Free Accounting Principles MCQs with Answers

• A. Sole-proprietorship
• B. General Partnership
• C. Limited Partnership
• D. Corporation

Explanation: A sole proprietorship has one owner and is generally subject to fewer formation, reporting and regulatory requirements than partnerships…

• A. Book value
• B. Intrinsic value
• C. Cost
• D. Market value

Explanation: Average Accounting Return compares average accounting profit with the asset’s average book value, not its market or intrinsic value.

• A. Credit balance of Provision for Bad Debts Account
• B. Debit balance of Provision for Bad Debts Account
• C. Debit balance of Bad Debts Account
• D. Debit balance of Discount on Debtors AccountCredit & Lending

Explanation: If actual bad debts exceed the existing provision, the provision account is insufficient to cover the write-off and shows a debit balance…

• A. Debtor
• B. Creditor
• C. Defaulter
• D. Offender

Explanation: In the seller’s books, a credit customer owes money for goods already received, so the customer is recorded as a debtor.

• A. Debit Provision for Bad Debts A/c and credit Debtors A/c
• B. Debit Debtors A/c and credit Provision for Bad Debts A/c
• C. Debit Provision for Bad Debts A/c and credit Profit & Loss A/c
• D. Debit Profit and Loss A/c and credit Provision for Bad Debts A/c.Credit & Lending

Explanation: Creating a provision recognizes an expected bad-debt expense and establishes a contra-receivables balance.

• A. Inventory system
• B. Survey system
• C. Annuity system
• D. Insurance

Explanation: The inventory system, also called the appraisal or revaluation system, determines depreciation by valuing the asset at the beginning and…

• A. Building
• B. Land
• C. Plant and Machinery
• D. Office equipment

Explanation: Land normally has an indefinite useful life and is therefore not depreciated, unlike buildings, machinery, and office equipment.

• A. Routine repair and maintenance
• B. Misuse
• C. Obsolescence
• D. Wear and tear

Explanation: Obsolescence is an external cause because technological change, fashion, or market developments can make an asset outdated even when it…

• A. Cost price of asset
• B. Market price
• C. Cost+ Transport+ Installation expenses
• D. Cost or market values whichever is less

Explanation: Depreciation is based on the asset’s total capitalized cost, which includes purchase cost plus directly attributable transport and…

• A. Depreciation cannot be provided in case of loss in a financial year
• B. Depreciation is a charge against profit
• C. Depreciation is provided in the books only when there is profit
• D. Depreciation is an appropriation of profit

Explanation: Depreciation is a charge against profit because it is an expense incurred in using the asset, even when the business reports a loss.

• A. Straight-line method
• B. Written down value method
• C. Units-of-production method
• D. Sum-of-the years'-digits method

Explanation: The straight-line method allocates the depreciable amount in equal instalments over the asset’s useful economic life.

• A. Passage of time, asset usage, and obsolescence
• B. Tax regulations and SEBI guidelines
• C. Tax regulations and asset usage
• D. SEBI guidelines and Asset usage

Explanation: Economic life depends mainly on how long the asset remains usable, including the effects of time, usage, and obsolescence.

• A. Only (i) above
• B. Only (ii) above
• C. Both (i) and (ii) above
• D. (i),(ii) and (iii) above

Explanation: Under the written-down-value method, the depreciation rate is generally constant, but it is applied to a declining balance, so the…

• A. Written down value
• B. Accumulated value
• C. Salvage value
• D. Residual Value

Explanation: The acquisition cost remaining after accumulated depreciation is deducted is the written-down value, also called the book value or…

• A. Valuation
• B. Valuation and allocation
• C. Allocation
• D. Appropriation

Explanation: Depreciation is an allocation process: the depreciable cost of an asset is systematically assigned to the periods benefiting from its use.

• A. Regular reduction of asset value to correspond to changes in market value as the asset ages
• B. A process of correlating the market value of an asset with its gradual decline in physical efficiency
• C. Allocation of cost in a manner that will ensure that Plant and Equipment items are not carried on the Balance Sheet in excess of net realizable value
• D. Allocation of the cost of an asset to the periods in which services are received from the asset

Explanation: Depreciation is a cost-allocation process, not a regular adjustment to market value.

• A. The amount of depreciation keeps increasing every year while the rate of depreciation keeps decreasing
• B. The amount of depreciation and the rate of depreciation decrease every year
• C. The amount of depreciation decreases while the rate of depreciation remains the same
• D. The amount of depreciation and the rate of depreciation increases every year

Explanation: Under the diminishing balance method, a constant percentage is applied to the asset's declining book value.

• A. Loss of 20,000
• B. Loss of 22,000
• C. Loss of 11,000
• D. Profit of 11,000Open Savings Account

Explanation: The book value after two years is 200,000 × 90% × 90% = 162,000. Selling it for 140,000 therefore produces a loss of 22,000.

• A. 20,000 Loss
• B. 20,000 Profit
• C. 10,000 Loss
• D. 10,000 Profit

Explanation: Under SLM, annual depreciation is 10% of 200,000, or 20,000; two years reduce the book value to 160,000.

• A. Straight line Method
• B. Written down value Method
• C. Discounted present value Method
• D. Sum of digits MethodCompare Credit Cards

Explanation: Straight-line, written-down-value, and sum-of-digits methods are recognised depreciation methods.