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 whether each statement below is true or false, giving reasons:
Accumulated Depreciation is a sum of cash being accumulated to replace fixed assets.
Under the stock and debtor system, the branch account is a nominal account.
Legal fees paid for acquiring a property is capital expenditure.
Under inflationary conditions, the First In First Out (FIFO) method of inventory valuation is the most suitable.
A business entity can keep its accounts on the accrual basis of accounting.
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
- State whether…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) | Accumulated depreciation is cash accumulated to replace fixed assets | False | Accumulated depreciation is the total of the depreciation charged so far: a non-cash charge that allocates the asset's cost over its life and is deducted from the asset in the balance sheet. No cash is set aside by it; cash is accumulated only if a separate depreciation (sinking) fund is invested. |
| (b) | Under the stock and debtors system, the branch account is a nominal account | False | A nominal Branch Account, kept to find the branch's profit, belongs to the debtors system. Under the stock and debtors system there is no single branch account: Branch Stock (an asset account at invoice price), Branch Debtors (personal), and Branch Adjustment and Branch Profit and Loss (nominal) are kept instead. |
| (c) | Legal fees paid for acquiring a property are capital expenditure | True | Expenditure whose benefit lasts beyond the present period, such as acquiring an asset, is capital expenditure; legal fees are part of the cost of acquiring the property. |
| (d) | Under inflation, FIFO is the most suitable inventory method | False | When prices rise, FIFO charges the oldest, cheapest costs to cost of goods sold, so profit is overstated (partly an illusory holding gain) and more tax and dividend may be paid out of it. Its closing stock is close to current prices, but for income measurement in inflation a weighted average (or another current-cost approach) matches current costs better. |
| (e) | A business entity can keep its accounts on the accrual basis | True | Under the accrual basis, incomes are recognised when earned and expenses when incurred, not when cash is received or paid; it is the normal basis of accounting, and any entity may follow it. |
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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