1.accountancy True False Questions by AVJ
1.accountancy True False Questions by AVJ
1.accountancy True False Questions by AVJ
com
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CA- FOUNDATION
ACCOUNTANCY
TRUE/FALSE QUESTIONS
for Practice
(Coverage of 12 marks in exam)
2) The Sales book is kept to record both cash and credit sales.
Ans. False - The Sales book is a register specially kept to record credit sales of goods dealt in by the firm, cash
sales are entered in the cash book and not in the sales book.
4) Finished goods are normally valued at cost or market price whichever is higher.
Ans. False - Finished goods are normally valued at cost or net realizable value whichever is lower.
5) Reducing balance method of depreciation is followed to have a uniform charge for depreciation and repairs
and maintenance together.
Ans. True - In the early periods of useful life of a fixed assets, repairs and maintenance expenses are relatively
low because the asset is new. Whereas in later periods, as the asset become old, repairs and maintenance
expenses increase continuously. Under written down value method, depreciation charged is high in the
initial period and reduces continuously in the later periods. Thus, depreciation and repair and maintenance
expenses become more or less uniform throughout the useful life of the asset.
Ans. True - Discount at the time of retirement of a bill is a gain for the drawee and loss for the drawer.
7) A withdrawal of cash from the business by the proprietor should be charged to profit and loss account as an
expense.
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Ans. False - Cash withdrawal by the proprietor from his business should be treated as his drawings and not a
business expense chargeable to profit and loss account. Such drawings should be deducted from the
proprietors capital.
8) Partners can share profits or losses in their capital ratio, when there is no agreement.
Ans. False - According to Partnership Act, in the absence of any agreement to the contrary profits and losses are
to be shared equally among partners.
10) Debenture interest is payable after the payment of preference dividend but before the payment of equity
dividend.
Ans. False - Debenture interest is payable before the payment of any dividend on shares.
11) Fixed Assets Turnover ratio indicates the firm‟s ability of generating sales per rupee of long term
investment.
Ans. False - Fixed Assets Turnover ratio measures the efficiency with which the firm uses its fixed assets.
Capital Turnover Ratio indicates the firm‟s ability of generating sales per rupee of long term investment.
12) Net income in case of persons practicing vocation is determined by preparing profit and loss account.
Ans. False: Net income is determined by preparing income and expenditure in case of persons practicing
vacation.
13) The problem of red-ink interest arises when the due date of a transaction falls after the closing date of
account current.
Ans. True: No interest is allowed when the due date of a bill falls after the date of closing the account. However,
interest from the date of closing to such due date is written in „Red Ink‟ in the appropriate side of account
current.
16) Stock at the end, if appears in the Trial Balance, is taken only to the Balance Sheet.
Ans. True: Because it depicts that one aspect of the double entry has been completed.
17) In case a Sports Fund is kept, expenses on account of sports events should be charged to Sports Fund.
Ans. True: Institutions sometimes keep special funds for some special purposes. In such a case the income
related to such funds should be added to these funds and expenses should be deducted from such funds.
18) “Salary paid in advance” is not an expense because it neither reduces assets nor increases liabilities.
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Ans. True: Salary paid in advance relates to the coming accounting period. It has nothing to do with the current
period. Hence it is not taken in the Profit and Loss Account as an expense. It is shown as a Current Asset in
the Balance Sheet.
19) Laboratory & library Deposits taken from the students in case of an Educational Institution are shown on
the liabilities side of the Balance Sheet.
Ans. True: Because the laboratory and library deposits are of the nature of security deposits to be refunded to the
students on their leaving the College or University.
20) The results and position disclosed by final accounts are not exact.
Ans. True: They are prepared on the basis of assumptions, conventions, concepts and personal judgements of the
person who prepare them.
21) The rationale behind the opening of a suspense account is to tally the trial balance.
Ans. False: The rationale behind the opening of a suspense account is to avoid delay in the preparation of
financial statements.
22) Reducing balance method of depreciation is followed to have a uniform charge for depreciation and repairs
and maintenance together.
Ans. True: In the early periods of useful life of a fixed asset, repairs and maintenance expenses are relatively low
because the asset is new. Whereas in later period, as asset becomes old, repairs and maintenance expenses
increase continuously. Under written down value method, depreciation charged is higher in the initial
period and reduces continuously in the later periods. Thus depreciation and repair and maintenance
expenses become more or less uniform throughout the useful life of the asset.
23) Accounting can be viewed as an information system which has its input processing methods and output.
Ans. True: Accounting is a process of identifying, measuring and communicating information to permit
informed judgement and decisions. It covers the preparation of financial statements and communication to
the users of accounts.
24) The value of human resources is generally shown as assets in the Balance Sheet.
Ans. False: The value of human resources cannot be measured in monetary terms, thus it will not be shown in
the balance sheet.
25) The financial statement must disclose all the relevant and reliable information in accordance with the Full
Disclosure Principle.
Ans. True: The financial statement must disclose all the relevant and reliable information in accordance with the
Full Disclosure Principle.
26) The debit notes issued are used to prepare Sales Return Book.
Ans. False: The debit notes issued are used to prepare purchases return book.
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28) A Tallied trial balance means that the books of accounts have been prepared as per accepted accounting
principles.
Ans. False: Trial balance only checks the arithmetical accuracy of the books. Errors of principle and errors of
commission will not affect the agreement of the trial balance.
29) Goods worth ` 600 taken by the proprietor for personal use should be credited to Capital Account.
Ans. False: Goods taken by the proprietor for personal use should be credited to Purchases Account as less
goods are left in the business for sale.
30) Amount paid to Management company for consultancy to reduce the working expenses is capital
expenditure if the reduced working expenses will generate long term benefits to the entity.
Ans. True: Amount paid to management company for consultancy to reduce the working expenses is capital
expenditure as this expenditure will generate long-term benefit to the entity.
31) The additional commission to the consignee who agrees to bear the loss on account of bad debts is called
overriding commission.
Ans. False: The additional commission to the consignee who agrees to bear the loss on account of bad debts is
called del credere commission.
32) When there is no agreement among the partners, the profit or loss of the firm will be shared in their capital
ratio.
Ans. False: According to the Indian Partnership Act, in the absence of any agreement to the contrary, profits and
losses of the firm are shared equally among partners.
33) When shares are forfeited, the share capital account is debited with called up capital of shares forfeited and
the share forfeiture account is credited with calls in arrear of shares forfeited.
Ans. False: When shares are forfeited, the share capital account is debited with called up capital of shares
forfeited and the share forfeiture account is credited with amount received on shares forfeited.
34) Capital + Long Term Liabilities= Fixed Assets + Current Assets + Cash- Current Liabilities.
Ans. False- The right hand side of the equation includes cash twice- once as a part of current assets and another
separately. The basic accounting equation is
Equity + Long Term Liabilities = Fixed Assets + Current Assets - Current Liabilities
36) The Sales book is kept to record both cash and credit sales.
Ans. False- The Sales book is a register specially kept to record credit sales of goods dealt in by the firm, cash
sales are entered in the cash book and not in the sales book.
37) In the calculation of average due date, only the due date of first transaction must be taken as the base date.
Ans. False- While calculating the average due date, any transaction date may be taken as the base date.
38) If a partner retires, then other partners have a gain in their profit sharing ratio.
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Ans. True- If a partner retires, his share of profit or loss will be shared by the other partners in their profit
sharing ratio.
39) Net income in case of persons practicing vocation is determined by preparing profit and loss account.
Ans. False: Net income is determined by preparing income and expenditure in case of persons practicing
vocation.
40) Expenses in connection with obtaining a license for running the Cinema Hall is Revenue Expenditure.
Ans. False: The Cinema Hall could not be started without license. Expenditure incurred to obtain the license is
pre-operative expense which is capitalized. Such expenses are not revenue and amortized over a period of
time.
42) If the effect of errors committed cancel out, the errors will be called compensating errors and the trial
balance will disagree.
Ans. False: If the effect of errors committed cancel out, the errors will be called compensating errors and the trial
balance will agree.
44) When there is no partnership deed prevails, the interest on loan of a partner to be paid @ 6%.
Ans. True: When there is no partnership deed then the provisions of the Indian Partnership Act are to be applied
for settling the dispute. Interest on loan is payable @ 6% p.a. as per Indian Partnership Act.
45) Interest coverage ratio indicates the firm's ability to pay off current interest and installments.
Ans. False: Interest coverage ratio is computed as Earnings before interest and taxes divided by Interest. This
indicates the firm‟s ability to meet only the interest and other fixed-charges obligations and not instalments.
46) Overhauling expenses for the engine of motor car to get better fuel efficiency is revenue expenditure.
Ans. False: Overhauling expenses for the engine of the motor car is incurred to get better fuel efficiency. These
expenses will reduce the running cost in future and thus the benefit is in the form of a long-term advantage.
So overhauling expenses should be capitalized.
47) Depreciation is a non-cash expense and does not result in any cash outflow.
Ans. True: Depreciation is a non-cash expense and unlike other normal expenditure (e.g. wages, rent, etc.) does
not result in any cash outflow. Therefore depreciation is a non-cash expense and does not result in any cash
outflow.
48) Fees received for Life Membership is a revenue receipt as it is of recurring nature.
Ans. False: Life Membership Fee received for life membership is a capital receipt as it is of non-recurring
nature. It is directly added to capital fund or general fund.
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Ans. True: The closing stock appears in the trial balance only when it is adjusted against purchases by passing
the entry (in which Closing Stock A/c is debited and Purchases A/c is credited). In this case, closing stock is
not entered in Trading Account and is shown only in Balance sheet.
51) If del-creders commission is paid to consignee, the loss of bad debts is to be borne by the consignor.
Ans. False: To increase the sale and to encourage the consignee to make credit sales, the consignor provides an
additional commission generally known as del-credere commission. In case del-credere commission is
provided to consignee, bad debts is no more the loss of the consignor and it is borne by the consignee.
52) Amount spent for the construction of temporary huts, which were necessary for construction of the Cinema
House and were demolished when the Cinema House was ready, is capital expenditure.
Ans. True: Since the temporary huts were necessary for the construction, their cost should be added to the cost
of the cinema hall and thus capitalised.
53) If the amount is posted in the wrong account or it is written on the wrong side of the account, it is called
error of principle.
Ans. False: If an amount is posted in the wrong account or is written on the wrong side of the correct account, it
is case of “errors of commission” and is not “error of principle”.
54) In case of consignment sale, ownership of goods will be transferred to consignee at the time of receiving the
goods.
Ans. False: In Consignment sale, ownership of the goods rests with the consignor till they are sold by the
consignee. The consignee does not become the owner of the goods even though goods are in his possession.
He acts only as agent of the consignor.
55) In case the due date of a bill falls after the date of closing the account, the interest from the date of closing
to such due date is known as Red-Ink interest.
Ans. True: In case the due date of a bill falls after the date of closing the account, then no interest is allowed for
that. However, interest from the date of closing to such due date is written in “Red-Ink” in the appropriate
side of the „Account current‟. This interest is called Red-Ink interest.
56) Limited Liability Partnership (LLP) is governed by Indian Partnership Act, 1932.
Ans. False: The provisions of the Indian Partnership Act, 1932 shall not apply to a limited liability partnership.
Limited Liability (LLPs) Act, 2008 is applicable for Limited Liability Partnerships.
57) The relationship between sales and fixed assets is expressed as working capital ratio.
Ans. False: The relationship between sales and fixed assets is expressed as fixed assets turnover ratio.
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Q5. Any expenditure which increases the value of fixed assets is termed as capital expenditure.
Ans. True: Expenditure that is done in connection with the acquisition of fixed assets or which leads to the increment
in the value of fixed assets are classified under capital expenditure.
Q6. Preliminary expenses are classified under deferred revenue expenditure.
Ans. True: Preliminary expenses are treated as deferred revenue expenditure as these can be written off over a
maximum of 4-5 years. Though according to AS 26, Preliminary expenses spent in the incorporation of a company
should be written off in the year it is incurred.
Q7. Wages paid to workers for erecting machines will be treated as revenue expenditure.
Ans. False: Expenditure done in connection with the erection of machines is an example of capital expenditure.
Q8. Any heavy expenditure of revenue nature the benefit of which will be availed over a numbers of years can
be classified as capital expenditure.
Ans. False: The expenditure of this kind will be termed as Deferred revenue expenditure.
Q9. Capital receipts are either shown as an increase in liabilities or as a reduction in the value of assets.
Ans. True: Capital receipts are shown in the balance sheet as an increase in liabilities or as reduction in the value of
assets.
Q10. Money spent to reduce working expenses is treated as capital expenditure.
Ans. True: Any expenditure that reduces the working expenses will be treated as capital expenditure.
Q11. Interest paid on purchase of an asset in all cases, will be treated as capital expenditure.
Ans. False: Such expenditure is classified under the head of capital expenditure if it is paid during the production/
construction period. The expenditure will be treated as revenue after the asset is put to use.
Q12. Amount spent on experimenting which did not result in success will be treated as capital loss.
Ans. False: It will be considered as a deferred revenue expenditure so that the burden of loss is shifted over a number
of years.
Q13. A building of book value Rs. 45,000 got demolished and a new building having a book value Rs. 17;00,000
was constructed. Thus, Rs. 45,000 is a revenue loss and Rs. 17,00,000 is a capital receipt.
Ans. False: Rs. 45,000 is a revenue loss but Rs. 17,00,000 is a capital expenditure.
Q14. Repairs amount spent on second hand machine, purchased recently, before using it will be treated as
capital expenditure.
Ans. True: Overhaul expenses (repairs) incurred to put a second hand machine in useable condition to derive its
benefit for future periods is a capital expenditure.
Q15 t 10 lakhs were spent on the construction of a mess hall for the welfare of the employees. t 6 lakhs were
received from the government as a grant. In this case Rs. 4 lakhs will be treated as capital expenditure and t 6
lakhs as capital receipt.
Ans. False: Rs. 10,00,000 will be treated as capital expenditure since it is spent on the construction of the mess hall,
though the amount has been received as a grant.
Q16. Amount spent in connection with the issue of capital should he considered as a capital expenditure, but
legal expenses spent in connection with the issue of capital shall be considered as revenue expenditure.
Ans. False: Legal expenses incurred on the issue of capital will be treated as capital expenditure.
Q17. Expenses in connection with obtaining a license for running the Cinema Hall is Revenue Expenditure.
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Ans. False: The Cinema Hall could not be started without license. Expenditure incurred to obtain the license is
preoperative expense which is to be capitalized. Such expenses are not revenue and amortized over a period of time.
Q18. Overhauling expenses for the engine of motor car to get better fuel efficiency is revenue expenditure.
Ans. False: Overhauling expenses incurred for the engine of a motor car to derive better fuel efficiency will reduce
the running cost, so this is a capital expenditure.
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Ans. False: Goods taken by the proprietor for personal use should be credited to Purchase Account at a cost price of
Rs. 600.
Q7. If a cheque received is further endorsed, it must be entered on both sides of the cash book.
Ans. True: The cash book is debited in cash column when the cheque is received and itis credited when it is
endorsed.
Q8. Rent paid account is Nominal Account whereas, rent received account is a Real Account.
Ans. False: Rent paid and rent received-both are nominal accounts because they are expenses and incomes of the
business.
Q9. A tallied Trial.balance is a conclusive proof of accuracy of books of account.
Ans. False: Agreement of trial balance is not a conclusive proof of the accuracy, because there may be some errors
like errors of principle, compensating errors etc. which do not affect the total of trial balance.
Q10. Opening, Closing, Rectifying and Adjusting entries are recorded in journal proper.
Ans. True: All the Opening, Closing, Rectifying and Adjusting entries are recorded in journal proper because these
are not recorded in any other subsidiary book.
Q11. Sale of office furniture should be credited to Sales Account.
Ans. False: Sale of office furniture is a capital receipt, so it should be credited to Furniture Account.
Q12. The balance in the Petty Cash Book represents expenses.
Ans. False: The balance in the Petty Cash Book represents petty cash balance lying with the Petty cashier. It is treated
as an asset of the business.
Q13. The purchase day book is a part of the ledger.
Ans. False: Purchase day book is a book of original entry and so it is a part of journal.
Q14. In a Cash Book, Discount Columns may show either debit balance or credit balance.
Ans. False: Discount Columns of a Cash Book are totalled but never balanced. These are totalled and transferred to
Discount Allowed and Discount Received Account respectively.
Q15. Purchase book records all purchases of goods.
Ans. False: Purchase book records only credit purchases of goods.
Q16. The Sales book is kept to record all sales.
Ans. False: The Sales book is kept to record only the credit sales of goods.
Q17. The debit notes issued are used to prepare sales return book.
Ans. False: The credit notes are used to prepare sales return book.
Q18. Bank column of the cash book will show only a debit balance.
Ans. False: Bank column of the cash book may show debit or credit balance.
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Ans. False: Bank reconciliation statement is prepared to reconcile the differences between bank balance as per cash
book and balance in bank statement.
Q3. Interest charged by the bank will be deducted, when the overdraft as per the cash book is the starting point
for making the bank reconciliation statement.
Ans. False: Interest charged by the bank will be added because it will increase the overdraft as shown by the cash
book.
Q4. If the balance as per cash book and pass book are the same, there is no need to prepare a reconciliation
statement.
Ans. False: Bank reconciliation statement is prepared to find out the reasons of difference in cash book and pass book
even if the balance as per cash book and pass book are same.
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Ans. False: As per AS-2, finished goods are normally valued at cost or net realizable value whichever is lower.
Q3. The inventory under AS-2 is valued on the basis of cost price or current replacement cost, whichever is
less.
Ans. False: As per AS-2, Valuation of Inventories, inventory is valued at the lower of cost and net realizable value.
CHAPTER-13 DEPRECIATION
Q1. Land is also a depreciable asset.
Ans. False: Land is not a depreciable asset because it does not qualify for depreciation as per AS-10.
Q2. Depreciation is a cash expenditure like other normal expenses.
Ans. False: Depreciation is a non-cash expenditure because it does not involve any cash outflow.
Q3. Depreciation is an amortised expenditure.
Ans. True: Depreciation is charged on value of fixed asset over its useful life. So, by way of depreciation any capital
expenditure is amortised over its useful life.
Q4. Depreciation cannot be provided in case of loss, in a financial year.
Ans. False: Depreciation is a charge against profit so it has to be provided for whether there is a profit or loss in a
financial year of the business.
Q5. Depreciable amount refers to the difference between historical cost and the market value of an asset.
Ans. False: Depreciable amount refers to historical cost less salvage value.
Q6. Depreciation is a non-cash expense and does not result in any cash outflow.
Ans. True: Depreciation is a non cash expense and there is no outflow of cash in the business.
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Ans. False: Under the 'liquidity approach' assets which are most liquid are presented first, like, cash & cash
equivalents.
Q6. The proprietor of a shop feels that he has made a loss due to closing stock being zero.
Ans. False: Only closing stock is not taken in the calculation of the profits of a business.
Q7. Closing stock will never appear in the trial balance.
Ans. False: Closing stock may appear in the trial balance if an adjusting entry relating to closing stock has already
been passed and adjusted purchases are given in trial balance.
Q8. If Closing Stock appears in the Trial Balance:
The closing inventory is then not entered in Trading Account. It is shown only in the balance sheet.
Ans. True: If closing stock appears in the Trial balance it indicates that it is already been adjusted with the purchase
and will be shown in the Balance Sheet only.
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Q9. If Del-credere commission is paid to consignee, the loss of bad debts is to be borne by the consignor.
Ans. False: If Dcl-crcdere con1mission is paid to consignee, then loss of bad debts will be borne by consignee only.
CHAPTER-17 PARTNERSHIP
Q1. A partner who devotes more time to a business than other partners is entitled to get a salary.
Ans. False: No partner is entitled for salary unless it is provided for in the partnership deed.
Q2. Partners can share profits or losses in their capital ratio, when there is no agreement.
Ans. False: If there is no agreement profits or losses are to be shared equally among the partners.
Q3. The business of partnership firm must be carried on by all the partners.
Ans. False: The business of the partnership firm can be carried on by all the partners or by any one of them acting for
all.
Q4. Goodwill brought in by an incoming partner in cash for joining a partnership firm is taken away by the
old partners in their new profit sharing ratio.
Ans. False: When a new partner brings in cash for goodwill, it is taken away by the old partners in their sacrificing
ratio.
Q5. Goodwill is fictitious asset.
Ans. False: Goodwill is an intangible asset.
Q6. Goodwill is in the nature of personal account.
Ans. False: Goodwill is an intangible asset so it is in nature of real account.
Q7. If a partner retires, then other partners have a gain in their profit sharing ratio.
Ans. True: If a partner retires, his share of profit or loss will be shared by the other partners in their profit sharing
ratio unless otherwise agreed.
Q8. Minor can be admitted to the benefits of LLP.
Ans. False: Minor cannot be admitted to the benefits of LLP.
Q9. The objective of taking a joint life policy by the partnership firm is to secure the lives of the existing
partners of the firm.
Ans. False: The objective of taking a joint life policy is to enable the firm to make payment to the legal
representatives of a deceased partner or to the retiring partner.
Q10. LLP has no separate legal entity.
Ans. False: LLP has separate legal entity.
Q11. LLP Partners act as agents of LLP and other partners.
Ans. False: LLP Partners act as agents of LLP and not of other partners.
Q12. When there is no partnership deed prevails, the interest on loan of a partner to be paid@ 6%.
Ans. True: When there is no partnership deed then the provisions of the Indian Partnership Act are to be applied for
settling the dispute. Interest on loan is payable @ 6% p.a. as per Indian Partnership Act.
Q1. If payment is made on average due date, it results in loss of interest to creditors.
Ans. False: Average due date results in.no loss to any party i.e. debtor or creditor.
Q2. Average due date is the median average of several due dates for payments.
Ans. False: Average due date is mean date of several due. dates for payments.
Q3. In the calculation of average due date, only the due date of first transaction must be taken as the base date.
Ans. False: While calculating the average due date, any date may be taken as the base date.
CHAPTER-21 SHARES
Q1. Reserve Capital and Capital Reserve carry the same meaning.
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Ans. False: Reserve Capital refers to that portion of uncalled up share capital which shall not be capable of being
called up except in the event of winding up. Capital Reserve is a reserve which is created out of capital profits.
Q2. As per Table F, the Minimum rate of interest that can be charged on calls-in-Arrear and that can be
allowed on calls-in-advance are 10% p.m. and 12% p.m. respectively.
Ans. False: As per Table F, the maximum rate of interest that can be charged on Calls-in-Arrear and that can be
allowed on calls-in-advance are 10% p.a. and 12% p.a. respectively.
Q3. Re-issue of forfeited shares is allotment of shares but not a sale.
Ans. False: A forfeited share is merely a share available to the company for sale and remains vested in the company
for that purpose only. Reissue of forfeited shares is not allotment of shares but only a sale as they have already been
allotted earlier.
CHAPTER-22 DEBENTURES
Q1. Debenture Redemption Premium Account and Discount on issue of debentures Account are Nominal
Accounts.
Ans. False: Debenture Redemption Premium Account is a Personal Account but Discount on issue of Debentures
Account is a Nominal Account.
Q2. Now Debentures can be issued at Par/Premium but not at discount.
Ans. False: Debentures can be issued at Par /Premium/ discount since there are no restrictions on issue of debentures
at discount.
Q3. Like Shares a Company can issue debentures with voting rights.
Ans. False: A Company cannot issue debentures with voting rights.
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Ans. False: A company registered under Companies Act, 2013 in India must prepare its balance sheet in vertical
format only as stated in schedule III.
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