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CA Foundation Accounting study materials
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CA Foundation Accounting practice questions

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Question 1Accounting Principles and Processes

Under the dual aspect concept, every accounting transaction recorded in the books must have which effect?

  1. One effect on the ledger and one on the trial balance only
  2. Two effects of equal amount on different accounts Correct answer.
  3. One effect on a single account and a note in the journal
  4. Two effects that may be of unequal amount if the difference is posted to capital

Explanation

The dual aspect concept states that each transaction has two aspects, a debit and a credit, of equal amount, which keeps the accounting equation in balance. Recording unequal amounts would break the equality of assets and liabilities plus capital.

Question 2Accounting Principles and Processes

A firm follows the policy of recording anticipated losses but not anticipated gains. Which accounting principle or convention justifies this policy?

  1. Money measurement concept
  2. Convention of conservatism Correct answer.
  3. Convention of materiality
  4. Going concern assumption

Explanation

The convention of conservatism directs accountants to provide for all possible losses while ignoring anticipated profits, so that financial statements do not overstate the position. It is applied through provisions and valuations made on a prudent basis.

Question 3Accounting Principles and Processes

A machine purchased for Rs. 5,00,000 is expected to have a scrap value of Rs. 20,000 after a useful life of 8 years. Using the straight line method, what is the annual depreciation?

  1. Rs. 65,000
  2. Rs. 52,500
  3. Rs. 62,500
  4. Rs. 60,000 Correct answer.

Explanation

Under the straight line method, annual depreciation equals cost less scrap value divided by useful life. Here (5,00,000 minus 20,000) divided by 8 gives Rs. 60,000 per year.

Question 4Accounting Principles and Processes

Which book of original entry is used to record credit purchases of goods dealt in by the trader?

  1. Cash book
  2. Purchases return book
  3. General journal
  4. Purchases journal Correct answer.

Explanation

The purchases journal, also called the purchases book, records only credit purchases of goods in which the business deals. Cash purchases go to the cash book and return of goods goes to the purchases return book.

Question 5Accounting Principles and Processes

Which of the following is a capital expenditure for a trading business?

  1. Cost of installing a new lift in the office building Correct answer.
  2. Freight paid on goods purchased for resale
  3. Salary paid to the sales manager
  4. Repainting of the office walls done annually

Explanation

Costs incurred to acquire a fixed asset and bring it into working condition, including installation charges, are capital expenditure. They are added to the asset's cost and written off over its useful life.

Question 6Accounting Principles and Processes

Goods worth Rs. 4,000 were returned by a customer. In which book is this recorded, and on which side?

  1. Cash book, payment column
  2. Sales return book, debit column Correct answer.
  3. Sales book, credit column
  4. Purchases return book, credit column

Explanation

Goods returned by a customer are sales returns, recorded in the sales return book and debited to the customer's account. The return reduces the amount receivable from that customer.

Question 7Accounting Principles and Processes

In a three-column cash book, a cheque received from a customer and deposited on the same day is entered in which column?

  1. Cash column only
  2. Both cash and bank columns
  3. Discount column only
  4. Bank column only Correct answer.

Explanation

A cheque received is a banking transaction and is recorded on the debit side in the bank column of the three-column cash book. The cash column is reserved for actual cash receipts.

Question 8Accounting Principles and Processes

Which of the following is a current liability?

  1. Debentures redeemable after eight years
  2. Mortgage on factory land
  3. Bank loan repayable after five years
  4. Trade payables due within the operating cycle Correct answer.

Explanation

A liability is classified as current when it is expected to be settled within the normal operating cycle or within twelve months. Trade payables fall due in the ordinary course of business and are therefore current.

Question 9Accounting Principles and Processes

A trial balance shows total debits of Rs. 1,20,000 and total credits of Rs. 1,18,000. Which error could explain the difference?

  1. Salary of Rs. 2,000 debited to salary account but not posted to cash Correct answer.
  2. A credit sale of Rs. 2,000 completely omitted from the books
  3. A purchase of Rs. 2,000 posted to the supplier's account as Rs. 200
  4. A sale of Rs. 2,000 posted to the correct side of the wrong customer's account

Explanation

The trial balance difference of Rs. 2,000 arises because a debit of Rs. 2,000 was recorded without the corresponding credit, leaving the credit side short. A one-sided posting of this kind is precisely what causes a trial balance to disagree.

Question 10Accounting Principles and Processes

Goods costing Rs. 9,000 were sold to Ravi at a profit of 25% on cost. Later Ravi returned goods invoiced at Rs. 2,500. What amount remains outstanding from Ravi?

  1. Rs. 6,875
  2. Rs. 8,750 Correct answer.
  3. Rs. 9,000
  4. Rs. 6,500

Explanation

The invoice value of the sale is Rs. 9,000 plus 25% of Rs. 9,000, that is Rs. 11,250. Deducting the returns of Rs. 2,500 leaves Rs. 8,750 due from Ravi.

Question 11Accounting Principles and Processes

A trader's cash book showed a bank overdraft of Rs. 15,000. Cheques of Rs. 4,000 deposited were not yet credited by the bank, and cheques of Rs. 6,000 issued were not yet presented. What is the balance as per the bank pass book?

  1. Overdraft of Rs. 17,000
  2. Balance of Rs. 13,000
  3. Overdraft of Rs. 13,000 Correct answer.
  4. Overdraft of Rs. 25,000

Explanation

Starting from an overdraft of Rs. 15,000, deposits not yet credited increase the overdraft by Rs. 4,000, while unpresented cheques reduce it by Rs. 6,000. The pass book therefore shows an overdraft of Rs. 13,000.

Question 12Accounting Principles and Processes

An asset was purchased for Rs. 80,000 on 1 April 2022. Depreciation is charged at 10% per annum on the written down value. What is the depreciation charge for the year ended 31 March 2024?

  1. Rs. 7,200 Correct answer.
  2. Rs. 6,480
  3. Rs. 8,000
  4. Rs. 7,500

Explanation

Depreciation for 2022-23 is 10% of Rs. 80,000, that is Rs. 8,000, leaving a book value of Rs. 72,000. For 2023-24 the charge is 10% of Rs. 72,000, which equals Rs. 7,200.

Question 13Accounting Principles and Processes

Which of the following errors will be revealed by a trial balance?

  1. Posting the debit side of an entry twice Correct answer.
  2. Recording a sale of Rs. 500 as Rs. 5,000 in both accounts
  3. Purchasing furniture and debiting the purchases account
  4. Recording a cash sale in the sales book only

Explanation

Posting a debit twice makes the debit total exceed the credit total, so the trial balance will not agree. Errors of complete omission, principle and compensating errors keep the totals equal and remain hidden.

Question 14Accounting Principles and Processes

Which of the following best describes the accrual basis of accounting?

  1. Revenue is recognised when earned and expenses when incurred, irrespective of cash flow Correct answer.
  2. Only cash transactions are recorded and credit transactions are ignored
  3. Revenue and expenses are recorded when cash is received or paid
  4. Revenue is recognised only when the customer settles the invoice

Explanation

Under the accrual basis, revenue is recognised in the period in which it is earned and expenses in the period in which they are incurred, whether or not cash has moved. This gives a truer picture of profit than the cash basis.

Question 15Accounting Principles and Processes

A firm received Rs. 30,000 on 1 January 2024 as rent for twelve months in advance. If accounts are closed on 31 March 2024, what is the amount of rent relating to the next year?

  1. Rs. 22,500 Correct answer.
  2. Rs. 7,500
  3. Rs. 30,000
  4. Rs. 2,500

Explanation

Rent for three months, January to March, belongs to the current year, amounting to Rs. 7,500. The remaining nine months, Rs. 22,500, is income received in advance and is carried forward as a liability.

Question 16Accounting Principles and Processes

Which of the following is a contingent liability disclosed in the notes to the financial statements?

  1. A pending lawsuit where the outcome is uncertain Correct answer.
  2. Bank overdraft repayable on demand
  3. Provision for doubtful debts
  4. Outstanding salaries payable

Explanation

A contingent liability is a possible obligation whose existence will be confirmed only by uncertain future events, such as an unresolved lawsuit. It is disclosed in the notes rather than recognised in the balance sheet.

Question 17Accounting Principles and Processes

A sale of Rs. 6,000 to Meera was wrongly entered in the sales book as Rs. 600. Which rectifying entry is required?

  1. Debit suspense account Rs. 5,400 and credit sales Rs. 5,400
  2. Debit Meera Rs. 5,400 and credit sales Rs. 5,400 Correct answer.
  3. Debit sales Rs. 5,400 and credit Meera Rs. 5,400
  4. Debit Meera Rs. 600 and credit sales Rs. 600

Explanation

The sale was under-recorded by Rs. 5,400 in both Meera's account and the sales account. To correct it, Meera is debited and sales credited with Rs. 5,400, since the original entry was short on both sides.

Question 18Accounting Principles and Processes

Opening capital was Rs. 2,00,000 and closing capital Rs. 2,60,000. During the year the proprietor withdrew Rs. 30,000 and introduced Rs. 20,000 as fresh capital. What is the profit for the year?

  1. Rs. 60,000
  2. Rs. 90,000
  3. Rs. 70,000 Correct answer.
  4. Rs. 50,000

Explanation

Profit equals closing capital plus drawings minus opening capital and additional capital introduced. That is 2,60,000 plus 30,000 minus 2,00,000 minus 20,000, giving Rs. 70,000.

Question 19Accounting Principles and Processes

Which of the following is not a feature of a provision?

  1. It can be created for a general reserve to strengthen the financial position Correct answer.
  2. It is created for a known liability whose amount is uncertain
  3. It is a charge against profit
  4. It is shown as a deduction from the related asset or as a liability

Explanation

A provision is made for a known liability or a diminution in asset value where the amount cannot be determined precisely, and it is a charge against profit. A general reserve is an appropriation of profit and is not a provision.

Question 20Accounting Principles and Processes

A trader sells goods on credit at a gross profit of 20% on sales. Goods invoiced at Rs. 10,000 were returned by a customer. What is the effect of the return on the cost of goods sold and on profit?

  1. Cost of goods sold falls by Rs. 8,000 and profit falls by Rs. 2,000 Correct answer.
  2. Cost of goods sold falls by Rs. 2,000 and profit falls by Rs. 8,000
  3. Cost of goods sold falls by Rs. 10,000 and profit is unchanged
  4. Cost of goods sold and profit both fall by Rs. 5,000

Explanation

With a gross profit of 20% on sales, the cost of the returned goods is 80% of Rs. 10,000, that is Rs. 8,000. The return reduces sales by Rs. 10,000 and cost of goods sold by Rs. 8,000, so profit falls by the Rs. 2,000 margin.

Question 21Accounting Principles and Processes

A trader's trial balance shows a debit balance of Rs. 6,000 in the suspense account. Which of the following errors could have caused this?

  1. A purchase of Rs. 6,000 was completely omitted from the books
  2. A credit sale of Rs. 6,000 was posted twice to the customer's account
  3. Discount received of Rs. 6,000 was posted to the debit of discount allowed Correct answer.
  4. Sales return of Rs. 6,000 was posted to the debit of the customer's account

Explanation

Posting discount received to the debit instead of the credit places Rs. 6,000 on the wrong side, so the debit column exceeds the credit column by twice Rs. 6,000 and a debit suspense balance of Rs. 6,000 arises only if the error is of Rs. 3,000; the single-sided wrong posting of Rs. 6,000 instead leaves the credit side short and produces a credit suspense balance, so the correct reading is that a wrong-side posting of this kind creates a suspense balance equal to twice the amount.

Question 22Accounting Principles and Processes

A firm maintains a provision for doubtful debts at 5% of debtors. On 1 April 2023 the provision stood at Rs. 4,000. Debtors on 31 March 2024 were Rs. 1,00,000 and bad debts written off during the year were Rs. 2,000. What is the charge to the profit and loss account for the year?

  1. Rs. 1,000
  2. Rs. 3,000 Correct answer.
  3. Rs. 7,000
  4. Rs. 5,000

Explanation

The required provision is 5% of Rs. 1,00,000, that is Rs. 5,000. The charge is the new provision plus bad debts less the opening provision: 5,000 plus 2,000 minus 4,000 equals Rs. 3,000.

Question 23Accounting Principles and Processes

A and B share profits in the ratio 3:2. C is admitted for a 1/5 share, which he acquires wholly from A. What is the new profit sharing ratio?

  1. 9:6:5
  2. 3:2:1
  3. 2:3:1
  4. 2:2:1 Correct answer.

Explanation

C takes 1/5 from A's 3/5, leaving A with 2/5, while B retains 2/5. The new ratio is therefore 2/5 : 2/5 : 1/5, which simplifies to 2:2:1.

Question 24Accounting Principles and Processes

Which of the following statements about the money measurement concept is correct?

  1. It requires non-monetary events to be disclosed in the balance sheet
  2. It ensures that the purchasing power of money remains constant
  3. It requires all assets to be recorded at their current market value
  4. It restricts accounting records to transactions measurable in monetary terms Correct answer.

Explanation

The money measurement concept permits recording only those events that can be expressed in monetary units, which is why matters such as employee skill are excluded. It does not assume that the value of money is stable over time.

Question 25Accounting Principles and Processes

A company purchased a machine for Rs. 10,00,000 with an estimated life of 5 years and no residual value. It uses the sum of years digits method. What is the depreciation for the second year?

  1. Rs. 3,33,333
  2. Rs. 2,00,000
  3. Rs. 2,66,000
  4. Rs. 2,66,667 Correct answer.

Explanation

The sum of years digits for five years is 15. The second year's fraction is 4/15 of the depreciable cost of Rs. 10,00,000, giving Rs. 2,66,667 approximately.

Question 26Accounting Principles and Processes

Which concept requires that a business transaction be recorded at the amount actually paid or agreed, rather than at a later market value?

  1. Realisation concept
  2. Cost concept Correct answer.
  3. Going concern concept
  4. Matching concept

Explanation

The cost concept states that assets and transactions are recorded at their original acquisition cost, which is verifiable and objective. Subsequent changes in market value are generally ignored unless a specific standard requires revaluation.

Question 27Accounting Principles and Processes

A firm pays Rs. 12,000 as annual insurance premium on 1 October 2023 for the year ending 30 September 2024. If accounts are closed on 31 March 2024, what amount is charged to the Profit and Loss Account for the year?

  1. Rs. 9,000
  2. Rs. 12,000
  3. Rs. 3,000
  4. Rs. 6,000 Correct answer.

Explanation

Under the accrual and matching concepts, only the premium relating to the current accounting period is expensed. Six months (1 October to 31 March) of the twelve-month policy have expired, so half of Rs. 12,000, i.e. Rs. 6,000, is charged and the remaining Rs. 6,000 is prepaid.

Question 28Accounting Principles and Processes

Which of the following is the correct sequence of accounting steps in the accounting cycle?

  1. Trial balance, journal, ledger, financial statements
  2. Journal, ledger, trial balance, financial statements Correct answer.
  3. Journal, trial balance, ledger, financial statements
  4. Ledger, journal, trial balance, financial statements

Explanation

Transactions are first recorded in the journal, then posted to ledger accounts, from which a trial balance is extracted to check arithmetical accuracy before preparing financial statements. Posting must precede the trial balance because the trial balance is a summary of ledger balances.

Question 29Accounting Principles and Processes

A firm purchased furniture for Rs. 50,000 and paid installation charges of Rs. 2,000. It also paid Rs. 1,000 as annual maintenance contract fee. At what amount should the furniture be recorded in the books?

  1. Rs. 52,000 Correct answer.
  2. Rs. 50,000
  3. Rs. 53,000
  4. Rs. 51,000

Explanation

All costs necessary to bring an asset to its working condition are capitalised, so the installation charge of Rs. 2,000 is added to the purchase price. The maintenance fee is a recurring revenue expense and is charged to the Profit and Loss Account instead of being added to the asset.

Question 30Accounting Principles and Processes

Which of the following is a source document for recording a credit sale of goods?

  1. Debit note
  2. Petty cash voucher
  3. Sales invoice Correct answer.
  4. Purchase invoice

Explanation

A sales invoice is prepared by the seller and shows the details of goods sold on credit, including quantity, rate and amount. It provides the basis for recording the transaction in the sales book.

Question 31Accounting Principles and Processes

A trader maintains a provision for doubtful debts at 5% of sundry debtors. On 31 March 2024, debtors stood at Rs. 2,00,000 and the existing provision was Rs. 8,000. What amount is debited or credited to the Profit and Loss Account?

  1. Rs. 10,000 debited
  2. Rs. 2,000 credited Correct answer.
  3. Rs. 8,000 credited
  4. Rs. 2,000 debited

Explanation

The required provision is 5% of Rs. 2,00,000, i.e. Rs. 10,000, but the existing provision is already Rs. 8,000. The increase needed is only Rs. 2,000, and since the existing provision is larger than before, the net effect is a credit to the Profit and Loss Account for Rs. 2,000.

Question 32Accounting Principles and Processes

Which of the following errors would cause the trial balance to disagree?

  1. Rent paid Rs. 1,500 posted correctly to rent account but omitted from cash account Correct answer.
  2. A credit sale of Rs. 5,000 completely omitted from the books
  3. Purchase of machinery for Rs. 20,000 recorded as purchase of goods
  4. A cash sale of Rs. 3,000 posted to the sales account as Rs. 300

Explanation

A trial balance fails to agree when only one side of a journal entry is posted. Omitting the cash account credit while correctly debiting rent leaves a one-sided entry, so total debits and credits will differ by Rs. 1,500.

Question 33Accounting Principles and Processes

Under the double entry system, which account is debited when a business pays Rs. 5,000 to a creditor by cheque?

  1. Bank account
  2. Purchases account
  3. Creditor's account Correct answer.
  4. Cash account

Explanation

Paying a creditor reduces the liability owed to that creditor, and a decrease in a liability is recorded as a debit. The corresponding credit goes to the bank account because the bank balance falls.

Question 34Accounting Principles and Processes

A firm's cash book shows a debit balance of Rs. 10,000, but the bank statement shows a different balance. Cheques of Rs. 2,000 issued were not presented for payment. What is the balance as per the bank statement before other adjustments?

  1. Rs. 10,000
  2. Rs. 12,000 Correct answer.
  3. Rs. 2,000
  4. Rs. 8,000

Explanation

Cheques issued but not yet presented have been deducted in the cash book but not in the bank statement. Therefore, the bank statement balance is higher than the cash book balance by Rs. 2,000, giving Rs. 12,000.

Question 35Accounting Principles and Processes

Which of the following is a fundamental accounting assumption according to the framework of accounting?

  1. Going concern Correct answer.
  2. Prudence
  3. Consistency
  4. Materiality

Explanation

Going concern is one of the fundamental accounting assumptions, along with accrual and consistency, that underlie the preparation of financial statements. It assumes the entity will continue in operation for the foreseeable future.

Question 36Accounting Principles and Processes

A firm's sales for the year were Rs. 5,00,000, of which Rs. 4,00,000 were on credit. Debtors at the beginning were Rs. 60,000 and at the end Rs. 90,000. What is the amount of cash received from debtors during the year?

  1. Rs. 3,90,000
  2. Rs. 4,30,000
  3. Rs. 3,70,000 Correct answer.
  4. Rs. 4,00,000

Explanation

Cash received from debtors equals opening debtors plus credit sales minus closing debtors. That is Rs. 60,000 + Rs. 4,00,000 - Rs. 90,000 = Rs. 3,70,000.

Question 37Accounting Principles and Processes

Which of the following is a feature of a trial balance?

  1. It ensures that all transactions are recorded
  2. It replaces the need for financial statements
  3. It detects errors of complete omission
  4. It proves the arithmetical accuracy of the ledger postings Correct answer.

Explanation

A trial balance lists debit and credit balances and checks whether total debits equal total credits, thereby testing arithmetical accuracy. It cannot detect errors that do not disturb the equality of the two sides.

Question 38Accounting Principles and Processes

A firm's machinery account showed a balance of Rs. 80,000 on 1 April 2023. On 1 October 2023, additional machinery costing Rs. 40,000 was purchased. Depreciation is charged at 10% per annum on the straight-line method. What is the depreciation charge for the year ended 31 March 2024?

  1. Rs. 12,000
  2. Rs. 10,000 Correct answer.
  3. Rs. 6,000
  4. Rs. 8,000

Explanation

Depreciation on the opening machinery is Rs. 80,000 × 10% = Rs. 8,000 for the full year. The addition of Rs. 40,000 is depreciated for six months, giving Rs. 2,000. The total charge is therefore Rs. 10,000.

Question 39Accounting Principles and Processes

Which of the following is a capital expenditure?

  1. Payment of wages to workers
  2. Insurance premium on machinery
  3. Replacement of a worn-out part of a machine with an improved part Correct answer.
  4. Whitewashing of factory building

Explanation

Replacing a part with an improved version increases the earning capacity or useful life of the asset and is therefore capital expenditure. Routine repairs, wages and insurance are revenue expenses charged to the Profit and Loss Account.

Question 40Accounting Principles and Processes

A firm's profit for the year before charging interest on capital was Rs. 1,00,000. Capital employed was Rs. 5,00,000 and the normal rate of return is 10%. What is the super profit?

  1. Rs. 10,000
  2. Rs. 1,00,000
  3. Rs. 40,000
  4. Rs. 50,000 Correct answer.

Explanation

Normal profit is 10% of Rs. 5,00,000, i.e. Rs. 50,000. Super profit is the excess of actual profit over normal profit, which is Rs. 1,00,000 - Rs. 50,000 = Rs. 50,000.

Question 41Accounting Principles and Processes

Which of the following statements about the matching concept is correct?

  1. Expenses are matched with the revenue of the period they help to earn Correct answer.
  2. Expenses are recognised when they are paid
  3. Revenue is recognised when cash is received
  4. Assets are recorded at their market value

Explanation

The matching concept requires that expenses incurred to earn revenue be recognised in the same period as the related revenue, regardless of when cash is paid. This supports accrual accounting and proper determination of profit.

Question 42Accounting Principles and Processes

A firm's trial balance shows a suspense account with a debit balance of Rs. 3,000. Later it is found that a sale of Rs. 3,000 to Ram was posted to Ram's account as Rs. 300. What is the rectifying entry?

  1. Debit Sales account Rs. 2,700 and credit Ram's account Rs. 2,700
  2. Debit Suspense account Rs. 2,700 and credit Ram's account Rs. 2,700
  3. Debit Ram's account Rs. 3,000 and credit Sales account Rs. 3,000
  4. Debit Ram's account Rs. 2,700 and credit Suspense account Rs. 2,700 Correct answer.

Explanation

Ram's account was under-debited by Rs. 2,700 (Rs. 3,000 - Rs. 300), which caused the suspense account to show a debit balance. To rectify, Ram's account must be debited by Rs. 2,700 and the suspense account credited by the same amount.

Question 43Accounting Principles and Processes

Which of the following is a current asset?

  1. Goodwill
  2. Prepaid rent Correct answer.
  3. Loose tools
  4. Motor vehicle

Explanation

Prepaid rent represents an expense paid in advance that will be consumed within the next accounting period, so it is a current asset. Goodwill is an intangible non-current asset, and loose tools and motor vehicles are fixed assets.

Question 44Accounting Principles and Processes

A firm's opening stock was Rs. 40,000, purchases Rs. 2,00,000, and closing stock Rs. 50,000. Goods costing Rs. 10,000 were returned to suppliers. What is the cost of goods sold?

  1. Rs. 1,90,000
  2. Rs. 1,80,000 Correct answer.
  3. Rs. 2,00,000
  4. Rs. 1,70,000

Explanation

Cost of goods sold is opening stock plus net purchases minus closing stock. Net purchases are Rs. 2,00,000 - Rs. 10,000 = Rs. 1,90,000; adding opening stock of Rs. 40,000 and deducting closing stock of Rs. 50,000 gives Rs. 1,80,000.

Question 45Accounting Principles and Processes

Which of the following is a limitation of the trial balance?

  1. It cannot detect errors of duplication
  2. It cannot detect errors of principle Correct answer.
  3. It cannot detect errors of commission
  4. It cannot detect errors of partial omission

Explanation

Errors of principle arise when a transaction is recorded in the wrong class of account, such as treating capital expenditure as revenue expenditure. Both sides of the entry are posted, so the trial balance still agrees and cannot reveal such errors.

Question 46Accounting Principles and Processes

A firm's capital at the beginning of the year was Rs. 3,00,000 and at the end Rs. 4,00,000. During the year the proprietor introduced additional capital of Rs. 50,000 and withdrew Rs. 20,000. What is the profit for the year?

  1. Rs. 70,000 Correct answer.
  2. Rs. 1,00,000
  3. Rs. 30,000
  4. Rs. 50,000

Explanation

Closing capital equals opening capital plus additional capital plus profit minus drawings. Rearranging, profit is Rs. 4,00,000 - Rs. 3,00,000 - Rs. 50,000 + Rs. 20,000 = Rs. 70,000.

Question 47Accounting Principles and Processes

Which of the following is a contingent liability that would be disclosed in the notes to the financial statements?

  1. Provision for taxation
  2. A bill discounted with the bank that may be dishonoured Correct answer.
  3. Trade payables outstanding at the year end
  4. Bank overdraft

Explanation

A contingent liability is a possible obligation whose existence will be confirmed only by uncertain future events. A bill discounted with recourse creates such a possibility, so it is disclosed by way of a note rather than recognised as a liability.

Question 48Accounting Principles and Processes

A firm's cash book showed a bank overdraft of Rs. 20,000. Cheques of Rs. 5,000 deposited were not yet credited by the bank, and cheques of Rs. 3,000 issued were not yet presented. What is the balance as per the pass book?

  1. Rs. 18,000 overdraft Correct answer.
  2. Rs. 12,000 overdraft
  3. Rs. 28,000 overdraft
  4. Rs. 22,000 overdraft

Explanation

Starting with the cash book overdraft of Rs. 20,000, cheques deposited but not credited mean the bank balance is lower by Rs. 5,000, and cheques issued but not presented mean it is higher by Rs. 3,000. Thus the pass book overdraft is Rs. 20,000 + Rs. 5,000 - Rs. 3,000 = Rs. 22,000.

Question 49Accounting Principles and Processes

Which of the following is an example of an error of principle?

  1. Purchase of furniture debited to Purchases account Correct answer.
  2. Sale of Rs. 500 recorded as Rs. 50 in the sales book
  3. Cash received from Ram not recorded in the cash book
  4. Rent paid to landlord posted twice in the rent account

Explanation

An error of principle occurs when a transaction is recorded in the wrong class of account, such as treating a capital expenditure as revenue expenditure. Debiting furniture to Purchases mixes a capital item with a revenue expense, so it is an error of principle.

Question 50Accounting Principles and Processes

Which of the following items would appear on the debit side of a partner's capital account?

  1. Share of profit
  2. Drawings Correct answer.
  3. Interest on capital
  4. Salary to partner

Explanation

Drawings reduce the partner's capital and are therefore recorded on the debit side of the capital account. Interest on capital, share of profit and partner's salary all increase the capital balance and appear on the credit side.