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True and False

Journal Entry
Q. No. Questions Marks
1. In accounting equation approach, equity + long term liabilities = fixed 2
assets + current assets – current liabilities.
Ans. True: -

Reason: As per the modern accounting equation approach – it is the basic

formula in the accounting process.
2. In the traditional approach a debtor becomes receiver. 2
Ans. False: -

Reason: In the traditional approach a debtor becomes giver.

3. The rule of nominal account states that all expenses & losses are 2
recorded on credit side.
Ans. False: -

Reason: The rule of nominal account states that all expenses & losses are
recorded on debit side.
4. Journal proper is also called a subsidiary book. 2
Ans. True: -

Reason: It is one of the book where in the transaction not entered in the other
books are entered in this book,
5. Capital account has a debit balance. 2
Ans. False: -

Reason: Capital account has a credit balance.

6. Purchase account is a nominal account. 2
Ans. True: -

Reason: As it is considered as an expense.

7. All the personal & real account are recorded in profit and loss A/c. 2
Ans. False: -

Reason: All the personal & real account are recoded in the balance sheet.
8. Assets side of balance sheet contains all the personal & nominal 2
accounts.
Ans. False: -

Reason: Assets side of the balance sheet contains all the personal & real
account.
9. Capital account is a personal account. 2
Ans. True: -

Reason: As it is in the name of the proprietor who is bringing in the capital

to the business.
10. Journal is also known as the books of original entry. 2
Ans. True: -

Reason: As the transaction are entered first in this book as first-hand record.

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11. Goods worth ₹600 taken by the proprietor for personal use should be 2
credited to capital account.
Ans. False: -

Reason: Goods taken by the proprietor for the personal use should be
credited to purchase account as less goods are left in the business for sale.

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Ledger
Q. No. Questions Marks
1. A ledger is also known as the principle book of accounts. 2
Ans. True: -

Reason: Since it classifies all the amount relates to a particulars account and
then it is used as the base for preparing the trail balance.
2. Cash account has a debit balance. 2
Ans. True: -

Reason: Being an asset under the modern equation approach,

3. Posting is the process of transferring the accounts form ledger to journal. 2
Ans. False: -

Reason: Posting is the process of transferring the balances from journal to

ledger.
4. At the end of the accounting year, all the nominal account of the ledger 2
book are balanced.
Ans. False: -

Reason: At the end of the accounting year, all the nominal accounts of the
ledger book are totaled and transferred to profit and loss account.
5. Ledger records the transaction in a chronological order. 2
Ans. False: -

Reason: Ledger records the transaction in analytical order. But journal

records the transaction in a chronological order.
6. If the total debit side is greater than the total of credit side, we get a 2
credit balance.
Ans. False: -

Reason: If the total debit side is greater than the total of credit side, we get a
debit balance as the opening balance.
7. Ledger accounts of assets will always be debited when they are 2
increased.
Ans. True: -

Reason: The increase to an asset shall be debited since the original balance
is also debit.

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Trial balance
Q. No. Questions Marks
1 Preparing trial balance is the third phase of accounting process. 2
Ans. True: -

Reason: Which forms the base for the preparation of the final account.
2. Trail balance forms a base for the preparation of financial statements. 2
Ans. True: -

Reason: Yes, only based on the trial balance we can prepare the financial
statements.
3. Agreement of trail balance is a conclusive proof of accuracy. 2
Ans. False: -

Reason: Agreement of trail balance gives only arithmetical accuracy, there can
still be errors in preparing the trail balance,
4. A trail balance will tally in case of compensating errors. 2
Ans. True: -

Reason: Since compensating errors cancel out due to their compensating

nature of amounts hence here is no problem in the trail balance.
5. A trail balance can find the missing entry from the journal. 2
Ans. False: -

Reason: A trail balance cannot find the missing entry from the journal,
6. Suspense account opened in a trail balance is a permanent account. 2
Ans. False: -

Reason: Suspense account opened in a trial balance is a temporary account.

7. The balance of purchase returns account has a credit balance. 2
Ans. True: -

Reason: As purchase is debited any return shall be credited (treated in

opposite way),
8. Tallying of the trial balance only proves arithmetically accuracy. 2
Ans. True: -

Reason: Trial balance help to establish the arithmetical accuracy of ledger

books. A tallied trial balance will not reveal errors of principle and
compensating errors.
9. A tallied trial balance means that the books of accounts have been 2
prepared as per accepted accounting process.
Ans. False: -
Reason: Trial balance only checks the arithmetical accuracy of books. Errors
of principle and errors of omission will not affect the agreement of the trail
balance.
10. Trail balance is an absolute proof of the accuracy of the books of 2
accounts.
Ans. False: -
Reason: Agreement of trial balance is not an absolute proof of the accuracy
because there may be some errors like errors of principle, compensating
errors etc. which do not effect the agreement of trail balance.

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11. Closing stock will never appear in the trail balance. 2

Ans. False: -

Reason: When cost of goods sold or gross profit are given in the trail balance.
Closing stock will appear in the trail balance.

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Subsidiary Books
S. No. Questions Marks
1. Transaction recorded in the purchase book include only purchase on 2
credit transactions.
Ans. True: -

Reason: Since cash purchase are taken to the cash book, it is only credit
transaction that are recorded in the purchase book.
2. Transaction regarding the purchase of fixed assets are recorded in the 2
purchase book.
Ans. False: -

Reason: Transaction regarding the purchase of fixed assets are not recorded
in the purchase book, only the credit purchase of goods are recorded in it.
3. Cash sales are recorded in the sales books. 2
Ans. False: -

Reason: Credit sales are recorded in the sales book. Cash sales are recorded
in cash book.
4. Subsidiary books are also known as the books of original entry. 2
Ans. True: -
Reason: They are maintained as an alternate to the journal.
5. Bills receivable book is a subsidiary book. 2
Ans. True: -

Reason: Yes, it is one of the subsidiary books.

6. Return inwards book is known as purchase return book. 2
Ans. False: -
Reason: Return inwards book is known as sales return book.
7. Purchase of a second-hand machinery will be recorded in purchase 2
book.
Ans. False: -

Reason: Purchase of a second-hand machinery will not be recorded in

purchase book. It is recorded in machinery account.
8. Total of sales return book is posted to the debit side of sales account. 2
Ans. True: -
Reason: Since it is reduction from the total sales value, it is debited in the sales
account
9. If the sales are on a frequent basis, the transaction are recorded in the 2
sales book.
Ans. True: -
Reason: Yes, when there are numerous transactions then there are subsidiary
books like the sales book where there are recorded instead of regular journal
entries.

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10. The purchase day book is part of ledger. 2

Ans. False: -

Reason: Purchase Day book is a prime entry and hence it is part of the journal.
11. The sales day is a part of ledger. 2
Ans. False: -

Reason: Sales day book is a book of prime entry and hence it is a part of the
journal.
12. Purchase books records all credit purchase of goods. 2
Ans. True: -

Reason: All credit purchase of goods deal in or of a materials and store used
in the factory are recorded in purchase book.
13. Wrong casting of subsidiary books does affects the agreement of trail 2
balance.
Ans. False: -

Reason: Wrong casting of subsidiary books not affects the agreement of trial
balance.
14. The debit notes issued are to prepare sales return book. 2
Ans. False: -

Reason: The source document for this book is credit note. When goods are
received along with the debit note. The seller acknowledgment the same by
sending the credit note to the customer.
15. The return of goods by a customer should be debited to return outward 2
account.
Ans. False: -
Reason: It is debited to return inwards account.
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Cash Book
Q. No. Questions Marks
1. Cash book is a subsidiary book as well as principal book. 2
Ans. True: -

Reason: Since the balance is taken to the trial balance.

2. Two column cash book consists of two columns cash column and bank 2
column.
Ans. False: -

Reason: Two column cash book consist of two column cash column and
discount column.
3. Discount column of cash book is never balanced. 2
Ans. True: -

Reason: It is totaled and transferred to the discount allowed or received

account.
4. Contra entry is passed in a two column cash book. 2
Ans. False: -
Reason: Contra entry is passed in a three column cash book in bank and cash
column.

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5. If the bank column is showing the opening balance in credit side, it is an 2

overdraft.
Ans. True: -

Reason: Usually the debit side of opening balance shows a favorable balance,
where there is unfavorable overdraft then it should be shown on the credit
side.
6. A cash book records cash transaction as well as credit transactions. 2
Ans. False: -

Reason: A cash book records only cash transaction.

7. Discount column of cash book records the trade discount. 2
Ans. False: -

Reason: Discount column of cash book records the cash discount. Trade
discount is not shown in the books of accounts.
8. The balance in the cash book shows net income. 2
Ans. False: -

Reason: The balance in the cash book shows cash in hand.

9. The balance in the petty cash books represents the amount spent. 2
Ans. False: -

Reason: The balance in the petty cash books represents cash balance lying
with the petty cashier.
10. Bank column of the cash book will show only a debit balance. 2
Ans. False: -

Reason: Bank column of the cash book will show credit balance if the bank
account has an overdraft balance.

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Rectification of Errors
Q. No. Questions Marks
1. The method of rectification of errors depends on the stage at which the 2
errors are detected.
Ans. True: -

Reason: There are 3 different stages when the mistake is identified and then
the rectification depends on the stage of identification.
2. In case of errors of complete omission, the trial balance does not tally. 2
Ans. False: -

Reason: In case of errors of complete omission, the trial balance tallies.

3. When errors are detected after preparation of trial balance suspense 2
account is opened.
Ans. True: -

Reason: To balance the difference of balance in the trail balance.

4. When purchase of an assets is treated as an expense it is known as error 2
of principle.

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Ans. True: -
Reason: Where the accounts being debited is principally incorrect it is termed
as error of principle.
5. Trial balance agrees in case of compensating errors. 2
Ans. True: -

Reason: Compensating errors cancel out each other when trial balance is
prepared as the mistake pertains to the same amounts being credit and later
debited on account of two different mistake.
6. When amount is written on wrong side, it is known as an error of 2
principle.
Ans. False: -

Reason: When amount is written on wrong side, it is known as an error of

commission.
7. On purchase of furniture the amount spent on repair should be debited 2
to repairs accounts.
Ans. False: -

Reason: On purchase of furniture, the amount spent on repairs should be

debited to furniture account as it is a capital expense.
8. Profit and loss adjustment account is opened to rectify the errors 2
detected in the current accounting period.
Ans. False: -
Reason: Profit and loss adjustment account is opened to rectify the errors
detected in the next accounting period.
9. Rent paid to land lord of the proprietor house, must be debited to rent 2
account.
Ans. False: -

Reason: Rent paid to land lord of the proprietor house, must be debited to
drawing account.
10. If the errors are detected after preparing trial balance, then all the errors 2
are rectified through suspense accounts.
Ans. False: -
Reason: If the errors are detected after preparing trial balance, then all the
errors are not rectified through suspense account. There may be principle
errors which can be rectified without opening a suspense account.
11. Any type of error affects the agreement of trail balance. 2
Ans. False: -

Reason: Any type of errors does not affect the agreement of trail balance.
12. Purchase of office furniture has been debited to general expense 2
account. It is compensating errors.
Ans. False: -

Reason: Recording the transaction in a fundamentally wrong manner in

contravention of accounting principle is an error of principle.
13. Error of carry forward of totals of purchase journal affects two 2
accounts.
Ans. False: -
Reason: Error of carry forward of totals of purchase journal will affect only
one account.

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14. If the amount is posted in the wrong side or to a wrong account is called 2
error of commission.
Ans. True: -
Reason: Posting an amount on the wrong side or to a wrong account is called
errors of commission.
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Bills of Exchange
Q. No. Questions Marks
1. Bills payable account is a nominal account. 2
Ans. False: -

Reason: Bills payable account is a liability account.

2. Promise to pay is included in a bill of exchange 2
Ans. False: -

Reason: Bills of exchange contain an order to pay the required amount and
not a mere promise to pay.
3. Days of rebate are added to the due date to arrive at the maturity date. 2
Ans. False: -

Reason: 3 days of grace are added to the due date to arrive at the maturity
date.
4. There are always 2 parties to the bills of exchange 2
Ans. False: -

Reason: There can be more than 2 parties namely the drawer, acceptor and
the payee of the bill.
5. Foreign bill is drawn in the country and payable outside the country. 2
Ans. True: -

Reason: When a bill is drawn in the country and is payable outside the
country it is termed as a foreign bill.
6. Promissory note is different from that of a bill of exchange where the 2
amount is paid by the maker in case of former and by the acceptor in
the later.
Ans. True: -

Reason: In the promissory note, it is generally the maker who makes the
payment but in case of the bills of exchange, the person accepting the bill shall
be liable to make the payment to the holder of the bill.
7. In case of bills of exchange the drawer and the payee may not be the 2
same person but in case of a promissory note, the maker and the payee
may be the same person.
Ans. False: -

Reason: In case of bills of exchange the drawer and the payee may be the
same person but in case of a promissory note, the maker and the payee
cannot be the same person.
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Bank Reconciliation Statement

Q. No. Questions Marks
1. Bank reconciliation is the process of reconciling cash column of the cash 2
book and bank column of the cash book.
Ans. False: -

Reason: Bank reconciliation statement reconcile bank column of cash book

with the balance in the pass book.
2. There are 3 types of difference between cash book and pass book 2
namely timing. Transaction &errors.
Ans. True: -
Reason: These are 3 board categories.
3. Adjusting the cash book for any errors and/ or omission before 2
preparing bank reconciliation is optional when the reconciliation is
done at the end of the financial year.
Ans. False: -

Reason: Adjusting the cash book is mandatory when bank reconciliation is

done at the end of the financial year.
4. Debit balance in cash book is same as overdraft as per pass book. 2
Ans. False: -

Reason: Debit balance as per cash book should be represented by credit or

favorable balance in pass book.
5. Bank charges debited by the bank is an example of timing difference for 2
the purpose of bank reconciliation.
Ans. False: -

Reason: Bank charges are example of the transaction that bank carries out
by itself and the same has not been recorded in the cash book until statement
is obtained from the bank.
6. Overcasting of debit side of the cash book is an example of a different 2
that is due of error.
Ans. True: -

Reason: Overcasting is an example of an error.

7. When we start bank reconciliation with a debit balance in cash book 2
then cheque issue but not yet presented should be added back to arrive
at the balance as per pass book.
Ans. True: -

Reason: Since the cheque issued would have been recorded as payment and
bank balance was credited in cash book, we need to add it back as the same
is not yet deducted from our bank balance.
8. The bank charges charged by the bank should be deducted when the 2
bank reconciliation statement is being prepared starting from a credit
balance of pass book.
Ans. False: -

Reason: Bank charges should be added when we start with credit or

favorable balance in pass book as bank would have debited the charges.

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9. When the cause of difference between pass book balance and cash book 2
is not known, then the bank reconciliation statement can be prepared
by matching the two books and identifying any unticked items in both
sets.
Ans. True: -

Reason: Since, we don’t know the causes of difference matching the two
statement is only efficient way to identify the difference.
10. While preparing the bank reconciliation statement starting with debit 2
balance as per pass book or bank statement the deposited cheques that
are not yet cleared need not be adjusted.
Ans. False: -

Reason: Cheque deposit but not yet cleared should be subtracted from debit
or unfavorable balance in pass book.
11. Cash book shows a debit balance of 50,000 and the only difference from 2
the balance as shown in pass book relates to cheque issued for 60,000
but not yet presented for payment. The balance as per pass book should
be 1,10,000.
Ans. True: -

Reason: Cheques issued but not yet presented should be added back to a
debit balance in cash book to arrive at pass book balance.
12. Overcasting of credit side of cash book shall result in a higher bank 2
balance in cash book when compared with pass book balances.
Ans. False: -

Reason: Overcasting of credit side means excessive payment are recorded

and hence would lower the bank balance.
13. A cheque for 25,000 that was issued and was also presented for 2
payment in same month but erroneously recorded on debit side of the
cash book would cases a difference of 50,000 from the balance in the
pass book.
Ans. True: -

Reason: 25,000 payment is recorded as a receipt and hence it will have to be

adjusted twice (once to nullify and then once to recoded actual payment)
hence causing the difference of double amount.
14. A direct debit by bank on account of any payment as may be instructed 2
by customer should be recorded on credit side of cash book.
Ans. True: -

Reason: It is an example of a payment instructed by customer to be directly

debited by bank and hence credited in the cash book.
15. Bank reconciliation statement can be prepared in two formats- balance 2
presentation and plus & minus presentation.
Ans. True: -

Reason: Bank reconciliation statement can be prepared in two formats.

16. The difference between cash book and pass book that relates to error 2
are those mostly made by bank.
Ans. False: -

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Reason: Bank rarely makes mistake and hence difference that relates to
error are generally made in cash book.
17. A cheque of ₹80,000 that was discounted from bank was dishonored 2
and the bank charged ₹1,600 as the charge on account of same. While
starting with debit balance in the cash book for preparing bank
reconciliation statement we need to deduct ₹78,400 to reconcile with
pass book.

Ans. False: -

Reason: We need to deduct ₹81,600 from debit balance in cash book to arrive
at balance as per pass book.
18. Interest on saving bank that is allowed or credited by bank is generally 2
recorded in cash book prior to it being recorded by bank.
Ans. False: -

Reason: Interest allowed by bank is mostly recorded in cash book after the
entry has been made in the pass book or bank statement.
19. A regular bank reconciliation discourages the accountants to be 2
involved in any kind of funds embezzlement.
Ans. True: -

Reason: In absence of any reconciliation, the accountants can mis-utilize the

funds temporarily by recording the entry without actual depositing the cash.
20. Timing difference relates the transaction that are recorded in the same 2
period in the both cash book and also the bank pass book.
Ans. False: -

Reason: Timing difference related to the transaction that are recorded in the
cash book and pass book in two different periods.
21. If the balance as per cash book and pass book are the same. There is no 2
need to prepare a reconciliation statement.
Ans. True: -

Reason: The reconciliation statement is prepared only when any difference

in the balance arises.
22. Bank reconciliation is not prepared to arrive at the bank balance. 2
Ans. True: -

Reason: Object of preparation of BRS is to reconcile the pass book balance

and the cash book balance in order to find out the cause of difference between
these two books on a particulars date.
23. Direct collection received by the bank on behalf of its customer will 2
increase the balance as per the bank pass book as compared to the
balance as per the cash book.
Ans. True: -

Reason: Direct collection received by the bank on behalf of its customer will
increase the balance as per the bank pass book as compared to the balance
as per the cash book, Till the customer gets an intimation from the bank.
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Depreciation
Q. No. Questions Marks
1. Increase in market value of fixed asset is one of the reasons for 2
depreciation being charged.
Ans. False: -

Reason; It is the decrease in market value as one of the reasons for

depreciation charged. Increase in market value may result in Revaluation.
2. Depreciation of an asset begins when it is available for use in the 2
location & condition necessary for it to be capable of being operated.
Ans. True: -

Reasons; It is not necessary that the asset must be used to be depreciated,

thus depreciation may start once it is brought in the location & condition
required to be used.
3. Cost of Property, Plant and Equipment includes purchase price, 2
refundable taxes & import duties after deducting any discount or
rebate.
Ans. False: -

Reasons; Non-Refundable taxes & duties from part of the cost.

4. Cost of fixed asset should also include cost of opening a new facility such 2
as inauguration costs.
Ans. False: -

Reasons; Inauguration costs shouldn’t be part of cost.

5. Depreciation is charged with a constant amount under straight line 2
method and charged with a constant percentage under diminishing
balance method.
Ans. True: -

Reasons; SLM method results in same amount and Declining method

involves same rate of depreciation.
6. In Case an item of Property, Plant & Equipment is revalued, whole class 2
of assets to which that asset being revalued belongs should be revalued.
Ans. True: -

Reasons; Revaluation should be done for the whole class of the asset.
7. In case the carrying amount of an asset is decreased due to revaluation, 2
such decrease should always be recognized in the Profit and Loss
account.
Ans. False: -

Reasons; Any decrease in value of asset on account of revaluation should be

first debited to Revaluation Reserve, if any, and then to Profit & Loss account.
8. Akash purchased a machine for ₹ 12,00,000. Estimated useful life is 10 2
years and scrap value is ₹ 1,00,000. Depreciation for the first year using
sum of the year digit method shall be ₹ 2,00,000.
Ans. True: -

Reasons; Sum of years digit method depreciation is calculated as 10/55 ×

(12,00,000−1,00,000) = 2,00,000.

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9. Depletion is the allocation of the cost of intangible assets such as 2

patents and copyrights.
Ans. False: -

Reasons; Depletion relates to allocation of cost of natural resources.

10. Providing for depreciation also helps in providing for accumulation of 2
funds to facilitate the replacement at the end of its useful life.
Ans. True: -

Reasons; Depreciation being non-cash expense reduces the distributable

profits and hence facilitates replacement of asset when required.
11. If the equipment account has a balance of ₹ 12,50,000 and the 2
accumulated depreciation account has a balance of ₹ 4,00,000, the
written down value of same shall be ₹ 16,50,000.
Ans. False: -

Reasons; WDV = ₹ 12,50,000−₹ 4,00,000 = ₹ 8,50,000.

12. Sum of the years digit method is an example of accelerated method of 2
charging depreciation.
Ans. True: -

Reasons; Higher depreciation is charged in earlier years under sum of the

years digit method.
13. Over the life of an asset subject to depreciation, the accelerated method 2
will result in less Depreciation Expenses in early years and more
depreciation in later years of its life.
Ans. False: -

Reasons; It is vice versa as under diminishing balance method; higher

depreciation is charged in beginning.
14. While depreciating Land Cost, Straight line method shall give more 2
depreciation than the written down value.
Ans. False: -

Reasons; Land is not depreciated.

15. Provision for depreciation account is debited at the time of recording the 2
depreciation on an asset.
Ans. False: -
Reasons; Provision for Depreciation account is credited while charging the
depreciation.
16. If adequate maintenance expenditure is incurred with relation to 2
running repairs of an asset, we need not charge any depreciation.
Ans. False: -
Reasons; Depreciation is allocation of the cost of an asset over its useful life.
Regular repairs may be required during its life are expensed and depreciation
has to be charged anyways.
17. When a property, plant or equipment is sold then provision for 2
depreciation account is debited, asset account is credited and any gain
or loss is recorded to profit and loss account.
Ans. True: -
Reasons; At the time of sale of an asset, respective asset account is credited
with provision for depreciation account being debited and any resulting gain
or loss being charged to profit & loss account.

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18. While calculating the depreciation as per diminishing balance method, 2

the salvage value of the asset at the end of its life is reduced from its
cost.
Ans. False: -

Reasons; Under diminishing balance method, salvage value is not considered

initially as it assumes that at the end of the asset’s life the remaining value
shall be its salvage value.
19. Any change in the estimated useful life of an asset should be accounted 2
for as a change in an accounting estimate in accordance with Accounting
Standards.
Ans. True: -

Reasons; Any change in useful life of an asset is accounted for as a change in

estimate.
20. Whenever any depreciable asset is sold during the year, depreciation is 2
charged on it for that entire year.
Ans. False: -

Reasons; Whenever any depreciable asset is sold during the year,

depreciation is charged on it for the period it has been used in the sale year.

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Final Accounts of Manufacturing Entities

Q. No. Questions Marks
1. By-products valued at cost or net reliasable value whichever is lower. 2
Ans. False: -

Reasons; By-Products generally have insignificant value as compared to the

value of main product. Therefore, they are generally valued at net realizable
value.
2. The manufacturing account is prepared to ascertain the profit or loss 2
on the goods produced.
Ans. False: -

Reasons; The objective of preparing Manufacturing Account is to determine

manufacturing costs of finished goods for assessing the cost effectiveness of
manufacturing activities.
3. If there remain unfinished goods at the beginning and at the end of the 2
accounting period, cost of such unfinished goods is shown in the
Manufacturing Account.
Ans. True: -

Reasons; Manufacturing account deals with the raw material, and work in
progress.
4. Raw Material Consumed = Opening inventory of Raw materials + 2
Purchase −Closing inventory of Raw Materials.
Ans. True: -

Reasons; Raw Material consumed is arrived at after adjustment of opening

and closing inventory of raw materials and purchases.

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5. The Trading Account will show the quantities of finished goods, raw 2
materials and work-in-progress.
Ans. False: -

Reasons; The Trading Account will show the quantities of finished goods
manufactured and sold and the opening and closing inventory. It will not
show the quantity of raw materials or work-in-progress.
6. Overhead is defined as total cost of direct material, direct wages and 2
direct expenses.
Ans. False: -
Reasons; Overheads is defined as total cost of indirect material, indirect
wages and indirect expenses.
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Final Accounts of Non-Manufacturing Entities

Q. No. Questions Marks
1. The income statement shows either net profit or net loss for a 2
particular period.
Ans. True: -

Reasons; Profit and loss account shows either net profit or net loss for a
particular period.
2. Gains from the sale or exchange of assets are not considered as the 2
revenue of the business.
Ans. False: -
Reasons; Gains from the sale or exchange of assets are considered as the
revenue of the business, but this revenue not in the ordinary course of
business so it is capital receipts.
3. The Salary paid in advance is not an expense because it neither reduces 2
assets or nor increase liabilities.
Ans. True: -
Reasons; The Salary paid in advance is an asset it is not an expense because
it neither reduces assets or nor increase liabilities.
4. A loss is an expenditure which does not bring any benefit to the concern. 2
Ans. True: -

Reasons; A loss is an expenditure of the business which does not bring any
gain to the business.
5. All liabilities which become due for payment in one year are classified 2
as long-term liabilities.
Ans. False: -

Reasons; All liabilities which become due for payment in one year are
classified as current liabilities.
6. The term current asset is used to designate cash and other assets or 2
resources which are reasonably expected to be realized or sold or
consumed within one year.
Ans. True: -

Reasons; Current assets are all the assets which are expected to be realized
or sold or consumed within one year.
7. An asset gives rise to expenditure when it is acquired and to an expense 2
when it is consumed.

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Ans. True: -

Reasons; When an asset is purchase capital, expenditure is incurred and

when the asset is put to use expenses are incurred in consumption.
8. If the balance of an account on the debit side of the trial balance where 2
the benefit has already expired then it is treated as an expenses.
Ans. True: -:-

Reasons; Debit balance of accounts are treated as expenses whose benefit is

already received or expired.
9. Sales less cost of goods sold = gross profit. 2
Ans. True: -

Reasons; Gross profit is obtained by deducting cost of goods sold from sales.
10. If the debit side of the trading account exceeds its credit side then the 2
balance is termed as gross profit.
Ans. False: -

Reasons; If the debit side of the trading account exceeds its credit side, then
the balance is termed as gross loss.
11. The provision for bad debts is debited to Sundry Debtors Account. 2
Ans. False: -
Reasons; The provision for bad debts is debited to debited to Profit and loss
Account, in Balance Sheet it is shown either on liability side or deducted from
the head Debtors.
12. The provision for discount on creditors is often not provided in keeping 2
with the principle of conservatism.
Ans. True: -
Reasons; According to the provision of conservatism provision is maintained
for the losses to be incurred in future. Discount on creditors is an income so
provision in not maintained.
13. The debts written off as bad, if recovered subsequently are credited to 2
Debtors Account.
Ans. False: -

Reasons; The debts written off as bad, if recovered subsequently are credited
to Bad Debts Recovered Account and becomes an income.

14. The adjustment entry in respect of income received in advance is debit 2

income received in advance account and credit income account.
Ans. False: -

Reasons; Income received in advance is reduces it from the concerned

income in profit and loss account, And, it is shows it as a liability in the
current balance sheet under the head Current Liabilities.
15. Premium paid on the life policy of a proprietor is debited to profit and 2
loss account.
Ans. False: -

Reasons; Premium paid on the life policy of a proprietor is to be debited to

capital account, as it is personal expense.
16. Depreciation account appear in the trial balance is taken only to profit 2
and loss account.

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Ans. True: -

Reasons; Depreciation is charge on each of the asset on a certain percentage.

Depreciation is a charge to profit and loss account and should be debited to
profit & loss account by crediting the respective assets, if it appears in trial
balance then it is taken only to profit and loss account.
17. Personal purchases included in the purchases day book are added to 2
the sales account in the Trading account.
Ans. False: -

Reasons; Personal purchases included in the purchase’s day book are

deducted from the purchases account in the Trading Account.
18. Medicines given to the office staff by a manufacturer of medicines will 2
be debited to salaries account.
Ans. True: -

Reasons; Any benefit given to the staff is debited to the salary account.
19. Goods worth ₹ 600 taken by the proprietor for personal use should be 2
credited to Capital Account.
Ans. False: -

Reasons; Goods taken by the proprietor for personal use should be credited
to Purchase Account as less goods are left in the business for sale.
20. If Closing Stock appears in the Trial Balance, the Closing inventory is 2
then not entered in Trading Account. It is only shown in the Balance
Sheet.
Ans. True: -

Reasons; The Closing Stock appears in the trial balance only when it is
adjusted against purchases by passing the entry. In this case, Closing Stock is
not entered in Trading Account and is shown only in Balance Sheet.

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Sales of Goods on Approval Basis

S. No. Questions Marks
1. Goods sold on approval basis are not recorded as credit sales initially 2
when they are sent out.
Ans. False: -

Reason: They are recorded as sales irrespective of whether the customer

might accept or reject the goods at the end of the period for the approval.
2. The customer retains the goods even after the expiry of the mentioned 2
term, but this act does not confirm to sale of goods as there is no
expense consent given.
Ans. False: -

Reason: As per the sale of goods act when the goods are retained by the
customer after the given time and no express intimation is given with regard
to rejection, they are deemed sales.
3. At the end of the year those goods on approval basis awaiting approval 2
from the customer are shown as part of sales in the books of the seller.
Ans. False: -

Reason: At the end of the accounting period-if there are goods sold on
approval or return basis without any information then the accounting
treatment to reverse the same from the sale and to add it with the existing
closing stock at cost price.
4. No entry need to be passed in the book of the seller when the customer 2
rejects the goods awaiting approval after the closing of the books of the
seller.
Ans. True: -

Reason: At the end, already the entries pertaining to the reversal of the sale
and the addition to the closing stock would have been passed. If subsequently
if the customer rejects the goods, no further entry needs to be passed.
5. The period within which the customer has to reject or accept is fixed by 2
the buyer.
Ans. False: -

Reason: It is the seller who fixes the term of the period within which the
customer has to get back with the answer of rejection or accepting the goods.
6. Mere transfer of the possession of the goods from the seller to the 2
customer under sale on approval basis, also ensure transfer of
ownership to customer
Ans. False: -

Reason: Only upon accepting the goods expressly or doing some act
inconsistent with the title of goods the ownership and risk associated with
the goods pass on to the buyer. Mere transfer of possession does no convey
ownership.

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Financial Statement of
Not-for-Profit Organization
S. No. Questions Marks
1. The Receipts and payment account for a non-profit organization follows 2
the accrual concept of accounting.
Ans. False: -

Reasons; It depicts the cash system of accounting rather than the accrual
system, as the cash receipts and payments pertaining to any year are entered
in the Receipts and payments account. The principle of accrual is not followed
with regard to the receipts and payments account of a non-profit
organization.
2. Both the revenue and capital nature transactions are recorded in the 2
income and expenditure account.
Ans. False: -

Reason; The income and expenditure account records only the revenue
income and expenditure. The capital transactions are being recorded in the
Balance Sheet.
3. Sale of grass by a sports club is to be treated as sale of an asset. 2
Ans. False: -
Reasons; The grass for a sports club is not a capital item, hence the sale of
such grass shall be treated as a revenue receipt.
4. Subscriptions Outstanding for the current year are disclosed under the 2
Fixed assets side of the Balance Sheet.
Ans. False: -

Reason; They are disclosed under the current assets of the Balance sheet as
they will be paid within the next year and not to be treated as non-current
assets.
5. Receipts and payments account gives the details about the expenses 2
outstanding for the year.
Ans. False: -

Reason; Receipts and payments account gives information about the

expenses paid in cash for the current year. Previous or the next year. It is only
from the additional information we identify the outstanding expenses.
6. Adjustments in the form of additional information shall be adjusted in 2
the final accounts of a Non-profit organization only in one place.
Ans. False: -

Reasons; Additional information means that information which has been

identified just before the preparation of the final Accounts. As NPO follows
the double entry system of book keeping, there shall be 2 effects for each of
the additional information.
7. Tournament expenses incurred are more than the Tournament fund, 2
then the excess to be shown as an asset in the closing Balance sheet.
Ans. False: -
Reasons; The excess of expenditure over the tournament fund shall be
debited to the income and expenditure account and not taken to the closing
balance sheet.
8. For an Non-profit organization, Excess of income over expenditure in 2
the Income and Expenditure account is termed as profit.

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Ans. False: -
Reasons; The excess of the income over the expenditure is called as Surplus
and not profit for a Non-profit organization.
9. Surplus of non-profit organizations is distributed among its members. 2
Ans. False: -

Reasons; The Non-profit organization credits the surplus earned in a year to

the general fund maintained by it.
10. Tournament fund, building fund, library fund is based on the fund based 2
accounting.
Ans. True: -

Reasons; It is Fund based accounting that records the fund balances in the
balance sheet.
11. Subscription fees refers to the one-time fees paid by the memberships to 2
get admission to the benefits of the club.
Ans. False: -

Reasons; Subscription is a regular fees paid by the members to keep the

membership alive.
12. Token payment made to a person, who voluntarily undertakes a service 2
which would normally be paid in case of profitable organization is
termed as Honorarium.
Ans. True: -

Reasons; Honorarium refers to the nominal amount paid for the services with
a non-commercial intent.
13. An Insurance company is an example of non-profit organization. 2
Ans. False: -

Reasons; Insurance Company has a profit motive; hence it is not a non-profit

organization.
14. Part amount of entrance fees which is to be capitalized shall be disclosed 2
in the income and expenditure account.
Ans. False: -

Reasons; It shall be shown in the Balance Sheet. Where it is to be capitalized.

15. Both the income and expenditure of the current and the previous year 2
are recorded in the income and expenditure account.
Ans. False: -

Reasons; It is only the current year income and expenditure which is recorded
in the income and Expenditure account as per the accrual concept.
16. Amount received as donation by a Non-profit organization under the will 2
of a deceased person is termed as legacy.
Ans. True: -

Reasons; While on the death bed, if there is any will be written that the assets
of a person shall be donated to any NPO-then such a donation to the NPO, is
termed as LEAGACY.
17. Where a Non-profit organization has a separate trading activity, the 2
profit/loss from the trading account shall be transferred to Income and
Expenditure Account at the time of Consolidation.

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Ans. True: -

Reasons; Where in case of the trading activities, the profit/loss from such
activity to be transferred to the income and expenditure account in case of
consolidated accounts.
18. Not for profit concerns concentrate their efforts to maximize the profit 2
earning avenues.
Ans. False: -

Reasons; The Non-profit organization has its very existence to the main base
line of serving the members and the society. Profit earning shall never be its
motive.
19. All the receipts are of revenue nature in case Non-profit organization. 2
Ans. False: -

Reasons; Receipts can be both of revenue as well as capital nature. Receipts

of both the nature are recorded in the receipts and payments account.
20. There is opening balance of Income and expenditure account. 2
Ans. False: -

Reason; It represents a nominal account and is prepared in accordance with

the accrual concept, hence there can be no opening balances.
***************************************************

Consignment
S. No. Questions Marks
1. Value of the abnormal loss is debited to the consignment account. 2
Ans. False: -
Reason: The abnormal loss is credited to the consignment account since it is
a reduction in the value of the stock. Alternatively, it can be credited to the
trading account of the consignor too as there is reduction from the stock of the
goods.
2. Sales account and account sales are one and the same. 2
Ans. False: -

Reason: The sales account shows the balance receivable account of the sales-
both cash and credit sales, whereas the account sale statement is given by the
consignee to the consignor on a periodical basis detailing the transaction done
by the former.
3. The consignment stock is at the risk of the consignor 2
Ans. True: -
Reason: The consignor is the owner of the goods sent on consignment.
4. Normal commission is paid to the consignee to bear the risk of the bad 2
debts on sale of the consigned stock.
Ans. False: -
Reason: The del-credre commission paid to the consignee for bearing the loss
of the bad debt if any.
5. There is no entry passed by the consignee in his books for the remaining 2
stock of goods lying with him.
Ans. True: -
Reason: It is the consignor who has to record the closing stock of the
consigned goods since he is the owner of the goods. There is no entry passed
in the books of the consignee.

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6. Consignment account is a representative personal account. 2

Ans. False: -
Reason: It is a nominal account recording the expense on the debit and the
income on the credit side balance being the profit/loss on the consignment
account to the trading account.
7. Proforma invoice is sent by the consignee to the consignor giving details 2
about the stock of goods sent on consignment and their cost invoice price
etc.
Ans. False: -

Reason: Proforma invoice is given by the consignor to the consignee with

regards to the goods sent or consignment and their price.
8. The bad debt in case of del credre commission shall be debited to the 2
consignment account.
Ans. False: -

Reason: If del-credere commission is given to the consignee then, the bad debt
is taken into the accounts of the consignee. It will not appear in the
consignment account.
9. Abnormal loss is created out of uncontrollable situation and 2
circumstances.
Ans. False: -

Reason: Abnormal loss occurs due to unforeseen circumstance, but if

necessary, steps are taken they can be controlled it is only the natural loss
which cannot be controlled since it occurs due to nature of the product.
10. The relationship between the consignor and his consignee is that of a 2
seller and a buyer.
Ans. False: -

Reason: The relationship between the consignor and the consignee is that of
a principle and agent. It is mere arrangement for sale of goods on behalf of
the consignor.
***************************************************

Inventories
S. No. Questions Marks
1. Inventories are stock of goods and material that are maintained for 2
mainly the purpose of revenue generation.
Ans. True: -

Reason: Inventory refer to stock of goods and material that are maintained
for mainly the purpose of revenue generation.
2. A building is considered inventory in a construction business 2
Ans. True: -

Reason: For a construction business a building under construction will be

inventory. The building is being built in the normal course of business and will
eventually be sold as well as inventory.
3. Inventory is valued as carrying cost less percentage decreases. 2
Ans. False: -

Reason: Inventory is valued at lower of cost or net realizable value.

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4. Management has daily information about the quantity and valuation of 2

closing stock under physical inventory system.
Ans. False: -

Reason: Under perpetual inventory system management have daily

information of closing stock.
5. Period inventory system is more suitable for small enterprises. 2
Ans. True: -
Reason: A Period inventory system is more suitable for small enterprises.
6. When closing inventory is over stated, net income for the accounting 2
period will be understated.
Ans. False: -

Reason: When closing inventory is overstated net income for the accounting
period will be overstated.
7. Closing inventory = opening inventory + purchase + direct expense + cost 2
of goods sold.
Ans. False: -
Reason: Closing stock = COGS-(opening inventory+ purchase+ direct
expense).
8. Cost of inventory should comprise all cost of purchase. 2
Ans. False: -

Reason: Cost of inventory should comprise all cost of conversion and other
cost incurred in bringing the inventories to their present location and
condition.
9. Cost of conversion of inventory includes cost directly related to the units 2
of production. They include allocation of fixed overheads only.
Ans. False: -
Reason: Cost of conversion of inventories includes cost directly related to the
units of production. They also include a systematic allocation of fixed and
variable overheads.
10. Abnormal amounts of wasted materials, labor or other production 2
overheads expense are included in the cost of inventories.
Ans. False: -

Reason: Abnormal amounts of wasted materials labor or other production

overheads expense are generally not included in the cost of inventories.
11. Perpetual system requires closure of business for counting of inventory. 2
Ans. False: -
Reason: Periodic system requires closure of business for counting of
inventory
12. Periodic inventory system is a method of ascertain inventory by taking 2
an actual physical count.
Ans. True: -

Reason: Under Periodic inventory system is a method of ascertain inventory

by taking an actual physical count.
13. The value of ending inventory under simple average method is realistic 2
as compare to LIFO
Ans. True: -
Reason: Value of ending inventory under simple average method is realistic
as compare to LIFO.

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14. The value of stock is shown as on the asset side of balance sheet as fixed 2
assets
Ans. False: -

Reason: The value of stock is shown on the asset side of the balance sheet as
current assets. As it is realizable within 12 months
15. Under inflationary condition, FIFO will not show lowest value of cost of 2
goods sold.
Ans. False: -

Reason: Under inflationary condition, valuation of inventory is based on the

assumption that costs are charged against revenue in the order in which they
occur.
16. Under LIFO valuation of inventory is based on the assumption that cost 2
are charged against revenue in the order in which they occur.
Ans. False: -

Reason: Under FIFO, valuation of inventory is based on the assumption that

costs are charged against revenue in the order in which they occur.
17. Valuation of inventory at cost or net realizable value whichever less, is 2
based on the principle of conversation.
Ans. True: -

Reason: The Valuation of inventory at cost or net realizable value whichever

less, is based on the principle of conversation.
18. Finished goods are normally valued at cost or market price whichever is 2
higher.
Ans. False: -

Reason: Finished goods are normally valued at cost or market price

whichever is lower.
19. Inventory of by-product should be valued at net realizable value where 2
cost of by-product can be separate determined
Ans. False: -

Reason: Inventory of by-product the cost of which cannot be separately

determined should be valued at net realizable value.

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Average Due Date

S. No. Questions Marks
1. The specific due date excludes the addition of grace day to arrive at the 2
due date.
Ans. True: -
Reason: Where the due date is specifically given, then there is no need of
further addition of 3 days grace to it.
2. Payment made before the average due date entitles rebate to the 2
customer.
Ans. True: -

Reason: The rebate is given to the customer who make payment early to the
average due date.

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3. Average due date result in loss to the party making payment exactly on 2
the average due date.
Ans. False: -

Reason: It is single weighted average date calculated in such a way that it does
not create any profit/loss to both the parties involved.
4. It is always the date of any transaction which is considered as base date. 2
Ans. False: -

Reason: The date of the earlier or most initial transaction that is considered
as the base date for the purpose of arriving at the average due date.
5. Interest has to be paid by the party making payment exactly on the 2
average due date.
Ans. False: -

Reason: If payment made on the average due date, then there is no need to
pay interest or provide rebate as it is a date resulting in no profit/loss to
either party.
6. Where the due date is a public holiday and the preceding day is a sudden 2
holiday, then the due date falls on the preceding the sudden holiday.
Ans. True: -

Reason: This can be understood from the example-where august 15th is the
due date, then the revised due date is 14th-which is considered as sudden
holiday, then the due date becomes 13th (preceding working day)

***************************************************

Account Current
S. No. Questions Marks
1. Current account and account current are one and the same. 2
Ans. False: -

Reason: Account current statement of running transaction between two

parties to ascertain the amount along with interest payable. Current account
is an account type to be maintained with the bank. In both the interest is
calculated, but then different methods to calculate the interest.
2. The account current is an extension of the average due date concept 2
Ans. True: -

Reason: An extension of the counter transaction between two parties’ type

under the average due date where in the date of the initial transaction is
considered as the base date from which the no. of days to the date of
rendering the account is calculated.
3. Date of transaction or the due date whichever is earlier is considered 2
for computation of the number of days.
Ans. False: -
Reason: The due date is considered for the purpose of calculation of number
of days and not the date of transaction.
4. A is in account current with B. the person rendering the account current 2
is Mr. A.
Ans. False: -
Reason: It is B who is preparing and rendering the account current to Mr. A

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5. The honored bills of exchange will not be recorded in the account 2

current.
Ans. True: -

Reason: The bill of exchange which is honored will not appear in the account
current, only in case of dishonor, it will be appearing in the account current.
6. The interest charged by banker to customer on overdrawn account is 2
called red ink interest.
Ans. False: -

When the due date of any transaction falls after the date on which account
current is prepared interest in respect of such transaction is written in red
ink being a negative item. Since it is written in red ink, it is called red ink
interest.
***************************************************

Issue Forfeiture and Re-Issue of Shares

S. No. Questions Marks
1. Liability of a holder of shares is limited to the face value of shares 2
acquired by them.
Ans. False: -

Reason; Liability of the holder of shares is limited to the issue price of shares
acquired by them.
2. Authorized Capital appears in the balance Sheet at face Value. 2
Ans. True: -

Reason; Authorized Capital is the amount of Capital Mentioned in ‘capital

clause’ of the ‘Memorandum of Association’. Authorized capital is considered
only as presentation and not considered in total of balance sheet.
3. The rate of dividend on preference shares may vary from year to year. 2
Ans. False: -

Reason; Rate of preference dividend is always fixed.

4. A Company may issue shares at a discount to the public in general. 2
Ans. False: -

Reason; According to Section 53 of the Companies Act, 2013, Company

cannot issue shares at a discount except in the case of issue of sweat equity
shares (Issued to employees and directors). Thus any issue of shares at
discount shall be void.
5. Sweat equity Shares are those which are issued to employees & 2
directors at a discount.
Ans. True: -
Reason; According to Section 53 of the Companies Act, 2013, a Company
cannot issue shares at a discount except in the case of issue of sweat equity
shares (Issued to employees and directors).
6. As per Table F, rate of interest on calls in arrears is 12%. 2
Ans. False: -
Reason; As per table F, rate of interest on calls in arrears is 10%.
7. As per Table F, rate of interest on calls in advance is 10%. 2
Ans. False: -
Reason; As per Table F, rate of interest on calls in advance is 12%.

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8. Non-participating preference shareholders enjoy voting rights. 2

Ans. False: -

Reason; A Share on which only a fixed rate of dividend is paid every year,
without any accompanying additional rights in profits and in the surplus on
winding-up, is called ‘non-participating preference shares, non-participating
preference shareholders do not enjoy voting rights.
9. A forfeited shares is available to the company for the purpose of resale. 2
Ans. True: -

Reason; Reissue of forfeited shares is not allotment of shares but only a sale.
10. Loss on reissue should exceed the forfeited amount. 2
Ans. False: -

Reason; Loss on re-issue should not exceed the forfeited amount.

***************************************************

Issue of Debentures
Q. No. Questions Marks
1. Debenture holder are the owners of the company. 2
Ans. False: -

Reasons; Debenture holder are the creditors of the company.

2. Perpetual debentures are payable at the time of liquidation of the 2
company.
Ans. True: -

Reasons; Perpetual debentures, also known as irredeemable debentures are

not repayable during the life time of the company.
3. Registered debentures are transferable by delivery. 2
Ans. False: -

Reason; Registered debentures are not easily transferable by delivery.

Bearer debentures are transferrable by delivery.
4. When Companies issue their own debentures as collateral security for a 2
loan, the holder of such debenture is entitled to interest only on the
amount of loan and not on the debentures
Ans. True: -

Reasons; In Case the company cannot repay its loan & the interest there on
the due date, the lender becomes debenture holder & them only he is entitled
to interest on debentures.
5. Debenture’s suspense account appears on liability side of balance sheet. 2
Ans. False: -

Reasons; Debenture’s suspense account appears on asset side of balance

sheet under non-current asset.
6. If a company incurs loss, then it does not pay interest to the debenture 2
holders.
Ans. False: -
Reason; Even if the company incurs losses. It has to pay the interest on
debentures.

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7. At the time of liquidation, debenture holders are paid off after the 2
shareholders.
Ans. False: -

Reasons; At the time of liquidation, debentures holders are paid off before
shareholders on priority basis.
8. Convertible debentures can be converted into equity shares. 2
Ans. True: -

Reasons; Yes, convertible debentures can be converted into equity shares.

9. Redeemable debentures are not payable during the life time of the 2
company.
Ans. False: -

Reason; These debentures are repayable as per the terms of issue, for
example, after 8 years from the date of issue.
10. Debentures can be issued for a consideration other than for cash, such 2
as for purchasing land, machinery etc.
Ans. True: -

Reason; Debentures can be issued for a consideration other than for cash,
such as for purchasing land, machinery etc.

***************************************************

Introduction to Partnership Accounts

Q. No. Questions Marks
1. In absence of any agreement partners share profits of the business in the 2
ratio of their capital contribution.
Ans. False: -

Reasons; In absence of any agreement partners share profits equally and not
in capital contribution ratio.
2. Profit sharing ratio and capital contribution ratio need not be same. 2
Ans. True: -

Reasons; Profit sharing can be different from the that of the capital introduced
by each of the partner. Not necessary that partner contributing more capital
should have a higher profit-sharing ratio and vice versa.
3. Every Partnership firm must register itself with Registrar of firms. 2
Ans. False: -

Reasons; Registration of firms is not compulsory under Indian Partnership

Act 1932.
4. A partner can advance loan to the partnership firm in addition to capital 2
contributed by him.
Ans. True: -

Reasons; Yes, loan is given to the firm at a cost, where the partnership deed
is absent, then the interest shall be paid at a minimum of 6% per annum. So
the interest on the loan to be paid to the partner.

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5. A partner can demand interest on capital even if it is not provided in the 2

partnership deed.
Ans. False: -
Reasons; Interest on capital can be paid only if it is provided in the
partnership deed.
6. If a partner does not take part in day-to-day business activities of the 2
firm, then he is not entitled to any share of profit.
Ans. False: -
Reasons; Every partner need not take part in the business. Even if a partner
does not take part in the business he is entitled for his share of profit.
7. Interest should be paid @ 6% p.a. on partners’ loan even if it is not 2
provided in the partnership deed.
Ans. True: -
Reasons; Yes, as per the provisions of the law-it is necessary that the interest
on loan at 6% per annum shall be paid to the concerned partner.
8. Husband and wife cannot be partners in the same firm. 2
Ans. False: -

Reasons; Husband and wife can be partners in the same firm.

9. One Senior partner is Principal and other partners are his agents. 2
Ans. True: -

Reasons; There is no senior or junior partner. Every partner is

agent/principal of other partners.
10. Partners are the agents of the firm and each other. 2
Ans. True: -

Reasons; Concept of agency applies to every partner and the firm as well. So,
each partner is a principal to and agent of every other partner and to the firm.
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Admission of Partner
Q. No. Questions Marks
1. A new admitted partner does not have some rights as old partner. 2
Ans. False: -

Reason: All the partners have same right at all times, unless contrary is
provided in the partnership deed/or agreed by the partner.
2. When a new partner is admitted, old partner have to forego certain share 2
in profit of the firm this is called as sacrificing ratio.
Ans. True: -

Reason: With every new partner remaining old partner have to forgone a
proportionate in their share which is called sacrificing ratio.
3. Revaluation account is also called as profit and loss adjustment account. 2
Ans. True: -

Reason: Revaluation is also called as profit and loss adjustment account

4. Any appreciation in the value of an assets is credited to revaluation 2
account.
Ans. True: -

Reason: Increase in assets is an income hence credited to revaluation account.

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5. All the partner may decide not to change the values of assets and 2
liabilities in the books of accounts.
Ans. True: -

Reason: This can be done by opening memorandum revaluation account.

6. New partner is entitled to have share in reserve appearing in the balance 2
sheet prior to his admission.
Ans. False: -

Reason: New partner is not entitled to have any share in the reserve of the
firm prior to his admission such reserve is distributed to old partner in their
old profit-sharing ratio.
7. Any reserve appearing in the balance sheet is credited to existing 2
partner equally.
Ans. False: -

Reason: Any reserve appearing in the balance sheet is credited to existing

partners in their old profit sharing ratio and not equally.
8. If revaluation accounts show credit balance, then it represents profit and 2
therefore it is credited to all partners equally.
Ans. False: -

Reason: If revaluation account shows credit balance, then it represents profit

and therefore it is credited to all partners in their profit-sharing ratio and not
equally.
9. New partner brings in necessary amount as his capital. 2
Ans. True: -

Reason: Every incoming partner shall bring in some amount of capital for the
firm.
10. New partners are entitled to share in revaluation profit. 2
Ans. False: -

Reason: New partner is not entitled to profit on revaluation, it belonging to

old partners in their profit-sharing ratio.
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Retirement of a Partner
Q. No. Questions Marks
1. Business of a partnership has to be closed if any one partner retires. 2
Ans. False: -

Reasons; Business of a partnership is not closed if any one partner retires,

remaining partners continue to carry on the business.
2. At the time of retirement of a partner no special treatment is required 2
for any reserves appearing in the Balance Sheet.
Ans. False: -

Reasons; At the time of retirement of a partner all the reserves appearing in

the balance sheet are transferred to all the partners in their profit-sharing
ratio.
3. After retirement of a partner, profit sharing ratio of continuing partners 2
remains the same.

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Ans. False: -

Reasons; After retirement of a partner, profit sharing ratio of continuing

partners does not remain the same.
4. If any partner wants to retire from the business, he must retire on 1st day 2
of the accounting year.
Ans. False: -

Reasons; A partner can retire on any day as per his wish.

5. Retiring partner has to forego his share of goodwill in the firm. 2
Ans. False: -

Reasons; Retiring partner is entitled to his share of goodwill in the firm.

6. If a partner retires in between the accounting year then he is not entitled 2
to any profit from the date of beginning of the year till his date of
retirement.
Ans. False: -

Reasons; If a partner retires in between the accounting year then he is

certainly entitled to the profit from the date of beginning of the year till his
date of retirement.
7. If the firm has taken any joint life policy then it is to be surrendered on 2
retirement of a partner.
Ans. True: -

Reasons; Yes, the firm is eligible for the surrender value on the JLP taken on
the partners.
8. Any joint life policy reserve appearing in the Balance Sheet is credited to 2
all the partners in their old profit-sharing ratio.
Ans. True: -

Reasons; As per the surrender policy method, the JLP reserve is distributed
to the partners in their old profit-sharing ratio through capital account.
9. No revaluation account is necessary on retirement of a partner. 2
Ans. False: -

Reason; Revaluation account is necessary on retirement of a partner.

10. Profit on revaluation is credited to continuing partners, retiring partner 2
is not entitled to any profit on revaluation.
Ans. False: -

Reasons; Profit on Revaluation is credited to all the partners in their profit-

sharing ratio.

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Death of Partner
Q. No. Questions Marks
1. Business of partnership comes to an end on death of a partner. 2
Ans. False: -

Reasons; Surviving partners continue to carry on the business.

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2. Legal heir of a deceased partner automatically becomes partner in the 2

firm.
Ans. False: -

Reasons; Legal heirs of deceased partners are entitled to dues of the deceased
partner. They cannot become partner in the business.
3. A revaluation account is opened in the books of accounts on death of a 2
partner.
Ans. True: -

Reasons; To find out the actual values of the assets and liabilities, revaluation
account is prepared.
4. Any reserve appearing in the balance sheet on the date of death of a 2
partner is transferred to all partners’ capital account in their profit-
sharing ratio.
Ans. True: -

Reasons; Reserves belong to the partners in the same manner the capital
contributed by them. Hence it is distributed to them through the capital
account.
5. Legal heirs of a deceased partner are entitled to his capital account 2
balance only.
Ans. False: -

Reasons; Legal heirs of a deceased partner are entitled to all the dues of
deceased partner.
6. It is not necessary to adjust goodwill on death of a partner. 2
Ans. False: -

Reasons; It is very much necessary to adjust goodwill on death of a partner.

7. On death of a partner continuing partners can agree to change their 2
capital contribution and profit-sharing ratio.
Ans. True: -

Reasons; Yes, it can be continued in the earlier share or in new share-in-either

case it leads to computing a new profit-sharing ratio.
8. On death of a partner, the firm gets surrender value of the Joint life 2
policy.
Ans. False: -

Reasons; On death of a partner the firm gets full value of sum assured of the
joint life policy.
9. Only legal heirs of deceased partner are entitled to amount received 2
from Joint life Policy.
Ans. False: -

Reasons; All the partners are entitled to amount received from joint life
policy.

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