The trial balance checks

Arithmetical accuracy of books
The honesty of the book keeper
The valuation of closing inventory
None of the three

Solution

Trial balance checks arithmatical accuracy of the books and not honesty of book keeper.

The profit and loss account shows

The financial position of the concern
The degree of honesty with which accounting work has been done
The capital invested in business
Profit earned or loss suffered by the firm

Solution

P&L A/c shows not profit/loss earned by the firm during an accounting period.

Goods worth Rs. 1000 taken by the proprietor for personal use should be credited to

Sales A/c
Purchase A/c
Expenses A/c
Proprietor’s personal A/c

Solution

Goods used by proprietor for his personal use should be credited to Purchases A/c and debited to drawings.

On Jan 1, 2001 the position of V. Mathur was as follows
Inventory in hand Rs. 2400; Bills payable Rs. 400; Cash at Bank Rs. 1800; Plant and machinery Rs. 1000; Debtors Rs. 500; Creditors Rs. 800; Investments 2000; Loan from Raja Ram Rs. 1500.
V. Mathur’s capital on the above date will be

Rs. 5000
Rs. 4000
Rs. 6000
None of the three

Solution

Owner’s capital refers to the sum of the business resources owned by the business owners. It is calculated through the subtraction of assets from liabilities. When a business pays all its debts, the amount remaining belongs to the business owner and it is the one that is referred to as Owners Capital or Owners Equity.

Formulas of closing capital:

Closing capital =

Opening capital + profit OR

Opening capital + profit + additional capital – drawings OR

Closing assets – closing liabilities

Here closing assets = inventory + cash at bank + plant and machinery + debtors + investments = 2,400 + 1,800 + 1,000 + 500 + 2,000 = 7,700

Closing liabilities = bills payable + creditors + loan from Raja Ram = 400 + 800 + 1,500 = 2,700

So capital = Closing assets – closing liabilities = 7,700 – 2,700 = Rs. 5,000

A, B and C are partners in a partnership firm. During the financial year 2008-09 firm earned profit accounting to Rs. 18,000. They distributed the profit in the ratio of 2:2:1. But there is no partnership deed of the firm. Necessary adjustment will be:

Solution

Rs.10,955
Rs.10,900
Rs.10,000
Rs.10,500

Solution

Which of the method is not recommended by AS 2?

FIFO
LIFO
Weighted average
Specific identification method

Solution

LIFO is not recommended by AS 2.

A bill of exchange matures on 16th July. It is a public holiday. Bill will mature on

17^th July
15^th July
16^th July
18^th July

Solution

In case when a bill of exchange matures on a public holiday then the due date will be the preceding business day.

In this question A bill of exchange matures on 16th July. It is a public holiday. Bill will mature on the preceding day i.e. 15th July

A, B and C are partners in the firm sharing profits and losses in 5:3:2 ratio. The firm’s balance sheet as on 31.03.2010 shows the reserve balance of Rs. 25,000, profit of the last year Rs. 50,000, Joint life policy of Rs. 10,00,000 and fixed assets of Rs. 12,00,000. On 1st June, 2010 C died and on the same date assets were revalued. The executor of the deceased partner will get along with the capital of C

Share in the reserve account of the firm
Proportionate share of profit upto the date of death
Share in joint life policy
All of the above

Solution

The executor of deceased partner will get share in JLP, reserves, profit up to date of death along with his capital balance.

What would be treatment when plant and machinery is sold for Rs. 1,40,000 whose cost is Rs. 1,00,000 and WDV is Rs. 40,000

Revenue receipt of Rs. 1,00,000
Capital receipt of Rs. 1,00,000
Capital profit of Rs. 40,000 and revenue profit of Rs. 60,000
Capital receipt of Rs. 40,000 and revenue receipt of Rs. 60,000

Solution

In the given case, capital profit will be rs. 40,000 (1,40,000 – 1,00,000) and revenue profit will be Rs. 60,000 (1,00,000 – 40,000).

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