Changes in Price Accounting MCQ - Sy M Com

RECENT TRENDS IN ACCOUNTING
1. The increase of decrease in the prices of various goods and services over a period of
time is known as----------------------
a) Price Level Changes

b) Inflation
c) Deflation
Answer: a) Increase and decrease in the price of various goods and service is
known as price level changes.
2. Increase in the price of various goods and services over a period of time is known as ----
------------------------

b) Inflation
c) Deflation
Answer: b) Increase in the price of various goods and service over a period
of time known as Inflation.
3. Decrease in the price of various goods and services over a period of time is known as ---
-------------------------

b) Inflation
c) Deflation
Answer: c) Decrease in the price of various goods and service over a period
1
of time known as Deflation.

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SY M.COM – RECENT TRENDS IN ACCOUNTING – MCQ – QUESTION BANK - COMPILED BY

MANOJ VORA.
4. During inflation the purchasing power of money --------------
a) Increases
b) Decreases
c) Does not change
Answer: b) Decreases – During inflation the same quantity of money will

fetch less quantity of goods and therefore the purchasing power of money is
said to be decreasing
5. Prices of goods and services may increase due to following -------------- demand pull
inflation factors
a) Increase in money supply, increase in disposable income

b) Inadequate agricultural growth, inadequate industrial growth
c) A situation in which the demand for goods and services increases but the
production remains the same.
Answer: c) A situation in which the demand for goods and services

increases but the production remains the same.
6. During Deflation the purchasing power of money --------------
a) Increases
b) Decreases
c) Does not change
Answer: c) Increases- Dering deflation since the prices of goods have come
down, more units can be purchased with the same quantity of money, hence
the purchasing power of money is said to be increasing.
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MANOJ VORA.
7. Accounting for price level changes may also be sometimes called as ---------------
a) Deflation Accounting
b) Inflation Accounting
c) None of the above
Answer: b) Inflation Accounting- Price level changes accounting is

otherwise also called as inflation accounting, since from decades the prices
of various goods and services have kept increasing and so it is termed as
inflation accounting.
8. One of the limitation due to which changes in price accounting is not recommended is --
----------------------
a) Undervaluation of assets and liabilities

b) Overvaluation of the assets and liabilities
c) Manipulation of accounting records
Answer: c) Manipulation of accounting records. – Manipulation of

accounting records is very much restricted under historical cost
accounting. In the process of adopting the changes in price accounting,
there are more possibilities of deliberately manipulating records.
9. Traditionally as per the generally accepted accounting principles, transactions are

recorded as per --------------
a) Historical cost
b) Current market value
c) Realizable value
Answer: a) Historical Cost – Usually all transactions are recorded at the

actual cost and the summarized financial statements are prepared the
historical costs.
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MANOJ VORA.
10. The main objective of preparing price level changes accounting is to-------------
a) Match the financial report to the current price levels

b) Inflate the values based on a predetermined factor price
Answer: a) Match the financial report to the current price levels.
11. Prices of goods and services may increase due to following -------------- demand factors

Answer: a) Increase in supply of money, increase in disposable income

among consumers, foreign exchange reserves etc.
12. Price for changes accounting can be done by the following method--------------
a) Current purchasing power, Current Value Accounting

b) Replacement Cost Accounting, Current Cost Accounting
c) Both a and b
Answer: c) Both a and b – Price level changes accounting is done to

match the current values and therefore any among the four methods can
be chosen.
13. Prices of goods and services may increase due to following -------------- Supply factors

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MANOJ VORA.
Answer: b) Rise in the administered prices, erratic growth of agricultural
products, inadequate industrial growth.
14. Prices of goods and services may increase due to following -------------- cost push
inflation factors
a) Caused due to increase in the cost of production, or increase in the price

of raw material.
c) A situation in which the demand for goods and services increases but the
production remains the same.
Answer: a) Caused due to increase in the cost of production, or increase

in the price of raw material. When the overall cost of production value
goes up due to increase in price of labour, raw material or power or fuel
or any other factor the overall cost increases and reduces the profit
margin. Entities are forced to increase the prices to maintain profits.
15. One of the main reasons to adopt changes in price accounting is--------------
a) To remove the misleading effect on the financial statements due to

ongoing increase or decrease in general price levels over a period of
time.
b) To provide a favorable financial statements revealing better profits and
financial position.
c) Both a and b
Answer: a) To remove the misleading effect on the financial statements

due to ongoing increase or decrease in general price levels over a period
of time. If there is a sustained price changes, then the financial
statements are not relevant, and therefore changes in price level
accounting gains its importance.
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MANOJ VORA.
16. For the following particulars of XYZ LTD what will be value of closing inventory
under Current Purchasing Power Method (CPP) if FIFO method is followed:
Opening Stock – Rs 90000/-
Purchase - Rs 20000/-
Closing Stock - Rs. 40000/- ( Rs10000/- worth stock purchased on last day )
Price Index in the beginning of the year – 80
Price Index at the end of the year - 100
Average Price Index - 90
a) Rs. 44444/-
b) Rs. 33333/-
c) Rs. 46111/-
Answer: c) Rs 46111/-
Closing Inventory Amt c.f Adjusted Value
Out of current purchases (last date) Rs 10000/- 100/100 10000/-

Out of current purchases Rs 10000/- 100/90 11111/-
Out of opening stock Rs 20000/- 100/80 25000/-
Total value of closing stock 46111/-
17. Current purchasing power method involves adjustment of historic figures at the current
purchasing value. Under this method historical figures are multiplied with the ------------
a) Wholesale Price Index

b) Consumer Price Index
c) Conversion factor
Answer: c) Conversion factor – It is calculated by dividing the current

price index with the previous price index on which the transaction was
actually met. It is calculated by dividing the current year index with the
previous year index.
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MANOJ VORA.
18. A building which was purchased in the year 2001 was recorded as 80 Lakhs when the
general price index was 120. The value of the building needs to be changed as per the
price changes. The current price index is 360. Find the conversion factor.
a) 0.33
b) 3
c) 240
Answer: b) Three - Conversion factor – It is calculated by dividing the

current price index with the previous price index on which the
transaction was actually met. It is calculated by dividing the current
year index with the previous year index. 360/120 is 3 . So it has to be 3
19. XYZ Limited sold goods throughout the year evenly. The total turnover was Rs 120
Lakhs. The general price index at the beginning of the year was 125 and at the end of the
year was 150.What value of sales needs to be recorded as per CPP Method.
a) Rs. 120 Lakhs

b) Rs. 130.91 Lakhs
c) Rs.145 Lakhs
Answer: b) Rs130.91 lakhs. Mid period index - If the transactions are

too many and taking place throughout the year it is not possible to adopt
the price index as per the date of transaction for all individual
transactions, hence an average period index needs to be adopted.
Average Index = [ (opn index + clg index) / 2 ] = [ (125+150) / 2 ] =

137.5
Value of sales =[ 120 X (150/137.5) = Rs. 130.91 LAKHS ]

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MANOJ VORA.
20. A building which was purchased in the year 2001 was recorded as 50 Lakhs when the
general price index was 120. The value of the building needs to be changed as per the
price changes in the year 2018 when the general price index was 330. Find the value of
building as per current purchasing power method
a) Rs. 137.5 Lakhs

b) Rs. 18.18 Lakhs
c) Rs. 2.75 Lakhs
Answer: a) Rs. 137.5 Lakhs - Conversion factor – It is calculated by

dividing the current price index with the previous price index on which
the transaction was actually met. It is calculated by dividing the current
year index with the previous year index. 330/120 is 2.75 . Current value =
2.75 X 50 = 137.5 Lakhs
21. Aviral had purchased a building for Rs 25 Lakhs, in the year 1985 when the price index
was 125, He sold the same in the year 2002 when the price index was 500, for Rs
82.5Lakhs. What profit or losses should be recorded using current purchasing power
method?
a) Rs. 62.5 Lakhs profit

b) Rs. 17.5 Lakhs (Loss)
c) Rs. 67.5 Lakhs (Loss)
Answer: b) Rs. 17.5 Lakhs (loss) - Conversion factor – It is calculated by

year index with the previous year index. 500/125 is 4 . Current value of
the Cost of Building = 4 X 25 = 100 Lakhs Profit or Loss = Sale Proceeds
– Converted purchase price = (82.5 – 100) = Rs. 17.5 Lakhs (Loss)
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MANOJ VORA.
under Current Purchasing Power Method (CPP) if LIFO method is followed:
Closing Stock - Rs. 40000/-
a) Rs. 48611/-
b) Rs. 33333/-
c) Rs.37500/-
Answer: a) Rs 48611/-

Out of Current Purchases Rs 10000/- 100/90 11111
Out of Opening stock Rs 30000/- 100/80 37500
23. For the transactions that take place throughout the year ------------ index needs to be
adopted under CPP method.
a) Opening Period index

b) Closing period index
c) Mid period index
Answer: c) Mid period index - If the transactions are too many and
taking place throughout the year it is not possible to adopt the price
index as per the date of transaction for all individual transactions, hence
an average period index needs to be adopted.
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MANOJ VORA.
24. Arun has purchased shares worth Rs 8500/- when the general price index was 130, he
sold the entire shares Rs. 31250/- after a few years when the price index was 325.
Adopting cost of indexation being long term what will be the profit or loss he needs to
show as per current purchasing power method?
a) Rs. 13750 profit

b) Rs. 10000 profit
c) Rs. 10000 (Loss)
Answer: b) Rs. 10000/- profit - Conversion factor – It is calculated by

year index with the previous year index. 325/130 is 2.5 . Current value of
the Cost of Building = 2.5 X 8500 = 21250/- Profit or Loss = Sale
Proceeds – Converted purchase price = (31250 – 31250) = Rs. 10000/-
profit
25. If the mid period index is not readily available, the value of mid period index can be
calculated as----------------
a) Average of opening and closing period index

b) Opening period index
c) Closing period index
d) Answer: a) Average of opening and closing period index

Mid period index - If the transactions are too many and taking place
throughout the year it is not possible to adopt the price index as per the
date of transaction for all individual transactions, hence an average
period index needs to be adopted.
Mid period index = [ (opening index + closing index) / 2 ]
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MANOJ VORA.
26. XYZ Limited sold goods throughout the year evenly. The total turnover was Rs 150
Lakhs. The general price index at the beginning of the year was 110 and at the end of the
year was 130.What value of sales needs to be recorded as per CPP Method.
a) Rs. 150 Lakhs

b) Rs. 162.50 Lakhs
c) Rs.145 Lakhs
Answer: b) Mid period index - If the transactions are too many and
taking place throughout the year it is not possible to adopt the price
index as per the date of transaction for all individual transactions, hence
an average period index needs to be adopted.
Average Index = [ (opn index + clg index) / 2 ] = [ (110+130) / 2 ] = 120
Value of sales = [150 X (130/120) = Rs. 162.50 LAKHS]
under Current Purchasing Power Method (CPP) if LIFO method is followed:
a) Rs. 48611/-
b) Rs. 33333/-
c) Rs.37500/-

Out of Opening stock Rs 30000/- 100/80 37500
11

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MANOJ VORA.
a) Rs. 48611/-
b) Rs. 33333/-
c) Rs.37500/-
Answer: b) Rs 33333/-

a) Rs. 44444/-
b) Rs. 33333/-
c) Rs.37500/-
Answer: a) Rs 44444/-

12

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MANOJ VORA.
a) Rs. 44444/-
b) Rs. 33333/-
c) Rs. 47222/-

Out of opening stock Rs 20000/- 100/80 25000/-
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MANOJ VORA.

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RECENT TRENDS IN ACCOUNTING

a) Price Level Changes

a) Price Level Changes

a) Price Level Changes

of time known as Deflation.

SY M.COM – RECENT TRENDS IN ACCOUNTING – MCQ – QUESTION BANK - COMPILED BY

4. During inflation the purchasing power of money --------------

Answer: b) Decreases – During inflation the same quantity of money will

a) Increase in money supply, increase in disposable income

Answer: c) A situation in which the demand for goods and services

6. During Deflation the purchasing power of money --------------

SY M.COM – RECENT TRENDS IN ACCOUNTING – MCQ – QUESTION BANK - COMPILED BY

Answer: b) Inflation Accounting- Price level changes accounting is

a) Undervaluation of assets and liabilities

Answer: c) Manipulation of accounting records. – Manipulation of

9. Traditionally as per the generally accepted accounting principles, transactions are

Answer: a) Historical Cost – Usually all transactions are recorded at the

SY M.COM – RECENT TRENDS IN ACCOUNTING – MCQ – QUESTION BANK - COMPILED BY

a) Match the financial report to the current price levels

Answer: a) Match the financial report to the current price levels.

a) Increase in money supply, increase in disposable income

Answer: a) Increase in supply of money, increase in disposable income

a) Current purchasing power, Current Value Accounting

Answer: c) Both a and b – Price level changes accounting is done to

a) Increase in money supply, increase in disposable income

SY M.COM – RECENT TRENDS IN ACCOUNTING – MCQ – QUESTION BANK - COMPILED BY

a) Caused due to increase in the cost of production, or increase in the price

Answer: a) Caused due to increase in the cost of production, or increase

a) To remove the misleading effect on the financial statements due to

Answer: a) To remove the misleading effect on the financial statements

SY M.COM – RECENT TRENDS IN ACCOUNTING – MCQ – QUESTION BANK - COMPILED BY

Closing Inventory Amt c.f Adjusted Value

Out of current purchases (last date) Rs 10000/- 100/100 10000/-

Total value of closing stock 46111/-

a) Wholesale Price Index

Answer: c) Conversion factor – It is calculated by dividing the current

SY M.COM – RECENT TRENDS IN ACCOUNTING – MCQ – QUESTION BANK - COMPILED BY

Answer: b) Three - Conversion factor – It is calculated by dividing the

a) Rs. 120 Lakhs

Answer: b) Rs130.91 lakhs. Mid period index - If the transactions are

Average Index = [ (opn index + clg index) / 2 ] = [ (125+150) / 2 ] =

Value of sales =[ 120 X (150/137.5) = Rs. 130.91 LAKHS ]

SY M.COM – RECENT TRENDS IN ACCOUNTING – MCQ – QUESTION BANK - COMPILED BY

a) Rs. 137.5 Lakhs

Answer: a) Rs. 137.5 Lakhs - Conversion factor – It is calculated by

a) Rs. 62.5 Lakhs profit

Answer: b) Rs. 17.5 Lakhs (loss) - Conversion factor – It is calculated by

SY M.COM – RECENT TRENDS IN ACCOUNTING – MCQ – QUESTION BANK - COMPILED BY

Closing Inventory Amt c.f Adjusted Value

Total value of closing stock 48611/-

a) Opening Period index

SY M.COM – RECENT TRENDS IN ACCOUNTING – MCQ – QUESTION BANK - COMPILED BY

a) Rs. 13750 profit

Answer: b) Rs. 10000/- profit - Conversion factor – It is calculated by

a) Average of opening and closing period index

d) Answer: a) Average of opening and closing period index

SY M.COM – RECENT TRENDS IN ACCOUNTING – MCQ – QUESTION BANK - COMPILED BY

a) Rs. 150 Lakhs

Average Index = [ (opn index + clg index) / 2 ] = [ (110+130) / 2 ] = 120

Value of sales = [150 X (130/120) = Rs. 162.50 LAKHS]

Closing Inventory Amt c.f Adjusted Value

Total value of closing stock 37500/-

SY M.COM – RECENT TRENDS IN ACCOUNTING – MCQ – QUESTION BANK - COMPILED BY