TC

Accounting Quiz Q51–Q60

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Questions

Q51. Debenture Redemption Reserve can be created out of:

Answer: Both a & b above

Solution: Debenture Redemption Reserve (DRR) is normally created out of profits. If the current year shows a loss, DRR may be created from retained earnings/reserves of previous years subject to legal and policy constraints.

Q52. Fixed assets lose their value due to:

Answer: Depreciation

Solution: Depreciation is the systematic allocation of the cost of tangible fixed assets over their useful lives and is the primary reason fixed assets lose book value. Amortisation applies to intangible assets.

Q53. Which of the following best describes 'Depreciation'?

Answer: Allocation of value of fixed assets over its useful life

Solution: Depreciation is an allocation process that spreads the cost of a tangible fixed asset over the periods it benefits, reflecting usage, wear and obsolescence.

Q54. Depreciation is:

Answer: Revenue Expenditure

Solution: Depreciation is treated as a revenue expense (a charge against profits) representing allocation of asset cost to revenue over periods; it is not a capital expenditure itself.

Q55. Working Capital is:

Answer: Current Assets-Current Liability

Solution: Working capital (net working capital) is the excess of current assets over current liabilities and indicates short‑term financial health and liquidity.

Q56. Which of the following transactions will improve the Current Ratio?

Answer: Payment of Trade Payables

Solution: Paying trade payables reduces current liabilities (CL) and also reduces current assets (cash). For typical starting ratios above 1, the proportional reduction in CL improves the current ratio. Other options either leave CA/CL unchanged or may worsen the ratio.

Q57. Statement of Affairs is prepared to:

Answer: Know Financial Position

Solution: A Statement of Affairs (used in single entry systems) lists assets and liabilities to determine capital and present the financial position of the business at a point in time.

Q58. Statement of Affairs is a:

Answer: Statement of Assets & Liabilities

Solution: The Statement of Affairs is essentially a statement of assets and liabilities prepared to determine capital and financial position, especially under single entry bookkeeping.

Q59. If books of accounts kept under Single Entry System, opening stock is ascertained by preparing:

Answer: Memorandum Trading Account

Solution: Under single entry, a Memorandum Trading Account (reconstructed trading account) is prepared to ascertain opening and closing stock and to derive gross profit when full double-entry records are not available.

Q60. What should be added in closing capital to calculate opening capital:

Answer: Loss & Drawings

Solution: To move from closing capital back to opening capital you reverse the adjustments used to arrive at closing capital. Drawings are added back; if there was a loss it is also added back (a profit would be subtracted). Hence, in general, Loss and Drawings are added to closing capital when computing opening capital.

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