Introduction to Accounting

Vibha Project Ltd., a mid-sized manufacturing company, is reviewing its financial performance for the year ended 31st March 2025. The Finance Director has sought a detailed analysis of the company’s working capital efficiency and profitability position. Du ring an internal review, the following key performance indicators and financial information were identified :

•Debtors Collection Period : 3 months

•Inventory Holding Period (Stock Velocity) : 6 months

•Creditors Payment Period : 2 months

•Gross Profit Ratio : 20%.

It was further observed that :

•The Gross Profit for the year amounted to ₹ 5,00,000.

•The closing stock exceeded the opening stock by ₹ 20,000.

•The value of Bills Receivable stood at ₹ 60,000, while Bills payable amounted to ₹ 36,667.

The Finance Director is particularly interested in understanding how efficiently the company is managing its receivables, payables, and inventory and how these factors impact liquidity and profitability.

Based on the above information, you are required to :

(a)Calculate the Total Sales of the company

(b)Determine the value of Sundry Debtors.

(c)Compute the value of Sundry Creditors.

(d)Ascertain the Closing Stock.

(e)Analyse the working capital cycle of the company based on the given turnover ratios.

(f)Comment on the liquidity position and efficiency in managing receivables, payables, and inventory.

(g)Draft a brief note to the Finance Director highlighting :

(i)Key observations from the financial analysis

(ii)Strengths and weaknesses in working capital management

(iii)Suggestions for improvement.

“Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character and interpreting the results thereof.” This definition is given by :

(A)American Institute of Certified Public Accountants

(B)American Institute of Certified Management Accountants

(C)Carter and Wilson

(D)International Institute of Certified Public Accountants

............. represents a potential obligation that could be created depending on the outcomes of an event.

(A)Other Current Liabilities

(B)Contingent Liabilities

(C)Current Investment

(D)Internal Liability

........... are not assets at all since they are not represented by any tangible possession.

(A)Fictitious Assets

(B)Inventories

(C)Current Investment

(D)Wasting Assets

A trial balance may be prepared in :

(A)Only journal Form

(B)Journal Form and Balance Sheet Form

(C)Ledger Form and Balance Sheet Form

(D)Journal Form and Ledger Form

Accounting Equation is represented as :

(A)Assets = Liabilities + Owners’ Equity

(B)Assets = Liabilities – Owners’ Equity

(C)Owners’ Equity = Assets + Liabilities

(D)Liabilities = Assets + Owners’ Equity

Proprietary funds are equal to :

(A)Equity Share Capital + Reserves – Fictitious Asset + Current Assets

(B)Equity Share Capital + Preference Share Capital – Fictitious Asset + Fixed Assets

(C)Equity Share Capital + Preference Share Capital – Fictitious Asset + Reserves

(D)All of the above are correct

Reserves are also known as ...............

(A)Present obligation as a result of a past event

(B)Plough back of profit

(C)Deferred income

(D)Notional income

The Amount available for distribution to owners at the time of closure of business after payment of all liabilities.

(A)Capital

(B)Net worth

(C)Drawings

(D)Investments

Salary Payable A/c is an example of :

(A)Representative Personal Account

(B)Tangible Real Account

(C)Intangible Real Account

(D)Nominal Account

Purpose of Trial Balance is :

(A)To serve as evidence of the fact that the double entry has been completed in respect of every transaction

(B)The accounts containing debit balances are written on the debit column, and those with credit balances are written on the credit column

(C)To divide the work easily

(D)To fix the responsibilities

Which of the following options are INCORRECT ? A Reserve :

(i)an appropriation on the profit

(ii)is created to cover a known liability or expected future loss

(iii)is a charge against the profit

(iv)is meant to strengthen the financial position of the company

(A)Both (i) and (ii)

(B)Both (ii) and (iv)

(C)Both (iii) and (iv)

(D)Both (ii) and (iii)

The ledger where all transactions relating to assets and liabilities are recorded is called :

(A)Cash Book

(B)General Ledger

(C)Nominal Ledger

(D)Private Ledger

Final Accounts of companies are prepared according to ............. of the Companies Act, 2013.

(A)Schedule VI

(B)Schedule V

(C)Schedule II

(D)Schedule III

The following is not an advantage of Double entry system :

(A)It prevents and minimizes frauds

(B)Helps in decision-making

(C)The trial balance doesn’t disclose certain types of errors

(D)It becomes easy for the Government to calculate the tax

Proprietary funds is :

(A)Equity share capital + Preference share capital – Fictitious Assets

(B)Equity share capital + Preference share capital + Fictitious Assets

(C)Equity share capital + Preference share capital + Reserves – Fictitious Assets

(D)Equity share capital + Preference share capital + Reserves + Fictitious Assets

This amount is made available to be distributed to the owners in the event of closure of the business after payment of all liabilities :

(A)Net Worth

(B)Non-current Investments

(C)Capital

(D)Capital and Non-Current Investments

These are the books meant for specific transactions of similar nature :

(A)Journals

(B)Ledgers

(C)Subsidiary Books

(D)Cash Book

These represent possession of properties that have no physical existence but can be measured in terms of money and have value attached to them :

(A)Tangible Real Accounts

(B)Intangible Real Accounts

(C)Personal Accounts

(D)Representative Personal Accounts

These accounts always show debit balances :

(A)Personal Accounts

(B)Real Accounts

(C)Nominal Accounts

(D)Representative Personal Accounts

It is the quick reference to all the balances :

(A)Journal

(B)Subsidiary Books

(C)Cash Book

(D)Trial Balance

The difference between owner’s equity at the beginning and at the end of an accounting period is the :

(A)Net worth

(B)Net profit/loss

(C)Net assets

(D)Equity share capital

(a)On 31st March, 2023, H Ltd. has 20,000 shares out of 25,000 equity shares issued by S Ltd. H Ltd. acquired these shares in S Ltd. in the following manner :

On 31st March, 2022, the balance sheet of S Ltd. exhibited equity share capital of ₹ 2,50,000 (in ₹ 10 shares) and reserves and surplus of ₹ 1,25,000. During the year 2022- 23, net profit earned by the company was ₹ 50,000, that was distributed evenly throughout the year. Amount of Reserves and Surplus on 31st March, 2023 stood at ₹ 1,75,000.

Ascertain the share of parent company in profits of S Ltd. on the dates of acquisition of these shares.

(i)‘‘The three golden rules of accounting are the very foundation of double entry system of financial accounting.’’ Elucidate.

Measurement, Forecasting, Decision Making, Comparison and Evaluation, Control and Government Regulation and Taxation are the functions of.................

(A)Book-keeping

(B)Accounting

(C)Accountancy

(D)Accounting Cycle

Capital, Reserves and Undistributed Profits are the examples of....................

(A)Internal Liability

(B)Contingent Liability

(C)Current Liabilities

(D)External Liabilities

General Ledger is further divided into two categories namely:

(A)Debtors’ Ledger and Creditors Ledger

(B)Cash Book and Cash Account

(C)Nominal Ledger and Private Ledger

(D)Private Ledger and Public Ledger

The revenue expenditure results..............

(A)in the reduction in losses

(B)in the reduction in expenditure

(C)in the reduction in profit or surplus

(D)in no reduction in profit or surplus

If sales are ₹ 13,20,000 sales returns are ₹ 1,20,000 and cost of goods sold ₹ 6,00,00 0 and closing stock of finished goods is ₹ 2,00,000, gross profit ratio will be .................. .

(A)50%

(B)40%

(C)33.33%

(D)20%

Accounting ................ of a business entity.

(A)measures past performance

(B)depicts current financial position

(C)helps in forecasting future performance

(D)all of the above

Which of the following statements is correct in relation to Trade Discount ?

(A)Recorded in the books of accounts

(B)Calculated on invoice price

(C)Encourage prompt payment

(D)All of the above

Journal Proper contains .................... that cannot be entered in any other subsidiary book.

(A)Cash transactions

(B)Cash and Credit transactions

(C)Contra transactions

(D)Rectification entries

The fundamental accounting assumption(s) to be followed to avoid specific disclosure of accounting policies in financial statements include :

(A)Going Concern

(B)Consistency

(C)Accrual

(D)All of the above

If cost of production is ₹ 1,87,500; opening stock of finished goods is ₹ 72,800; closing stock of finished goods is ₹ 44,000; sales return is ₹ 12,500 and purchase return is ₹ 8,000; the value of cost of goods sold is :

(A)₹ 1,58,700

(B)₹ 1,95,800

(C)₹ 2,03,800

(D)₹ 2,16,300

Who originated the accounting concept based on double entry system ?

(A)Luco Fernandis

(B)Luca Pacioli

(C)Eric Kohler

(D)Eric Pacioli

Which of the following is an example of fictitious asset ?

(A)Provision for taxation

(B)Provision for depreciation

(C)Cash discount to customers

(D)Discount on issue of shares

What is the nature of a Cash Book ?

(A)a Journal

(B)a Ledger

(C)both a Journal and a Ledger

(D)neither a Journal nor a Ledger

The nature of shares of a company is considered as a/an .................... .

(A)Movable property

(B)Immovable property

(C)Fictitious property

(D)Hypothetical property

When complete sequence of accounting procedure is done, which happens frequently, and repeated in same directions during an accounting period, it is called an ............ .

(A)Accounting Cycle

(B)Accounting Period

(C)Accounting Process

(D)Accounting Tools

While preparing a trial balance, in which method are totals of both the sides of the accounts written in the separate columns ?

(A)Total Method

(B)Balance Method

(C)Compound Method

(D)Pure Method

If the owner’s equity is ₹ 5,00,000 and outsiders’ equity is ₹ 3,00,000, calculate total equity.

(A)₹ 5,00,000

(B)₹ 2,00,000

(C)₹ 8,00,000

(D)₹ 3,00,000

Statement I : It may be prepared on a loose sheet of paper.

Statement II : The ledger accounts are balanced at first. They will have either “debit-balance” or “credit balance” or “nil-balance”.

Statement III : The accounts containing debit-balance are written on the debit column, and those with credit-balance are written on the credit column.

All the above three statements are relevant for :

(A)Ledger

(B)Cash Book

(C)Trial Balance

(D)Financial Statement

The original cost at which an asset or liability is acquired is known as .............

(A)Carrying cost

(B)Replacement cost

(C)Amortization

(D)Historical cost

Computers taken on hire by a business for a period of twelve months should be classified as :

(A)Current assets

(B)Intangible assets

(C)Deferred revenue expenditure

(D)Not an asset

The arrangement of assets and liabilities in accordance with a particular order is known as .................. of balance sheet.

(A)Tallying

(B)Marking

(C)Ruling

(D)Marshalling

Provisions are ........................

(A)Nominal accounts

(B)Personal accounts

(C)Real accounts

(D)Representative personal accounts

In case of rising prices (Inflation), FIFO method will .........................

(A)Provide lowest value of closing stock and profit

(B)Provide highest value of closing stock and profit

(C)Provide highest value of closing stock but lowest value of profit

(D)Provide highest value of profit but lowest value of closing stock

A person who owes money to the business is a ..................

(A)Debtor

(B)Creditor

(C)Investor

(D)Promoter

Preliminary expense is a ............ asset.

(A)Current

(B)Fixed

(C)Tangible

(D)Fictitious

The words ‘To Balance b/f’ or ‘By Balance b/f’ are recorded in the ‘Particulars Column’ at the time of posting of :

(A)all compound entries

(B)an opening entry

(C)a closing entry

(D)an adjusting entry

Mines as asset is an example of :

(A)Current Asset

(B)Vesting Asset

(C)Fictitious Asset

(D)Intangible Asset

Written down value of a machine as on 31st March 2019 is ₹ 6,65,558. Rate of depreciation on the basis of written down value method is 15%. What will be the cost of this machine purchased on 1st April, 2014 ?

(A)₹ 15,00,000

(B)₹ 12,00,000

(C)₹ 10,00,000

(D)₹ 8,00,000

The following is not an advantage of Double entry system :

(A)It prevents and minimizes frauds.

(B)Helps in decision making

(C)The trial balance doesn’t disclose certain types of errors

(D)It becomes easy for the Government to calculate the tax.

Funds represented by cheques which have been issued, but which have not been debited from bank is technically referred to as :

(A)Indenture

(B)Forward Cover

(C)Float

(D)Proxy

(d)What do you mean by contingent liability ? Briefly explain it.