Financial Accounting

Multiple Choice Questions

1. A loan due for repayment in 20 months’ time has been included as a current liability. What will be
the effect when this is corrected?
a) increase net assets
b) increase net current assets
c) no effect on net current assets
d) reduce net current assets
2. What is the effect on a company’s balance sheet of issuing bonus shares?
a) the bank balance will be increased
b) the long term liabilities will be increased
c) the reserves will be reduced
d) the share capital will be reduced
3. Liability for bill discounted is a ______
a) Current liability
b) Contingent liability
c) Fixed liability
d) None of the three
4. 5. XY LTD. issued 25,000 equity shares of Rs. 100 each at a premium of Rs. 15 each payable as Rs.
25 on application, Rs. 40 on allotment and balance in the first call. Applications received for 75,000
equity shares but the company issued to them only 25,000 shares. Excess money was refunded to
them after adjustment for further calls. Last call on 500 shares were not received and were forfeited
after due notice. The above is the case of:
a) Over subscription
b) Pro-rata allotment
c) Forfeiture of shares
d) All of the above.
5. An old, machine was purchased for Rs. 60,000. It was repaired for Rs. 5,000 and Rs. 5,000 paid on its
installation. Machinery repairs a/c will be debited by –
a) Rs. 10,000
b) Rs. 5,000
c) Rs. 15,000
d) None of the three
6. Dividends are usually paid as a percentage of ______
a) Authorised shares capital
b) Net profit
c) Paid up capital
d) Called up capital
7. X Ltd. Purchased the business of Y Ltd. for Rs. 9,00,000 payable in fully paid shares of 100 each at a
premium of 25%. The number of shares to be issued by X Ltd. to settle the purchase consideration
will be:
a) 7000
b) 5000
c) 7200
d) None of the three
8. A manager gets 5% commission on sales, cost price of goods sold is Rs. 40,000 which he sells at a
margin of 20% on sale. Manager Commission will be:
a) Rs. 2000
b) Rs. 2500
c) Rs. 2800
d) None of the three
9. The following information pertains to X Ltd.:
(1) Equity share capital called up Rs. 10,00,000; (2) Calls in arrear Rs. 50,000; (3) Calls in advance
Rs. 20,000; (4) Proposed dividend 10%. The amount of proposed dividend payable is --
a) 95,000
b) 90,000
c) 98,000
d) 1,00,000
10. Ankush Ltd. had issued 10,000, 10% Redeemable Preference Shares of Rs.100 each, fully paid up.
The company decided to redeem these preference shares at par, by issue of sufficient number of
equity shares of Rs. 10 each at a premium of Rs.2 per share as fully paid up. The amount to be
transferred to capital redemption reserve account will be:
a) Rs. 10,00,000.
b) Rs. 12,00,000.
c) Rs. 8,00,000.
d) Nil.
11. A company issued Rs. 100,000 15% Debentures at a discount of 5% redeemable after 10 years at a
premium of 10%. Loss on issue of debentures will be:
a) Rs. 15,000
b) Rs. 12,000
c) Rs. 10,000
d) None of the three
12. B sold 50 televisions at Rs. 15,000 per television. He was entitled to commission of Rs. 500 per
television sold plus one fourth of the amount by which the gross sale proceeds less total commission
there on exceeded a sum calculated at the rate of Rs. 12,500 per television sold. Amount of
commission will be --
a) 45,000
b) 50,000
c) 40,000
d) 35,000
13. The expired portion of capital expenditure is
a) Asset
b) Liability
c) Expense
d) Income
14. A and B purchased a piece of land for Rs 30,000 and sold it for Rs 60,000 in 2005. Originally A had
contributed Rs 12000 and B Rs 8000. The profit on venture will be
a) Rs. 30,000
b) Rs. 20,000
c) Rs. 60,000
d) Rs. 10,000
15. A company offers to the public 10,000 shares for subscription. The company receives application for
12,000 shares. If the shares are allotted on pro-rata basis, then applicants for 12,000 shares are to be
allotted as:
a) 4 shares for every 5 shares applied.
b) 2 shares for every 3 shares applied.
c) 5 shares for every 6 shares applied.
d) 3 shares for every 4 shares applied.
16. While finalizing the current year’s profit, the company realized that there was an error in
the valuation of closing stock of the previous year. In the previous year, closing stock
was valued more by Rs.50,000. As a result:
a) Previous year’s profit is overstated and current year’s profit is also overstated
b) Previous year’s profit is understated and current year’s profit is overstated
c) Previous year’s profit is understated and current year’s profit is also understated
 d) Previous year’s profit is overstated and current year’s profit is understated
17. If Average Stock = Rs 12,000. Closing stock is Rs 3,000 more than opening stock then
the value of closing stock will be:
a) Rs 12,000
b) Rs 24,000
c) Rs 10,500
d) Rs 13,500.
18. A Company wishes to earn a 20% profit margin on selling price. Which of the following
is the profit mark up on cost, which will achieve the required profit margin?
a) 33%.
b) 25%.
c) 20%.
d) None of the above.
19. A purchased goods costing 2,00,000, B sold 4/5th of the goods for Rs 2,50,000.
Balance goods were taken over by B at cost less 20%. If a same set of books is
maintained, find out profit on venture.
a) Rs. 82000
b) Rs .90000
c) Rs. 50000
d) None
20. Economic life of an enterprise is split into the periodic interval as per ________
a) Money Measurement.
b) Matching.
c) Going concern.
d) Accrual.
21. If a company proposes to discontinue its business from March 2005 and decides to dispose off all its
assets within a period of four months, the balance sheet as on March 31, 2005 should indicate the
assets at their:
a) Historical cost
b) Net realisable value
c) Cost less depreciation
d) Cost price or v=market value whichever is less.
22.