JKSSB Accountancy MCQs

Explanation

• Assertion (A): This is correct. Under Section 195 of the Income Tax Act, any person responsible for paying interest (or other sums chargeable to tax) to a non-resident or a foreign company outside India is required to deduct tax at source (TDS) at the rates in force.

• Reason (R): This is also correct. According to Section 40(a)(i), any interest, royalty, fees for technical services, or other sums chargeable under the Act which are payable outside India (or in India to a non-resident) will be disallowed as a business expenditure if:

  1. Tax has not been deducted at source, OR

  2. After deduction, it has not been paid to the government on or before the due date of filing the return.

Explanation

As per section 80CCD, 40% of the amount payable on closure or opting out of NPS is exempt.

Explanation

According to CGST Act 2017, `Goods` include every kind of movable property other than money and securities, but include actionable claims.

Explanation

In the context of Indian Income Tax law (Section 5 of the Income Tax Act, 1961), income which accrues or arises outside India and is also received outside India (commonly referred to as "Foreign Income") is taxable only in the case of:

1. Resident and Ordinarily Resident (ROR)

For an individual who qualifies as an ROR, their global income is taxable in India. This includes income earned and received anywhere in the world, regardless of whether it is brought into India or not.

2. Resident but Not Ordinarily Resident (RNOR) - In specific cases

Usually, foreign income is not taxable for an RNOR. However, there is one critical exception:

• Foreign income is taxable for an RNOR only if it is derived from a business controlled in India or a profession set up in India.

• If the foreign income is from any other source (like foreign rent, interest, or a business controlled entirely outside India), it is not taxable for an RNOR.

Explanation

GST is a consumption-based tax based on the Destination Principle.

Under this principle, the tax is collected and accrues to the jurisdiction (state or country) where the goods or services are finally consumed, rather than where they were produced or manufactured.

Key Features of the Destination Principle:

• Tax Accrual: In a transaction between two states (e.g., from Maharashtra to Karnataka), the tax revenue (specifically the SGST portion) goes to the consuming state (Karnataka), not the producing state (Maharashtra).

• Exports: Exports are "Zero-rated." This means no tax is levied on goods leaving the country because the consumption occurs outside the domestic tax jurisdiction.

• Imports: Imports are treated as inter-state supplies and are subject to IGST. This ensures that imported goods are taxed at the same rate as domestic goods, as they are being consumed within the country.

Explanation

Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note.

It was introduced in India in 1990 to allow highly-rated corporate borrowers to diversify their sources of short-term borrowings. Since it is unsecured, it is not backed by collateral; instead, it relies on the creditworthiness and reputation of the issuing company.

Key Features of Commercial Paper

• Form of Issuance: While legally a promissory note, it is now mandatory in India to issue and hold CPs in dematerialized (demat) form through depositories like NSDL or CDSL.

• Maturity Period: It is a short-term instrument with a maturity ranging from a minimum of 7 days to a maximum of 1 year.

• Denomination: CPs are issued in denominations of ₹5 lakh or multiples thereof.

• Pricing: They are typically issued at a discount to face value and redeemed at par (similar to Treasury Bills).

• Eligibility: Only companies with a high credit rating (typically a minimum of 'A3' as per SEBI/RBI guidelines) and a minimum tangible net worth of ₹4 crore are eligible to issue them.

Explanation

In corporate finance, financial leverage measures the extent to which a company uses borrowed money (debt) to finance its assets and operations. It essentially quantifies the financial risk and the potential magnification of returns for shareholders.

Think of it like a physical lever: a small amount of equity (your own money) is used to "lift" or control a much larger amount of assets through debt.

What it Measures (The Three Core Aspects)

1. Capital Structure Mix: It shows the proportion of debt versus equity. A "highly leveraged" company relies more on loans and bonds than on shareholder investments.

2. Financial Risk: It measures the company's obligation to pay fixed financial charges (interest). The higher the leverage, the greater the risk that the company might not be able to meet these payments during a downturn, potentially leading to insolvency.

3. Sensitivity of Earnings (DFL): Specifically through the Degree of Financial Leverage (DFL), it measures how sensitive a company’s Earnings Per Share (EPS) is to fluctuations in its Operating Income (EBIT).

Explanation

Current Ratio is calculated as Current Assets ? Current Liabilities.

Explanation

Bank rate is the rate at which the RBI extends credit to commercial banks (and other financial institutions like cooperative banks and development banks).

Unlike the Repo Rate, the Bank Rate is the rate charged for long-term lending and does not require the bank to provide any collateral (security). It is also the rate used by the RBI to calculate penalties on banks that fail to maintain their required reserve ratios (like CRR or SLR).

Explanation

A cheque that has been issued by a firm (the drawer) but has not yet been presented to the bank for payment by the recipient (the payee) is known as an Outstanding Cheque or an Unpresented Cheque

Explanation

In a bank statement, cash deposited is shown as a Credit.

This can be confusing because in your own accounting books (the Cash Book), a deposit is recorded as a Debit. Here is the breakdown of why this happens:

1. The Bank's Perspective

When you deposit money into a bank, the bank does not view that money as its own. Instead, it views the money as a liability—an amount it owes back to you. According to accounting rules for liabilities:

• An increase in liability is Credited.

• Therefore, when you add money to your account, the bank's liability to you increases, and they reflect this as a Credit entry in your statement.

2. The Customer's Perspective (Your Books)

In your own records (the Cash Book), your bank account is an asset. According to accounting rules for assets:

• An increase in an asset is Debited.

• Therefore, when you deposit cash, you Debit your bank account in your ledger.

Explanation

When an audit is specifically undertaken to check financial controls and irregularities within an organization, it is most commonly categorized as an Internal Audit.

While many types of audits touch upon controls, the internal audit is the primary proactive mechanism designed to evaluate an organization's "health" from the inside.

1. Internal Audit (The Best Fit)

The primary objective of an internal audit is to provide assurance that an organization's risk management, governance, and internal control processes are operating effectively.

• Focus on Controls: It examines whether policies (like who can sign a check or how cash is handled) are being followed.

• Irregularities: It is designed to catch "leakages," errors, or fraud (irregularities) before they become major issues.

Explanation

The number of units that must be sold by the firm to earn a profit of Rs. 1,80,000 per year is 30,000 units

Explanation

In partnership accounting, when a new partner is admitted, the amount they must bring for goodwill is always calculated based on the current valued goodwill of the firm, not the book value.

Calculation of Z's Share of Goodwill

• Valued Goodwill of the firm: Rs. 30,000

• Z's share in profits: $1/4$

• Z's share of Goodwill = Total Valued Goodwill $\times$ Z's share

• Z's share of Goodwill = $30,000 \times \frac{1}{4}$ = Rs. 7,500

Accounting Treatment of Existing Goodwill

The Rs. 12,000 already appearing in the books is called Existing Goodwill. According to standard accounting practices (and AS-26 in India), this must be dealt with separately:

1. Write off Existing Goodwill: The old partners (X and Y) must write off the existing book value of Rs. 12,000 in their old profit-sharing ratio before Z is admitted.

   Journal Entry:

   X's Capital A/c ...Dr.

   Y's Capital A/c ...Dr.

   To Goodwill A/c (Rs. 12,000)

2. Premium for Goodwill: Z brings his share of Rs. 7,500 in cash (or it is adjusted through his capital/current account). This amount is then distributed between X and Y in their sacrificing ratio.

Explanation

Entities that generally prepare their books of accounts under the Single Entry System (also known as Accounts from Incomplete Records) are:

1. Sole Proprietorships: Small individual owners like local shopkeepers, grocers, and street vendors.

2. Partnership Firms: Small to medium-sized partnerships that want to avoid complex accounting.

3. Professionals & Freelancers: Doctors, lawyers, or consultants running small, personal practices.

Explanation

Trial balance is prepared to check the arithmetical accuracy of ledger accounts.

Explanation

Transferring entries from journal to ledger is called Posting.

Explanation

M:N = 3:2, total 5. With P = 1/5, remaining 4/5 split in 3:2 gives

3/5 of 4/5 = 12/25,

2/5 of 4/5 = 8/25,

1/5 after multiplying numerator and denominator by 5 becomes 5/25

M=12/25, N=8/25, P=5/25 ? ratio 12:8:5.

Explanation

When interest on drawings is charged to a partner, it has two simultaneous effects on the partnership's books:

1. For the Firm (Income): It is treated as a gain or income for the firm. Therefore, it is Credited to the Profit and Loss Appropriation Account.

2. For the Partner (Expense): It is an expense for the partner. Therefore, it is Debited to the Partner's Capital Account (or Current Account), which effectively reduces their capital balance.

Explanation

When records are incomplete, a Statement of Affairs is prepared instead of a Balance Sheet.

Explanation

Deposits in transit are added to the bank balance during reconciliation.

Explanation

A receipt is a proof of payment in a business transaction.

Explanation

All steps are essential while preparing a voucher: verifying details, approval, and correct voucher type.

Explanation

Money Measurement Concept excludes human resources since they cannot be expressed in monetary terms.

Explanation

The basic accounting equation is Assets = Liabilities + Equity.

Explanation

Bookkeeping is the first step of accounting, involving recording of transactions.

Explanation

Suppliers? accounts are recorded in the Purchases Ledger.

Explanation

Prime cost = Direct material consumed (90,000) + Direct labour (60,000) + Direct expenses (20,000) = Rs. 1,70,000.

Explanation

Fixed cost does not change in total during a period regardless of output (e.g., rent, salaries).

Explanation

Stolen merchandise should be debited to:

Loss by theft account

When merchandise is stolen, it represents a loss to the business. According to accounting principles, losses such as theft are typically recorded in a specific account called "Loss by theft" or "Loss on theft of merchandise." This allows the business to track and report such losses separately from other types of expenses or revenues.