Tili Kannada Text Book Class 9 Solutions Padya Bhaga Chapter 7 Vachanagalu

Vachanagalu Questions and Answers, Summary, Notes

Vachanagalu Summary in Kannada

Karnataka 1st PUC Kannada Workbook Answers Prayoga Pranathi Jodi Padagalu

Tili Kannada Text Book Class 9 Solutions Padya Bhaga Chapter 6 Honneya Marada Neralu

Honneya Marada Neralu Questions and Answers, Summary, Notes

Honneya Marada Neralu Summary in Kannada

Karnataka 1st PUC Kannada Workbook Answers Prayoga Pranathi Dwirukti Padagalu

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Karnataka 2nd PUC Economics Question Bank Chapter 1 Introduction to Micro Economics

2nd PUC Economics Introduction to Micro Economics One Mark Questions and Answers

Question 1.
What do you mean by Economics?
Answer:
The term ‘Economics’ is derived from the Greek words ‘OIKOS” and “NOMOS which mean Household and management respectively. It studies the problem of choice at the individual social, national and international levels.

Question 2.
Define an economy.
Answer:
An economy is a mechanism through which the scarce resources are prioritized and organized for the production of goods and services. It also refers to a geographical-area where economic activities take place.

Question 3.
Why does an economic problem arise?
Answer:
An economic problem arises because of limited resources and unlimited wants and alternative uses of resources. While trying to allocate limited resources to satisfy unlimited wants, the problem of choice arises.

Question 4.
What is Planned economy?
Answer:
A Planned economy, also called as Socialistic economy is that economy where the economic activities are controlled by the central Government. Here, the Government takes decisions about the allocation of resources in accordance with objectives to attain economic and social welfare. Example, Russia, China, North Korea etc.

Question 5.
What is a Market economy?
Answer:
A Market economy also known as Capitalistic economy is that economy in which the economic decisions are undertaken on the basis of market mechanism by the private entrepreneurs It functions on demand and supply conditions. Example, USA.

Question 6.
What do you mean by mixed economy?
Answer:
A mixed economy is that economy in which we can see co-existence of both private and public sector enterprises. It is a combination of both Socialistic and Capitalistic features.

Question 7.
What is Positive economics?
Answer:
The Positive Economics is the study of ‘what was’ and ‘what is’ under the given set of circumstances. It deals with the scientific explanation of the working of the economy.

Question 8.
What is Normative Economics?
Answer:
The Normative Economics studies ‘what ought to be’. It explains about ‘what should be and should not be done’.

Question 9.
Define Micro Economics.
Answer:
Micro economics is the study of the economic actions of individuals and small groups of individuals. According to Boulding, “It is the study of particular firms, particular households, individual prices, wages, income, individual industries, particular commodities”.

Question 10.
Who first coined the terms ‘Micro’ and ‘Macro’ Economics?
Answer:
Prof.Ragner Frisch, the Nobel Prize winner in Economics (1920), coined the words Micro and Macro Economics for the first time.

Question 11.
Is the study of a sugar factory, a Micro-Economic study or a Macro-Economic study?
Answer:
The study of a Sugar factory is a Micro-Economic study.

Question 12.
What is Deductive Method of Economics?
Answer:
It is one of the methods of study of economics in which the conclusions are drawn from the general to the particular or from the universal to the individual.

2nd PUC Economics Introduction to Micro Economics Two Marks Questions and Answers

Question 1.
What is an economic problem and why does it arise?
Answer:
An economic problem is the problem of choice which arises because of limited resources and unlimited wants and the alternative uses of resources. The scarcity of resources is the main cause for this economic problem.

Question 2.
What are the basic functions of an economy?
Answer:
The basic functions of any economy are Production, Consumption, Distribution, Exchange, Economic planning and Social welfare.

Question 3.
Name the basic problems of an economy.
Answer:
The basic problems of an economy are What to produce, How to produce and for Whom to produce.

Question 4.
Name the types of economics.
Answer:
The types of economies are

1. Socialistic or Centrally planned Economy
2. Capitalistic or Market Economy and
3. Mixed Economy.

Question 5.
Give two examples of Centrally Planned economy.
Answer:
The Centrally planned or Socialistic economies are North Korea, Cuba, Russia, China and Vietnam.

Question 6.
Give two examples of a Capitalistic Economy.
Answer:
The examples for Capitalistic or Market Economy are USA, Japan, Australia, UK etc.

Question 7.
mention any two differences between Positive and Normative Economics.
Answer:

Question 8.
Write any four practical importances of Micro-Economics.
Answer:

1. It helps in allocation of resources.
2. Provides solution to the problem of choice.
3. Helps in formulating various.economic policies.
4. Explains determination of the price.
5. Helps to know the working of an economy.

Question 9:
Mention any two limitations of Micro Economics.
Answer:

1. It has unrealistic assumptions.
2. It is based on unrealistic analysis.
3. Narrow in scope.

Question 10:
What is Inductive Method of Economics?
Answer:
It is the process of reasoning from a part to the whole, from particular to general or from individual to the universal.

2nd PUC Economics Introduction to Micro Economics Five Marks Questions and Answers

Question 1.
What is a centrally planned economy? How does it solve basic problems?
Answer:
A centrally planned economy also called as socialistic economy is that economy where the economic activities are controlled by the central Government. Here, the Government takes decisions about the allocation of resources in accordance with objectives to attain economic . and social welfare. Example, Russia, China, North Korea etc.

Here, the basic economic problems are solved as follows:
The Government takes decisions about the allocation of resources in accordance with the predetermined goals and objectives to attain maximum social welfare. Government decides what to produce, how to produce and what prices are to be fixed.

• Regarding what to produce, the Government may produce those goods and services which are most useful for its society.
• Regarding how to produce, the most suitable technique in production is adopted whether labour intensive or capital intensive in accordance with the situation in the economy.
• Regarding for whom to produce, the goods and services are produced to help those people who are suffering from hunger or shortage though there is a loss.
• It gives importance to the quality of life rather than quantity of production.
• It focuses the resources on rapid economic development.

Question 2:
Write a short note on Market Economy.
Answer:
A Market Economy also known as Capitalistic Economy is that economy in which the economic decisions are undertaken on the basis of market mechanism by the private entrepreneurs. It functions on demand and supply conditions. In USA, Japan, Australia, UK and other countries we can see Market Economic systems.

In market economy, private individuals own the factors of production. Here, profit is the sole motive. There is least intervention by the Government.

Price mechanism plays a major role in market economy. It is a balancing wheel of the market mechanism. Prices coordinate decisions of the producers and consumers. The price is determined by demand and supply in the market. No individual organization or Government is responsible for the production and distribution or pricing of goods. All depend on market mechanism).

Regarding the basic problems of an economy, the problem of “What to produce”, is solved on the basis of demand and profit. The producers produce those products which bring more income.

The problem of “How the goods are to be produced”, is determined by the competition among different entrepreneurs. They select the least cost combination of technology so that they can get more returns with less cost.

In Market Economy, the/problem of “For whom to produce”, is decided on the basis of purchasing power of consumers. The producers produce commodities for the rich as they can afford to pay more but poorer sections of the society get neglected.

In Market Economy, profits and losses play a predominant role in growth and development of every producer.

Question 3.
Explain the nature of Mixed Economy. How does it differ from Market Economy?
Answer:
A Mixed Economy is that economy in which we can see co-existence of both private and public sector enterprises. It is the combination of Socialistic and Capitalistic features. The best example for this is India.

In a Mixed Economic system, the resources are owned by both the Government and Private individuals. Here, some areas of economic activities are totally governed by the Government and other sectors are open to the private sector also.

The Government involves in those activities which promote maximum social and economic welfare without any profit motive. The Private sector functions with the intention of maximizing profits. Here we find dual pricing system. For example, the supply of Rice through Government Fair Price shojis is low when compared to the private provision stores.

In this type of economy, the Government takes the responsibility to run certain essential sectors like Railways, Printing of currency notes, Atomic energy, public parks etc. Here, the basic problems are solved both by Public and Private Sectors.

Regarding what to produce,-consumers play a main role. But, the Government also interferes by imposing tax or giving subsidy. The problem of how to produce, the private sector will follow the least cost effective technology to maximize profit and public sector will select , the technology on the basis of composition of resources. The problem of for whom to produce depends on both the purchasing power of consumers and the Government policy towards weaker sections of society.

Question 4.
Is Economics Positive or Normative? Discuss.
Answer:
Positive Economics .

1. The positive economics is the study of ‘what was’ and ‘what is’ under the given set of circumstances. It is concerned with how the economy performs the basic functions of what to produce, how to produce and for whom to produce. It explains how the economy takes decisions about consumption, production and exchange of goods.

2. It deals with the scientific explanation of the working of the economy. It analyses every issue of economics from a positive perspective without passing any value judgments. It deals with the cause and effect relationship of economic variables.

Normative Economics:

1.The Normative economics studies ‘what ought to be’. It explains about ‘what should be and should not be done’. Here we try to understand that whether the mechanisms are desirable ornot. The normative economic statements are sometime called matters of op.nion or statements of value.

2. The advice given by various economists are mostly as per normative economics.
In India, Economic Advisers who are appointed by the Government are responsible for advising the Prime Minister as to which of the policies are good and beneficial to the country’s economy and which are bad and detrimental on the whole.

Economics is both Positive and Normative:

1. But, Economics is both a positive and normative science. The study of economics involves both scientific investigation and policy analysis. Economists first use science to explain the world and understand how the economy works, later policies are explored for the economic development.

Question 5.
What method would you prefer to formulate an economic theory?
Answer:
Economic theories are statements of economic tendencies of people. While developing economic theories, the Economists formulate assumptions. So, economic theory derives generalizations of economic facts through two methods: They are as follows:

Deductive Method: This method was developed by David Recardo, J.S.Mill, T.R.Malthus, Alfred Marshall and others. This method is also called as Analytical method.

under this method, the conclusions are drawn from the universal to the individual or from general to the particular. This method derives new conclusions from assumptions. It is also called as ‘Scientific Method’. It includes four stages viz.,

• Identification of the hypothesis to be tested.
• Generations of predictions from the hypothesis.
• Conducting experiments to check whether the predictions are correct.
• Confirming the hypothesis.

Inductive Method: This method was advocated by Frederic List, Rosher and Hilde Brand. Inductive method is a process of reasoning from particular to general or from individual to the universal. It functions in four stages viz.,

•  Selection of an economic problem and defining the same clearly.
• Collection of data using statistical techniques.
• Analysing the data.
• Observation and generalization to establish a general truth.

The inductive method is also called as historical method or concrete method and realistic method. In this method, we investigate particular facts or historical events and try to generalize the findings of the observation for the entire economic system.

It is concluded that both Deductive and inductive methods are e^ntial for the proper development of economic laws. According to Alfred Marshall, “Induction and deduction are both needed for scientific thought just as the right and left foot are both needed for walking”.

Question 6.
Explain the various limitations of Micro Economics.
Answer:
Micro Economics is the study of the economic actions of individuals and small groups of individuals. According to Boulding, “ It is the study of particular firms, particular households, individual prices, wages, income, individual industries, particular commodities”.
The major limitations of Micro Economics are as follows:

(a) Assumptions are unrealistic: The study of Micro-Economics assumes that ‘other tilings being constant’, which is not realistic. In fact, all factors are subject to change and not constant.

(b) Micro Economics is an unrealistic analysis: Micro-Economics uses static analysis. The conclusions drawn from Micro Economic analysis are not valid. For example, individual savings is good since it promotes individual economic prosperity. But if many people indulge in savings, it may lead to a fall in demand leading to less investment and causing unemployment.

(c) The assumption of full employment is incorrect: The microeconomics is based on the assumption of full employment i.e., all the resources are completely employed in production process, which is just imaginary and not correct.

(d) Laissez-faire policy (Minimum intervention of Government): The assumption of laissez faire policy is not practical in real world, where we see intervention of Government in economic activities.

(e) Ignores Macro economic analysis: The knowledge of an entire economy is very essential to the people as it includes all the economic elements. But the micro economics concentrates only on a small part of the whole economy.

(f) It is limited in scope: The scope of micro economics is limited and narrow. It does not include income theory, inflation, monetary policies etc. which are very important for economic analysis.

2nd PUC Economics Introduction to Micro Economics Ten Marks Questions and Answers

Question 1.
Discuss the basic problems of an economy.
Answer:
An economic system or economy is a mechanism where the scarce resources are channelized . on priority to produce goods and services. These goods and services produced by all the sectors of the economy determine the national income.

Generally, human wants are unlimited and resources to satisfy them are limited. If there was a perfect match between human wants and availability of resources there would have been no scarcity, no problem of choice and no economic problems at all. So, one has to select the most essential want to be satisfied with limited resources. In economics, this problem is called ’Problem of Choice’.

The problem of choice arising out of limited resources and unlimited wants is called economic problem. In every economy whether developed or underdeveloped, Capitalistic, Socialistic or Mixed economy, there will be three basic economic problems viz., What to produce, How to produce and For whom to produce. Let us discuss them in detail.

(a)What to Produce: Every country has to decide which goods are to be produced and in what quantities. Whether more guns should be produced or more foodgrains should be grown or whether more capital goods like machines, tools, etc., should be produced or more consumer goods (electrical goods, daily usable products etc.) will be produced. What goods to be produced and in what quantity depends on the economic system of.the country. In Socialistic economy, the Government decides and in Capitalistic economy market forces decide and in Mixed economy, both the Government and market forces provide solutions to this problem.

(b) How to Produce: There are various alternative techniques of producing a product. For example, cotton cloth can be produced with either handloom or power looms. Production of cloth with handloom requires more labour and production with power loom use of more machines and capital. It involves selection of technology to produce goods and services.

There are two types of techniques of production viz., (a) Labour intensive technology and (b) Capital intensive technology.
The society has to decide whether production be based on labour intensive or capital intensive techniques. Obviously, the choice of technology would depend on the availability of different factors of production (land, labour, capital) and their relative prices (rent, wages, interest).

(c) For whom to produce: Another important decision with economy has to take is for whom to produce. The economy cannot satisfy all wants of an the people. Therefore, it has to decide who should get how much of the total output of goods and services. The society has to decide about the shares of different groups of people- poor, middle class and the rich, in the national output.

Apart from above, an economy also faces other problems: they are as follows:

(a) The problem of economic efficiency: The efficient utilisation of existing resources of an economy has also become a major problem. The Optimum use of both natural and human resources is needed to prevent the wastage of these resources.

(b) The problem of full employment: Full employment means utilisation of resources to the fullest extent. Under utilisation of human resources leads to unemployment, disguised unemployment etc. If the natural resources are not used to the maximum, there is a wastage of potentiality of an economy.

(c) The problem of economic growth: Every nation wants to increase its Gross Domestic Product to achieve economic growth. This in turn improves the standard of living and reduces poverty and unemployment. Every economy has to increase its ability to produce more goods and services with the help of existing resources in order to achieve economic growth. But many developing countries are facing this problem of economic growth. So, the above are the basic problems of an economy common to all the economic systems of the world.

Question 2.
Explain the main types of Economic Systems.
Answer:
The main types of economic system are:

1. Socialistic/Centrally Planned Economy
2. Capitalistic/Market Economy and.
3. Mixed Economy.

1. Centrally Planned Economy or Socialistic Economy.
A planned economy also called as socialistic.economy is that economy where the economic activities are controlled by the central Government. Here, the Government takes decisions about the allocation of resources in accordance with objectives to attain economic and social welfare. Example, Russia, China,
North Korea etc. Here, the basic economic problems are solved as follows:

Government takes decisions about the allocation of resources in accordance with the predetermined goals and objectives to attain maximum social welfare. Government decides what to produce, how to produce and what prices are to be fixed.

• Regarding what to produce, the Government may produce those goods and services which are most useful for its society.
• Regarding how to produce, the most suitable technique in production is adopted whether labour intensive or capital intensive in accordance with the situation in the economy.
• Regarding for whom to produce, the goods and services are produced with the welfare of people who are suffering from hunger in mind even though there may be a loss.
• It gives importance to the quality of life rather than quantity of production.
• It focuses the resources on rapid economic development.

2. Market Economy:
A Market Economy also known as Capitalistic Economy is that economy in which the economic decisions are undertaken on the basis of market mechanism by the private entrepreneurs. It functions on demand and supply conditions. In USA, Japan, Australia, UK and other countries we can see Market Economic systems.

In Market Economy, private individuals own the factors of production. Here, the profit is the main goal of business. There is the least intervention of Government.

Price mechanism plays a major role in Market Economy. It is a balancing wheel of the market mechanism. Prices coordinate decisions of the producers and consumers. The price is determined by demand and supply in the market. No individual organization or Government is responsible for the production and distribution or pricing of goods. All depend on market mechanism.

Regarding basic problems of an economy, the problem of what to produce is solved on the basis of demand and profit. The producers produce those products which bring more income.

The problem of how the goods are to be produced is determined by the competition among different entrepreneurs. They select least cost effective combination of technologies so that they can get more returns for their investment.

In Market Economy, the problem of for whom to produce is decided on the basis of the purchasing power of the consumers. The producers produce commodities for the rich who can afford to pay more but poorer sections of the society are neglected.

In Market Economy, profits and losses play a predominant role in the growth and development of every producer.

3. Mixed Economy:
A mixed economy is that economy in which we can see co-existence of both private and public sector enterprises. It is the combination of Socialistic and Capitalistic features. The best example is India.

In a mixed economic system, the resources are owned by both the Government and Private individuals. Here, some areas of economic activities are totally governed by the Government and other sectors are open to the private sector.

The Government involves in those activities which promote maximum social and economic welfare without any profit motive. The Private sector functions with the intention of maximizing profits. Here we find dual pricing system. For example, the supply of rice through Government Fair Price shops is low when compared to the private provision stores.

In this type of economy, the Government takes the responsibility to run certain essential sectors like Railways, Printing of currency notes, Atomic energy, public parks etc. Here, the basic problems are solved both by Public and Private Sectors.

Regarding what to produce, consumers play the main role. But, the Government also interferes by imposing tax or giving subsidy. The problem of how to produce, the private sector will decide the best cost effective technology to maximize profits and public sector will select the technology on the basis of composition of resources. The problem of for whom to produce depends on both the purchasing’power of the consumers and the Government policy towards weaker sections of the society.

Question 3.
Explain the uses of Micro-Economics.
Answer:
Micro Economics is the study of the economic actions of individuals and small groups of . individuals. According to Boulding, “The study of particular firm, particular household, individual price, wage, income, individual industry, particular commodity, is Micro Economics.”

Micro Economics is an important method of economic analysis. It has both theoretical and practical importance.

(a) Helpful in the efficient employment of resources-allocation of resources: Micro Economics deals with the economizing of scarce resources with efficiency. The principal problem faced by modern Governments is the allocation of resources among competing wants. In this sense, Micro Economics is used by the Government in the efficient employment of resources and achieving economic growth With stability.

(b) Helps in understanding the working of the economy: Micro Economics is of utmost importance in understanding the working of a free economy. In such an economy, there is no agency to plan and coordinate the working of the economic system. The decisions like how to produce, what do produce etc., are taken by producers mid consumers without any outside influence.

(c) Provide tools for economic policies: Micro economics provides analytical tools for evaluating the economic policies of an Economy. Price mechanism or market mechanism is the tool which helps us in this respect. Micro Economics thus helps in formulating correct price policies.

(d) Useful in understanding the problems of Taxation: The study of micro economics helps in understanding some of the problems of taxation. It is used to explain the welfare implications of a tax. It studies the distribution of incidence of a commodity tax (excise duty/sales tax) between sellers and consumers.

(e) Helpful in International Trade: In the field of international trade, it is used to explain the gains from international trade, balance of payments and the determination of the foreign exchange rate.

(f) Helps us to know Market structure: The study of Micro Economics is useful in understanding the different market conditions like perfect competitive market, monopoly, duopoly, oligopoly etc.

(g) Construction and use of economic models: Micro Economics constructs and uses simple models for understanding the actual economic phenomena. It helps not only to describe the actual economic situation, but also suggests policies that would bring in the desired results;

(h) The basis of predictions: Micro Economic theory can be used as the basis for prediction. This does not mean that it will enable us to predict the future. It will enable the user to make conditional predictions.

(i) Solution to the problem of choice: The study of Micro Economics helps to find solution to the problem of choice by providing various guidelines for proper allocation of scarce
resources.

(j) Helps business executives: Micro Economics helps the business executives in the attainment of maximum productivity with existing resources. It is with its help that one is able to know the consumer demands and calculate the cost of production.

(k) Helps in formulation of economic planning: In order to solve the basic problems of an economy, conscious planning is required. The knowledge of micro economics helps the members of National Planning Commission to frame aims and objectives based on the availability of resources.

(l) Expands intellectual capacity of Human mind:- The study of economics helps individuals to develop their thinking and intelligence to take appropriate decisions in their daily life.

(m) To examine the conditions of economic welfare: Micro Economics can be used to examine the conditions of economic welfare. Welfare economics is related to maximization of social welfare. The study of Micro Economics may be the greatest help in raising the standard of living of the population.

(n) Helps different sections of the society: The knowledge of Micro Economics is very important to know the different sections of the society like poor, middle class, rich, male and female population, skilled and unskilled labourers etc. It helps us to understand the problems of these sections and to arrive at proper Solutions.
Thus, Micro Economics is considered as an efficient method of problem solving.

Karnataka 1st PUC Accountancy Question Bank Chapter 6 Trial Balance and Rectification of Errors

1st PUC Accountancy Trial Balance and Rectification of Errors One Mark Questions and Answers

Question 1.
What is Trial balance?
Answer:
Trial balance is the list of all debit and credit balances of accounts taken out from the ledger at a given period.

Question 2.
Write the objective of preparing trial balance.
Answer:

• To know the arithmetical accuracy of the books of accounts.
• To identify any mistakes in the books of accounts entered.
•  It contains all the accounts in a summarised from.
• To prepare final accounts of a concern.

Question 3.
Write the methods of preparing trial balance.
Answer:

1. Balance method
2. Total method
3. Balance and total (mixed) method.

Question 4.
Write the principles of preparation of trial balance.
Answer:
The principle of preparation of trial balance is debit entry have automatic credit on some other account.

Question 5.
Write the features of trial balance.
Answer:

• It is a extraction of ledger balance
• It is prepared on a particular date.
• It is not the account it is a statement of balances.

Question 6.
Write the specimen of trial balance.
Answer:
Trial balance of m/s subhas publishing House as on 31-3-2011

Question 7.
Write any four items appeared on debit side of trial balance.
Answer:
The items appeared in debit side of trial balance are :

1. Purchases
2. Sales Return
3. Building
4. Cash balance.

Question 8.
Write any four items appeared on credit side of trial balance.
Answer:
The items appeared in trial balance credit side are :

1. Sales
2. Purchase return
3. Capital
4. Interest received

Question 9.
Write any four items not recorded in trial balance.
Answer:
Items not appeared in trial balance are :

1. Closing stock
2. Salary payable
3. Commission receivable
4. Depreciation provision during the year

Question 10.
What is suspense a/c?
Answer:
It is a temporary a/c in which the difference in Trial balance is placed and is wiped off when the errors are locked.

Question 11.
What is an accounting Errors?
Answer:
Errors mistakes committed by the book-keeper while writing of accounts.

Question 12.
Write the different types of errors.
Answer:

1. Errors of commission
2. Errors of ommission
3. Errors of principle
4. Compensating errors

Question 13.
What do you mean by errors of ommission?
Answer:
It is an error where a transaction is completely ommited or not recorded in the books of accounts.

Question 14.
What is error of commission?
Answer:
It is an error where a transactions has been wrongly entered in a subsidiary book or posting to wrong a/c.

Question 15.
What is errors of principles?
Answer:
It is an error where a transaction is not recorded strictly in accordance with principles of double entry system.

Question 16.
What is suspense account?
Ans.
It is Temporary account opened for recording the difference in trial balance and written off after errors are located.

Question 17.
Write the meaning of two sides errors.
Answer:
Any errors affects both side aspects of transaction, (debit and credit) it is called two sides errors.

1st PUC Accountancy Trial Balance and Rectification of Errors Two Marks Questions and Answers

Question 1.
State any two examples for errors of omission.
Answer:
Examples for omission are :

1. Purchase goods from Murthy not recorded in purchase book. It is a omission of original entry.
2. Sold goods to Mary recorded in sales book but not posted to ledger. It is a omission of postings.

Question 2.
Write the meaning of compensating errors.
Answer:
It is an error where one error committed on one account is compensated by some other error . on another account.

Question 3.
Write the meaning of one side error. Give example.
Answer:
Any errors affects only one side, either debit or credit aspects of transaction it is called one side error. Example : Pasting Rs. 500 as ₹ 50.

Question 4.
Write the objectives or importance of suspense account.
Answer:
(i) To Final accounts or importance of suspense account.
(ii) To rectify the mistakes and correct the trial balance.

Question 5.
Give any two examples for errors of commission.
Answer:

1. Goods purchase for ₹ 9250 from Srinivas has been entered in the purchase book as ₹ 9520
2. Goods sold to asha for ₹ 2000 has been wrongly posting to Ravi’s a/c

Question 6.
Give any two example for errors of principle.
Answer:

1. Purchase of furniture from vishwantha ₹ 10000 but it is wrongly entered in purchase book.
2. Sale of old machinery ₹ 1000 wrongly entered in to sales a/c.

Question 7.
Give two example for compensating errors.
Answer:
Examples for compensating errors are :

1. Salary account overcast by ₹ 2000 and Electricity charges undercast by ₹ 2000.
2. Purchase book is undercast by ₹ 4000 and purchases return under cast by ₹ 2000 and sales return overcast by ₹ 2000.

Question 8.
What is rectification of errors or rectification of entry?
Answer:
Correcting the mistakes made earlier by passing a new entry called rectification entries.
In other words an entry written to rectify the mistakes committed in the books of accounts called rectification entry.

Question 9.
Mention any two features of suspenses a/c.
Answer:
Features of suspense a/c are

1. It is opened when trial balance not tallied.
2. Suspense account may show debit balance or credit balance in trial balance.
3. It is a temporary account.

Question 10.
Write the merit /use of suspense a/c.
Answer:
The use of suspense account is that it helps to prepare final accounts of a concern even when the trial balance shows a difference amount.
It also helpful for identifying the mistakes while maintaining books of accounts.

Question 11.
State the meaning of a Trial Balance?
Answer:
Trial Balance is a statement prepared with debit and credit balances of all accounts in ledger, to verify the arithmetical accuracy of the accounts. It is prepared after balancing all the ledger accounts.

Question 12.
Give the meaning of errors of principle with examples.
Answer:
Errors of principle refer to those errors that are committed when recording of transactions is done against the accounting principle. Below given are the examples of error of principle.

a. Wages paid for construction of building debited to Wages Account.
b. Amount spent on repair of machinery debited to Machinery Account.

Question 13.
What is errors of commission? Give examples.
Answer:
Errors of commission refer to those errors that are committed when transactions are recorded with wrong amounts; wrong balancing or wrong posting and / or wrong carrying forwarding is done. Examples of error of commission are.
a. Goods purchased worth ₹ 20,000 on credit are recorded in the purchases book as ₹ 1000.
b. Total of sales book is carried forward as ₹ 50,000 instead of ₹ 5,000.

1st PUC Accountancy Trial Balance and Rectification of Errors Six Marks Questions and Answers

Question 1.
What are the methods of preparing trial balance?
Answer:
The two different methods to prepare trial balance.
a. Totals method : According to the totals method, the total of debit and credit sides of an accounts is shown in the debit and credit columns of the trial balance. If the total of the debit column and the total of credit column of trial balance are equal, then the trial balance is said to agree, otherwise not.

b. Balance method : According to the balance method, the balance of ledger accounts is shown in the debit and credit column of the Trial Balance. The balance of ledger may be either debit balance or credit balance. In the former case, the debit side of an account exceeds its credit side; whereas, in the latter case the credit side exceeds the debit side of the account. The sum total of the balances in the debit column of the trial balance must be equal to the sum total of the balances in the credit columns of the trial balance. It is a commonly used method.

c. Total cum balance method : It is a combination of both of the above methods, i.e., totals method and balance method.

Question 2.
What are the steps taken by an accountant to locate the errors in the trial balance?
Answer:
The following are various steps that an accountant takes to locate the errors in the trial balance.

a. Re-totalling of the debit and the credit columns of the trial balance to locate the difference in the total of both the columns.
b. Checking whether any account is omitted to be recorded with the exact difference amount.
c. Half the difference, then check whether any amount is posted in the wrong column of the trial balance.
d. Divide the difference by 9, if it is competely divisible, it is an error of transposition of figure, i.e. 546 is written as 645.
e. If there exist difference especially of ₹ 1, ₹ 10, ₹ 100, ₹ 1000, etc., it suggests that the casting of subsidiary books should be checked once again.
f. If difference still exists and it is not possible to detect the reason for the difference, then for the time being, the difference is transferred in the suspense account in order to proceed further. Otherwise a complete checking is suggested.

Question 3.
What is suspense account? Is it necessary that suspense account will balance off after rectification of the errors detected by the accountant? If not, then what happens to the balance still remaining in suspenses account?
Answer:
When trial balance does not agree, i.e., when the total of the debit column does not match that of the credit column, then the difference of the trial balance is transferred to a temporary account in order to avoid delay in preparation of the financial statements. This temporary account is termed as suspense account.

If the debit column falls short of the credit column, then the suspense account is debited and if the credit column falls short of the debit column then the suspense account is credited. If all the errors are detected and rectified, then the suspense account automatically gets closed (i.e. becomes zero).

However, if still there exists any difference, then it should be transferred to the balance sheet. If the suspense account shows a debit balance, then it is shown in the assets side and if the suspense account shows a debit balance, then it is shown in the assets side and if the suspense account shows a credit balance, then it is shown in the liabilities side of the balance sheet.

Question 4.
What kinds of errors would cause difference in the trial balance? Also list examples that would not be revealed by a trial balance?
Answer:
The errors that lead to the differences in the trial balance are termed as one-sided errors.
These are those errors that affect only one account. Below are given the errors that cause difference in the trial balance.

a. Wrong casting of any account, this is termed as the error of casting.
b. Wrong carrying forward of the balances from previous year’s books or from one end of page to another. These types of errors are termed as the errors in carrying forward.
c. If entries are posted in the wrong side of accounts.
d. Posting of a wrong amount in account, this is termed as the error of posting.
e. If entries are recorded partially, i.e., the entries are not recorded completely, then due to the error of partial omission, trial balance.

Question 5.
State the limitations of trial balance?
Answer:
The ineffectiveness of the trial balance is termed as the limitations of trial balance. The various limitations of the trial balance are given below.

• It does not assist to detect errors that arise if any entry is not recorded in the journal. Such errors are termed as the errors of Complete Omission.
• If the effect of one error is canceled by the effect of another error, then it cannot be ascertained by the trial balance. Such types of errors are termed as compensatory errors, which are rare to find.
• If correct amount is posted in the correct side; however, in the wrong account and if wrong amount is posted in the wrong side, but in the correct account, then the trial balance fails to reflect these errors.
• If there arises any error of principle, like capital expenditure mistakenly regarded as revenue expenditure or vice-versa, then such errors may not be revealed in form of mismatch between the two columns of the Trial balance.
• If any transaction is recorded wrongly in the looks of original entry, then such mistakes lead to the errors of recording which are not revealed by trial balance.

Question 6.
Describe the purpose for the preparation of trial balance.
Answer:
The important purposes for the preparation of trial balance are explained with the help of the following points:

• Ascertaining the arithmetical accuracy : When the total of all debit balance accounts are equal to all credit balance accounts, it is assumed that at least posting from journal to the respective accounts is arithmetically correct.
• Summarising the ledger accounts: Trial balance acts as a consolidated statement, providing a comprehensive list of all the accounts. Thus, a trial balance provides a summarised version of each account.
• Preparing final accounts : As the trial balance provides a summarised version of each account, so different accounts can be directly transferred to trading, profit and loss accounts, and balance sheet without referring to different ledgers.
• Locating and rectifying errors : If the trial balance does not agree, it indicates the occurrence of arithmetical error, which can be easily located. However, trial balance only helps in locate and rectify arithmetical error and no other types of errors.

Question 7.
Explain errors of principle and give two examples with measures to rectify them.
Answer:
Errors of principle refer to those errors that are committed when recording of transactions in the original book of entry is done against the accounting principle. These errors are not reflected in the trial balance. These errors are committed when proper distinction is not made between capital expenditure and revenue expenditure, or vice versa or between capital income and revenue income or vice versa.
Th following examples will illustrate the process of understanding and rectification of such errors.

Example 1 : Wages paid for construction of building are debited to Wages account.
Wrong entry made is:
Wages A/c Dr
To cash A/c
(Wages paid in cash)
In this case, wages paid for the construction of building should be treated as a capital expenditure and accordingly should be debited to the building account. However, the wages account is wrongly debited.
The correct entry that should have been made is:
Building A/c or To cash A/c
(wages paid for construction of building)
The rectifying entry should be :
Building A/c Dr
To Wages A/c
(Wages paid for construction of building was debited to wages account, now rectified)

Example 2:
The sale of old machinery recorded as sales.
wrong entry made:
Cash A/c Dr
To sales A/c
(Sales of old machinery, recorded as sales)
In this case, the sale of old machinery should not be recorded as sales; in fact the Machinery Account should be credited.
The correct entry that should have been made is:
Cash A/c Dr
To machinery A/c
(Old machinery sold for cash)
In order to rectify this error, sales account will be debited, as it is wrongly credited and machinery will be credited, as it willnot be recorded in the books.
The rectifying entry will be:
Sales A/c Dr
To Machinery A/c
(Sales of old machinery recorded as sales, now rectified)

Question 8.
Explain the errors of commission and give two examples with measures to rectify them.
Answer:
Errors of commission refer to those errors that are committed when transactions are recorded with wrong amounts, wrong balancing is done, wrong posting and/or wrong carrying forwarded is done. The following examples will illustrate the process of understanding and rectification of such errors.

Example 1 : Sales made to Mr A of ₹ 30,000 recorded as 3,000 from invoice.
In this case, Mr. X’s account has been debited with ₹ 3,000 instead of ₹ 30,000; hence the error of commission is committed. This requires a further debit of ₹ 27,000, in order to rectify this error of commission. This will be rectified by passing the following entry:
Mr A’s A/c Dr 9,000
To sales A/c 9,000.
(Good sold to Mr X of ₹ 30,000 was wrongly posted as ₹ 3,000, now rectified)

Purchase book Was under cast by ₹ 40,000. This error can be rectified in any of the following two stages:

a. If an error is located before preparing trial balance, then ₹ 10,000 should be recorded in the debit side of purchases account.

b. If an error is located after preparing trial balance, then the following entry need to be recorded.
Purchase A/c  – 40,000
To Suspense A/c  – 40,000

Question 9.
What are the different types of errors that are usually committed in recording business transactions?
Answer:
1. Errors of omission: When an entry gets omitted during recording in the book of original entry or during posting the transaction, then error of omission is committed. There are two types of errors of omission, viz.:

• Partial omission : When a transaction is correctly recorded in one side of account but is not recorded in the other side of the account.
• Complete omission : When a transaction gets completely omitted to be recorded in the books, then it is the case of complete omission. Such omission does not affect the trial balance.

2. Errors of principle : These refer to those errors that are committed when recording of transactions in the book of the original entry is done against the accounting, principle. These errors affect the trial balance. These errors are committed when proper distinction is not made between revenue income or expenditure and capital income or expenditure.

3. Errors of commission: These refer to those errors that are committed when transactions are recorded with wrong amounts, wrong balance, wrong posting and/or wrong carrying forwarded is done.

4. Compensating errors : When effects of one error are cancelled by the effects of another error of an equal amount, then compensating errors are committed.

Question 10.
As an accountant of a company, you are disappointed to learn that the totals in your new trial balance are not equal. After going through a careful analysis, you have discovered only one error. Specifically, the balance of the office equipment account has a debit balance of ₹ 15,600 on the trial balance. However, you have figured out that a correctly recorded credit purchase of pen-drive for ₹ 3,500 was posted from the journal to the ledger with a ₹ 3,500 debit to office equipment and another ₹ 3,500 debit to creditors accounts. Answer each of the following questions and present the amount of any misstatement:

a. Is the balance of the office equipment account overstated, understated, or correctly stated in the trial balance?
b. Is the balance of the creditors account overstated, understated, or correctly stated in the trial balance?
c. Is the debit column total of the trial balance overstated, understated, or correctly stated?
d. Is the credit column total of the trial balance overstated, understated, or correctly stated?
e. If the debit column total of the trial balance is ₹ 2,40,000 before correcting the error, what is the total of credit column.
Ans.
According to the given information trial balance does not agree. Pen-drive is wrongly debited to office equipment account, instead of stationery account and supplier account is debited instead of crediting. Due to these mistakes, the following errors are committed:

a. The balance of office equipment is overstated by ₹3,500.
b. The balance of creditors accounts is understated by ₹ 7,000
c. The total of the debit column of the trial balance is correctly stated.
d. The total of the credit column of the trial balance is understand by ₹ 7,000.
e. If the total of the debit column of the trial balance is ₹ 2,40,000 before rectifying error, the total of the credit column of the trial balance is ₹ 2,33,000 (i.e., ₹ 2,40,000 – ₹ 7,000).

1st PUC Accountancy Trial Balance and Rectification of Errors Numerical Questions and Answers

Question 1.
Rectify the following errors :
(i) Credit sales to Mohan ₹ 7,000 were not recorded.
(ii) Credit purchases from Rohan ₹ 9,000 were not recorded.
(iii) Goods returned to Rakesh ₹ 4,000 were not recorded.
(iv) Goods returned from Mahesh ₹ 1,000 were not recorded.
Answer:

Question 2.
Rectify the following errors :
(i) Credit sales to Mohan ₹ 7,000 were not recorded as ₹ 700.
(ii) Credit purchases from Rohan ₹ 9,000 were not recorded as ₹ 900.
(iii) Goods returned to Rakesh ₹ 4,000 were recorded as ₹ 400.
(iv) Goods returned from Mahesh ₹ 1,000 were not recorded ₹ 100
Answer:

Question 3.
Rectify the following errors :
(i) Credit sales to Mohan ₹ 7,000 were not recorded as ₹ 7,200.
(ii) Credit purchases from Rohan ₹ 9,000 were recorded as ₹ 9,900.
(iii) Goods returned to Rakesh ₹ 4,000 were recorded as ₹ 4,040.
(iv) Goods returned from Mahesh ₹ 1,000 were not recorded ₹ 1,600.
Answer:

Question 4.
Rectify t le following errors :
(a) Sales book overcast by ₹ 700.
(b) Purchases book overcast by ₹ 500.
(c) Sales return book overcast by ₹ 300.
(d) Purchase return book overcast by ₹ 200.
Answer:

Question 5.
Rectify the following errors :
(a) Sales book undercast by ₹ 300.
(b) Purchases book undercast by ₹ 400.
(c) Return Inwards book undercast by ₹ 200.
(d) Purchase return book undercast by ₹ 100.
Answer:

Question 6.
(a) Credit sales to Mohan ₹ 7,000 were not posted.
(b) Credit purchases from Rohan ₹ 9,000 were not posted.
(c) Goods returned to Rakesh ₹ 4,000 were not posted.
(d) Good returned from Mahesh ₹ 1,000 were not posted.
(e) Cash paid to Ganesh ₹ 3,000 was not posted.
(f) Cash sales ₹ 2,000 were not posted.
Answer:

Question 7.
Rectify the following errors and ascertain the amount of different in trial balance by preparing suspense account:
(a) Credit sales to Mohan ₹ 7,000 were posted as ₹ 9,000.
(b) Credit purchases from Rohan ₹ 9,000 were posted as ₹ 6,000.
(c) Goods returned to Rakesh ₹ 4,000 were posted as ₹ 5,000.
(d) Good returned from Mahesh ₹ 1,000 were posted as ₹ 3,000.
(e) Cash sales ₹ 2,000 were posted as ₹ 200.
Answer:

Question 8.
Rectify the following errors :
(a) Credit sales to Mohan ₹ 7,000 were posted to Karan.
(b) Credit purchases from Rohan ₹ 9,000 were posted to Gobind.
(c) Goods returned to Rakesh ₹ 4,000 were posted to Naresh.
(d) Good returned from Mahesh ₹ 1,000 were posted to Manish.
(e) Cash sales ₹ 2,000 were posted to commission account.
Answer:

Question 9.
Rectify the following errors assuming that a suspense account was opened.
Ascertain the difference in trial balance.
(a) Credit sales to Mohan ₹ 7,000 were posted to the credit of his account.
(b) Credit purchases from Rohan ₹ 9,000 were posted to the debit of his account as ₹ 6,000.
(c) Goods returned to Rakesh ₹ 4,000 were posted to the credit of his account.
(d) Good returned from Mahesh 1,000 were posted to the debit of his account as ₹ 2,000.
(e) Cash sales ₹ 2,000 were posted to the debit of sales account as ₹ 5,000.
Answer:

Question 10.
Rectify the following errors assuming that a suspense account was opened.
Ascertain the difference in trial balance.
(a) Credit sales to Mohan ₹ 7,000 were posted to Karan as ₹ 5,000.
(b) Credit purchases from Rohan ₹ 9,000 were posted to the debit of Govind as ₹ 10,000.
(c) Goods returned to Rakesh ₹ 4,000 were posted to the credit of Naresh as ₹ 3,000.
(d) Good returned from Mahesh ₹ 1,000 were posted to the debit of Manish as ₹ 2,000.
(e) Cash sales ₹ 2,000 were posted to commission account as ₹ 200.
Answer:

Question 11.
Rectify the following errors assuming that suspense account was opened.
Ascertain the difference in trial balance.
(a) Credit sales to Mohan ₹ 7,000 were recorded in purchase book. However, Mohan’s account was correctly debited.
(b) Credit purchases from Rohan ₹ 9,000 were recorded in sales book. However, Rohan’s account was correctly credited.
(c) Goods returned to Rakesh ₹ 4,000 were recorded in sales return book. However, Rakesh’s account was correctly debited.
(d) Good returned from Mahesh ₹ 1,000 were recorded through purchases return book. However, Mahesh’s account was correctly credited.
(e) Goods retuned to Naresh ₹ 2,000 were recorded through purchases book. However, Naresh’s account was correctly debited.
Answer:

Question 12.
Rectify the following errors :
(a) Furniture purchased for ₹ 10,000 wrongly debited to purchases account.
(b) Machinery purchased on credit from Raman for ₹ 20,000 was recorded through purchases book.
(c) Repairs on machinery ₹ 1,400 debited to machinery account.
(d) Repairs on overhauling of secondhand machinery purchased ₹ 2,000 was debited to repairs account.
(e) Sale of old machinery at book value of ₹ 3,000 was credited to sales account.
Answer:

Question 13.
Rectify the following errors assuming that suspension account was opened ascertain the difference in trial balance :
(a) Furniture purchased for ₹ 10,000 wrongly debited to purchases account as ₹ 4,000.
(b) Machinery purchased on credit from Raman for ₹ 20,000 recorded through purchases book as ₹ 6,000.
(c) Repairs on machinery ₹ 1,400 debited to machinery account as ₹ 2,400.
(d) Repairs on overhauling of secondhand machinery purchased ₹ 2,000 was debited to repairs account as ₹ 200.
(e) Sale of old machinery at book value of ₹ 3,000 was credited to sales account as ₹ 5,000.
Answer:

Question 14.
Rectify the following errors :
(a) Depreciation provided on machinery ₹ 4,000 was not posted.
(b) Bad debts written off ₹ 5,000 were not posted.
(c) Discount allowed to a debtor ₹ 100 on receiving cash from him was not posted.
(d) Discount allowed to a debtor ₹ 100 on receiving cash from him was not posted to discount account.
(e) Bill receivable for ₹ 2,000 received from a debtor was not posted. Ans. Journal
Answer:

Question 15.
Rectify the following errors :
(a) Depreciation provided on machinery ₹ 4,000 was posted as ₹ 400.
(b) Bad debts written off ₹ 5,000 were as posted as ₹ 6,000.
(c) Discount allowed to a debtor ₹ 100 on receiving cash from him was posted as ₹ 60.
(d) Goods withdrawn by proprietor for personal use ₹ 800 were posted as ₹ 300.
(e) Bill receivable for ₹ 2,000 received from a debtor was posted as ₹ 3,000.
Answer:

Question 16.
Rectify the following errors assuming that suspense account was opened :
Ascertain the difference in trial balance.
(a) Depreciation provided on machinery ₹ 4,000 was posted to depreciation account.
(b) Bad debts written off ₹ 5,000 were not posted to Debtors account.
(c) Discount allowed to a debtor ₹ 100 on receiving cash from him was not posted to discount allowed account.
(d) Goods withdrawn by proprietor for personal use ₹ 800 were not posted to drawing account.
(e) Bill receivable for ₹ 2,000 received from a debtor was not posted to bills receivable account.
Answer:

Question 17.
Trial balance of Anuj did not agree. It showed on excess credit of ₹ 6,000.
He put the difference to suspense account. He discovered the following errors
(a) Cash received from Ravish ₹ 8,000 posted to his account as ₹ 6,000.
(b) Returns inwards book overcast by ₹ 1,000.
(c) Total of sales book ₹ 10,000 was not posted to sales account.
(d) Credit purchases from Nanak ₹ 7,000 were recorded in sales book. However, Nanak’s account was correctly credited.
(e) Machinery purchased for ₹ 10,000 was posted to purchases account as ₹ 5,000. Rectify the errors and prepare suspense account.
Answer:

Question 18.
Trial balance of Raju showed an excess debit of ₹ 10,000. He put the difference to suspense account and discovered the following errors:
(a) Depreciation written – off the furniture ₹ 6,000 was not posted to furniture account.
(b) Credit sales to Rupam ₹ 10,000 were recorded as ₹ 7,000. ‘
(c) Purchases book undercast by ₹ 2,000.
(d) Cash sales to Rana ₹ 5,000 were not posted.
(e) Old machinery sold for ₹ 7,000 was credited to sales account.
(f) Discount received ₹ 800 from Kanan on playing cash to him was not posted. Rectify the errors and prepare suspense account.
Answer:

Question 19.
Trial balance of Madan did not agree and he put the difference to suspense account. He discovered the following errors:
(a) Sales return book overcast by ₹ 800.
(b) Purchases return to Sahu ₹ 2,000 were not posted.
(c) Goods purchased on credit from Narula ₹ 4,000 though taken into stock, but no entry was passed in the books.
(d) Installation charges on new machinery purchased ₹ 500 were debited to sundry expenses account as ₹ 50.
(e) Rent paid for residential accommodation of madam (the proprietor) ₹ 1,400 was debited to rent account as ₹ 1,000.
Rectify the errors and prepare suspense account to ascertain the difference in trial balance.
Answer:

Question 20.
Trial balance of Khatau did not agree. He put the difference to suspense account and discovered the following errors:
(a) Credit sales to Manas ₹ 16,000 wre recorded in the purchases book as 10,000 and posted to the debit of Manas as ₹ 1,000.
(b) Furniture purchases from Noor 6,000 was recorded through purchases book as
5,0 and posted to the debit of Noor ₹ 2,000.
(c) Goods returned to Rai ₹ 3,000 recorded through the sales book as 1,000.
(d) Old machinery sold for ₹ 2,000 to Maneesh recorded through sales book as ₹ 1,800 and posted to the credit of Manish as ₹ 1,200.
(e) Total of returns inwards book ₹ 2,800 posted to Purchase account.
Rectify the following errors.
Answer:

Question 21.
From the following balances extracted from the books of Bopal as on 31st December 2007, prepare a trial balance.
Ranga’s capital 3,500
Purchases 4,000
Rent paid 120
Ranga’s Drawings 200
Bills receivable 600
Opening stock 500
Purchase returns 140
Sales returns 80
Plant and Machinery 2,000
Sales 4,800
Sundry detstors 2,800
Furniture 250
Salaries 360
Sundry creditors 2,800
Carriage 50
Insurance 20
Cash in hand 75
Cash at Bank 20
Bill payable 790
Discount received 15
Discount allowed 20
Answer:

Question 22.
From the following trial balance (containg some errors) prepare correct trial balance.


Answer:

Question 23.
From the following ledger balances a Trial Balance of Mr. Santosh for the year ended 31-3-2001:
1. Salaries ₹ 5,000
2. Creditors ₹ 30,000
3. Debtors ₹ 42,000
4. Buildings ₹ 90,000
5. Capital ₹ 50,000
6. Motor Car ₹ 10,000
7. Purchases ₹ 45,000
8. Sales ₹ 74,500
9. Loan from bank ₹ 42,500
10. Drawings ₹ 5,000
Answer:

Question 24.
From the following incorrect Trial Balance prepare a correct Trial Balance as on 31st December 2010.

Answer:

Question 25.
From the following ledger balances of Mr. Ram Das, Prepare a Trial Balance as on 31st March 2003.

Answer:

Question 26.
Prepare a triai balance as on Mar. 31, 2012 based on the following ledger balances.

Answer:

Question 27.
The trial balance of Prakash is prepared as on 30-06-2012 which contains some errors. Prepare the correct Trial balance.


Answer:

Karnataka 1st PUC Accountancy Question Bank Chapter 7 Depreciation, Provisions and Reserves

1st PUC Depreciation, Provisions and Reserves Two Marks Questions and Answers

Question 1.
State any two features of Depreciation.
Answer:

1. It is simple and easy to calculate.
2. It can reduce the book value of the asset to zero.

Question 2.
State any two causes of depreciation.
Answer:

1. Wear and tear and
2. Passage of time.

Question 3.
State any two reasons for charging depreciation.
Answer:

1. To show correct profit/loss position.
2. To show the asset at the correct market value.

Question 4.
Mention any two factors affecting the amount of annual depreciation.
Answer:

1. Cost of the asset and
2. Scrap value

Question 5.
State the two methods of depreciation.
Answer:

1. Straight line method
2. Diminishing value method

Question 6.
What is the straight line method of depreciation?
Answer:
Under this method, a fixed percentage of the original cost is written off every year, as annual depreciation.

Question 7.
What is the written down value method of depreciation?
Answer:
Under this method, depreciation at fixed percentage is calculated on the reduced balance of the asset brought forward from the previous year.

Question 8.
State any two differences between straight line method and diminishing balance method.
Answer:

Question 9.
What is annuity method?
Answer:
Under this method, not only the reduced cost of the asset is charged as depreciation, but also the interest it would have carried in case the cost of the asset is invested outside. The depreciation will be as per annuity table.

Question 10.
Give the meaning of depreciation fund method.
Answer:
Under this system, the amount written off as depreciation should be kept aside and invested in readily saleable securities. When the life of the asset expires, the securities are sold and a new asset is purchased with the help of sale proceeds.

Question 11.
What do you mean by insurance policy method?
Answer:
Under this method, an insurance policy is taken for the required sum for replacing the asset to be written off.

Question 12.
What is revaluation method?
Answer:
Under this method, the market value of the asset is ascertained at the end of each year. Any difference between the book value and market value is the depreciation.

Question 13.
What is Provision?
Answer:
Provision is a charge against profit to meet certain known liabilities or contingencies.

Question 14.
What is Reserve?
Answer:
Reserve is an appropriation of profit retained to meet unknown liabilities or contingencies.

Question 15.
State any two types of reserves.
Answer:

1. Capital reserve and
2. Revenue reserve.

Question 16.
State any two types of revenue reserves.
Answer:

1. General reserves
2. Specific reserves

Question 17.
What is Capital reserve?
Answer:
Capital reserve is created out of Capital profits which is used for writing off capital losses or issue of bonus shares.

Question 18.
What is Revenue reserve?
Answer:
Revenue reserve is created out of the revenue profits which arise out of the normal operating activities of the business.

Question 19.
What is General reserve?
Answer:
When the purpose for which a reserve is created is not specified, it is called a General reserve.

Question 20.
What is Specific reserve?
Answer:
Specific reserve is the reserve which is created for some specific purpose and can be utilised only for that purpose.

Question 21.
Give two examples for Capital reserve.
Answer:

1. Profit on sale of fixed assets and
2. Premium on issue of shares or debentures.

Question 22.
Give two examples for Revenue reserve.
Answer:

1. General reserve and
2. Investment fluctuation reserve.

Question 23.
State any two differences between provisions and reserves.
Answer:

Question 24.
What is Depreciation?
Answer:
Decrease in the value of fixed assets due to their regular use or expiry of time is termed as depreciation.

1st PUC Depreciation, Provisions and Reserves Additional Questions And Answers

Question 1.
State briefly the need for providing depreciation.
Answer:
The needs for providing depreciation are given below:
a. To ascertain true net profit or net loss
b. To show true and fair view of financial statements
c. For ascertaining the accurate cost of production
d. Distribution of dividend out of profit
e. To provide funds for replacement of assets
f. Consideration of tax (Any two)

Question 2.
Explain basic factors affecting the amount of depreciation.
Answer:
a. Total cost of asset: The total cost of an asset is taken into consideration for ascertaining the amount of depreciation. The expenses incurred in acquiring, installing and constructing asset and bringing the asset to its usable condition are included in the total cost of asset.

b. Estimated useful life – Every asset has its useful life other than its physical life (in terms of number of years, units, etc.), used by a business. The useful life of an asset is considered to estimate the effective life of a fixed asset.

c. Estimated scrap value – It is estimated as the net realizable value or sale value of an asset at the end of its effective life. It is deducted from the total cost of an asset.

Question 3.
Distinguish between straight line method and written down value method of calculating depreciation.
Answer:

Question 4.
In case of a long term asset, repair and maintenance expenses are expected to rise later years than in earlier year. Which method is suitable for charging depreciation if the management does not want to increase burden on profits and loss account on account of depreciation and repair.
Answer:
If the management does not want to expert undue burden on the profits due to high depreciation and repair costs in the latter years of the assets, then ‘written down method’ should be a preferred method to provide depreciation. This is because the cost of depreciation reduces; whereas, repair and maintenance expenses increase in the latter years. However, on ‘ the whole, it does not expert increasing burden on profits.

Question 5.
What are the effects of depreciation on profit and loss account and balance sheet?
The effects of depreciation on Profit and Loss Account are given below.
Answer:
a. Depreciation increases the debit side of profit and loss account and hence reduces net profit.
b. Depreciation increases the total expenses, leading to an excess of debit over credit balance.

The effects of depreciation on Balance Sheet are given below.
a. It reduces the original cost or book value of the concerned asset.
b. It reduces the overall balance of asset’s column in the balance sheet.

Question 6.
Distinguish between provision and reserve.
Answer:

Question 7.
Give four examples for provision and reserves.
Answer:
Four examples of provision are:
a. Provision for bad and doubtful debts
b. Provision for discount on debtors
c. Provision for depreciation
d. Provision for taxiation

Examples of reserve are:
a. General reserve
b. Capital resserve
c. Dividend equalization reserve
d. Debenture redemption reserve

Question 8.
Distinguish between revenue reserve and capital reserve.
Answer:

Question 9.
Give four examples each of revenue reserve and capital reserves.
Answer:
Four examples of revenue reserve are given below:

1. Genera Reserve
2. Retained Earnings
3. Dividend Equalization Reserve
4. Debenture redemption Reserve

Four examples of capital reserve are given below

1. Issues of shares at premium
2. Profit or issue of shares
3. Sale of fixed assets
4. Profit on redemption of debentures.

Question 10.
Distinguish between genereal reserve and specific reserve
Answer:

Question 11.
Explain the concept of secret reserve.
Answer:
Reserves that are created by overstating liabilities or understating assets are known as Reserves secrete reserves. They are not shown in the balance sheet. These reduce tax liabilities, as the liabilities are overstated. It is created by management to avoid competition by reducing profit. Creation of secrete reserve in not allowed by Companies Act, 1956 that requires full disclosure of all material facts and accounting policies while preparing final statements.

1st PUC Depreciation, Provisions and Reserves Essay Types/ Long Answers

Question 1.
Explain the concept of depreciation. What is the need for charging depreciation and what are the causes of depreciation?
Answer
Every business acquires fixed assets for its use in the business over a period of time. As the benefits of these assets can be availed over a long period of time (due to their regular use), there exists continuous wear and tear and consequently fall in their value. This fall in the value of fixed assets (due to regular use or expiry of time) is termed as depreciation. A machinery that costs Rs 1,00,000 and its useful life of 10 years, its depreciation will be calculated as:
a. To ascertain true net profit or net loss: Correct profit or loss can be ascertained when all the expenses and losses incurred for earning revenues are charged to profit and loss account. Assets are used for earning revenues and its cost is charged in form of depreciation from profit and loss account.

b. To show true and fair view of financial statements: If depreciation is not charged, assets are shown at higher value than their actual value in the balance sheet; consequently, the balance sheet does not reflect true view of financial statements.

c. For ascertaining the accurate cost of production: Depreciation on plant and machinery and other assets, which are engaged in production, is included in the cost of production. If depreciations not included, cost of production in under estimated, which will lead to low sale price and thus lead to low profit.

d. Distribution of dividend out of profit: If depreciation is not charged, which leads to over estimating of profit &nd consequently more profit is distributed as dividend, out of capital instead of the profit. This leads to the flight of scarce capital out of the business.

e. To provide funds for replacement of assets: Unlike other expenses, depreciation is not a cash expense. So, the amount of depreciation charged will be retained in the business and will be used for replacement of fixed assets after its useful life.

f. Consideration of tax: If depreciation is charged, then profit and loss account will disclose less profit as to when the depreciation is not charged. This depicts reduced profit and thus the business will be liable for lesser tax amount.

The causes for depreciation:
a. Constant use: Due to constant use of the fixed assets there exists normal wear and tear that leads to fall in the value of fixed assets.

b. Expiry of time: With the passage of time, whether assets are used or not, its effective life decreases. The natural forces like rain, weather, etc. lead to deterioration of the fixed assets.

c. Obsolescence: Due to the fast technological innovations and inventions today’s assets may be out dated by tomorrow’s sophisticated assets. This leads to the obsolescence of fixed assets.

d. Expiry of legal rights: If an asset is acquired for a specific period of time, then, whether the asset is put to use or not, its value becomes zero at the end of its useful life.

e. Accident – An asset may lose its value and damage may happen to it due to mishaps such as a fire accidents, theft or a natural calamity. The loss due to accident is permanent in nature.

f. Permanent fall in value – Generally, we do not record fluctuations in the market price of the fixed assets in the books. However, if the fall in market price is permanent, it is accounted, which leads to a fall in the value of fixed assets in the books.

Question 2.
Discuss in detail the straight line method and written down value method of depreciation. Distinguish between the two and also give situations where they are useful. Straight line method.
Answer:
I. Advantages of Straight Line Method :

a. It is simple to calculate.
b. Asset can be completely written off, i.e., asset can be depreciated until the net scrap value is zero.
c. Same amount of depreciation is charged every year. Therefore, it helps in easy comparison of Profit and Loss Account for different years.
d. It is used for assets that have low repairs and maintenance expenses and are continuously used over a period of time.

Limitations of Straight Line Method :

a. Burden of depreciation is mere on profit and loss account in the later years, when repair and maintenance costs increase, as asset becomes older.
b. Value of asset becomes zero in the books even if asset is still in usable condition in business.

Uses of Straight Line Method :

• This method is useful where repairs and maintenance expenses on asset are low.
• It is also useful when an asset is continuously used from one year to another.
• It is useful when the value of assets, such as patent, copyright, goodwill, etc., becomes zero

II. Written Down value Method :

This method is applicable where depreciation is charged on the diminishing balance, i.e., book value of the asset. In this method, asset’s value goes on diminishing year after year and the amount of depreciation declines.

Advantages of Written Down value Method :

a. It is based on the logical assumption that asset is used more in the earlier years, so more cost is charged in form of depreciation.
b. It is suitable for the assets where repairs are more in the later years, as depreciation is lesser and on a whole the combined burden of depreciation and repairs experts equal pressure on the net profit over years.
c. This method is accepted by the income tax authorities.
d. As more depreciation is charged the earlier years, so the loss due to obsolescence of the asset is reduced.

Limitations of Written Down Value Method :

a. It is difficult to calculate and is a time consuming process.
b. The value of an asset cannot be zero, thus the asset cannot be completely written off,
c. There arises shortage of fuflds for replacement of new asset. This happens due to the fact that the amount of depreciation is retained and used in the business. Consequently, at the end of the useful life of an old asset, business finds it difficult to arrange funds for its replacement.

Uses of Written Down Value Method :

a. It is useful when assets have long life.
b. It is useful for those assets that require more repair and maintenance costs in the later years.
c. It provides easy calculation to provide depreciation of additional asset purchased during a year.

Question 3.
Difference between Straight Line Method and Written Down Value Method
Answer:

Question 4.
What is Reserve? Explain different types.
Answer:
Reserves: Reserves are created for strengthening the financial positions and future growth. It’is created out of profit earned business.
1. Revenue Reserve: It is created out of revenue profit, i.e., revenue earned from normal activities of the business. It can be used for either general purpose or specific purpose.
It is of two types:

a. General Reserve: When the reserve is created without any specified purpose, then there serve is called general reserve. It is a free reserve and so can be used for any purpose. It can also be used for future growth and expansion. For example, reserve funds, retained earnings, contingencies reserves, etc.

b. Specific Reserve – When reserve is created for some specific purpose, then the reserve is called specific reserve. Example of specific reserve are given below.
Debenture Redemption Reserve, Investment Fluctuation Reserve.
Dividend Equalization Reserve, Workmen Compensation Fund.

c. Capital Reserve – It is created out of capital profit, i.e., gain from other than normal activities of business operations, such as sale of fixed asset, etc. it is created to meet the capital loss. It cannot be distributed as dividend.

The example of capital reserves are given below:
Premium on issue of Shares and debentures, Premium on issue of debentures.
Profit of redemption of debentures, Profit on sale of fixed assets.
Profit on reissue of forfeited shares Profit prior to incorporation.

d. Secrete Reserves: Reserves that are created by overstating liabilities or understating assets are known as secrete reserves. They are not shown in the Balance sheet. These reduce tax liabilities, as the liabilities are overstated. It is created by management to avoid competition by reducing profit.

Creation of secrete reserve is not allowed by Companies Act, 1956, which requires full disclosure of all materials facts and accounting policies, while preparing final statements.

Question 5.
What are provisions? How are they created? Give accounting treatment in case of provision for doubtful Debts.
Answer: Provisions are the amount that is created against profit to meet the known liability; however, the amount of liability is uncertain. It is created for specific liability. Creation of provision is compulsory even if, there is no profit. The underlying principle behind creation of provision is conservatism, viz., to prepare for future loss. The main rationale for making provisions is to provide cushion to the future business performance against the uncertain and unforeseen losses that may arise from the past transactions. A few examples of provisions are given below:

Provision for bad and doubtful debts
Provisions for depreciation
Provisions for taxation
Provisions for discount on debtors

Provisions are made by debiting the Profit and Loss Account on estimate basis. The provision are created on the basis of past experiences. Every year, a business may experience common losses, such as depreciation of fixed assets, taxation, etc., which are although known; however, their exact amount of future period is unknown. Thus, business creates provision of certain percentage every year, which is truly based on the intuitions and past experiences. These unascertained liabilities in form of provisions are kept aside, which help future business activities, undisturbed from the future losses.

Accounting treatment for provision for doubtful debts is:
Profit and Loss A/c Dr
To Provision for Doubtful Debts
(Provision for doubtful debt made)

1st PUC Depreciation, Provisions and Reserves Twelve Marks Questions and Answers

1st PUC Depreciation, Provisions and Reserves Numerical Problems

Question 1.
On April 01, 2000, Bajrang Marbles purchased a Machine for ₹ 2,80,000 and spent ₹ 10,000 on its carriage and ₹ 10,000 on its installation. It is estimated that its working life is 10 years its scrap value will be ₹ 20,000,
(a) Prepare Machine account and Depreciation account for the first four years by providing depreciation on straight line method. Accounts are closed on March 31st every year.
(b) Prepare Machinery account, Depreciation account and Provision for depreciation account (or accumulated depreciation account) for the first four years by providing depreciation on straight line method. Accounts are closed on March 31 st every year.
Answer:
(a)

(b)




Working Note 1:- Calculation of Depreciation.

Depreciation = 28,000 p.a.

Question 2.
On July 01,2000, Ashok Ltd. Purchased a Machine for ₹ 1,08,000 and spent ₹ 12,000 on its installation. At the time of purchase it was estimated that the effective commercial life of the machine will be 12 years and after 12 years its salvage value will be ₹ 12,000.
Prepare Machine account and depreciation Account in the books of Ashok Ltd. For first three years, if depreciation is written off according to straight line method. The account are closed on December 31st, every year.
Answer:

Question 3.
Reliance ltd. Purchased a second hand machine for ₹ 56,000 on October 01.2001 and spent ₹ 28,000 on its overhaul and installation before putting it to operation. It is expected that the machine can be sold for ₹ 6,000 at the end of its useful life of 15 years. Moreover an estimated cost of ₹ 1,000 is expected to be incurred to recover the salvage value of ₹ 6,000. Prepare machine account and Provision for depreciation account for the first three years charging depreciation by fixed installment Method. Accounts are closed on December 31, every year.
Answer:

Question 4.
Berlia Ltd. Purchased a second hand machine for ? 56,000 on July 01.2001 and spent ₹ 24,000 on its repair and installation and ₹ 5000 for its carriage. On September 01.2002, it purchased another machine for ₹ 2,50,000 and spent ₹ 10,000 on its installation.
(a) Depreciation is provided on machinery @ 10% on original cost method annually on December 31, Prepare machinery account and depreciation account form the year 2001 to 2004.
(b) Prepare machinery7 account and depreciation account for the year 2001 to2004, if depreciation is provided on machinery @10% p.a. on written down value method annually on December 31.
Answer:
(a) Under Original Cost method

(b) Under Written down value method

Question 5.
Ganga Ltd. Purchased a machinery on January 01.2001 for ₹ 5,50,000
And spent ₹ 50,000 on its installation. On September 01.2001 it purchased another machine for ₹ 3,70,000. On May 01,2002 it purchased another machine for ₹ 8,40,000 (including installation expenses).
Depreciation was provided on machinery @ 10% p.a. on original cost method annually on December 31, prepare
(a) Machinery account and depreciation account for the years 2001, 2002, 2003 and 2004.
(b) If depreciation is accumulated in provision for Depreciation account then prepare machine account and provision for depreciation account for the years 2001,2002, 2003 and 2004.
Answer



(b)

Question 6.
Azad Ltd. Purchased funiture On October 01.2002 for ₹ 4,50,000 on march 01.2003 it purchased another furniture for ₹ 3,20,000. On July 01.2004 it sold off the first furniture purchased in 2002 for ₹ 2,25,000. Depreciation is provided at 15% p.a. on written down value method each year. Accounts are closed each year on March 31. Prepare furniture account and accumulated depreciation account for the years ended on March 31,2003, Furniture disposal account is opened.
Answer:

Question 7.
M/s Lokesh Fabrics purchased a Textile Machine on April 01. 2001 for ₹ 1,00,000. On July 01, 2002 another machine costing ₹ 2,50,000 was purchased. The machine purchased on April 01,2001 was sold for ₹ 25,000 on October 01.2005. The company charges depreciation @15% p.a. on straight line method. Prepare machinery account and machinery disposal account for the year ended March 31,2006.
Answer:

Question 8.
The following balances appear in the books of Crystal Ltd. On Jan 01,2005
Machinery account on 15,00,000
Provision for depreciation account 5,50,000
On April 01,2005 a machinery which was purchased on January 01.2002 for ₹ 2,00,000 was sold for ₹ 78,000. A new machine was purchased on July 01.2005 for ₹ 6,00,000 depreciation is provided on machinery at 20% p.a. on straight line method and books are closed on December 31 every year. Prepare the machinery account and provision for depreciation account for the year ending December 31 2005.
Answer:

Question 9.
M/s Excel computers has a debit balance of ₹ 50,000: (original cost ₹ 1,20,000) in computers account on April 01.2000. on July 01. 2000 it purchased another computer costing ₹ 2,50,000. One more computer was purchased on January 01.2001 for ₹ 30,000. On April 01.2004 the computer which has purchased on July 01.2000 became obsolete and was sold for ₹ 20,000. A new version of the IBM computer was purchased on August 01.2004 for ₹ 80,000. Show computers account in the books of Excel computers for the years ended on March 31.2001,2002,2003,2004 and 2005. The computer is depreciated @ 10%p.a. on straight line method basis.
Answer:

Question 10.
On July 01.2001 Ashwani purchased a machine for ₹ 2,00,000 on credit. Installation expenses ₹ 25,000 are paid by cheque. The estimated life is 5 years and its scrap value after 5 years will be ₹ 20,000. Depreciation is to be charged on straight line basis. Show the journal entry for the year 2001
Answer:

Question 11.
On October 01.2000, a Truck was purchased for ₹ 8,00,000 by Laxmi Transport Ltd. Depreciation was provided at 15% p.a. on the diminishing balance basis on this truck. On December 31. 2003 this Truck was sold for ₹ 5,00,000. Accounts are closed on 31st March every year. Prepare a Truck Account for the four years.
Answer:

Question 12.
Kapil Ltd. Purchased a machinery on July 01, 2001 for ₹ 3,50,000. It purchased two additional machines, on April 01.2002 cost in ₹ 1,50,000 and on October 01.2002 costing Rs 1,00,000. Depreciation is provided @ 10% p.a. on straight line basis. On January 01.2003, first machinery become useless due to technical changes. This machinery was sold for ₹ 1,00,000. Prepare machinery account for 4 years on the basis of calendar year.
Answer:

Question 13.
On January 01.2001, Satkar Transport Ltd, purchased 3 buses for ₹ 10,00,000 each. On July 01.2003, one bus was involved in as accident and was completely destroys and ₹ 7,00,000 were received from the Insurance Company in full settlement. Depreciation is written off @ 15% p.a. on diminishing balance method. Prepare bus account from 2001 to 2004. Books are closed on December 31 every year.
Answer:

Question 14.
On October 01.2001 Juneja Transport Company purchased 2 trucks for ₹ 10,00,000 eash. ON July 01, 2003, One Truck was involved in as accident and was completely destroyed and ₹ 6,00,000 were received from the insurance company in full settlement. On December 31.2003 another truck was involved in an accident and destroyed partially, which was not insured. It was sold off for ₹ ’1,50,000. On January 31, 2004 company purchased a fresh truck for ₹ 12,00,000. Depreciation is to be provided at 10% p.a. on the written down value every year. The books are closed every year on March 31. Give the truck account from 2001 to 2004.
Answer:

Question 15.
A Noida based Construction Company owns 5 cranes and the value of this asset in its books on April 01, 2001 is ₹ 40,00,000. On October 01, 2001 it sold one of its cranes whose value was ₹ 5,00,000 on April 01, 2001 at a 10% profit. On the same day it purchased 2 cranes for ₹ 4,50,000 each. Prepare cranes account. It closes the books on December 31 and provides for depreciation on 10% written down value.
Answer:

Question 16.
Shri Krishna Manufacturing Company purchased 10 machines for ₹ 75,000 each on July 01, 2000. On October 01,2002 one of the machines got destroyed by fire and an insurance claim of ₹ 45,000 was admitted by the company for ₹ 1,25,000.
The company writes off 15% p.a. depreciation on written down value basis. The company maintains the calendar year as its financial year. Prepare the machinery account from 2000 to 2003.
Answer:

Question 17.
On January 01.2000, a limited company purchased machinery for ₹ 20,00,000. Depreciation is provided @ 15% p.a. on diminishing balance method. On March 01, 2002 one fourth of machinery was damaged by fire and ₹ 40,000 were received from the insurance company in full settlement. On September 01, 2002 another machinery was purchased by the company for ₹15,00,000.
Write up the machinery account form from 2002 to 2003. Books are closed on December 31, every year.
Answer:

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