IGCSE Accounting Paper-1: Specimen Questions with Answers 300 - 301 of 338

Question number: 300

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Question

A business buys a machinery for cash $400 from Z and pays machinery insurance of $40. What will be the correct journal entry for the transaction?

Choices

Choice (4)

a.

Debit- Cash $440, Credit- Machinery $440,

b.

Debit- Machinery $440, Credit- Cash $440,

c.

Debit- Machinery $400, Credit- Z $400,

d.

Debit- Machinery $400, Credit- Cash $440,

Answer

b.

Explanation

Machinery and Cash are Real A/c so by applying the rule of real A/c-

Debit – What comes in &

Credit What goes out?

  • When machinery is bought, it COMES IN the business so, it will be debited. The whole amount -machinery cost $400 as well as $40 insurance will be treated as capital expenditure because the insurance is paid at the time of purchase. Hence, $40 will be capitalized to the cost of machinery.

  • The purchase is on cash basis, cash actually GOES OUT, so cash will be credited.

Question number: 301

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Question

Manishq jewelers received an order to supply diamond ornaments worth $20000 for which the customer had paid in advance. Manishq jewelers supplied the ornaments worth $15000 upto the year ending 31 March 2019 and rest of the ornaments were supplied in April 2019. What amount shall be constituted as sales of Manishq jewelers for the year ended 31 March 2019? (Marks 1)

Choices

Choice (4)

a.

$15000

b.

$35000

c.

$5000

d.

$20000

Answer

a.

Explanation

  • As per the Realization principle, revenue is said to be realized when they are earned irrespective of when the money is received. Revenue from a sale is realized when the sale is completed i. e. when the goods are actually delivered to the customer or when the service is rendered and not when cash is received.

  • Merely getting an order is not considered as revenue until the goods are delivered. Since, Manishq jewelers supplied the ornaments worth $15000 only up to 31 March 2019, their sales revenue for the year ended 31 March 2019 will be $15000.

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