A 'Letter of Credit' is a: MCQ with Answer and Explanation

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A 'Letter of Credit' is a:

A. Voucher

B. Debit note

C. Credit note

D. Bank guarantee for payment

Answer: Option D

Solution (By JKSSB Mock Tests)

Letter of credit is a bank's commitment to pay the seller on behalf of buyer, reducing risk.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

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Question #1

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A and B share profits 3:2. They admit C for 1/5th share. C brings ₹50,000 as capital and ₹20,000 as goodwill. Goodwill is withdrawn by old partners. The amount credited to A's capital for goodwill will be:

A. ₹8,000

B. ₹12,000

C. ₹10,000

D. ₹20,000

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Correct Answer: Option B

Explanation:
Goodwill brought by C is distributed in sacrificing ratio, which is old ratio 3:2. A's share = 20,000 * 3/5 = ₹12,000.

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Question #2

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The term 'Prepaid Expense' is treated as:

A. A loss

B. A liability

C. An expense

D. An asset

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Correct Answer: Option D

Explanation:
Prepaid expenses are treated as current assets because they represent future economic benefits for which payment has already been made.

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Question #3

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A and B are partners sharing profits 3:2. C is admitted for 1/5th share, which he acquires equally from A and B. The new profit-sharing ratio is:

A. 9:6:5

B. 3:2:1

C. 4:3:2

D. 5:3:2

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Correct Answer: Option D

Explanation:
A's new share = 3/5 - 1/10 = 5/10, B's new = 2/5 - 1/10 = 3/10, C's = 2/10. Ratio 5:3:2.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

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