Commerce & Accountancy

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Commerce & Accountancy

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Commerce & Accountancy MCQ & Objective Questions

Commerce & Accountancy is a vital subject for students aiming to excel in their school exams and competitive assessments. Mastering this field not only enhances your understanding of financial principles but also significantly boosts your exam scores. Practicing MCQs and objective questions is essential, as it helps you identify important questions and reinforces your exam preparation through targeted practice questions.

What You Will Practise Here

Fundamental concepts of accounting and financial statements
Key principles of commerce including trade, marketing, and economics
Important formulas related to profit and loss, balance sheets, and cash flow
Definitions of key terms such as assets, liabilities, and equity
Diagrams illustrating accounting processes and business models
Theory areas covering the role of commerce in the economy
Analysis of case studies relevant to real-world commerce scenarios

Exam Relevance

Commerce & Accountancy is a significant part of the curriculum for CBSE, State Boards, and various competitive exams like NEET and JEE. Questions often focus on practical applications of concepts, requiring students to solve numerical problems and interpret financial data. Common question patterns include multiple-choice questions that test both theoretical knowledge and practical understanding, making it crucial to be well-prepared.

Common Mistakes Students Make

Misunderstanding the difference between assets and liabilities
Confusing terms related to accounting principles
Overlooking the importance of accurate calculations in numerical questions
Neglecting to review the impact of transactions on financial statements

FAQs

Question: What are the key topics I should focus on in Commerce & Accountancy?
Answer: Focus on financial statements, accounting principles, and key formulas to excel in this subject.

Question: How can I improve my performance in Commerce & Accountancy exams?
Answer: Regular practice of MCQs and understanding the concepts thoroughly will enhance your performance.

Start solving practice MCQs today to test your understanding and boost your confidence in Commerce & Accountancy. Remember, consistent practice is the key to success in your exams!

Business Studies Cost & Management Accounting Financial Accounting Taxation Basics

Q. If a company switches from the straight-line method to the declining balance method, what is the impact on financial statements?

A. Increased net income in the first year.
B. Decreased net income in the first year.
C. No impact on net income.
D. Increased asset value.

Solution

Switching to the declining balance method typically results in higher depreciation expenses in the early years, leading to decreased net income.

Correct Answer: B — Decreased net income in the first year.

Q. If a company uses FIFO and the cost of inventory is rising, how will this affect the cost of goods sold?

A. Increase
B. Decrease
C. Remain the same
D. Cannot be determined

Solution

Under FIFO, older, cheaper costs are used for cost of goods sold, leading to a lower cost of goods sold when prices are rising.

Correct Answer: B — Decrease

Q. If a company uses FIFO during periods of inflation, what effect does it have on the balance sheet?

A. Higher inventory values
B. Lower inventory values
C. No effect on inventory values
D. Increased liabilities

Solution

Using FIFO during periods of inflation results in higher inventory values on the balance sheet because older, cheaper costs are recorded.

Correct Answer: A — Higher inventory values

Q. If a company uses FIFO for inventory valuation, how does it affect the ending inventory during inflation?

A. Higher ending inventory
B. Lower ending inventory
C. No effect
D. Depends on sales

Solution

FIFO results in a higher ending inventory value during inflation as the most recent costs are not included in COGS.

Correct Answer: A — Higher ending inventory

Q. If a company uses FIFO for inventory valuation, how will rising prices affect the financial statements?

A. Higher ending inventory and lower cost of goods sold
B. Lower ending inventory and higher cost of goods sold
C. No effect on financial statements
D. Higher cost of goods sold and lower net income

Solution

Under FIFO, in times of rising prices, the ending inventory will be higher and the cost of goods sold will be lower.

Correct Answer: A — Higher ending inventory and lower cost of goods sold

Q. If a company uses FIFO for inventory valuation, what effect does it have on the balance sheet during inflation?

A. Assets are understated.
B. Assets are overstated.
C. Liabilities are understated.
D. Equity is unaffected.

Solution

Under FIFO during inflation, older, cheaper inventory costs remain on the balance sheet, leading to an overstatement of assets.

Correct Answer: B — Assets are overstated.

Q. If a company uses FIFO, how does it affect the balance sheet during inflation?

A. Assets are overstated
B. Liabilities are overstated
C. Equity is understated
D. No effect

Solution

Using FIFO during inflation can lead to an overstatement of assets on the balance sheet because older, cheaper inventory costs are recorded.

Correct Answer: A — Assets are overstated

Q. If a company uses LIFO during a period of inflation, what effect does it have on taxes?

A. Higher taxes due to higher profits.
B. Lower taxes due to lower profits.
C. No effect on taxes.
D. Taxes are deferred indefinitely.

Solution

LIFO results in lower profits during inflation, leading to lower taxes.

Correct Answer: B — Lower taxes due to lower profits.

Q. If a company uses LIFO for tax purposes, what must it also use for financial reporting?

A. FIFO
B. Weighted Average
C. LIFO
D. Specific Identification

Solution

If a company uses LIFO for tax purposes, it must also use LIFO for financial reporting due to the consistency principle.

Correct Answer: C — LIFO

Q. If a company uses LIFO, what happens to the ending inventory valuation during a period of deflation?

A. Increases
B. Decreases
C. Remains the same
D. Cannot be determined

Solution

Ending inventory valuation increases under LIFO during a period of deflation as older, cheaper costs remain in inventory.

Correct Answer: A — Increases

Q. If a company uses the declining balance method and has a depreciation rate of 30%, what is the depreciation expense for the first year on an asset costing $5,000?

A. $1,500
B. $1,000
C. $1,200
D. $1,500

Solution

Depreciation expense = Cost x Depreciation Rate = $5,000 x 30% = $1,500.

Correct Answer: A — $1,500

Q. If a company uses the sum-of-the-years'-digits method, how is the depreciation calculated?

A. Based on the asset's age
B. Based on the asset's cost and salvage value
C. Based on the total number of years of useful life
D. Based on the asset's market value

Solution

The sum-of-the-years'-digits method calculates depreciation based on the total number of years of useful life.

Correct Answer: C — Based on the total number of years of useful life

Q. If a company uses the units of production method for depreciation, what factor is primarily considered?

A. Time
B. Usage
C. Market Value
D. Cost

Solution

The units of production method bases depreciation on the actual usage or production output of the asset.

Correct Answer: B — Usage

Q. If a company uses the units of production method, what factor primarily determines the depreciation expense?

A. The asset's purchase price
B. The estimated useful life
C. The number of units produced
D. The residual value

Solution

In the units of production method, the depreciation expense is based on the actual number of units produced, making it variable.

Correct Answer: C — The number of units produced

Q. If a company wants to achieve a 15% return on investment (ROI) and the total investment is $200,000, what is the expected profit?

A. $25,000
B. $30,000
C. $35,000
D. $40,000

Solution

Expected profit is calculated as ROI * Total Investment. Here, 15% of $200,000 is $30,000.

Correct Answer: B — $30,000

Q. If a company wants to achieve a profit of $10,000 and has fixed costs of $4,000, how much contribution margin is needed if the contribution margin per unit is $25?

A. $400
B. $600
C. $800
D. $1,000

Solution

Required contribution margin = Fixed costs + Desired profit = $4,000 + $10,000 = $14,000. Number of units = $14,000 / $25 = 560 units.

Correct Answer: D — $1,000

Q. If a company wants to achieve a profit of $10,000 and has fixed costs of $5,000 with a contribution margin of $10 per unit, how many units must be sold?

A. 1,000
B. 500
C. 1,500
D. 2,000

Solution

Required sales = (Fixed costs + Desired profit) / Contribution margin per unit = ($5,000 + $10,000) / $10 = 1,500 units

Correct Answer: A — 1,000

Q. If a company’s revenue increases by 15% from $200,000, what is the new revenue?

A. $230,000
B. $240,000
C. $250,000
D. $220,000

Solution

Increase = 15% of 200,000 = 30,000. New Revenue = 200,000 + 30,000 = $230,000.

Correct Answer: A — $230,000

Q. If a company’s revenue increases from $500,000 to $600,000, what is the percentage increase in revenue?

A. 20%
B. 25%
C. 15%
D. 10%

Solution

Percentage Increase = ((New Revenue - Old Revenue) / Old Revenue) * 100 = ((600,000 - 500,000) / 500,000) * 100 = 20%.

Correct Answer: A — 20%

Q. If a company’s revenue is $300,000 and its expenses are $250,000, what is its profit margin?

A. 10%
B. 20%
C. 15%
D. 5%

Solution

Profit Margin = (Revenue - Expenses) / Revenue = (300,000 - 250,000) / 300,000 = 0.1667 or 16.67%.

Correct Answer: B — 20%

Q. If a company’s sales increase from $1,000,000 to $1,200,000, what is the percentage increase in sales?

A. 10%
B. 15%
C. 20%
D. 25%

Solution

Percentage increase is calculated as (new value - old value) / old value * 100. Thus, ($1,200,000 - $1,000,000) / $1,000,000 * 100 = 20%.

Correct Answer: C — 20%

Q. If a company’s total assets are $1,000,000 and total liabilities are $600,000, what is its equity?

A. $200,000
B. $300,000
C. $400,000
D. $500,000

Solution

Equity is calculated as total assets minus total liabilities. Thus, $1,000,000 - $600,000 = $400,000.

Correct Answer: C — $400,000

Q. If a company’s total assets are $500,000 and total liabilities are $300,000, what is its equity?

A. $200,000
B. $300,000
C. $500,000
D. $100,000

Solution

Equity = Total Assets - Total Liabilities = 500,000 - 300,000 = $200,000.

Correct Answer: A — $200,000

Q. If a manager allocates 40% of their time to planning, 30% to organizing, 20% to leading, and 10% to controlling, how much time do they spend on leading?

A. 2 hours
B. 3 hours
C. 4 hours
D. 5 hours

Solution

If the manager works 20 hours a week, 20% of 20 hours is 4 hours spent on leading.

Correct Answer: C — 4 hours

Q. If a manager has a budget of $50,000 and spends 60% on marketing, how much is left for other expenses?

A. $20,000
B. $25,000
C. $30,000
D. $35,000

Solution

60% of $50,000 is $30,000, leaving $20,000 for other expenses.

Correct Answer: B — $25,000

Q. If a person is a resident in India, what is the basic condition for determining their residential status?

A. Age
B. Income
C. Duration of stay
D. Occupation

Solution

The basic condition for determining residential status is the duration of stay in India.

Correct Answer: C — Duration of stay

Q. If a product costs $80 to produce and is sold for $120, what is the markup percentage?

A. 25%
B. 33.33%
C. 40%
D. 50%

Solution

Markup percentage is calculated as (selling price - cost) / cost * 100. Thus, ($120 - $80) / $80 * 100 = 50%.

Correct Answer: B — 33.33%

Q. If a product has a contribution margin of $50 and fixed costs of $10,000, how many units need to be sold to achieve a target profit of $5,000?

A. 300 units
B. 200 units
C. 150 units
D. 100 units

Solution

Required units = (Fixed Costs + Target Profit) / Contribution Margin = ($10,000 + $5,000) / $50 = 300 units.

Correct Answer: B — 200 units

Q. If a product has a cost of $15 and is sold for $25, what is the markup percentage?

A. 40%
B. 50%
C. 60%
D. 70%

Solution

Markup Percentage = ((Selling Price - Cost) / Cost) x 100 = (($25 - $15) / $15) x 100 = 66.67%.

Correct Answer: B — 50%

Q. If a product has a selling price of $100, variable costs of $60, and fixed costs of $10, what is the break-even point in sales dollars?

A. $1000
B. $2000
C. $5000
D. $3000

Solution

Break-even point in sales dollars = Fixed Costs / Contribution Margin Ratio. Contribution Margin = Selling Price - Variable Costs = $100 - $60 = $40. Contribution Margin Ratio = $40 / $100 = 0.4. Break-even Sales = $10 / 0.4 = $25. Therefore, Break-even point in sales dollars = $25 * $100 = $3000.

Correct Answer: D — $3000

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