AFD Practice Questions for Quiz l

1. The owner of a business transferred her private car into the business for use by her staff. What would
the effect of this transaction be?

A. Decrease owner's capital and increase assets

B. Increase assets and increase liabilities
C. Increase owner's capital and increase assets
D. Decrease assets and decrease liabilities

2. If total liabilities decreased by Rs. 25,000 and shareholders’ equity increased by Rs. 5,000 during a
period, then total assets must change by what amount and direction during that same period?

A. Rs. 20,000 increase

B. Rs. 20,000 decrease
C. Rs. 30,000 increase
D. Rs. 30,000 decrease

3. Which of the following would be reported on the Profit and Loss Account for Year 2?

A. Supplies that were purchased and used in Year 1 but paid for in Year 2
B. Supplies that were purchased in Year 1 but used in Year 2.
C. Amount paid for Supplies during year 2
D. Amount owed for Supplies as of December 31, Year 2.

4. Universal Corp. has Retained Earnings at the beginning of year 1 of Rs. 80,000, cash flows from
operating activities during year 1 of Rs. 35,000, dividends paid during year 1 of Rs. 5,000, net profit for
year 1 of Rs. 50,000, and Share Capital at the end of year 1 of Rs. 15,000. What is the amount of its
Retained Earnings at the end of the year?

A. Rs. 125,000
B. Rs. 140,000
C. Rs. 160,000
D. Rs. 175,000

5. On April 5, 2020, MMT Company received cash of Rs. 30,000 as an advance towards supply of goods to be
delivered in August 2020. Consider the following four statements:

i. No effect on liabilities
ii. An increase in assets of Rs. 30,000
iii. An increase in liabilities of Rs. 30,000
iv. A decrease in liabilities of Rs. 30,000

This transaction will result in which of the following on April 5, 2020:

A. Both i. and ii.

B. Both ii. & iii.
C. Both iii. and iv.
D. Both ii. and iv.
6. DP rented an office space to CP for three months at Rs. 500 per month, payable at the end of the third
month, January 31, 2020. No year-end adjusting entry was recorded on December 31, 2019. As a
consequence of this oversight, in the books of DP:

A. assets were overstated and profit was overstated

B. assets were overstated and profit was understated
C. assets were understated and profit was overstated
D. assets were understated and profit was understated