Chartered Accountant CPT Exam Practice Test

Carriage Inward is debited to the Trading Account because it is a direct expense incurred in bringing goods into the business. It is necessary to include this expense in the Trading Account to calculate the cost of goods sold and determine the gross profit. By debiting Carriage Inward to the Trading Account, it is properly accounted for and reflects the true cost of goods sold in the financial statements.

The material of Rs. 500 used in the installation of the machinery and the wages paid for it amounting to Rs. 600 should be debited to the Machinery account because these expenses are directly related to the installation of the machinery. By debiting the Machinery account, we are correctly recording the cost of the material and wages incurred in the installation process, which is an essential part of the machinery's overall cost.

The basic accounting principle of "Going Concern" refers to the assumption that a business will continue to operate indefinitely. This principle assumes that the company will not be forced to liquidate its assets or cease operations in the near future. It allows accountants to prepare financial statements under the assumption that the business will continue to exist and function normally. This principle is important as it provides a basis for valuing assets, assessing liabilities, and determining the financial health and performance of a company.

The correct statement is "Capital is equal to assets minus liabilities." This means that the value of capital, or the total worth of a company's assets, is determined by subtracting its liabilities, or debts and obligations, from its total assets. This equation helps to determine the net worth or financial position of a company by considering both its assets and liabilities.

When the totals of the debit and credit sides of the trial balance do not match, it indicates that there is an error in the accounting records. In such cases, a suspense account is created to temporarily hold the difference amount until the error is identified and rectified. The suspense account allows the trial balance to still balance and ensures that the financial statements can be prepared. Once the error is found, the necessary adjustments are made, and the suspense account is closed by transferring the difference amount to the appropriate accounts.

A change in accounting policy may be justified to comply with accounting standards, as these standards provide guidelines for how financial information should be reported. It may also be necessary to ensure a more appropriate presentation of the financial statement of the enterprise, as this can improve transparency and accuracy. Additionally, changes in accounting policy may be required to comply with the law, as certain regulations may dictate how financial information should be reported. Therefore, all of the reasons mentioned above can justify a change in accounting policy.

The amount spent on the construction of temporary huts, which were necessary for the construction of the factory and demolished when the factory was ready, is considered a capital expenditure. This is because it is an expense incurred to acquire or improve a long-term asset, in this case, the factory. The temporary huts are directly related to the construction of the factory and their cost is added to the cost of the factory, increasing its overall value.

The closing balance of the cash book is written as "By balance c/d" because it represents the total amount of cash remaining at the end of a particular accounting period. "By balance c/d" stands for "By balance carried down" and indicates that the closing balance is being carried forward to the next accounting period. It helps in maintaining the continuity of the cash book and ensures that the correct balance is carried forward.

In the WDV (Written Down Value) method, the depreciation amount declines even if the rate remains the same. This is because the depreciation is calculated based on the diminishing value of the asset over time. As the asset's value decreases each year, the depreciation amount also decreases, even if the depreciation rate remains constant. Therefore, the statement "Dep amount declines even if rate remains the same" is true with reference to the WDV method.

The company should disclose the penalty order as a contingent liability in the financial statements. This is because the appeal filed by the company is still pending as of the reporting date, and the outcome is uncertain. Therefore, the company should disclose this information to provide transparency to the users of the financial statements and to ensure that the potential liability is appropriately recognized.

To calculate the due date of a bill payable after 90 days, we start by counting 90 days from the date the bill was drawn (20.02.2008).

Here's how it breaks down:

February 2008: Since 2008 is a leap year, February has 29 days. From February 20th, we have 9 days remaining in February.

March 2008: 31 days.

April 2008: 30 days.

Now, adding:

9 days (February) + 31 days (March) + 30 days (April) = 70 days.

We need an additional 20 days to make 90 days, so adding 20 days to May 1st gives May 21st, 2008.

However, bills typically include 3 extra grace days, so adding 3 more days gives May 24th, 2008.

Outstanding expenses have a credit balance rather than a debit balance. This is because outstanding expenses are expenses that have been incurred but not yet paid for. Since they represent a liability for the company, they are recorded as a credit in the books of accounts. On the other hand, advances given, prepaid expenses, and deferred revenue expenses are all assets and are recorded as debit balances.

The correct rectification entry is to debit the Purchase account with Rs. 1000 and debit the Sales account with Rs. 1000. Then, credit the Sundry Debtors account with Rs. 1000 and credit the Sundry Creditors account with Rs. 1000. This entry will correct the error of recording a credit sale in the purchase day book and a credit purchase in the sales day book.

When the insurance premium is directly paid by the bank, it means that the bank has made the payment on behalf of the insured. Therefore, the amount of the insurance premium will be added to the balance as per the bank pass book. This is because the bank pass book records all the transactions made by the bank on behalf of the account holder.

The difference in cash book and bank book may be due to timing difference. This means that transactions recorded in one book may not be recorded in the other book at the same time, leading to a difference in the balances. For example, a deposit made at the end of the day may be recorded in the cash book immediately, but it may take some time for the bank to process and record the deposit in the bank book. Similarly, withdrawals or checks issued may take time to be reflected in both books. Therefore, timing differences can cause disparities between the cash balance in the cash book and the bank balance in the bank book.

Accrued interest refers to the interest that has been earned but not yet received or paid. It is recorded as an increase in assets because it represents an amount owed to the company. At the same time, it is also recorded as an increase in owner's liability because the company has an obligation to pay the accrued interest to the owner. Therefore, the correct answer is an increase in assets and owner's liability.

The specific identification method is used to value inventory that is not ordinarily interchangeable. This method involves identifying and tracking the cost of each specific item in the inventory. This is typically used for unique or high-value items where it is important to accurately assign the cost to each individual item. The historical cost method, on the other hand, values inventory based on the original cost of acquiring it. Since the specific identification method is specifically mentioned as the answer, it indicates that this is the correct technique for valuing inventory that is not ordinarily interchangeable.

The correct answer is "Overcasting of Purchase book Debit and Purchase A/c Credit". This is because when there is an overcast in the purchase book, it means that the purchases have been recorded at a higher amount than the actual amount. To rectify this error, we need to decrease the amount in the purchase book by debiting the overcasting of purchase book account and credit the purchase account to reduce the amount.

The correct answer is "None of the above" because the statement is not referring to any specific accounting concept, accounting standard, or accounting convention. Instead, it is stating a specific method of calculating depreciation on assets, which is the straight-line method at the rate specified in the Companies Act 1956.

When selecting and applying accounting policies, it is important to consider substance over form. This means that the economic reality of a transaction should be recorded, rather than just its legal form. This principle helps to ensure that financial statements accurately reflect the underlying economic activities of an entity. Consistency is also important, as it allows for comparability of financial information over time. Additionally, the going concern assumption is necessary to assume that the entity will continue to operate in the foreseeable future. Therefore, all of the options listed should be considered when selecting and applying accounting policies.