CPT Accounting Questions and Answers - Part 1

For your practice, we are giving CPT accounting questions and answers by a taking a sample test paper.  We have explained  each correct answer just below each question. This will help you to gain more % in the exam. if you are preparing for CPT in June 2014.

                 Common Proficiency Accounting Online Test

Time : 1 hour for doing this.

Questions : All 60 objective type Questions 

Every correct answer carries +1 mark and -0.25 mark will be deducted for each wrong answer.

Fundamentals of Accounting (60 Marks)

Important : This is the Part 1 In which we are taking just 10 questions for explaining its answers. 

1. RPC Ltd. follows the written down value method of depreciating machinery year after year

by applying the principle of

(a) Comparability. (b) Convenience. (c) Consistency. (d) All of the above.

Correct Answer : Consistency

Reason behind this : As per consistency principle, we should follow same methods in accounting for recording transactions, calculating the cost because it will help us compare. So, basic principle is consistency. Read more detail of Consistency principle at here.

2. A change in accounting policy is justified

(a) To comply with accounting standards (b) To ensure more appropriate presentation of the financial statement of the enterprise. (c) To comply with the law. (d) All of the above.

Correct Answer : All of the above

Reason behind this : As per consistency principle, we should use same accounting methods and polices but some time, international standards of accounting will change. Their changes will help for appropriate presentation of financial statements. So, we will change the accounting policy but before this, we also see whether India's law give OK report or not. So, all three things are so important for changing any accounting policy.

3. Purchases book records:

(a) All cash purchases (b) All credit purchases of goods & assets (c) All Credit purchases of goods in trade only. (d) None of the above

Correct Answer : All credit purchases of goods in trade only.

Reason behind this : In proper classification of accounts, we record different transactions in different books. Cash book records all the cash purchase of goods and assets. Journal records the credit purchase of asset and purchase book records only credit purchase. With this, we can calculate the correct amount which we have to pay to our creditors by totally the purchase book. Know more detail of purchase book at here.

4. A Bank Reconciliation Statement is prepared to know the causes for the difference between:

(a) The balances as per cash column of Cash Book and the Pass Book (b) The balance as per bank column of Cash Book and the Pass Book (c) The balance as per bank column of Cash Book and balances as per cash column of Cash Book (d) None of the above

Correct Answer : (b)

Reason behind this : In triple column cash book, there is the bank column in which we record all the transactions relating to bank. So, we make BRS, we compare this bank column with pass book for knowing the errors and mistakes.

5. While finalizing the current year’s profit, the company realized that there was an error in the valuation of closing inventory of the previous year. In the previous year, closing inventory was valued more by Rs.50,000. As a result

(a) Previous year’s profit is overstated and current year’s profit is also overstated (b) Previous year’s profit is understated and current year’s profit is overstated (c) Previous year’s profit is understated and current year’s profit is also understated (d) Previous year’s profit is overstated and current year’s profit is understated

Correct Answer : (d)

Reason behind this : When we will show value more than actual in the closing inventory of previous year, it will stated previous year's profit is overstate and current year's profit is understated. I can explain it with a small and simple example

For example you have bought goods of Rs. 10,000 in previous year and your actual closing stock was Rs. 5000 and sold rest at Rs. 7000

Now,

cost of goods sold actual = opening stock+purchase - closing stock

= 10000-5000 = Rs 5000

Correct gross profit/ Net Profit = Sale - Cost of goods sold = 7000 -5000 = Rs. 2000

but you have show Rs. 1000 more value than actual closing stock in previous year, so previous year wrong closing stock is Rs. 6000

So, wrong cost of goods sold = 10000-(5000+1000) = 4000

Wrong gross profit / net profit = 7000-4000=3000
You are seeing that previous year gross profit or net profit is showing overstated by Rs. 1000 due to this error.

Now, come to current year

In current year, previous year closing stock will become opening stock

Correct cost of goods sold if new purchase is nil and sale is Rs. 4000 and new closing stock is Rs. 3000
Rs. 5000 - 3000 = Rs. 2000

Correct current year gross or net profit = 4000 - 2000 = 2000

But wrong current year cost of goods sold due to previous year error

= 6000-3000 =3000

Wrong current year gross or net profit = 4000 - 3000 = Rs. 1000

Rs. 1000 current year net profit is wrong and understated.

6. In the absence of any provision in the partnership agreement, profits and losses are shared

(a) In the ratio of capitals (b) Equally (c) In the ratio of loans given by them to the partnership firm (d) None of the above

Correct Answer : (b)

Reason behind this : As per rules of partnership act.

7. Fundamental accounting assumption is

(a) Materiality (b) Business entity (c) Going concern (d) Dual aspect

Correct Answer : (c)

Reason behind this : See the list of all fundamental accounting assumptions at here in which you will find only going concern assumption.

8. Which of the following errors are not revealed by the Trial Balance?

(a) Compensating errors (b) Carrying forward wrong side (c) Wrong balancing of an account (d) Wrong totaling of an account

Correct Answer : (a)

Reason behind this : Check more detail at here.

9. Which of the following are of capital nature?

(a) Purchase of goods (b) Cost of repairs (c) Wages paid for installation of machinery (d) Rent of a factory

Correct Answer : (c)

Reason behind this : Wages paid for installation of machinery will be the part of total cost of acquiring the machine. Machine is our capital nature expenditure. So, wages for installation of machinery will become also capital nature expenditure. Learn more detail of capital expenditures at here.

10. Which of the following statement is not true?

(a) If del-credere’s commission is allowed, bad debt will not be recorded in the books of

consignor (b) If del-credere’s commission is allowed, bad debt will be debited in consignment account (c) Del-credere’s commission is allowed by consignor to consignee (d) Del-credere’s commission is generally given to promote credit sales

Correct Answer : (b)

Reason behind this : If bad debt shows in debit side of consignment account after providing this special commission, it will break the contract between consignee and consignor. Agent or consignee gets this special commission for taking the burden of all bad debts.