CHAPTER – 1

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true

1. Assertion (A): The main objective of book-keeping is to ascertain the profit or loss and financial position of
the business.
Reason (R): Book-keeping includes identifying, measuring and recording of financial transactions of the
business.

2. Assertion (A): Accounting has a wider scope than book-keeping.

Reason (R): Book-keeping involves recording, classifying, summarizing and analyzing the financial
transactions.

3. Assertion (A): Owners or investors who contribute capital in the business require information regarding risk
and return on their investments in the business enterprise.
Reason (R): Long term lenders require information about the ability of the enterprise to pay interest and
repayment of their loans.

4. Assertion (A): Accounting records only the transaction of financial nature.

Reason (R): Goods taken from the business by the proprietor for his personal use is not of financial nature and
hence will not be recorded.

5. Assertion (A): Accounting information must be reliable. Reliability implies that the information should be
presented in such a simple and logical manner that they are understood easily by their users.
Reason (R): Accounting is influenced by personal judgements.

6. Assertion (A): Fixed assets are shown in the Balance sheet at their cost and not at their realizable value.
Reason (R): Fixed assets are shown in the Balance sheet according to ‘Historical Cost Concept’.

7. Assertion (A): All financial transactions relating to the business are first of all recorded in ‘Ledger’.
Reason (R): Separate accounts are opened in the Ledger for purchases, sales, expenses, income, assets etc.

8. Assertion (A): The main purpose of cost accounting is to ascertain total cost and per unit cost of goods
produced.
Reason (R): The main purpose of financial accounting is to record the business transactions and to ascertain
profit or loss and the financial position of the business.

9. Assertion (A): Internal users of accounting information include owners and management.
Reason (R): Internal users get accounting information by published reports of the business such a profit &
loss account and balance sheet. They also get information from unpublished reports or internal reports of the
enterprise.

10. Assertion (A): Qualitative aspects of the business unit are completely ignored from the books while preparing
financial statements.
Reason (R): Window dressing refers to the practice of manipulating accounts so as to conceal vital facts, so
that the financial statements may disclose a more favourable position than the actual position.
 CHAPTER – 2

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true

1. Assertion (A): Any expenditure that gives benefit for one accounting period is known as capital expenditure.
Reason (R): A Revenue Expenditure, the benefit of which will accrue in more than one financial year has to
be written off in more than one accounting period is called Deferred Revenue Expenditure.

2. Assertion (A): Any expenditure which is incurred in acquiring and installation of an asset is capital
expenditure.
Reason (R): Such expenditure yields benefit for a long period and hence added to assets.

3. Assertion (A): Current Liabilities refer to those liabilities which are to be paid in near future (normally within
one month)
Reason (R): Current Liabilities include Bank Overdraft, Creditors, Outstanding Expenses etc.

4. Assertion (A): Tangible assets are those assets which can be seen are touched. Machinery, Motor-vehicles,
Computer, Patents and Computer Software are tangible assets.
Reason (R): Intangible assets are those assets which cannot be seen or felt. They are also valuable assets and
help the firm in earning profits as much as the tangible assets.

5. Assertion (A): Capital expenditure is incurred for the purpose of increasing the earning capacity of the
business.
Reason (R): Revenue expenditure is incurred for maintenance of earning capacity.

6. Assertion (A): Capital is a liability of the firm towards the proprietor.

Reason (R): Capital is a liability because the proprietor is separate and distinct from the business.

7. Assertion (A): Expense is the cost of use of things or services for the purpose of generating revenue.
Reason (R): Cost of goods sold and depreciation are expenses.

8. Assertion (A): Profit is the excess of revenue over expenses during an accounting period. It results due to
business transactions which are regular in nature.
Reason (R): Gain arises from transactions which are incidental to business such as sale of land & building.

9. Assertion (A): Current assets refer to those assets which are held for continued use in the business.
Reason (R): Debtors, stock and prepaid expenses are current assets.

10. Assertion (A): Fictitious assets are those assets which cannot be realized in cash or no further benefit can be
derived from these assets.
Reason (R): Goodwill, patents and trade-marks are fictitious assets.

CHAPTER – 3

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
 (B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true

1. Assertion (A): Assets are always recorded in the books of accounts at the price paid to acquire them.
Reason (R): As per money measurement concept assets have to be recorded at cost price only.

2. Assertion (A): The money measurement concept states that only those transactions can be recorded in the
books of accounts which can be measured in terms of money.
Reason (R): The creativity of the employees that contributes to the profits can be recorded under money
measurement concept.

3. Assertion (A): Principle of conservatism takes into account all probable losses but ignore prospective profits.
Reason (R): All significant information relating to the economic affairs of the enterprise should be completely
disclosed.

4. Assertion (A): As per matching concept all costs incurred during a particular period should be charged to
revenue of that period.
Reason (R): It is because of matching concept that full cost of the asset is not treated as an expense in the year
of its purchase itself rather it is spread over its useful life.

5. Assertion (A): According to Business Entity Concept, business is treated as a unit separate and distinct from
its owners.
Reason (R): Business Entity Concept does not apply to a sole proprietorship firm.

6. Assertion (A): Human Resources in a business firm are important but is not reflected in the financial
statements of the firm.
Reason (R): Transactions should be recorded from view point of business and not from the view point of
businessman/owner.

7. Assertion (A): The essence of convention of prudence is to anticipate no profit and provide for all possible
losses.
Reason (R): Convention of prudence results in understatement of profits and assets and overstatement of
liabilities.

8. Assertion (A): As per Going Concern Concept it is assumed that the business will continue to exist for a long
period in future.
Reason (R): Entire life of the firm is divided into time intervals for the measurement of profits in accordance
with ‘Going Concern Concept’.

9. Assertion (A): Concept of prudence requires that the same accounting methods should be used from one
accounting period to the next.
Reason (R): The consistency concept states that if straight line method of depreciation is used in one year,
then it should also be used in next year.

10. Assertion (A): Only those facts and events are recorded in accounting which are capable of being expressed in
terms of money.
Reason (R): The caliber or quality of the management is not recorded in the books of accounts.

CHAPTER – 4

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
 (A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true

1. Assertion (A): First step in the accounting process is the identification of business transactions.
Reason (R): Business transactions must be evidenced by an appropriate document such as cash memo,
purchase invoice etc.

2. Assertion (A): Second step in the accounting process is the preparation of Trial Balance.
Reason (R): A trial balance is a statement, prepared with the debit and credit balances of ledger accounts to
check the arithmetical accuracy of accounts.

3. Assertion (A): Only cash transactions are recorded under cash basis of accounting.
Reason (R): Cash basis of accounting does not give a true and fair view of profit or loss of the business
because it ignores outstanding expenses, prepaid expenses, accrued incomes etc.

4. Assertion (A): Accrual basis of accounting makes a complete record of all cash as well as credit transactions.
It however does not follow matching principle of accounting.
Reason (R): Accrual basis of accounting is superior to cash basis of accounting because it depicts true profit
or loss of the business and is recognized by Companies Act, 2013.

CHAPTER – 5

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true

1. Assertion (A): Accounting standards are written statements specifying uniform rules and practices for
preparing financial statements.
Reason (R): Accounting standards are formulated by Companies Act, 2013.

2. Assertion (A): Accounting Standards are mandatory for Sole Proprietorship Firms, Partnership Firms and
Companies.
Reason (R): They ensure uniformity in the preparation and presentation of financial statements.

3. Assertion (A): Accounting standards are based on historical cost concept.

Reason (R): Accounting standards ensure the consistency and comparability of financial statements and
remove the effect of diverse accounting policies and practices.

CHAPTER – 6

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true
1. Assertion (A): Accounting equation states that the total claim (internal) and (external) are always equal to
total assets of the business.
Reason (R): It is based on dual aspect concept i.e., every transaction has 2 aspects debit and credit.

2. Assertion (A): Main elements of accounting equation are Assets, Liabilities and Capital.
Reason (R): Assets = Liabilities + Capital

3. Assertion (A): In case goods costing Rs 30,000 is sold for cash for Rs 40,000, the accounting equation will
hold true because it will lead to increase in cash by Rs 40,000 and decrease in stock by a similar amount i.e.,
Rs 40,000.
Reason (R): In the above mentioned case accounting equation will hold true because cash will increase by Rs
40,000; Stock will decrease by Rs 30,000 and capital will increase by Rs 10,000.

CHAPTER – 7

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true

1. Assertion (A): Double Entry System means that each transaction is recorded twice.
Reason (R): Double Entry System means that each transaction affects atleast two accounts in opposite
direction. One of them is debited and the other is credited.

2. Assertion (A): Artificial Personal Accounts refer to those accounts which do not have a physical existence as
human beings but they work as personal accounts.
Reason (R): An Institution’s Account, Bank Account or a Firm’s Account are treated as Artificial Personal
Accounts.

3. Assertion (A): When an Account represents a particular person or group of persons, it is termed as
representative personal account.
Reason (R): Salaries outstanding account, prepaid insurance account, capital account, drawings account are
representative personal accounts.

4. Assertion (A): The accounts of all those things whose value can be measured in terms of money are termed as
‘Real Accounts’, such as Cash account, Machinery account, Land & Building Account, Bank Account etc.
Reason (R): Bank Account is not a real account but it is an ‘Artificial Personal Account’ since it represents
the account of Banking Company which is an artificial person.

CHAPTER – 8

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true

1. Assertion (A): Voucher is a source document.

 Reason (R): It is used for preparing Journal/Subsidiary Books.

2. Assertion (A): Invoice is a source document.

Reason (R): An invoice is prepared by the seller of goods when he sells goods on credit.

3. Assertion (A): A cheque is an order in writing drawn upon a bank to pay a specified sum to the bearer or the
person named in it.
Reason (R): A pay-in-slip is used to withdraw money from the bank.

4. Assertion (A): If Rukmani sells goods to Shilpa on credit, then Rukmani will prepare a debit note.
Reason (R): If Shilpa returns goods to Rukmani, then Shilpa will prepare a debit note.

5. Assertion (A): Voucher is prepared on the basis of source documents.

Reason (R): A voucher indicates as to which account is to be debited and which account is to be credited.

CHAPTER – 9

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true

1. Assertion (A): Journal is a book of original entry in which transactions are recorded first of all, as and when
they take place.
Reason (R): Transactions are recorded in Journal in chronological order.

2. Assertion (A): Received or placed an order for goods is not recorded in journal.
Reason (R): Revenue recognition concept states that a transaction is to be recognized when an obligation to
pay arises.

3. Assertion (A): By analyzing each transaction into debit and credit aspects, the journal facilitates the posting
into ledger.
Reason (R): Main object of preparing Journal is to ascertain the financial position of the business.

4. Assertion (A): Trade discount is not recorded in the books of accounts, even if goods are purchased for cash.
Reason (R): Trade Discount is allowed for timely payment of due amount.

5. Assertion (A): Opening entry is passed for the first transaction of each day.
Reason (R): In the opening entry, the accounts of all assets are debited and the accounts of liabilities as well
as capital are credited.

6. Assertion (A): Trade discount is allowed at a fixed percentage on the list price of goods. It is allowed both on
credit as well as cash transactions.
Reason (R): Cash Discount is allowed to customers for making prompt or early payment.

7. Assertion (A): Purchase Account is credited when the Proprietor withdraws goods from the business for his
personal use.
Reason (R): Purchase Account is credited because as a result of withdrawal of goods, net amount of purchases
of the business is reduced.
8. Assertion (A): A compound entry is passed when two or more transactions relating to one particular account
take place on the same date.
Reason (R): All the transactions are first recorded in Journal and hence it is a principal book of accounts.

9. Assertion (A): A journal records both the debit and credit aspects of a transaction.
Reason (R): Transactions are recorded in Journal according to the double entry system of book-keeping.

10. Assertion (A): Each entry in Journal is followed by a brief explanation of the transaction which is called
‘Narration’.
Reason (R): L.F Column in Journal indicates the page number of the ledger account where the posting has
been made from the Journal.

CHAPTER – 10

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true

1. Assertion (A): GST has replaced many indirect taxes levied by Centre and State Governments.
Reason (R): Central level taxes that have merged into GST are excise duty, services tax and central sales tax.

2. Assertion (A): GST paid on purchase of goods and services is termed Input GST and GST collected on sale of
goods and services is termed Output GST.
Reason (R): Input GST is set off against Output GST.

3. Assertion (A): GST paid on purchase of vehicles cannot be set off against GST collected.
Reason (R): In such a case GST paid is a cost for the purchaser.

4. Assertion (A): GST paid (i.e., Input GST is reversed (Credited) in case of purchase returns and goods lost or
stolen.
Reason (R): GST collected (i.e., Output GST) is reversed (Debited) in case of sales returns.

5. Assertion (A): GST is credited along with Purchase A/c if the goods are withdrawn for personal consumption.
Reason (R): In case of drawings in goods, GST paid can’t be set off against GST collected.

6. Assertion (A): Payment of wages and salaries are exempt from levy of GST.
Reason (R): Payment of health insurance and payment of membership fee of a club, health and fitness centre
is also exempt from levy of GST.

7. Assertion (A): GST is not levied in case of amount deposited into bank and amount withdrawn from bank.
Reason (R): GST is also not levied in case of amount paid to creditors and amount received from debtors.

8. Assertion (A): GST is a destination based tax.

Reason (R): GST is charged every time a sale is made till the time goods reach the consumer. Thus it is a
destination based tax.

9. Assertion (A): GST is a value added tax.

Reason (R): GST is a value added tax since Input GST is set-off against Output GST. As a result, GST is
levied on the incremental value.
 CHAPTER – 11

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true

1. Assertion (A): Cash Book is a book of original entry because all cash transactions are recorded for the first
time in the cash book.
Reason (R): Cash Book is a principal book of accounts because when a cash book is maintained, cash account
is not prepared in ledger.

2. Assertion (A): Cash book and Cash account are same.

Reason (R): When a cash book is prepared, no separate cash account is opened in the ledger.

3. Assertion (A): Contra entries means entries which are recorded on both sides of the cash book.
Reason (R): Such entries are made while depositing or withdrawing cash from the bank.

4. Assertion (A): Deposited Rs 10,000 into bank is a contra entry.

Reason (R): It is not posted to the ledger since its double entry is completed in the cash book itself.

5. Assertion (A): Goods sold for cash for Rs 20,000 and deposited this amount into bank on the same day will
not be treated as a contra entry.
Reason (R): Cash withdrawn from bank for personal use is not a contra entry.

6. Assertion (A): Imprest system is maintained for Petty Cash Book.

Reason (R): Every petty expense is supported by voucher duly attested.

7. Assertion (A): Under imprest system petty cashier is given a definite sum at the beginning and at the end of a
given period is reimbursed the amount actually spent by him.
Reason (R): Under imprest system, if the petty cahier is given Rs 5,000 at the beginning of the month and if
he spends Rs 4,000 till the end of the month, he will be again given Rs 5,000.

8. Assertion (A): The balance of bank column of cash book may show either debit or credit balance.
Reason (R): The debit balance of bank column of cash book shows overdraft balance.

9. Assertion (A): Trade Discount received is recorded in the cash book on debit side.
Reason (R): Cash book is a subsidiary book as well as principal book.

10. Assertion (A): The balance of petty cash is asset of the business.
Reason (R): Salary due for the month of March will appear on the credit side of the cash book.

CHAPTER – 12

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
11. (D) (A) is false, but (R) is true
1. Assertion (A): Purchase book is a part of Journal, whereas purchase account is a part of ledger.
Reason (R): Purchase book records only credit purchases of goods, whereas only cash purchases of goods are
posted in the purchase account.

2. Assertion (A): In case of sale return, the firm receives a debit note.
Reason (R): Because the customer is debiting firm’s account with the value of goods returned.

3. Assertion (A): Ledger is not a subsidiary book.

Reason (R): Sales Return Book is used to record return of goods sold on credit and cash.

4. Assertion (A): Recording is made in purchase book after deducting trade discount and cash discount.
Reason (R): In purchase book, total amount of each transaction is recorded after deducting trade discount and
after adding Input CGST, Input SGST and Input IGST.

5. Assertion (A): In case Triveni returns goods to Saraswati, Triveni will issue a debit note.
Reason (R): Debit notes are used to prepare Returns Outwards Book.

6. Assertion (A): Total of purchases return column in purchases return book is posted to the debit of purchase
return account.
Reason (R): Purchase of an asset on credit is recorded in Journal Proper.

7. Assertion (A): A separate column is made for ‘Credit Note No.’ in Sales Return Book.
Reason (R): A separate column is made for ‘Debit Note No.’ in Purchases Return Book.

8. Assertion (A): Goods taken by the Proprietor for personal use will be recorded in Purchases Return Book.
Reason (R): Recording is made in Journal Proper of goods given away as charity or free samples.

9. Assertion (A): When a sales book is maintained, there is no need to open sales account in the ledger.
Reason (R): An asset sold on credit will be recorded in Journal Proper.

10. Assertion (A): Closing entries are passed to close the nominal accounts at the end of accounting period.
Reason (R): Transfer entries are passed for transferring the balance of one account to another.

CHAPTER – 13

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true

1. Assertion (A): A ledger is also called the book of Final Entry.

Reason (R): Ledger contains classified and permanent record of all the transactions.

2. Assertion (A): Personal Accounts may have either debit or credit balance.
Reason (R): Assets Accounts may have either debit or credit balance.

3. Assertion (A): Nominal Accounts are not balanced.

Reason (R): Nominal Accounts are transferred to the Trading and Profit & Loss Account at the end of
financial period.
4. Assertion (A): The balance of an account is always known by the side which is in excess.
Reason (R): If total of Dr. side of Prisha’s A/c in the ledger is Rs 50,000 and total of Cr. Side of her A/c is Rs
60,000 then her account will show a Cr. balance of Rs 10,000.

5. Assertion (A): Debit balance of a Personal Account shows amount receivable.

Reason (R): Debit balance of a Nominal Account shows expenses.

6. Assertion (A): Amount of sales can be ascertained from Sales Book.

Reason (R): Amount of sales can be ascertained from Sales Account.

7. Assertion (A): Debit balance of an account shows assets or expenses.

Reason (R): Credit balance of an account shows liabilities or incomes.

8. Assertion (A): While posting in personal accounts from the sales return book, posting is done on the credit
side.
Reason (R): The total of purchase return column of purchase return book will be posted to the debit of
purchases account.

9. Assertion (A): If goods are sold outside the state, posting will be made on the credit side of Output IGST
Account.
Reason (R): If goods are sold within the state, posting will be made on the debit side of Output IGST
Account.

10. Assertion (A): Transactions in Purchase Book are recorded in a chronological order.
Reason (R): Transactions in Ledger are recorded in analytical order.

11. Assertion (A): Each transaction in the cash book is posted only once in a ledger account.
Reason (R): Cash Book itself serves the purpose of Cash Account also and as such the second aspect of a cash
transaction is to be posted in the ledger.

CHAPTER – 14

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true

1. Assertion (A): Trial balance is a part of Double Entry System.

Reason (R): It helps in preparation of final accounts.

2. Assertion (A): Trial balance is an account, prepared with debit and credit balances of ledger accounts.
Reason (R): Trial balance is prepared to test the arithmetical accuracy of books of accounts.

3. Assertion (A): Trial balance is prepared for a particular period and not on a particular date.
Reason (R): Errors of omission do not affect the trial balance.

4. Assertion (A): If a wrong amount is entered either in the Journal or in the Subsidiary Books, it is called error
of commission.
Reason (R): If the effect of one error is neutralized by the effect of some other error, it is called compensating
error.
5. Assertion (A): If amount spend on repair of an old machinery is debited to machinery account it is called error
of principle.
Reason (R): If goods sold to Kashmiri Lal for Rs 4,200 is entered in the Journal as Rs 2,400 it is an error of
principle.

6. Assertion (A): When the rules of double entry are not strictly followed the errors caused are called errors of
principle.
Reason (R): Errors of principle are committed in those cases where a proper distinction between capital and
revenue items is not made.

7. Assertion (A): Rent paid to Landlord if posted to Landlord’s Account will be an error of commission.
Reason (R): Purchase of goods for Rs 5,000 if recorded in Purchase Book as Rs 5,500 will also be an error of
commission.

8. Assertion (A): When the trial balance does not agree, the difference is transferred to capital account.
Reason (R): Trial balance contains the balances of all accounts whether personal, real or nominal.

9. Assertion (A): Rs 5,000 received from Tulsi were credited to Khushi is not an error of principle.
Reason (R): Credit sale to Raghu recorded as sale to Manu is an error of principle.

10. Assertion (A): Errors of posting to the wrong side of an account will be disclosed by preparing a Trial
Balance.
Reason (R): If Rs 10,000 received from Tanu is posted to the debit side of her account, the error will be
disclosed by preparing a Trial Balance.

CHAPTER – 15

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true

1. Assertion (A): Bank Reconciliation Statement is not a part of double entry book-keeping.
Reason (R): It is a method to ensure that there are no errors in recording bank transactions in the cash book.

2. Assertion (A): Bank Reconciliation Statement is prepared by bank.

Reason (R): Bank Reconciliation Statement is prepared to find out the reasons for difference between the
bank balance shown by the cash book and pass book balance.

3. Assertion (A): Bank Reconciliation Statement is not an account.

Reason (R): Bank Reconciliation Statement is prepared on a certain date.

4. Assertion (A): Bank Reconciliation Statement is prepared with the help of Pass Book and Bank Column of
Cash Book.
Reason (R): Because all entries recorded in the bank column of the Cash Book must tally with the entries
recorded in the Pass Book.

5. Assertion (A): Bank Reconciliation Statement is prepared with the balance of either Cash Book or Pass Book.
 Reason (R): It is prepared to ascertain the causes of differences between the balance as shown by Cheque
Book and Pass Book.

6. Assertion (A): Pass Book is a copy of Customer’s Account prepared by the bank.
Reason (R): Payment done by the account holder through issuing a cheque is entered in the bank column of
the Cash Book at the time of issuing the cheque.

7. Assertion (A): A cheque of Rs 25,000 received from Esha is paid into bank for collection but it is not yet
credited by bank. This will result in higher balance in the bank column of the cash book in comparison to pass
book.
Reason (R): A cheque issued to Vinita for Rs 10,000 is not presented for payment in bank. This will result in
higher balance in the Pass Book in comparison to Cash Book.

8. Assertion (A): Cheques issued but not presented for payment will not be considered while preparing an
Amended cash Book.
Reason (R): Only those items are recorded in Amended Cash Book that should have been recorded but have
not been recorded.

9. Assertion (A): Balance shown in the Balance Sheet is of adjusted Cash Book.
Reason (R): Balance shown in the Balance sheet is the balance shown by the Pass book.

10. Assertion (A): If credit side of the bank column of the Cash Book is casted short, the Cash Book will show a
higher balance in comparison to Pass Book.
Reason (R): If a wrong credit has been given by the bank, the Cash Book will show a lower balance in
comparison to Pass Book.

CHAPTER – 16

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true

1. Assertion (A): Depreciation is the decline in the book value of tangible fixed assets (except land).
Reason (R): Such decline is of a temporary nature.

2. Assertion (A): Depletion is the decrease in the value of wasting assets.

Reason (R): Extraction of coal from a coal mine is depletion of coal stock.

3. Assertion (A): Amortisation is a gradual and systematic writing-off of intangible assets over its estimated
useful life.
Reason (R): Patents are amortised being intangible assets.

4. Assertion (A): Diminishing balance method of charging depreciation is superior to straight line method of
depreciation.
Reason (R): Income tax authorities allow for diminishing balance method.

5. Assertion (A): Repairs to second hand machinery purchased before it is put to use are capitalized.
Reason (R): All expenses incurred on asset before it is put to use are capital expenditure.
6. Assertion (A): Depreciation under fixed instalment method is calculated on each year’s opening balance of the
asset.
Reason (R): Depreciation under diminishing balance method is calculated on book value of the asset.

7. Assertion (A): Scrap value is an estimated realizable value of the asset at the end of its economic life.
Reason (R): Under reducing balance method, depreciation is calculated by applying the rate of depreciation
on the book value of the asset (without deducting scrap value).

8. Assertion (A): Depreciation is a process of allocation of the cost of an asset to its effective spam of life.
Reason (R): Depreciation is a process of valuation of asset.

9. Assertion (A): Depreciation decreases only the book value of the asset, not the market value.
Reason (R): Depreciation cannot be provided in case of loss in a financial year.

10. Assertion (A): In reducing installment method, the rate of depreciation gets reduced every year.
Reason (R): In case of reducing installment method, the balance of asset is never reduced to zero level.

11. Assertion (A): It is not necessary to provide on plant and machinery when its market value is higher than its
book value.
Reason (R): Charging depreciation is compulsory and not voluntary.

12. Assertion (A): Depreciation is Revenue Expenditure.

Reason (R): Depreciation is Deferred Revenue Expenditure.

13. Assertion (A): Depreciation arises due to wear and tear and passage of time.
Reason (R): Depreciation also arises due to fall in the market value of the asset.

14. Assertion (A): GST paid (except on Vehicles) does not have any impact on the amount or rate of depreciation.
Reason (R): GST paid (except on Vehicles) does not affect depreciation because it is not a cost of the asset. It
is set off against GST collected.

CHAPTER – 17

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true

1. Assertion (A): Creation of provision is necessary and not voluntary.

Reason (R): It is created even if there are no profits. Thus, it is a charge against profits,.

2. Assertion (A): Provision is created to meet a known liability, the amount of which cannot be determined with
reasonable accuracy.
Reason (R): Reserve is created to meet any unknown liability or loss in future.

3. Assertion (A): Provisions are necessary to ascertain the true profit or loss and the true financial position of the
business.
Reason (R): Provisions are also created to strengthen the financial position of the business.

4. Assertion (A): A reserve is not a charge against profit but it is an appropriation of profit.
 Reason (R): A reserve is not a charge against profit because it is not created by debiting P & L A/c. It is
appropriation of profit because it is created after the calculation of net profit.

5. Assertion (A): A provision is created out of a legal necessity whereas a reserve is created as a matter of
prudence.
Reason (R): A provision is an appropriation of profit whereas a reserve is a charge against profit.

6. Assertion (A): General Reserves are also called ‘Free Reserves’.

Reason (R): General Reserves are not created for any specific purpose and can be freely used for any purpose.

7. Assertion (A): Dividend Equalization Reserve is a specific Reserve.

Reason (R): It is created to maintain a steady rate of dividend.

8. Assertion (A): Profits retained in the business for a ‘rainy day’ are known as ‘General Reserve’.
Reason (R): Such Reserves cannot be utilized for distribution of dividend among shareholders.

9. Assertion (A): Secret Reserves are created by showing profit at a figure much lower than actual.
Reason (R): Writing off excessive depreciation results into creation of Secret Reserve.

10. Assertion (A): When Secret Reserve exist, the actual position of the firm is much better than what is disclosed
by the Balance Sheet.
Reason (R): Secret Reserves are not shown in the Balance Sheet.

CHAPTER – 17

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true

1. Assertion (A): Rs 10,000 received from Disha an an advance against order were credited to Sales A/c. In
rectifying entry sales A/c will be debited and Disha’s A/c will be credited.
Reason (R): Rectifying entry mentioned as above is correct because advance received against order cannot be
treated as sales.

2. Assertion (A): Total of purchase return book Rs 15,000 was posted to the credit of Purchases Return A/c. In
the rectifying entry Purchase Return A/c will be debited by Rs 30,000 and Suspense A/c will be credited.
Reason (R): There will be no rectifying entry since the recording is already correct.

3. Assertion (A): Credit purchases from Era Rs 20,000 were recorded in Sales Book. In the rectifying entry
Purchase A/c and Sales A/c will be debited by Rs 20,000 each and Suspense A/c will be credited by Rs 40,000.
Reason (R): Era’s A/c will be credited by Rs 40,000 instead of Suspense A/c since Era’s A/c must have been
wrongly debited due to recording in Sales Book.

4. Assertion (A): Credit Sales to Kiya Rs 5,000 were recorded in Purchase Book. In the rectifying entry Kiya’s
A/c will be debited by Rs 10,000 and Purchase A/c and Sales A/c will be credited by Rs 5,000 each.
Reason (R): Rectifying entry mentioned as above is correct. Kiya’s A/c will be debited by Rs 10,000 because
her A/c must have been credited because of recording in Purchase Book.
5. Assertion (A): While making posting from Sales Return Book, sales return from Charu Rs 6,000 were posted
to the debit of her account as Rs 600. In the rectifying entry Charu’s A/c will be credited by Rs 5,400.
Reason (R): In the rectifying entry Charu’s A/c will be credited by Rs 6,000.

6. Assertion (A): An amount of Rs 5,000 spent on repairs of an old car has been debited to Repairs Account. In
the rectifying entry Car A/c will be debited and Repairs A/c will be credited.
Reason (R): No rectifying entry is required since repair of an old car is revenue expenditure and has been
correctly debited to Repairs A/c.

7. Assertion (A): Suspense Account may show either a debit or credit balance.
Reason (R): Suspense Account always shows a debit balance.

8. Assertion (A): Loan of Rs 1,00,000 was given to an employee ‘Sudhir’. Interest received from him Rs 8,000
was credited to the Account of Sudhir. In the rectifying entry Sudhir will be debited and Loan A/c will be
credited.
Reason (R): In the rectifying entry Account of Sudhir will be debited and Interest A/c will be credited.

9. Assertion (A): If a Trial Balance does not agree, the difference is entered in Suspense Account.
Reason (R): The difference is entered in Suspense A/c because the difference when located will be debited or
credited to Suspense A/c which ultimately become nil.

10. Assertion (A): Difference in Trial Balance is debited or credited to Suspense Account, which is transferred to
Profit and Loss Account.
Reason (R): The Balance of Suspense Account is shown in the Balance Sheet.

CHAPTER – 19

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true

1. Assertion (A): Cost of installing a new machine is capital expenditure and is debited to machine account.
Reason (R): It is capital expenditure because it is incurred before the machine is put to use.

2. Assertion (A): Rs 10,000 were spent on repairs of various machines. Such expenses will be treated as revenue
expenditure.
Reason (R): It is revenue expenditure since it is incurred in the ordinary course of business.

3. Assertion (A): Rs 50 Lac paid as damages by a transport company to its passengers injured in accident will be
treated as capital expenditure.
Reason (R): It will be treated as revenue expenditure since it is incurred in the ordinary course of business.

4. Assertion (A): A sum of Rs 5 Lac was spent on white-washing and painting of a new factory. Next year Rs 1
Lac were again spent on white-washing. All such expenditure will be treated as capital expenditure.
Reason (R): Rs 5 Lac will be treated as capital expenditure and Rs 1 Lac as revenue expenditure.

5. Assertion (A): Revenue Expenditure is shown in the Trading and Profit and Loss Account.
Reason (R): Capital Expenditure is shown in the Balance Sheet.
6. Assertion (A): Rs 10 Lac spent on replacement of worn-out part of an existing machine is revenue
expenditure.
Reason (R): It is revenue expenditure because it is incurred in maintaining the earning capacity and does not
result in an increase in the earning capacity of the business.

7. Assertion (A): Rs 10,00,000 were spent on advertising of a new product and it is estimated that its benefit will
last for 5 years. In such a case Rs 8,00,000 will be shown on the assets side at the end of the first year.
Reason (R): Rs 8,00,000 is deferred revenue expenditure and will be written off in the next four years.

8. Assertion (A): Rs 1,00,000 received from a debtor whose account was previously written off as bad is a
capital receipt.
Reason (R): Rs 1,00,000 received from sale of an old machine is capital receipt.

9. Assertion (A): Rs 20 Lac received as subsidy from State Government is revenue receipt.
Reason (R): Rs 20 Lac received as grant from State Government for the construction of quarters of staff is
capital receipt.

10. Assertion (A): Capital expenditure is a real account.

Reason (R): Revenue expenditure is a nominal account.

CHAPTER – 20

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true

1. Assertion (A): Balance sheet is a statement and not an account.

Reason (R): It is prepared on a particular date and not for a particular period.

2. Assertion (A): Bills Receivable, Debtors and Stock are liquid assets.
Reason (R): Liquid assets are those which are either in the form of cash or can be quickly converted into cash.

3. Assertion (A): Profit and Loss Account is a periodic statement because it is prepared for a particular period.
Reason (R): Balance sheet is a point statement because it is prepared on a particular date.

4. Assertion (A): While preparing financial statements, closing stock is valued at cost price or realizable value
whichever is less.
Reason (R): This is done as per the convention of prudence according to which all anticipated losses are
recorded but all unrealized gains are ignored.

5. Assertion (A): Bills Discounted but not matured are not treated as a liability while preparing a balance sheet.
Reason (R): Bills Discounted but not matured are contingent liabilities. Such liabilities are shown as a
footnote just below the Balance Sheet.

6. Assertion (A): Goodwill is a fictitious asset.

Reason (R): It is shown under the heading ‘Non Current Assets’ in the Balance Sheet.

7. Assertion (A): Balance Sheet is a summary of Personal and Real Accounts which are still open and have not
been closed by transfer to Trading and Profit & Loss A/c.
Reason (R): Profit and Loss Account shows the financial position of the enterprise.
8. Assertion (A): Grouping means showing the assets or liabilities of similar nature under a common heading.
Reason (R): Marshalling means showing the assets and liabilities in a particular order.

9. Assertion (A): If a balance sheet is prepared in the order of liquidity, bank overdraft will be written earlier
than Sundry Creditors on the liabilities side of the balance sheet.
Reason (R): In the order of liquidity, those liabilities which are to be paid at the earliest will be written first.

10. Assertion (A): If Balance sheet is being prepared in the order of liquidity, Sundry Debtors will be written prior
to Closing stock.
Reason (R): Sundry Debtors will be written prior to Closing stock because they are likely to converted to cash
earlier than closing stock.

11. Assertion (A): Computers are classified as Tangible Assets.

Reason (R): Computer softwares are classified as Intangible Assets.

12. Assertion (A): Closing stock is included in current assets.

Reason (R): Prepaid Expenses are not included in current assets.

13. Assertion (A): The asset which is most easily convertible into cash is shown last in the order of liquidity.
Reason (R): The liability which is to be paid at the earliest will be shown first in order of liquidity.

14. Assertion (A): Profit and Loss Account shows the profit or loss and financial position of the enterprise.
Reason (R): Balance Sheet shows the financial position of the enterprise.

CHAPTER – 21

Given below are two statements, one labeled as Assertion (A) and other labeled as Reason (R):
Which one of the following is correct?
Codes:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A)
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A)
(C) (A) is true, but (R) is false
(D) (A) is false, but (R) is true

1. Assertion (A): Financial Statements may be prepared either on cash basis or on accrual basis of accounting.
Reason (R): Financial Statements are prepared on accrual basis of accounting.

2. Assertion (A): While preparing financial statements, provision for doubtful debts is created because of
prudence concept.
Reason (R): Provision for doubtful debts is created because of going concern concept.

3. Assertion (A): Adjustments are recorded once in Trading and Profit & Loss Account and again in Balance
Sheet because of matching concept.
Reason (R): Adjustments are recorded twice because of dual aspect concept.

4. Assertion (A): Indirect expenses are recorded in Profit & Loss Account.
Reason (R): Indirect expenses are recorded in Trading Account.

5. Assertion (A): If rent amounting Rs 10,000 is outstanding and CGST and SGST @ 12% each are levied, rent
shown on debit side of P & L A/c will be Rs 11,200.
Reason (R): Rent shown on debit side of P & L A/c will be Rs 10,000.

6. Assertion (A): Provision for Doubtful Debts in excess of required provision is credited to Profit & Loss A/c.
 Reason (R): Such an amount in credited to Sundry Debtors Account.

7. Assertion (A): If Input CGST exceeds the Output CGST, the excess amount is shown on the debit side of
Profit and Loss Account.
Reason(R): Excess amount of Input CGST is shown on the Assets side of the Balance Sheet.

8. Assertion (A): Heavy amount spent on the advertisement of a new product is revenue expenditure and will be
debited to Profit & Loss Account.
Reason (R): Such amount is deferred revenue expenditure and the unwritten off portion will be shown on the
asset side of the Balance Sheet.

9. Assertion (A): In case Rs 20 Lac is spent on advertisement of a new product and it is to be written off in 5
years, Rs 8 Lac will be shown on the assets side after 3 years.
Reason (R): Rs 12 Lac will be shown on the assets side after 3 years.

10. Assertion (A): Overvaluation of closing stock of the current year will result in increase of gross profit.
Reason (R): Overvaluation of closing stock will result in decrease of cost of sales and in turn will result in
increase of gross profit.

11. Assertion (A): Debts written off as bad, if recovered subsequently, are credited to Profit & Loss Account.
Reason (R): Such an amount is transferred to the credit side of Debtor’s Account.

12. Assertion (A): Provision for Doubtful Debts shows credit balance.
Reason (R): Prepaid Expenses shows Debit Balance.