Multiple choice questions:

1 An accrual is:
(a) An expense relating to next year but not paid in current year
(b) An expense relating to the current year and paid within current year
(c) An expense relating to the current year but not paid in current year
(d) An expense relating to next year and already paid in current year

2 Staff salary remaining unpaid as at the year-end should be accounted for as:
(a) Prepaid salary (debit) and Staff salary expense (credit)
(b) Staff salary expense (debit) and Cash (credit)
(c) Accrued Salary (debit) and Staff salary expense (credit)
(d) Staff salary expense (debit) and accrued salary (credit)

3 Expenses relevant to the accounting period which remain unpaid by period end should be:
(a) Included with expenses paid and shown as an asset at the period end
(b) Ignored until they are paid for in the next period
(c) Deducted from amount already paid and shown as a liability at the period end
(d) Include in with the expenses and shown as a liability at the period end

4 On year end a business has outstanding electricity bills of Rs. 15,000. During the year
electricity bills paid are Rs. 190,000.
What adjustment will be required to utilities expense account regarding the outstanding bills?
(a) Cr Rs. 15,000 (c) No impact
(b) Dr Rs. 15,000 (d) Dr Rs. 190,000

5 A business has a beginning utilities accrual of Rs. 50,000, an ending accrual of Rs. 60,000, and during
the year, it pays for utilities of Rs. 80,000. What is the amount of utilities expense?
(a) Rs. 70,000 (c) Rs. 90,000
(b) Rs. 80,000 (d) Rs. 140,000

6 A business pays rent quarterly in arrears on 1 January, 1 April, 1 July and 1 October each year. The rent
was increased from Rs. 150,000 per year to Rs. 180,000 per year as from 1 October 2007.
What rent expense and accrual should be included in the company’s financial statements
for the year ended 31 January 2008?
Rent expense Rs. Accruals Rs.
(a) 110,000 10,000
(b) 80,000 15,000
(c) 160,000 15,000
(d) 100,000 10,000

7 Sitara Industries has taken a loan from Crescent Bank. Interest on the loan is payable every quarter i.e.
on March 31, June 30, September 30 and December 31. Face amount of the loan is 500,000 and the rate
of interest is 10% per annum. Due to financial problems, two instalments were not paid on September
30 and December 31.
What is the amount of the interest liability to be shown in the Statement of Financial
 Position prepared as on December 31?
Rs.

8 F Limited year-end is 30 September. On 1 January 2016 the organization took out a loan of Rs. 100,000
with annual interest of 12%. The interest is payable in equal instalments on the first day of April, July,
October and January in arrears.
How much should be charged to P&L for the year ended 30 September 2016, and how
much should be accrued on the statement of financial position?
Profit or loss Statement of financial position
(a) Rs. 12,000 Rs. 3,000 accrual
(b) Rs. 9,000 Rs. 3,000 accrual
(c) Rs. 9,000 Nil
(d) Rs. 6,000 Rs. 3,000 prepayment

9 A company pays rent quarterly in arrears on 1 January, 1 April, 1 July and 1 October each year. The rent
was increased from Rs. 90,000 per year to Rs. 120,000 per year as from 1 October 2012.
What rent expense and accrual should be included in the company's financial statements
for the year ended 31 January 2013?
Rent Expense (Rs.) Accrual (Rs.)
(a) 100,000 20,000
(b) 100,000 10,000
(c) 97,500 10,000
(d) 97,500 20,000

10 A prepayment can be defined as:

(a) Payments for expenses for that are not yet incurred and classified as non-current asset
(b) Expenses incurred but not yet paid and classified as current asset
(c) Payments for expenses for that are not yet incurred and classified as current asset
(d) None

11 Zahra determines at year end that Salaries paid during the year include Rs. 10,000 in advance.
What is the correct year end adjustment for advance salary to be made?
(a) Dr Salaries Rs. 10,000 Cr Advance salaries Rs. 10,000
(b) Dr Salaries Rs. 10,000 Cr Accrued salaries Rs. 10,000
(c) Dr Advance salaries Rs. 10,000 Cr Salaries expense Rs. 10,000
(d) No entry required

12 A business has paid an annual salary of Rs. 36,000 in advance to one of its employees on
31 August 2017.
What is the amount of prepaid salaries at the end of the year on 31 December 2017?
Rs.

13 On 31 October 2019, a business pays annual insurance premium of Rs. 600,000.

What is the prepayment at the end of the year (31 December 2019)?
(a) Nil (c) Rs. 300,000
(b) Rs. 100,000 (d) Rs. 500,000

14 During the year, a business paid an electricity bill for Rs. 900,000 for the 3 months to November. The
year end of the business is 30 September, what accrual or prepayment is needed at the year end?
(a) Prepaid electricity = Rs. 600,000 (c) Prepaid electricity = Rs. 300,000
(b) Accrued electricity = Rs. 600,000 (d) Accrued electricity = Rs. 300,000

15 A tenant pays annual rent of Rs. 6,000. Payment is made quarterly in advance on 1 January, 1 April, 1
 July and 1 October. Which of the following should be included in his accounts for the year ended 31
October 2001?
(a) Rs. 500 Accrual (c) Rs. 1,000 Accrual
(b) Rs. 500 Prepayment (d) Rs. 1,000 Prepayment

16 On 1 March 2017, Zahra pays an insurance premium of Rs. 2,400 for the period to 28 Feb 2018.
What is the charge to the statement of profit or loss for the year ended 31 October 2017
and prepayment in the Statement of Financial Position as at that date?
(a) Charge for SPL Rs. 800 and Prepayment Rs. Rs. 1,600
(b) Charge for SPL Rs. 1,600 and Prepayment Rs. 800
(c) Charge for SPL Rs. 2,400 and Prepayment 0
(d) Charge for SPL 0 and Prepayment Rs. 2,400

17 Rent paid on 1 September 2017 for the year to 31 August 2018 was Rs. 15,000,
and rent paid on 1 September 2018 for the year to 31 August 2019 was Rs. 18,000.
What figure for rent expense should be shown in the statement of profit or loss for the
year ended 31 December 2018?
Rs.
18
On the first day of Month 1, a business had prepaid insurance of Rs. 10,000. On the first day of Month 8,
it paid, in full, the annual insurance invoice of Rs. 36,000, to cover the following year.
The amount charged in P&L and the amount in the statement of financial position
Profit or loss SFP (Prepayment)
(a) Rs. 5,000 Rs. 24,000
(b) Rs. 22,000 Rs. 23,000
(c) Rs. 25,000 Rs. 21,000
(d) Rs. 36,000 Rs. 15,000

19 Details of a company’s insurance policy are shown below:

Premium for year ended 31 March 2016 paid April 2015 Rs. 10,800
Premium for year ended 31 March 2017 paid April 2016 Rs. 12,000
What figure should be included in the company’s financial statements for the year ended
30 June 2016?
Statement of P&L (Rs.) Statement of financial position (Rs.)
(a) 11,100 9,000 prepayment
(b) 11,700 9,000 prepayment
(c) 11,100 9,000 accrual
(d) 11,700 9,000 accrual

20 The annual rent expense for TTT for the period 1 July 2018 to 30 June 2019 is Rs. 35,000,
which is 25% more than the previous year. Rent expense is paid on 1 July.
What is the charge of rent expense in the statement of profit or loss for the year ended
31 December 2018?
(a) Rs. 28,000 (c) Rs. 35,000
(b) Rs. 31,500 (d) Rs. 7,000

21 After finalizing the draft accounts of a business it was identified that salary expense
payable for Rs. 9,000 has been ignored. Salary expense paid during the year was Rs. 110,000.
What will be the impact of recording the salaries payable?
(a) Profit will be reduced by Rs. 9,000
(b) Profit will be increased by Rs. 9,000
(c) Profit will be reduced by Rs. 110,000
(d) Profit will be increased by Rs. 110,000
22 Atif finalized his draft accounts and ignored a prepayment for Rs. 100 and accrued expense
Rs. 300. What will be the impact on profit for the year?
(a) Understated by Rs. 100 (c) Overstated by Rs. 200
(b) Overstated by Rs. 100 (d) Understated by Rs. 200

23 After finalizing the draft accounts Arsalan identified that he has treated prepaid insurance
of Rs. 1,000 as accrued expense. What will be the impact of correction?
(a) Profit will be increased by Rs. 2,000 (c) Profit will be reduced by Rs. 1,000
(b) Profit will be increased by Rs. 1,000 (d) Profit will be reduced by Rs. 2,000

24 An entity’s draft accounts for the year to 31st October 2015 report a loss of Rs. 1,486. When the
assistant accountant prepared the accounts, she did not include an accrual of Rs. 1,625 and a
What is profit or loss for the year to 31st October 2015 following the inclusion of the
accrual and prepayment?
(a) A loss of Rs. 695 (c) A loss of Rs. 3,945
(b) A loss of Rs. 2,277 (d) A profit of Rs. 1,807

25 Earned but not yet received income is treated as

(a) Asset (c) Capital
(b) Liability (d) Loss

26 On finalizing the draft accounts Minhas identified that he has Rs. 1,000 rental income
receivable. Rental income received and recorded during the year is Rs. 11,000.
What is the correct entry to record the accrued income?
(a) Dr Rental income Rs. 1,000 Cr Accrued income Rs. 1,000
(b) Dr Cash Rs. 12,000 Cr Rental income Rs. 12,000
(c) Dr Cash Rs. 11,000 Cr Rental income Rs. 11,000
(d) Dr Accrued income Rs. 1,000 Cr Rental income Rs. 1,000

27 XYZ Ltd. receives interest of Rs. 100,000 on bank deposit for the month of December 2011
on 3rd January 2012. XYZ Ltd has an accounting year end of 31st December.
What would be the accounting entry for such transaction on year end December 2011?
(a) Prepaid interest (debit) = Rs.100,000 and Interest income (credit) = Rs.100,000
(b) Cash (debit) = Rs.100,000 and Interest income (credit) = Rs.100,000
(c) Cash (debit) = Rs.100,000 and interest receivable(credit) = Rs.100,000
(d) Interest receivable (debit) = Rs.100,000) and interest income (credit) = Rs.100,000

28 XYZ Ltd. receives interest of Rs. 100,000 on bank deposit for the month of December 2011
on 3rd January 2011. XYZ Ltd has an accounting year end of 31st December.
What would be the accounting entry when subsequently on 3rd January, payment for interest
is received?
(a) Prepaid interest (debit) = Rs.100,000 and Interest income (credit) = Rs.100,000
(b) Cash (debit) = Rs.100,000 and Interest income (credit) = Rs.100,000
(c) Cash (debit) = Rs.100,000 and Prepaid interest (credit) = Rs.100,000
(d) Interest receivable (debit) = Rs.100,000) and interest income (credit) = Rs.100,000

29 A business had deposited Rs. 500,000 into an annual fixed deposit on May 1, 2018.
Interest is accrued quarterly on March 31, June 30, September 30 and December 31 each
year. Interest will be paid only on maturity. Monthly interest amount is Rs. 3,000.
What amount of interest receivable should be shown in the Statement of Financial Position
prepared as on December 31, 2018?
Rs.
30 Which of the following is asset account?
(a) Prepaid expense (c) Unearned income
(b) Accrued expense (d) Rent payable

31 What is the treatment of Pre - received income in the Statement of Financial Position of
the business?
(a) Treated as a non – current asset (c) Treated as a non – current liability
(b) Treated as a current asset (d) Treated as a current liability

32 Which of the following statements is incorrect?

(a) Income received in advance is a current liability
(b) Accrued income is a current asset
(c) Prepaid insurance is a current liability
(d) Salaries payable is a current liability

33 Unearned income is classified as

(a) Assets (c) Equity
(b) Liability (d) Loss

34 Which of the following is not true?

(a) An accrual is an amount owing at the end of a period; a prepayment is an
amount paid in advance
(b) An accrual is a liability; a prepayment is an asset
(c) An accrual is a liability; a prepayment is always a non-current asset
(d) An accrual is a current liability; a prepayment is a current asset

35 ABC Limited receives advance rent from its tenant of Rs.1 million on 31st December
in respect of office rent for the following year. ABC Ltd. has an accounting year end of
31st December. What accounting entry is to be passed in this year?
(a) Cash (debit) = Rs.1 million and Advance rent – liability (credit) = Rs.1 million
(b) Cash (debit) = Rs.1 million and Accrued rent (credit) = Rs.1 million
(c) Cash (debit) = Rs.1 million and Rent income (credit) = Rs.1 million
(d) None

36 ABC Limited receives advance rent from its tenant of Rs.1 million on 31st December in
respect of office rent for the following year.
What would be the accounting entry in the following year?
(a) Accrued rent (debit) = Rs.1 million and rental income (credit) = Rs.1 million
(b) Advanced rent (debit) = Rs.1 million and rental income (credit) = Rs.1 million
(c) Accrued rent (debit) = Rs.1 million and prepaid rent (credit) = Rs.1 million
(d) None

37 X Ltd rents its building to Y Ltd. At 31st December 2018, Y Ltd owed Rs. 4,500 for rent, but at 31st
December 2019, had paid Rs. 3,200 in advance. During the year X Ltd had received Rs. 17,100 in rental
What is the rental income to be shown in the Statement of Profit or Loss of X Ltd for the
year ended 31st December 2019?
Rs.

38 Helix Corporation has sublet part of its office and in the year ended 30 November 2008
the rent receivable was:
Until 30 June 2008 Rs. 9,000 per year
From 1 July 2008 Rs. 12,000 per year
Rent was received quarterly in advance on 1 January, April, July, and October each year.
What amounts should appear in the company’s financial statements for the year ended
30 November 2008?
 Rental income Statement of Financial Position
(a) Rs. 10,800 Rs. 1,000 in sundry payables
(b) Rs. 10,900 Rs. 1,000 in sundry payables
(c) Rs. 10,250 Rs. 1,000 in sundry receivables
(d) Rs. 9,900 Rs. 2,000 in sundry receivables

39 Jasia has taken a loan of Rs. 250,000 from HBL as on 1st March 2018 for the construction of her office
building. The construction is completed as on June 30, 2018. She rented a portion of her office for Rs.
4,500 per month on July 1. Interest is accrued and paid annually @ 15% per annum on December each
What amount of interest expenses and rent income should be shown in the statement of
Profit or Loss of Jasia’s business prepared on December 31, 2018?
(a) Interest expense Rs. 54,000, Rental income Rs. 37,500
(b) Interest expenses. 37,500, Rental income Rs. 54,000
(c) Interest expense Rs. 31,250, Rental income Rs. 27,000
(d) Interest expenses. 37,500, Rental income Rs. 4,500

40 In the year to 31 December 2018, Saira received Rs. 50,800 rental income.
The amounts of rent received in advance and due in arrears were as follows:
31-Dec-18 31-Dec-17
Rent received in advance 4,000 3,000
Rent due in arrears (accrued) 2,500 1,700
What figure for rental income should be recorded in the statement of profit or loss for the
year ended 31 December 2018?
(a) Rs. 50,800 (c) Rs. 54,500
(b) Rs. 50,600 (d) Rs. 56,000

41 A business owns two properties which it rents to tenants. In the year ended 31 December 2016, it
received Rs. 278,000 in respect of property 1 and Rs. 160,000 in respect of property 2. Balance on the
rental accounts were as follows:
31-Dec-16 31-Dec-15
Property 1 13,400 Dr 12,300 Cr
Property 2 6,700 Cr 5,400 Dr
What amount should be credited to the Statement of P&L and OCI for the year ended
31 December 2016 in respect of rental income?
(a) Rs. 451,600 (c) Rs. 939,200
(b) Rs. 738,000 (d) Rs. 858,600

42 Zameen, a property company, received cash totalling Rs. 838,600 from tenants during the year ended
31 December 2016. Figures for rent in advance and in arrears at the beginning and at the end of year
2015-12-31 2016-12-31
Rs. Rs.
Rent receive in advance 102,600 88,700
Rent in Arrears (all subsequently received) 42,300 48,400
What amount should appear in company’s Statement of P&L for the year ended 31 Dec 2016 for rental
income?
(a) Rs. 818,600 (c) Rs. 939,200
(b) Rs. 738,000 (d) Rs. 858,600
43 Which of the following statements is not true?
(a) Accrued expense decrease profit (c) A prepaid expense is an asset
(b) Accrued income decreases profit (d) All of the above statements are true

44 The draft year end accounts were prepared without adjusting prepayment for rent income of Rs. 970.
When the adjustment is made, which of the following would be effect thereof?
(a) Profit increased by Rs. 970 and Liability increased by Rs. 970
 (b) Profit decreased by Rs. 970 and Liability increased by Rs. 970
(c) Profit increased by Rs. 970 and assets increased by Rs. 970
(d) Profit increased by Rs. 970 and assets decreased by Rs. 970

45 An entity prepared the draft end year accounts, but did not adjust these for a prepaid income
of Rs. 1,500 and an accrued income of Rs. 400.
How will profit and net assets be affected by including the prepayment and accrual?
NET PROFIT WILL NET ASSETS WILL
(a) Reduce by Rs. 1,100 Reduce by Rs. 1,100
(b) Reduce by Rs. 1,900 Increase by Rs. 1,900
(c) Increase by Rs. 1,100 Increase by Rs. 1,100
(d) Reduce by Rs. 1,900 Reduce by Rs. 1,900

46 At 31 March 2012 a company had oil in hand to be used for heating costing Rs. 8,200 and an unpaid
heating oil bill for Rs. 3,600. At 31 March 2013 the heating oil in hand was Rs. 9,300 and there was an
outstanding heating oil bill of Rs. 3,200. Payments made for heating oil during the year ended 31 March
2013 totalled Rs. 34,600.
Based on these figures, what amount should appear in the company's Statement of Profit
or Loss for heating oil for the year?
(a) Rs. 23,900
(b) Rs. 36,100
(c) Rs. 45,300
(d) Rs. 33,100