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Final Accounts Test 28

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Final Accounts Test 28
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  • Question 1
    1 / -0
    Inventory, is generally valued as lower of ________________.
    Solution
    Financial accounting is based on certain conventions , conservatism is one of them. Conservatism convention is based on the the concept "playing safe". Accordingly firms are recording all anticipated losses in books of account.

    Valuation of inventory on the basis of cost or net realizable value is also based on the conservatism convention. 
  • Question 2
    1 / -0
    If the rate of gross profit on sales is 25% and the cost of goods sold is Rs. 75,000, then the amount of total sales will be _________.
    Solution
    This can be formulated as:
    Sales - Cost of goods sold = Gross Profit

    If  sales is Rs.100
    Then Gross Profit becomes Rs.25 (25% of sales)
    Cost of Goods sold will be Rs.75 (Rs.100-Rs.25)
    Cost of goods sols is equal to 75% of sales
    Sales =Cost of goods sold/75%
    Sales=Rs.100000
  • Question 3
    1 / -0
    Abnormal loss is debited to _________.
    Solution
    In every production activity, a predetermined percentage is considered as normal loss. If the actual loss is more than the predetermined loss, difference is considered as abnormal loss which is debited to profit & loss account. 
  • Question 4
    1 / -0
    EOQ determines the order size when ______________.
    Solution
    Economic Order Quantity is the optimum quantity of goods that a firm may order in one time to minimize the annual cost of ordering and inventory carrying cost.
    EOQ is based on certain assumptions:
    a) Annual Demand 
    b) Ordering Cost
    c) Carrying cost 
  • Question 5
    1 / -0
    Depreciation on machinery amounting to Rs. 25,000 is appearing in the Trial Balance of a firm. When preparing Final Accounts, it should be shown in ________________.
    Solution
    Depreciation is charged on the value of fixed assets based on the a certain percentage every year. Depreciation is a reduction in the value of fixed due to its usage and were and tear. 
    Depreciation is an indirect loss to the business and should be debited to the Profit & Loss account of the particular year by passing the below journal entries:

    Depreciation A/c                               Dr. 25000
         To Fixed Assets                                                 25000
    (Being depreciation provided)

    Profit & Loss A/c                               Dr.  25000
         To Depreciation A/c                                         25000
  • Question 6
    1 / -0
    If the opening capital is Rs. 50,000 as on April 01, 2005 and additional capital introduced Rs. 10,000 on January 01, 2006. The interest charge on capital 10% p.a. The amount of interest on capital shown in profit and loss account as on March 31, 2005 will be:
    Solution
    Sometimes, the proprietor may like to know the profit made by the business after providing for interest on capital. In such a situation, interest is calculated at a given rate of interest on capital as at the beginning of the accounting year. If however, any additional capital is brought during the year, the interest may also be computed on such amount from the date on which it was brought into the business. Such interest is treated as and expense for the business and the following journal entry is recorded in the books of account:
    Interest on Capital A/c Dr.
         To Capital A/c
    If the opening capital is Rs. 50,000 as on April 01, 2005 and additional capital of Rs. 10,000 on January 01, 2006. The interest charge on capital is 10% p.a. The amount of interest on capital shown in profit and loss account on March 31, 2005 will be:
    Interest on Opening capital = Rs. 50,000 X 10/100
                                                   = Rs. 5,000
    Interest on Additional capital = Rs. 10,000 X 10/100 X 3/12
                                                    = Rs. 250
    Therefore, total amount of interest on capital = Rs. 5,000 + Rs. 250
                                                                                = Rs. 5,250
  • Question 7
    1 / -0
    The manager is entitled to a commission of 5% of net profit after changing such commission. 
    Profits before charging some commission is Rs. 21,000, find the commission ____________.
    Solution
    Calculation of commission = 21000 * 5 / 105 
                                                 = Rs 1000.
  • Question 8
    1 / -0
    An insurance claim of Rs. 300 was accepted in respect of stock of Rs. 500, which was destroyed by fire, Rs.200 not covered by insurance should be debited to ______________.
    Solution
    Loss of stock by fire is a loss  to the business and to be debited to the profit & loss account fully if it is not insured. 

    In the given situation, loss of stock is Rs.500 of which a claim of Rs.300 was accepted by the insurance company. Hence the actual loss to the business is only Rs.200 which should be debited to the profit & loss account. 
  • Question 9
    1 / -0
    Which of the following is not an advantage of Trading Account?
    Solution
    Trading account is prepared to know the Gross Profit of the business. To know the gross profit , major components are like sales , purchases opening stock, closing stocks and direct expenses are considered.
    Format for the Trading account is as under:

                                                         Trading Account

    To Opening Stock               xxxxx                     By Sales                  xxxxx
    To Purchases                      xxxxx                      By Closing Stock   xxxxx
    To Direct Labour                xxxxx
    To Direct Expenses           xxxxx
     To Gross Profit                 xxxxx
                                             -----------                                                    -------------
                                             xxxxx                                                         xxxxx
                                            -----------                                                    ---------------
  • Question 10
    1 / -0
    The following are the figures relating to a trader:
    Opening stock - $$Rs.10,000$$
    Closing stock - $$Rs.11,000$$
    Purchase - $$Rs.70,000$$
    The goods are sold at a profit of $$30$$% on cost. The amount of sales will be ____________.
    Solution
    Cost of Goods Sold can be be calculated as per given equation:

    Opening Stock + Purchases - Closing Stock = Cost of Goods Sold
    Rs.10000 + Rs.70000 - Rs. 11000

    Cost of Goods Sold = Rs. 69000

    In the given problem, sales is done with a profit of 30% on cost, hence

    Sales = Cost of goods sold + 30% of cost of goods sold
    Sales = Rs.69000 + 30% of Rs.69000
    Sales = Rs.69000 + Rs.20700
    Sales = Rs.89700
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