Accountancy MCQ Quiz - Objective Question with Answer for Accountancy - Download Free PDF

Key Points

• Treated as a reduction in production costs:
  • Abnormal gains in process costing refer to unexpected and non-recurring positive variances that occur during the manufacturing process.
  • These gains are treated as a reduction in production costs, effectively lowering the total cost of production. This treatment helps in maintaining accurate cost records and reflecting the true cost efficiency of the production process.
  • By reducing the production costs, abnormal gains improve the profitability reported in the financial statements and provide a clearer picture of production efficiency.

  

  Additional Information

  • As a separate expense:
    • This option is incorrect because abnormal gains are not expenses. They represent unforeseen efficiencies or positive variances that should reduce costs rather than increase expenses.
    • This is incorrect because adding abnormal gains to production costs would inflate the total production costs inaccurately. It contradicts the purpose of reflecting the true cost efficiency.
    • This approach is incorrect because ignoring abnormal gains would lead to an incomplete and potentially misleading financial picture. Proper accounting requires recognizing all variances, positive or negative.
    • This is incorrect because abnormal gains should adjust production costs, not be transferred directly to finished goods. Transferring them would misstate inventory values and cost of goods sold calculations.
    India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by + Students

    Accountancy Question 2:

    What is the weighted average method of process costing?
    1. It assigns costs only to the units completed in the current period.
    2. It calculates the average cost per equivalent unit from current period's costs only.
    3. It considers costs from both the previous and current periods.
    4. It accounts only for beginning inventory costs.
    5. It assigns costs based on FIFO principles.

    Answer (Detailed Solution Below)

    Option 3 : It considers costs from both the previous and current periods.

    Accountancy Question 2 Detailed Solution

    The correct answer is It considers costs from both the previous and current periods.

    

    Key Points

    • It considers costs from both the previous and current periods:
      • The Weighted Average Method of process costing combines both the costs of beginning inventory and the costs incurred during the current period to calculate a single average cost per unit.
      • This method simplifies accounting by mixing all costs into one pool, ensuring that the cost per unit reflects both historical and current cost fluctuations.
      • It eliminates the need to distinguish between units from different periods, streamlining the costing process for continuous production environments.
      • This approach benefits companies by providing a stable cost assignment, aiding in financial planning and variance analysis.

      

      Additional Information

      • It assigns costs only to the units completed in the current period:
        • This method overlooks the costs associated with beginning inventory, which can lead to inaccurate cost per unit calculations if the beginning inventory represents a significant portion of total production.
        • This method excludes the impact of beginning inventory costs, which can misrepresent the true average cost, especially in industries with varying production and cost patterns.
        • This option neglects the costs incurred during the current period, leading to a potential underestimation of the total production costs.
        • The FIFO method separately tracks costs in chronological order, assigning the earliest costs to units first. It contrasts with the Weighted Average Method, which blends costs from all periods into one average.
        India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by + Students

        Accountancy Question 3:

        Which method assigns costs incurred first to units completed and transferred out?
        1. LIFO Method.
        2. Absorption Costing.
        3. Weighted Average Method.
        4. FIFO Method.
        5. Standard Costing.

        Answer (Detailed Solution Below)

        Option 4 : FIFO Method.

        Accountancy Question 3 Detailed Solution

        The correct answer is FIFO Method.

        

        Key Points

        • FIFO Method:
          • The First-In, First-Out (FIFO) method is an inventory costing technique that assumes the earliest (first) costs incurred are the first to be allocated to the units completed and transferred out.
          • This approach is particularly useful in contexts where older inventory needs to be used first to prevent spoilage or obsolescence, making it common in industries like food and pharmaceuticals.
          • In financial terms, FIFO typically results in lower cost of goods sold and higher ending inventory values during periods of rising prices, as older, cheaper costs are applied first.
          • This method aligns with the actual flow of goods in many industries, providing a logical and straightforward means of cost assignment.

          

          Additional Information

          • LIFO Method:
            • The Last-In, First-Out (LIFO) method assumes that the most recently incurred costs are the first to be assigned to the units completed and transferred out. This method contrasts with FIFO and often results in higher cost of goods sold and lower ending inventory values during periods of rising prices.
            • Absorption costing, also known as full costing, is a method where all manufacturing costs, including fixed and variable costs, are absorbed by the units produced. It is more concerned with overall cost assignment rather than the specific order of costs transferred out.
            • The Weighted Average Method averages all costs incurred over a period of time and assigns this average cost to units completed and transferred out. It smooths cost fluctuations over time and does not prioritize the order of costs.
            • Standard costing assigns predetermined costs to units, reflecting expected costs rather than actual incurred costs. This method is used for budgeting and variance analysis rather than for actual cost allocation to completed units.
            India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by + Students

            Accountancy Question 4:

            How does the Rowan system calculate employee compensation?
            1. Time saved × Hourly Wage + Time Taken × Standard Hourly Rate.
            2. Time taken × Time rate + Time saved/Time allowed × Time taken × Rate per hour.
            3. Time saved × Time allowed.
            4. Fixed hourly rate × Total hours worked.
            5. Units produced × Fixed per unit rate.

            Answer (Detailed Solution Below)

            Option 2 : Time taken × Time rate + Time saved/Time allowed × Time taken × Rate per hour.

            Accountancy Question 4 Detailed Solution

            The correct answer is Time taken × Time rate + Time saved/Time allowed × Time taken × Rate per hour.

            

            Key Points

            • Time taken × Time rate + Time saved/Time allowed × Time taken × Rate per hour:
              • The Rowan system is a method of calculating employee compensation based on both time taken and time saved. This formula rewards employees for efficiency without unduly encouraging haste that could compromise quality or safety.
              • The first part of the formula, "Time taken × Time rate," compensates employees for the actual hours they worked at their standard rate.
              • The second part, "(Time saved / Time allowed) × Time taken × Rate per hour," provides an additional bonus for the time saved, proportionally to the time taken. This encourages workers to complete tasks efficiently while maintaining a quality standard.
              • By incorporating both actual working time and efficiency gains, the Rowan system aims to balance fair compensation with productivity incentives.

              

              Additional Information

              • Time saved × Hourly Wage + Time Taken × Standard Hourly Rate:
                • This method does not properly emphasize the efficiency aspect the Rowan system aims to reward. It simply adds two unrelated components and may not accurately reflect the efficiency gains.
                • This option does not account for the actual time worked or the standard rate, failing to balance the need for fair wages directly related to hours worked.
                • While this method is simple and ensures workers are paid for every hour worked, it does not provide any incentive for workers to complete tasks more efficiently. This is standard hourly payment without any efficiency bonus.
                • This piece-rate method compensates based on output rather than time, which can lead to rushed work and potential quality issues. It is not aligned with the Rowan system’s approach of balancing time and efficiency.
                India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by + Students

                Accountancy Question 5:

                What type of costs are spread over the units completed and transferred out in process costing?
                1. Abnormal loss costs.
                2. Abnormal gain costs.
                3. Normal loss costs.
                4. Inter process profits.
                5. Overhead costs.

                Answer (Detailed Solution Below)

                Option 3 : Normal loss costs.

                Accountancy Question 5 Detailed Solution

                The correct answer is Normal loss costs.

                

                Key Points

                • Normal loss costs:
                  • In process costing, normal loss costs are those that are expected and unavoidable under efficient operating conditions.
                  • These costs are spread over the units completed and transferred out because they are considered a standard part of production, and their cost needs to be absorbed by the good units produced.
                  • This allocation ensures that the unit cost of production reflects the reality of the production process, including the inevitable losses that occur.
                  • By spreading the normal loss costs over the completed units, the cost per unit remains consistent and accurate, aligning with the principles of fair and systematic cost allocation.

                  

                  Additional Information

                  • Abnormal loss costs:
                    • Abnormal loss costs pertain to losses that exceed the normal expected losses. These are not spread over the completed units but are treated as a separate expense due to their atypical nature, often warranting detailed investigation and separate reporting.
                    • Abnormal gain costs occur when the actual losses are less than the expected normal losses. These gains are also not distributed over the units produced; instead, they result in a cost adjustment that benefits the overall cost structure.
                    • Interprocess profits refer to the profits that arise when goods are transferred from one process to another at a price higher than their cost. These profits need detailed tracking and adjusting, and they are not directly spread over completed units.
                    • Overhead costs encompass all indirect costs associated with production, such as utilities, rent, and administrative expenses. While these costs are spread across units produced, they are a distinct category from normal loss costs, focusing on general production expenses rather than specific production losses.
                    India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by + Students

                    Top Accountancy MCQ Objective Questions

                    Accountancy Question 6

                    A, B and C started a business with initial investments of Rs. 20000, Rs. 25000 and Rs. 10000, respectively. After 5 months from start, A invested Rs. 4000 more. After 6 months from start, C invested Rs. 8000 more. After 4 months from start, B withdrew Rs. 8000. At the end of the year, they will receive a profit of Rs. 'x'. In what ratio they will share the profits ?

                    1. 71 ∶ 57 ∶ 42
                    2. 71 ∶ 59 ∶ 42
                    3. 59 ∶ 68 ∶ 42
                    4. 67 ∶ 59 ∶ 42

                    Answer (Detailed Solution Below)

                    Option 4 : 67 ∶ 59 ∶ 42

                    Accountancy Question 6 Detailed Solution

                    A	B	C
                    Capital invested	(20000 x 5) + (24000x7)	(25000x4) + (17000 x 8)	(10000x6) + (18000x6)
                    268000	236000	168000

                    Profit Ratio = A : B : C = 268 : 236 : 168 = 67 : 59 : 42

                    Share on Whatsapp

                    India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by + Students

                    Accountancy Question 7

                    Furniture purchased from Ramesh for personal use which of the two accounts will be affected
                    1. Both real accounts
                    2. Both personal accounts
                    3. One personal account and one real account
                    4. One real account and one nominal account

                    Answer (Detailed Solution Below)

                    Option 2 : Both personal accounts

                    Accountancy Question 7 Detailed Solution

                    The correct answer is Both personal accounts

                    

                    Important Points

                    When Furniture is purchased from Ramesh on credit for personal use, the following journal entry will be passed:

                    Particulars	Dr. Amount	Cr. Amount
                    Drawings A/c Dr	xxxxx
                    To Ramesh	xxxxx

                    Explanation:

                    • When the furniture is purchased for personal use, it is considered as drawings of the proprietor. Therefore, the amount must be debited to Drawings A/c. Drawings A/c is Representative Personal Account
                    • As the furniture is purchased on credit from Ramesh, he is the giver, so his account will be credited. Ramesh A/c is a Personal account.

                    So, when Furniture is purchased from Ramesh for personal use, two personal accounts will be affected.

                    

                    Additional Information

                    Three Golden Rules

                    • Personal Account - debit the receiver, credit the giver
                    • Real Account - debit what comes in, credit what goes out
                    • Nominal Account - debit all the expenses and losses, credit all the incomes and gains

                    Share on Whatsapp

                    India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by + Students

                    Accountancy Question 8

                    ___________ is a record of assets and liabilities of any firm.
                    1. Bill file
                    2. Balance of payment
                    3. Balance sheet
                    4. Bank bailout

                    Answer (Detailed Solution Below)

                    Option 3 : Balance sheet

                    Accountancy Question 8 Detailed Solution

                    

                    The correct answer is Balance sheet. Key Points

                    • ​The balance sheet is a financial statement that lists a company's assets, liabilities, equity capital, total debt, and other items as of a particular point in time.
                    • Liabilities are listed on the opposite side of the balance sheet from assets.
                    • One of the three primary financial statements used to assess a company is the balance sheet.
                    • It offers a summary of a company's financial situation as of the publication date.
                    • The assets on the balance sheet are equal to the total of the liabilities plus the shareholders' equity.
                    • Financial ratios are computed using balance sheets by fundamental analysts.

                    

                    Additional Information

                    • Balance of payment:
                      • It is a list of every transaction that took place between entities in one nation and the rest of the world during a specific time frame, such a quarter or a year.
                      • Both the current account and the capital account are part of the balance of payments.
                      • The balance of payments' total recorded transactions must equal zero.
                      • A bailout is when financial assistance is given to an organisation or nation that might otherwise be in financial trouble. ​
                      • Loans, bonds, stocks, or cash can all be used as bailout funds.
                      • Certain loans need to be repaid, with or without interest charges.

                      Share on Whatsapp

                      India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by + Students

                      Accountancy Question 9

                      Which of the following statement is true in respect of Income and Expenditure account?
                      1. It does not show non-cash items.
                      2. It contains only the items of revenue nature of current accounting period only
                      3. It follows cash system of accounting
                      4. It is a real account.

                      Answer (Detailed Solution Below)

                      Option 2 : It contains only the items of revenue nature of current accounting period only

                      Accountancy Question 9 Detailed Solution

                      The correct option is it contains only the items of revenue nature of the current accounting period only.

                      

                      Key Points
                      Income and Expenditure: An Income and Expenditure Account is a complete breakdown of all income and expenses incurred by a non-profit organization over the course of a fiscal year.

                      Characteristics of Income and Expenditure account:

                      • It is prepared by a not-for-profit organization.
                      • Only the revenue items of the current accounting period are recorded in this account. No capital item is included.
                      • It is based on the accrual basis of accounting.
                      • It is prepared the same way as a Profit and Loss account is prepared in a for-profit business entity.
                      • It is prepared by stringently following the double-entry system .
                      • All expenses are recorded on the Debit side and all revenues on the credit side of the Income & Expenditure Account.

                      Share on Whatsapp

                      India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by + Students

                      Accountancy Question 10

                      Which of the following stock exchanges has its index named as 'Sensex' ?
                      1. India Commodity Exchange Ltd.
                      2. Bombay Stock Exchange (BSE)
                      3. Calcutta Stock Exchange
                      4. National Stock Exchange (NSE)

                      Answer (Detailed Solution Below)

                      Option 2 : Bombay Stock Exchange (BSE)

                      Accountancy Question 10 Detailed Solution

                      The correct answer is Bombay Stock Exchange (BSE).

                      • Sensex, also known as the S&P BSE Sensex index, is the benchmark index of India's BSE, formerly known as the Bombay Stock Exchange.

                      

                      Key Points

                      • Stock Exchange: Stock Exchange is a marketplace where financial securities such as shares, bonds, commodities, etc issued by the companies are bought and sold.
                      • The first stock exchange Amsterdam Stock exchange was established in 1602 by the Dutch East India Company. ( Verenigde Oostindische Compagnie or VOC ).

                      

                      Important Points

                      • Indian Commodity Exchange Ltd (ICEX) was established in 2008, headquartered in Mumbai. The ICEX index is named 'ICEX Main'.
                      • Bombay Stock Exchange was established in 1875, headquartered in Mumbai. The BSE index is named as 'Sensex- Sensitivity Index'.
                      • Calcutta Stock Exchange was established in 1908, headquartered in Kolkata. The CSE index is named as 'CSE40'
                      • The National Stock exchange was established in 1992, headquartered in Mumbai. The NSE index is named 'NIFTY50'.

                      Share on Whatsapp

                      India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by + Students

                      Accountancy Question 11

                      To whom is the term "insider trading" related?
                      1. Hawala
                      2. Public
                      3. Share Market
                      4. Tax

                      Answer (Detailed Solution Below)

                      Option 3 : Share Market

                      Accountancy Question 11 Detailed Solution

                      The correct answer is Share Market.

                      • The term insider trading is associated with the share market.
                      • Insider trading is the buying or selling of a publicly-traded company's stock by someone who has non-public, material information about that stock.

                      

                      Key Points

                      • Material non-public information is any information that could substantially impact an investor's decision to buy or sell the stocks that have not been made available to the public.
                      • Insider trading is illegal and comes with stern penalties including both potential fines and jail time.
                      • Securities and Exchange Board of India (SEBI) have stringent rules to prevent insider trading.

                      

                      Additional Information

                      • Hawala: Hawala is the underground, cheap and instant medium to transfer the huge amount of money.
                        • Hawala is cheaper and less cumbersome than formal remittance channels such as banks, Western Union or Money Gram.
                        • Hawala system is used by Criminals, Businessmen, and Nonresidents to remit money.
                        • Halawa system is the backbone of the underworld, drugs/arms mafias, terrorists and smugglers. Businessmen use it transfer money to evade tax.

                        Share on Whatsapp

                        India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by + Students

                        Accountancy Question 12

                        Gross Book Value of a fixed assets is its
                        1. cost less depreciation
                        2. Historical cost
                        3. fair market value
                        4. realisable value

                        Answer (Detailed Solution Below)

                        Option 2 : Historical cost

                        Accountancy Question 12 Detailed Solution

                        The correct answer is historical cost.

                        

                        Key Points Fixed assets - Long-term tangible assets employed in corporate operations are referred to as fixed assets.

                        

                        They are categorized as property, plant, and equipment (PP&E) on the balance sheet because they offer long-term financial benefits and have a useful life of more than a year. Important Points Gross Book Value of a fixed assets -

                        • A fixed asset's gross book value is its historical cost or a sum that has been substituted for historical cost in the accounting records or financial statements.
                        • This number is known as net book value when it is displayed after cumulative depreciation.

                        Thus , Gross Book Value of Fixed assets is known as historical cost.

                        Share on Whatsapp

                        India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by + Students

                        Accountancy Question 13

                        A credit entry in a real account means:
                        1. a decrease of an expense
                        2. a decrease in value of an asset
                        3. an increase in an income
                        4. an increase in the value of an asset

                        Answer (Detailed Solution Below)

                        Option 2 : a decrease in value of an asset

                        Accountancy Question 13 Detailed Solution

                        

                        Key Points

                        • Real Accounts: These account types are related to assets or properties. They are further classified as Tangible real account and Intangible real accounts.

                        

                        Important Points Tangible Real Accounts: These include assets that have a physical existence and can be touched. For example – Building A/c, cash A/c, stationery A/c, inventory A/c, etc.

                        Intangible Real Accounts: These assets do not have any physical existence and cannot be touched. However, these can be measured in terms of money and have value. For Example – Goodwill, Patent, Copyright, Trademark, etc.

                        Real Account Rules:

                        • Debit what comes into the business.
                        • Credit what goes out of business.

                        For Example: Furniture purchased by an entity in cash. Debit furniture A/c and credit cash A/c.

                        Note: Asset value increases when a real account is debited, while asset value decreases when a real account is credited. In the aforementioned example, furniture is acquired, which causes an increase in furniture and a decrease in cash.

                        Hence, it can be concluded that a credit entry in a real account means a decrease in value of an asset.