86. Which of the following equations is INCORRECT?
(A) Liabilities + Assets = Capital
(B) Liabilities + Capital = Assets
(C) Assets – Liabilities = Capital
(D) Assets – Capital = Liabilities
Answer:
(A) Liabilities + Assets = Capital
Explanation:
The fundamental accounting equation is Assets = Liabilities + Capital. Adding Assets and Liabilities together to equate to Capital is mathematically incorrect.
87. Under which method, the book value of depreciable asset does NOT become zero at the end of useful life?
(A) straight line
(B) double declining
(C) written down
(D) annuity
Answer:
(C) written down
Explanation:
Under the Written Down Value (WDV) or diminishing balance method, depreciation is calculated on the remaining balance, ensuring the asset’s book value mathematically approaches zero but never fully reaches it.
88. Which of the following is NOT a part of financial statements?
(A) Fund flow statement
(B) Balance sheet
(C) Income statement
(D) Notes to financial statements
Answer:
(A) Fund flow statement
Explanation:
Historically used, the Fund Flow Statement is largely obsolete in modern statutory accounting and is not considered a formal component of the primary financial statements, unlike the Cash Flow Statement.
89. Which of the following cannot be classified as current liability?
(A) Trade Payables
(B) Share capital
(C) Outstanding salaries
(D) Short term loan
Answer:
(B) Share capital
Explanation:
Share capital represents the owners’ investment in the business and is classified under Equity/Shareholders’ Funds, not as a liability (current or non-current).
90. What is the correct flow of books of accounts as per the accounting cycle?
(A) Journal, Ledger, Trial Balance, Final Accounts
(B) Ledger, Journal, Trial Balance, Final Accounts
(C) Final Accounts, Ledger, Journal, Trial Balance
(D) Trial Balance, Ledger, Journal, Final Account
Answer:
(A) Journal, Ledger, Trial Balance, Final Accounts
Explanation:
The standard accounting cycle records transactions initially in the Journal, posts them to the Ledger, summarizes them in the Trial Balance, and finally prepares the Final Accounts.
