IGCSE Accounting Paper-2: Specimen Questions with Answers 139 - 141 of 189

Question 139

Short Answer▾

State any two differences between equity shares and preference shares.

The two differences between equity shares and preference shares are-

Equity shares don՚t carry a fixed rate of dividend whereas preference shares carry a fixed rate of dividend.
The holders of preference shares have a preferential rights regarding the payment of dividend as well as repayment of the principle amount in the event of winding up. On the other hand, equity shareholders do not have such rights.

One Liner▾

In which final account would furniture purchased by a furniture seller for his office use appear? (Marks 1)

Balance Sheet

Furniture purchased by the furniture seller is a capital expenditure as it is for his office use not for resale. So, this furniture will be treated as a fixed assets and not as goods.
Being a fixed asset, it would appear in the balance sheet.
Depreciation on this furniture would be debited to P&L A/c.

Short Answer▾

Explain with an example what is meant by error of principle (Marks 2)

Error of Principle is that error which is made because of violating any accounting principle or concept. For Ex- Purchase of machinery entered in purchase journal is an error of principle as it violates the matching concept which says that revenue of one accounting years should be matched with the corresponding expenses of that accounting year alone.
Treating a capital expenditure (purchase of machinery) as revenue expenditure (purchase of goods) will lead to understatement of profits. Only a part of the cost of machinery should be debited to profit & loss A/c as depreciation.