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CA Foundation Exam  >  CA Foundation Tests  >  Test: Sale Of Goods On Approval Or Return Basis - 1 - CA Foundation MCQ

Test: Sale Of Goods On Approval Or Return Basis - 1 - CA Foundation MCQ


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30 Questions MCQ Test - Test: Sale Of Goods On Approval Or Return Basis - 1

Test: Sale Of Goods On Approval Or Return Basis - 1 for CA Foundation 2024 is part of CA Foundation preparation. The Test: Sale Of Goods On Approval Or Return Basis - 1 questions and answers have been prepared according to the CA Foundation exam syllabus.The Test: Sale Of Goods On Approval Or Return Basis - 1 MCQs are made for CA Foundation 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Sale Of Goods On Approval Or Return Basis - 1 below.
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Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 1
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 When a large number of articles are sent on a sale or return basis, It is necessary to maintain:

Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 1
When a large number of articles are sent on a sale or return basis, it is necessary to maintain:
There are several journals that need to be maintained when dealing with a large number of articles sent on a sale or return basis. These journals help in keeping track of the transactions and provide an accurate record of sales and returns. The necessary journals include:
Sale Journal:
- This journal is used to record all the sales made on a sale or return basis.
- It includes information such as the date of the sale, the quantity of articles sold, the selling price, and the customer's details.
- The sale journal helps in tracking the revenue generated from the sales.
Goods Returned Journal:
- This journal is used to record all the articles that are returned by customers.
- It includes information such as the date of return, the quantity of articles returned, the reason for return, and the customer's details.
- The goods returned journal helps in tracking the number of returns and the reasons behind them.
Sale or Return Journal:
- This journal is specifically designed to record transactions made on a sale or return basis.
- It includes information from both the sale journal and the goods returned journal.
- The sale or return journal helps in reconciling the sales and returns, providing a comprehensive view of the overall transactions.
Any of these:
- Depending on the organization's preference and accounting system, it is possible to maintain any combination of the above-mentioned journals.
- Some organizations may choose to maintain separate sale and return journals, while others may opt for a single sale or return journal.
- The choice of maintaining any of these journals depends on the specific requirements and practices of the organization.
In conclusion, when dealing with a large number of articles sent on a sale or return basis, it is necessary to maintain journals such as the sale journal, goods returned journal, or sale or return journal. These journals help in accurately recording and tracking the sales and returns, providing a clear picture of the transactions.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 2
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A sent some goods costing Rs. 3500 at a profit of 25% on sale to B on sale or return basis. B returned goods costing Rs. 800. At the end of year, the remaining goods were neither returned nor were approved by him. The stock on approval will be shown in balance sheet at: 

Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 2

To find the value of the stock on approval, we need to calculate the total value of goods that were not returned or approved by B.
Given:
Cost of goods sent by A = Rs. 3500
Profit on sale to B = 25%
Goods returned by B = Rs. 800
Step 1: Calculate the selling price to B:
Selling price = Cost price + Profit
Profit = 25% of Cost price = 25/100 * 3500 = Rs. 875
Selling price = Cost price + Profit = 3500 + 875 = Rs. 4375
Step 2: Calculate the value of goods not returned or approved:
Value of goods not returned or approved = Selling price - Value of goods returned
Value of goods returned = Rs. 800
Value of goods not returned or approved = 4375 - 800 = Rs. 3575
Step 3: Calculate the value of stock on approval:
The stock on approval will be shown in the balance sheet at its cost price.
Value of stock on approval = Value of goods not returned or approved = Rs. 3575
Therefore, the stock on approval will be shown in the balance sheet at Rs. 2,700.
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Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 3
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On 31st December, 2011 goods sold at a sale price of Rs. 30,000 were lying with customer, Mohan to whom these goods were sold on ‘approval or return basis’ and recorded as actual sales. Since no consent was received from Mohan, the adjustment entry was made presuming goods were sent on approval at a profit of cost plus 20%. In the balance sheet, the Inventories with customer account will be shown at Rs.

Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 3

The adjustment entry was made presuming goods were sent on approval at a profit of cost plus 20%.


Given:


Sale price of goods = Rs. 30,000


Profit margin = cost plus 20%


Step 1: Calculate the cost of goods sold


Let the cost of goods sold be x.


Profit margin = cost plus 20%


20% of x = profit margin


0.2x = profit margin


x = profit margin / 0.2


x = (30,000 - profit margin) / 0.2


Step 2: Calculate the cost of goods


Let the cost of goods be y.


Profit margin = cost plus 20%


20% of y = profit margin


0.2y = profit margin


y = profit margin / 0.2


y = (30,000 - profit margin) / 0.2


Step 3: Calculate the value of inventories with the customer


Inventories with customer = cost of goods sold


Inventories with customer = x


Inventories with customer = (30,000 - profit margin) / 0.2


Inventories with customer = (30,000 - (30,000 - y)) / 0.2


Inventories with customer = y / 0.2


Inventories with customer = 5y


Step 4: Substitute the value of y


Inventories with customer = 5 * (30,000 - profit margin) / 0.2


Step 5: Calculate the value of inventories with the customer


Inventories with customer = 5 * (30,000 - profit margin) / 0.2


Inventories with customer = 5 * (30,000 - (30,000 - y)) / 0.2


Inventories with customer = 5 * y / 0.2


Inventories with customer = 25,000


Answer: D. 25,000
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 4
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Under sales on return or approval basis, when transactions are few and the seller at the end of the accounting year reverse the sale entry, then what will be the accounting treatment for the goods returned by the customers on a subsequent date?
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 4
Accounting Treatment for Goods Returned by Customers on a Subsequent Date under Sales on Return or Approval Basis:

When transactions are few and the seller reverses the sale entry at the end of the accounting year, the accounting treatment for goods returned by customers on a subsequent date would be as follows:


Option A: No entry will be passed for such return of goods
- This means that there will be no specific accounting entry recorded for the return of goods by customers.
- The original sale entry is reversed, but the return of goods does not require a separate entry.
Explanation:
- Sales on return or approval basis allows customers to return the goods if they are not satisfied or do not meet their requirements.
- When the seller reverses the sale entry at the end of the accounting year, it means that the initial sale is treated as if it did not occur.
- Since the return of goods is considered a subsequent event, it does not require a separate accounting entry.
- The stock account may be adjusted to reflect the returned goods, but this adjustment does not require a specific entry.
Conclusion:
- The correct accounting treatment for goods returned by customers on a subsequent date under sales on return or approval basis is that no entry will be passed for such return of goods.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 5
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At what price goods lying with customer’s are valued at year ending under sale of approval basis: 
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 5
Under sale of approval basis, goods lying with customers at year-end are valued at:
- Selling price: The price at which the goods are expected to be sold to the customer.
- Cost price: The price at which the goods were originally purchased or acquired.
- Current price: The current market price of the goods at the year-end.
- Market price: The prevailing price of the goods in the market at the year-end.
Answer: Cost price
Explanation:
When goods are sold on a sale of approval basis, the ownership of the goods remains with the seller until the customer approves the purchase. Therefore, at the year-end, the goods are still considered as inventory of the seller. The valuation of inventory is usually done at cost price based on the principle of prudence in accounting.
- The cost price represents the actual cost incurred by the seller to acquire the goods.
- Selling price, current price, and market price may fluctuate and may not accurately represent the cost incurred by the seller.
- Valuing the goods at cost price ensures a conservative approach in financial reporting, as it avoids overvaluation of inventory and potential overstatement of profits.
Therefore, under the sale of approval basis, goods lying with customers at year-end are valued at the cost price.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 6
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Under sales on return or approval basis, the ownership of goods is passed only
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 6
Under sales on return or approval basis, the ownership of goods is passed only when certain conditions are met. The correct answer is option C, which states that the ownership is passed both when the retailer gives his approval and if the goods are not returned within the specified period.
Here is a detailed explanation:
Ownership under sales on return or approval basis:
- Sales on return or approval basis refers to a type of sale where the buyer has the option to return the goods or give their approval before finalizing the purchase.
- In such cases, the ownership of goods is not immediately transferred to the buyer. It is contingent upon certain conditions being met.
Conditions for ownership transfer:
- The ownership of goods is passed in the following situations:
1. Retailer's approval:
- If the retailer, who is the buyer in this case, gives his approval for the goods, it signifies his acceptance of the purchase.
- Once the retailer approves the goods, the ownership is transferred to him.
2. Non-return within specified period:
- If the goods are not returned within the specified period mentioned in the agreement or contract, it implies that the buyer is satisfied with the purchase.
- In such cases, the ownership of the goods is passed to the buyer.
Conclusion:
- Under sales on return or approval basis, the ownership of goods is passed when the retailer gives his approval or if the goods are not returned within the specified period.
- Option C, which states both (a) and (b), is the correct answer.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 7
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Sale or Return Day Book and Sale or Return Ledger are known as 
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 7
Sale or Return Day Book and Sale or Return Ledger are known as Memorandum books.
Explanation:
Memorandum books are used to record transactions that are not included in the main accounting records. Sale or Return Day Book and Sale or Return Ledger are examples of memorandum books. Here's a detailed explanation:
1. Memorandum books:
- Memorandum books are subsidiary records that provide additional information or track specific types of transactions.
- These books are not included in the main double-entry accounting system.
- They are used to record transactions that are temporary or not considered part of the regular accounting cycle.
2. Sale or Return Day Book:
- A Sale or Return Day Book is used to record sales made on a sale or return basis.
- In this type of transaction, the goods are sent to the customer, but the ownership remains with the seller until the customer either pays for the goods or returns them.
- The Sale or Return Day Book keeps track of these transactions, including the quantity, value, and other relevant details.
3. Sale or Return Ledger:
- A Sale or Return Ledger is a subsidiary ledger that complements the Sale or Return Day Book.
- It provides a detailed account of each customer's transactions related to sale or return sales.
- The ledger records the customer's name, date of transaction, amount owed or returned, and any other relevant information.
4. Principal books:
- Principal books refer to the main accounting records, such as the general ledger and cash book, that form the foundation of the double-entry accounting system.
- These books contain all the primary financial information and are used to prepare financial statements.
5. Subsidiary books:
- Subsidiary books are a group of books that support the principal books.
- They include books like the sales book, purchase book, cash book, etc., which record specific types of transactions in detail before being posted to the general ledger.
In conclusion, Sale or Return Day Book and Sale or Return Ledger are examples of memorandum books, which are used to record transactions that are not part of the main accounting records. They provide additional information and help in tracking specific types of transactions.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 8
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 A company sends its cars to dealers on ‘sale or return’ basis. All such transactions are however treated like actual sales and are passed through the sales day book. Just before the end of the financial year, two cars which had cost Rs. 55,000 each have been sent on ‘sale or return’ and have been debited to customers at Rs. 75,000 each, cost of goods lying with the customers will be
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 8

To find the cost of goods lying with the customers, we need to calculate the difference between the cost price and the selling price of the cars.
Given information:
- Cost of each car: Rs. 55,000
- Selling price of each car: Rs. 75,000
Now, let's calculate the cost of goods lying with the customers:
- Cost of one car: Rs. 55,000
- Selling price of one car: Rs. 75,000
- Profit on one car: Rs. (75,000 - 55,000) = Rs. 20,000
Since the transactions are treated like actual sales, the cost of goods lying with the customers will be the total profit on the cars sent on "sale or return" basis.
- Total profit on two cars: Rs. (20,000 x 2) = Rs. 40,000
Therefore, the cost of goods lying with the customers is Rs. 40,000.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 9
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A company sells motor bikes on “Sale or return basis”. All such transactions are however treated like actual sales and are passed through the sales book. Just before the end of the financial year, two motor bikes costing Rs. 55,000 each have been sent on “Sale or Return basis” and have been debited to customers at Rs. 75,000 each, cost of goods lying with the customers will be:
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 9

To find the cost of goods lying with the customers, we need to calculate the cost of the two motorbikes that were sent on a "Sale or Return basis".
Given information:
- Cost of each motorbike = Rs. 55,000
- Selling price of each motorbike = Rs. 75,000
Step 1: Calculate the cost of the two motorbikes:
- Cost of one motorbike = Rs. 55,000
- Cost of two motorbikes = Rs. 55,000 x 2 = Rs. 1,10,000
Step 2: Determine the cost of goods lying with the customers:
Since the motorbikes were debited to customers at a higher price of Rs. 75,000 each, the cost of goods lying with the customers will be the cost of the motorbikes, which is Rs. 1,10,000.
Therefore, the cost of goods lying with the customers is Rs. 1,10,000. This corresponds to option A: Rs. 1,10,000.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 10
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A merchant sends out his goods casually to his dealers on approval basis. All such transactions are, however, recorded as actual sales and are passed through the sales book. On 31-12-2011, it was found that 100 articles at a sale price of 200 each sent on approval basis were recorded as actual sales at that price. The sale price was made at cost plus 25%. The amount of stock on approval will be amounting
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 10

To find the amount of stock on approval, we need to calculate the cost price of the goods sent on approval.
Given:
Sale price of 100 articles = Rs. 200 each
Sale price is cost price + 25%
Let's calculate the cost price of each article:
Cost price + 25% of cost price = Sale price
Cost price + 0.25 * Cost price = Rs. 200
1.25 * Cost price = Rs. 200
Cost price = Rs. 200 / 1.25
Cost price = Rs. 160
Now, let's calculate the amount of stock on approval:
Number of articles = 100
Cost price per article = Rs. 160
Total cost price of stock on approval = Number of articles * Cost price per article
Total cost price of stock on approval = 100 * Rs. 160
Total cost price of stock on approval = Rs. 16,000
Therefore, the amount of stock on approval is Rs. 16,000.
So, option A is the correct answer.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 11
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When the goods are returned by the customers within the specified time, they are recorded 
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 11
Explanation:
When goods are returned by customers within the specified time, they need to be recorded in the appropriate books of accounts. The correct sequence of recording the returns is as follows:
1. Initially in the Sale or Return Day Book:
- The goods returned by customers are first recorded in the Sale or Return Day Book.
- This book is used to keep track of all sales made on a sale or return basis, including the returns.
- The return entry includes details such as the date of return, customer name, quantity returned, and any additional relevant information.
2. Thereafter, in the Sale or Return Ledger:
- Once the returns are recorded in the Sale or Return Day Book, they are then posted in the Sale or Return Ledger.
- The Sale or Return Ledger is a subsidiary ledger that contains individual accounts for each customer who has made purchases on a sale or return basis.
- The return entry is posted to the respective customer's account in the Sale or Return Ledger, reflecting the decrease in the customer's outstanding balance.
Conclusion:
Therefore, the correct answer is:
Initially in the Sale or Return Day Book. Thereafter, in the Sale or Return Ledger (Option B).
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 12
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What is the objective behind selling goods on approval basis: 
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 12
Objective behind selling goods on approval basis:
Selling goods on an approval basis refers to a practice where customers are allowed to try out a product before making a purchase. The objective behind this approach can be summarized as follows:
1. Introducing a new product in the market:
- By offering goods on approval, businesses can generate interest and awareness about a new product.
- Customers get the opportunity to experience the product firsthand and make an informed decision.
2. Pushing up sales:
- The approval-based selling strategy can help boost sales by providing customers with the confidence to make a purchase.
- Customers are more likely to buy a product after trying it and being satisfied with its quality and performance.
3. Capturing a larger market share:
- Selling goods on approval can be a way to attract new customers who may be hesitant to try new products.
- It allows businesses to expand their customer base and increase market share by offering a risk-free buying experience.
4. All of these:
- Selling goods on an approval basis can serve multiple objectives simultaneously.
- It can introduce new products, push up sales, and capture a larger share in the market, making it a comprehensive strategy.
In conclusion, the objective behind selling goods on an approval basis is to introduce new products, boost sales, and capture a larger market share. This approach allows customers to try products before making a purchase, increasing their confidence and likelihood of buying.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 13
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Cash Sale of Rs. 50,000, Credit Sale of Rs. 3,50,000, Sales Return Rs. 25,000 out of Sales of Rs. 3,50,000, goods costing Rs. 40,000 were sent ton approval for Rs. 50,000 which has not been approved yet. Calculate the net sales:
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 13
Calculation of Net Sales:


To calculate the net sales, we need to consider the cash sales, credit sales, sales return, and goods sent on approval.
Step 1: Calculate Total Sales:


Total Sales = Cash Sale + Credit Sale
Total Sales = Rs. 50,000 + Rs. 3,50,000
Total Sales = Rs. 4,00,000
Step 2: Calculate Net Sales after Sales Return:


Net Sales = Total Sales - Sales Return
Net Sales = Rs. 4,00,000 - Rs. 25,000
Net Sales = Rs. 3,75,000
Step 3: Adjust for Goods Sent on Approval:


Since the goods sent on approval for Rs. 50,000 have not been approved yet, we need to exclude this amount from the net sales calculation.
Net Sales = Net Sales - Goods Sent on Approval
Net Sales = Rs. 3,75,000 - Rs. 50,000
Net Sales = Rs. 3,25,000
Therefore, the net sales amount is Rs. 3,25,000.
Hence, the correct answer is option D: Rs. 3,25,000.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 14
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Sales = Rs. 1,06,000
Sales Return = Rs. 6,000

Out of Rs. 1,06,000 goods costing Rs. 10,000 were sent on approval for Rs. 12,000 which have not been approved yet. Calculate Net Sales. 
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 14

To calculate the net sales, we need to deduct the sales return and the cost of goods sent on approval from the total sales.
Given:
Sales = Rs. 1,06,000
Sales Return = Rs. 6,000
Cost of goods sent on approval = Rs. 10,000
Approval price of goods sent on approval = Rs. 12,000
Calculating the Net Sales:
1. Deduct the sales return from the total sales:
Net Sales = Sales - Sales Return
= Rs. 1,06,000 - Rs. 6,000
= Rs. 1,00,000
2. Deduct the cost of goods sent on approval from the net sales:
Net Sales = Net Sales - Cost of goods sent on approval
= Rs. 1,00,000 - Rs. 10,000
= Rs. 90,000
However, we also need to consider the approval price of goods sent on approval. Since the goods have not been approved yet, we cannot include the approval price in the net sales. We only consider the cost of goods.
Therefore, the Net Sales is Rs. 90,000.
Hence, the correct answer is option B: Rs. 88,000.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 15
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Mr. X sends the goods costing Rs. 55,000 on approval basis. Goods of Rs. 5,000 were damaged in transit and claim of Rs. 3,000 was received. The amount of goods sent on approval to Mr. Y is :-
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 15

To find the amount of goods sent on approval to Mr. Y, we need to calculate the value of the goods after deducting the damaged goods and the claim received.
Given:
Cost of goods sent on approval = Rs. 55,000
Damaged goods = Rs. 5,000
Claim received = Rs. 3,000
We can calculate the amount of goods sent on approval to Mr. Y as follows:
1. Deduct the value of damaged goods from the cost of goods sent on approval:
Rs. 55,000 - Rs. 5,000 = Rs. 50,000
2. Deduct the claim received from the value obtained in step 1:
Rs. 50,000 - Rs. 3,000 = Rs. 47,000
Therefore, the amount of goods sent on approval to Mr. Y is Rs. 47,000.
So, the correct answer is option D: Rs. 50,000.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 16
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A trader has credited certain items of sales on approval aggregating Rs. 60,000 to Sales Account. Of these, goods of the value of Rs. 16,000 have been returned and taken into Inventories at cost Rs. 8,000 though the record of return was omitted in the accounts. In respect of another parcel of Rs. 12,000 (cost being Rs. 6,000) the period of approval did not expire on the closing date. Cost of goods lying with customers should be
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 16

To determine the cost of goods lying with customers, we need to consider the items of sales on approval that have not been returned or taken into inventories.
Given Information:
- Items of sales on approval credited to Sales Account = Rs. 60,000
- Goods returned and taken into inventories = Rs. 16,000 (cost Rs. 8,000)
- Goods not returned or taken into inventories = Rs. 12,000 (cost Rs. 6,000)
To calculate the cost of goods lying with customers, we need to subtract the returned goods and the goods taken into inventories from the total items of sales on approval.
Calculation:
1. Total items of sales on approval = Rs. 60,000
2. Goods returned and taken into inventories = Rs. 16,000
3. Remaining items of sales on approval = Total items - Goods returned = Rs. 60,000 - Rs. 16,000 = Rs. 44,000
4. Cost of goods lying with customers = Cost of remaining items = Rs. 6,000
Therefore, the cost of goods lying with customers is Rs. 6,000.
Answer:
C: Rs. 6,000.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 17
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Sale or return day book is a : 
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 17
Sale or return day book is a:
The correct answer is C: Memorandum Book.
Explanation:
- Sale or return day book is a type of bookkeeping record that is used to track the sales and returns of goods that are sold on a sale or return basis.
- It is also known as a memorandum book because it serves as a memorandum or reminder of the transactions that have taken place.
- The purpose of the sale or return day book is to keep a record of the goods that have been sold or returned, along with the relevant details such as the date of the transaction, the customer's name, the quantity of goods sold or returned, and the amount of money involved.
- The information recorded in the sale or return day book is later used to update the accounts and financial statements of the business.
- The sale or return day book is considered a subsidiary book, which means it is a secondary record that supports the main books of accounts.
- Other examples of subsidiary books include cash book, purchase book, and sales book.
In summary, the sale or return day book is a memorandum book that is used to record the sales and returns of goods on a sale or return basis.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 18
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 In case of sale of goods on approval basis, the sale will take place under which of the following cases ?
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 18

Introduction:
In the case of a sale of goods on an approval basis, the ownership and transfer of goods are dependent on specific conditions. The sale will take place under certain circumstances, which are discussed below.
Conditions for the Sale of Goods on Approval:
The sale of goods on approval basis is subject to the following conditions:
1. When the buyer signifies his approval:
- If the buyer is satisfied with the goods and signifies his approval, the sale is considered complete.
- The buyer may do so by explicitly informing the seller of his acceptance or by taking some action that indicates his approval.
- Once the buyer approves the goods, ownership is transferred to the buyer, and he becomes liable for the payment.
2. When the time given to the buyer expires:
- In some cases, the seller may provide a specific time period within which the buyer needs to either approve or return the goods.
- If the buyer fails to signify his approval or return the goods within the specified time frame, the sale is considered complete.
- The ownership of the goods is transferred to the buyer, and he is obligated to make the payment.
3. All but not (c):
- The third option states that the sale will take place under all conditions except when the buyer takes the goods to his home.
- This means that the sale does not automatically occur just by the buyer taking the goods to his home.
- The buyer's approval or the expiration of the given time period is still necessary for the sale to be complete.
Conclusion:
In the case of a sale of goods on approval basis, the sale will take place when the buyer signifies his approval or when the time given to the buyer expires. The sale does not automatically occur just by the buyer taking the goods to his home. It is important to adhere to the specific conditions mentioned above to determine the completion of the sale.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 19
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When a large number of articles are sent frequently on a sale or return basis, it is necessary to maintain
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 19
Explanation:
When a large number of articles are sent frequently on a sale or return basis, it is necessary to maintain a specific journal to track these transactions. The correct answer is option C: Sale or return journal.
Here is a detailed explanation of each option:
1. Sale journal:
- A sale journal is used to record all sales transactions where the ownership of the goods is transferred immediately.
- It is not suitable for recording sales made on a sale or return basis, as the ownership is not immediately transferred.
2. Goods returned journal:
- A goods returned journal is used to record the return of goods by customers.
- While it is relevant to track returns in a sale or return scenario, it does not cover the complete transaction process.
3. Sale or return journal:
- A sale or return journal is specifically designed to record sales made on a sale or return basis.
- It tracks both the sales and the potential returns if the customer decides to return the goods.
- This journal helps in monitoring the inventory and determining the financial impact of sales or returns.
4. None of the above:
- This option is incorrect as there is a specific journal required for tracking sale or return transactions.
In summary, when a large number of articles are sent frequently on a sale or return basis, it is necessary to maintain a sale or return journal to accurately record and track these transactions.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 20
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Which method is used for “Sale on Approval” basis when the transactions are few in nature?
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 20
Method for "Sale on Approval" basis when the transactions are few in nature:
The method used for "Sale on Approval" basis when the transactions are few in nature is the Ordinary Sale Method.
Explanation:
Here is a detailed explanation of the Ordinary Sale Method for "Sale on Approval" transactions:
1. Sale on Approval: Sale on approval refers to a transaction where the goods are delivered to the buyer for their inspection and approval. The buyer has the option to either accept or reject the goods within a specified period.
2. Ordinary Sale Method: When the transactions are few in nature, the Ordinary Sale Method is commonly used. This method involves recording the sale on approval transactions in the regular sales account.
3. Recording the Transaction: The transaction is recorded in the sales account as a regular sale. The goods are debited to the buyer's account and credited to the sales account.
4. Subsequent Treatment: If the buyer approves the goods within the specified period, the transaction is considered a regular sale. The goods are then transferred from the sales account to the buyer's account.
5. If the Buyer Rejects the Goods: If the buyer rejects the goods within the specified period, the transaction is reversed. The goods are debited to the sales account and credited back to the buyer's account.
6. Accounting for Returns: In case of returns, the goods are recorded as sales returns in the sales return account. The buyer's account is debited, and the sales return account is credited.
7. Final Settlement: Once the transaction is finalized, the buyer's account is settled by either making a payment or adjusting it against any outstanding amounts.
Conclusion:
The Ordinary Sale Method is used for "Sale on Approval" transactions when the number of such transactions is few in nature. It involves recording the sale on approval transactions in the regular sales account and subsequent adjustments based on the buyer's decision to accept or reject the goods.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 21
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Goods costing Rs. 1,00,000 sent to customer on sales or return basis at a price of cost plus 30% . During the year 50% of the good have been accepted. 30% of the goods returned and the balance goods were lying with customer at year end and the specified time limit for approval is yet to expire. Amount of total stock to be shown in the balance sheet would be:
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 21
Calculation of Total Stock:
1. Goods costing Rs. 1,00,000 were sent to the customer on a sales or return basis at a price of cost plus 30%. This means that the selling price of the goods is 130% of the cost price.
2. 50% of the goods have been accepted by the customer. This means that the customer has agreed to keep and pay for half of the goods.
3. 30% of the goods have been returned by the customer. These goods are not included in the total stock as they have been returned.
4. The balance goods, which were not accepted or returned by the customer, are still with the customer at the end of the year. The specified time limit for approval is yet to expire. These goods are included in the total stock.
5. To calculate the total stock, we need to find the value of the balance goods that are with the customer. This can be calculated by subtracting the value of the goods accepted by the customer from the total value of the goods sent.
6. Value of goods accepted by the customer: 50% of Rs. 1,00,000 = Rs. 50,000
7. Value of goods returned by the customer: 30% of Rs. 1,00,000 = Rs. 30,000
8. Value of balance goods with the customer: Rs. 1,00,000 - Rs. 50,000 - Rs. 30,000 = Rs. 20,000
Therefore, the amount of total stock to be shown in the balance sheet is Rs. 20,000.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 22
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Under sales on return on approval basis, when transactions are few, the seller, while sending the goods, treats them as 
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 22
Explanation:
Under sales on return on approval basis, the seller sends goods to the buyer for approval before finalizing the sale. In this scenario, the seller treats the transaction as an ordinary sale and passes an entry for a normal sale in the books. This means that the seller records the sale as if it is a regular transaction.
The correct answer is option B: An ordinary sale and entry for normal sale is passed in the books.
Here is a detailed explanation:
- When transactions are few and the seller sends goods on return on approval basis, the following steps are typically followed:
- The seller sends the goods to the buyer for approval.
- The buyer has the option to either keep the goods and pay for them or return them to the seller.
- If the buyer decides to keep the goods, the transaction is treated as a regular sale and an entry for a normal sale is passed in the books.
- If the buyer returns the goods, the transaction is reversed, and the seller makes necessary adjustments in the books to reflect the return of goods.
- Option A: An ordinary sale but no entry is passed in the books - This option is incorrect because in sales on return on approval basis, the seller does pass an entry for a normal sale in the books.
- Option B: An ordinary sale and entry for normal sale is passed in the books - This is the correct answer. When transactions are few, the seller treats the sale as an ordinary one and passes an entry for a normal sale in the books.
- Option C: Approval sale and no entry is passed - This option is incorrect because the seller does pass an entry for a normal sale in the books, even though the goods are sent on approval.
- Option D: None of the above - This option is incorrect because option B, which states that an ordinary sale and entry for normal sale is passed in the books, is the correct answer.
In conclusion, when transactions are few and goods are sent on return on approval basis, the seller treats the sale as an ordinary one and passes an entry for a normal sale in the books.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 23
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Total sales of Star Limited for the year ended 31st March 2008 was Rs. 5,00,000, which includes goods sold to R for Rs. 5,500 at a profit of 10% on cost. Such goods are still lying in the Godown of Star Limited at the buyer’s risk. In the books of Star Limited sales would be shown as :-
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 23

The sales of Star Limited for the year ended 31st March 2008, including goods sold to R for Rs. 5,500 at a profit of 10% on cost, would be shown in the books of Star Limited as follows:
Explanation:
To determine the correct amount to be shown as sales in the books of Star Limited, we need to consider the following points:
1. The total sales of Star Limited for the year ended 31st March 2008 is Rs. 5,00,000.
2. This total sales figure includes the goods sold to R for Rs. 5,500 at a profit of 10% on cost.
3. The goods sold to R are still lying in the Godown of Star Limited at the buyer's risk.
Now, let's calculate the correct amount to be shown as sales in the books of Star Limited:
- Total sales of Star Limited: Rs. 5,00,000
- Sales of goods to R: Rs. 5,500
To find the correct amount, we need to subtract the sales of goods to R from the total sales:
Total sales - Sales to R = Correct amount of sales
Rs. 5,00,000 - Rs. 5,500 = Rs. 4,94,500
Therefore, the correct amount to be shown as sales in the books of Star Limited is Rs. 4,94,500.
Final Answer:
C: Rs. 4,94,500
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 24
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Which of the following is not a main column of sales or return journal?
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 24
Explanation:
The main columns of a sales or return journal typically include:
A: Goods sent on approval column: This column is used to record goods that are sent to customers on a trial basis. The sales or return journal will include a column for recording the details of these transactions.
B: Goods returned column: This column is used to record goods that are returned by customers. It is important to track returns separately to monitor the frequency of returns and identify any issues with the products or services.
C: Goods approved column: This column is not a main column of a sales or return journal. It is not a commonly used column in these types of journals and does not serve a necessary purpose in recording sales or returns.
D: Purchase column: This column is not a main column of a sales or return journal. The purchase column is typically used in a purchase journal to record purchases made by the company.
Therefore, the correct answer is D: Purchase column is not a main column of a sales or return journal.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 25
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 X sent some goods costing Rs. 3,500 at a profit 20% on sales or approval basis. Y returned goods costing Rs. 800. At the end of the year 2013 the remaining goods were neither returned nor approved. The closing stock to be shown in Balance Sheet will be:
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 25
Explanation:
To find the closing stock to be shown in the balance sheet, we need to consider the following information:
- X sent goods costing Rs. 3,500 at a profit of 20% on sales or approval basis.
- Y returned goods costing Rs. 800.
- The remaining goods were neither returned nor approved.
Step 1: Calculate the profit on sales or approval basis:
- Cost of goods = Rs. 3,500
- Profit on sales or approval basis = 20% of Rs. 3,500 = Rs. 700
- Selling price of goods = Cost of goods + Profit = Rs. 3,500 + Rs. 700 = Rs. 4,200
Step 2: Calculate the value of goods returned by Y:
- Cost of goods returned by Y = Rs. 800
Step 3: Calculate the remaining goods:
- Remaining goods = Selling price of goods - Cost of goods returned = Rs. 4,200 - Rs. 800 = Rs. 3,400
Step 4: Calculate the closing stock:
- Since the remaining goods were neither returned nor approved, they are considered as closing stock.
- Closing stock = Remaining goods = Rs. 3,400
Step 5: Adjust for the profit on sales or approval basis:
- The closing stock is valued at cost price, so we need to deduct the profit on sales or approval basis from the closing stock.
- Deducting 20% of Rs. 3,400 from Rs. 3,400:
- Closing stock = Rs. 3,400 - (20/100) * Rs. 3,400 = Rs. 3,400 - Rs. 680 = Rs. 2,720
Step 6: Adjust for the remaining stock:
- Since the remaining goods were neither returned nor approved, we also need to deduct 25% of the remaining stock.
- Deducting 25% of Rs. 2,720 from Rs. 2,720:
- Closing stock = Rs. 2,720 - (25/100) * Rs. 2,720 = Rs. 2,720 - Rs. 680 = Rs. 2,040
Therefore, the closing stock to be shown in the balance sheet will be Rs. 2,040.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 26
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In the Sale or Return Ledger 
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 26
In the Sale or Return Ledger:
The correct answer is option A: All the customers are individually debited and the sale or return account is credited with the periodical total of the Sale or Return Day Book.
Explanation:
In a Sale or Return Ledger, the transactions related to sales or returns are recorded. Here's a detailed explanation of why option A is the correct answer:
1. Individual Debit: Each customer is individually debited in the ledger. This means that the amount owed by each customer is recorded separately.
2. Sale or Return Account Credit: The sale or return account is credited with the periodical total of the Sale or Return Day Book. This means that the total amount of sales or returns recorded in the day book is credited to the sale or return account in the ledger.
3. Periodical Total: The periodical total refers to the total amount of sales or returns made within a specific period, such as a day, week, or month. This total is then recorded in the sale or return account.
4. Sale or Return Day Book: The Sale or Return Day Book is a subsidiary book where all the sales or returns transactions are recorded. It serves as a source document for recording the transactions in the Sale or Return Ledger.
5. Option B is incorrect because it suggests that all customers are debited in total, which means that the total amount owed by all customers is recorded as a single entry. However, in a Sale or Return Ledger, individual customer accounts are maintained.
6. Option C is incorrect because it suggests that the sale or return account is credited with the individual total of each customer recorded in the Sale or Return Day Book. However, in reality, the sale or return account is credited with the periodical total of the day book.
In conclusion, option A is the correct answer as it accurately describes the recording process in a Sale or Return Ledger.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 27
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12 Memorandum records of sale on approval is a part of :
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 27
Memorandum records of sale on approval is a part of:
The correct answer is D: None of the above.
Explanation:
Memorandum records of sale on approval do not fall under any of the mentioned categories. Here's a breakdown of the different accounting categories:
1. Management Accounts: These accounts are used by managers within an organization to make informed business decisions. They include budgeting, forecasting, performance analysis, and strategic planning. Memorandum records of sale on approval are not directly related to management accounts.
2. Financial Accounts: Financial accounts are used to prepare financial statements and reports for external stakeholders, such as investors, creditors, and regulators. They follow generally accepted accounting principles (GAAP) and include balance sheets, income statements, and cash flow statements. Memorandum records of sale on approval are not typically included in financial accounts.
3. Cost Accounts: Cost accounts are used to track and analyze the costs associated with producing goods or providing services. They help in determining the cost of production, pricing decisions, and cost control. Memorandum records of sale on approval do not directly relate to cost accounts.
In conclusion, memorandum records of sale on approval do not fall under any of the mentioned accounting categories and hence the correct answer is option D: None of the above.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 28
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A sent some goods costing Rs. 3,500 at a profit of 25% on sale to B on sale or return basis. B returned goods costing Rs. 800. At the end of the accounting period i.e. on 31st December, 2011, the remaining goods were neither returned nor were approved by him. The Inventories on approval will be shown in the balance sheet at Rs.
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 28

To calculate the value of the remaining goods on approval, we need to consider the following information:
- A sold goods to B on a sale or return basis for Rs. 3,500.
- The profit on the sale was 25%.
- B returned goods costing Rs. 800.
Now, let's calculate the value of the remaining goods on approval:
1. Calculate the cost price of the goods sold:
- Cost price = Selling price / (1 + Profit percentage)
- Cost price = Rs. 3,500 / (1 + 25/100) = Rs. 2,800
2. Calculate the cost of the goods returned by B:
- Cost of returned goods = Rs. 800
3. Calculate the value of the remaining goods on approval:
- Value of remaining goods = Cost price - Cost of returned goods
- Value of remaining goods = Rs. 2,800 - Rs. 800 = Rs. 2,000
Therefore, the value of the remaining goods on approval, to be shown in the balance sheet, is Rs. 2,000.
Hence, the correct answer is option B: 2,700.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 29
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 A trader sends out goods is customer on approval and credits them to sales amount. On 31st March, 2011, sundry debtors includes an amount of Rs. 5,000 for goods sent on approval basis for which no confirmation was received till year end. These goods were sent out at a cost +25%. Physical stock taken on 31st March, 2011 amounted to Rs. 50,000. The amount of stock appearing is Balance Sheet would be:
Detailed Solution for Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 29

To determine the amount of stock appearing in the Balance Sheet, we need to consider the following:
1. Goods sent on approval basis:
- The trader sent goods to customers on approval, but no confirmation was received till year-end.
- The value of these goods sent on approval is Rs. 5,000.
2. Cost of goods sent on approval:
- The goods sent on approval were sent at a cost of 25%.
- This means that the cost of these goods would be 25% of Rs. 5,000, which is Rs. 1,250.
3. Physical stock on 31st March, 2011:
- The physical stock taken on 31st March, 2011 amounted to Rs. 50,000.
Now, let's calculate the stock appearing in the Balance Sheet:
- The stock appearing in the Balance Sheet would include the physical stock on hand minus the cost of goods sent on approval.
- So, the stock appearing in the Balance Sheet would be Rs. 50,000 - Rs. 1,250 = Rs. 48,750.
Therefore, the correct answer is D: Rs. 54,000.
Test: Sale Of Goods On Approval Or Return Basis - 1 - Question 30
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Umesh sends goods on approval basis as follows:

The Inventories of goods sent on approval basis on 31st January will be
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