Deck 35: Accounting Adjustments and Financial Statement Treatment

Question 1

Cost of goods sold excludes-

A)Opening Stock .
B)Carriage inward .
C)Wages & Salary .
D)Postage & Stamps

Answer 1

Postage & Stamps

Question 2

Tax deducted at source A/c appears in-

A)Assets side .
B)Liability side .
C)Profit & Loss A/c .
D)Debited to Capital A/c

Answer 2

Assets side .

Question 3

Investment in own share A/c appears in -

A)Asset side .
B)Liability side .
C)Netted from Capital .
D)Profit & Loss A/c

Answer 3

Asset side .

Question 4

Payments received in advance from a customer for a contract can be

A)Shown as a deduction from contract work-in-progress on asset side
B)Shown as a liability
C)Credited to P&L A/c
D)Either (a) or (b) above

Question 5

If a company has contingent liabilities, they appear in the

A)Balance Sheet
B)Directors' report
C)Notes on account to Balance Sheet
D)Chairman's report

Question 6

Recent developments have made much of a company's inventory obsolete. This obsolete inventory should be

A)Written down to zero or its scrap value
B)Shown in the Balance Sheet at its replacement cost
C)Shown in the Balance Sheet at cost, but classified as a non-current asset
D)Carried in the accounting records at cost until it is sold

Question 7

Which of the following is not classified as inventory in the financial statements?

A)Finished goods .
B)Work-in-process .
C)Stores and spares
D)Advance payments made to suppliers for raw materials

Question 8

Which of the following statements is true?

A)Inventory valuation affects only the income statement
B)Undercasting or overcastting of subsidiary book is an example of error of commission
C)Capital expenditure wrongly treated as revenue is an example of error of commission
D)Inventories should be valued at lower of historical cost and current replacement cost

Question 9

Which of the following statements is / are not correct?

A)Provision for bad debts appears as a liability on the Balance Sheet
B)The provision for bad debts is owed to the proprietor
C)Bad debts could be less than the provision for bad debts
D)Bad debts could exceed the provision for bad debts

Question 10

If actual bad debts are more than the provision for bad debts, then there will be a

A)Credit balance of Provision for Bad Debts Account
B)Debit balance of Provision for Bad Debts Account
C)Debit balance of Bad Debts Account
D)Debit balance of Discount on Debtors Account

Question 11

The creation of provision for doubtful debts given as an adjustment requires

A)Debit Profit and Loss Account and deduct the provision from debtors
B)Credit Profit & Loss Account and deduct the provision from debtors
C)Credit Profit and Loss Account and add the provision to debtors
D)Debit Profit & Loss Account and add the provision to debtors

Question 12

Under the direct write-off method of recognizing a bad debt expense. Which of the following statements is/are true?

A)The bad debt expense is not matched with the related sales
B)Revenue is overstated in the year of sales
C)It violates the matching principle of accounting
D)All of the above

Question 13

At the time of preparation of financial accounts, bad debt recovered account will be transferred to

A)Debtors A/c
B)Profit & Loss A/c
C)Profit & Loss Adjustment A/c
D)Profit & Loss Appropriation A/c

Question 14

The balance of Revaluation Reserve pertaining to an asset that has been disposed off or retired can be transferred to

A)General Reserve A/c
B)Profit & Loss A/c
C)Asset A/c
D)Capital Reserve A/c

Question 15

Outstanding salaries is shown as

A)An Asset in the Balance Sheet
B)A Liability
C)By adjusting it in the P & L A/c
D)Both (b) and (c) above

Question 16

Insurance prepaid is shown as

A)Current Asset
B)Current Liability
C)Fixed Asset
D)Income

Question 17

Depreciation appearing in the Trial Balance should be

A)Debited to P&L A/c
B)Shown as liability in Balance Sheet
C)Reduced from related asset in Balance Sheet
D)Both (a) and (c) above

Question 18

A club paid subscription fees of `1,400. Out of which ` 200 is prepaid. In such case

A)P&L A/C is debited with ` 1,400
B)P&L A/C is debited with ` 1,200
C)200 is shown as current asset
D)Both (b) and (c) above

Question 19

Bad debts recovered is

A)Credited to P&L A/c
B)Debited to P&L A/c
C)Reduced from debtors in Balance Sheet
D)Added to debtors in Balance Sheet

Question 20

The adjustment to be made for prepaid expenses is

A)Add prepaid expenses to respective expenses and show it as an asset
B)Deduct prepaid expenses from respective expenses and show it as an asset
C)Add prepaid expenses to respective expenses and show it as a liability
D)Deduct prepaid expenses from respective expenses and show it as a liability

Question 21

On scrutiny of a firm's books of accounts, it was observed that the following errors have occurred in the previous years but have not yet been rectified. i. Depreciation for 2011-2012- ` 7,000 understated ii. Accrued expenses as at March 31, 2013 - ` 10,000 understated The impact of this on the reported net income for the year ending March 31, 2013 is

A)7,000 Overstated
B)10,000 Overstated
C)17,000 Understated
D)17,000 Overstated

Question 22

Which of the following entries is correct in respect of reserve for discounts on accounts payable?

A)Debit P&L A/c and Credit Reserve for Discount on Accounts Payable A/c
B)Debit Accounts Payable A/c and Credit P&L A/c
C)Debit Reserve for Discount on Accounts Payable A/c and Credit P&L A/c
D)Debit Reserve for Discount on Accounts Payable A/c and credit Accounts Payable A/c

Question 23

Goods in stock worth ` 800 are destroyed by fire and the Insurance Co. is accepted the claim for ` 600. Adjustment would involve:

A)Debit of ` 800 to Trading Account and credit of ` 600 and ` 200 to insurance company and Profit and Loss Account respectively
B)Deduct the ` 800 from closing stock in the Trading Account
C)Credit insurance company for ` 600
D)Debit of ` 600 and ` 200 to insurance company and Profit and Loss Account respectively and