Tag: elements of book keeping and accountancy

Questions Related to elements of book keeping and accountancy

Which of the following is not included in cost of inventory?

elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

  1. Purchase Cost

  2. Transport in Cost

  3. Import Duty

  4. Selling Costs

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Correct Option: D
Explanation:

Selling cost is an indirect cost which does not have any direct association with the cost of production. 

Selling cost should be included and selling & distribution cost.

Inventory, is generally valued as lower of ________________.

elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

  1. Market Price and Replacement Cost

  2. Cost and Net Realizable Value

  3. Cost and Sales Value

  4. Sales Value and Profit

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Correct Option: B
Explanation:

Financial accounting is based on certain conventions , conservatism is one of them. Conservatism convention is based on the the concept "playing safe". Accordingly firms are recording all anticipated losses in books of account.


Valuation of inventory on the basis of cost or net realizable value is also based on the conservatism convention. 

Which one out of the following is not an inventory valuation method?

elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

  1. FIFO

  2. LIFO

  3. Weighted Average

  4. EOQ

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Correct Option: D

ABC analysis of inventory __________________________.

elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

  1. Is useful for companies having different items in an inventory with different quantities and values.

  2. Segregates items with smaller value in the category A

  3. Segregates items which are larger in number with small rupee investment into category C.

  4. Both (A) and (C) above

  5. Both (A) and (B) above

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Correct Option: D
Explanation:

ABC is an inventory management technique in which inventory is segregated into three groups - A, B and C on the basis of value of annual usage. The A items are those in which it has the largest rupee investment, the B group consists of items accounting for the next largest investment and the C group consists of a large number of items accounting for a small rupee investment,

Goods lost by fire is debited to Goods A/c.

elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

  1. True

  2. False

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Correct Option: B
Explanation:

Goods lost by fire is a loss to the organization and to be debited to profit & loss account. Goods are moving out from the business. Hence, they need to be credited. 

Accounting entry will be as under:

Profit & Loss A/c                       Dr.
           To Goods A/c 

Rs 1500 being LIC premium of proprietor paid by the firm will be debited to ________________.

elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

  1. Income tax a/c

  2. Drawing a/c

  3. Profit and loss a/c

  4. None

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Correct Option: B
Explanation:

LIC premium is a personal liability of the proprietor. Hence, any amount paid or withdrawn from the business for personal purposes is to be debited to drawing account.

Under inflationary conditions, which of the following method of inventory valuation will show lowest cost of goods sold ?

elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

  1. LIFO

  2. FIFO

  3. HIFO

  4. None

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Correct Option: B
Explanation:

FIFO results in the highest ending inventory, the lowest cost of goods sold, and the highest net income. This is because the oldest and lowest costs are allocated to cost of goods sold.

Accounting policy for inventories of an enterprise is, ' Inventories are valued at the lower of cost determined on weighted average basis or the net realizable value.' Which accounting principle is followed by the enterprise?

elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

  1. Materiality

  2. Prudence

  3. Substance over form

  4. All of these

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Correct Option: B

Under FIFO method, in times of rising prices, the charge to production is _______.

elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

  1. stationary

  2. unduly low

  3. unduly high

  4. normal

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Correct Option: B
Explanation:

In  case of First In First Out method of Inventory, material is issued to the production on first in first out basis. It means the material received first has to be issued first and so on. 

If the prices are rising, the charge to production will be unduly low as the lower cost material received earlier is issued to the production. 

Goods sold by other co-venturer is debited to which account ________________.

elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

  1. Joint venture A/c

  2. Other co-venturer's personal A/c

  3. Joint bank A/c

  4. None of these

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Correct Option: B