Financial Statements – II

Topics in this chapter

• Trading Account And Gross Profit
• Profit And Loss Account
• Balance Sheet And Financial Position
• Year-End Adjustments
• Valuation Of Assets And Liabilities
• Trial Balance And Accounting Errors

Cheat sheet

Practice questions

1. Question 1Q-F541E8

   Which of the following items is treated as an Operating Expense in the preparation of the Profit and Loss Account?

   1. A.Loss on sale of machinery
   2. B.Interest paid on bank loan
   3. C.Office rent paid
   4. D.Preliminary expenses written off
   See the answer and solution
2. Question 2Q-77D380

   What is the accounting treatment of Closing Stock when it is given inside the Trial Balance?

   1. A.It is debited to Trading Account and shown as an asset on the Balance Sheet.
   2. B.It is credited to Trading Account and shown as an asset on the Balance Sheet.
   3. C.It is only shown as an asset on the Balance Sheet.
   4. D.It is deducted from Purchases in the Trading Account.
   See the answer and solution
3. Question 3Q-4678B4

   Unearned income (Income received in advance) at the end of the accounting period is:

   1. A.Added to the income and shown as an asset
   2. B.Deducted from the income and shown as a liability
   3. C.Added to the income and shown as a liability
   4. D.Deducted from the income and shown as an asset
   See the answer and solution
4. Question 4Q-F04AAF

   Manager's commission is generally calculated as a percentage of net profit. If the commission is calculated on net profit after charging such commission, the formula used is:

   1. A.Net Profit before commission $\times$ (Rate / 100)
   2. B.Net Profit before commission $\times$ [Rate / (100 - Rate)]
   3. C.Net Profit before commission $\times$ [Rate / (100 + Rate)]
   4. D.Net Profit after commission $\times$ (Rate / 100)
   See the answer and solution
5. Question 5Q-988FE7

   Which of the following errors will be disclosed by the preparation of a Trial Balance, but affects the final accounts if not rectified?

   1. A.Error of complete omission
   2. B.Error of posting an amount to the wrong account of the same class
   3. C.Recording an incorrect amount in the original book of entry
   4. D.Posting a correct amount on the wrong side of an account causing a trial balance disagreement
   See the answer and solution