Income tax law and accounts - 50 MCQs BBA 5th Sem
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1
What is the primary source of income for an individual under the Income Tax Act?
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Answer - d) All of the above
Explanation: The Income Tax Act recognizes various sources of income, including salary, rent, and capital gains, among others.
2
Which income is considered exempt from income tax in many countries?
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Answer - c) Gifts
Explanation: In many countries, gifts are exempt from income tax up to a certain threshold.
3
Under which head of income is income from a part-time job typically taxed?
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Answer - c) Salary
Explanation: Income from part-time employment is usually taxed under the Salary head.
4
What is the term for the income that is subject to tax after all deductions and exemptions?
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Answer - b) Taxable income
Explanation: Taxable income is the income remaining after accounting for deductions and exemptions.
5
Which of the following is a direct tax?
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Answer - d) Income tax
Explanation: Income tax is a direct tax that individuals and businesses pay on their income.
6
What is the standard deduction available to salaried individuals in some countries?
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Answer - b) A fixed amount
Explanation: In some countries, salaried individuals are allowed a fixed amount as a standard deduction.
7
What is the term for the process of calculating tax liability and paying it in instalments throughout the financial year?
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Answer - a) Advance tax
Explanation: Advance tax is the process of paying tax in instalments during the financial year.
8
In accounting, what is the term for an item that reduces taxable income?
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Answer - c) Expense
Explanation: Expenses reduce taxable income in accounting.
9
Which financial statement provides a summary of a companys financial position at a specific point in time?
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Answer - c) Balance sheet
Explanation: The balance sheet summarises a companys financial position at a specific point in time.
10
What is the accounting term for the difference between a companys assets and liabilities?
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Answer - c) Equity
Explanation: Equity represents the difference between a companys assets and liabilities.
11
Which accounting principle states that expenses should be recognized in the same period as the revenue they help generate?
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Answer - a) Matching principle
Explanation: The matching principle requires expenses to be recognized in the same period as the revenue they help generate.
12
What is the primary purpose of a trial balance in accounting?
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Answer - a) To identify errors and discrepancies
Explanation: A trial balance is used to identify errors and discrepancies in accounting records.
13
Which financial statement provides information about a companys cash inflows and outflows?
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Answer - c) Statement of cash flows
Explanation: The statement of cash flows provides information about a companys cash inflows and outflows.
14
Under double-entry accounting, what happens when an asset is purchased?
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Answer - a) A debit to the asset account
Explanation: When an asset is purchased, it is debited in double-entry accounting.
15
What is the term for the estimated value of an asset after its useful life?
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Answer - a) Depreciation
Explanation: Depreciation is the process of estimating the value of an asset after its useful life.
16
In the context of accounting, what does FIFO stand for?
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Answer - a) First In, First Out
Explanation: FIFO is an inventory valuation method, which stands for First In, First Out.
17
What is the primary goal of tax planning?
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Answer - b) To minimise tax liability within the boundaries of the law
Explanation: Tax planning aims to reduce tax liability legally.
18
Which document is used to report an individuals annual income and tax liability to the tax authorities?
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Answer - c) Tax return
Explanation: A tax return is used to report annual income and tax liability to tax authorities.
19
What is the term for the practice of distributing a companys earnings to its shareholders in the form of dividends?
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Answer - c) Dividends
Explanation: Dividends are earnings distributed to shareholders.
20
Under which accounting method are revenue and expenses recognized when they are earned or incurred, regardless of when cash is received or paid?
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Answer - a) Accrual basis accounting
Explanation: Accrual basis accounting recognizes revenue and expenses when earned or incurred.
21
What is the term for a tax that is imposed on the transfer of property or assets upon the owners death?
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Answer - d) Estate tax
Explanation: Estate tax is imposed on the transfer of property upon a persons death.
22
What is the primary purpose of a profit and loss statement (P&L)?
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Answer - c) To track revenues, expenses, and net profit or loss
Explanation: A P&L statement tracks a companys revenues, expenses, and net profit or loss over a period.
23
What is the term for the process of reducing the value of an intangible asset over its useful life?
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Answer - b) Amortisation
Explanation: Amortisation is the process of reducing the value of intangible assets over time.
24
What is the purpose of tax credits in the tax system?
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Answer - b) To reduce tax liability directly
Explanation: Tax credits reduce tax liability directly, as they are subtracted from the tax owed.
25
What is the term for a tax levied on the income of corporations?
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Answer - c) Corporate income tax
Explanation: Corporate income tax is levied on the income of corporations.
26
Which type of account holds funds set aside for specific purposes and is not available for general spending?
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Answer - d) Restricted account
Explanation: Restricted accounts hold funds designated for specific purposes and are not available for general spending.
27
Under which accounting principle should assets be recorded at their original cost?
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Answer - b) Historical cost principle
Explanation: The historical cost principle dictates that assets should be recorded at their original cost.
28
What is the term for a financial statement that provides an overview of a companys revenues and expenses during a specific period?
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Answer - b) Income statement
Explanation: An income statement provides an overview of a companys revenues and expenses over a period.
29
In the context of income tax, what does TDS stand for?
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Answer - a) Tax Deducted at Source
Explanation: TDS stands for Tax Deducted at Source, a mechanism for tax collection.
30
What is the tax imposed on the profit earned from the sale of a capital asset?
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Answer - a) Capital gain tax
Explanation: Capital gain tax is levied on profits from the sale of capital assets.
31
What is the term for a tax levied on the income earned by an individual or business?
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Answer - d) Income tax
Explanation: Income tax is levied on the income of individuals and businesses.
32
What is the tax rate applied to income within certain tax brackets known as?
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Answer - b) Progressive rate
Explanation: The tax rate applied to income within certain brackets is called a progressive rate.
33
What is the primary purpose of a general ledger in accounting?
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Answer - a) To record daily transactions
Explanation: A general ledger is used to record daily accounting transactions.
34
What is the term for the practice of spreading the cost of an intangible asset over its useful life?
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Answer - b) Amortisation
Explanation: Amortisation is used for intangible assets to spread their cost over their useful life.
35
In double-entry accounting, what is the balancing figure that represents the difference between total debits and total credits?
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Answer - c) Net assets
Explanation: In double-entry accounting, net assets represent the difference between total debits and total credits.
36
What is the term for a tax that is levied on the sale of goods and services to end consumers?
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Answer - c) Sales tax
Explanation: Sales tax is imposed on the sale of goods and services to consumers.
37
What type of income is generated from owning investments, such as stocks and bonds?
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Answer - d) Interest and dividends
Explanation: Interest and dividends are types of income generated from investments.
38
What is the term for a financial statement that shows changes in a companys retained earnings over a specific period?
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Answer - d) Statement of retained earnings
Explanation: The statement of retained earnings shows changes in a companys retained earnings over time.
39
Which accounting principle states that financial statements should assume a company will continue to operate indefinitely?
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Answer - c) Going concern principle
Explanation: The going concern principle assumes that a company will continue to operate indefinitely.
40
What is the term for a tax that is imposed on the value of property, such as real estate?
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Answer - d) Property tax
Explanation: Property tax is imposed on the value of property, typically real estate.
41
Which accounting principle dictates that revenue should be recognized when it is earned, not necessarily when cash is received?
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Answer - b) Revenue recognition principle
Explanation: The revenue recognition principle states that revenue should be recognized when it is earned.
42
In accounting, what is the term for a record of a companys financial transactions, including purchases and sales?
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Answer - c) Journal
Explanation: A journal is a record of a companys financial transactions.
43
What is the term for a tax that is imposed on certain goods and services, often referred to as sin taxes?
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Answer - c) Excise tax
Explanation: Excise tax is imposed on specific goods and services.
44
Which type of accounting method recognizes revenue when cash is received and expenses when cash is paid?
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Answer - b) Cash basis accounting
Explanation: Cash basis accounting recognizes revenue and expenses when cash is received or paid.
45
What is the term for the cost of borrowing money, typically expressed as a percentage?
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Answer - b) Interest
Explanation: Interest is the cost of borrowing money.
46
In the context of accounting, what does GAAP stand for?
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Answer - b) Generally Accepted Accounting Principles
Explanation: GAAP stands for Generally Accepted Accounting Principles.
47
What is the term for a tax levied on the income generated from an individuals employment?
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Answer - d) Payroll tax
Explanation: Payroll tax is levied on income generated from an individuals employment.
48
Which accounting equation represents the fundamental principle of double-entry accounting?
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Answer - c) Assets = Liabilities + Equity
Explanation: The accounting equation Assets = Liabilities + Equity is the foundation of double-entry accounting.
49
What is the term for the reduction in the value of an asset over time due to factors such as wear and tear?
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Answer - b) Depreciation
Explanation: Depreciation refers to the reduction in the value of assets over time due to factors like wear and tear.
50
What is the accounting term for the amount that an asset is worth on the open market?
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Answer - c) Fair market value
Explanation: Fair market value is the amount an asset is worth on the open market.
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