Accounts Practice Answers- Tutorial 1

1. Hiring of a CEO is not recorded in the books of accounts due to which of the following
concept?

a) Entity concept
b) Money measurement concept
c) Going concern concept
d) Accrual concept

2. X & Co (a sole proprietorship by Mr. X) has cash of Rs 15,000 and unpaid bills of Rs
20,000. Mr. X has personal cash of Rs. 3,000 but no personal debt. How much would money
the creditors receive and what is the status of Mr X and X & Co?

a) Rs 15,000; Mr. X is solvent; X & Co’s business shuts down

b) Rs 15,000; Mr. X is solvent; X & Co’s business continues
c) Rs 18,000; Mr. X is insolvent; X & Co’s business shuts down
d) Rs 18,000; Mr. X is insolvent; X & Co’s business continues

3. X Ltd (a one-person company with Mr. X as the sole shareholder) has cash of Rs 15,000 and
unpaid bills of Rs 20,000. Mr. X has fully paid his subscribed capital. Mr. X has personal
cash of Rs. 3,000 but no personal debt. How much would money the creditors receive and
what is the status of Mr X and X & Co?

a) Rs 15,000; Mr. X is solvent; X Ltd shuts down

b) Rs 15,000; Mr. X is solvent; X Ltd shuts down
c) Rs 18,000; Mr. X is insolvent; X Ltd shuts down
d) Rs 18,000; Mr. X is insolvent; X Ltd shuts down

4. AB Partners (a partnership firm of equal partners Ms. A & Ms. B) has cash of Rs 15,000 and
unpaid bills of Rs 20,000. Ms. A has personal cash of Rs. 5,000 and Ms. B has personal cash
of Rs. 500. Both do not have personal debt. How much would money the creditors receive
and what is the status of Ms A, Ms B and AB Partners?

a) Rs 20,000; Ms. A is solvent; Ms. B is insolvent; AB Partners’ business shuts down

b) Rs 20,000; Ms. A is solvent; Ms. B is insolvent; AB Partners’ business continues
c) Rs 18,000; Ms. A is solvent; Ms. B is solvent; AB Partners’ business continues
d) Rs 18,000; Ms. A is solvent; Ms. B is insolvent; AB Partners’ business shuts down
5. AB LLP (an LLP firm of equal partners Ms. A & Ms. B) has cash of Rs 15,000 and unpaid
bills of Rs 20,000. The deficiency is not due to fraud. Ms. A has personal cash of Rs. 5,000
and Ms. B has personal cash of Rs. 500. Both do not have personal debt. How much would
money the creditors receive and what is the status of Ms A, Ms B and AB LLP?

a) Rs 20,000; Ms. A is solvent; Ms. B is insolvent; AB LLP shuts down

b) Rs 20,000; Ms. A is solvent; Ms. B is insolvent; AB LLP continues
c) Rs 15,000; Ms. A is solvent; Ms. B is solvent; AB LLP continues
d) Rs 15,000; Ms. A is solvent; Ms. B is solvent; AB LLP shuts down

6. Governments do not use financial statements as companies regularly file various government
returns

a) True
b) False

7. Which entity is primarily responsible for regulating entities listed on the stock exchange?

a) NFRA
b) Ministry of Finance
c) SEBI
d) MCA

8. Accounting policies generally require a land bought at cost of Rs. 20,000 to be recorded as
Rs. 20,000 even though they might be worth Rs. 20,00,000 currently. The difference in the
accounting and economic performance is due to-

a) Error
b) Bias

9. Accrual accounting is based on this principle/ assumption.

a) Reporting entity
b) Matching concept
c) Historical cost
d) Going concern

10. Which of the following is not a financial statement?

a) Balance Sheet
b) P & L
c) Inventory reconciliation
 d) Cash flow statement

11. What would be the impact on the accounting equation because of the following transactions?

− Payment of salary for the month of March paid on 31 March 2020

a) Decrease in assets, no change in liability, decrease in equity

b) Decrease in assets, decrease in liability, no change in equity
c) No change in asset, increase in liability, decrease in equity
d) Decrease in assets, increase in liability, decrease in equity

− Payment of salary for the month of March paid on 7 April 2020 (impact on 7 April 2020)

a) Decrease in assets, no change in liability, decrease in equity

b) Decrease in assets, decrease in liability, no change in equity
c) No change in asset, increase in liability, decrease in equity
d) Decrease in assets, increase in liability, decrease in equity

12. The Balance Sheet shows the financial______ of a company ______ of time while the Profit
and Loss Statement shows the financial ______ of a company ______ of time.

(a) performance; over a period; position; at a point

(b) position; over a period; performance; at a point
(c) position; at a point; performance; over a period
(d) position; at a point; cash flows earned; over a period

13. Loan given to an employee is a/an _____ while loan taken from bank is a/an _____
(a) Asset, Liability (b) Liability, Liability (c) Income, Asset (d) Income, Liability

14. ABC Ltd. rented a unit in a commercial office complex to serve as the company’s corporate
office. Following provisions were included as a part of the terms of the lease rental
agreement:

- ABC Ltd. was required to pay 3 months’ rent to the lessor as security deposit
- Rent for the month shall be paid by ABC Ltd. on the first day of the next month

Solve questions (i)-(v) using the above information

 (i) Refundable security deposit paid to the lessor shall be a/an _____ for ABC Ltd.
(a) Asset (b) Liability (c) Income (d) Expense

(ii) Non-refundable security deposit paid to the lessor shall be a/an _____ for ABC Ltd.
(a) Asset (b) Liability (c) Income (d) Expense

(iii) ABC Ltd. accounts for the rent expense of March in the month of March even though the
payment is due in April due to which concept?
(a) Historical Cost (b) Accrual (c) Going concern (d) Money measurement

(iv) What shall be the impact of recording the rent for the month of March on the accounting
equation?

(a) increase in assets and increase in liabilities

(b) decrease in income and increase in liabilities
(c) increase in expenses and increase in liabilities
(d) increase in expenses and decrease in assets

(v) What shall be the impact of recording the payment of rent for March in April on the
accounting equation?
(a) decrease in assets and decrease in liabilities
(b) increase in income and decrease in liabilities
(c) decrease in expenses and decrease in liabilities
(d) decrease in expenses and increase in assets

15. ABC Ltd., a distributor of mobile phones, entered into the following transactions in the
month of March 2020:
- It entered into a contract with Chroma to supply 100 iPhones at Rs. 50,000 per unit.
- As a part of the contract, ABC Ltd. received Rs. 25 lakhs from Chroma (50% of the
agreed contract value).
- In the month of March 2020, ABC Ltd. supplied 40 iPhones.
Solve questions (i)-(iii) using the above information
(i) ABC Ltd. will record revenue amounting to Rs. _____ in March 2020.
(a) 50 lakhs (b) 20 lakhs (c) 25 lakhs (d) 30 lakhs

(ii) As on March 31, 2020, what will be the balance of Chroma in the books of ABC Ltd.?
(a) Unearned revenue of Rs. 5 lakhs
(b) Receivable of Rs. 20 lakhs
(c) Receivable of Rs. 25 lakhs
(d) Unearned revenue of Rs. 25 lakhs
 (iii) Identify the underlying accounting concept that has been used in this transaction.
(a) Realisation (b) Accrual (c) Matching (d) Money measurement

16. From the following information, calculate the amount to be recorded as revenue for the
month:
- Amount received during the month – Rs. 10 lakhs
- Services provided but amount not received – Rs. 5 lakhs
- Amount received but service not provided – Rs. 2 lakhs
(a) Rs. 17 lakhs (b) Rs. 7 lakhs (c) Rs. 10 lakhs (d) Rs. 13 lakhs

17. ABC Ltd. purchased an insurance policy to cover its inventory for calendar year 2020 by
paying a premium of Rs. 50,000. Identify the correct cumulative accounting treatment for
FY20 (ie – year ending March 31, 2020).

(a) Insurance expense would be debited by Rs. 50,000, bank would be credited by Rs. 50,000
(b) Prepaid insurance expense would be debited by Rs. 50,000, bank would be credited by
Rs. 50,000
(c) Bank would be debited by Rs. 50,000, prepaid insurance expense would be credited by
Rs. 37,500, insurance expense would be credited by Rs. 12,500
(d) Prepaid insurance expense would be debited by Rs. 37,500, insurance expense would be
debited by Rs. 12,500, bank would be credited by Rs. 50,000

18. LEDGER is a collection of accounts and CHART OF ACCOUNTS is a complete list of the
account titles used in an organization?

19. ………. to increase and ………. to decrease Assets and Expenses. …………. to increase and
……… to decrease Liabilities and Capital
a) Debit, Credit, Credit, Debit.
b) Credit, Debit, Debit, Credit.

20. Journalize – for the month of March 20XX. Assume books are closed on March 31, 2020.
(a) Repairs and maintenance expense incurred on March 1, 2020 of Rs. 30,000 had
incorrectly been capitalized to Office Equipment. Office Equipment are depreciated at
10% pa. Pass a rectification entry.
(b) Paid Subscription for 6 months for a magazine – INR 2400 on March 5
(c) Billed Customer for services - INR 1700
(d) Cash payment of 2,900 to suppliers was debited to Trade Payables, `9,200 and credited to
Cash, `2,900. Pass a rectification entry
a) Repairs & Maintenance Dr; Equipment Cr – 30,000
Accumulated Depreciation Dr; Depreciation Cr – 2500
b) Prepaid Subscription Dr; Cash Cr – 2400
c) Trade Receivable Dr; Revenue Cr – 1700
d) Suspense Dr; Trade Payables Cr - 6300
21. The following rectification entry has been passed:
Prepaid expenses Dr 90,000
Subscription fees Cr 90,000
The accountant has most likely made which one of the following errors?
(a) Recorded subscription charges twice in the books of accounts
(b) Charged the entirety of the subscription fees in the current accounting period
(c) Omitted to record the payment of subscription fees
(d) Recorded payment of subscription fees at an incorrect amount

22. The following rectification entry has been passed for payment of interest:
Interest expenses Dr 90,000
Bank Loan Payable Cr 90,000

What would have been the original incorrect entry?

(a) Bank Loan Payable Dr; Bank Cr
(b) Interest Expenses Dr; Bank Cr
(c) Bank Dr; Interest Expense Cr
(d) Bank Dr; Bank Loan payable Cr

23. Purchases amounting Rs. 50,000 had been recorded twice in the books of accounts. Identify
the correct rectification entry.
(a) Accounts receivable Dr 50,000, Purchase Cr 50,000
(b) Purchase Dr 50,000, Accounts payable Cr 50,000
(c) Accounts payable Dr 50,000, Purchase Cr 50,000
(d) Accounts payable Dr 1,00,000, Purchase Cr 1,00,000

24. ABC Ltd. had incorrectly recorded salary paid of Rs. 63,000 as Rs. 36,000. What would the
rectification entry be?
(a) Salary Dr 27,000, Bank Cr 27,000
(b) Salary Dr 63,000, Bank Cr 63,000
(c) Bank Dr 27,000, Salary Cr 27,000
(d) Salary Dr 36,000, Bank Cr 36,000

25. ABC Ltd. had incorrectly debited bank account and credited rent account while recording
payment of rent expense amounting to Rs. 20,000. What would the rectification entry be?
(a) Bank Dr 20,000, Rent Cr 20,000
(b) Rent Dr 20,000, Bank Cr 20,000
(c) Bank Dr 40,000, Rent Cr 40,000
 (d) Rent Dr 40,000, Bank Cr 40,000

26. ABC Ltd. received the electricity bill amounting to Rs. 20,000 for the month of April on May
2 2020 before finalization of books. Identify the correct entries that ABC Ltd. would pass for
the month of April and May (Note: first entry signifies entry made in April and second entry
signifies entry made in May).
(a) No entry; Electricity expense Dr Accrued expenses Cr
(b) Electricity expense Dr Accrued expenses Cr; No entry
(c) Accrued expenses Dr Electricity expense Cr; Electricity expense Dr Accrued expenses Cr
(d) Electricity expense Dr Accrued expenses Cr; Accrued expenses Dr Electricity expense Cr

27. ABC Ltd. pays salary to its employees on the first day of the succeeding month. Identify the
correct entries that ABC Ltd. would pass for the month of April and May (Note: first entry
signifies entry made in April and second entry signifies entry made in May).
(a) Salary expense Dr Accrued expenses Cr; Accrued expenses Dr Bank Cr
(b) Salary expense Dr Prepaid expenses Cr; Prepaid expenses Dr Bank Cr
(c) No entry; Salary expense Dr Bank Cr
(d) Prepaid expenses Dr Bank Cr; Salary expense Dr Prepaid expenses Cr

28. Compute Rent Expenses for FY19-20 – 9,600

Prepaid Rent as on 31/3/2019 5900
Prepaid Rent as on 31/3/2020 7900
Rent Paid during FY 19-20 11,600

29. Compute Fee Revenue for FY19-20 – 22,510

Unbilled Revenue as on 31/3/2019 1800
Unbilled Revenue as on 31/3/2020 2100
Unearned Revenue as on 31/3/2019 1600
Unearned Revenue as on 31/3/2020 1100
Fee Received during FY19-20 21710

30. Compute Net Purchases – 42,510 and Net Sales - 55,800 amount to be recorded in P&L
Purchases 43,290
Purchase Return 370
Purchase Discount 410

Sales (inclusive of taxes 4,100) 64,100

Sales Return 1,200
Sales Discount 560
Trade Discount 3000
31. Adjusting Entries for year ended March 2020
(a) Income tax payable for the year is estimated at INR 2,100
(b) There are five salaried employees. The company pays salaries on the first day of the
following month. Three of the employees receive a salary of `2,500 per month and the other
two `2,200 per month.
(c) Company has insurance policy that covers fire risk for two years and was taken on
September 1, 2019 by paying a premium of `12,000.
(d) Company bought a van on March 1, 2020 for INR 96,000 and was estimated to be useful
for eight years with no salvage value. (entry for Depreciation)
a) Income Tax Expenses Dr; Income Tax Payable Cr - 2100
b) Salaries Expenses Dr; Salaries Payable Cr – 11,900
c) Insurance Expenses Dr; Prepaid Insurance Cr – 3500
d) Depreciation Dr; Accumulated Depreciation Cr - 1000