Two marks questions & answers

Chapter 1- Consignment Accounts

1) What do you understand by principal and agent?
Ans: consigner is a person who sends goods to the consignee for the purpose of its sale at the
risk of the consignee. Consigner continues to be the owner of the goods until they are sold by
the consignee. Consigner has to bear all the expenses incurred by the consignee (i.e, agent).
2) What do you understand by consignee?
Ans: consignee is a person to whom goods are sent and who sells the goods. He is entitled to
get reimbursement of all expenses incurred by him. He receives commission for his service.
3) State the features of consignment?
Ans: features of consignment are
a) Objects: goods are forwarded by the consigner to the consignee with an objective of sale
at a profit.
b) Ownership: ownership of the goods remains with the consigner till it is sold by the
consignee.
c) Relationship: the relationship between the consigner and the consignee is that of a
principal and an agent and not of a debtor and creditor.
d) Risk: the consigner should bear all the risks connected with the goods until it is sold.
e) Expenses: consigner should reimburse all legitimate expenses incurred by the consignee
for selling and receiving the goods.
f) Stock of goods: any stock remaining unsold with the consignee belongs to the consigner.
g) Commission: the consignee agrees to sell the goods for an agreed rate of commission.
h) Possession: the goods will be in the possession of the consignee until it is sold on behalf of
the consigner.
i) Re-possession: the consigner can re-possess the goods from the consignee at any time.
j) Profit or loss: since the consignee acts on behalf of the consigner, the profit or loss on sale
of goods belongs to the consignor.
4) What is Del credere commission?
Ans: Del credere commission is a special commission payable by the consignor to the
agent in consideration of agents special services undertaken by him, e.g., the risk of bad
debts arising out of credit sales.
5) What is over riding commission?
Ans: over-riding commission is paid over and above the ordinary commission. The objective of
over-riding commission is to motivate the consignee to boost the sale of new product or to
ensure the sales at the highest possible price.
6) Draw the proforma of consignment account?
Ans: Consignment account

Particulars Amount Particulars Amount

To consignment stock a/c (opening) XXX By stock reserve a/c (opening) XXX
To goods sent on consignment a/c XXX By consignee a/c (sales) XXX
To cash/bank a/c (expenses) XXX By consignment stock a/c (closing) XXX
To consignee a/c (expenses) XXX By goods sent on consignment a/c XXX
To consignee a/c (commission) XXX
To stock reserve a/c (closing) XXX
To profit & loss a/c (profit) XXX
XXX XXX
7) What do you understand by proforma invoice?
Ans: it is a statement containing the details of goods consigned, i.e., quality, quantity, price of
goods details of expenses incurred, etc. Thus, proforma invoice gives all details as given by an
invoice.
 8) What do you understand by account sales?
Ans: this is a statement or account containing the details of goods sold, expenses incurred ,
commission charged on sales and net amount due to the consignor. An account sale is sent by the
consignee to the consignor periodically or on the completion of the consignment. On the basis of
account sales, the consignor passes necessary accounting entries in the books.
9) What is stock reserve?
Ans: stock reserve is the value of loading on opening stock and closing stock held in
consignment. When the opening stock and closing stock is valued at IP (invoice price), the loading
on the same is reversed by debiting and crediting the consignment account and the name given
to the account is stock reserve.
10) What is Normal loss?
Ans: this is the loss which arises due to the nature of product. Normal loss includes loss of
weight, leakage, pilferage, evaporation, breakage, dusting etc.
11) What is Abnormal loss?
Ans: this is the loss which arises due to the external factors. Abnormal loss includes loss due
to the accidents or due to negligence such as loss of goods due to flood, fire, earthquakes, war,
riot, thefts etc.

Chapter 2 - Accounting for Joint Ventures

1) What do you mean by joint venture?
Ans: A joint venture is that business preposition where two or more persons undertake to complete a
specific business preposition and share profits or losses arising there from as per terms and
conditions of agreement.
2) What is joint bank account?
Ans: separate bank account is jointly operated for joint venture transactions. In this bank account,
contributions of co-venturers , sales and collections of joint venture are deposited and joint venture
expenses are met from this account. On completion of joint venture this account is closed by paying
the balance of co-venturers.
3) Explain the co-ventures’ account.
Ans: in this accont contributions made by co-venturers in the form of cash, goods, payment on behalf
of joint venture, etc., are credited. Withdrawals by co-venturers in the form of cash, goods or
income/revenue collected on behalf of joint venture are debited. Co-venturers’ a/c is credited with
his share in profit or is debited with his share in loss. On completion of the joint venture, venturers
balances are settled through joint bank account.
4) What do you mean by separate books of account are maintained?
Ans: under this method only one co-venturer records the joint venture transactions that open a joint
venture account and co-venture personal account. Separate set of books of joint venture is
maintained when number of transactions and size of joint venture is fairly large.

Chapter 3- Royalty Accounts

1) What is Royalty?
Ans: royalty is a periodical sum based on output or sale payable by the lessee to the lessor for having
use of special rights of the lessor.
2) What is recoupment of short workings?
Ans: recoupment of short working is the process of recovering of short working of certain period.
3) Who is lessee?
Ans: the person who makes the payment to the owner of the asset is known as lessee
4) Who is lessor?
Ans: the owner of the asset to whom the payment is made is known as lessor.
5) What is Minimum Rent?
Ans: royalty agreements are usually associated with a clause that the lessee must pay a minimum
amount irrespective of the volume of output or sale in a particular period, such minimum amount is
known as minimum rent or dead rent or fixed rent. Minimum rent becomes payable only when the
royalty is less than the minimum rent.
6) What is short working?
Ans: the excess of minimum rent over actual royalty is called short working. The excess is called short
working for the lessee and short working suspense for the lessor.
7) What is fixed/restrictive recoupment method?
Ans: under this method, the recoupment of short working is made within a fixed period from the date
of royalty agreement.
8) What is floating/Non-restrictive recoupment method?
Ans: under this method, a fixed period of time is provided for each year short working to recoup.
9) What is life time recoupment method?
Ans: under this method, no fixed period of time bound provided to recover the short working and
recoupment shall be made till the last date of royalty agreement.
10) What is strike?
Ans: the term strike refers to labour unrest, where employees stop their involvement in the
production work until their demand is fulfilled.
11) Distinguish between royalty and rent.
Ans: Rent is the consideration payable for the use of only tangible assets where as the royalty is the
consideration payable for the use of special right for the tangible and intangible assets.
Rent is payable on the basis of time and is fixed where as the royalty is payable and paid on the basis
of production or sale.
There is no minimum rent concept in case of rent bur whereas the royalty agreement contains a
clause to pay minimum royalty.
12) Why is minimum rent clause included in the royalty agreement?
Ans: dead rent or minimum rent clause is included in the royalty agreement in order to enable the
landlord or lessor to get the minimum guaranteed amount in the year of no output or low output.

Chapter 4- Sale of partnership to a limited company

1) What is the journal entry is passed to record liabilities taken over by the partners?
Ans: Realization a/c…………………………………………Dr
To partners capital a/c.
2) State any two objectives of sale of firm to a company.
Ans: a) To get the advantage of limited liability, b) to increase the capital, c) to increase the
managerial skills, d) to increase or expand the scale of operations.
3) What do you mean by purchase consideration?
Ans: it is an amount paid by the purchasing company to the vendor firm for taking over the assets
and liabilities of the firm.
4) List out any two benefits of conversion of single entry system into double entry system.
Ans: a) to get the advantage of limited liability, b) to increase the capital.
5) Mention the two methods of calculating purchase consideration.
Ans: a) Net asset method, b) Net payment method and c) Lump-sum method.
6) Compute the purchase consideration.
The purchasing company agrees to issue 1,000 equity shares of Rs 10 each at par and cash Rs 15,000
Ans: In Equity shares (1,000X10) = 10,000
In Cash = 15,000
Total =25,000
7) State the journal entry for assets not taken over by the purchasing company
Ans: Cash/Bank a/c ……………..Dr XXX
To Realization a/c XXX
8) State in which ratio the debentures and shares received in purchase price should be distributed
among the partners.
Ans: the debentures and shares received should be distributed according to the final claim ratio/final
settlement ratio