Q1. Can you think of an example where an item may have been treated wrongly as Revenue Expenditure and charged in the Trading Account when it should have been treated as Capital Expenditure?
Ans. Wages paid to workers for installing a machinery wrongly debited to Wages Account.
Q2. Do you agree that Profit and Loss Account shows the financial position of the enterprise?
Ans. Profit and Loss Account does not show the financial position of an enterprise. It shows the financial performance (Net Profit or Net Loss) of an enterprise for a particular period.
Q3. Debit balance in the Profit and Loss Account is a profit. Comment.
Ans. Debit balance in the Profit and Loss Account is a loss because expenses are more than revenue.
Q4. Trial Balance is prepared after preparing the Profit and Loss Account. Comment.
Ans. Trial Balance is prepared before preparing the Profit and Loss Account.
Q5. Give a formula to calculate operating profit from net profit,
Ans. Operating Profit — Net Profit + Non-operating Expenses Non-operating Incomes.
Q6. Operating Profit earned by Heer Mehta in 2005-06 was Rs. 8,50,000. Its non-operating incomes were Rs. 75,000 and non-operating expenses were Rs. 1,87,500. Calculate Profit earned during the year.
Ans. Net Profit = Operating Profit + Non-operating Incomes - Non-operating Expenses
= Rs. 8,50,000 + Rs. 75,000 — Rs. 1,87,500 = Rs. 7,37,500.
Q7. Calculate closing stock and cost of goods sold: Opening Stock Rs. 5,000; Sales Rs. 16,000; Carriage Inwards Rs. 1,000. Sales Return Rs. 1,000; Gross Profit Rs. 6,000; Purchases Rs. 10,000; Purchases Return Rs. 900.
Ans. Cost of Goods Sold = Net Sales (Sales - Sales Return) - Gross Profit = Rs. 15,000 - Rs. 6,000 = Rs. 9,000.
Cost of Goods Sold = Opening Stock + Net Purchases + Carriage Inwards - Closing Stock Rs. 90,000 = Rs. 5,000 + Rs. 9,100 (i.e, Rs. 10,000 — Rs. 900) + Rs. 1,000 – Closing Stock Closing Stock = Rs. 6,100.
Q8. Under the ‘liquidity approach’ assets which are most liquid are presented at the bottom of the Balance Sheet. Comment.
Ans. Under the ‘liquidity approach’ assets which are more liquid are presented first.
Q9. Assets and Liabilities of a particular accounting period are shown in the Balance Sheet. Do you agree?
Ans. Assets and liabilities at a particular date are shown in the Balance Sheet.
Q10. A Profit and Loss Account is a point statement whereas a Balance Sheet is a periodic statement. Comment.
Ans. A Profit and Loss Account is a periodic statement and a Balance Sheet is a point statement.
Q11. Closing Stock will never appear in the Trial Balance. Say Yes or No with reasons.
Ans. Closing Stock may appear in the Trial Balance if an adjusting entry relating to Closing Stock is already passed. If the Closing Stock appears in the Trial Balance it will appear only on the assets side of the Balance Sheet.
Q12. Cost of obtaining licence to carry out business is a Capital Expenditure or Revenue Expenditure?
Ans. It is a Capital Expenditure.
Q13. Goodwill is classified under which class of assets? Ans. Intangible Assets Q14. What type of liability is 'Bill Discounted but not matured'?
Ans. Contingent Liability.
Q15. Where are Contingent Liabilities shown in financial statements?
Ans. They are shown as a footnote just below the Balance Sheet.
Q16. What are Contingent Assets? Where do they appear in financial statements why?
Ans. Contingent asset means a right or the possibility of an inflow of economic benefit to the firm in future. They are not shown in the financial statements because of convention of prudence.
Q17. Give one example of Contingent Assets.
Ans. Provision for Discount on Creditors.
Q18. Mr. Khanna is the owner of a Theatre. He spent ₨ 5,00,000 for increasing seating capacity of the Theatre. Where will it be shown and why?
Ans. It will be shown on the assets side of Balance Sheet because it is Capital. Expenditure.
Q19. What will be the effect of overstatement of closing stock on Gross Profit?
Ans. Gross Profit will Increase.
Q20. Modem Ltd. sold goods for ₨ 60,000 to Mr. Ashok at a profit of 20% on sale. These goods are still in the godown of Modem Ltd. at the buyer's risk at the close of financial year. What treatment will be made for these goods by Modem Ltd.
Ans. It will be treated as 'Sales' because ownership and risk have been transferred to the Buyer.
Q21. Calculate the amount of 'Gross Profit' when net loss is ₨ 75.000, Operating Expenses are ₨ 1,20,000 and Sales are ₨ 3,00,000.
Ans. Profit and Loss A/c
|To Operating expenses||1,20,000||By Gross Profit (Bal fig)|
By net Loss
Q22. Calculate the amount of 'Sales' when purchases amount to ₨ 6,00.000; Gross Profit ₨ 1,30,000 and Net Profit ₨ 40,000.
Ans. Trading A/c
To Gross Profit
|By sales (Bal fig)||7,30,000|