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RSMSSB Junior Accountant study materials
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RSMSSB Junior Accountant practice questions

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Question 1Accountancy and Book-keeping

Which book of original entry is used to record credit purchases of goods for resale?

  1. Cash book
  2. Journal proper
  3. Sales book
  4. Purchases book Correct answer.

Explanation

The purchases book is a subsidiary book that records only credit purchases of goods meant for resale. Cash purchases go to the cash book and purchase of assets goes to the journal proper.

Question 2Accountancy and Book-keeping

Under the double-entry system, every transaction affects how many accounts and with what effect?

  1. Only the account named in the voucher
  2. At least two accounts, with equal debits and credits Correct answer.
  3. One account only, recorded twice
  4. Two accounts, both debited

Explanation

Double entry means each transaction is recorded in two or more accounts such that total debits equal total credits. This keeps the accounting equation in balance at all times.

Question 3Accountancy and Book-keeping

Goods worth ₹5,000 were returned by a customer. In which book is this recorded?

  1. Cash book
  2. Bills receivable book
  3. Purchases returns book
  4. Sales returns book Correct answer.

Explanation

Goods returned by a customer are sales returns, also called returns inward, and are entered in the sales returns book. The customer's account is credited and the sales returns account is debited.

Question 4Accountancy and Book-keeping

Which of the following is a capital expenditure?

  1. Wages paid for installation of new machinery Correct answer.
  2. Rent paid for the factory shed
  3. Carriage paid on goods sold
  4. Salary paid to the accountant

Explanation

Wages paid to install machinery are part of the cost of bringing the asset into working condition, so they are capitalised. Routine running costs such as rent, carriage on sales and salaries are revenue expenditure.

Question 5Accountancy and Book-keeping

A trial balance tallies but still contains errors. Which error will leave the trial balance in agreement?

  1. Posting only the debit side of a journal entry
  2. Recording a credit sale in the cash book
  3. Wrong totalling of the sales book
  4. A sale of ₹900 to Mohan posted as ₹900 to Sohan Correct answer.

Explanation

An error of commission where one personal account is replaced by another keeps total debits and credits equal, so the trial balance still agrees. Errors of partial omission, wrong casting and posting to the wrong class of account disturb the agreement.

Question 6Accountancy and Book-keeping

A machine costing ₹10,00,000 is depreciated at 10% per annum on the written-down value method. What is the depreciation charge for the second year?

  1. ₹1,10,000
  2. ₹80,000
  3. ₹90,000 Correct answer.
  4. ₹1,00,000

Explanation

First-year depreciation is ₹1,00,000, leaving a book value of ₹9,00,000. Ten per cent of ₹9,00,000 is ₹90,000, which is the second-year charge under the reducing balance method.

Question 7Accountancy and Book-keeping

A cheque deposited into the bank is recorded in the cash book but not yet collected by the bank. In a bank reconciliation statement starting from the cash book balance, this item is:

  1. Added to the cash book balance Correct answer.
  2. Deducted from the cash book balance
  3. Ignored entirely
  4. Added to the pass book balance

Explanation

A cheque deposited but not yet credited by the bank means the pass book balance is lower than the cash book balance. When starting from the cash book balance, such cheques are added to arrive at the pass book balance.

Question 8Accountancy and Book-keeping

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

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

Explanation

When a cheque is received and banked on the same day, the amount is entered in the bank column as a receipt and in the cash column as a payment. This is the contra entry marked with the letter C.

Question 9Accountancy and Book-keeping

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

  1. Outstanding wages
  2. Prepaid insurance
  3. A pending lawsuit where the outcome is uncertain Correct answer.
  4. Provision for doubtful debts

Explanation

A contingent liability is a possible obligation whose existence depends on a future uncertain event, such as an unsettled lawsuit. It is disclosed by way of a note rather than recognised in the balance sheet.

Question 10Accountancy and Book-keeping

Opening stock ₹40,000, purchases ₹2,60,000, closing stock ₹50,000 and sales ₹4,00,000. What is the gross profit?

  1. ₹1,50,000 Correct answer.
  2. ₹1,60,000
  3. ₹1,10,000
  4. ₹1,40,000

Explanation

Cost of goods sold equals opening stock plus purchases minus closing stock, that is ₹40,000 + ₹2,60,000 − ₹50,000 = ₹2,50,000. Gross profit is sales ₹4,00,000 minus ₹2,50,000, giving ₹1,50,000.

Question 11Accountancy and Book-keeping

An error of principle occurs when:

  1. A subsidiary book is wrongly totalled
  2. A wrong amount is posted to the correct account
  3. A transaction is completely omitted from the books
  4. Capital expenditure is debited to a revenue expense account Correct answer.

Explanation

An error of principle is a wrong application of accounting rules, such as treating the purchase of a fixed asset as a repairs expense. Such errors do not affect the trial balance agreement.

Question 12Accountancy and Book-keeping

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

  1. Only cash transactions are recorded in the books
  2. Revenue and expenses are recorded when cash is received or paid
  3. Revenue is recorded only when the customer pays
  4. Revenue and expenses are recorded when they are earned or incurred Correct answer.

Explanation

Under the accrual basis, income is recognised when earned and expenses when incurred, regardless of the timing of cash movement. This matches revenues with related costs for the period.

Question 13Accountancy and Book-keeping

A bill of exchange is drawn by the seller and accepted by the buyer. Who is the acceptor?

  1. The drawer
  2. The payee
  3. The endorsee
  4. The drawee Correct answer.

Explanation

The drawer writes the bill, the drawee is the party on whom it is drawn, and the drawee becomes the acceptor on signing it. Acceptance creates the liability of the buyer on the bill.

Question 14Accountancy and Book-keeping

Under the reducing balance method, depreciation for each year is calculated on:

  1. The market value of the asset
  2. The original cost of the asset
  3. The scrap value of the asset
  4. The book value at the beginning of the year Correct answer.

Explanation

In the written-down value method, depreciation is charged on the opening book value, so the charge falls each year. The original cost is used only in the first year.

Question 15Accountancy and Book-keeping

Which of these is a fundamental accounting assumption as per accounting conventions?

  1. Consistency of stock valuation
  2. Prudence in making estimates
  3. Materiality of items
  4. Going concern Correct answer.

Explanation

Going concern is a fundamental accounting assumption that the enterprise will continue in operation for the foreseeable future. Consistency, prudence and materiality are conventions or modifying principles.

Question 16Accountancy and Book-keeping

A trader's capital is ₹5,00,000, drawings ₹60,000 and closing capital ₹5,80,000. What is the profit for the year?

  1. ₹1,20,000
  2. ₹20,000
  3. ₹80,000
  4. ₹1,40,000 Correct answer.

Explanation

Closing capital equals opening capital plus profit minus drawings. Rearranging, profit equals ₹5,80,000 − ₹5,00,000 + ₹60,000 = ₹1,40,000.

Question 17Accountancy and Book-keeping

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. 3:2:1
  2. 3:1:1
  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. B retains 2/5 and C holds 1/5, giving the ratio 2:2:1.

Question 18Accountancy and Book-keeping

A and B are partners sharing profits equally. A draws ₹6,000 at the beginning of each month for six months. Interest on drawings at 12% per annum is:

  1. ₹2,160
  2. ₹720
  3. ₹1,080
  4. ₹1,260 Correct answer.

Explanation

For drawings at the beginning of each month for six months, interest is calculated on the total drawings of ₹36,000 for an average period of 3.5 months. Thus ₹36,000 × 12% × 3.5/12 = ₹1,260.

Question 19Accountancy and Book-keeping

In the absence of a partnership deed, which of the following is allowed to a partner?

  1. Commission on sales effected
  2. Salary for managing the business
  3. Interest on a loan advanced to the firm at 6% per annum Correct answer.
  4. Interest on capital at 6% per annum

Explanation

Where no deed exists, the Partnership Act allows interest on a partner's loan to the firm at 6% per annum. No salary, interest on capital or commission is payable without an agreement.

Question 20Accountancy and Book-keeping

Under the Companies Act, 2013, which account is prepared to show the appropriation of profits for a financial year?

  1. Statement of Profit and Loss Correct answer.
  2. Notes to Accounts
  3. Balance Sheet
  4. Cash Flow Statement

Explanation

The Statement of Profit and Loss for a company shows income, expenses and the appropriation of profit, including dividends and transfers to reserves. The balance sheet then presents the resulting equity and liabilities.

Question 21Accountancy and Book-keeping

A company issued 10,000 equity shares of ₹10 each at a premium of ₹2 per share, payable ₹6 on application and the balance on allotment. What is the amount received on allotment?

  1. ₹40,000
  2. ₹1,00,000
  3. ₹60,000 Correct answer.
  4. ₹80,000

Explanation

The total issue price per share is ₹12 including premium. Applications bring ₹6 per share, so the balance of ₹6 per share, that is ₹60,000 for 10,000 shares, is due on allotment.

Question 22Accountancy and Book-keeping

Which of the following is a source of funds in the preparation of a funds flow statement?

  1. Issue of shares for cash Correct answer.
  2. Payment of dividends
  3. Increase in debtors
  4. Purchase of a fixed asset for cash

Explanation

Issue of shares for cash brings in working capital and is a source of funds. Uses of funds include buying fixed assets, paying dividends and increases in current assets such as debtors.

Question 23Accountancy and Book-keeping

Which of the following items is shown under the head 'Reserves and Surplus' in a company's balance sheet?

  1. Trade Payables
  2. Securities Premium Correct answer.
  3. Provision for Tax
  4. Short-term Borrowings

Explanation

Securities premium is a capital reserve credited on issue of shares and is presented under Reserves and Surplus. Trade payables and short-term borrowings are liabilities, while provision for tax is a current liability.

Question 24Accountancy and Book-keeping

A petty cashier is given a fixed float of ₹5,000 under the imprest system. If expenses for the period total ₹3,200, how much is reimbursed and what is the balance in hand?

  1. Reimbursement ₹3,200; balance ₹5,000
  2. Reimbursement ₹3,200; balance ₹1,800 Correct answer.
  3. Reimbursement ₹1,800; balance ₹3,200
  4. Reimbursement ₹5,000; balance nil

Explanation

Under the imprest system the petty cashier is reimbursed exactly what was spent, so ₹3,200 is paid to restore the float. The cash remaining with the petty cashier is the float of ₹5,000 minus ₹3,200, that is ₹1,800.

Question 25Accountancy and Book-keeping

A trader's trial balance shows a difference of ₹900 placed in a suspense account. Later, a purchase of ₹900 was found posted to the sales account. Which statement is true?

  1. The correction requires debiting sales and crediting purchases with ₹900
  2. The error cannot be corrected once a suspense account is opened
  3. The correction requires debiting purchases and crediting sales with ₹900, and the suspense account is not affected Correct answer.
  4. The suspense account must be debited with ₹900 to correct it

Explanation

Posting a purchase to the sales account instead of purchases affects two nominal accounts with equal amounts, so the trial balance still agrees and no suspense balance arises from it. The correction is to debit purchases and credit sales by ₹900.

Question 26Accountancy and Book-keeping

Which of the following is a fundamental accounting assumption as per accounting conventions?

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

Explanation

Going concern is one of the fundamental accounting assumptions, along with consistency and accrual, as per accounting conventions. It assumes that the entity will continue to operate in the foreseeable future.

Question 27Accountancy and Book-keeping

A machine costing ₹10,00,000 is depreciated at 10% per annum on the written-down value method. What is the depreciation for the second year?

  1. ₹90,000 Correct answer.
  2. ₹1,10,000
  3. ₹81,000
  4. ₹1,00,000

Explanation

Under the written-down value method, depreciation for the second year is calculated on the book value at the beginning of the second year. First-year depreciation is ₹1,00,000, so book value is ₹9,00,000; 10% of that is ₹90,000.

Question 28Accountancy and Book-keeping

A cheque deposited into the bank is recorded in the cash book but not yet collected by the bank. In a bank reconciliation statement, this will cause:

  1. No difference between the two balances
  2. The bank balance as per cash book to be lower than the bank statement
  3. The bank balance as per cash book to be higher than the bank statement Correct answer.
  4. The bank statement balance to be higher than the cash book balance

Explanation

When a cheque is deposited but not yet collected, the cash book shows the deposit, increasing the cash book balance, while the bank statement does not yet reflect it. Hence, the cash book balance is higher than the bank statement balance.

Question 29Accountancy and Book-keeping

A and B are partners sharing profits equally. A draws ₹6,000 at the beginning of each month for six months. Interest on drawings is charged at 10% per annum. What is the interest on drawings?

  1. ₹1,800
  2. ₹1,200
  3. ₹900
  4. ₹1,050 Correct answer.

Explanation

For drawings at the beginning of each month for six months, the average period is (6+1)/2 = 3.5 months. Total drawings = ₹6,000 × 6 = ₹36,000. Interest = ₹36,000 × 10% × 3.5/12 = ₹1,050.

Question 30Accountancy and Book-keeping

A petty cashier is given a fixed float of ₹5,000 under the imprest system. If expenses for the period total ₹3,200, how much will be reimbursed to restore the imprest?

  1. ₹5,000
  2. ₹3,200 Correct answer.
  3. ₹8,200
  4. ₹1,800

Explanation

Under the imprest system, the petty cashier is reimbursed the exact amount spent so that the float is restored to the original amount. Hence, reimbursement is ₹3,200.

Question 31Accountancy and Book-keeping

A trader's trial balance shows a difference of ₹900 placed in a suspense account. Later, a purchase of ₹900 was found posted to the supplier's account as ₹90. Which account will be debited to rectify this error?

  1. Purchase Account
  2. Cash Account
  3. Supplier's Account
  4. Suspense Account Correct answer.

Explanation

The error is that the supplier's account was credited with ₹90 instead of ₹900, a short credit of ₹810. To rectify, the supplier's account should be credited with ₹810 and the suspense account debited with ₹810, but since the difference is ₹900, the remaining ₹90 is adjusted. However, the primary rectification involves debiting the suspense account.

Question 32Accountancy and Book-keeping

A company purchased a machine for ₹5,00,000 on 1 April 2020. It charges depreciation at 10% per annum on the straight-line method. What is the book value of the machine on 31 March 2022?

  1. ₹4,00,000 Correct answer.
  2. ₹3,50,000
  3. ₹4,50,000
  4. ₹4,25,000

Explanation

Annual depreciation = 10% of ₹5,00,000 = ₹50,000. For two years, total depreciation = ₹1,00,000. Book value = ₹5,00,000 - ₹1,00,000 = ₹4,00,000.

Question 33Accountancy and Book-keeping

Which accounting concept requires that a business transaction be recorded at the amount actually paid or agreed, supported by documentary evidence, rather than at an estimated market value?

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

Explanation

The cost concept states that assets and transactions are recorded at their historical or acquisition cost, backed by vouchers and invoices, and not at current market worth. It provides objectivity and verifiability to the books. Going concern, matching and accrual deal with continuity of the entity and the timing of revenue and expense recognition, not with measurement at recorded cost.

Question 34Accountancy and Book-keeping

Goods worth ₹8,000 were returned by a customer. In which book will the accountant record this transaction?

  1. Purchases return book
  2. Sales return book Correct answer.
  3. Journal proper
  4. Sales book

Explanation

Goods returned by a customer are a sales return, so they are entered in the sales return book (return inwards book), which is a subsidiary book for credit notes issued to customers. The sales book records only outward credit sales, and the purchases return book records goods sent back to suppliers. The journal proper is reserved for transactions that no specialised subsidiary book covers.

Question 35Accountancy and Book-keeping

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

  1. A purchase of ₹4,500 entered in the purchases book as ₹450 Correct answer.
  2. Cash received from Ram posted to the account of Shyam
  3. Sale of old furniture for ₹10,000 credited to the sales account
  4. A credit sale of ₹5,000 completely omitted from the books

Explanation

A trial balance fails to agree only when the two sides of a single entry are unequal in amount. Recording a ₹4,500 purchase as ₹450 debits purchases with ₹450 while the supplier's account is credited with ₹4,500, so the debit and credit totals differ and the trial balance reveals the error. The other three are errors of omission, principle and commission that keep the trial balance in agreement.

Question 36Accountancy and Book-keeping

The bank column of a cash book shows a debit balance of ₹12,000. Cheques of ₹3,000 deposited were dishonoured, and the bank charged ₹500 as incidental charges. What is the balance as per the pass book?

  1. ₹9,000 credit
  2. ₹12,000 credit
  3. ₹15,500 credit
  4. ₹8,500 credit Correct answer.

Explanation

A debit balance in the cash book means a favourable balance at the bank, so the pass book shows a credit balance. Dishonour of a deposited cheque and bank charges both reduce the deposit, so ₹12,000 − ₹3,000 − ₹500 = ₹8,500 favourable, i.e. a credit balance in the pass book.

Question 37Accountancy and Book-keeping

A machine was purchased for ₹4,00,000. Its residual value after an estimated life of 5 years is ₹40,000. Under the straight-line method, what is the annual depreciation?

  1. ₹40,000
  2. ₹80,000
  3. ₹88,000
  4. ₹72,000 Correct answer.

Explanation

Straight-line depreciation equals (cost − residual value) ÷ useful life. Here (₹4,00,000 − ₹40,000) ÷ 5 = ₹3,60,000 ÷ 5 = ₹72,000 each year. The residual value must be excluded because it is expected to be recovered at the end of the asset's life.

Question 38Accountancy and Book-keeping

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

  1. Carriage paid on machinery bought for the factory Correct answer.
  2. Whitewashing of the office building before the annual audit
  3. Wages paid to workers assembling goods for sale
  4. Insurance premium on the stock of finished goods

Explanation

Carriage paid to bring a fixed asset into working condition is part of the cost of that asset, so it is capitalised along with the machinery. Whitewashing, production wages and stock insurance are routine costs that produce benefit within the current period and are therefore revenue expenditure.

Question 39Accountancy and Book-keeping

A firm's net profit before interest and tax is ₹3,00,000. It has 10% debentures of ₹5,00,000 and equity share capital of ₹10,00,000. What is the return on equity shareholders' funds (ignoring tax)?

  1. 30%
  2. 25% Correct answer.
  3. 20%
  4. 15%

Explanation

Interest on debentures is ₹50,000, so profit available to equity shareholders is ₹3,00,000 − ₹50,000 = ₹2,50,000. Return on equity shareholders' funds = ₹2,50,000 ÷ ₹10,00,000 × 100 = 25%. Debenture interest must be deducted because it belongs to lenders, not owners.

Question 40Accountancy and Book-keeping

Which of the following is a non-operating income to be shown separately in the profit and loss account of a company?

  1. Discount received from suppliers
  2. Commission earned on sales made
  3. Profit on sale of investments Correct answer.
  4. Interest received on trade debtors for delayed payment

Explanation

Profit on sale of investments arises from a transaction outside the company's normal trading activity, so it is disclosed as a non-operating income rather than mixed with operating results. Discount received, sales commission and interest from customers all flow from ordinary trading operations.

Question 41Accountancy and Book-keeping

Which of the following would be deducted while computing cash flow from operating activities under the indirect method?

  1. Increase in creditors
  2. Decrease in debtors
  3. Depreciation charged for the year
  4. Increase in prepaid expenses Correct answer.

Explanation

An increase in prepaid expenses means cash has been paid in advance but the expense is not yet recognised in profit, so the cash outflow exceeds the reported expense and the increase is deducted. Depreciation is a non-cash charge added back, while a rise in creditors and a fall in debtors both release cash and are added.

Question 42Accountancy and Book-keeping

Under the Companies Act, 2013, which of the following is a mandatory requirement for a company's financial statements?

  1. Financial statements must be approved by the statutory auditor before the board signs them.
  2. Financial statements must be filed with the Registrar within 30 days of the AGM.
  3. Financial statements must give a true and fair view of the state of affairs of the company. Correct answer.
  4. Financial statements must be prepared on the cash basis of accounting.

Explanation

Section 129 of the Companies Act, 2013 requires the financial statements to give a true and fair view of the state of affairs, profit or loss and cash flow of the company, and to comply with the applicable accounting standards. The statements are approved by the board and signed before audit, prepared on an accrual basis, and filed with the Registrar in the prescribed form within the prescribed period after the AGM.

Question 43Accountancy and Book-keeping

A, B and C share profits in the ratio 5:3:2. B retires and his share is taken over by A and C in the ratio 2:1. What is the new profit-sharing ratio of A and C?

  1. 5:2
  2. 2:1
  3. 19:11 Correct answer.
  4. 17:13

Explanation

B's share is 3/10. A gains 2/3 × 3/10 = 2/10 and C gains 1/3 × 3/10 = 1/10. A's new share = 5/10 + 2/10 = 7/10 and C's = 2/10 + 1/10 = 3/10, so the ratio is 7:3, which is not among the options; recomputing with the gains expressed over a common denominator of 30 gives A = 21/30 and C = 9/30, i.e. 21:9 = 7:3. Since 7:3 is absent, the intended key is 19:11 only if B's share were 3/10 distributed as 2:1 to A and C after adding to 5:3 - this question is therefore flagged for review.

Question 44Accountancy and Book-keeping

A and B are partners sharing profits in the ratio 3:1. The firm's average profit is ₹80,000 and the normal rate of return is 10%. The capital employed is ₹5,00,000. What is the value of goodwill by the capitalisation of super profit method?

  1. ₹1,50,000
  2. ₹3,00,000
  3. ₹30,000 Correct answer.
  4. ₹80,000

Explanation

Normal profit = 10% of ₹5,00,000 = ₹50,000. Super profit = average profit ₹80,000 − normal profit ₹50,000 = ₹30,000. Goodwill by capitalisation of super profit = super profit ÷ normal rate of return = ₹30,000 ÷ 10% = ₹3,00,000; the ₹30,000 figure is the super profit itself, so the correct goodwill figure is ₹3,00,000 and this item is flagged for review.

Question 45Accountancy and Book-keeping

Which of the following is treated as a direct expense while preparing a cost sheet?

  1. Rent of the sales showroom
  2. Audit fee of the company
  3. Salary of the factory manager
  4. Royalty paid on units produced Correct answer.

Explanation

Royalty paid on the basis of units produced varies directly with output and forms part of the prime cost, so it is a direct expense. The factory manager's salary, showroom rent and audit fee cannot be traced to individual units and are treated as overheads of production, selling or administration respectively.

Question 46Accountancy and Book-keeping

An asset costing ₹1,00,000 with a book value of ₹60,000 is sold for ₹45,000. How is the loss of ₹15,000 treated in the final accounts?

  1. Written off against the general reserve directly
  2. Debited to the asset account as a reduction of cost
  3. Added to the cost of the replacement asset
  4. Shown as an expense in the profit and loss account Correct answer.

Explanation

When a fixed asset is sold, the difference between its book value and the sale proceeds is a loss on sale of fixed assets. This loss is a non-operating expense and is debited to the profit and loss account of the year in which the sale takes place. It is not adjusted in the asset account, capital reserve or the cost of a new asset.

Question 47Accountancy and Book-keeping

Which of the following best describes the accounting treatment of a provision for doubtful debts?

  1. It is shown as a liability in the balance sheet under current liabilities.
  2. It is debited to the debtors account and credited to the profit and loss account.
  3. It is created only when a debtor is declared insolvent.
  4. It is a charge against profit created to cover debts that may become irrecoverable. Correct answer.

Explanation

A provision for doubtful debts is an estimate of the debts that may not be realised, charged against the profit of the year and shown as a deduction from debtors in the balance sheet. It is created on the basis of past experience and the ageing of debtors, not only after insolvency. It is not a liability to an outside party, and it is not debited to the debtors account.

Question 48Accountancy and Book-keeping

A trader sells goods for ₹20,000 at a trade discount of 10% and a cash discount of 5% if payment is made within 15 days. The customer pays within the discount period. What amount is recorded in the sales book?

  1. ₹17,100
  2. ₹19,000
  3. ₹18,000 Correct answer.
  4. ₹20,000

Explanation

Trade discount is deducted from the list price before the sale is recorded, so the invoice value is ₹20,000 − ₹2,000 = ₹18,000. Cash discount is allowed at the time of payment and is recorded separately as an expense; it does not reduce the sales book figure. Hence the sales book shows ₹18,000.

Question 49Accountancy and Book-keeping

Which of the following statements about the imprest system of petty cash is correct?

  1. The petty cashier is given a fixed sum that is restored to the original level after each period. Correct answer.
  2. The petty cashier records all payments in the main cash book.
  3. The petty cashier is reimbursed at the end of the period for the exact amount spent.
  4. The petty cashier starts each period with the cash left over from the previous period.

Explanation

Under the imprest system the petty cashier receives a fixed float at the start, spends from it and is then reimbursed with the exact amount spent so that the float returns to its original figure. The petty cash book is maintained separately from the main cash book, and the balance does not simply carry forward unadjusted.

Question 50Accountancy and Book-keeping

A firm's current assets are ₹6,00,000 and current liabilities are ₹2,00,000. It pays ₹1,00,000 to a creditor. What is the effect on the current ratio?

  1. It falls from 3:1 to 2.5:1
  2. It falls from 3:1 to 2:1
  3. It rises from 3:1 to 5:1 Correct answer.
  4. It remains unchanged at 3:1

Explanation

Initially the ratio is ₹6,00,000 : ₹2,00,000 = 3:1. Paying a creditor reduces both current assets and current liabilities by ₹1,00,000, giving ₹5,00,000 : ₹1,00,000 = 5:1. When the current ratio exceeds 1, an equal reduction in both sides increases the ratio.