Author Archives: Swati

NCERT Most important question:

Q1. Explain the reasons of depreciation in an asset

Ans: The reasons of depreciation in an assets are as explained below:

1. Depreciation in an asset can occur for a variety of reasons, including wear and tear from use or the passage of time.
2. Assets become obsolete after a specific amount of time due to obsolescence.
3. Assets’ legal rights may expire after a predetermined period. 
4. Depreciation may occur due to unusual circumstances such as an accident, fire, or natural disaster..

Q2. Define provision. What are the examples of provision?

Ans: The expenses or losses related to the present accounting period which are still not incurred cannot be recorded as their amount is not known with certainty are recorded in provision. The examples of provisions are:

1. Provision for Depreciation.
2. Provision for taxation.
3. Provision for doubtful and bad debt.
4. Provision for discount of debtors.
5. Provision for repair and renewal.

Q3. Differentiate between specific and general reserve.

Ans: The difference between specific and general reserve are:

S.no	General Reserve	Specific Reserve
1. 2. 3.	It was established as a free reserve.It can be utilised as a source of funding anything.It improves the financial situation of the firm’s position.	It was designed with a specific objective in mind.It is used purely for the purpose  for which it was designed.It has no effect on the company’s financial situation.

Q4. Differential between capital Reserve and revenue reserve

Ans: The difference between capital Reserve and revenue reserve are:

S.no	Capital Reserve	Revenue Reserve
1. 2. 3.	They arise as a result of the company’s day-to-day operations.They are accessible for dividend distribution.They’re made for unique objectives or unforeseeable circumstances.	They are not a result of the company’s day-to-day operations.They are not eligible for dividend distribution.They’re made to fit every situation as a legal necessity or as an example of accounting practice.

Q5. How provisions are shown in balance sheet ?

Ans: In the balance sheet, provisions are handled in the following ways:

1. On the asset side of the balance sheet, it is deducted from the concerned assets, and in the case of provision for doubtful debt, it is deducted from the amount of various debtors.
2. Provision for taxes and provision for repairs and renewals are recorded on the liabilities side of the balance sheet, alongside current liabilities.

Q6. The cost of truck is 1100000 and net salvage value after 15 years is 60000. Calculate the appropriate rate of depreciation using written down method.

Ans: Formula for Rate of Depreciation (R): R={1-n√S/C} ×100

r = Rate of depreciation

n = Expected useful life

s = Scrap value

c = Cost of an asset

By putting the values in formula

R= 1-15√60000/1100000 ×100 = 16.77%

Q7. Differentiate between straight line and written down methods of depreciation.

Ans: The difference between straight line and written down methods of depreciation are:

S.No	Straight Line Method	Written Down Method
1. 2. 3. 4.	Depreciation is charged according to the original cost or historical cost ofthe asset. Annual Depreciation amount is constant They are not recognised under Income Tax Law Best suited for assets which have low repair and maintenance cost	Depreciation is charged according to the Net book value of the asset Depreciation is highest in the first year then it reduces every year They are recognised under Income Tax Laws Best suited for assets which require highrepair and maintenance cost.

Q8. The initial cost of the truck is Rs. 2,60,000 and the useful life of the asset is 10 years and net scrap value is estimated to Rs. 60,000. Calculate the amount of depreciation to be charged every year using straight line method

Ans: Formula for calculating depreciation:Depreciation=Cost of asset- Estimated net residential valueEstimated useful life of the assetDepreciation=Cost of asset- Estimated net residential valueEstimated useful life of the asset

By putting value in formulaDepreciation=260,000- 60,000  10=20000Depreciation=260,000- 60,000  10=20000

Q9. Describe the advantage of straight line method and written down value method.

Ans: The straight line approach has the following advantages:

1. It is very basic and simple to grasp.
2. It allows for asset depreciation up to net scrap value or zero value.
3. Because depreciation is constant year after year, comparing profits from two or more years will be simple.
4. It is employed when the assets’ life expectancy can be determined.

The Written Down Method has the Following Advantages:

1. Its assumptions are more plausible.
2. It is recognised by tax legislation.
3. Because the first year has the biggest depreciation, the loss from obsolescence is minimised.

Q10. Explain the various types of reserve

Ans: The Reserves are Divided into Two Categories: 

1. General reserve and specific reserve: General reserve was developed as a free reserve, allowing the corporation to use it for any purpose. While a specific reserve is set aside for certain purposes such as workers’ compensation, dividend equalisation, and so on.
2. Capital reserve and revenue reserve: Capital reserve is formed from capital profit and does not emerge from the business’s running activities. They are not eligible for dividend distribution. Revenue reserve is formed through the business’s operating activities. They can be used to write off capital losses or to distribute bonuses.

Q11. What is ‘Depreciation’?
Solution:
Depreciation means fall in book value of depreciable fixed asset because of

1. wear and tear of the asset
2. passage/efflux of time
3. obsolescence
4. accident

A machinery costing ₹ 1,00,000 and its useful life is 10 years; so, depreciation is calculated as:
Annual Depreciation per annum
= Cost of Asset-Estimated Scrap Value/Expected or Estimated life of Asset
= 100000/10 = ₹ 10,000

Q12. State briefly the need for providing depreciation.
Solution:
The needs for providing depreciation are given below.

1. To ascertain the correct profit or loss: Correct profit or loss can be ascertained when all the expenses and losses incurred for earning revenues are charged to Profit and Loss Account. Assets are used for earning revenues and its cost is charged in form of depreciation from Profit and Loss Account.
2. To show true and fair view of financial statements: If depreciation is not charged, assets will be shown at higher value than their actual value in the balance sheet. Consequently, the balance sheet will not reflect true and fair view of financial statements.
3. For ascertaining the accurate cost of production: Depreciation on the assets, which are engaged in production, is included in the cost of production. If depreciation is not charged, the cost of production is underestimated, which will lead to low selling price and thus leads to low profit.
4. To provide funds for replacement of assets: Unlike other expenses, depreciation is non cash expense. So, the amount of depreciation debited to the profit and loss account will be retained in the business. These funds will be available for replacement of fixed assets when its useful life ends.
5. To meet the legal requirement: To comply with the provisions of the Companies Act and Income Tax Act, it is necessary to charge depreciation.

Q13. What are the causes of depreciation?
Solution:

1. Use of asset: Because of constant use of the fixed assets there exists a normal wear and tear which leads to fall in the value of the assets.
2. Passage of time: Whether assets are used or not, with the passage of time, its effective life will decrease.
3. Obsolescence: Because of new technologies, innovations and inventions, assets purchased currently may become outdated later which leads to the obsolescence of fixed assets.
4. Accident: An asset may lose its value due to mishaps such as a fire accident, theft or by natural calamities and they are permanent in nature.

Q14. Explain basic factors affecting the amount of depreciation.
Solution:

1. Original cost of asset: The total cost of an asset is taken into consideration for ascertaining the amount of depreciation. The total cost of an asset include all expenses incurred up to the point the asset is ready for use like freight expenses and installation charges.
   Total Cost= Purchase Price+ Freight Expenses+ Installation Charges.
2. Estimated useful life: Every asset has its useful life other than its physical life in terms of number of years and units used by a business. The asset may exist physically but may not be able to produce the goods at a reasonable cost. For example, an asset is likely to lose its useful value within 15years, its useful life, i.e., life for purpose of accounting should be considered as only 15 years
3. Estimated scrap value: It is estimated as the net realisable value of an asset at the end of its useful life. It is deducted from the total cost of an asset and the difference is written off over the useful life of the asset. For example, Furniture acquired at ₹ 1,30,000, its useful life is estimated to be 10 years and it is estimated scrap value ₹ 10,000.
   Depreciation per annum= 1,30,000-10,000/10 years= 12,000

Q15. Distinguish between straight line method and written down value method of calculating depreciation.
Solution:

Straight Line Method	Written Down Value Method
Depreciation is calculated on the original cost of an asset.	Depreciation is calculated on the reducing balance, i.e., the book value of an asset.
Equal amount of depreciation is charged each year over the useful life of the asset.	Diminishing amount of depreciation is charged each year over the useful life of the asset.
Book value of the asset becomes zero at the end of its effective life.	Book value of the asset can never be zero.
It is suitable for the assets such as patents, copyright, land and buildings which have lesser possibility of obsolescence and lesser repair charges.	It is suitable for assets which needs more repair in the later years such as plant and machinery and car.
As depreciation remains same over the years but repair cost increases in the later years, there will be unequal effect over the life of the asset.	As depreciation cost is high and repairs are less in the initial years but in the latter years the repair costs increase and depreciation cost decreases, there will be equal effect over the life of the asset.
It is not recognised under the income tax act.	It is recognised under the income tax act.

Q16. “In case of a long term asset, repair and maintenance expenses are expected to rise in later years than in earlier year”. Which method is suitable for charging depreciation if the management does not want to increase burden on profits and loss account on account of depreciation and repair.
Solution:
The written down value method is most appropriate to overcome the burden of the profit and loss account because of high depreciation and repair costs over the years of the asset. The cost of depreciation reduces and the repair and maintenance expenses increase over the yea₹ However, the entire burden will not get ease to the management.

Q17. What are the effects of depreciation on profit and loss account and balance sheet?
Solution:
The effects of depreciation on Profit and Loss Account are as follows:

1. An increase in depreciation will be debited in the profit and loss account which reduces net profit.
2. Hence total expenses increase which leads to an excess of debit over credit balance.

The effects of depreciation on Balance Sheet are as follows:

1. The original cost or book value of the concerned asset gets reduced.
2. The overall balance of asset’s column in the balance sheet gets reduced.

Q18. Distinguish between ‘provision’ and ‘reserve’.
Solution:

Provision	Reserve
It is charge against profit.	It is an appropriation of profit.
It is created to meet a specific liability or contingencies.	It is made for strengthening the financial position of the business. Some reserves are also mandatory under law.
It is recorded on the debit side of profit and loss account.	It is recorded on the credit side of the profit and loss appropriation account.
It can be shown either (i) by way of deduction from the item on the assets side for which it is created, or (ii) in the liabilities side along with the current liabilities.	It is shown on the liabilities side after capital.
It cannot be utilized for dividend distribution.	It can be utilized for dividend distribution.
It is never invested outside the business.	It can be invested outside the business.
It reduces net profits.	It reduces only divisible profit.

Q19. Give four examples each of ‘provision’ and ‘reserves’.
Solution:
Four examples of provision are given below.

1. Provision for bad and doubtful debts
2. Provision for discount on debtors
3. Provision for depreciation
4. Provision for tax

Four examples of reserve are given below.

1. General reserve
2. Capital redemption reserve
3. Dividend equalisation reserve
4. Debenture redemption reserve

Q20. Distinguish between ‘revenue reserve’ and ‘capital reserve’.
Solution:

Revenue Reserve	Capital Reserve
It is formed out of revenue profit which is earned from normal activities of business operations.	It is formed out of capital profit which is a gain from other than normal activities of business operations, such as sale of fixed assets.
It can be used for distribution of dividend.	It cannot be used for distribution of dividend.
It is created for increasing the financial position of the business.	It is created for the purpose of the Companies Act.

Q21. Give four examples each of ‘revenue reserve’ and ‘capital reserve’.
Solution:
Examples of revenue reserve are as follows:

1. General reserve
2. Investment equalisation reserve
3. Dividend equalisation reserve
4. Debenture reserve

Examples of capital reserve are as follows:

1. Issues of shares at premium
2. Profit on forfeiture of shares
3. Profit on sale of fixed assets
4. Profit on redemption of debentures

Q22. Distinguish between ‘general reserve’ and ‘specific reserve’.
Solution:

Specific Reserve	General Reserve
It is created for specific purpose.	It is not created for specific purpose.
It is not available for any future contingencies or expansion of business. It is utilised only for that purpose for which it is created.	It is available for any future contingencies or expansion of business. It strengthens the financial position.
Dividend equalisation reserve, debenture redemption reserve, development rebate reserves.	Contingency reserve and general reserve

Q23. Explain the concept of ‘secret reserve’.
Solution:
Secret reserves are created by overstating liabilities or understating assets which are not shown in the balance sheet. This will reduce tax liabilities, because the liabilities are overstated. It is created by management to avoid competition by reducing profit. Creation of secret reserve is not allowed by Companies Act, 1956 which requires full disclosure of all material facts and accounting policies while preparing final statements.

NCERT Most important question:

Q1. What are the objectives of preparing a trial balance?

Ans: The following are the three main goals of trial balance preparation:

• Verify that the ledger account is arithmetically correct.
• It aids in the detection of account mistakes.
• It aids in the preparation of the firm’s final account.

Q2. How rectification of errors is done.

Ans: If the error affects just one account, it can be corrected either by creating a journal entry or by providing an explanatory note, however if the error affects many accounts, it can only be corrected by submitting a journal entry.

Q3. What is the purpose of suspense accounts?

Ans: Even if the trial balance does not match the ledger, the suspense account aids in the preparation of the company’s financial statement. They are temporary accounts since they are prepared for a limited length of time and for a specific occasion.

Q4. What is the process of preparing trial balance?

Ans: The following is the procedure for preparing trial balance:

• Determine the balance of each ledger account. 
• Enter the balances of all debit and credit accounts in the appropriate columns.
• Add up the amounts on both the debit and credit sides.
• Balance the trial balance on the debit and credit sides.

Q5. What are the significance of agreement of trial balance?

Ans: The trial balance should balance, meaning the credit and debt sides should be equal. It will demonstrate that transaction inputs are correct and ledger calculations are arithmetically correct. It does not, however, prove that the transactions were accurately recorded.

Q6. Rectify the following errors in journal entry:

Cash sales Rs. 12,000

i) Were posted as 5,000 in sales account.

ii) Were posted to purchase account.

iii) Were not posted to sales account

Ans:

Particular	Debit	Credit
(i) Suspense A/c                          Dr. To Sales A/c       (Cash sales of 12,000 were recorded as 5,000 in the sales account, which has since been corrected.)(ii) Purchase A/c                            Dr.  To Sales A/c                 (Cash sales were posted to the purchase account instead of the sales account, which has already been addressed.)(iii) Suspense A/c                        Dr. To Sales A/c  (Cash sales that were not posted to the sales account have now been corrected.)	7,000 12,000 12,000	7,000 12,000 12,000

Q7. What are the ways of locating accounting errors by an accountant?

Ans: An accountant’s procedure for discovering accounting problems is as follows:

i. Determine whether the totals on both the debit and credit sides are equal.

ii.The ledger account balance should be compared to the trial balance balance.

iii. Compare the total of the debtor’s and creditor’s accounts to the trial balance and balance them.

iv. Compare the sum of the journal entry book to the ledger.

v. Double-check that all transactions are correctly and accurately recorded in the journal entry book.

vi.Compare the current year’s trial balance to the previous year’s trial balance prior year’s trial balance to see whether any figures are incorrect. Omitted

Q8. Explain the Various classifications of errors:

Ans:  The Various classifications of errors are explained below:

i. Commission errors: If transactions are recorded incorrectly, transaction totaling is incorrect, transactions are casted incorrectly, or transaction balancing is incorrect.

ii. Omission Inaccuracies: Omission of recording can result in errors in an account; these omissions in transactions might affect the account totally or partially.

iii. Principle Errors: Misplacement of payments and receipts between revenue and capital receipts and revenue and capital expenditure causes errors.

iv. Compensating errors: When two or more errors are reported in such a way that the effect of both is negated.

Q9. Explain the different methods of preparation of trial balance.

Ans:  A trial balance can be prepared in one of three ways:

i. Totals method: On the same side of the trial balance, the totals of each side as debit and credit of the ledger are indicated. As a result, the debit and credit sides of the trial balance must be balanced.

ii. Account balance: The credit and debit sides of the trial balance reflect the balances of all ledger accounts.

iii. Total-cumulative-balance account: This method combines the total and balance methods. This approach creates four columns, two of which contain debit and credit from the total method while the other two columns contain debit and credit from the balance method.

Q10. Define the various limitations of trial balance?

Ans:  The following are some of the trial balance’s limitations:

i. An entry that is not made in the journal will not appear in any of the ledge accounts. As a result, there will be no variation in trial balance.

ii. If an entry is made in the wrong account but on the proper side, the trial balance is unaffected.

iii. If an incorrect amount is written in the journal, the trial balance cannot be used to identify it.

iv. There will be no difference in the trial balance if the entry is not allocated to the correct account.Is this page helpful?

Q11. State the meaning of a Trial Balance.
Ans

Trial balance is a statement prepared to check the arithmetical accuracy of transactions recorded in the journal, posted into the ledger and balanced in the ledger accounts.  The balance of ledger accounts shows the difference between the total of the debit items and credit items in an account. Personal, real and nominal accounts are considered for preparing the trial balance. Generally, it is prepared at the end of an accounting year. However, it may be prepared at the end of any chosen period, which may be monthly, quarterly, half yearly or annually depending upon when it is required. It helps in the preparation of the financial statements.

Q12. Give two examples of errors of principle?
Ans

 Generally accepted accounting principles are to be followed to record the accounting entries. When accounting entries are recorded in contravention of accounting principles, it is known as an error of principle.

1. Wages paid for installation of new machinery debited to wages account:
2. Wages paid for installation of new machinery is a capital expenditure and accordingly machinery account should have been debited. But, here it is treated as revenue expenditure and is debited to wages account. Thus, it violates the accounting principle.
3. Amount spent on repair of building debited to machinery account: Expense on repair is revenue expenditure and not a capital expenditure. The amount should have been debited to repairs account and to the machinery account which is a capital account. Thus, it violates the accounting principle.

Q13. Give two examples of errors of commission?
Ans

 Errors of commission are committed because of wrong recording, wrong posting, wrong balancing and wrong casting of subsidiary books. Such errors affect the accuracy of the trial balance.

1. Cash received from a creditor worth Rs.5,000 is recorded in the cash book as Rs.500.
   The transaction is recorded in the cashbook as Rs.500 instead of Rs.5,000. This is an error because of the wrong recording of amount in the cash book.
2. Amount received from Arun Rs.2,000, is wrongly posted in Tarun’s account.
   In this transaction, Tarun’s A/c is credited instead of Arun’s A/c. This is referred to as an error of wrong posting of transactions.

Q14. What are the methods of preparing trial balance?
Ans

A trial balance can be prepared in the following three ways :

1. Totals Method: In this method, the total of the debit and the credit side of the ledger is determined and presented separately in the trial balance. The total of both the sides should match as the accounts are based on double entry system.
2. Balances Method: In this method, the balances of all ledger accounts are presented in their respective debit and credit columns of the trial balance. The total of both the sides should match as the accounts are based on double entry system and this method of preparing a trial balance is widely used because it helps in the preparation of financial statements.
3. Totals-cum-balances Method: This method is a blend of the totals and balances method. This method has four columns. The first two columns are to write the totals of the debits and credits of the various accounts and the other two columns are to write the debit or the credit balances of these accounts. This method is time consuming, and hence are not used widely.

Q15. What are the steps taken by an accountant to locate the errors in the trial balance?
Ans

Steps to identify the errors:

1. Recast the totals of the debit and credit columns of the trial balance.
2. Compare each account head and its amount appearing in the trial balance with that of the ledger to detect any difference in amount or omission of any account.
3. Compare the trial balance of the current year with that of the previous year to check the additions or deletions to any accounts and to verify if there is any unexplained difference in amounts.
4. Re-check the correctness of balances of individual accounts in their respective ledgers.
5. Re-check the accuracy of the postings in individual accounts from the transactions entered in the books of original entry.
6. If the difference between the debit and credit columns is of `1, `10, `100 or `1000, the casting of the subsidiary books should be re-checked.
7. If the difference between the debit and credit columns is divisible by 2, then there is a possibility that an amount equal to half the difference may have been posted to the wrong side of another ledger account.
8. The above point may also indicate a complete omission of a posting.
9. If the difference is divisible by 9, the mistake could be because of transposition of figures.
10. Still, if it is not possible to locate the errors, the difference in the trial balance for that moment is transferred to the suspense account. All the one-sided errors detected are rectified through this account.

Q16. What is a suspense account? Is it necessary that suspense account will balance off after rectification of the errors detected by the accountant? If not, then what happens to the balance still remaining in suspense account?
Ans
In certain cases, when the debit column and the credit column of a trial balance do not agree, then the difference of the trial balance is transferred to a temporary account which is called a suspense account. This account is created to avoid any delay in creation of the financial statements. If the debit column falls short of the credit column, then the suspense account is debited and if the credit column falls short of the debit column then the suspense account is credited.

When all the errors are detected and rectified, then the suspense account automatically gets balanced. However, when errors still exist and are not rectified, the suspense account will not balance off and the balance amount of the suspense account will have to be transferred to the balance sheet. The debit balance of the suspense account is shown on the assets side and the credit balance is shown on the liabilities side of the balance sheet.

Q17. What kinds of errors would cause difference in the trial balance? Also list examples that would not be revealed by a trial balance? 
Ans
One-sided errors are the errors which when committed affect the agreement of the trial balance. These errors affect only one account and any one side i.e. debit or the credit side of the account. Errors of partial omission, recording transactions with wrong amount, casting, posting of incorrect amount are examples of one-sided errors.
Two-sided errors do not affect the agreement of the trial balance. Here, are a few examples which would not be revealed in a trial balance:

1. Purchases from Mr. Shah, completely omitted to be recorded in the purchase book.
2. Purchases made from Vijesh, recorded in Ritesh’s account who is another creditor.
3. Stationary purchased for office use recorded in the purchase book.

NCERT Most important question: 

Q1. Prepare the proforma of bank reconciliation statement.

Ans: The proforma of bank reconciliation statement:

	Particular	Amount
Add: Less:	Balance as per cash bookCheques issued but not presentedInterest credited by the bank Cheques deposited but not credited by the bankBank charges no recorded in the cash bookBalance as per passbook

Q2. Bank Reconciliation Statement is prepared by:

A. Bank

B. Creditor

C. Debtor

D. Account holder in bank

Ans: D. Account holder in bank prepares Bank Reconciliation Statement.

Q3. What do you understand by bank overdraft?

Ans: The term “bank overdraft” refers to withdrawing funds from bank accounts in excess of their limits, resulting in the available amount falling below zero. Interest will be applicable only for the amount actually used from the overdraft account.

Q4. State true and false:

Qa. The amount in bank statement should tally with the balance shown in the cash book.

Ans:  The above statement is True. It must tally with each other for a period end.

b. Deposit exceeds the withdrawals it shows a debit balance.

Ans: The above statement is False. When deposits exceed withdrawals, a credit balance is displayed.

Q5. Why do we need reconciliation?

Ans: When two different statements are made, and the bank statement and the cash book kept by the users are compared, they frequently do not match. We also need to keep track of or create reconciliation statements for the same reason.

Q6. Explain what difference is caused by errors.

Ans: The following are two primary differences that are produced by bank reconciliation statement errors:

a. Errors made by the business when registering the transaction.

b. Errors committed by the bank during the transaction’s recording.

Q7. How to prepare Bank Reconciliation Statement?

Ans: There are two ways to make a bank reconciliation statement:

a. It is possible to prepare a Bank Reconciliation Statement without modifying the balance in the cash book.

b. After the cash book has been adjusted, a bank reconciliation statement is prepared.

Q8. How to deal with overdraft?

Ans: When an excess amount is removed from a bank account that exceeds its limit, it is referred to as a bank overdraft. Because businesses occasionally require more funds, they obtain an overdraft from the bank. The bank overdraft is treated as a negative amount on the bank reconciliation statement in this case.

Q9. What do you understand by correct cash balances?

Ans: Receipts and payments in the books may have errors that must be corrected. To repair these inaccuracies that occur during the recording of revenues and payments, a proper cash balance is computed before the statement is reconciled.

Q10. How we can deal with favourable balance?

Ans: The steps below will assist you in dealing with a favourable balance:

i. The first item on the statement is the balance in the cash book, which can also be the balance in the passbook.

ii. The top of the statement has Date written on it.

iii.  Amounts directly deposited in a bank account and cheques issued but not present for payment are added.

iv. All bank credits, such as dividends and interest, as well as direct bank deposits, are included.

v. Adjustments for errors are made using the rectification of errors principle.

vi. At this point, the net amount reported in the statement should match the balance in the passbook.

Q11. When the timing difference is created?

Ans: When a cash book and a bank passbook are compared, a temporal gap occurs, which is referred to as a timing difference. 

The temporal gap is caused by the following factors:

a. Cheques that have been paid into the bank but not yet collected cause a time lapse.

b. A cheque has been issued by the bank, but it has yet to be presented in order to receive payment

c. Amounts deposited straight into a bank account without using a debit card. Being noted in the company’s cash book

d. A direct debit (deduction) is made on your behalf by the bank and the customer, which the vast majority of customers are completely unaware of. As a result, a time gap has developed.

Q12. Prepare a bank reconciliation statement as on July 31, 2018 from the following details of Rachna & Co.

a. Balance as per the cash book Rs. 55,000.

b. Cheques for Rs 5,300 is deposited in the bank but not yet collected by the bank.

c. R.s 200 bank incidental charges debited to Rachna & Co. account, which is not recorded in cash book.

d. A cheque for Rs 20,000 is issued by Rachna & Co. not presented for payment.

Ans: In the books of Rachna & Co.
Bank reconciliation statement
as on July 31, 2018 

S.No.	Particular	Dr. Amt (+)	Cr. Amt (-)
	Balance as per Cash book Cheque issued but not presented for payment Cheques deposit but not credited by the bank Bank incidental charges debited by the bank Balance as per passbook (b/f)	55,000 20,000	5,300 200 69,500
		75,000	75,000

Q13. On March 31, 2018 the bank column of the cash book of Namrata & Co. showed a credit balance of Rs. 1,17,100 (Overdraft). From the following cash and bank statement particulars: Prepare bank reconciliation statement as on March 31, 2018.

a. Payment received from a customer directly by the bank Rs. 28,500 but no entry was made in the cash book.

b. Cheques received and recorded in the cash book but not sent to the bank of collection Rs. 13,400.

c. Cheques issued for Rs. 1,80,400 not presented for payment. Interest of Rs. 8,800 charged by the bank was not entered in the cash book. Prepare bank reconciliation statement

Ans:   In the Books of Namrata & Co
Bank reconciliation statement
    as on March 31, 2018 

S.No.	Particular	Dr. Amt (+)	Cr. Amt (-)
	Overdraft as per cash book Cheques received and recorded in cash book but not sent to the bankfor collection Interest on bank overdraft debited by the bank but not entered inthe cash book Payment received from the customer directly Credit in the bank A/c but not entered in the cash book cheque issued but not presented for payment Balance as per the passbook (b/f)	28,500 1,80,400	1,17,100 13,400 8,200 7,000 63,200
		2,08,900	2,08,900

Q14. Prepare bank reconciliation statement for Swarnim for March 31, 2018, from the following particulars Swarnim had on overdraft of Rs. 7,000 as shown by her cash book. Cheques amounting to Rs 1,500 had been paid in by her but were not collected by the bank. She issued cheques of Rs 750 which were not presented to the bank for payment. There was a debit in her passbook of Rs. 50 for interest and Rs. 150 for bank charges. 

Ans:                                         In the Books Swarnim
Bank reconciliation statement
    as on March 31, 2018   

S.No.	Particular	Dr. Amt (+)	Cr. Amt (-)
	Overdraft as per cash book Cheques received but not yet collected charged by the bank  Bank Charge   Cheque issued but not presented for payment   Balance as per the passbook	750 7,950	7,000 1,500 50 150
		8,700	8,700

Q15. What is a bank reconciliation statement?

Ans:

Just like the bank organisations maintain a cash book in order to record the bank and cash transactions, similar to this the bank also maintains an account for each customer in its book where all the deposits made by the customer are recorded. The deposits are recorded on the credit side of the account and the withdrawals are recorded on the debit side of the account. A copy of this is sent to the customer address is called the passbook. The bank balance presented by the cash book and the passbook does not always match. Thus,  the entries in them are compared and the differences that arise are rectified, and to reconcile the balances in the cash books and the passbook a statement is prepared, which is known as the reconciliation statement.

NCERT Most important Question:

Q1. Define day book in the process of recording transaction.

Ans: The day book contains all of the many types of transactions that are recorded in different books that are kept by the accountant.

Q2. Which special purpose book records all type of cash receipt and cash payment.

Ans: The cash book is a special purpose book that keeps track of all types of cash receipts and payments.

Q3. ______________is a subsidiary journal. Fill in the blank

Ans: Cash book is a subsidiary journal.

Q4. What type of transactions does double column cash book records?

Ans: Only cash and bank transactions are recorded in the double column cash book.

Q5. State the following statement is True or False :

a. More than one credit account and single debit account in an entry is known as compound entry.

Ans: The above statement is True. More than one credit  and single debit in an entry will have two credit accounts and one debit entry. This is called compound entry as it consists of more than two accounts.

b. Subsidiary book is also known as ledger.

Ans: The above statement is False, Subsidiary book is a part of ledger account.

c. Credit purchase of machinery is entered in purchase journal.

Ans: The above statement is False, As the purchase of machinery should be recorded in the journal proper account.

Q6. Discuss all types of special purpose book or day book.

Ans: The following are the special purpose books or special diaries that accountants keep:

• Purchase book
• Sales return book(Return inwards)
• Journal paper
• Purchase return book (Return outwards)
• Sales book
• Cash book

Q7. Differentiate between single and double column cash book.

Ans:  The difference between single column cash book and double column cash book are as follow:

Single Column Cash Book	Double Column Cash Book
Only one amount column is prepared.	Two columns are prepared.
Transactions are recorded in chronological order.	Transactions need not to be recorded in chronological manner.

Q8. Give names of four types of crossed cheques.

Ans: There are four different types of crossed checks:

i. Parallel crossed cheques

ii. Crossed cheques with company name

iii. Crossed cheques not negotiable

iv. Crossed cheques with bank name

Q9. What is a purchase book

Ans: It’s a book that keeps track of all transactions involving the purchase of goods or services, whether cash or credit. It records all the operations purchases along with the discounts received treatments from the suppliers.  

Q10. What is the need of contra entry?
Ans: Contra entry refers to a single transaction that is entered on both sides of the cash book. A contra entry is required to to offset receivables and payables between 2 non identical legal entities/subsidiary of a firm so that one final amount remains used in intercompany netting.

Q11.  Give the meaning of the following terms

i. Sales journal

Ans: Sales Journal: This is a journal that exclusively records credit sales.

ii. Purchase journal

Ans: Purchase Journal: This is a journal that solely records credit purchases

iii. Journal

Ans: Journal: A basic book in which all initial entry transactions are documented.

iv. Petty cash book

Ans: Petty cash book: This is a book that is used to keep track of small cash transactions.

Q12. What do you mean by single column cash book?

Ans: A single column cash book is a cash book that solely records a business’s cash transactions. It functions similarly to a typical cash account, with all cash receipts recorded on the left hand (debit) side and all cash payments recorded on the right hand (credit) side in chronological sequence. There is only one column. Cash is a debit and credit book with simply one column on each side. It solely keeps track of transactions involving cash receipt and payment. All transactions are recorded in the sequence in which they take place. The cash receipts are recorded on the debit side, while the cash payments are recorded on the credit side.

Q13. Give detailed explanation of the format of petty cash account.

Ans: Small transactions, such as postage, conveyance, cartage expenditures, and other expenses, are common in large corporations. Because all of these transactions are typically repetitious, the cashier is unable to record them in the main cash book. As a result, these transactions are kept in a separate book called the petty cash book.

Amount Received	Date	Particular	Voucher No.	Amount paid	Postage Charges	Conveyance Charges	Miscellaneous Charges

Q14. Describe the double-column transaction books

Ans: On both the debit and credit sides, the double column cash book (also known as two column cash book) includes two money columns – one for cash transactions and one for bank transactions. To put it another way, a single column cash book becomes a double column cash book when a bank column is added to both sides. The cash column records all cash transactions and acts as a cash account, while the bank column records all cheques receipts and payments and acts as a bank account. At the end of an appropriate time, which is generally one month, both columns are totalled and balanced like a regular T-account.

Q15. Describe three column cash book

Ans: On both the debit and credit sides of a three-column cash book, there are three columns of amounts. One column is for cash, another is for discounts, and a third is for bank transactions. Because the corporation uses a bank instead of cash, it has an additional column for bank transactions.

Q16. Enter the following transactions into cash book for the month of Jan 2018

i. Cash received from Ravi 4,000

ii. Rent Paid in cash 2,000

iii. Purchased goods from Mahesh for cash 6,000

iv. Sold goods for cash 9,000 

Ans : Cash book for the month of Jan 2018

Date	Particular	Amount	Date	Particular	Amount
i.	To Ravi	4,000	ii.	By Rent	2,000
iv.	To sales	9,000	iii.	By Purchase	6,000
			iii.	By Balance c/d	5,000
		13,000			13,000

Working Notes:

Journal entries

Date	Particular	Dr	Cr
i.	Cash A/c           Dr.	4,000
	To Ravi		4,000
	(being cash received from ravi)
ii.	Rent A/c           Dr.	2,000
	To Cash A/c		2,000
	(being rent paid on cash)
iii.	Purchase A/c       Dr.	6,000
	To Cash A/c		6,000
	(being purchased goods on cash from mahesh)
iv.	Cash A/c             Dr.	9,000
	To sale		9,000
	(being goods sold in cash)

Q17. What are the advantages of maintaining a petty cash book? 

Ans:  The following are some of the benefits of keeping a petty cash book:

i. The time of the chief cashier is spared because these small transactions are too enormous for a single cashier to handle, thus a petty cashier is hired.

ii. Because the task is split between the chief cashier and the petty cashier, both of them are responsible for the proper distribution of petty cash and big sums.

iii. It is easier to handle such tiny transactions separately if you keep a separate cash book for them. Bulkiness is avoided, and the situation is more managed.

iv. It simplifies the production of the main cash book by reducing the number of small cash transactions. 

v. It accurately and systematically tracks all of the business’s minor costs and gives information immediately when needed.

Q18. What do understand by petty cash book? 

Ans: Small transactions, such as postage, conveyance, cartage expenditures, and other expenses, are common in large corporations. Because all of these transactions are typically repetitious, the cashier is unable to record them in the main cash book. As a result, these transactions are kept in a separate book called the petty cash book.

As a result, the cashier keeps a petty cash book to keep track of these recurrent transactions in one area. Because the volume of small transactions is too much for a single cashier to handle, a petty cashier is hired.

Q19. What do you mean by balancing of cash book? 

Ans: All cash transactions relating to cash receipts and cash payments are recorded date-wise when they are recorded in cash books. When a cash book is kept, there is no need to open a separate cash book in the ledger. Because cash revenues cannot be less than cash payments, there is always a debit balance in the cash book.

The principal document for cash receipts is essentially a duplicate copy of the receipt that the cashier issues. Any invoice, bill, or other document used to make payments will be regarded as the source or principal document for documenting transactions.

Q20. Define the types of cash book. Explain 

Ans: There are four different kinds of cash books, They are explained below:

i. Single-column cash book: Each debit and credit side contains a single amount column.

ii. Double column cash book: On both the debit and credit sides, it has two columns of amounts.

iii. Three-column cash book: On both the debit and credit sides, it has three columns of amounts. One column is for cash, another is for discounts, and a third is for bank transactions.

iv. A nice cash book: Large corporations have a lot of little transactions. As a result, all little transactions are grouped together to produce a nice cash book.

NCERT MCQ ON Foreign Exchange Rate:

Question 1:  The exchange rate at which demand for foreign currency becomes equal to its supply called

• a) Equal rate of exchange
• b) Unequal rate of exchange 
• c) Equilibrium rate
• d) All of these

Answer :  Equilibrium rate

Question2 :  According to adjustable peg system (or Bretton Woods System ) of Exchange Rate :

• a) Different currencies were pegged to one currency (US dollar)
• b) US dollar was assigned gold value at a fixed price
• c) Parity between two currencies was determined by the quantity of gold contained in them
• d) All of these

Answer :  All of these

Question 3:  What is the relationship between demand for foreign exchange and exchange rate ?

• a) Inverse          
• b) Direct
• c) One to one
• d) No to relationship

Answer :  Inverse          

Question 4:  What is the relationship between supply of foreign exchange and exchange rate?

• a) Inverse     
• b) Direct
• c) One to one
• d) No to relationship

Answer :  Direct

Question5 :  Spot market is that market where in :

• a) Only spot or current transactions are handled
• b) Foreign exchange transactions are meant for future delivery
• c) Exchange rate is determined instantly
• d) Both (a) and (c)

Answer :  Both (a) and (c)

Question6 :  Forward market is that market which :

• a) Handled transactions of foreign exchange meant for future delivery
• b) Handled current transactions
• c) Handled current as well as future transactions
• d) None of these

Answer :  Handled transactions of foreign exchange meant for future delivery

Question 7:  If Rs. 150 ate required to buy $ 2, instead of Rs.100 earlier, then :

• a) Domestic currency has depreciated 
• b) Domestic currency has appreciated
• c) Rupee value of import bill will increase 
• d) Both (a) and (c)

Answer :  Both (a) and (c)

Question8 :  BoP is measured as :

• a) Difference between visible items of exports and imports
• b) Difference between invisible items of exports and imports
• c) Difference between external and internal flow of gold
• d) Difference between all receipts of foreign exchange and payments of foreign exchange

Answer :  Difference between all receipts of foreign exchange and payments of foreign exchange

Question 9:  Balance of trade is measured as : 

• a) Difference between import and export goods
• b) Difference between import and export services
• c) Difference between import and export of capital
• d) Difference between all export and all imports

Answer :  Difference between import and export goods

Question 10:  In which of the following categories are economic transactions of balance of trade recorded ?

• a) Visible items 
• b) Invisible items
• c) Capital transfers 
• d) All the above

Answer :  Visible items 

Question 11:  Which of the following transactions are recorded in the current account of the balance of payments ?

• a) Import and export of goods and services  
• b) Transfers from one country to the other
• c) Both (a) and (b) 
• d) None of these

Answer :  Both (a) and (b) 

Question12 :  Which of the following items relate to BoP which :

• a) Foreign investment 
• b) Loans
• c) NRI remittance
• d) All of these

Answer :  All of these

Question 13:  Autonomous items are related to those transactions which :

• a) Are determined by motive of profit 
• b) Are not concerned with the equilibrium status of BoP
• c) Both (a) and (b)
• d) None of these

Answer :  Both (a) and (b)

Question 14:  Accommodating items are those items of Bop which :

• a) Are not determined by profit motive 
• b) Are conditioned by the positive or negative BoP status
• c) Deal with capital transfers only
• d) Both (a) and (b)

Answer :  Both (a) and (b)

Question 15: Disequilibrium in balance of payments means:

• a) Surplus balance of payments 
• b) Deficit balance of payments
• c) Both (a) and (b) 
• d) None of these

Answer :  Both (a) and (b) 

Question 16:  If balance of trade is (-) Rs.600 crore and value of exports is rs.500 crore then the value of imports will be :

• a) Rs.1,300 crore  
• b) Rs. 300 crore
• c) Rs.1,100 crore 
• d) Rs. 1,200 crore

Answer :  Rs.1,100 crore 

 

NCERT MCQ ON Government Budget and the Economy:

Question1:  In the context of government budget, which of the following statements is correct ?

• a) Budget is a statement of expected annual receipts and expenditure is correct?
• b) It is a detail of actual receipts and expenditures of the government in a financial year
• c) It offers a detailed description of achievements of the government during the 5 year plans
• d) It indicates  BoP status of the economy
  Answer :  Budget is a statement of expected annual receipts and expenditure is correct?

Question2 :  Which of the following are the objectives of government budget ?

• a) Redistribution of income and wealth
• b) Economy stability 
• c) Both (a) and (b) 
• d) None of these
  Answer :  Both (a) and (b) 

Question3 :  Which of the following is a non- tax receipt ?

• a) Gift tax
• b) Sales tax 
• c) Gift and grants         
• d) Excise duty
  Answer :  Gift and grants         

Question4 :  Regressive tax is that which is :

• a) Charged at an increasing rate when income of the individual increases 
• b) Charged at a decreasing rate when income of the individual increases
• c) Relatively a low percentage of an individual’s income
• d) A fixed percentage of an individual’s income
  Answer :  Charged at a decreasing rate when income of the individual increases

Question5 :  Which one of the following is indirect tax ?

• a) Wealth tax
• b) Excise duty
• c) Income tax 
• d) None of these
  Answer :  Excise duty

Question6 :  Which of the following are capital receipts of the government ?

• a) Recovery of loans
• b) Borrowings
• c) Disinvestment 
• d) All of these
  Answer :  All of these

Question7 :  Capital expenditure is that estimated expenditure of the government which?

• a) Assets are increased 
• b) liability is decreased 
• c) Both (a) and (b) 
• d) Assets and liabilities do not change
  Answer :  Both (a) and (b) 

Question8 :  Deficit budget refers to that situation in which government’s budget expenditure is :

• a) less than its budget receipts 
• b) More than its budget receipts 
• c) Equal to its budget receipts 
• d) None of these
• Answer :  More than its budget receipts 

Question9 :  Fiscal deficit=

• a) Total expenditure – total receipt other than borrowing
• b) Revenue expenditure- revenue receipts
• c) Capital expenditure – capital receipts
• d) Revenue expenditure + Capital expenditure – revenue receipts
  Answer :  Total expenditure – total receipt other than borrowing

Question 10:  Surplus budget is that budget where in :

• a) Estimated revenue of the government < estimated expenditure of the government
• b) Estimated revenue of the government > estimated expenditure of the government
• c) Estimated revenue of the government = estimated expenditure of the government
• d) None of these
  Answer :   Estimated revenue of the government > estimated expenditure of the government

Question 11: Which of the following is the capital expenditure of the government?
(a) Interest Payment
(b) Purchase of House
(c) Expenses on Machinery
(d) All of the above
Answer: (a) Interest Payment

Question12 : When government spends more than it collects by way of revenue, it incurs ______
(A) Budget surplus
(B) Budget deficit
(C) Capital expenditure
(D) Revenue expenditure
Answer: (B) Budget deficit

Question13 : Which of the following statement is true?
(a) Fiscal deficit is the difference between total expenditure and total receipts
(b) Primary deficit is the difference between total receipt and interest payments
(c) Fiscal deficit is the sum of primary deficit and interest payment
(d) All of these
Answer: (c) Fiscal deficit is the sum of primary deficit and interest payment

Question14 : Which is included in the Direct Tax?
(a) Income Tax
(b) Gift Tax
(c) Both (a) and (b)
(d) Excise Duty
Answer: (c) Both (a) and (b)

Question15 : The fiscal deficit is the difference between the government’s total expenditure and its total receipts excluding ______
(A) Interest
(B) Taxes
(C) Spending
(D) Borrowings
Answer: (D) Borrowings

Question 16: Which is included in Indirect Tax?
(a) Excise Duty
(b) Sales Tax
(c) Both (a) and (b)
(d) Wealth Tax
Answer: (c) Both (a) and (b)

Question17 : What is the annual statement of the government’s fiscal revenue and fiscal expenditure known?
(A) Budget
(B) Fiscal Budget
(C) Capital Budget
(D) All of these
Answer: (B) Fiscal Budget

Questio18 : An annual statement of the estimated receipts and expenditure of the government over the fiscal year is known as
(A) Budget
(B) Income estimates
(C) Account
(D) Expenditure
Answer: (A) Budget

Question 19: How many types of revenue receipts are there?
(A) 2
(B) 3
(C) 4
(D) 6
Answer: (A) 2

Question20 : Who issues 1 rupee note in India:
(a) Reserve Bank of India
(b) Finance Ministry of India
(c) State Bank of India
(d) None of these
Answer: (b) Finance Ministry of India

Question 21: The amount collected by the government as taxes and duties is known as _______
(A) Capital receipts
(B) Tax revenue receipts
(C) Non-tax revenue receipts
(D) All of these
Answer: (B) Tax revenue receipts

Question22 : Which is included in indirect tax?
(a) Income tax
(b) Wealth tax
(c) Excise Duty
(d) Gift tax
Answer: (c) Excise Duty

Question23 : The amount collected by the government in the form of interest, fees, and dividends is known as…….
(A) Tax-revenue receipts
(B) Capital receipts
(C) Non-tax revenue receipts
(D) None of these
Answer: (C) Non-tax revenue receipts

Question24 : Direct tax is called direct because it is collected directly from:
(A) The producers on goods produced
(B) The sellers on goods sold
(C) The buyers of goods
(D) The income earners
Answer: (D) The income earners

Question25 : Which objectives government attempts to obtain by Budget
(a) To Promote Economic Development
(b) Balanced Regional Development
(c) Redistribution of Income and Wealth
(d) All the above
Answer: (d) All the above

Question26 : Which of the following is an example of direct tax?
(A) VAT
(B) Excise duty
(C) Entertainment tax
(D) Wealth tax
Answer: (D) Wealth tax

Question27 : Which is a component of the Budget Receipt?
(a) Revenue Receipt
(b) Capital Receipt
(c) Both (a) and (b)
(d) None of the above
Answer: (c) Both (a) and (b)

Question28 : Which of the following is the component of a budget?
(A) Fiscal budget
(B) Capital budget
(C) Both of these
(D) None of these
Answer: (C) Both of these

Question29 : Tax revenue of the Government includes :
(a) Income Tax
(b) Corporate Tax
(c) Excise Duty
(d) All of these
Answer: (d) All of these

Question30 : Budget speech in Lok Sabha is given by:
(a) President
(b) Prime Minister
(c) Finance Minister
(d) Home Minister
Answer: (c) Finance Minister

Question31 : The expenditures which do not create assets for the government is called :
(a) Revenue Expenditure
(b) Capital Expenditure
(c) Both (a) and (b)
(d) None of the above
Answer: (a) Revenue Expenditure

Question32 : What is the period of a fiscal year?
(A) 1 April to 31 March
(B) 1 January to 31 December
(C) 1 March to 28 February
(D) None of these
Answer: (A) 1 April to 31 March

Question 33: Direct tax is :
(a) Income Tax
(b) Gift Tax
(c) Both (a) and (b)
(d) None of these
Answer: (c) Both (a) and (b)

Question34 : Which of the following is not a revenue receipt?
(a) Recovery of Loans
(b) Foreign Grants
(c) Profits of Public Enterprise
(d) Wealth Tax
Answer: (a) Recovery of Loans

Question35 : From the following which is included in the direct tax:
(a) Income Tax
(b) Gift Tax
(c) Both (a) and (b)
(d) Excise Tax
Answer: (c) Both (a) and (b)

Question36 : In India, one rupee note is issued by:
(a) Reserve Bank of India
(b) Finance Ministry of Government of India
(c) State Bank of India
(d) None of these
Answer: (b) Finance Ministry of Government of India

Question 37: The non-tax revenue in the following is:
(A) Export duty
(B) Import duty
(C) Dividends
(D) Excise
Answer: (C) Dividends

Question 38: Capital budget consist of:
(a) Revenue Receipts and Revenue Expenditure
(b) Capital Receipts and Capital Expenditure
(c) Direct and Indirect Tax
(d) None of these
Answer: (b) Capital Receipts and Capital Expenditure

Question 39: Financial Year in India is:
(a) April I to March 31
(b) January 1 to December 31
(c) October 1 to September 30
(d) None of the above
Answer: (a) April I to March 31

Question40 : Which of the following is an indirect tax?
(a) Excise Duty
(b) Sales Tax
(c) Custom Duty
(d) All of these
Answer: (d) All of these

Question41 : Borrowing in the government budget is:
(A) Revenue deficit
(B) Fiscal deficit
(C) Primary deficit
(D) Deficit in taxes
Answer: (B) Fiscal deficit

Question42 : What is the duration of a Budget?
(a) Annual
(b) Two Years
(c) Five Years
(d) Ten Years
Answer: (a) Annual

Question43 : Which of the following is included in fiscal policy?
(a) Public Expenditure
(b) Tax
(c) Public Debt
(d) All of these
Answer: (d) All of these

Question44 : The budget may include:
(a) Revenue Deficit
(b) Fiscal Deficit
(c) Primary Deficit
(d) All of these
Answer: (d) All of these

Question 45: Budget:
(a) is a description of income-expenditure of government
(b) is a document of the economic policy of the government
(c) is a description of non-programs of the government
(d) All of these
Answer: (d) All of these

Question 46: In an unbalanced budget:
(a) Income is greater than expenditure
(b) Expenditure is higher relative to income
(c) Deficit is covered by loans or printing of notes
(d) Only (b) and (c)
Answer: (d) Only (b) and (c)

Question 47: Which one of the following is a pair of direct tax?
(a) Excise duty and Wealth Tax
(b) Service Tax and Income Tax
(c) Excise Duty and Service Tax
(d) Wealth Tax and Income Tax
Answer: (d) Wealth Tax and Income Tax

Question48 : Which of the following is a correct measure of the primary deficit?
(a) Fiscal deficit minus revenue deficit
(b) Revenue deficit minus interest payments
(c) Fiscal deficit minus interest payments
(d) Capital expenditure minus revenue expenditure
Answer: (c) Fiscal deficit minus interest payments

Question49 : The primary deficit in a government budget will be zero, when _______
(A) Revenue deficit is zero
(B) Net interest payments are zero
(C) Fiscal deficit is zero
(D) Fiscal deficit is equal to interest payment
Answer: (D) Fiscal deficit is equal to interest payment

Question50 : The duration of the Government budget is:
(a) 5 years
(b) 2 years
(c) 1 year
(d) 10 years
Answer: (c) 1 year

Question 51: Budget is presented in the Parliament by:
(a) Prime Minister
(b) Home Minister
(c) Finance Minister
(d) Defence Minister
Answer: (c) Finance Minister

Question 52: Which of the following budget is suitable for developing economies?
(a) Deficit Budget
(b) Balanced Budget
(c) Surplus Budget
(d) None of these
Answer: (a) Deficit Budget

Question 53: Professional tax is imposed by:
(a) Central Government
(b) State Government
(c) Municipal Corporation
(d) Gram Panchayat
Answer: (b) State Government

Question54 : Which type of expenditure is made in bridge construction?
(a) Capital Expenditure
(b) Revenue Expenditure
(c) Both (a) and (b)
(d) None of the above

NCERT MCQ ON National Income Determination and Multiplier:

Question1 :  Which of the following indicates AD in an open economy?

• a) Private (household) Consumption Expenditure
• b) Household Investment Expenditure
• c) Government expenditure + private consumption expenditure
• d) Household consumption expenditure+ investment expenditure + government expenditure + net exports

Answer :  Household consumption expenditure+ investment expenditure + government expenditure + net exports

Question2 :  Consumption function is a functional relationship between:

• a) Income and saving
• b) Price and consumption
• c) Income and consumption
• d) Income, consumption and saving

Answer :  Income and consumption

Question3 :  Propensity to consume means:

• a) Tendency of the consumer  towards higher consumption
• b) Ratio of consumption to income
• c) Level of income at which consumption expenditure is equal to income
• d) Additional income to be spent on consumption

Answer :  Ratio of consumption to income

Question 4:  Average propensity to consume (APC) equal to :

• a)
• b)
• c)
• d)

Answer :

Question 5:  MPC being equal to 0.5, what will be , if income increases by Rs.100?

• a) Rs. 60
• b) Rs. 50
• c) Rs. 40
• d) Rs. 70

Answer :  Rs. 50

Question 6:  Propensity to save means:

• a) Ratio of saving to income
• b) level of income at which saving is equal to income
• c) Additional income that is not to be saved
• d) None of these

Answer :  Ratio of saving to income

Question7 :  If MPS is 0.6,what will be ∆S when income increases by Rs.100 ? 

• a) Rs. 60
• b) Rs. 50
• c) Rs. 40
• d) Rs.70

Answer :  Rs. 60

Question 8:  Average propensity (APS) is equal to:

• a)
• b)
• c)
• d)

Answer :

Question 9:  Which of the following is correct ?

• a) MPC÷MPS=1         
• b) 1-MPC=MPS
• c) 1-MPS= MPC
• d) All of these

Answer :  All of these

Question10 :  If MPC is 40 per cent, MPS will be

• a) 70 percent
• b) 60 percent
• c) 50 percent
• d) 40 percent

Answer :  60 percent

Question 11:  Since As= C+S and AD=C+I the equilibrium will be established where C+S= C+I, or where:

• a) S=I     
• b) S>I
• c) S<I 
• d) All the above

Answer :  S=I     

Question12 :  Equilibrium level of income/ output and employment is viewed from which of the following approaches ?

• a) AS=AD approach
• b) S=I approach
• c) Both (a) and (b) 
• d) None of these

Answer :  Both (a) and (b) 

Question13 :  On account of injections and withdrawals, equilibrium level of income undergoes :

• a) A shift
• b) No shift
• c) A dispersal 
• d) No change

Answer :  A shift

Question 14:  According to Keynes, equality (equilibrium) between AD and AS can take place in a situation

• a) Less than full employment
• b) Full employment
• c) Beyond full employment  
• d) All of these

Answer :  All of these

Question 15:  If MPC = 0.9, than value of multiplier will be:

• a) 6        
• b) 9
• c) 10
• d) 12

Answer :  10

Question16 :  Multiplier=

• a) ∆Y/∆S
• b) ∆Y/∆I
• c) ∆I/∆Y
• d) ∆Y/∆C

Answer :  ∆Y/∆I

Question17 :  Multiplier is estimated as:

• a) 1/MPC
• b) 1/1-MPC
• c) 1/1+MPC    
• d) 1/1+MPS

Answer :  1/1-MPC

Question18 :  If MPS =1/4, the value of multiplier will be :

• a) 4
• b) 2
• c) 8
• d) 6

Answer :  4

Question 19:  If MPC = 0, the multiplier will be:

• a) 1
• b) 0
• c) 2
• d) X

Answer :  1

Question20 :  If an investment of Rs. 10 crore results in an increase in income by Rs 50 crore, then the multiplier will be:

• a) 5
• b) 4
• c) 2 
• d) None of these

Answer :  5

Question 21:  Deficient demand leads to :

• a) Deflationary Gap
• b) Inflationary Gap
• c) Both and (a) and (b)  
• d) None of these

Answer :  Deflationary Gap

Question 22:  Deflationary gap is measured as :

• a) AD_F + AD_U
• b) AD_F÷ AD_U
• c) AD_F – AD_U
• d) None of these

Answer :  AD_F– AD_U

Question 23:  Which of the following does not lead to fall in AD ?

• a) Fall in private consumption expenditure
• b) Fall in export
• c) Fall in Import
• d) Fall in Government Expenditure

Answer :  Fall in Import

Question24 :  Deficient or excess demand can be corrected through

• a) Fiscal Policy
• b) Monetary Policy
• c) Both (a) and (b)   
• d) None of these

Answer :  Both (a) and (b)   

Question25 :  With a view to correcting deflationary gap or deficient demand, which of the following fiscal policy measures should be adopted ?

• a) Reduction in taxes
• b) Increase in public expenditure
• c) Reduction in public debt
• d) All of these

Answer :  All of these

Question26 :  Which of the following leads to increase in AD ?

• a) Fall in imports
• b) Increase in investment expenditure
• c) Increase in government expenditure
• d) All of these

Answer :  All of these

Question27 :  Of the following, what are the quantitative measures of monetary policy ?

• a) Repo rate
• b) Open market operations 
• c) SLR
• d) All of these

Answer :  All of these

Question28 :  A tax the burden of which can be shifted on to others, is called :

• a) Indirect Tax
• b) Direct Tax
• c) Ad Valorem
• d) Specific Tax

Answer :  Indirect Tax

Question29 :  The difference between fiscal and interest payment is called :

• a) Revenue Deficit
• b) Primary Deficit 
• c) Bbudget Deficit
• d) Capital Deficit

Answer :  Primary Deficit 

Question30 :  If the value exports exceeds the value of visible imports, the current account deficit will be:

• a) Positive
• b) Negative
• c) Positive or Negative 
• d) None of these

Answer :  Positive or Negative 

 

NCERT MCQ ON Banking:

Question1 :  A commercial bank is a bank that:

• a) Gives long-term loans
• b) Creates credit
• c) Gives short-term loans      
• d) All of these

Answer :  All of these

Question2 :  Which of the following is not concerned with banking organization?

• a) Bank rate
• b) Fiscal deficit
• c) Credit creation
• d) Cash reserve ratio

Answer :  Fiscal deficit

Question3 :  Non- chequeable deposits are those:

• a) Against which no cheque can be drawn at any time
• b) Against which no money can be withdrawn
• c) Which are called fixed deposit
• d) All of these

Answer :  All of these

Question4 :  Credit cards issued by the banks:

• a) Encourage Consumer Spending
• b) Increase Aggregate Demand In the Economy
• c) Both (a) and (b)
• d) None of these

Answer :  Both (a) and (b)

Question5 :  Central bank is an apex bank of the country that:

• a) Controls the entire banking system of the country
• b) Issues currency
• c) Acts as a banker to the government
• d) All of these

Answer :  All of these

Question6 :  Credit control means:

• a) Contraction of credit only
• b) Extension of credit only
• c) Extension and contraction of money supply
• d) None of these

Answer :  Extension and contraction of money supply

Question7 :  Which of the following is not the instrument of credit control?

• a) CRR
• b) SLR
• c) Repo rate    
• d) Managed floating

Answer :  Managed floating

Question8 :  The minimum percentage of a bank’s total deposits which is required to be kept with the RBI is called:

• a) CRR
• b) Repo rate
• c) SLR
• d) Reverse Repo Rate

Answer :  CRR

Question 9:  Which of the following leads to increase in AD ?

• a) Fall in imports
• b) Increase in investment expenditure
• c) Increase in government expenditure   
• d) All of these

Answer :  All of these

Question 10:  Deficient or excess demand can be corrected through

• a) Fiscal Policy
• b) Monetary Policy
• c) Both (a) and (b)   
• d) None of these

Answer :  Both (a) and (b)   

 

NCERT MCQ ON Money:

Question1 :  Barter system refers to that system where in:

• a) Goods are exchanged for goods
• b) Goods are not exchanged at all
• c) Goods are exchanged for domestic currency
• d) Goods are exchanged for foreign currency

Answer :  Goods are exchanged for goods

Question2 :  Which of the following is related to barter system of exchange ?

• a) Double coincidence of wants   
• b) Common unit of value
• c) Limited exchange 
• d) Both (a) and (c)

Answer :  Both (a) and (c)

Question 3:  Out of the following , which is the primary function of money supply?

• a) Store of value
• b) Transfer of value
• c) Measure of value
• d) Bases of credit

Answer :  Measure of value

Question4 :  Which of the following is the adequate definition of money?

• a) Any goods which is commonly used as a store of value
• b) Any goods which is exchanged for gold at a fixed rate
• c) Any goods which is acceptable to a bank
• d) Any goods which is commonly accepted as a medium of exchange

Answer :  Any goods which is commonly accepted as a medium of exchange

Question5 :  Which of the following is the component of M₁ measure of money supply?

• a) Time deposit
• b) Bill of exchange
• c) Treasury bill
• d) None of these

Answer :  None of these

Question6 :  Full- bodied money is that money, whose money value and commodity value are:

• a) Equal
• b) Proportionately equal
• c) Different
• d) None of these

Answer :  Equal

Question7 :  Bank money is that money which is:

• a) Printed by RBI
• b) Printed by the government
• c) Generated in the form of credit creation
• d) None of these

Answer :  Generated in the form of credit creation

Question 8:  Which of the following system governs note issuing in India

• a) Proportionate system     
• b) Minimum reserve system
• c) Fixed fiduciary  issue system
• d) Simple deposit system 

Answer :  Minimum reserve system

Question9 :  In India there are four alternative measures of money supply M₁, M₂, M₃ and M₄ of these M_{1 =}

• a) Currency with people
• b) Currency with people + demand deposits
• c) Currency with people +demand deposits + other deposits with the reserve bank
• d) None of these

Answer :  Currency with people +demand deposits + other deposits with the reserve bank

Question10 :  Which of the following is not the function of commercial bank?

• a) To accept deposits
• b) To offer loans
• c) To provide overdraft facility
• d) To fix CRR

Answer :  To fix CRR

NCERT MCQ ON National Income and Related Aggregates:

Question1 :  Those goods which satisfy human wants directly are called

• a) Intermediate goods         
• b) Consumer goods
• c) Capital goods
• d) None of these

Answer :  Consumer goods

Question 2:  In the production of sugar, sugarcane is

• a) A final good
• b) A capital good
• c) An Intermediate good
• d) None of these

Answer :  An Intermediate good

Question3 :  Which of the following is a semi-durable goods?

• a) Radio
• b) Clothes
• c) Milk
• d) Petrol

Answer :  Clothes

Question4 :  Capital goods are those goods

• a) Which are used in the production process for several years
• b) Which are used in the production process for few years
• c) Which Involve depreciation losses
• d) Both (a) and (c)

Answer :  Both (a) and (c)

Question5 :  Increase in the stock of capital is known as

• a) Capital loss
• b) Capital gain
• c) Capital formation
• d) None of these

Answer :  Capital formation

Question 6:  Net investment is equal to

• a) Gross investment + depreciation
• b) Gross investment – depreciation
• c) Gross investment ×depreciation
• d) Gross investment ÷ depreciation

Answer :  Gross investment – depreciation

Question7 :  Net capital formation causes

• a) Increase in production capacity
• b) Increase in depreciation
• c) Increase in profits
• d) Increase in cost

Answer :  Increase in production capacity

Question 8:  Which of the following leads to depreciation?

• a) Normal wear and tear                 
• b) Damages due to floods
• c) Damages due to market – crash
• d) None of these

Answer :  Normal wear and tear                 

Question9 :  Which of the following leads to unexpected obsolescence?

• a) Change in demand
• b) Natural calamities 
• c) Change in technology
• d) None of these

Answer :  Natural calamities 

Question10 :  Income of the family is the example of which variable?

• a) Stock
• b) Flow
• c) Both stock and flow
• d) Neither stock nor flow

Answer :  Flow

Question11 :  A quantity measured per unit of time period is known as 

• a) Stock variable
• b) Flow variable
• c) Inventory   
• d) None of these

Answer :  Flow variable

Question12 :  Which of the following is a flow variable 

• a) Consumption         
• b) Wealth
• c) Quantity of money
• d) None of these 

Answer :  Consumption         

Question13 :  Domestic product is equal to:

• a) National product + net factor income from abroad
• b) National product – net factor income from abroad
• c) National product ÷ net factor income from abroad
• d) National product × net factor income from abroad

Answer :  National product – net factor income from abroad

Question 14:  Which of the following is not correct?

• a) NNP at Market Price = GNP at Market Price + Depreciation
• b) NDP at Market Price = NNP at Market Price – Net Factor Income from Abroad
• c) NDP at Factor Cost = NDP at Market Price – Indirect taxes + Subsidies
• d) GDP at Factor Cost = NDP at Factor Cost + Depreciation

Answer :  NNP at Market Price = GNP at Market Price + Depreciation

Question 15:  Which one is correct?

• a) National Income = NDP at Factor Cost – Net Factor Income from Abroad
• b) GNP at Factor Cost = GNP at Market Price + Net Indirect Tax
• c) Personal Income = Private Income – Corporate Tax – Corporate Saving
• d) Disposable Income = Saving of Household Sector – Consumption of Household Sector

Answer :  Personal Income = Private Income – Corporate Tax – Corporate Saving

Question16 :  Basis of the difference between the concepts of market Price and Factor Cost is:

• a) Direct taxes
• b) Indirect taxes
• c) Subsidies     
• d) Net indirect taxes

Answer :  Net indirect taxes

Question17 :  Which one refers to Net Indirect Taxes?

• a) Indirect taxes + subsidies
• b) Indirect taxes – subsidies
• c) Direct taxes – subsidies  
• d) None of the above

Answer :  Indirect taxes – subsidies

Question 18:  Which one leads to Factor Cost ?

• a) Marker Price – indirect Taxes
• b) Marker Price – Net Indirect Taxes
• c) Marker Price + Indirect Taxes
• d) Marker Price + Net Indirect Taxes

Answer :  Marker Price – Net Indirect Taxes

Question19 :  Which one includes depreciation?

• a) GNP at Market Price
• b) NNP at Market Price
• c) NNP at Factor Cost          
• d) None of these

Answer :  GNP at Market Price

Question 20:  Market price of the final goods and services (Including depreciation) produced within the domestic territory of a country during an accounting year  is called:

• a) GDP at Market Price       
• b) GNP at Factor Cost
• c) NNP at Factor cost
• d) GDP at Factor Cost

Answer :  GDP at Market Price       

Question 21:  GNP at market price is measured as:

• a) GDP at market price – Depreciation
• b) GDP at market price + Net factor Income from abroad
• c) GNP at market price + subsidies
• d) NDP at factor cost + Net factor income from abroad

Answer :  GDP at market price + Net factor Income from abroad

Question22 :  Value added method measured the contribution of which of the following within the domestic territory of a country?

• a) One producing enterprise only
• b) All producing enterprises
• c) A few producing enterprises
• d) None of these

Answer :  All producing enterprises

Question 23:  Which of the following is not included in final consumption expenditure?

• a) Household expenditure on food          
• b) Government final consumption expenditure
• c) Household expenditure on education
• d) Expenditure on raw material 

Answer :  Expenditure on raw material 

Question 24:  As a result of double counting, national incomes is:

• a) Over- estimated                
• b) Under- estimated
• c) Correctly – estimated
• d) Not estimated for the entire year of accounting

Answer :  Over- estimated                

Question25 :  Which of these is a limitation in the measurement of social welfare using GDP at constant prices as an index?

• a) Increase in population size
• b) Change in working conditions
• c) Composition of production
• d) All of these

Answer :  All of these

Question 26:  Which of the following is not transfer payment?

• a) Interest on national debt
• b) Retirement pensions
• c) Old- age pensions
• d) Donations

Answer :  Retirement pensions

Question27 :  Which of the following items is not included while estimating GNP of a country at market prices?

• a) Salaries and wages before taxes
• b) Indirect taxes
• c) Remittances by NRIs        
• d) Subsidy

Answer :  Remittances by NRIs        

Question28 :  Which of the following items is not included while estimating national Income by Income method?

• a) Rent
• b) Mixed income
• c) Fixed investment
• d) Undistributed profits

Answer :  Fixed investment

Question29 :  Real national income means:

• a) National income at current prices
• b) National income at factor prices 
• c) National income at constant prices     
• d) National income at average prices of the past 10  years

Answer :  National income at constant prices     

Question30 :  In India, suppliers of money are:

• a) Government of the country
• b) Banking system of the country
• c) Both (a) and (b)
• d) None of these

Answer :  Both (a) and (b)