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
121
Which sequence correctly illustrates the order of liquidity for current assets?
Answer:
Cash, Bills Receivable, Debtors, Stock
The order of liquidity ranks assets based on how quickly they can be converted into cash. Cash is already liquid. Bills Receivable are typically converted faster than trade debtors, and stock (inventory) is generally the least liquid current asset as it requires a sale to be realized.
122
Which of the following items is not classified as a current asset in accounting?
Answer:
Purchase
Current assets are assets expected to be converted into cash within one year or one operating cycle. Debtors, prepaid expenses, and stock are all current assets. 'Purchase' is an expense account representing the cost of goods acquired, not an asset, and therefore does not appear on the asset side of the balance sheet.
123
If operating expenses exceed the gross profit, what is the resulting figure called?
Answer:
Operating loss
Gross profit represents the surplus of revenue over the cost of goods sold. When operating expenses (such as administrative and selling costs) are subtracted from gross profit, if the result is negative, it indicates that the core business operations are not generating enough profit to cover their own costs, resulting in an operating loss.
124
In the preparation of a banking company's profit and loss account, how should the rebate on bills discounted be treated regarding the discount received?
Answer:
Schedule 13
For banking companies, interest and discount income are reported under Schedule 13. The rebate on bills discounted represents unearned income and must be deducted from the gross discount received to arrive at the net interest income earned during the period.
125
In the final accounts of a company, how should preliminary expenses be presented?
Answer:
Assets side of Balance Sheet
Preliminary expenses are incurred before the commencement of business. According to standard accounting practice, these are treated as fictitious assets and are shown on the assets side of the balance sheet until they are fully written off against profits over a period of time. They represent a deferred charge rather than an actual tangible asset.
126
Which of the following items is classified as a current liability?
Answer:
Arrears of wages
Current liabilities are obligations due within one year or the normal operating cycle. Arrears of wages represent an outstanding expense that the company must pay in the short term. Other options like share premium are equity components, and provisions for depreciation are contra-asset accounts, not current liabilities.
127
Which term describes the portion of discount received by a bank during the current year that pertains to the subsequent accounting period?
Answer:
Unexpired discount
Unexpired discount, also known as rebate on bills discounted, represents interest received by a bank in advance on bills that have not yet matured at the end of the accounting year. Since this income relates to the next period, it is treated as a liability and deducted from the current year's income.
128
How is a balance sheet defined in relation to a business entity?
Answer:
Statement
A balance sheet is a financial statement that provides a snapshot of a company's financial position, detailing its assets, liabilities, and owner's equity as of a specific point in time.
129
If Department A transfers goods to Department B at cost plus 25%, and the closing stock held by Department B is Rs. 10,000, what is the required stock reserve?
Answer:
Rs. 2,000
The profit margin is 25% on cost, which means the markup on the invoice price is 25/125 or 1/5. To calculate the unrealized profit in the closing stock of Rs. 10,000, we multiply by 1/5: 10,000 * (1/5) = Rs. 2,000. This amount must be deducted as a stock reserve to eliminate unrealized inter-departmental profit.
130
How is a reversionary bonus typically declared and calculated in a life insurance policy?
Answer:
Per thousand sum insured
A reversionary bonus is an annual addition to the policy's sum assured, declared by the insurance company based on its valuation of surplus. It is expressed as a specific amount per thousand of the sum insured and is payable either upon the maturity of the policy or the death of the insured.