Practice Questions

Define the term 'outstanding expenses' and provide one example.

List any five items that typically require adjustments before preparing the final accounts.

Name the two ways to calculate manager's commission on net profit.

Calculate the amount of salary to be debited to the Profit and Loss Account for the year ending March 31, 2017, if the trial balance shows Salaries paid as ₹50,000 and the adjustment states that salaries of ₹5,000 are outstanding.

An insurance premium of ₹2,400 was paid on July 1, 2016, for one full year. If the financial year ends on March 31, 2017, calculate the amount of prepaid insurance.

Propose the adjustment entry for an annual insurance premium of ₹2,400 paid on July 01, 2016, for an accounting year ending on March 31, 2017.

Design a partial Balance Sheet showing the presentation of Furniture costing ₹50,000 after an adjustment for 10 percent per annum depreciation is made.

Define 'prepaid expenses' and identify their location in the final accounts.

An amount of ₹1,200 spent on the repair of a second-hand machine at the time of purchase was debited to the Repairs Account. Apply the correct accounting principle and state the account that should have been debited.

Evaluate the statement: 'Income received in advance is an asset for the business.'

Critique the practice of adjusting for prepaid expenses. Is it not simpler to just record the expense when paid?

A firm's trial balance shows 'Provision for Doubtful Debts' at ₹4,000 (Cr.). At the end of the year, after writing off all bad debts, the total provision required is calculated as ₹3,000. Calculate the amount to be shown in the Profit and Loss Account regarding this provision.

Explain the need for making adjustments while preparing financial statements.

Describe the accounting treatment of 'accrued income' in the final accounts.

Compare the accounting treatment of Outstanding Expenses and Prepaid Expenses in the final accounts.

Explain the purpose of creating a 'provision for doubtful debts'.

Compare and contrast the accounting treatment for 'Bad Debts' appearing in the Trial Balance and 'Further Bad Debts' given as an adjustment. Demonstrate their presentation in the Profit and Loss Account and Balance Sheet.

Justify the sequential order of adjustments for debtors, starting from further bad debts, followed by provision for doubtful debts, and finally provision for discount on debtors.

Describe the general rule for treating any adjustment item given outside the trial balance during the preparation of final accounts.

Analyze the impact on Gross Profit and Net Profit if the closing stock is overvalued by ₹10,000.

Examine the case where closing stock is given inside the trial balance. How would you apply the double-entry principle to present it in the final accounts?

Critique the decision of a business to not record outstanding salaries of ₹10,000 at the end of the financial year, arguing it will be paid and recorded in the next month anyway.

Propose the accounting treatment if goods costing ₹5,000 are taken by the proprietor for personal use and no entry has been made.

Demonstrate the journal entry required to adjust for depreciation on furniture costing ₹50,000 at 10% per annum and show its presentation in the Profit and Loss Account and Balance Sheet.

Justify why Interest on Capital is shown as an expense in the Profit and Loss Account and simultaneously added back to Capital in the Balance Sheet.

Evaluate the impact on Gross Profit and Net Profit if closing stock of ₹15,000 is mistakenly omitted from the final accounts.

Create the journal entries required to adjust for ₹2,000 accrued interest on investments and ₹3,000 rent received in advance at the end of the financial year.

What is meant by 'income received in advance'? State its treatment in the final accounts.

Solve for the amount of interest on capital to be debited to the Profit and Loss Account. The opening capital was ₹2,00,000. Additional capital of ₹50,000 was introduced on October 1, 2016. The rate of interest on capital is 10% per annum, and the financial year ends on March 31, 2017.

A manager is entitled to a commission of 10% on net profit after charging such commission. Calculate the manager's commission if the profit before commission is ₹33,000.

Recall the adjustment entry for providing depreciation on a fixed asset and explain its placement in the final accounts.

Describe how 'interest on capital' is treated in the final accounts of a sole proprietorship.

What are 'further bad debts' and where are they recorded in the final accounts?

Demonstrate the treatment of the following items in the Trading Account, Profit and Loss Account, and Balance Sheet of a firm for the year ended March 31, 2017: (i) Closing Stock valued at ₹40,000. (ii) Wages outstanding ₹3,000. (iii) Rent received in advance ₹5,000. (iv) Accrued commission ₹2,000. (v) Prepaid insurance ₹1,000.

Propose how to treat an existing provision for doubtful debts of ₹5,000 when total bad debts for the year (including further bad debts) are ₹3,000 and the new required provision is ₹4,000.

Create a scenario where an old provision for doubtful debts results in a credit to the Profit and Loss Account and justify this treatment.

Analyze the following extract from a Trial Balance and the given adjustments to determine the final amount related to debtors that will appear in the Balance Sheet. Trial Balance Extract: Sundry Debtors ₹60,000; Bad Debts ₹1,500; Provision for Doubtful Debts ₹2,500. Adjustments: (i) Write off further bad debts of ₹2,000. (ii) A new provision is to be created at 5% on debtors.

A company purchased machinery for ₹1,00,000 on April 1, 2015. On October 1, 2016, a part of this machinery, with an original cost of ₹20,000, was sold for ₹15,000. The company charges depreciation at 10% per annum using the straight-line method. The financial year ends on March 31. Analyze the transactions and calculate the profit or loss on the sale of machinery for the year 2016-17.

Evaluate the argument that creating a provision for doubtful debts violates the principle of objectivity because the amount is an estimate. Propose a justification for this practice based on other accounting principles.

Formulate a calculation to determine the amount of manager's commission if the net profit before commission is ₹2,10,000 and the manager is entitled to a 5 percent commission on net profit after charging such commission.

Formulate the final accounts presentation for a machine purchased for ₹1,00,000 with installation wages of ₹10,000 mistakenly debited to the Wages Account. The machine is to be depreciated at 10 percent.

From the following information, calculate the amount of provision for doubtful debts and provision for discount on debtors to be shown in the Profit and Loss Account. Sundry Debtors: ₹82,500; Bad Debts (Trial Balance): ₹2,000. Adjustments: (i) Further bad debts ₹2,500. (ii) Create a provision for doubtful debts at 5% on debtors. (iii) Create a provision for discount on debtors at 2% on good debtors.

Summarize the complete process of treating bad debts, further bad debts, and a new provision for doubtful debts in the final accounts.

Summarize the concept and accounting treatment of closing stock in the preparation of financial statements.

Explain the purpose and calculation of a 'provision for discount on debtors'.