Tag: adjustments in preparation of financial statements

Questions Related to adjustments in preparation of financial statements

Steps of preparing Final Accounts is -
(a) Trading Account 
(b) Profit and Loss Account
(c) Balance Sheet

elements of book keeping and accountancy adjustments in preparation of financial statements manager's commission on net profit preparation of final accounts preparation of financial statements

  1. True

  2. False

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Correct Option: A
Explanation:

Final accounting is the last step of accountancy in any business. It involves three series of steps or three accounts, Trading account, Profit and Loss account and then Balance sheet. This order must remain same under any situation.

The order of preparing accounts must be same because first gross profit/loss has to be calculated and then only net profit/loss will be calculated and after that all assest and liablilities will be presented. Hence, the statement is true.

Which of the following is not a condition for issue of shares at a discount?

elements of book keeping and accountancy adjustments in preparation of financial statements manager's commission on net profit preparation of final accounts preparation of financial statements

  1. The Memorandum of Association must authorise the company for issue of shares at a discount

  2. The issue must be authorised by passing an ordinary resolution in the General Meeting and must be confirmed by the Company Law Board

  3. The shares should be a class of shares already issued

  4. At least one year must have elapsed since the company was entitled to commence business

Show answer
Correct Option: A
Explanation:

Conditions for Issue of Shares at Discount

  1. In order to issue the shares at a price less than the face value, the company has to get permission from the relevant authority. For seeking permission, they should call and upon a general meeting and discuss and authorize the matter in that meeting.
  2. There is a cap on the rate of discount. A company cannot issue any shares at more than 10% discount.
  3. The company should issue the shares within 60 days of receiving permission from the relevant authority. In certain cases, the company can extend this time frame after getting permission in the permission.
  4. The company cannot issue these shares before passing of 1 year from the date of commencement of business.
  5. The shares must belong to the same class of shares which are already available in the market. For example, if the has previously issued Equity shares then this time also, the company has to issue Equity shares only.
  6. Also, the company has to acquire the sanction by the Central Government after getting approval from the general meeting.

Debtors as per trial balance - Rs. $40,600$
Bad debt not yet provided - Rs. $600$
Provision for debt to be made at $5\%$ on sundry debtors.
Provision for discount on debtors to be created @ $2\%$.
Amount of provisions for discount on debtors.

elements of book keeping and accountancy adjustments in preparation of financial statements manager's commission on net profit preparation of final accounts preparation of financial statements

  1. Rs. $760$

  2. Rs. $600$

  3. Rs. $2,000$

  4. Rs. $2,600$

Show answer
Correct Option: A

While making an adjustment entry in respect of interest on capital, credit is made to _______________.

elements of book keeping and accountancy adjustments in preparation of financial statements manager's commission on net profit preparation of final accounts preparation of financial statements

  1. Capital account

  2. Interest on capital account

  3. Profit & loss account

  4. Interest account

Show answer
Correct Option: A
Explanation:

 Interest on Capital has the following two effects on final accounts: It is an expense of the business, therefore; it will be recorded on the debit side of Profit and Loss Account. On the other hand, it is an income of the owner, therefore; it will be added in the Capital Account in Balance Sheet.

The works manager gets commission of 10% on the profit after charging such commission. If the profit is Rs.2,200 what is the amount of his commission ?

elements of book keeping and accountancy adjustments in preparation of financial statements manager's commission on net profit preparation of final accounts preparation of financial statements

  1. Rs.220

  2. Rs.200

  3. Rs.240

  4. Rs.244.44

Show answer
Correct Option: B
Explanation:

Commission payable = 10% on Net Profit (after charging the commission)

If Net Profit is Rs. 100, Commission payable = Rs. 10

Thus profit before charging the commission = 100 + 10 = 110

Of Rs. 110, Rs. 10 is commission payable and the balance Rs. 110- Rs. 10 = Rs. 100 is the profit, left after charging the commission.

Here Rs. 2.200 is equal to 110%

Therefore 10% = 2,200/110 x 10 =Rs. 200


The manager of business is some times given ________ on Net Profit.

elements of book keeping and accountancy adjustments in preparation of financial statements manager's commission on net profit preparation of final accounts preparation of financial statements

  1. Commission

  2. Interest

  3. Discount

  4. None

Show answer
Correct Option: A
Explanation:

The manager of the business is sometimes given the commission on the net profit of the company. The percentage of the commission is applied on the profit either before charging such commission or after charging such commission.

Net Profit of business before charging commission is Rs 8,00,000 and manager are entitled to get a commission of net profit after charging commission 20 %, the commission will be calculated as Rs _________.

elements of book keeping and accountancy adjustments in preparation of financial statements manager's commission on net profit preparation of final accounts preparation of financial statements

  1. Rs 2,00,000

  2. Rs 1,90,000

  3. Rs 1,95,000

  4. None of these.

Show answer
Correct Option: A

Net Profit of business before charging commission is Rs 110,000 and manager is entitled to get commission of net profit before charging commission 10% , the commission will be calculated as Rs. _________.

elements of book keeping and accountancy adjustments in preparation of financial statements manager's commission on net profit preparation of final accounts preparation of financial statements

  1. 11,000

  2. 12,000

  3. 13,000

  4. 10,500

Show answer
Correct Option: A
Explanation:

Commission on net profit before charging such commission

  =  1,10,000 X 10 / 100
  =  11,000.

A business concern usually provides _______ for its customers for prompt payments.

elements of book keeping and accountancy adjustments in preparation of financial statements manager's commission on net profit preparation of final accounts preparation of financial statements

  1. Cash Discount

  2. Trade Discount

  3. Both A and B

  4. None of these.

Show answer
Correct Option: A
Explanation:

An early payment discount (also called a prompt payment or cash discount) is a reduction in an invoice balance when it's paid before the due date. 

when provision is provided current years profit is ___________.

elements of book keeping and accountancy adjustments in preparation of financial statements manager's commission on net profit preparation of final accounts preparation of financial statements

  1. Reduced

  2. Increased

  3. Doubled

  4. None

Show answer
Correct Option: A
Explanation:

A provision is not a form of saving, even though it is an amount that is put aside for a future cost or obligation. Provisions resulting impact is a reduction in the company's equity. When accounting, provisions are recognized on the balance sheet and then expensed on the income statement.