Tag: adjustments in preparation of financial statements

Questions Related to adjustments in preparation of financial statements

Provision for Discount on Debtors is ___________ to Profit and loss account.

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. Debited

  2. Credited

  3. Not recorded

  4. No entry

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Correct Option: A
Explanation:
The double effect of Provision for Discount on Debtors is:
It is shown on the debit side of Profit and Loss Account. 
It is shown as deduction from Debtors in Balance Sheet.

Percentage commission to manager can be  calculate 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. Before charging commission

  2. After charging commission

  3. Either on net profit before or after charging commission

  4. None

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Correct Option: C
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.

The General Manager gets $\dfrac{1}{4}$ of the profit as commission after charging such commission of Works Manager, which is 10% of profits after charging such commission. If profit is Rs. 2,200, the commission of General manager 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. Rs.495

  2. Rs.384

  3. Rs.500

  4. Rs.400

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Correct Option: D

Debtors Closing Balance Rs 5000, R.D.D 10 % and Provision for discount on Debtors is  5% than what is its value of provision on 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. Rs. 225

  2. Rs. 200

  3. Rs. 300

  4. Rs. 350

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Correct Option: A

Opening capital Rs. 100000 and additional capital on 1st Oct was Rs. 20000
Interest on capital @ 10% on 31st march closing will be ?

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. 5,000

  2. 8,000

  3. 11,000

  4. None of these.

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Correct Option: C
Explanation:

Interest on capital = 100000 * 10 / 100

                                = 10000
Additional Capital Introduced on 1st Oct = 20000 * 10 / 100 * 6 / 12
                                                                     = 1000
Total = 10000 + 1000
          = 11000

Providing Interest on Capital _______ 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. Reduces

  2. Increases

  3. No effect

  4. None

Show answer
Correct Option: A
Explanation:

Interest on capital is a charge on the profits of a firm and it decreases the net available profit for appropriation.


Interest on capital is calculated on _____________.

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. Opening capital

  2. Additional Capital

  3. Closing capital

  4. Both A & B

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Correct Option: D
Explanation:

Interest on capital is to be calculated on the capitals at the beginning for the relevant period. If there is any additional capital introduced or capital withdrawn during the year, it will cause change in the capitals and interest is to be calculated proportionately on the changed capitals for the relevant period.

Interest on capital = Amount of capital x Rate of interest per annum x Period of interest

When interest on capital is allowed _________ is credited.

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 A/c

  2. Profit and loss A/c

  3. Cash A/c

  4. None

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Correct Option: A
Explanation:

Journal entries for Interest on Capital: 

Interest on capital is an appropriation (setting apart) of profit. If a firm has earned profit, it will have a credit balance in the P & L Appropriation A/c.

Commission to manager is __________ to Profit and loss Account.

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. Debited

  2. Credited

  3. Added

  4. Deducted

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Correct Option: A
Explanation:

Manager's commission is an operating expense just as any other expense like salary, rent etc. Manager's commission paid is shown on the debit side of the profit and loss account as it is an expense for the company.

Commission due but not paid to the manager at d end of the years appears under __________ side.

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. Asset

  2. Liability

  3. Trading A/c Debit side

  4. None

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Correct Option: B
Explanation:

The Outstanding Expense A/c appears on the liability side of the Balance Sheet. While preparing the Trading and Profit and Loss A/c we need to add the amount of outstanding expense to that particular expense.