the balance sheetd. Not balanced and their balance is transferred to the profit and loss account

10. The debit note issued are used to prepare:

a. Sales return bookb. Purchase return book

c. Sales bookd. Purchase book

11. A second hand motor car was purchased on credit from B Brothers for $10,000

a. Journal Proper(General Journal)

b. Sales Bookc. Cash Bookd. Purchase Book

12. Purchased goods from E worth $5,000 on the credit basis

a. Bills Receivable Bookb. Purchases book

c. Journal Proper(General Journal)d. Purchases Return


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13. A debit note for $2,000 issued to Mr.F for goods returned by us is to be accounted for:a. Bills Receivable Bookb. Purchases Bookc. Journal Proper(General Journal)d. Purchases Return

14. The Sales Returns Book records

a. The return of goods purchasedb. Return of anything purchasedc. Return of goods sold

15. The weekly or monthly total of the purchase book is:

a. Posted to the debit of the purchases Account

b. Posted to the debit of the Sales Accountc. Posted to the credit of the Purchases Account

16. Contra entries are passed only when

a. Double column cash book is preparedb. Three-column cash book is preparedc. Simple cash book is preparedd. Both a and b

17. The balance in the petty cash book is:

a. An expenses

b. A profitc. An assetd. A liability

18. Amount received from IDBI as a medium term loan for augmenting working capital:

a. Capital expenditureb. Revenue expenditurec. Capital receipt

d. Revenue receipt

19. A second hand car is purchased for $10,000 the amount of $1,000 is spent on its repairs,$500 is incurred to get the car registered in owners name and $200 is paid as dealerscommission. The amount debited to car account will be

a. $10,000b. $10,500c. $11,500

d. $11,700


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20. If the amount is posted in the wrong account or it is written on the wrong side of the account,it is called

a. Error of omissionb. Error of commissionc. Error of principled. Compensating error

21. If a purchase return of $1,000 has been wrongly posted to the debit of the sales returnsaccount, but has been correctly entered in the suppliers account, the total of the

a. Trial balance would show the debit side to be $1,000 more than the creditb. Trial balance would show the credit side to be $1,000 more than the debit

c. The debit side of the trial balance will be $2,000 more than the credit sided. The credit side of the trial balance will be $2,000 more than the debit side

22. $200 received from Smith whose account, was written off as a bad debt should be creditedto:

a. Bad Debts Recovered accountb. Smiths account

c. Cash accountd. Bad debts account

23. If a purchase return of $24 has been wrongly posted to the debit of the sales return account,but had been correctly entered in the suppliers account, the total of the trial balance wouldshow:

a. The credit side to be $24 more than debit side

b. The debit side to be $24 more than credit sidec. The credit side to be $ 48 more than debit sided. The debit side to be $48 more than credit side

24. Goods purchased $100,000.Sales $90,000.Margin 12% on cost. Closing Stock=?

a. (10,000)b. 10,000c. 19,643

d. 8,000

25. Errors of commission do not permit

a. Correct totaling of the balance sheetb. Correct totaling of the trial balance

c. The trial balance to agreed. None of the above


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26. The total cost of goods available for sale with a company during the current year is$1,200,000 and the total sales during the period are $1,300,000.If the gross profit margin ofthe company is 33 1/3% on cost, the closing inventory during the current year is

a. $400,000b. $300,000c. $225,000

d. $260,000

27. Ascertain the amount of purchase if Cost of goods sold is $80, 700, Opening stock $800,closing stock $6,000

a. $80,500b. $74,900c. $74,700d. $85,900

28. Under inflationary conditions, which of the methods will not show lowest value of theclosing stock?

a. FIFO

b. LIFOc. None of the options are correctd. All of the options are correct

29. On April 07, 2005, i.e., a week after the end of the accounting year 2004-2005, a companyundertook physical stock verification. The value of stock as per physical stock verificationwas found to be $35,000.The following details pertaining to the period April 01,2005 to

April 07, 2005 are given:

(i) Goods costing $5,000 were sold during the week(ii) Goods received from consignor amounting to $4,000 included in the value of stock(iii) Goods earlier purchased but returned during the period amounted to $1,000(iv) Goods earlier purchased and accounted but not received $6,000

a. $27,000

b. $19,000c. $43,000d. $51,000


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30. Consider the following data pertaining to N Ltd. For the month of March 2005:

Date

Purchases Issues Balance

Quantity Rate Quantity Quantity Rate

(kg.) ($) (kg.) ()kg. ($)

01-03-2005 500 22.8

02-03-2005 400 24

10-03-2005 600 25

25-03-2005 1,000

If the company uses weighted average method for inventory valuation, the value of inventory as on March31, 2005 is

a. $11967

b. $12000

c. $12500

d. $11400

31. Which of the following is False?1. The value of ending inventory under simple average price method is realistic.

2. Usually profit or loss will not arise out of pricing the issues on the basis of simple averageprice method.

3. The value of stock is shown on the assets side of the balance sheet as fixed assets.

4. Opening stock plus purchases minus cost of goods sold is the value of closing stock.

32. If a cocern proposes to discontinue its business from March 2005 and decides to dispose off all itsassets within a period of 4 months, the balance sheet as on March 31, 2005 should indicate the assets attheir

1. Historical cost.

2. Net realizable value.

3. Cost less depreciation.

4. Cost price or market value, whichever is lower.


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33. Amit Ltd. purchased a machine on 01.01.2003 for $120,000. Installation expenses were $10,000. On01.07.2003, expenses for repairs were incurred to the extent of $2000. Depreciation is provided understraight line method. Depreciation rate = 15%. Annual depreciation =

1. $13000

2. $19500

3. $21000

4. $2500034. Fixed assets are:

1. Kept in the business for use over a long time for earning income.

2. Meant for resale.

3. Meant for conversion into cash as quickly as possible.

4. All of the above.

35. From the following figures ascertain the gross profit:

Particulars $

Opening stock (01.01.2006) 25000Goods purchased during 2006 130,000

Freight and packing on above 5000

Closing stock (31.12.2006) 20000

Sales 190,000

Selling expenses on sales 9000

a. $36000

b. $45000

c. $50000

d. $59000

Based on the following para answer Q 36-39Mohan purchased a machinery amounting $1,100,000 on 1st April, 2000. On 31st March, 2006. The similarmachinery could be purchased for $2,800,000 but the realizable value of the machinery (purchased on1.4.2000) was estimated at $1,500,000. The present discounted value of the future net cash inflows that thmachinery was expectd to generate in the normal course of business, was calculated as $1,250,000.36. the current cost of the machinery is:

a. $2,800,000

b. $2,000,000

c. $1,500,000

d. $1,200,000

37. The present value of the machinery is:a. $1,250,000

b. $2,000,000

c. $1,500,000

d. $1,200,000


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38. The historical cost of machinery is:a. $1,000,000

b. $2,000,000

c. $1,100,000

d. $1,200,000

39. The realizable value of machinery is:a. $1,000,000

b. 2,000,000

c. $1,500,000

d. $1,200,000

Based on the following para answer Q 40-45The following are the details supplied by Agril Ltd. in respect of its raw materials for the month of

December, 2005:Date Receipts(Units) Price per unit

($)Issues(Units)

01.12.2005 2,000(opening) 5.00

07.12.2005 1,000 6.00

10.12.2005 - - 2,500

15.12.2005 2,000 6.50

31.12.2005 - - 2,200

On 31.12.2005, a shortage of 100 units was found.

40. Find the value of closing stock using LIFO principlea. $1,900

b. $2,400

c. $2,000

d. $1,000

41. Using the data given in problem, the value of the issues in the month of December 2005 using LIFOprinciple

a. $35,000


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b. $28,000

c. $20,000

d. $65,000

42. Using the data given in problem, the value of closing stock using FIFO principlea. $1,600

b. $1,500

c. $1,300

d. $2,000

43. Using the data given in the problem, the value of the issues in the month of December 2005 using FIFOmethod.

a. $27,700

b. $35,500

c. $19,500

d. $21,300

44. Using the data given in problem, the value of closing stock using simple average principlea. $950

b. $875

c. $1,000

d. $1,300

e. $750

45. Using the data given in the problem, the value of issues in the month of December 2005 using simpleaverage method

a. $15,385

b. $21,675

c. $19,750

d. $28,125

Based on the following para answer Q46 48In the year 2004-2005, C Ltd purchased a new machine and made the following payments in relation to it:

Particulars $ $

Cost as per suppliers list 520,000

Less: agreed discount 50,000 470,000

Delivery charges 10,000

Erection charges 20,000

Annual maintenance charges 30,000

Additional components to increase capacity of the

Machine

4,000


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Annual insurance premium 5,000

46. The cost of the machine isa. $540,000

b. $545,000

c. $504,000

d. $550,000

47. If depreciation is provided @ 10% p.a. SLM, depreciation for 3rd year isa. $54,000

b. $54,500

c. $47,000

d. $50,400

48. If depreciation is provided @ 10% p.a. under declining balance method, depreciation for 3rd year isa. $43,740

b. $44,145

c. $40,824

d. $44,550

49. Original cost = $126,000. Salvage value = $6,000. Useful life = 3 years. Annual depreciation underSLM =

a. $21,000

b. $20,000

c. $15,000

d. $40,000

50. Below some errors are mentioned. State which of these will not be revealed by the Trial Balance:a. Compensating errors

b. Errors of principle

c.Wrong balancing of an account

d. Both a and b.


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LIABLITIES Amount Amount ASSET Amount Amoun

Current Liabilities: Current Assets:

Commercial Paper **** Cash and Cash Equipments ****

Accounts Payable **** Receivables ****

Accured Liablities **** Inventories ****

Accured Income Taxes **** Prepaid Expenses and Other **** ****

Long-Term Debt Due **** Fixed Assets

Obligations Under Capital Leases **** Property and Equipments, at cost

Total Current Liabilites **** **** Land ****

Long Term Debt **** Buildings and Improvements ****Long Term Obligations Under CapitalLeases **** Furnitures And Fixtures ****

Deffered Income Taxes and Other **** Transportation Equipments **** ****

Minority Interest **** **** Total Property and Equipment **** ****

Shareholder's Equity: Less : Accumulated Depreciation

Preffered Stock **** Property and Equipments: Net **** ****

Common Stock ****

Capital in Excess of Par Value **** Property Under Capital Lease **** ****

Accumulated Other ComprehensiveIncome **** Less: Accumulated Amortization **** ****

Retained Earnings ****

Total Shareholder's Equity **** ****Property Under Capital Lease :Net ****

Goodwill ****

Other Assets and DefferedCharges ****

Total Liabilities **** Total Assets ****


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