Question 1
True or false, with reasons: five statements
5 marks
- Time to write
- About 10 minutes
From an older CBCS paper
Question
Question 1 · 5 marksState, with reasons, whether each statement below is True or False:
Legal fees paid for acquiring a property is capital expenditure.
An advance received from a supplier is not treated as income or sales.
The balance sheet does not directly disclose the calibre or quality of the management team.
Deferred revenue expenditure is revenue expenditure of the current year to be paid in later years.
Depreciation is the decrease in the market value of a fixed assets.
Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- True or…A verdict for each (True or False), then the reason that decides it.
What the paper leaves open
No mark is printed for the question; 5 marks are inferred from the 55-mark total.
Write it in this order
The parts stand alone: start with the one you are surest of.
- Read each statement; find the word that decides it 1 min
- 1 (a) Verdict and reason 1 mark 2 min
- 2 (b) Verdict and reason 1 mark 2 min
- 3 (c) Verdict and reason 1 mark 2 min
- 4 (d) Verdict and reason 1 mark 1 min
- 5 (e) Verdict and reason 1 mark 1 min
- Check: a verdict and a reason for every statement 1 min
Short on time? A few lines on every part beat a full answer to one: each part is capped at its own marks.
Try it first. About 10 minutes for 5 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
| # | Statement (in brief) | True / False | Reason |
|---|---|---|---|
| (a) | Legal fees for acquiring a property are capital expenditure | True | Expenditure whose benefit lasts beyond the present period, such as acquiring plant or property, is capital expenditure; legal fees are a cost directly attributable to acquiring the asset and so form part of its cost. |
| (b) | An advance received from a supplier is not treated as income or sales | True | An advance is not revenue earned: no goods or services have been supplied in return. It is a liability (amount repayable or to be adjusted) until the transaction it relates to takes place. |
| (c) | The balance sheet does not directly disclose the calibre of the management team | True | Under the money measurement concept, accounting records only facts that can be expressed in money, ignoring important events on which no precise money value can be put; the quality of management cannot be measured in money. |
| (d) | Deferred revenue expenditure is revenue expenditure of the current year to be paid in later years | False | Deferred revenue expenditure is a large expenditure of a revenue nature incurred now whose benefit is available for more than one year (heavy advertising to launch a product, research and development); it is spread over the years that benefit. An expense of the year to be paid later is an outstanding expense. |
| (e) | Depreciation is the decrease in the market value of a fixed asset | False | Depreciation is the systematic allocation of the depreciable amount (cost less residual value) of an asset over its useful life. It is a process of cost allocation, not of valuation; market value may rise while depreciation is still charged. |
Where the 5 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | (a) | 1 |
| 2 | (b) | 1 |
| 3 | (c) | 1 |
| 4 | (d) | 1 |
| 5 | (e) | 1 |
| Total | 5 |
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