Sale Of Goods On Approval Or Return Basis
Questions and Answers
- 1.
A sent some goods costing Rs. 3,500 at a profit of 25% on sale to B on sale or return basis. B returned goods costing Rs. 800. At the end of the accounting period i.e. on 31st December, 2005, the remaining goods were neither returned nor were approved by him. The stock on approval will be shown in the balance sheet at Rs.
- A.
2,000.
- B.
2,700.
- C.
2,700 less 25% of 2,700
- D.
3,500
Correct Answer
B. 2,700.Explanation
The stock on approval will be shown in the balance sheet at Rs. 2,700 because the goods that were not returned or approved by B are still considered as part of the inventory. The cost of these goods is not affected by the profit margin, so it remains at the original cost of Rs. 2,700.Rate this question:
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- 2.
A merchant sends out his goods casually to his dealers on approval basis. All such transactions are, however, recorded as actual sales and are passed through the sales book. On 31-12-2005, it was found that 100 articles at a sale price of 200 each sent on approval basis were recorded as actual sales at that price. The sale price was made at cost plus 25%. The amount of stock on approval will be amounting
- A.
Rs.16,000
- B.
Rs. 20,000
- C.
Rs. 15,000
- D.
None of the above.
Correct Answer
A. Rs.16,000Explanation
The correct answer is Rs.16,000. This is because the sale price of each article was recorded as 200, which is the cost price plus 25%. Therefore, the cost price of each article would be 200/1.25 = 160. Since 100 articles were sent on approval, the total cost of the stock on approval would be 160 * 100 = Rs.16,000.Rate this question:
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- 3.
A company sends its cars to dealers on 'sale or return' basis. All such transactions are however treated like actual sales and are passed through the sales day book. Just before the end of the financial year, two cars which had cost Rs.55,000 each have been sent on 'sale or return' and have been debited to customers at Rs.75,000 each, cost of goods lying with the customers will be
- A.
Rs.1,10,000
- B.
Rs. 55,000
- C.
Rs. 75,000
- D.
None of the above
Correct Answer
A. Rs.1,10,000Explanation
The cost of goods lying with the customers will be Rs.1,10,000. This is because the two cars were sent on a 'sale or return' basis, meaning they were not actually sold but are still considered as sales for accounting purposes. The cost of each car was Rs.55,000, but they were debited to the customers at Rs.75,000 each. Therefore, the cost of goods lying with the customers is the total cost of the cars, which is 2 cars x Rs.55,000 = Rs.1,10,000.Rate this question:
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- 4.
Y Ltd. sends out its goods Rs. 1,20,000 to one of its dealer on Sale or Return basis. On st March he received an approval letter for goods of Rs. 80,000. Y Ltd. charge 25% profit on cost. The cost price of the un-approved goods with the dealer will be
- A.
Rs.32,000
- B.
Rs.40,000
- C.
Rs.80,000
- D.
Rs. 64,000
Correct Answer
A. Rs.32,000Explanation
The cost price of the un-approved goods with the dealer will be Rs.32,000. This can be calculated by subtracting the profit from the approved goods from the total cost of the goods sent out. The profit on the approved goods is 25% of Rs. 80,000, which is Rs. 20,000. Therefore, the cost of the approved goods is Rs. 80,000 - Rs. 20,000 = Rs. 60,000. Since the total cost of the goods sent out is Rs. 1,20,000, the cost of the un-approved goods is Rs. 1,20,000 - Rs. 60,000 = Rs. 60,000. Hence, the cost price of the un-approved goods with the dealer is Rs. 32,000.Rate this question:
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- 5.
A trader has credited certain items of sales on approval aggregating Rs.60,000 to Sales Account. Of these, goods of the value of Rs.16,000 have been returned and taken into stock at cost Rs.8,000 though the record of return was omitted in the accounts. In respect of another parcel of Rs.12,000 (cost being Rs.6,000) the period of approval did not expire on the closing date. Cost of goods lying with customers should be
- A.
Rs. 12,000
- B.
Rs. 54,000.
- C.
Rs. 6,000
- D.
None of the above
Correct Answer
C. Rs. 6,000Explanation
The cost of goods lying with customers should be Rs. 6,000. This is because the goods that were returned and taken into stock at a cost of Rs. 8,000 were not recorded in the accounts. Therefore, the cost of these goods should not be included in the calculation. The remaining parcel of goods worth Rs. 12,000 (costing Rs. 6,000) is still on approval and has not expired on the closing date. Hence, the cost of goods lying with customers is Rs. 6,000.Rate this question:
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- 6.
ABC Ltd. sells goods to its approved^ customers on sale or return basis at a profit of 20% on sales, treating as actual sales. On 26th March, 2006 goods costing Rs.10,000 were sent to Annu Ltd. No confirmation has been received from Annu Ltd. till 31st March, 2006. The amount of stock with customers to be shown as closing stock in the balance sheet of ABC Ltd. as on 31st March, 2006 will be
- A.
Rs. 12,500
- B.
Rs. 8,000
- C.
Rs. 10,000
- D.
Nil
Correct Answer
C. Rs. 10,000Explanation
The correct answer is Rs. 10,000. Since no confirmation has been received from Annu Ltd. by 31st March, 2006, the goods sent to them on sale or return basis should be treated as closing stock. Therefore, the value of the goods, which is Rs. 10,000, should be shown as closing stock in the balance sheet of ABC Ltd. on 31st March, 2006.Rate this question:
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- 7.
Varun Ltd. sends goods to his customers on Sale or Return recording it as a sale at the time of sending it for approval. During 2006, Varun Ltd. send goods to customers for Rs.1,00,000 on sale or return basis, at cost plus 33.33%. On September 2006. a letter of approval was received from a customer for Rs. 40,000. In this respect, entry will be
- A.
Debtors account debited and sales account credited with Rs.40,000.
- B.
Sales account debited and debtors account credited with Rs.40,000.
- C.
No entry is required for receiving the letter of approval from the customer.
- D.
Entry will be made at the end of the year.
Correct Answer
C. No entry is required for receiving the letter of approval from the customer.Explanation
The correct answer is "No entry is required for receiving the letter of approval from the customer." This is because when goods are sent on a sale or return basis, they are recorded as a sale at the time of sending it for approval. Therefore, the letter of approval from the customer does not require any additional entry as the sale has already been recorded.Rate this question:
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- 8.
Goods of Rs. 600 (sales price) sent on sale on approval basis were included in the sales book. The profit included in the sales was 20% on cost. Stock with the party will increase closing stock by __________
- A.
Rs. 600
- B.
Rs. 500
- C.
Rs. 400
- D.
None of the three
Correct Answer
B. Rs. 500Explanation
When goods are sent on sale on approval basis, they are not considered as actual sales until the customer decides to keep them. Therefore, the profit should not be included in the sales. Since the profit included in the sales was 20% on cost, this means that the cost of the goods is 80% of the sales price. So, if the sales price is Rs. 600, the cost of the goods would be Rs. 600 * 80% = Rs. 480. Therefore, the increase in closing stock would be Rs. 600 - Rs. 480 = Rs. 120. However, the question asks for the increase in closing stock in terms of the original cost, so we need to calculate 80% of Rs. 120, which is Rs. 96. Therefore, the correct answer is Rs. 500.Rate this question:
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- 9.
Included in the sales were sale of goods of Rs. 5000 on "Sale on approval" basis for which consent of the customer was not received upto Dec. 31st. Goods sent on approval included profits at 25% on cost. Stock on approval will be
- A.
Rs. 4500
- B.
Rs. 5000
- C.
Rs. 4000
- D.
None of the three
Correct Answer
C. Rs. 4000Explanation
The correct answer is Rs. 4000. This is because the sales of goods on "Sale on approval" basis for which consent of the customer was not received are not considered as actual sales until the customer gives their consent. Therefore, the value of the goods sent on approval, which includes profits at 25% on cost, should not be included in the stock. Hence, the stock on approval will be Rs. 4000.Rate this question:
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- 10.
At what price goods pending approval or return as on the last day of accounting year are valued
- A.
Cost price
- B.
Selling price
- C.
Average price
- D.
Latest price
Correct Answer
A. Cost priceExplanation
Goods pending approval or return as on the last day of the accounting year are valued at cost price. This means that the value assigned to these goods is the original purchase price or production cost. This is because the goods have not yet been approved for sale or returned to the supplier, so their selling price, average price, or latest price is not relevant for valuation purposes. Therefore, the cost price is the appropriate value to assign to these goods.Rate this question:
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- 11.
Opening debtors - Rs.50,000 Total sales - Rs.50,000 Cash received from debtors - Rs.30,000 Cash sales • Rs.15,000 Sales Returns - Rs.3,000 Bad debts - Rs.7,000 Bills received from customers - Rs.15,000 Debtors at the end will be
- A.
Rs.40,000
- B.
Rs.30,000
- C.
Rs.20,000
- D.
Rs.50,000
Correct Answer
B. Rs.30,000Explanation
The debtors at the end will be Rs.30,000. This can be calculated by subtracting the cash received from debtors (Rs.30,000) and the bad debts (Rs.7,000) from the opening debtors (Rs.50,000). Additionally, the bills received from customers (Rs.15,000) are not considered as cash received, so they are not deducted. Therefore, the remaining amount is Rs.30,000.Rate this question:
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- 12.
Goods sold Rs.25,000 on approval or return basis were included in Sales Book. The profit included in the sales was at 25% on cost. At the year end, closing stock will increase by
- A.
Rs.5,000
- B.
Rs.20,000
- C.
Rs. 15,000
- D.
Rs.45,000
Correct Answer
B. Rs.20,000Explanation
Since the goods sold on approval or return basis are included in the Sales Book, it means that they are considered as sales. Therefore, the profit included in the sales will also be included in the calculation. As the profit is at 25% on cost, it means that the cost of the goods sold on approval or return basis is Rs.20,000 (25% of Rs.25,000). At the year end, the closing stock will increase by the cost of the goods sold on approval or return basis, which is Rs.20,000.Rate this question:
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- 13.
Cash sales Rs.70,000 Cash collected from debtors Rs.2,00,000 Bad debts Rs.7,000 Opening Debtors- Rs.30,000 Closing Debtors Rs.16,000 Total sales will be
- A.
Rs.2,33,000
- B.
Rs.2,63,000
- C.
Rs.2,43,000
- D.
Rs.2,60,000
Correct Answer
B. Rs.2,63,000 -
- 14.
Goods of Rs.30,000 (sales price) sent on approval or return basis were included in the sales book. The profit included in the sales was 20% on cost stock with the party will increase closing stock by
- A.
Rs.25,000
- B.
Rs.30,000
- C.
Rs.20,000
- D.
Rs.24,000
Correct Answer
A. Rs.25,000Explanation
The profit included in the sales is 20% on the cost stock. This means that the profit earned on the goods sent on approval or return basis is 20% of the cost price. The party will increase the closing stock by Rs.25,000. Therefore, the profit included in the sales will be 20% of Rs.25,000, which is equal to Rs.5,000. Hence, the correct answer is Rs.25,000.Rate this question:
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- 15.
If total sales during the year Rs.1,00,000; Cash sales Rs.20,000 and outstanding debtors at the end of the year Rs.30,000 then cash received from debtors during the year will be
- A.
Rs.70,000
- B.
Rs.50,000
- C.
Rs.1,10,000
- D.
Rs.90,000
Correct Answer
B. Rs.50,000Explanation
The cash received from debtors during the year can be calculated by subtracting the outstanding debtors at the end of the year from the total sales. In this case, the outstanding debtors at the end of the year are Rs.30,000. Therefore, the cash received from debtors during the year will be Rs.1,00,000 - Rs.30,000 = Rs.70,000.Rate this question:
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Mar 20, 2023Quiz Edited by
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Aug 31, 2011Quiz Created by
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