State with reasons, whether the following statements are true or false: (i) Wages paid for erection of machinery are debited to Profit and Loss…
CA Foundation · Accounting · MTP · September 2024
State with reasons, whether the following statements are true or false: (i) Wages paid for erection of machinery are debited to Profit and Loss Account. (ii) Amount spent for the construction of temporary huts, which were necessary for construction of the Cinema House and were demolished when the Cinema House was ready, is capital expenditure. (iii) If the effect of errors committed cancel out, the errors will be called compensating errors and the trial balance will disagree. (iv) Promissory note is different from bill of exchange because the amount is paid by the maker in case of former and by the acceptor in the later. (v) The business of partnership must be carried on by all the partners. (vi) Debenture interest is payable after the payment of preference dividend but before the payment of equity dividend.
Suggested Answer and Working Notes:
(i) False: Such wages being related to capital asset should be debited to the machinery account. (ii) True: Since the temporary huts were necessary for the construction, their cost should be added to the cost of the cinema hall and thus capitalised. (iii) False: If the effect of errors committed cancel out, the errors will be called compensating errors and the trial balance will agree. (iv) True: In case of the promissory note, it is generally the maker who makes the payment, but in case of the bill of exchange, the person accepting the bill shall be liable to make the payment to the holder of the bill. (v) False: The business of the partnership firm can be carried on by all the partners or by any one of them acting for all. (vi) False: Debenture interest is payable before the payment of any dividend on shares.
Topics: Bills of Exchange and Promissory Notes, Partnership and LLP Accounts
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