ASSIGNMENT A

1 Accounting is the art of recording, classifying, summarizing and reporting of

transactions in the books with the aim of showing the financial position of an
entity such as a business entity, a charitable organization, a club or any other
entity.
There is a difference between accounting from book keeping in several ways,
some of them are, while book keeping merely involves the orderly keeping of
records, accounting involves analyzing and making judgment at different
stages such as recording of transactions, classification, summarizing,
interpretation and reporting. Book keeping is the first stage of Accounting and
it is normally routine and clerical in nature while accounting starts where book
keeping stops and it is involves analytical skills. The basic objective of book
keeping is to maintain systematic records of the business while with
accounting is to ascertain the net results of operations and the financial
position of a company.
2 The basic accounting equation is called duality concept (accounting
equivalence concept). The concept talks about the double sided effect of
every business transaction. It is under this concept, where the recording of
double entry system originated. The basic accounting equation says the
sources of funds must always be equal to the uses of funds in a business.
The Fundamental Accounting equation: Capital + Liabilities = Total Assets or
Owners Equity + Outside Liability = Total Assets. In the above equation
assets shall refer to resources owned by the business enterprise e.g. Cash,
Land Buildings, and Machinery etc. while liabilities are monies owed by
business such as Loans , creditors etc. Capital or Owners equity is money
contributed by owners of the business.
3 Journalizing is the act of recording business transactions in chronological
order in a book called a journal. This journal is a book of prime entry. The
format of a journal is as follows:
a. It has a date column. This column show the date, month, and year
when the transactions took place.
b. It has the particulars column. In this column the two aspects of a
transactions are recorded, thus the accounts to be debited and to be
credited. This column also shows a brief description of the
transaction.

c. The Ledger Folio column. It shows the number of the page in the
ledger on which the transaction is posted.
d. The Debt or Credit column where the amount to be debited or
credited is entered in the appropriate column i.e. debit if it is a debit
and credit if it is a credit.
4 The advantages of special journals are that when there are large transactions
which can not be practically possible to be recorded at once then dividing the
recording of transactions into specific transactions of similar nature other than
recording of all the transactions into one journal. Some of the transactions
are as follows:
a. There is a division of labor.
b. They permit the installation of internal control systems.
c. They permit the use of specialized skills.
d. There is saving in terms of time and labour
5 The reasons between the cash book balance and the passbook balance are
as follows:
a. Cheques issued by the business to its suppliers or other parties may
not have been presented for payment.
b. Cheques collected from customers or other parties and deposited
may not have been collected by the Bank.
c. If the cheques deposited in the Bank account are dishonored.
d. Cash may have been deposited directly into the Bank account of the
Business enterprise.
e. Bank charges such as service fees, interest on overdraft, loan
processing fees are charged by the Banker. The Business will only
be sure of the exact amounts and record them after receiving the
Bank statement and meanwhile the cash book and the Bank
statements or passbook will show different balances.
f. Incomes credited to the account by the Bank such as interest on
deposits, interest on dividend, etc will only be known and recorded in
exact amounts after receiving the Bank statement and before that the
balance in the cash book will be different than that at the Bank.
g. Wrong entries made by the business in the cash book or errors
committed by the Bank in the Bank will also cause differences.
h. Where omissions are done in any of the two sets of records.

ASSIGNMENT B
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1 Depreciation is the acquisition of the cost of and asset, less its expected
residual or salvage value, spread over the useful or economic life of the
asset. Depreciation is provided to account for wear and tear of an asset that
is caused by usage, passage of time and technological obsolescence.
The main difference between Diminishing balance and straight line methods of
depreciation is that in diminishing balance method the depreciation charge
keeps on declining every year as it is a percentage of the remaining cost of the
asset after deducting depreciation charge while in straight line method the
depreciation charge is the same through out the useful line of the asset as is
derived at by dividing the original cost of the asset by the expected number of
useful life. The differences can easily be explained by a graph where the line of
depreciation under the Diminishing balance method curves downwards
showing that the depreciation charge decreases as time passes on while
irrespective of time, the amount of depreciation charged under the straight line
method is the same, and the line is straight on the graph.
The differences between the two methods can be summed up in a table as
follows:
STRAIGHT LINE METHOD.
A fixed amount of depreciation is charged

a
.
b The rate of depreciation is derived at by dividing
. the cost of the asset by number of years in use.
c. The asset may or may not have residual value
D
e
.
f.

REDUCING BALANCE METHOD

A fixed rate of depreciation is charged

The rate of depreciation is determined

by applying the formula
The asset must always have a residual
value
The amount of depreciation per year does not
The amount of depreciation goes on
change.
reducing with every year.
In the first year, the depreciation is charged on the In the first year, the depreciation is
cost of the asset, less residual vale.
charged on the asset
At the end of its life, the book value of the asset
The book value of the asset never
becomes zero
reduces to zero.
2 A bill of exchange is an instrument in writing, containing an unconditional
order, signed by the drawer, directing a certain person to pay a certain sum of
money only to, or to the order of, a certain person or to the bearer of the
instrument. The parties involved in a bill of exchange are:
a. Drawer. This is the person who draws or writes the bill. The Bill
originates from this person.
b. Drawee. This is the person who accepts the bill or the person on
whom the bill is drawn.
c. Payee. This is the person to whom the bill is payable. It is possible to
have a drawer who is also the payee.

3 The difference between capital expenditure and revenue expenditure is the

capital expenditure is an expense whose benefit is derived beyond one year
and it is spread over several periods such as acquisition of fixed assets for
purpose of use in the business, extension to fixed assets to improve their
capacity, while revenue expenditure is an expenditure incurred and the
benefit of which is derived in the year in which the expenditure is incurred.
Examples of revenue expenditures are rent payable, repairs, depreciation etc.
4 The trading profit and loss account for Gupta Limited is as follows:

GUPTA LIMITED.
TRADING ACCOUT FOR THE YEAR ENDING 30.06.2001
Particulars

Particulars
Rs.
Rs.

To Opening Inventory

5,760
By Sales
98,780

To Purchases
40 675

Less:Returns inwards
Add: Carriage out wards
2 040

98 100
(680)

6 800

By Closing Inventory
42 215

42 715
Less:Returnsoutwards
(500)

56 925
104 900

To Gross Profit
c/d

104 900

To Salaries
Add: Un paid amount
To Wages
To General expenses
To Insurance
Less: Prepaid
To fuel and power
To Carriage on sales
To Bad debts written off
To Depreciation:
Freehold land
Buildings
Machinery
Patents
To Net Profit c/d

15 000
1 500
600
170

By Gross Profit b/d

16 500 By Rent received
8 480
3 000
Add: Adjustment
430
4 730
3 200

56 925
9 000
1 000

725

2 000
1 500
26 360

66 925
PROFIT AND LOSS FOR THE YEAR ENDING 30.06.2001

ASSIGNMENT C OBJECTIVE
QUESTIONS

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In each of the following cases indicate the alternative which you

consider to be correct:
Q1. Which of the following financial statements is prepared as of a
particular date?
(a) Profit and loss account
(b) Balance sheet
(c) Cash flow statement
(d) Income and expenditure statement
(e) Profit and loss appropriation account.
Q2. Based on which of the following concepts, share capital
account is shown on the liability side of balance sheet?
Business entity concept
(b) Money measurement concept
(c) Cost concept
(d) Going concern concept
(e) Conservatism concept.
Q3. Which of the following is not an accounting transaction?
(a) Sale of goods for cash
(b) Payment of salary of office staff
Agreement to sell
(d) Purchase of office furniture
(e) Repayment of bank loan.
Q 4. Which of the following is false?
(a) Taking the favourable balance as per pass book as the starting
point, the amount in respect of charges made by the bank will be
added to the pass book balance
Taking the favourable balance as per pass book as the starting
point, the amount in respect of dividends received directly
will be deducted from the pass book balance

(c) Bank charges recorded twice in cash book will be added to the
overdraft as per cash book in the preparation of reconciliation
statement
(d) Cheque issued but not presented for payment will be added
when favourable balance as per cash book is the starting point
(e) The amount of the undercasting of the credit side of the bank
column of the cash book will be deducted from the overdraft as per
pass book.
Q5. From the books of Mr.Neelam, it was observed that cheques
amounting to Rs.2,40,000 were deposited in the bank, out of which
cheques worth Rs.20,000 were dishonored and cheques worth
Rs.40,000 are still in the process of collection. The treatment of
this while preparing Bank Reconciliation Statement is
Deduct Rs.60,000 from bank balance as per pass book
(b) Add Rs.20,000 and deduct Rs.40,000 from overdraft balance as
per cash book
(c) Deduct Rs.60,000 from overdraft balance as per pass book
(d) Add Rs.60,000 to overdraft balance as per pass book
(e) Deduct Rs.40,000 and add Rs.20,000 from overdraft balance as
per pass book.
Q6 . Which of the following is true?
(a) Bank account is a personal account
(b) Stock of stationery account is a nominal account
(c) Returns inward account is a personal account
(d) Outstanding rent account is a nominal account
(e) Capital account is a real account.
Q7 . A sales day book is to record
all credit sales only
(b) All cash sales only
(c) all credit and cash sales
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(d) credit sales of goods and trade discount

(e) all cash and credit sales and trade discount.
Q8. Which of the following is a liability of a firm?
(a) Debit balance of discount column of cash book
(b) Credit balance of bank pass book
(c) Debit balance of bank column of cash book
(d) Debit balance of cash column of cash book
(e) Credit balance of bank column of cash book.
Q9. Which of the following accounts will invariably have a debit
balance?
I. Accounts receivable.
II. Accounts payable.
III. Purchases account.
IV. Bank account.
V. Prepaid expenditure.
Only (III) above
(b) Both (II) and (III) above
(c) Both (I) and (III) above
(d) (I), (III) and (V) above
(e) (I), (III), (IV) and (V) above.
Q10. The following is not a book of original entry
(a) Purchase book
(b) Journal proper
(c) Cash book
(d) General ledger
(e) sales book
Q11. The Accountant of a company is recording the transactions of
the day in various Books of Original Entry. Which
of the following transactions is recorded in the wrong book?
(a) Goods purchased on credit - Purchase Book
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(b) Goods sold on credit - Sales Book

(c) Wages paid in cash - Cash Book
(d) General Stationery purchased on credit - Purchase Book
(e) Office Equipment purchased on credit - Journal Proper

Q12. The impact on assets, profit and liabilities of a firm, on

account of salary paid will be
Assets
Profit Total
Liabilities
(a) No effect
Decreases Decreases
(b) Decreases No effect Decreases
(c) Decreases
Decreases
Decreases
(d) Increases
No effect Increases
(e) Decreases Increases Decreases.
Q13. Which of the following is true?
Discount columns in cash book are totaled and not balanced
(b) A petty cash book in which a separate column is provided to
record payment under each head is called imprest system
(c) The total of purchases book is posted periodically on the credit
side of sundry creditors account
(d) The total of sales book is posted periodically on the debit side
of sundry debtors account
(e) Petty cash book is used to record all cash transactions.
Q14. Total of sales day book at the end of the month indicates
(a) The total sales for the month
The total credit sales for the month
(c) Total cash sales of the month
(d) Total amount due to suppliers
(e) Total amount receivable from credit sales.

Q15. Which of the following is true?

Cash book may be defined as the record of transactions
concerning cash receipts and payments
(b) Discount account should be balanced in the cash book
(c) The ledger is the book of original entry
(d) Sales journal is used for recording cash sales
(e) Purchase return book is used for recording the return of goods
purchased from suppliers against cash.
Q16. Journal entry for receiving interest in cash from Mr. Prashant
against the loan given to him
(a) Interest on loan account Dr.
To Prashant account
(b) Prashant account
Dr.
To Interest account
(c) Cash account
Dr.
To Prashant account
(d) Cash account
Dr.
To Interest on loan account
(e) Cash account
Dr.
To Loan account.
Q 17. Which of the following entries recorded in the books of the
drawee of a bill is false?
(a) When a bill is accepted, the account to be debited is drawers
a/c
(b) When a bill is discharged, the account to be debited is bills
payable a/c
When a bill presented for payment by a bank is dishonored,
the account to be debited is bills
payable a/c
(d) When noting charges of a dishonored bill is paid by the
endorsee ,the account to be debited is
noting charges a/c
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(e) At the time of retirement of a bill the account to be debited is

the drawers a/c.
Q 18. Which of the following is true?
(a) A bill sent for collection by bank when dishonored, the drawer
will credit bank a/c
(b) At the time of renewal of bill interest a/c is credited in the
books of the drawee
Accommodation bills are drawn, accepted and endorsed for
some consideration
(d) Refusal by the acceptor to make payment of the bill on due date
is called dishonor
(e) When a bill is endorsed, the drawer credits the drawees a/c.
Q19. Bills receivable account is a
Nominal account
(b) Personal account
(c) Intangible asset
(d) Real account
(e) Representative Personal account.
Q20 . Closing stock is generally valued at
(a) Cost price
(b) Replacement cost
(c) Market price
(d) Realisable value
(e) Cost price or market price whichever is lower.
Q21. The provision for discount on debtors is calculated on the
amount of debtors
(a) Before deducting the provision for doubtful debts
(b) Left after deducting the provision for doubtful debts
(c) Before deducting the actual bad debts
(d) After deducting the actual bad debts
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 (e) After deducting the actual bad debts and the provision for
doubtful debts.

Q22. Consider the following information of Thumbs-up Company

for the year 2006-2007:
Opening balance of provision for debtors account
Rs. 20,000
Bad debts during the year
Rs. 18,000
Closing balance of Sundry debtors
Rs.2,65,000
Estimated provision for doubtful debts
4%
The amount to be debited to profit and loss account to make the
estimated provision is
(a) Rs. 8,600
(b) Rs.10,400
(c) Rs.10,520
(d) Rs.10,600
(e) Rs.10,680.
Q23. At the time of preparation of final accounts, bad debts
recovered account will be transferred to
(a) Debtors account
Profit & loss account
(c) Profit & loss adjustment account
(d) Profit & loss appropriation account
(e) Provision for discount on debtors account.
Q24. Which of the following is false about diminishing balance
method of depreciation?
(a) Higher amount of depreciation is charged when the machine is
more efficient
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(b) It recognizes the risk of obsolescence by higher amount of

depreciation in the early years
(c) The total amount of depreciation and repairs is almost
uniformally distributed over the useful
life
(d) It results in better cash flow through tax deferral as taxable
income is lower in the initial years
(e) Depreciation amount throughout the useful life will be
uniform.
Q25. The following is not an example of fixed asset
(a) Plant and machinery
(b) Land and building
Royalty
(d) Patent
(e) Office furniture.
Q26. Under depletion method, depletion per unit is calculated as
(a) Acquisition cost divided by average production units per annum
(b) Acquisition cost divided by actual production units in the year
Acquisition cost minus residual value divided by average
production units per annum
(d) Acquisition cost minus residual value divided by the actual
production units in the year
(e) Acquisition cost minus residual value divided by the total
production units over the useful life.
Q 27. Which one of the following is a capital expenditure?
(a) Compensation paid to Directors on termination of their services
(b) Expenditure for renewal of trade mark
(c) Gratuity paid to employees
(d) Installments paid for the purchase of patent for
manufacture and sale of medicine
(e) Compensation paid to workers on retirement.
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Q28. Entries passed for outstanding expenses, depreciation,

interest on capital etc. are
(a) Opening entries
(b) Journal entries
Adjustment entries
(d) Rectification entries
(e) Closing entries.
Q29. Which of following transactions does not change the total
amount of liabilities in the balance sheet?
(a) Purchase of office furniture on credit
(b) Payment of bank loan
(c) Issue of debentures
(d) Acceptance of bills from creditors
(e) Redemption of preference shares.
Q30. Which of the following is false?
(a) Capital plus liabilities will be equal to assets
The difference between assets and liabilities is bank
borrowing
(c) Capital account is a personal account
(d) Investment account is a real account
(e) Outstanding rent account is a representative personal account.
Q31. The expenses and incomes pertaining to full trading period
are taken to the Profit and Loss account of a business, irrespective
of their actual payment or receipt. This is in recognition of
(a) Time period concept
(b) Business entity concept
(c) Going concern concept
(d) Accrual concept
(e) Duality concept.

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Q32. Which of the following statements can be used to assess the

liquidity of a company?
Balance sheet
(b) Profit and loss account
(c) Profit and loss appropriation account
(d) Bank reconciliation statement
(e) Manufacturing account.
Q33 . Which of the following state that Anticipate no profit and
provide for all possible losses?
(a) Convention of materiality
(b) Convention of consistency
(c) Convention of disclosure
(d) Convention of conservatism
(e) Convention of matching.
Q34. Which of the following statements is/are true?
I. Drawings account is a nominal account.
II. Capital account is a real account.
III. Sales account is a nominal account.
IV. Outstanding salaries account is a nominal account.
V. Patents account is a personal account.
(a) Only (I) above
Only (III) above
(c) Both (II) and (IV) above
(d) (II), (IV) and (V) above
(e) (I), (II), (III) and (IV) above.
Q35. RS Ltd., makes purchases on credit. If the purchases are not
as per the specifications, the company returns them to the
suppliers. The book, that is used to record such returns is
(a) Returns inward book
Returns outward book
(c) Cash book
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(d) Journal proper

(e) Purchases day book.
Q36 . Which one of the following is not a reason for discrepancy
in the balance as per cash book and bank pass book of a company?
(a) Cheque issued to suppliers may not have been presented
(b) Cheque deposited in the account may not have been realized
Bill discounted with bank is not due for payment
(d) Customers may have directly deposited money in the
companys account
(e) Bank charges not accounted.
Q37. The bank balance in the cash book of Mr.Avinash, a
proprietor showed a credit balance of Rs.10,500 on March 31,
2008. On comparing it with his pass book he discovered the
following discrepancies.
i. Cheque No. 51 for Rs.540 in favour of Mr.Raman has not yet
been presented.
ii. A bill of Rs.1,000 was retired by the bank under a rebate for
Rs.15, but the full amount of the bill was credited to bank account
in cash book.
The balance as per pass book is
Rs.11,025 (Dr.)
(b) Rs. 9,945 (Dr.)
(c) Rs. 9,945 (Cr.)
(d) Rs. 9,975 (Dr.)
(e) Rs. 9,975 (Cr.).
Q38. The total cost of goods available for sale with a company
during the current year is Rs.12,00,000 and the total sales during
the period are Rs.13,00,000. If the gross profit margin of the
company is 25% on sales, the closing inventory during the current
year is
(a) Rs.4,00,000

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(b) Rs.3,40,000
Rs.2,25,000
(d) Rs.1,60,000
(e) Rs.1,00,000
Q39. Unearned income account is
(a) A current asset
(b) A current liability
(c) An expense
(d) An income
(e) Deferred expense.
Q40. The essentials of double entry book-keeping in sequential
order are
(a) Passing journal entries, posting in ledger, appropriate adjusting
entries, trial balance, Profit & Loss a/c and Balance-sheet
(b) Passing journal entries, posting ledger, trial balance, Profit &
Loss a/c and Balance-sheet, passing adjusting entries.
(c) Passing journal entries, posting ledger, passing adjusting
entries, Profit & Loss a/c and Balance sheet, trial balance
(d) Passing adjusting entries, passing journal entries, trial balance,
posting in ledger, Profit & Loss a/c and Balance-sheet
(e) Passing journal entries, posting in ledger, trial balance,
passing adjusting entries, Profit & Loss a/c and Balancesheet.

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