Deck 31: Errors, Adjustments, and Expenditures in Accounting

Question 1

During the year 2011-2012, the value of closing inventory was overstated by ` 25,000. Which of the following is true?

A)The cost of goods sold was overstated during 2011-2012 and income will be understated during 2012-2013
B)The income was overstated during 2011-12 and closing inventory will be overstated during 2012- 2013
C)The retained earnings was overstated during 2011-2012 and retained earnings will be understated during 2012-2013
D)The cost of goods sold was understated during 2011-2012 but retained earnings will not be affected during 2012-2013

Answer 1

The retained earnings was overstated during 2011-2012 and retained earnings will be understated during 2012-2013

Question 2

Which of the following is true?

A)Error of casting affects personal accounts
B)Omission of a transaction from a subsidiary record affects only one account
C)Error of carry forward affects two accounts
D)Error of principle involves an incorrect allocation of expenditure or receipt between capital and revenue

Answer 2

Error of principle involves an incorrect allocation of expenditure or receipt between capital and revenue

Question 3

Journal proper is meant for recording

A)Credit purchase of fixed assets .
B)Return of goods
C)All such transactions for which no special journal has been kept by the business
D)None of these

Answer 3

All such transactions for which no special journal has been kept by the business

Question 4

The adjustment to be made for income received in advance is:

A)Add income received in advance to respective income and show it as a liability
B)Deduct income received in advance from respective income and show it as a liability
C)Add income received in advance to respective income and show it as asset
D)Deduct income received in advance from respective income and show it as an asset in the Balance Sheet

Question 5

Which of the following statements is correct?

A)The Trial Balance is prepared after preparing the Profit and Loss Account
B)The Trial Balance shows only balances of Assets and Liabilities
C)The Trial Balance shows only nominal account balances
D)The Trial Balance has no statutory importance from the point of view of law

Question 6

While finalizing the current year's accounts, the company realized that an error was made in the calculation of closing stock of the previous year. In the previous year, closing stock was valued more by ` 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 overstated and current year's profit is understated.
D)There will be no impact on the profit of either the previous year or the current year.

Question 7

Which of the following is not correct?

A)Errors which affect one account can be errors of posting
B)Errors of omission arise when any transaction is left to be recorded
C)Errors of carry forward from one year to another year affect both Personal and Real A/c
D)Errors of commission arise when any transaction is recorded in a fundamentally incorrect manner

Question 8

Which of the following errors is an error of omission?

A)Purchase of ` 2,000 has been recorded in the Sales Return Book
B)Repairs to machinery has been debited to Machinery Accounts
C)The total of purchase journal has not been posted to the Purchase Account
D)Legal charges paid to Mr. Lawyer have been debited to his account

Question 9

If goods worth ` 1,750 returned to a supplier is wrongly entered in sales return book as ` 1,570 , then

A)Net Profit will decrease by ` 3,140 .
B)Gross Profit will increase by ` 3,320
C)Gross Profit will decrease by ` 3,500 .
D)Gross Profit will decrease by ` 3,320

Question 10

For the past 3 years, DK Ltd. has failed to accrue unpaid wages earned by workers during the last week of the year. The amounts omitted, which were considered material, were as follows: March 31,2010 - ` 56,000 March 31, 2011 - ` 51,000 March 31, 2012 - ` 64,000 The entry on March 31, 2012 to rectify these omissions would include a

A)Credit to wage expense for ` 64,000
B)Debit to wage expense for ` 64,000
C)Debit to wage expense for ` 51,000
D)Debit to wage expense for ` 13,000

Question 11

Purchase journal is kept to record

A)All purchases of goods .
B)All credit purchases of goods .
C)All credit purchases.
D)None of these

Question 12

The beginnings inventory of the current year is overstated by ` 5,000 and closing inventory is overstated by ` 12,000. These errors will cause the net income for the current year by

A)17,000 (overstated)
B)12,000 (understated)
C)7,000 (overstated)
D)7,000 (understated)

Question 13

Which of the following errors affects the agreement of a Trial Balance?

A)Mistake in balancing an account
B)Omitting to record a transaction entirely in the subsidiary books
C)Recording of a wrong entry in the subsidiary books
D)Posting an entry on the correct side but in the wrong account

Question 14

Which of the following statements is/are true?
(i) An error in casting the subsidiary books is an error of commission
(ii) An error in wrong casting of the sales day book will not affect the personal accounts of debtors
(iii) Mistake in transferring the balance of an account to the Trial Balance will not affect the agreement of the Trial Balance
(iv) The mistake of treating a liability as an income or vice versa will not affect the agreement of a Trial Balance

A)Only (i) above
B)Only (ii) above
C)Both (i) and (ii) above
D)(i),(ii) and (iv) above

Question 15

Which of the following should not be treated as revenue expenditure?

A)Interest on loans and debentures
B)Annual fire insurance premiums on Plant and Equipment
C)Sales tax paid in connection with the purchase of office equipment
D)Small expenditures on long- lived assets, such as ` 20 for a paper weight.

Question 16

Capital expenditure is an expenditure which

A)Benefits the current accounting period
B)Will benefit the next accounting period
C)Results in the acquisition of a permanent asset
D)Results in the acquisition of a current asset

Question 17

Which of the following is not a deferred revenue expenditure?

A)Expenses in connection with issue of equity shares
B)Preoperative expenses
C)Heavy advertising expenses to introduce a new product
D)Legal expenses incurred in defending a suit for breach of contract to supply goods

Question 18

Any donation received for a specific purpose is a

A)Liability .
B)Assets .
C)Revenue receipts .
D)Capital receipts

Question 19

Which of the following is an item of capital expenditure?

A)Research and development costs during the year
B)Interest on borrowed fund utilized for acquisition of Office Furniture
C)Installation charges paid in conjunction with the purchase of Office Equipment
D)Monthly rent of a machinery used in the business

Question 20

Which of the following statements is true?

A)Provision for doubtful debts represents the amount that cannot be collected
B)The distinction between capital and revenue items is important because it is of fundamental importance to the determination of profits
C)Goods lost by fire need not be accounted for since they are not sales
D)Free samples received are business gains

Question 21

The balance of which of the following accounts do not disappear, once they are debited/credited to Trading Account.

A)Sales
B)Purchases
C)Inward returns
D)Closing stock

Question 22

Which one of the following should be considered a revenue expenditure?

A)1000 paid for the execution of a new plant
B)Loss of `10,000 incurred in increasing the sitting accommodation of a hotel
C)Damage paid on account of breach of a contract to supply certain goods
D)Repair to machinery purchased, second hand.

Question 23

Which of the following statements are / is true? ?Events after Balance Sheet? are

A)All the significant events after the Balance Sheet date
B)The events after Balance Sheet date but before submitting it to the Registrar of Companies
C)The events after Balance Sheet date but before its approval by the board
D)All changes after Balance Sheet date before its approval

Question 24

Which one of the following is a capital expenditure?

A)Compensation paid to Directors on termination of their services
B)Expenditure incurred in connection with the renewal of a Trade Mark.
C)Gratuities paid to Directors on termination of their services.
D)Royalty paid in installments for the purchase of rights to manufacture and sell patient medicines.

Question 25

Which of the following enhances the earning capacity of an asset?

A)Increase in working capacity of an asset
B)Reduction in operating costs
C)Replacing damaged parts of an asset
D)Both (a) and (c) above