Important Questions for Class 11

Accountancy

Chapter 9 - Financial Statements-I

Very Short Answer Questions 1 Mark

1. Fill In the Blanks:

i) Wages to the worker are place at ________ side in the trading account

Ans: Wages to the worker are place at Debit side in the trading account.

ii) Interest paid is place in the _______ account

Ans: Interest paid is place in the Profit and loss account.

iii) Sundry Creditors are place at ________ side of a balance sheet

Ans: Liability Sundry Creditors are place at Liability side of a balance sheet.

iv) Land and building is a ______

Ans: Land and building is a Fixed asset.

2. True-false

i) Trading accounts show the assets and liability of the company.

Ans: False, trading account shows the results of the buying and selling of goods.
This sheet is prepared to demonstrate the difference between the selling price and
the cost price. The trading account is prepared to show the trading results of the
business, e.g. gross profit earned or gross loss sustained by the business. It records
the direct expenses of a business firm.

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ii) A balance sheet is prepared at last in the financial statement.

Ans: True, At the end of an accounting period, such as month-end, quarter-end, or

year-end, balance sheets are typically generated.

iii) Cash in hand is placed at the asset side of the balance sheet.

Ans: True, Accounts such as cash, inventory, and property are on the asset side of
the balance sheet, while accounts payable and long-term debt are on the liability
side.

4. The gross profit or loss is carried forward to the profit and loss account

Ans: This statement is true because the Trading account is prepared to know the
gross profit/loss of the business. Gross profit taken out from the trading account is
transferred to the credit side of the profit & loss account to meet out the indirect
expense.

5. What do you mean by carriage outwards?

Ans: the cost incurred by the seller of goods to deliver the goods sold to customers
is termed as Carriage Outwards.

6. What do you understand by return inward?

Ans: Return Inward, also known as sales return, refers to the goods returned to the
business entity when the customers find that the goods delivered did not meet their
expectations

7. How gross loss is treated in a financial statement?

Ans: On the debit side of the profit and loss sheet, the gross loss is carried down.

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Short Answer Questions 2 Marks

1. Who are the stake holder of the company

Ans: Stakeholders are parties that take interest in a specific company, often for
financial investment. They can directly impact decisions or successes of an
organization

2. What do you mean by bills payable?

Ans: It displays how much money a company has received in credit for services or
commodities. This is the amount that the business must pay to the service provider
or the goods supplier within the stipulated time.

3. What do you understand by account receivable?

Ans: It displays how much money a corporation has borrowed to supply services or
commodities on credit. This is the amount that the business must receive from its
debtors within the stipulated time.

4. Who are the sundry debtors to the company?

Ans: A person who takes money to the firm because of credit sales of goods is called
debtor and a collective term for debtor is Sundry debtor

5. Define the term current assets.

Ans: Current assets are those resources which a company owns and expects to
convert into cash during a financial year. These get sold, exhausted or consumed due
to the ordinary course of operations of the business

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Short Answer Questions 3 Marks

1. Describe fixed assets

Ans: Planned assets refer to long-term assets used in business operations. They offer
long-term financial benefits, have a life expectancy of more than one year, and are
classified as goods, plant and equipment (PP&E) in balance.

They have a useful life span of more than one year

Organized assets are non-current assets that have a useful life of more than one year
and are derived from the company's balance of assets such as goods, plant and
equipment (PP&E).

2. They can depreciate

Outside of land, fixed assets are depreciated to reflect the decline in the use of fixed
assets.

3. They are used in business and provide long-term financial benefits

Fixed assets are used by a company to produce goods and services and to make
money. They are not for sale to customers or are reserved for investment purposes.

4. No liquidity

Fixed assets are assets that are not current in the company's balance sheet and cannot
be easily converted into cash.

2. What are the needs to prepare a trading account?

Ans: The following are the reasons for keeping a trading account:

i. First of all, a trading account discloses gross profit from which all expenses are
deducted to find out the true profit of the business (i.e., net profit).

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ii. trading account is that net sales can be calculated at a glance. Gross sales can be
ascertained from the sales account in the ledger, but net sales cannot be obtained

iii. It contains information about factory expenses.

iv. It also informs the company about the direct costs associated with the activity.

v. It is possible to understand the progress or failure of a business by comparing net

sales of the current year with those of the previous year.

3. Why it is necessary for the company to prepare profit and loss account.

Ans: The profit and loss account provides information about the business's income
and expenses leading to total profit or loss. It helps the entrepreneur to evaluate the
performance of the business and provides a basis for predicting future performance.
It also provides important information needed by a bank teller when penalizing a
loan. The profit and loss account describes the various business activities such as
income and expenses, which are very useful in assessing the risk of non-access.

4. What do you mean by current liabilities and how they are treated in the
financial statement?

Ans: Current liabilities are business obligations or liabilities that must be settled
within a year or within a normal operating cycle. In addition, current liabilities are
settled through the use of the current asset, by creating a new current liability or
cash.

Current loans are from the Business Balance Sheet and include accounts payable,
debts collected, temporary debt and other similar loans.

The limited amount of current debt is an important factor in the various measures of
short-term cash withdrawal of trading concerns,

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5. Describe Earnings before interest and tax (EBIT).

Ans: In accounting and financing, EBIT is the company's profit margin that includes
all income and expenditure (active and non-functional) excluding interest costs and
income tax (individual) costs.

Operating income and operating profit are sometimes used as the same name for
EBIT where the firm has no operating income and non-operating costs.

Long Answer Questions 5 Marks

1. State the purpose of preparing the financial statement in a business.

Ans: Help lenders assess business suitability. Often, the credit rating process
requires financial and non-financial information. From a financial point of view,
financial statements contain useful information to assist with this.

Help employees evaluate the stability of its business. Employees want to see the
company they work for permanently. They want to protect their work. If they can
check the company's financial statements, they will have access

Assist government agencies to monitor tax returns. Most businesses need to pay
corporate taxes, and the Department of General Taxation requires the entity's
financial statements to check whether the tax has been fully collected.

Assist banks to conduct risk assessments. Banks and creditors need business finance
statements to assess their creditworthiness.

Competitive users to evaluate competitive financial competition.

2. Differentiate between capital Expenditure and revenue Expenditure

Ans: Differentiate between capital Expenditure and revenue Expenditure. Given

below:

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 Sr. No Capital Expenditure Revenue Expenditure

1. It boosts the company's earnings. It helps to keep the company's

earning capability.

2. It's used to get the job done. for the It is utilised for the company's
fixed assets day-to-day expenses.

Company.

3. It's usually a one-time expense. It is a recurrent company expense

that provides advantages for one

4. It is beneficial in more ways than one. It is a recurrent company expense

one year or longer an era of accounting that provides advantages for one
accounting period.

5. They're written down in It is documented in the trading

and profit and loss accounts.
a financial statement

3. Describe briefly the types of the financial statement.

Ans:

1. Income statement

Obviously the most important thing. The business needs to focus on profits and
revenue, and that is exactly what the revenue statement is doing. The income
statement can also be known as the profit and loss statement, which shows your
business income and expenditure within a specified period. The income statement
captures profits, losses, and expenses, so we can show whether your company has
turned a profit or lost its mark.

2. Income statement

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A cash flow statement shows that money is coming in and leaving your business, so
you can see what is available as operating income over a period of time. A cash flow
statement is important to show you how quickly you can get money when you need
it, as it does not look at things like consumables or purchases made - but not paid -
on credit.

3. Balance sheet

Balance shows three important things: your assets, your debts, and your equity. The
balance sheet can show the current value of the business over the period covered.
Looking at your balance can help you understand whether you can meet your
financial obligations.

4. Note to Financial Statements

This is a requirement of IFRS (International Financial Reporting Standards) and

provides even greater context for the information contained in other documents of
your financial statements. For example, your assets may be listed in the balance
sheet, but your note in the statement of financial statements is where you will define
exactly what those assets are. The information contained in this document is required
to ensure compliance with the terms and conditions.

5. Statement of currency exchange

This document shows the changes made to your company's share capital, retained
profits, and aggregates. For the sole trader, it indicates a change for shareholders. In
a partnership, it shows the difference between the equality of both partners. In the
case of a company, then the exchange rate statement shows how the equity share has
changed for all shareholders.

4. Explain any five items of a trading account

Ans:

Opening Store: The figure will already be available and will be available in the trial
balance. The opening stock, in the event of a manufacturing business, will have

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consumables, finished goods and so on (unfinished goods). A new business,
naturally, will not have the stock to open in the first year.

Purchase and Purchase: A student familiar with the trial balance will see that the
Purchase Account represents the total amount of goods purchased and that the
External Return Account represents the goods returned to the suppliers.

Carriage: All costs of delivering purchased goods or equipment to the company's

godown equipment must be credited to the Trading Account; freight, income tax or
purchase paid for purchases must be deducted from this account.

Wages: Salaries paid to employees working in the production of goods directly or

indirectly must be deducted from the Trading Account. Salaries paid to supervisors,
etc., The factory should also be deducted as much. Care must be taken to ensure that
full-time trading wages are included even if other salaries have not been paid.

Fuel and Power: Coal used to use boilers that produce naturally occurring
mechanical steam is drawn from the Trading Account. The electricity used to drive
the machines is treated the same way. Energy should be separated from the
electricity used for lighting. “Power” is often used to indicate the electrical power of
a driving machine

5. Explain any five items of a profit and loss account

Ans: The five relative items in a profit and loss account are:

i. Salaries: The salaries paid to the office employee for administrative purposes. It

include the cash salary and it is also paid in kind for accommodation, rent,
transportation, medical etc.

1. Administrative expenses/Management expenses: Office salaries, Office Rent,

Office Light­ing, Printing, Stationary, and Telephone Rent, Directors’ fees,
Auditor’s fee, Legal Expenses, Postage, Insurance, Repairs, Interest and other
similar expenses connected with the office.

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2. Financial expenses: Interest on loan, Discount Allowed, Interest on Capital, Bad
Debts, Bank Expenses, Discount on Bills etc

3. Sales Expenses: Salesman Salaries, Travelling Expenses, Advertising, Selling

Commis-sion, Brokerage, Free Samples, Trade Expenses etc

4. Distribution expenses: Carriage out, Warehouse expenses, Warehouse

Insurance, Ware-house rent, Delivery Van Expenses, packing expenses etc.

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