Which of the following is NOT a component of financial statements for a sole proprietorship? MCQ with Answer and Explanation

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Which of the following is NOT a component of financial statements for a sole proprietorship?

A. Profit & Loss Account

B. Balance Sheet

C. Statement of Changes in Equity

D. Trading Account

Answer: Option C

Solution (By JKSSB Mock Tests)

Statement of Changes in Equity is typically a required component for corporate entities under Ind AS, not for standard sole proprietorships.

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Question #1

The 'Impersonal Accounts' are:

A. Only real accounts

B. Real and nominal accounts

C. Only nominal accounts

D. Personal accounts only

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Correct Answer: Option B

Explanation:
Impersonal accounts include real accounts (assets) and nominal accounts (expenses, losses, incomes, gains).

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Question #2

S1: The Profit and Loss Appropriation Account is prepared by a partnership firm. S2: It is prepared to distribute the net profit among the partners. Which statement(s) is/are correct?

A. Neither S1 nor S2

B. S1 only

C. S2 only

D. Both S1 and S2

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Correct Answer: Option D

Explanation:
A partnership firm prepares a Profit and Loss Appropriation Account after the Profit and Loss Account. Its purpose is to distribute the net profit among partners by accounting for interest on capital, salaries, and profit shares. Both are correct.

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Question #3

A high debt-equity ratio implies:

A. No risk

B. Low financial risk

C. High profitability

D. High financial risk

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Correct Answer: Option D

Explanation:
Higher debt means higher fixed interest obligations, increasing financial risk.

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

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