Financial Statements 2 Test 6

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Financial Statements 2 Test 6

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Weekly Quiz Competition

Question 1
1 / -0

Interest on capital is ________ on business.

A
expense

B
loss

C
profit

D
income

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 is brought into business.
Such interest is treated as expense for the business and the following entry is recorded in the books of account:
Interest on Capital A/c Dr.
To Capital A/c
Question 2
1 / -0

Manager's Commission is __________ to company.

A
Loss

B
Profit

C
Expense

D
Income

Solution

The manager of the business is sometimes given the commission on the net profit of the company. The percentage of the commission is applied on the profit either before charging such commission or after charging such commission. In the absence of any such information, it is assumed that commission is allowed as a percentage of the net profit before charging such commission. Manager's commission is an expense to the company.
Suppose the net profit of a business is Rs. 110 before charging commission.

If the manager is entitled to 10% of the profit before charging such commission, the commission will be calculated as:
= Rs. 110 X 10/100
= Rs. 11
Question 3
1 / -0

Interest is calculated at a given rate of interest on capital as at the _____ of the accounting year.

A
beginning of the year

B
ending of the year

C
additional capital

D
Both A & C

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 is brought into the business. Such interest is treated as expense for the business on debit side of profit and loss account.
Question 4
1 / -0

New R.D.D. is to be deducted from ________.

A
Bad debts

B
Debtors

C
Creditors

D
Cash

Solution

It is quite possible that whole of he amount of debtors may not be realised in future. However, it is not possible to accurately know the amount of such bad debts. Hence, a reasonable estimate of such loss is made and provided for the same. Such provision is called provision for bad debts and is created by debiting profit and loss account. The following journal entry is recorded as:
Profit and Loss A/c Dr.
To Provision for Doubtful Debts A/c
New Reserve for Doubtful Debts is deducted from the debtors on the asset side of the balance sheet.
Question 5
1 / -0

The manager of the business is sometimes given the commission on _______.

A
Salary

B
Purchase

C
Gross profit

D
Net profit

Solution

The manager of the business is sometimes given the commission on the net profit of the company. The percentage of the commission is applied on the profit either before charging such commission or after charging such commission. In the absence of any such information, it is assumed that commission is allowed as a percentage of the net profit before charging such commission.
Question 6
1 / -0

Which of the following transactions is of capital nature?

A
Purchase of a truck by a company

B
Replacement of old types and tubes

C
Yearly premium to insure the truck

D
Cost of repair of the truck

Solution

Capital expenditure is a money spent by a business or organization on acquiring or maintaining fixed assets, such as land, buildings, and equipment.
Hence, Purchase of a truck by a company is a capital expenditure.
Question 7
1 / -0

A, B and C are partners in a firm. Though there is no provision in the partnership deed for interest on capital, this has been provided in the account @ 10% p.a. for the two years ended on 31 Dec., 2013. Their fixed capitals on which interest was calculated were throughout A Rs. 15,000, B Rs. 12,000 and C Rs. 9,000. Their profit sharing ratios were 2007 - 5:3:2 and 2008 - 2: 2: 1. The necessary adjustment entry will be made as:

A
C's current a/c Dr. 360

To A's current a/c 240

To B's current a/c 120

B
A's current a/c Dr. 240

B's current a/c Dr. 120

To C's current a/c 360

C
A's current a/c Dr. 120

B's current a/c Dr. 240

To C's current a/c 360

D
C's current a/c Dr. 360

To A's current a/c 120

To B's current a/c 240
Question 8
1 / -0

When a fixed asset is acquired in exchange for another asset, its cost is usually determined by reference to the_________________.

A
Net book value of the asset given up

B
Gross book value of the asset given up

C
Net book value of the asset acquired

D
Gross book of the asset acquired

Solution

When a fixed asset is acquired in exchange for another asset, its cost is usually determined by reference to the net book value. Net book value of the asset given up is the cost less depreciation.
Question 9
1 / -0

Interest on capital will be ________.

A
debited to profit & loss account

B
credited to profit & loss account

C
debited to trading account

D
credited to trading account

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 period. 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 expense for the business and the following journal entry is recorded in the books of accounts:
Interest on Capital A/c Dr.
To Capital A/c
In the final accounts, it is shown as an expense on the debit side of the profit and loss account and added to capital in the balance sheet.
Question 10
1 / -0

There are certain items which are not recorded on day-to-day basis such as _________________.

A
Salary expenses

B
Wages expenses

C
Depreciation on fixed assets

D
Rent expenses

Solution

Depreciation on fixed assets, interest on capital, etc. are not recorded on day-to-day basis. These are adjusted at the time of preparing financial statements.

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Re-Attempt Weekly Quiz Competition

Financial Statements 2 Test 6

Result

Financial Statements 2 Test 6

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Rank

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SHARING IS CARING

Question 1

expense

loss

profit

income

Solution

Question 2

Loss

Profit

Expense

Income

Solution

Question 3

beginning of the year

ending of the year

additional capital

Both A & C

Solution

Question 4

Bad debts

Debtors

Creditors

Cash

Solution

Question 5

Salary

Purchase

Gross profit

Net profit

Solution

Question 6

Purchase of a truck by a company

Replacement of old types and tubes

Yearly premium to insure the truck

Cost of repair of the truck

Solution

Question 7

C's current a/c Dr. 360To A's current a/c 240To B's current a/c 120

A's current a/c Dr. 240B's current a/c Dr. 120To C's current a/c 360

A's current a/c Dr. 120B's current a/c Dr. 240To C's current a/c 360

C's current a/c Dr. 360To A's current a/c 120To B's current a/c 240

Question 8

Net book value of the asset given up

Gross book value of the asset given up

Net book value of the asset acquired

Gross book of the asset acquired

Solution

Question 9

debited to profit & loss account

credited to profit & loss account

debited to trading account

credited to trading account

Solution

Question 10

Salary expenses

Wages expenses

Depreciation on fixed assets

Rent expenses

Solution

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C's current a/c Dr. 360

To A's current a/c 240

To B's current a/c 120

A's current a/c Dr. 240

B's current a/c Dr. 120

To C's current a/c 360

A's current a/c Dr. 120

B's current a/c Dr. 240

To C's current a/c 360

C's current a/c Dr. 360

To A's current a/c 120

To B's current a/c 240