Tag: illustrations on journal entries

Questions Related to illustrations on journal entries

Mohan purchased a machinery amounting Rs.10,000 on 1.4.2010.
On 31.3.2019, similar machinery could be purchased for Rs.20,000 but the realizable value of the machinery (purchased on 1.4.2010) was estimated at Rs.15,000. The present discounted value of the future net cash inflows that the machinery was expected to generate in the normal course of business, was calculated as Rs 12,000.
The current cost of the machinery is _____________.

elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

  1. Rs 10,000

  2. Rs 20,000

  3. Rs 15,000

  4. Rs 12,000

Show answer
Correct Option: B

Book-keeping is mainly concerned with _________.

elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

  1. recording of financial data relating to business operations

  2. designing the system in recording, classifying, summarizing the recorded data

  3. interpreting the data for internal and external end users

  4. only for internal purpose

Show answer
Correct Option: A
Explanation:

Book keeping is that branch of knowledge which tells us how to keep a record of financial transaction of a business. Book keeping is a clerical job. Book keeping is concerned with recording and classifying the data and accounting is concerned with interpreting and analysing of transactions.

Consider the following statements.
I. Workmen's compensation and third party insurance are examples of guarantee insurance.
II. Re-insurance is more common under fire and marine insurance.
Which of the statement given is/are correct?

elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

  1. I only

  2. II only

  3. Both I and II

  4. Neither I nor II

Show answer
Correct Option: C
Explanation:

Both the statements are correct.

1. Guarantee insurance indemnifies the employer and protects against employees and third parties.
2.Insurance of Insurance companies is re-insurance, the claims are high in case of fire and marine insurance and hence, re-insurance is common under them.

In accounting, profit prior to incorporation is treated as _________.

elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

  1. Revenue Reserve

  2. Secret Reserve

  3. Capital Reserve

  4. General Reserve

Show answer
Correct Option: C
Explanation:

A capital reserve is a type of account on a municipality's or company's balance sheet that is reserved for long-term capital investment projects or other large and anticipated expenses that will incurred in the future. 

Profit prior to incorporation is the profit earned or loss suffered during the period before incorporation. It is not legally available for distribution as dividend because a company cannot earn a profit before it comes into existence
Hence, Profit prior to incorporation is treated as Capital Reserve.

The term 'Internal Reconstruction' includes _______________.

elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

  1. Reduction of Share Capital

  2. Variation in Shareholder's rights

  3. Alteration of Share Capital

  4. All of the above

Show answer
Correct Option: D
Explanation:

 

Internal reconstruction is a method in which the reconstruction is undertaken without winding up the company and forming a new one. It involves a reduction in the share capital of the company. It also relieves the company from its debts and losses through negotiation with the creditors. Thus, we can say that it is the internal rearrangement of the financial structure of the company.

The various methods of internal reconstruction are:

1. Alteration of Share Capital: The alteration in the share capital can be done either by sub-division and consolidation of shares or by conversion of shares into stock or stock into shares.

2. Variation of Shareholder’s rights: As per Section 47(7) of the Companies Act, 1956 the company can vary the rights of the shareholders with the consent in writing of the holders of three-fourths of the issued and outstanding shares of that class.  It can also do so with the sanction of a resolution passed by a majority of the votes cast at a separate general meeting.

3. Reduction of Share Capital: The Company can reduce share capital by share cancellations or buybacks.

4. Compromise/Arrangement: Under this method, an agreement is made between the company and its members and outside liabilities in case of financial crisis whereby a sacrifice is made by the shareholders, creditors or debenture holders.

 5. Surrender of Shares: In this method, the shareholders are made to surrender their shares so that these can be allotted to debenture holders and creditors so as to reduce their liabilities.

Thus, the correct answer is D.

Accounting measures the business transactions in terms of ________units.

elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

  1. Non-monetary

  2. Monetary

  3. Personal

  4. Barter

Show answer
Correct Option: B

Deepti wants to buy a building for her business today.Which of the following is the relevant data for his decision ? 

elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

  1. Similar business acquired the required building in 2,000 for Rs. 10,00,000

  2. Building cost details 2003

  3. Building cost details 1998

  4. Similar building cost in August,2005 Rs. 25,00,000

Show answer
Correct Option: A
Explanation:

This is the information which in identifying the historical cost of the building and now the price can be compared in present context. 

ABC starts a business by investing Rs. 5 lakh and purchases goods worth Rs. 2.5 lakh. This is a/an _____ .

elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

  1. event

  2. transaction

  3. dealing

  4. operations

Show answer
Correct Option: D
Explanation:

The operations are generally performed for business firms for e.g. ABC started business with Rs. 5 lakh and purchased goods worth Rs. 2.5 lakh is an operation of business. 

During the life-time of an entity, accountants prepare financial statements at a point of time in accordance with which basic accounting principles?

elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

  1. Cost-benefit

  2. Periodicity

  3. Conservatism

  4. Matching

  5. All of these

Show answer
Correct Option: B
Explanation:

The correct answer is periodicity. Periodicity means that accountants will assume that a company's ongoing activities can be presented(or reported)annually, monthly or quarterly.  

Maintaining records of various properties helps _____________.

elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

  1. in ascertaining profit or loss of the business

  2. to ensure there is no unauthorised use or disposal of any asset or property of the business

  3. in fulfilling the statutory obligation

  4. in giving the look of a professionally managed company

Show answer
Correct Option: B
Explanation:

Assets purchased for the business are to be recorded in the books of account of the business. This is mandatory to keep a proper records of all such assets to ensure that the business assets are used for business purposes only. No unauthorized uses for business assets should be done.