MCQ for class 12 Accountancy CBSE- set 3

Q 1. Using ‘lower of cost and net realisable value’ for the purpose of inventory valuation is the implementation of which of the following concepts?

A) The going concern concept
B) The separate entity concept
C) The prudence concept
D) Matching concept

Show Answer

Answer: Option C
Solution: A cash book with cash bank and discount column is commonly referred as The prudence concept. Under the prudence concept, do not overestimate the amount of revenues recognized or underestimate the amount of expenses.


Q 2. The concept of ‘separate entity’ is applicable to which of the following types of businesses?

A) Sole proprietorship
B) Corporation
C) Partnership
D) All of the above
Show Answer

Answer: Option D
Solution: Ownership in business entities can be a sole proprietorship, partnership, or corporation. From the accounting perspective and its purpose these types of business are considered separate entities from their owners. The corporation is only one considered as a separate legal entity.


Q 3. Does prudence concept allow a business to build substantially higher reserves or provisions than that are actually required?
A) Yes
B) No
C) To some extent
D) It depends on the type of business
Show Answer

Answer: Option B
Solution: Prudence is the application of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated. However, the exercise of prudence does not allow, for example, the creation of hidden reserves or excessive provisions, the deliberate understatement of assets or income, or the deliberate overstatement of liabilities or expenses, because the financial statements would not be neutral and therefore, not have the quality of reliability.


Q 4. The revenue recognition principle dictates that all types of incomes should be recorded or recognized when

A) Cash is received
B) At the end of accounting period
C) When they are earned
D) When interest is paid
Show Answer

Answer: Option C
Solution: The revenue recognition principle dictates that all types of incomes should be recorded or recognized when they are earned. The revenue recognition principle, a combination of accrual accounting and the matching principle, stipulates that revenues are recognized when realized and earned, not necessarily when received.


Q 5. The matching concept matches which of the following?

A) Asset with liabilities
B) Capital with income
C) Revenues with expenses
D) Expenses with capital
Show Answer

Answer: Option C
Solution: The matching concept matches revenues with expenses. The matching concept is an accounting practice whereby firms recognize revenues and their related expenses in the same accounting period.


Q 6. The allocation of owner’s private expenses to his/her business violates which of the following?

A) Accrual concept
B) Matching concept
C) Separate business entity concept
D) Consistency concept
Show Answer

Answer: Option C
Solution: The allocation of owner’s private expenses to his/her business violates Separate business entity concept. The business entity concept states that the transactions associated with a business must be separately recorded from those of its owners or other businesses.


Q 7. The going concern concept assumes that

A) The entity continue running for forseeable future
B) The entity continue running until the end of accounting period
C) The entity will close its operation in 10 years
D) The entity can’t be liquidated
Show Answer

Answer: Option A
Solution: The going concern concept assumes that the entity continue running for forseeable future. The going concern principle is the assumption that an entity will remain in business for the foreseeable future.


Q 8. American companies prepare their financial statement in Dollars whereas Japanese companies produce financial statement in Yen. This is an example of:

A) Stable monetary unit concept
B) Unit of measurement concept
C) Money value concept
D) Current swap concept
Show Answer

Answer: Option B
Solution: American companies prepare their financial statement in Dollars whereas Japanese companies produce financial statement in Yen. This is an example of Unit of measurement concept.


Q 9. Which of the following is time spann into which the total life of a business is divided for the purpose of preparing financial statements?

A) Fiscal year
B) Calendar year
C) Accounting period
D) Accrual period
Show Answer

Answer: Option C
Solution: Accounting period is time spann into which the total life of a business is divided for the purpose of preparing financial statements. This period defines the time range over which business transactions are accumulated into financial statements, and is needed by investors so that they can compare the results of successive time periods.


Q 10. Information about an item is _______ if its ommission or misstatement might influence the financial decision of the users taken on the basis of that information

A) Concrete
B) Complete
C) Immaterial
D) Material
Show Answer

Answer: Option D
Solution: Materiality is a concept in financial accounting and reporting that firms may disregard trivial matters, but they must disclose everything that is important to the report audience. Items that are important enough to matter are material items.


Q 11. Exercising a degree of caution in the case of judgements needed under the condition of uncertainity is the assumption of which of the following accounting concepts?

A) Matching concept
B) Timeliness concept
C) Accrual concept
D) Prudence concept
Show Answer

Answer: Option D
Solution: Exercising a degree of caution in the case of judgements needed under the condition of uncertainity is the assumption of Prudence concept. Prudence Concept or Conservatism principle is a key accounting principle which makes sure that assets and income are not overstated and provision is made for all known expenses and losses whether the amount is known for certain or just an estimation.


Q 12. Which one of the following concepts states that the publication or presentation of financial statements should not be delayed?

A) Objectivity concept
B) Timing concept
C) Timeliness concept
D) Reliability concept
Show Answer

Answer: Option C
Solution: Timeliness concept states that the publication or presentation of financial statements should not be delayed. Timeliness principle in accounting refers to the need for accounting information to be presented to the users in time to fulfill their decision making needs.


Q 13. Land on lease should be shown in Blance sheet contrary to the fact that the company does not own that piece of land is the implementation of which accounting concept?

A) Matchig concept
B) Accrual concept
C) Prudence concept
D) Substance over form concept
Show Answer

Answer: Option D
Solution: Land on lease should be shown in Blance sheet contrary to the fact that the company does not own that piece of land is the implementation of Substance over form concept.


Q 14. Depreciation is charged on fixed assets to comply with which of the following accounting principle?

A) Matching concept
B) Prudence concept
C) Timeliness concept
D) Reliability concept
Show Answer

Answer: Option A
Solution: Depreciation is charged on fixed assets to comply with Matching concept which requires that revenues must be matched with associated expenses to get a complete and accurate picture of profit and loss.


Q 15. Net profit is computed in which of the following?

A) Balance sheet
B) Income statement
C) Cash flow statement
D) Statement of changes in equity
Show Answer

Answer: Option B
Solution: Net profit is computed in Income statement. Net income, also called net profit, is a calculation that measures the amount of total revenues that exceed total expenses. It other words, it shows how much revenues are left over after all expenses have been paid.


Q 16. In income statement, gross profit is always equal to

A) Sales – expenses
B) Income – expenses
C) Sales – cost of goods sold
D) Sales – selling costs
Show Answer

Answer: Option C
Solution: In income statement, gross profit is always equal to Sales – cost of goods sold.


Q 17. Office equipment is a ______ asset for a computer manufacturer and the same office equipment is a ____ asset for a company that deals in these equipments

A) Current, fixed
B) Fixed, intangible
C) Tangible, intangible
D) Fixed, current
Show Answer

Answer: Option D
Solution: Office equipment is a Fixed asset for a computer manufacturer and the same office equipment is a current asset for a company that deals in these equipments.


Q 18. Financial statements mainly help in

A) Assumption of economic events
B) Anticipation of economic events
C) Recording of economic events
D) Communication of economic events
Show Answer

Answer: Option D
Solution: Financial statements mainly help in Communication of economic events.


Q 19. Purchases + opening stock – closing stock = ?

A) Amount of sales
B) Gross profit
C) Cost of goods sold
D) Net income
Show Answer

Answer: Option C
Solution: Purchases + opening stock – closing stock = Cost of goods sold.


Q 20. Which of the following financial statements shows the financial position of a business at a specific date?

A) Balance sheet
B) Income statement
C) Cash flow statement
D) Statement of changes in equity
Show Answer

Answer: Option A
Solution: Balance sheet financial statements shows the financial position of a business at a specific date. The balance sheet, sometimes called the statement of financial position, lists the company’s assets, liabilities,and stockholders ‘ equity (including dollar amounts) as of a specific moment in time. That specific moment is the close of business on the date of the balance sheet.


Q 21. Which of the following financial reports shows the profitability of a business?

A) Income statement
B) Balance sheet
C) Cash flow statement
D) Statement of changes in equity
Show Answer

Answer: Option A
Solution: Income statement shows the profitability of a business. The income statement is the most important report for many analysts. It shows the company’s operating results for an entire year.


Q 22. Assets minus liabilities equal to

A) Goodwill
B) Working capital
C) Net income
D) Capital
Show Answer

Answer: Option D
Solution: Assets minus liabilities equal to Capital, it shows that a company’s total amount of assets equals the total amount of liabilities plus owner’s (or stockholders’) equity.


Q 23. Which of the following financial statements shows the movement of cash and cash equivalents during an accounting period?

A) Income statement
B) Balance sheet
C) Cash flow statement
D) Statement of changes in equity
Show Answer

Answer: Option C
Solution: Cash flow statement shows the movement of cash and cash equivalents during an accounting period. A cash flow statement, also known as statement of cash flows or funds flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities.


Q 24. Goodwill is classified as which one of the following assets?

A) Fixed
B) Long term
C) Current
D) Intangible
Show Answer

Answer: Option D
Solution: Goodwill is classified as Intangible assets. The goodwill amounts to the excess of the “purchase consideration” (the money paid to purchase the asset or business) over the total value of the assets and liabilities. It is classified as an intangible asset on the balance sheet, since it can neither be seen nor touched.


Q 25. Which of the following does not appear in Balance sheet?

A) Building
B) Cash
C) Goodwill
D) Rent expenses
Show Answer

Answer: Option D
Solution: Rent expenses does not appear in Balance sheet.


Q 26. Current assets are also known as

A) Gross working capital
B) Invested capital
C) Assets
D) Cash
Show Answer

Answer: Option A
Solution: Current assets are also known as Gross working capital. Gross working capital is the sum of all of a company’s current assets (assets that are convertible to cash within a year or less).


Q 27. The expenses related to the main operations of a business are referred to as

A) Administration expense
B) Non-administration expense
C) Selling expense
D) Operating expense
Show Answer

Answer: Option D
Solution: The expenses related to the main operations of a business are referred to as Operating expense. The operating expenses refer to the specific costs after gross revenue is defined in the income statement.


Q 28. A current asset that is convertible to cash within 3 months can be referred to as

A) Cash asset
B) Operating asset
C) Intangible assets
D) Cash equivalent
Show Answer

Answer: Option D
Solution: A current asset that is convertible to cash within 3 months can be referred to as Cash equivalent. Cash and cash equivalents refer to the line item on the balance sheet that reports the value of a company’s assets that are cash or can be converted into cash immediately.


Q 29. What is depreciation?

A) Cost of a fixed asset
B) Cost of a fixed asset’s repair
C) The residual value of a fixed asset
D) Portion of a fixed asset’s cost consumed during the current accounting period
Show Answer

Answer: Option D
Solution: Portion of a fixed asset’s cost consumed during the current accounting period is known as depreciation. Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account for declines in value. Businesses depreciate long-term assets for both tax and accounting purposes.


Q 30. Under which depreciation method, the amount of depreciation expenses remains same throughtout the life of the asset?

A) Straight line method
B) Reducing balance method
C) Number of units produced method
D) Machine hours method
Show Answer

Answer: Option A
Solution: Under Straight line method, the amount of depreciation expenses remains same throughtout the life of the asset. In a straight line depreciation method, it is assumed that the asset uniformly depreciates over its useful life.


Q 31. A company purchased a vehicle for Rs.6000. It will be used for 5 years and its residual value is expected to be Rs.1000. What is the annual amount of depreciation using straight line method of depreciation?

A) Rs. 1000
B) Rs. 2000
C) Rs. 3000
D) Rs. 5000
Show Answer

Answer: Option A
Solution: Cost of the asset = Rs. 6,000
Salvage Value = Rs. 1,000
Total Depreciation Cost = Cost of asset � Salvage Value = 6000 � 1000 = Rs. 5000
Useful life of the asset = 5 years
Thus, annual depreciation cost = (Cost of asset � Salvage Cost)/Useful Life = 5000/5 = Rs. 1000.


Q 32. Which of the following is the normal balance of an accumulated depreciation account?

A) Debit balance
B) Credit balance
C) Nil balance
Show Answer

Answer: Option B
Solution: Credit balance is the normal balance of an accumulated depreciation account. Accumulated depreciation has a credit balance, because it aggregates the amount of depreciation expense charged against a fixed asset.


Q 33. How trial balance shows the accumulated depreciation?

A) as a debit item
B) as a credit item
C) It doesn’t show
Show Answer

Answer: Option B
Solution: Trial balance shows the accumulated depreciation as a credit item. Accumulated depreciation has a credit balance, because it aggregates the amount of depreciation expense charged against a fixed asset.


Q 34. Which of the following is a double entry for deprecation expenses?

A) Accumulated depreciation Debit and depreciation expenses Credit
B) Depreciation expenses Debit and accumulated depreciation Credit
C) Cash Debit and Depreciation expenses Credit
D) Depreciation expenses Debit and Cash Credit
Show Answer

Answer: Option B
Solution: Depreciation expenses Debit and accumulated depreciation Credit is a double entry for deprecation expenses.


Q 35. An alternative term used for accumulated depreciation expenses?

A) Provision for depreciation
B) Cumulative depreciation
C) Targeted depreciation
D) Depletion
Show Answer

Answer: Option A
Solution: Provision for depreciation is an alternative term used for accumulated depreciation expenses. Depreciation expense is recognized on the income statement as a non-cash expense that reduces the company’s net income.


Q 36. Which of the following is/are kind of depreciation expenses?

A) Amortization
B) Depletion
C) Both of them
D) None of the above
Show Answer

Answer: Option C
Solution: Amortization and Depletion are kind of depreciation expenses. Depreciation, depletion, and amortization (DD&A) are accounting techniques that enable companies to gradually expense resources of economic value.


Q 37. In depreciation calculation, the useful life of a fixed asset is:

A) a certain figure
B) an estimate
C) a predetermined figure for all fixed assets
Show Answer

Answer: Option B
Solution: In depreciation calculation, the useful life of a fixed asset is an estimate. Depreciation is �the systematic and rational allocation of the acquisition cost of an asset, less its estimated salvage value or residual value, over the assets estimated useful life.� Simply said, it’s a way of allocating a portion of the cost of an asset over the period it can be used.


Q 38. Depreciable amount + Residual value of a fixed asset = ?

A) Depreciation expenses
B) Accumulated depreciation
C) Cost of the fixed asset
D) Future economic benefits of a fixed asset
Show Answer

Answer: Option C
Solution: Depreciable amount + Residual value of a fixed asset = Cost of the fixed asset. Fixed assets are depreciated only to the extent of their depreciable amount, which equals cost minus the salvage value.


Q 39. Cost of a fixed asset – Accumulated depreciation expenses of the fixed asset = ?

A) Book value of a fixed asset
B) Market value of a fixed asset
C) Historical cost of a fixed asset
D) Recoverable amount if a fixed asset
Show Answer

Answer: Option A
Solution: Cost of a fixed asset – Accumulated depreciation expenses of the fixed asset = Book value of a fixed asset. Except for the cost of land, the cost of a fixed asset is spread over its estimated useful life to the business; the amount allocated to each period is called depreciation expense.


Q 40. The purchase price of a software that will be used for more than 12 months should be regarded as

A) a revenue expenditure
B) a capital expenditure
C) a long term expense
D) an accounting period expense
Show Answer

Answer: Option B
Solution: The purchase price of a software that will be used for more than 12 months should be regarded as a capital expenditure. It is considered a capital expenditure when the asset is newly purchased or when money is used towards extending the useful life of an existing asset.


Q 41. XYZ firm has imported a machine from abroad. Which of the following is NOT the element of the machine’s cost?

A) Purchase price of machine
B) Import duty
C) Demmurage charges
D) Refundable tax
Show Answer

Answer: Option D
Solution: XYZ firm has imported a machine from abroad. Refundable tax is NOT the element of the machine’s cost.


Q 42. Which of the following foxed assets is not depreciated in the ordinary circumstances?

A) Plant & Machinery
B) Building account
C) Land
D) Equipment’s
Show Answer

Answer: Option C
Solution: Land foxed assets is not depreciated in the ordinary circumstances. Land is not depreciated, since it has an unlimited useful life.


Q 43. In the calculation of depreciation, all of the following items are actually estimates except:

A) Useful life
B) Residual value
C) Historical cost
D) Salvage value
Show Answer

Answer: Option C
Solution: In the calculation of depreciation, all of the following items are actually estimates except Historical cost. A historical cost is a measure of value used in accounting in which the price of an asset on the balance sheet is based on its nominal or original cost when acquired by the company.


Q 44. Under which method of depreciation, the amount of depreciation expenses remains constant throughout the life of the asset?

A) Reducing balance method
B) Unit of activity method
C) Straight line method
D) None of these
Show Answer

Answer: Option C
Solution: Under Straight line method of depreciation, the amount of depreciation expenses remains constant throughout the life of the asset.


Q 45. An increase in the value of fixed asset is referred to as:

A) Depreciation
B) Appreciation
C) Market capitalization
D) Reverse depreciation
Show Answer

Answer: Option B
Solution: An increase in the value of fixed asset is referred to as Appreciation. Appreciation, in general terms, is an increase in the value of an asset over time. The increase can occur for a number of reasons, including increased demand or weakening supply, or as a result of changes in inflation or interest rates.


Q 46. The term _______ is generally used for the depreciation of natural resources

A) Amortization
B) Depletion
C) Appreciation
D) Disposal value
Show Answer

Answer: Option B
Solution: The term Depletion is generally used for the depreciation of natural resources. Depletion is an accrual accounting technique used to allocate the cost of extracting natural resources such as timber, minerals, and oil from the earth.


Q 47. Which of the following is a biological asset?

A) Land
B) Building
C) Environment
D) Living plants and animals
Show Answer

Answer: Option D
Solution: Living plants and animals is a biological asset. Biological asset is any living plant or animals owned by the business, and are typically measured at fair value minus selling costs.


Q 48. Which of the following is the effect on net income if a business decreases its provision for bad debts?

A) It will increase net income
B) It will decrease net income
C) No effect
D) It will increase gross profit and net income
Show Answer

Answer: Option A
Solution: Net income will increase is the effect on net income if a business decreases its provision for bad debts.


Q 49. A firm has not recorded the bad debts by mistake. Which of the following is the effect of bad debt ommission?

A) Net profit would decrease
B) Net profit would increase
C) Gross profit would overstate
D) Gross profit would understate
Show Answer

Answer: Option B
Solution: A firm has not recorded the bad debts by mistake. Net profit would increase is the effect of bad debt ommission.


Q 50. When it is certain that a debt won’t be recovered. Which of the following is correct?

A) Provision for bad debt is created
B) Account receivable is credited
C) Bad debts is credited
D) Sales is debited
Show Answer

Answer: Option B
Solution: When Account receivable is credited it is certain that a debt won’t be recovered.


Q 51. A recovery of bad debt

A) increases net income
B) decreases net income
C) increases gross profit
D) increases gross profit and net income
Show Answer

Answer: Option A
Solution: A recovery of bad debt increases net income. Bad debt recovery is a payment received for a debt that was written off and considered uncollectible. The receivable may come in the form of a loan, credit line, or any other accounts receivable. Because it generally generates a loss when it is written off, bad debt recovery usually produces income.


Q 52. What does ‘aged debtors analysis’ signify?

A) shows how long debts have been outstanding
B) How old the customers are
C) How long does a business take to repay the bank loans
D) Minimum number of old debtors
Show Answer

Answer: Option A
Solution: Aged debtors analysis shows how long debts have been outstanding. An aged debtors report is a totalled list of all the invoices your customers haven’t yet paid you for, less any credit notes you’ve issued to your customers and not yet refunded them for.


Q 53. Which of the following is the most common cause of bad debt?

A) Debtor refusal to repayment
B) Debtor left the country
C) Debtor committed a crime
D) Debtor declared to be a bankrupt
Show Answer

Answer: Option D
Solution: Debtor declared to be a bankrupt is the most common cause of bad debt. A bad debt is a monetary amount owed to a creditor that is unlikely to be paid and, or which the creditor is not willing to take action to collect for various reasons, often due to the debtor not having the money to pay, for example due to a company going into liquidation or insolvency.


Q 54. Which accounting concept dictates the inclusion of ‘provision for doubtful debts’ in the financial statements?

A) Accrual concept
B) Matching concept
C) Going concern concept
D) Prudence concept
Show Answer

Answer: Option D
Solution: Prudence concept dictates the inclusion of ‘provision for doubtful debts’ in the financial statements.


Q 55. Which of the following is a commonly used base to create the provision for doubtful debts?

A) Total purchases
B) Total credit sales
C) Total current assets
D) Total current liabilities
Show Answer

Answer: Option B
Solution: Total credit sales is a commonly used base to create the provision for doubtful debts. The provision for doubtful debts is the estimated amount of bad debt that will arise from accounts receivable that have been issued but not yet collected. It is identical to the allowance for doubtful accounts.


Q 56. Provision for doubtful debts account is a/an

A) Asset account
B) Contra asset account
C) Nominal account
D) Liability account
Show Answer

Answer: Option B
Solution: Provision for doubtful debts account is an Contra asset account. It is used along with the account Accounts Receivable in order for the balance sheet to report the net realizable value of the company’s accounts receivable.


Q 57. Provision for cash discount on debtors is a percentage of

A) Debtors
B) Net debtors
C) Net debtors less provision for doubtful debts
D) Net sales
Show Answer

Answer: Option C
Solution: Provision for cash discount on debtors is a percentage of Net debtors less provision for doubtful debts.


Q 58. The value of inventories or stock is figured out at the lower of cost and

A) Purchase price
B) Opportunity cost
C) Realizable value
D) Net realizable value
Show Answer

Answer: Option D
Solution: The value of inventories or stock is figured out at the lower of cost and Net realizable value.


Q 59. An overstatement in the value of closing stock overstates all of the following except

A) Net income
B) Current assets
C) Capital of the business
D) Cost of goods sold
Show Answer

Answer: Option D
Solution: An overstatement in the value of closing stock overstates all of the following except Cost of goods sold.


Q 60. All of the following are the methods of inventory costing except

A) FIFO
B) LIFO
C) AVCO or average cost
D) Stock take
Show Answer

Answer: Option D
Solution: Stock take is not the methods of inventory costing. Stock-taking or “inventory checking” or “wall-to-wall” is the physical verification of the quantities and condition of items held in an inventory or warehouse. This may be done to provide an audit of existing stock. It is also the source of stock discrepancy information.


Q 61. Which one of the following methods of inventory costing yields highest taxable income?

A) FIFO
B) LIFO
C) AVCO or averrage cost
D) Standard cost method
Show Answer

Answer: Option A
Solution: FIFO methods of inventory costing yields highest taxable income. First-in, first-out, or FIFO, applies the earliest costs first. In rising markets, FIFO yields the lowest cost of goods sold and the highest taxable income.


Q 62. Which one of the following methods of inventory costing produces ending stock cost close to the market value of the inventory?

A) FIFO
B) LIFO
C) AVCO or averrage cost
Show Answer

Answer: Option A
Solution: FIFO methods of inventory costing produces ending stock cost close to the market value of the inventory. FIFO (First-in, first-out) method is based on the perception that the first inventories purchased are the first ones to be sold. It is a cost flow assumption for most companies. Since the theory perfectly matches to the actual flow of goods, therefore it is considered as the right way to value inventory.


Q 63. Which one of the following inventory costing methods is supposed to issue the most recently purchased goods?

A) FIFO
B) LIFO
C) AVCO or averrage cost
D) Moving average
Show Answer

Answer: Option B
Solution: LIFO inventory costing methods is supposed to issue the most recently purchased goods. LIFO, which stands for last-in-first-out, is an inventory valuation method which assumes that the last items placed in inventory are the first sold during an accounting year.


Q 64. Opening inventory + Net purchases = ?

A) Ending inventory
B) Closing stock
C) Cost of goods manufactured
D) Cost of goods available for sale
Show Answer

Answer: Option D
Solution: Opening inventory + Net purchases = Cost of goods available for sale. The cost of goods available for sale equals the beginning value of inventory plus the cost of goods purchased.


Q 65. Cost of goods available for sale – closing inventory = ?

A) Opening inventiry
B) Cost of opening finished goods inventory
C) Work in progress ending inventory
D) Cost of goods sold
Show Answer

Answer: Option D
Solution: Cost of goods available for sale – closing inventory = Cost of goods sold.


Q 66. NRV or net realizable value of inventory is the expected selling price or market value less

A) Carry value of the inventory
B) Expenses necessary to complete sale
C) Cost of the stock
D) Replacement cost
Show Answer

Answer: Option B
Solution: NRV or net realizable value of inventory is the expected selling price or market value less Expenses necessary to complete sale. Net realizable value is generally equal to the selling price of the inventory goods less the selling costs (completion and disposal).


Q 67. Under which method of inventory costing, a pre-determined cost is assigned to all items of inventory?

A) Replacement cost method
B) Standard cost method
C) AVCO or average cost
D) FIFO method
Show Answer

Answer: Option B
Solution: Under Standard cost method of inventory costing, a pre-determined cost is assigned to all items of inventory. A standard cost is described as a predetermined cost, an estimated future cost, an expected cost, a budgeted unit cost, a forecast cost, or as the “should be” cost. Standard costs are often an integral part of a manufacturer’s annual profit plan and operating budgets.


Q 68. Term ‘Credit’ means _____ by the business

A) Receiving of benefits
B) It has no effect on business
C) Providing benefits
D) It depends upon items
Show Answer

Answer: Option A
Solution: Term ‘Credit’ means Receiving of benefits by the business. The terms which indicate when payment is due for sales made on account (or credit).


Q 69. When a liability is reduced or decreased, it is recorded on the:

A) Left or credit side of the account
B) Right or debit side of the account
C) Right or credit side of the account
D) Left or debit side of the account
Show Answer

Answer: Option D
Solution: When a liability is reduced or decreased, it is recorded on the Left or debit side of the account.


Q 70. When capital is increased by an amount, it is recorded on the:

A) Left or credit side of the account
B) Right or debit side of the account
C) Right or credit side of the account
D) Left or debit side of the account
Show Answer

Answer: Option C
Solution: When capital is increased by an amount, it is recorded on the Right or credit side of the account.

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