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<p class="wp-block-paragraph"><em>We are Sharing With You CA foundation Accounts True False Questions covering Past Year Papers, MTP &; RTP . So kindly Check Out our www.castudynotes.com website and ALL the Best for Your upcoming Exams.</em></p>
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<h2 class="wp-block-heading has-secondary-color has-text-color">Paper 1- Principles &; Practice of Accounting</h2>



<h2 class="wp-block-heading"><br><strong>State with reasons whether the following statements are True or False:</strong></h2>



<h2 class="wp-block-heading has-text-align-center has-luminous-vivid-amber-to-luminous-vivid-orange-gradient-background has-background"><strong><a href="https://castudynotes.com/wp-content/uploads/2023/06/CA-Foundation-Accounts-True-False-QB.pdf" target="_blank" rel="noreferrer noopener">Download PDF of Accounts TRUE False from here</a></strong></h2>



<h3 class="wp-block-heading has-text-color" style="color:#14f2e3"><br><strong>Questions covering Past Year Papers, MTP &; RTP :-</strong></h3>



<p class="is-style-success wp-block-paragraph">Q.1 Trade Discount is a reduction granted by a supplier from the list price of<br>goods or services on business considerations for prompt payment.<br>Q.2 M/s. XYZ &; Co. runs a cafe. They renovated. some of the old cabins.<br>Because of this renovation some space was made free and number of cabins<br>was increased from 15 to 18. The total expenditure incurred was 30,000<br>and was treated as a revenue expenditure.<br>Q.3 Valuation of inventory, at cost or netrealizable value, whichever less,<br>is based on principle of Conservatism.<br>Q.4 In case of bill of exchange, the drawer and the payee may not be the<br>same person but in case of a promissory note, the maker and the payee may<br>be the same person.<br>Q.5 A Partnership firm cannot own any Assets.<br>Q.6 Since company has existence independent of its members, it continues<br>to be in existence despite the death, insolvency or change of members.<br>Q.7 Amount spent for the construction of temporary huts, which were<br>necessary for construction of the Cinema House and were demolished when<br>the Cinema House was ready, is capital expenditure.<br>Q.8 If the amount is posted in the wrong account or it is written on the wrong<br>side of the account, it is called error of principle.<br>Q.9 In case of consignment sale, ownership of goods will be transferred to<br>consignee at the time of receiving the goods.<br>Q.10 In case the due date of a bill falls after the date of closing the account, the<br>interest from the date of closing to such due date is known as Red- Ink interest.<br>Q.11 Limited Liability Partnership (LLP) is governed by Indian Partnership Act,<br>1932.<br>Q.12 The relationship between sales and fixed assets is expressed as working<br>capital ratio.<br>Q.13 Overhauling expenses for the engine of motor car to get better fuel<br>efficiency is revenue expenditure.<br>Q.14 Depreciation is a non-cash expense and does not result in any cash outflow.<br>Q.15 Fees received for Life Membership is a revenue receipt as it is of recurring<br>nature.<br>Q.16 If Closing Stock appears in the Trial Balance:<br>The closing inventory in then not entered in Trading Account. It is shown only in<br>the balance sheet.<br>Q.17 Inventory Turnover Ratio is also known as Stock Turnover Ratio.<br>Q.18 If del-creders commission is paid to consignee, the loss of bad debts is to be<br>borne by the consignor.<br>Q.19 Expenses in connection with obtaining a license for running the Cinema Hall is<br>Revenue Expenditure.<br>Q.20 Re-issue of forfeited shares is allotment of shares but not a sale.<br>Q.21 If the effect of errors committed cancel out, the errors will be called<br>compensating errors and the trial balance will disagree.<br>Q.22 There are two ways of preparing an account current.<br>Q.23 When there is no partnership deed prevails, the interest on loan of a partner<br>to be paid @ 6%.<br>Q.24 Interest coverage ratio indicates the firm&#8217;s ability to pay off current<br>interest and installments.<br>Q.25 Accrual concept implies accounting on cash basis.<br>Q.26 The Sales book is kept to record both cash and credit sales.<br>Q.27 Bank reconciliation statement is prepared to arrive at the bank balance.<br>Q.28 Finished goods are normally valued at cost or market price whichever is<br>higher.<br>Q.29 Reducing balance method of depreciation is followed to have a uniform<br>charge for depreciation and repairs and maintenance together.<br>Q.30 Discount at the time of retirement of a bill is a gain for the drawee.<br>Q.31 A withdrawal of cash from the business by the proprietor should be<br>charged to profit and loss account as an expense.<br>Q.32 Partners can share profits or losses in their capital ratio, when there is no<br>agreement.<br>Q.33 Receipts and Payments Account highlights total income and expenditure.<br>Q.34 Goods worth ` 600 taken by the proprietor for personal use should be<br>credited to Capital Account.<br>Q.35 Amount paid to Management company for consultancy to reduce the<br>working expenses is capital expenditure if the reduced working expenses will<br>generate long term benefits to the entity.<br>Q.36 The additional commission to the consignee who agrees to bear the loss on<br>account of bad debts is called overriding commission.<br>Q.37 When there is no agreement among the partners, the profit or loss of the<br>firm will be shared in their capital ratio.<br>Q.38 When shares are forfeited, the share capital account is debited with<br>called up capital of shares forfeited and the share forfeiture account is<br>credited with calls in arrear of shares forfeited.<br>Q.39 The results and position disclosed by final accounts are not exact.<br>Q.40 The rationale behind the opening of a suspense account is to tally the<br>trial balance.<br>Q.41 Reducing balance method of depreciation is followed to have a uniform<br>charge for depreciation and repairs and maintenance together.<br>Q.42 Accounting can be viewed as an information system which has its<br>input processing methods and output.<br>Q.43 The value of human resources is generally shown as assets in the<br>Balance Sheet.<br>Q.44 The financial statement must disclose all the relevant and reliable<br>information in accordance with the Full Disclosure Principle.<br>Q.45 The debit notes issued are used to prepare Sales Return Book.<br>Q.46 In Account Current, Red Ink Interest is treated as negative interest.<br>Q.47 A Tallied trial balance means that the books of accounts have been<br>prepared as per accepted accounting principles.<br>Q.48 Capital + Long Term Liabilities= Fixed Assets + Current Assets + CashCurrent Liabilities.<br>Q.49 Consignment account is of the nature of real account.<br>Q.50 The Sales book is kept to record both cash and credit sales.<br>Q.51 In the calculation of average due date, only the due date of first<br>transaction must be taken as the base date.<br>Q.52 If a partner retires, then other partners have a gain in their profit<br>sharing ratio.<br>Q.53 Net income in case of persons practicing vocation is determined by<br>preparing profit and loss account.<br>Additional Questions for practice :-<br>Q.1 Capital is all assets less fictitious assets.<br>Q.2 Equity + LTL – CL = FA + CA<br>Q.3 Prudence is a concept to recognize unrealized profits and not losses.<br>Q.4 As per AS-1, Fundamental Accounting Assumptions are Going Concern, Full<br>Disclosure and Accrual Concept.<br>Q.5 As per Concept of Conservatism, the accountant should provide for all possible losses,<br>but should not anticipate income.<br>Q.6 The economic life of an enterprise is artificially split into periodic intervals in<br>accordance with the going concern assumptions.<br>Q.7 Lease premium will be treated as revenue expenditure.<br>Q.8 Amount received by the issue of debentures is a capital receipt.<br>Q.9 Capital expenditure is done to restore the efficiency of an asset.<br>Q.10 Revenue loss is not the same thing as Revenue expenditure.<br>Q.11 Any expenditure which increases the value of fixed assets is termed as capital<br>expenditure.<br>Q.12 Preliminary expenses are classified under deferred revenue expenditure.<br>Q.13 Wages paid to workers for erecting machines will be treated as revenue expenditure.<br>Q.14 Capital receipts are either shown as an increase in liabilities or as a reduction in the<br>value of assets.<br>Q.15 Money spent to reduce working expenses is treated as capital expenditure.<br>Q.16 Interest paid on purchase of an asset in all cases, will be treated as capital<br>expenditure.<br>Q.17 A building of book value 45,000 got demolished and a new building having a<br>book value 17,00,000 was constructed. Thus, 45,000 is a revenue loss and<br>17,00,000 is a capital receipt.<br>Q.18 Repairs amount spent on second hand machine, purchased recently, before<br>using it will be treated as capital expenditure.<br>Q.19 10 lakhs were spent on the construction of a mess hall for the welfare of<br>the employees. 6 lakhs were received from the government as a grant.Inthiscase<br>4lakhswillbetreatedascapitalexpenditureand6 lakhs as capital receipt.<br>Q.20 Amount spent in connection with the issue of capital should be considered<br>as a capital expenditure, but legal expenses spent in connection with the issue<br>of capital shall be considered as revenue expenditure.<br>Q.21 Expenses in connection with obtaining a license for running the Cinema<br>Hall is Revenue Expenditure.<br>Q.22 Present liability of uncertain amount, which can be measured reliably by<br>using a substantial degree of estimation is termed as contingent liability.<br>Q.23 In the financial statement, contingent liability is recognized.<br>Q.24 If an inflow of economic benefits is probable then a contingent asset is<br>disclosed in the financial statements.<br>Q.25 Contingent asset usually arises from unplanned or unexpected events<br>that give rise to the possibility of an outflow of economic benefits to the<br>business entity.<br>Q.26 Wages paid for erection of machinery is debited to Profit and Loss<br>Account.<br>Q.27 The balance in the cash book shows net income.<br>Q.28 The debts written off as bad, if recovered subsequently are credited to<br>Debtors Account.<br>Q.29 The sales day book is a part of the ledger.<br>Q.30 Patent right is in the nature of nominal account.<br>Q.31 Goods costing 600 taken by the proprietor for personal use should be<br>credited to Sales Account.<br>Q.32 If a cheque received is further endorsed, it must be entered on both sides<br>of the cash book.<br>Q.33 Rent paid account is Nominal Account whereas, rent received account is<br>a Real Account.<br>Q.34 A tallied Trial Balance is a conclusive proof of accuracy of books<br>of account.<br>Q.35 Opening, Closing, Rectifying and Adjusting entries are recorded<br>in Journal proper.<br>Q.36 Sale of office furniture should be credited to Sales Account.<br>Q.37 The balance in the Petty Cash Book represents expenses.<br>Q.38 The purchase day book is a part of the ledger.<br>Q.39 In a Cash Book, Discount Columns may shown either debit<br>balance or credit balance.<br>Q.40 Purchase book records all purchases of goods.<br>Q.41 The Sales book is kept to record all sales.<br>Q.42 The debit notes issued are used to prepare sales return book.<br>Q.43 Bank column of the cash book will show only a debit balance.<br>Q.44 The interest charged by Banker to customer on overdrawn<br>account is called Red ink interest.<br>Q.45 Bank reconciliation statement is prepared to arrive at the bank<br>balance.<br>Q.46 Interest charged by the bank will be deducted, when the overdraft as<br>per the cash book is the starting point for making the bank reconciliation<br>statement.<br>Q.47 If the balance as per cash book and pass book are the same, there is no<br>need to prepare a reconciliation statement.<br>Q.48 Salary paid to Ram will be debited to Ram’s Personal account.<br>Q.49 A promissory note can be made payable to the bearer.<br>Q.50 No cancellation entry is required when a bill is renewed.<br>Q.51 At the time of Renewal of a bill, Interest account is debited in the<br>books of a drawee.<br>Q.52 A bill given to a creditor is called bills payable.<br>Q.53 A has drawn a bill on B. B accepts the same and endorses the bill to C.<br>Q.54 Refusal by the acceptor to make payment of the bill on the maturity<br>date is called Retirement of the bill.<br>Q.55 Promissory Note requires acceptance.<br>Q.56 Cancelling old bill and drawing new bill is called renewal of bill.<br>Q.57 Discount at the time of retirement of a bill is a gain for the<br>drawee.<br>Q.58 Rectifying errors in subsequent accounting period always affect<br>the profit or loss of that period.<br>Q.59 Errors of principle involves an incorrect allocation of expenditure<br>or receipt between capital and revenue.<br>Q.60 Wrong casting of subsidiary books does not affect the trail<br>balance.<br>Q.61 If the amount is posted in the wrong account or it is written on<br>the wrong side of an account, it is called an error of commission.<br>Q.62 Under or over-casting of a subsidiary book is an example of error<br>of commission.<br>Q.63 Any type of error affects the agreement of trial balance.<br>Q.64 Purchase of office furniture has been debited to general expenses<br>account. It is a compensating error.<br>Q.66 Finished goods are normally valued at cost or market price<br>whichever is higher.<br>Q.67 The inventory under AS-2 is valued on the basis of cost price or<br>current replacement cost, whichever is less.<br>Q.68 Land is also a depreciable asset.<br>Q.69 Depreciation is a cash expenditure like other normal expenses.<br>Q.70 Depreciation is an amortized expenditure.<br>Q.71 Depreciation cannot be provided in case of loss, in a financial<br>year.<br>Q.72 Depreciable amount refers to the different between historical<br>cost and the market value of an asset.<br>Q.73 Depreciation is a non-cash expense and does not result in any<br>cash outflow.<br>Q.74 Sales or Return Account in the Sale or return ledger represents<br>the value of goods still lying with the customers for approval.<br>Q.75 Profit and loss account shows the financial position of the<br>concern.</p>



<p class="is-style-success wp-block-paragraph">Q.77 The provision for discount on debtors is calculated before<br>deducting the provision for doubtful debts from debtors.<br>Q.78 The gain from sale of capital assets need not be added to revenue<br>to ascertain the net profit of a business.<br>Q.79 Under the ‘liquidity approach’ assets which are most liquid are<br>presented at the bottom of the balance sheet.<br>Q.80 The proprietor of a shop feels that he has made a loss due to<br>closing stock being zero.<br>Q.81 Closing stock will never appear in the trial balance.<br>Q.82 If Closing Stock appears in the Trial Balance :<br>The closing inventory is then not entered in Trading Account. It is<br>shown only in the balance sheet.<br>Q.83 The additional commission to the consignee who agrees to bear<br>the loss on account of bad debts is called overriding commission.<br>Q.84 The relationship between consignor and consignee is that of<br>principal and agent.<br>Q.85 In consignment, the goods are dispatched on the basis that the goods will<br>be sold on behalf of, at the expense of and at the risk of the consignee.<br>Q.86 Account sales is the statement sent by the consignor to the consignee.<br>Q.87 Loss of stock is said to be normal loss when such loss is not due to<br>inherent characteristics of the commodities.<br>Q.88 A partner who devotes more time to a business than other partners is<br>entitled to get a salary.<br>Q.89 Partners can share profits or losses in their capital ratio, when there is<br>no agreement.<br>Q.90 The business of partnership firm must be carried on by all thepartners.<br>Q.91 Goodwill brought in by an incoming partner in cash for joining a<br>partnership firm is taken away by the old partners in their new profit sharing<br>ratio.<br>Q.92 Goodwill is fictitious asset.<br>Q.93 Goodwill is in the nature of personal account.<br>Q.94 If a partner retires, then other partners have a gain in their profit<br>sharing ratio.<br>Q.95 Minor can be admitted to the benefits of LLP.<br>Q.96 The objective of taking a joint life policy by the partnership firm is to<br>secure the lives of the existing partners of the firm.<br>Q.97 LLP has no separate legal entity.<br>Q.98 LLP Partners act as agents of LLP and other partners.<br>Q.99 When there is no partnership deed prevails, the interest on loan of a<br>partner to be paid @ 6%.<br>Q.100 If payment is made on average due date, it results in loss of interest to<br>creditors.<br>Q.101 Average due date is the median average of several due dates for<br>payments.<br>Q.102 Scholarship granted to students out of funds provided by Government<br>will be debited to Income &; Expenditure Account.<br>Q.103 Receipts and Payments Account is a summary of all capital receipts<br>and payments.<br>Q.104 If there appears a sports fund, the expenses incurred on sports<br>activities will be taken to income and expenditure account.<br>Q.105 Receipts and Payments Account highlights total income and expenditure.<br>Q.106 Only revenue items are disclosed in Income and Expenditure account.<br>Q.107 Fees received for Life Membership is a revenue receipt as it is of recurring<br>nature.<br>Q.108 Reserve Capital and Capital Reserve carry the same meaning.<br>Q.109 As per Table F, the Minimum rate of interest that can be charged on calls-inArrear and that can be allowed on calls-in-advance are 10% p.m. and 12% p.m.<br>respectively.<br>Q.110 Re-issue of forfeited shares is allotment of shares but not a sale.<br>Q.111 Debenture Redemption Premium Account and Discount on issue of debentures<br>Account are Nominal Accounts.<br>Q.112 Now Debentures can be issued at Par/Premium but not at discount.<br>Q.113 Like Shares a Company can issue debentures with voting rights.<br>Q.114 Maximum number of members in case of private company is 50.<br>Q.115 While drafting the balance sheet of a company bills receivables are shown<br>under the head Other Current Assets.<br>Q.116 When duration of operating cycle cannot be identified, it is assumed of 12<br>months.<br>Q.117 Securities premium received by a company is added to share<br>capital while preparing the balance sheet of a company.<br>Q.118 It is mandatory for a company to deduct provision for bad and<br>doubtful debts from trade receivables.<br>Q.119 A company registered under Companies Act, 2013 in India may<br>prepare its balance sheet in horizontal form only.<br>Q.120 Loss of stock is said to be abnormal loss when such loss is due to<br>inherent characteristics of the commodities.<br>Q.121 If the consignee is not authorized to get the del-credere<br>commission, then he is liable for all losses on account of non- recovery<br>of debts.<br>Q.122 Consignee has no right in the profit on goods sent on<br>consignment.<br>Q.123 If Del-credere commission is paid to consignee, the loss of bad<br>debts is to be borne by the consignor.</p>



<h2 class="wp-block-heading"><strong>Solution</strong> </h2>



<h2 class="wp-block-heading has-text-color" style="color:#f619c6"><strong><span style="text-decoration: underline;">Answersheet of True and False Statements :</span></strong></h2>



<h2 class="wp-block-heading has-highlight-color has-text-color"><strong><br>Answer of Questions covering Past Year Papers, MTP &; RTP :-</strong></h2>



<ol class="wp-block-list">
<li>False: Trade Discount is a reduction granted by a supplier from the list price of goods or<br>services on business considerations other than for prompt payment.</li>



<li>False: Renovation of cabins increased the number of cabins. This has an effect on the<br>future revenue generating capability of the business. Thus the renovation expense is capital<br>expenditure in nature.</li>



<li>True: The conservatism concept states that one shall not account for anticipated profits<br>but shall provide all prospective losses. Valuing inventory at cost or net releasable value<br>whichever is less, therefore is based on principle of Conservatism.</li>



<li>False: The drawer and payee may be same person in case of bill of exchange whereas in<br>promissory note maker and payee can’t be same person.</li>



<li>True: A partnership firm is not a distinct legal entity and therefore can’t own any assets.<br>The partners own the assets of the firm.</li>



<li>True: As per Perpetual Existence company has existence independent of its members, it<br>continues to be in existence despite the death, insolvency or change of members.</li>



<li>True: Since the temporary huts were necessary for the construction, their cost should be<br>added to the cost of the cinema hall and thus capitalised.</li>



<li>False: If an amount is posted in the wrong account or is written on the wrong side of the<br>correct account, it is case of “errors of commission” and is not “error of principle”.</li>



<li>False: In Consignment sale, ownership of the goods rests with the consignor till they are sold<br>by the consignee. The consignee does not become the owner of the goods even though goods are in<br>his possession. He acts only as agent of the consignor.</li>



<li>True: In case the due date of a bill falls after the date of closing the account, then no interest<br>is allowed for that. However, interest from the date of closing to such due date is written in<br>“Red-Ink” in the appropriate side of the ‘Account current’. This interest is called Red-Ink interest.</li>



<li>False: The provisions of the Indian Partnership Act, 1932 shall not apply to a limited liability<br>partnership. Limited Liability (LLPs) Act, 2008 is applicable for Limited Liability Partnerships.</li>



<li>Deleted from course.</li>



<li>False: Overhauling expenses for the engine of the motor car is incurred to get better fuel<br>efficiency. These expenses will reduce the running cost in future and thus the benefit is in the<br>form of a long-term advantage. So overhauling expenses should be capitalized.</li>



<li>True: Depreciation is a non-cash expense and unlike other normal expenditure (e.g. wages,<br>rent, etc.) does not result in any cash outflow. Therefore depreciation is a non-cash expense and<br>does not result in any cash outflow.</li>



<li>False: Life Membership Fee received for life membership is a capital receipt as it is of nonrecurring nature. It is directly added to capital fund or general fund.</li>



<li>True: The closing stock appears in the trial balance only when it is adjusted against purchases<br>by passing the entry (in which Closing Stock A/c is debited and Purchases A/c is credited). In this<br>case, closing stock is not entered in Trading Account and is shown only in Balance sheet.</li>



<li>True: Inventory Turnover Ratio is also known as Stock Turnover Ratio. It establishes the<br>relationship between the cost of goods sold during the year and average inventory held during<br>the year.</li>



<li>False: To increase the sale and to encourage the consignee to make credit sales, the consignor<br>provides an additional commission generally known as del-credere commission. In case del-credere<br>commission is provided to consignee, bad debts is no more the loss of the consignor and it is borne by the<br>consignee.</li>



<li>False: The Cinema Hall could not be started without license. Expenditure incurred to obtain the<br>license is pre-operative expense which is capitalized. Such expenses are not revenue and amortized over<br>a period of time</li>



<li>False: A forfeited share is merely a share available to the company for sale and remains vested in<br>the company for that purpose only. Reissue of forfeited shares is not allotment of shares but only a<br>sale as they have already been allotted earlier.</li>



<li>False: If the effect of errors committed cancel out, the errors will be called compensating errors<br>and the trial balance will agree.</li>



<li>False: There are three ways of preparing an Account Current: (i)With help of interest table; (ii) By<br>means of products and (iii) By means of products of balances.</li>



<li>True: When there is no partnership deed then the provisions of the Indian Partnership Act are to be<br>applied for settling the dispute. Interest on loan is payable @ 6% p.a. as per Indian Partnership Act.</li>



<li>Deleted from course.</li>



<li>False: Accrual concept implies accounting on ‘due’ or ‘accrual’ basis. Accrual basis of accounting<br>involves recognition of revenues and costs as and when they accrue irrespective of actual receipts or<br>payments.</li>



<li>False: The Sales book is a register specially kept to record credit sales of goods dealt in by the firm,<br>cash sales are entered in the cash book and not in the sales book.</li>



<li>False: Bank reconciliation statement is prepared to reconcile and explain the causes of differences<br>between bank balance as per cash book and the same as per bank statement as on a particular date.</li>



<li>False: Finished goods are normally valued at cost or net realizable value whichever is lower.</li>



<li>True: In the early periods of useful life of a fixed assets, repairs and maintenance expenses are<br>relatively low because the asset is new. Whereas in later periods, as the asset become old, repairs<br>and maintenance expenses increase continuously. Under written down value method, depreciation<br>charged is high in the initial period and reduces continuously in the later periods. Thus, depreciation<br>and repair and maintenance expenses become more or less uniform throughout the useful life of the<br>asset.</li>



<li>True: Discount at the time of retirement of a bill is a gain for the drawee and loss for the<br>drawer.</li>



<li>False: Cash withdrawal by the proprietor from his business should be treated as his drawings<br>and not a business expense chargeable to profit and loss account. Such drawings should be deducted<br>from the proprietors capital.</li>



<li>False: According to Partnership Act, in the absence of any agreement to the contrary profits<br>and losses are to be shared equally among partners.</li>



<li>False: Receipts and payments account is a classified summary of cash receipts and payments<br>over a certain period together with cash and bank balances at the beginning and close of the<br>period.</li>



<li>False: Goods taken by the proprietor for personal use should be credited to Purchases Account as<br>less goods are left in the business for sale.</li>



<li>True: Amount paid to management company for consultancy to reduce the working expenses is<br>capital expenditure as this expenditure will generate long-term benefit to the entity.</li>



<li>False: The additional commission to the consignee who agrees to bear the loss on account of bad<br>debts is called del credere commission.</li>



<li>False: According to the Indian Partnership Act, in the absence of any agreement to the contrary,<br>profits and losses of the firm are shared equally among partners.</li>



<li>False: When shares are forfeited, the share capital account is debited with called up capital of<br>shares forfeited and the share forfeiture account is credited with amount received on shares forfeited.</li>



<li>True: They are prepared on the basis of assumptions, conventions, concepts and personal judgements<br>of the person who prepare them.</li>



<li>False: The rationale behind the opening of a suspense account is to avoid delay in the preparation of<br>financial statements.</li>



<li>True: In the early periods of useful life of a fixed asset, repairs and maintenance expenses are<br>relatively low because the asset is new. Whereas in later period, asasset becomes old, repairs and<br>maintenance expenses increase continuously. Under written down value method, depreciation charged<br>is higher in the initial period and reduces continuously in the later periods. Thus depreciation and repair<br>and maintenance expenses become more or less uniform throughout the useful life of the asset.</li>



<li>True: Accounting is a process of identifying, measuring and communicating information to permit<br>informed judgement and decisions. It covers the preparation of financial statements and communication<br>to the users of accounts.</li>



<li>False: The value of human resources cannot be measured in monetary terms, thus it will not be<br>shown in the balance sheet.</li>



<li>True: The financial statement must disclose all the relevant and reliable information in accordance<br>with the Full Disclosure Principle.</li>



<li>False: The debit notes issued are used to prepare purchases return book.</li>



<li>True: In case the due date of a bill falls after the date of closing the account, then no interest<br>is allowed for that. However, interest from the date of closing to such due date is written in &#8216;Red<br>Ink&#8217; in the appropriate side of Account Current. This Red Ink Interest is treated as negative<br>interest.</li>



<li>False: Trial balance only checks the arithmetical accuracy of the books. Errors of principle and<br>errors of commission will not affect the agreement of the trial balance.</li>



<li>False: The right hand side of the equation includes cash twice – once as a part of current assets<br>and another separately. The basic accounting equation is<br>Equity + Long Term Liabilities = Fixed Assets + Current Assets – Current Liabilities</li>



<li>False: Consignment account is a nominal account.</li>



<li>False: The Sales book is a register specially kept to record credit sales of goods dealt in<br>by the firm, cash sales are entered in the cash book and not in the sales book.</li>



<li>False: While calculating the average due date, any transaction date maybe taken as the base<br>date.</li>



<li>True: If a partner retires, his share of profit or loss will be shared by the other partners in<br>their profit sharing ratio.</li>



<li>False: Net income is determined by preparing income and expenditure in case of persons<br>practicing vocation.<br>Answer of Additional Questions for practice :-</li>



<li>2. 3.<br>False : Capital is all assets less fictitious assets less external liabilities.<br>False : The basic accounting equation is : Equity + LTL + CL = FA + CA<br>False : Prudence is a concept to recognize future or anticipated losses and not profits.</li>



<li>False: As per AS-1, Fundamental Accounting Assumptions are Going Concern Concept,<br>Consistency and Accrual Concept.</li>



<li>True: As per Concept of Conservatism, the accountant should provide for all possible losses,<br>but should not anticipate income.</li>



<li>True: The economic life of an enterprise is artificially split into periodic intervals in<br>accordance with the accounting period concept. The going concern assumption states that an<br>enterprise will continue its operation for indefinite period of time.</li>



<li>False: Lease premium is a capital expenditure.</li>



<li>True: Money received by way of issue of shares or debentures by a company is a<br>capital receipt.</li>



<li>False: Capital expenditure is done to improve the efficiency of an asset.</li>



<li>True: Revenue expenditure is incurred to receive a benefit during a current year. Revenue<br>loss occurs in the normal course of business and provides no benefit.</li>



<li>True: Expenditure that is done in connection with the acquisition of fixed assets or which<br>leads to the increment in the value of fixed assets are classified under capital expenditure.</li>



<li>True: Preliminary expenses are treated as deferred revenue expenditure as these can be<br>written off over a maximum of 4.5 years. Though according to AS-26, Preliminary expenses<br>spent in the incorporation of a company should be written off in the year it is incurred.</li>



<li>False : Expenditure done in connection with the erection of machines is an example of<br>capital expenditure.</li>



<li>True : Capital receipts are shown in the balance sheet as an increase in liabilities or as<br>reduction in the value of assets.</li>



<li>True : Any expenditure that reduces the working expenses will be treated as capital<br>expenditure.</li>



<li>False : Such expenditure is classified under the head of capital expenditure if it is paid during<br>the production / construction period. The expenditure will be treated as revenue after the asset<br>is put to use.</li>



<li>False : 45,000 is a revenue loss but 17,00,000 is a capital expenditure.</li>



<li>True : Overhaul expenses (repairs) incurred to put a second hand machine in useable<br>condition to derive its benefit for future periods is a capital expenditure.</li>



<li>False : 10,00,000 will be treated as capital expenditure since it is spent on the construction<br>of the mess hall, though the amount has been received as a grant.</li>



<li>False : Legal expenses incurred on the issue of capital will be treated as capital expenditure.</li>



<li>False : The Cinema Hall could not be started without license. Expenditure incurred to obtain<br>the license is pre-operative expense which is to be capitalized. Such expenses are not revenue and<br>amortized over a period of time.</li>



<li>False : Present liability of uncertain amount, which can be measured reliably by using a<br>substantial degree of estimation is termed as provision.</li>



<li>False : In the financial statement, contingent liability is not recognized.</li>



<li>False: If an inflow of economic benefits is probable then a contingent asset is disclosed in the<br>report of the approving authority (Board of Directors in the case of a company, and the<br>corresponding approving authority in the case of any other enterprise).</li>



<li>False : Contingent asset usually arises from unplanned or unexpected events that give rise to<br>the possibility of an inflow of economic benefits to the business entity.</li>



<li>False : Wages paid for erection is a capital expenditure, so it should be debited to the<br>machinery account.</li>



<li>False : The balance in the cash book shows cash in hand at the end of the period.</li>



<li>False : The debts written off as bad, if recovered subsequently, shall be credited to Bad<br>Debts Recovered Account.</li>



<li>False : The sales day book is a book of prime entry and so it is part of journal.</li>



<li>False : Patent – right is an intangible asset, so it is a real account.</li>



<li>False : Goods taken by the proprietor for personal use should be credited to Purchase Account<br>at a cost price of 600.</li>



<li>True : The cash book is debited in cash column when the cheque is received and it is credited<br>when it is endorsed.</li>



<li>False : Rent paid and rent received both are nominal accounts because they are expenses and<br>incomes of the business.</li>



<li>False : Agreement of trial balance is not a conclusive proof of the accuracy, because there may<br>be some errors like errors of principle, compensating errors etc. which do not affect the total of<br>trial balance.</li>



<li>True : All the Opening, Closing, Rectifying and Adjusting entries are recorded in journal proper<br>because these are not recorded in any other subsidiary book.</li>



<li>False : Sale of office furniture is a capital receipt, so it should be credited to Furniture<br>Account.</li>



<li>False : The balance in the Petty Cash Book represents petty cash balance lying with the Petty<br>cashier. It is treated as an asset of the business.</li>



<li>False : Purchase day book is a book of original entry and so it is a part of journal.</li>



<li>False : Discount Columns of a Cash Book are totaled but never balanced. These are<br>totalled and transferred to Discount Allowed and Discount Received Account respectively.</li>



<li>False : Purchase book records only credit purchases of goods.</li>



<li>False : The Sales book is kept to record only the credit sales of goods.</li>



<li>False : The credit notes are used to prepare sales return book.</li>



<li>False : Bank column of the cash book may show debit or credit balance.</li>



<li>False : Interest charged by banker to customer on overdrawn account is called ‘interest<br>on overdraft’.</li>



<li>False : Bank reconciliation statement is prepared to reconcile the differences between<br>bank balance as per cash book and balance in bank statement.</li>



<li>False : Interest charged by the bank will be added because it will increase the overdraft<br>as shown by the cash book.</li>



<li>False : Bank reconciliation statement is prepared to find out the reasons of difference in<br>cash book and pass book even if the balance as per cash book and pass book are same.</li>



<li>False : Because salary paid to Ram will be debited to Salaries account as an expense of<br>the business.</li>



<li>False : A promissory note cannot be made payable to the bearer. It is payable to or to<br>the order of a certain person.</li>



<li>False : When the bill is renewed, entries are passed for cancellation of the old bill and<br>for recording of the new bill.</li>



<li>True : At the time of Renewal of a bill, interest account is debited in the books of a drawee<br>as it represents an expense for him.</li>



<li>True : A bill given to a creditor is called Bills Payable.</li>



<li>False : B cannot endorse the bill to C because he is drawee. Only A, the drawer can do<br>it.</li>



<li>False : Refusal by the acceptor to make payment of the bill on the maturity date is called<br>dishonor of the bill. Early payment of the bill is known as the Retirement of the bill.</li>



<li>False : Promissory note does not require acceptance, only bills receivable require<br>acceptance.</li>



<li>True : When the acceptor of a bill fails to pay on the due date, a new bill may be drawn on<br>him after cancellation of the old bill. This is known as renewal of a bill.</li>



<li>True : Discount at the time of retirement of a bill is a gain for the drawee.</li>



<li>False : Rectifying errors in subsequent accounting period related to Personal &; Real<br>Accounts will not affect the profit of that period.</li>



<li>True : Recording the transaction in an incorrect fundamental manner is an error of<br>principle.</li>



<li>False : Wrong casting of subsidiary books affects the trial balance because wrong total<br>will be posted to its account and then to the trial balance.</li>



<li>True : Error of commission is an error on account of wrong posting, wrong balancing,<br>wrong carry forward, wrong totaling etc.</li>



<li>True : Error of commission is an error on account of wrong posting, wrong balancing,<br>wrong carry forward, wrong totalling etc.</li>



<li>False : Every error does not affect the agreement of trial balance because Errors of<br>Principle, Compensating errors etc. do not affect the agreement of trial balance.</li>



<li>False : It is an error of principle because here an item of capital nature is treated as an<br>item of revenue nature.</li>



<li>False : Damaged inventory should be valued at net realizable value only.</li>



<li>False : As per AS-2, finished goods are normally valued at cost or net realizable value<br>whichever is lower.</li>



<li>False : As per AS-2 Valuation of Inventories, inventory is valued at the lower of cost and<br>net realizable value.</li>



<li>False : Land is not a depreciable asset because it does not qualify for depreciation as per<br>AS-10.</li>



<li>False : Depreciation is a non-cash expenditure because it does not involve any cash outflow.</li>



<li>True : Depreciation is charged on value of fixed asset over its useful life. So, by way of<br>depreciation any capital expenditure is amortised over its useful life.</li>



<li>False : Depreciation is a charge against profit so it has to be provided for whether there is<br>a profit or loss in a financial year of the business.</li>



<li>False : Depreciable amount refers to historical cost less salvage value.</li>



<li>True : Depreciation is a non cash expense and there is no outflow of cash in the<br>business.</li>



<li>True : The balance of Sales or Return Account in Sale or Return ledger represents the<br>value of goods lying with the customers who have neither returned nor intimated for goods<br>till date.</li>



<li>False : Profit and loss account shows the profit or loss of a concern for a particular<br>accounting period.</li>



<li>False : A profit and loss account is a period statement and a balance sheet is a point<br>statement.</li>



<li>False : The provision for discount on debtors is calculated after deducting the provision for<br>doubtful debts from debtors.</li>



<li>True : The profit on sale of capital assets should not be added to ascertain the net operating<br>profit of a business.</li>



<li>False : Under the ‘liquidity approach’ assets which are most liquid are presented first, like,<br>cash &; cash equivalents.</li>



<li>False : Only closing stock is not taken in the calculation of the profits of a business.</li>



<li>False : Closing stock may appear in the trial balance if an adjusting entry relating to<br>closing stock has already been passed and adjusted purchases are given in trial balance.</li>



<li>True : If closing stock appears in the Trial balance it indicates that it is already been<br>adjusted with the purchase and will be shown in the Balance Sheet only.</li>



<li>False : The additional commission to the consignee who agrees to bear the loss on account of<br>bad debts is called del-credere commission.</li>



<li>True : The relationship between consignor and consignee is that of principal and agent.</li>



<li>False : In a consignment business, goods are generally sold on behalf of, at the expense of and<br>at the risk of the consignor as per its basic characteristics.</li>



<li>False : Account sales is a statement sent by the consignee to consignor, showing the<br>information of sales expenses incurred on behalf of the consignor, the commission earned by the<br>consignee, any advance given to the consignor and the balance due to the consignor.</li>



<li>False : Loss due to inherent characteristics of goods is treated as normal loss.</li>



<li>False : No partner is entitled for salary unless it is provided for in the partnership deed.</li>



<li>False : If there is no agreement profits or losses are to be shared equally among the<br>partners.</li>



<li>False : The business of the partnership firm can be carried on by all the partners or by<br>any one of them acting for all.</li>



<li>False : When a new partner brings in cash for goodwill, it is taken away by the old<br>partners in their sacrificing ratio.</li>



<li>False : Goodwill is an intangible asset.</li>



<li>False : Goodwill is an intangible asset so it is in nature of real account.</li>



<li>True : If a partner retires, his share of profit or loss will be shared by the other partners<br>in their profit sharing ratio unless otherwise agreed.</li>



<li>False : Minor cannot be admitted to the benefits of LLP.</li>



<li>False : The objective of taking a joint life policy is to enable the firm to make payment<br>to the legal representatives of a deceased partner or to the retiring partner.</li>



<li>False : LLP has separate legal entity.</li>



<li>False : LLP Partners act as agents of LLP and not of other partners.</li>



<li>True : When there is no partnership deed then the provisions of the Indian Partnership<br>Act are to be applied for settling the dispute. Interest on loan is payable @ 6% p.a. as per<br>Indian Partnership Act.</li>



<li>False : Average due date results in no loss to any party i.e. debtor or creditor.</li>



<li>False : Average due date is mean date of several due dates for payments.</li>



<li>False : The Scholarship granted to students should be deducted from the funds<br>provided by the Government for the same purpose in the Balance Sheet.</li>



<li>False : Receipts and Payments Account is a summary of all cash or bank receipts and<br>payments whether they are of capital or revenue in nature.</li>



<li>False : Expenses incurred on sports activities will be deducted from sports fund only.</li>



<li>False : Receipts and Payments Account is a summary of all cash or bank receipts and<br>payments whether they are of capital or revenue in nature.</li>



<li>True : Income and Expenditure Account is prepared to find out surplus/deficit. Hence, only<br>revenue items are shown in the Income and Expenditure Account. Thus, capital expenditures are<br>not shown in Income &; Expenditure Account.</li>



<li>False : Life membership fee received for received for the life membership is a capital receipt<br>because it is of non-recurring nature.</li>



<li>False : Reserve Capital refers to that portion of uncalled up share capital which shall not be<br>capable of being called up except in the event of winding up. Capital Reserve is a reserve which is<br>created out of capital profits.</li>



<li>False : As per Table F, the maximum rate of interest that can be charged on Calls-in- Arrear<br>and that can be allowed on calls-in-advance are 10% p.a. and 12% p.a. respectively.</li>



<li>False : A forfeited share is merely a share available to the company for sale and remains<br>vested in the company for that purpose only. Reissue of forfeited shares is not allotment of<br>shares but only a sale as they have already been allotted earlier.</li>



<li>False : Debenture Redemption Premium Account is a Personal Account but Discount on issue of<br>Debentures Account is Nominal Account.</li>



<li>False : Debentures can be issued at Par/Premium/discount since there are no restrictions on<br>issue of debentures at discount.</li>



<li>False : A Company cannot issue debentures with voting rights.</li>



<li>False : Maximum number of members in case of private company is 200.</li>



<li>False : While drafting the balance sheet of a company bills receivables are shown under the<br>sub-head Trade receivables.</li>



<li>True : Normally operating cycle is less than or more than 12 months in any business but when it<br>is difficult to identify the duration of operating cycle of any business it is assumed as of 12 months.</li>



<li>False : Securities premium is not added to share capital but is shown under the sub- head<br>Reserves and Surplus.</li>



<li>False : It is not mandatory for any company to deduct provision for bad and doubtful debts from<br>trade receivables. A company may show their provision under the sub-head of short term provisions<br>in the head of current liabilities as per their choice.</li>



<li>False : A company registered under Companies Act, 2013 in India must prepare its balance sheet<br>in vertical format only as started in schedule III.</li>



<li>False : Loss incurred by accidents like loss by fire, loss by theft, abnormal spoilage etc., is<br>treated as abnormal loss.</li>



<li>False : If the consignee is not authorized to get del-credere commission, then he is not<br>responsible for any losses on account of non-recovery of debts.</li>



<li>True : The consignee being an agent is entitled for commission only and not for share in profit.</li>



<li>False : If Del-credere commission is paid to consignee, then loss of bad debts will be borne by consignee only.</li>
</ol>


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