According to the accounting equation, if a business borrows ₹50,000 from bank, then: MCQ with Answer and Explanation

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According to the accounting equation, if a business borrows ₹50,000 from bank, then:

A. Assets decrease, capital decrease

B. Assets increase, capital increase

C. Assets increase, liabilities increase

D. Assets decrease, liabilities increase

Answer: Option C

Solution (By JKSSB Mock Tests)

Cash (asset) increases, and bank loan (liability) increases.

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

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Question #1

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A: The Going Concern concept justifies the charging of depreciation. R: Depreciation allocates the cost of an asset over its useful life. Choose the correct option.

A. Both A and R are true but R is NOT the correct explanation of A

B. A is true but R is false

C. A is false but R is true

D. Both A and R are true and R is the correct explanation of A

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Correct Answer: Option D

Explanation:
The Going Concern concept assumes the business will continue indefinitely, which justifies capitalizing asset costs and depreciating them over their useful lives. R correctly explains the mechanism of depreciation.

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Question #2

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The 'Earnings Per Share' (EPS) as per AS 20 is computed as:

A. Net profit / Number of equity shares outstanding

B. EBIT / Shares

C. Gross profit / Number of shares

D. Net profit before preference dividend / Equity shares

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Correct Answer: Option A

Explanation:
Basic EPS = (Net profit - Preference dividend) / Weighted average equity shares.

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Question #3

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The term 'Secret Reserves' are created by:

A. Undervaluing assets or overvaluing liabilities

B. Undervaluing liabilities

C. Showing higher profits

D. Overvaluing assets

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Correct Answer: Option A

Explanation:
Secret reserves are created by undervaluing assets or overvaluing liabilities, which reduces reported profits and hides the true financial position.

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

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