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
171
In which financial statement are legal expenses related to insurance claims typically recorded?
Answer:
Revenue a/c
In insurance accounting, the Revenue Account is specifically designed to record all income and expenses related to the insurance business operations, including legal expenses incurred for settling claims. This ensures that the underwriting performance is accurately reflected before transferring the balance to the Profit and Loss account.
172
In what order are assets typically presented in a balance sheet?
Answer:
In order of permanence
Assets in a balance sheet can be arranged either in the order of permanence (starting with the least liquid assets like fixed assets) or in the order of liquidity (starting with the most liquid assets like cash). The order of permanence is a traditional method used to emphasize the long-term nature of capital investment.
173
Given an opening stock of Rs. 10,000, closing stock of Rs. 11,000, and purchases of Rs. 70,000, calculate the total sales if goods are sold at a 30% profit margin on cost.
Answer:
Rs. 89,700
First, calculate Cost of Goods Sold (COGS): Opening Stock (10,000) + Purchases (70,000) - Closing Stock (11,000) = 69,000. The profit is 30% of cost: 69,000 * 0.30 = 20,700. Sales = COGS + Profit = 69,000 + 20,700 = 89,700.
174
What is the standard formula for calculating the Cost of Goods Sold (COGS)?
Answer:
Cost of production + opening stock of finished goods - closing stock of finished goods
The Cost of Goods Sold represents the direct costs attributable to the production of the goods sold by a company. It is calculated by taking the cost of goods manufactured (cost of production), adding the opening inventory of finished goods, and subtracting the closing inventory of finished goods.
175
Which of the following items are classified as current liabilities?
Answer:
i, iv and v
Current liabilities are obligations due within one year or the normal operating cycle. Bank overdraft (i), unpaid wages (iv), and creditors (v) are short-term obligations. Debentures (ii) are typically long-term debt, and loans from financial institutions (iii) are often long-term unless specified as short-term, making option C the most accurate selection.
176
Calculate the profit if the gross profit rate is 25% on cost and total sales amount to Rs. 200,000.
Answer:
Rs. 40000
If profit is 25% on cost, then Profit = 0.25 * Cost. Since Sales = Cost + Profit, Sales = Cost + 0.25 * Cost = 1.25 * Cost. Therefore, Cost = 200,000 / 1.25 = 160,000. The profit is 25% of 160,000, which equals 40,000. This calculation correctly derives the profit margin based on the cost-plus pricing model.
177
What is the correct formula to determine the opening stock for an accounting period?
Answer:
Opening stock = cost of goods sold + closing stock - Net purchase
The Cost of Goods Sold (COGS) is calculated as Opening Stock + Net Purchases - Closing Stock. To isolate the opening stock, the formula is rearranged: Opening Stock = COGS + Closing Stock - Net Purchases. This calculation is vital for inventory management and ensuring that the cost of goods sold accurately reflects the flow of inventory throughout the fiscal year.
178
Which financial statement provides a snapshot of a company's financial position, including assets, liabilities, and equity, at a specific point in time?
Answer:
Balance Sheet
The Balance Sheet is a fundamental financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific date. It follows the accounting equation (Assets = Liabilities + Equity) and serves as a primary indicator of the firm's financial health and solvency at that moment.
179
Which account is typically used to charge a reserve?
Answer:
Profit and loss appropriation account
A reserve is an appropriation of profit rather than a charge against profit. Therefore, it is recorded in the Profit and Loss Appropriation account, which shows how the net profit of the business is distributed or set aside for specific purposes like general reserves or dividends.
180
If 'Outstanding Salary' appears inside the trial balance, where should it be recorded in the final accounts?
Answer:
Liability side of balance sheet
Items appearing inside the trial balance have already been adjusted in the relevant ledger accounts. Therefore, outstanding salary appearing in the trial balance is treated as a liability and is shown only on the liability side of the balance sheet. It is not adjusted again in the Profit and Loss account, as that would result in double counting.