Commerce MCQs
Topic Notes: Commerce
MCQs and preparation resources for competitive exams, covering important concepts, past papers, and detailed explanations.
Plato
- Biography: Ancient Greek philosopher (427–347 BCE), student of Socrates and teacher of Aristotle, founder of the Academy in Athens.
- Important Ideas:
- Theory of Forms
- Philosopher-King
- Ideal State
111
Evaluate the following: Assertion (A) states the Balance Sheet shows the realizable value of a business on a specific date, and Reason (R) states that accounting provides all information needed by a businessman.
Answer:
Both A and R are true, and R is the correct explanation of A
The assertion suggests the balance sheet reflects the financial position at a point in time, which is a standard accounting view. The reason posits that accounting serves the information needs of management. While both are generally accepted in academic contexts, note that 'realizable value' is often debated against 'historical cost' principles in accounting theory.
112
A factory manager is entitled to a 10% commission on net profit after charging such commission. If the net profit before commission is Rs. 2,200, what is the commission amount?
Answer:
Rs. 200
When a commission is calculated on net profit 'after charging such commission', the formula is: (Net Profit * Rate) / (100 + Rate). Here, (2200 * 10) / (100 + 10) = 22000 / 110 = Rs. 200. This ensures that after deducting the Rs. 200 commission, the remaining profit is Rs. 2,000, and 10% of that is indeed Rs. 200.
113
How are accounts payable, accruals, and notes payable classified on a company's balance sheet?
Answer:
current liabilities
Current liabilities represent the financial obligations of a business that are expected to be settled within one year or within the normal operating cycle of the business. Accounts payable, accrued expenses, and short-term notes payable are standard examples of these short-term obligations.
114
Where is an interim dividend typically recorded in a company's financial statements?
Answer:
In profit and loss appropriation account
An interim dividend is a dividend payment declared and paid to shareholders before the company's annual general meeting and the finalization of annual financial statements. Because it represents a distribution of profits, it is recorded in the Profit and Loss Appropriation Account (or Statement of Retained Earnings) rather than as an operating expense in the main Profit and Loss Account.
115
Which of the following items is not reported on a company's balance sheet?
Answer:
Sales
A balance sheet reports a company's financial position at a specific point in time, listing assets, liabilities, and equity. Sales are a component of the income statement, which measures financial performance over a period of time, rather than a snapshot of financial position. Therefore, sales are excluded from the balance sheet.
116
How is Gross Profit calculated in a trading account?
Answer:
Sales - Cost of goods sold
Gross Profit represents the surplus of net sales revenue over the cost of goods sold. It is calculated by subtracting the cost of goods sold (Opening Stock + Net Purchases + Direct Expenses - Closing Stock) from the total net sales revenue generated during the accounting period.
117
How can a secret reserve be created within a business entity?
Answer:
By A & B
Secret reserves are hidden reserves not disclosed in the balance sheet. They are created by understating assets (e.g., excessive depreciation) or overstating liabilities. Treating revenue expenses as capital expenses also creates a secret reserve by artificially inflating the value of assets on the balance sheet while reducing current expenses.
118
Which of the following statements are correct? 1. Analysis and interpretation of financial statements is an accounting function. 2. Profit and Loss account determines financial position. 3. Goodwill is a wasting asset. 4. Balance Sheet determines financial position.
Answer:
1 and 4
Statement 1 is correct as analysis is a core accounting function. Statement 4 is correct because the Balance Sheet shows the financial position at a specific date. Statement 2 is incorrect because the P&L account shows performance (profit/loss), not position. Statement 3 is incorrect as goodwill is an intangible asset, not a wasting asset.
119
Evaluate the following statements: Assertion (A): Increasing the value of closing inventory increases profit. Reason (R): Increasing the value of closing inventory reduces the cost of goods sold. Select the correct option.
Answer:
Both (A) and (R) are correct
Cost of Goods Sold (COGS) is calculated as Opening Stock + Purchases - Closing Stock. If the closing inventory value increases, the COGS decreases. Since profit is calculated as Revenue minus COGS, a lower COGS directly results in a higher reported net profit for the period.
120
What is the appropriate classification for a current asset that can be converted into cash within a period of three months or less?
Answer:
Cash equivalent
Cash equivalents are highly liquid, short-term investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. Because they have a maturity of three months or less from the date of acquisition, they are treated similarly to cash in financial reporting, ensuring that the balance sheet accurately reflects the company's immediate liquidity position.