Accountancy MCQs
Topic Notes: Accountancy
General Description
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
11
Where is the closing stock value typically reported in the final financial statements?
Answer:
Balance sheet and trading a/c
Closing stock is recorded in the Trading Account to determine the gross profit by adjusting the cost of goods sold. It is also recorded in the Balance Sheet as a current asset, representing the value of unsold inventory held by the business at the end of the accounting period.
12
If the closing stock is listed within the trial balance, where should it be recorded in the final accounts?
Answer:
Balance sheet
When closing stock appears inside the trial balance, it indicates that the adjustment has already been made to the cost of goods sold. Therefore, it is treated as an asset and recorded solely in the balance sheet, rather than being included in the trading account.
13
What is the correct accounting adjustment when inventory worth 800 is destroyed by fire, and an insurance claim of 600 is accepted?
Answer:
Debit of 600 and 200 to insurance company and Profit and Loss Account respectively and credit of 800 to Trading Account
The total loss of 800 is removed from the Trading Account (credited). The amount recoverable from the insurance company (600) is debited to the Insurance Company account as an asset. The remaining loss (200) is debited to the Profit and Loss account as an abnormal loss. This ensures the financial statements accurately reflect both the reduction in inventory and the expected insurance recovery.
14
What is the standard valuation basis for closing stock?
Answer:
Cost price or Market price whichever is lower
Closing stock is valued at the lower of cost or market price (net realizable value) to comply with the principle of prudence. This ensures that potential losses are recognized immediately, while potential profits are not anticipated until realized. By choosing the lower value, the financial statements provide a more conservative and realistic view of the business's current financial position.