Professional Documents
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MC
QS
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
Depreciation is:
(a)
An income
(b)
An asset(c)
A
loss (T)
(d)
A liability
The books value of an asset is obtained by deducting
depreciation from its:
(a)
Market value
(b)
Scrap value(c)
Market + Cost price
(d)
Cost (T)
Depreciation fund method is also known as:
(a)
Sinking fund method (T)
(b)
Annuity method
(c)
Sum of years digits method
(d)
None of these
The method is specially suited to natural resources (mines,
quarries, sand, pits etc.) is said to be:
(a)
Annuity method
(b)
Depletion
method (T)
(c)
Revaluation method
(d)
Sum of digits method
Double declining method is often used in the:
(a)
Pakistan
(b)
South Africa(c)
Japan
(d)
U.S.A(T)
In the provision method of depreciation the asset always appears
at:
(a)
Cost price (T) (b)
Market Price(c)
Scrap Value
(d)
None
Note. The amount of depreciation has been calculated @ 20% on diminishing (reducing)
balances of machinery. In 2002, depreciation has been calculated on 25,000. Amount spent
on repairs to second hand machinery is capital expenditure. It was necessary to bring the old
machinery in working order. It is the part of the cost of machinery, so it has been added to its
cost. The balance of machinery reduced to $ 20,000 in 2003 and further reduced to $. 16,000
in 2004, so depreciation for 2003 has been calculated on 20,000 and for 2004 on $16,000.
Loss on sale of machinery has been calculated as under:
Book value of machinery as on January 1, 2002
$25000
Less : Depreciation :
2002 (for full year)
5,000
2003 (for full year)
4,000
2004 (for full year)
3,200
12200
Book value of machinery as on December 31, 2004
12800
Less : Amount received from sale of machinery
10800
Loss on sale of
machinery
2000
Illustration 6. (Diminishing Balance: Assets sold partly). A company whose accounting
year is the calendar year purchased on 1st April, 2001 machinery costing $ 30,000.
It further purchased machinery on 1st October, 2001 costing $ 20,000 and on 1 st July, 2002
costing $ 10,000
On 1st January. 2003 one-third of the machinery which was installed on l st April.
200l,became obsolete and was sold for $ 3,000.
Show how the machinery account would appear in the books of company. The
depreciation is charged at 10% p.a. on Written Down Value Method.
Solution.
Machinery Account
Working Notes :
$52,025
(i) Calculation of depreciation for year 2003 :Total Written Down Value as on -8,325
January 1, 2003Less :Written Down Value of 1/3rd of
43,700
plant sold (1 0,000 750 925)
Written down value of remaining machine
4370
Depreciation at 10% on Written Down Value (43, 700 x 10/100)
(ii) Calculation of loss on sale of machinery :
Book value of I /3rd machinery purchased on April l, 200 1 as on January 2003
( 1 0,000- 750 925)
Less: Amount received from sale
Loss on sale of machinery
8325
-3000
5325
Give the machinery account for 5 years. Depreciation is written off at 10% per annum on
written down value method.
Solution.
Wr
itte
n Down Value Method
Machinery Account
Dr.
Working Notes
(i) Calculation of loss on sale of machinery :Book value of
machinery as on January 1, 2000Less : Depreciation according to
diminishing balance method :
2000 (for full year)
2001 (for full year)
2002 (for full year)
2003 (for six months)
Book Value of Machine sold as on June 30, 2003
Less : Amount received from sale
Loss on sale of machine
Cr.
$10,000
1,000
900
810
365
3,075
6,925
(-) 5,000
1,925
45,000
(-) 7,290
37,710
3,771
365
4,136
( ASSIGNMENTS )
THEORETICAL QUESTIONS
A. Objective Type Questions :
1. Indicate the alternative which you consider to be suitable :
1. Depreciation according to straight line method is calculated on .. .
(a) opening balance
(b) closing balance
(c) original cost
(d) market value.
2. Depreciation is calculated on .. .
(a) fixed assets
(b) current assets
(d) wasting assets.
(c) fictitious assets
3. Depreciation is calculated on of assets.
(a) cost price
(b) market value
(d) invoice price.
(c) book value
4. Depreciation means .. .
(a) physical wear and tear
(b) amortization
(c) fluctuation
(d) obsolescence.
3.
Differentiate between straight line method and written down value method of
providing depreciation.
4.
Discuss the advantages and disadvantages of fixed instalment method and diminishing
balance method.
5.
Explain the following :
(a) Obsolescence
(b) Amortisation
(c) Depletion
(d) Fluctuation.
PRACTICAL QUESTIONS
1. A firm purchased on 1st January 2005, a machinery for $. 10.000. Depreciation was to be
charged @ 20% per annum on the original cost.
You are required to show the machinery account for the first three years assuming that
accounts are closed on 31st December. [Ans. Closing balance = $ 4.000]
2. San jay purchased a machinery for $. 21.000 on 1st January, 2001. The estimated life of the
machine is 10 years after which its residual value will be $.1,000 only. Find out the amount of
depreciation and prepare machinery account for the first three years according to the fixed
installment method.
Note .Depreciation =cost price scrap valve / Life of the asses
=21,000-1,000/10=$ 2,000
(Ans . closing balance =$ .15,000)
3. A boiler was purchased from abroad for $ 10,000 .shipping and forwarding charges
amounts to $ 2,000 import duty $ three years separately for each year @ 10% on diminishing
balance method
[Ans. $ 2,000, $ 1,800 and $ 1,620; Closing balance = $ 14,580]
4. The book value of plant and machinery on 1-l-2002 was $ 2,00,000. New machinery for $.
10,000 was purchased on 1-10-2002 and for $. 20,000 on 1-7-2003. On 1-4-2004, a
machinery whose book value had been $. 30,000 on 1-1-2002 was sold for $. 16,000 and the
entire amount was credited to plant and machinery account. Depreciation had been charged at
10% per annum on straight line method. Show the plant an machinery account from 1-12002 to 31-12-2004.
[Ans. Loss on sale of machinery = S. 7,250;
Balance of machinery account on 31st December, 2004 = $1,43,750)
5. A company had bought machinery for $. 2,00,000 including a boiler was $ 20,000. The
machinery account had been credited for depreciation on the reducing instalment system for
10
the past four years at the rate of 10%. During the fifth year. i.e., the present year, the boiler
became useless on account of damage to some of its vital parts and the damaged boiler is sold
for$. 4,000. Write up the machinery account.
[Ans. Loss on sale=$ 9,122; Closing balance = $ 1,06,288]
6. The original cost of furniture amounted to$ 4,000 and it is decided to write off S per cent
on the original cost as depreciation at the end of each year. Show the ledger account as it will
appear during the first four years Show also how the same account will appear if it was
decided to written off 5% on the diminishing balance.
[Ans. Closing balance : (i) Straight line method = $ 3,200 ; (ii) Diminishing balance = $
3,258]
7. On 1st January, 2002 machinery was purchased for $. 20.000. On 1st July, 2003 another
machine was purchased for $. 10,000 and on 1st January, 2004 one more machine was
purchased for $. 5,000 .. The firm depreciates its machines@ 20% on the diminishing balance
method. Show machine account for four years.
[Ans. Closing balance =$ 17, I 52]
8. A company purchased a machine on 1st January, 2003 for $ 30,000 and immediately spent
$ 4,000 on its repair and $ 1,000 on its installation. On July I, 2005 the machine was sold for
$. 25,000. Prepare machine account after charging depreciation @ 10% p.a. by diminishing
balance method.
[Ans. Loss on sale of machine = $ 1932.50]
9. On 1st January, 2001 a merchant purchased a furniture costing $ 55,000. It is estimated that
its working life is 1 0 years at the end of which it will fetch $ 5,000. Additions are made on 1
st Jan., 2002 and 1st July, 2004 to the value of $. 9.500 and $. 8,400 (residual values $ 500
and $. 400 respectively). Show the furniture account for the first four years, if depreciation is
written off according to the straight line method.
[Ans. Balance furniture account on 1st Jan., 2005 =$. 49,800]
10. A joint stock company had bought machinery for$ 1,00,000 including therein a boiler
worth $ 10,000. The machinery account was for the first four years credited for depreciation
on the reducing instalment system at the rate of I 0% per annum. During the fifth year, i.e.,
the current year, the boiler becomes useless on account of damage to its parts. The damaged
boiler is sold for $ 2,000 which amount is credited to machinery account. Prepare the
machinery account for the current year, adjusting therein the cash received and the loss
suffered
on the damage boiler and the depreciation of the machinery for the current year.
11
[Ans. Loss on sale of boiler=$. 4,561 ; Closing balance of machinery account= $ 53, 144]
11. Kumar & Company purchased a machinery on 1st January, 2003 for $ 54,000 and spent $
6.000 on its installation. On 1st September. 2004 it purchased another machine for $ 30,000.
On 3 1st March. 2005 the first machine purchased on 1st January, 2005 is sold for $ 36.000
and on the same date it purchased a new machinery for $ 80,000
On September I. 2006 the second machine (purchased on September 1, 2004) was also sold
off for $ 26.000. Depreciation was provided on machinery @ 10% p.a. on original cost
method annually on 31st December. Give the machinery account from 2005 to 2006.
[Ans. Loss on sale of First Machine $ 10.500, profit on sale of Second Machine = $
2,000 :
Balance of Machinery a/c on 31st December. 2006 $
66.000]
12. A company purchased a machine on 1st January, 2004 for $ 30.000 and immediately spent
$ 4.000 on its repairs and $1,000 on its installation. On July I, 2006 the machine was sold for
$ 25.000. Prepare machine account after charging depreciation @ /0% p.a. by rliminishing
balance method. Also prepare machinery Disposal A/c.
[Ans. Loss
on sale of machine = $ 1932.50]
13. A company, whose accounting year is calendar year, purchased on 1st April, 2003
machinery costing $ 30,000.
It purchased further machinery on 1st Oct, 2003 costing $ 20,000 and on 1st July, 2004
costing $ 10,000. On 1st January, 2005, one third of the machinery installed on 1st April,
2003 became obsolete and was sold for $ 3,000.
Show how machinery account would appear in the books of company, it being given that
machinery was depreciated by fixed instalment method at 10% p.a. What would be the
balance of machinery account on 1st January.
2006?
[Ans. Balance of Machinery A/C on 1st January, 2006 = $ 38,500]
14. The original cost of furniture and fixtures amounted to $ 4.000 and it is decided to write
off 5% o.1 the diminishing value of assets as depreciated at the end of each year. Show the
ledger account as it will appear during the first four
years.
[Ans. Balance of
Machinery Account after four years $ 3258.03]
12
15. What is depreciation and how it is calculated? Distinguish between straight line method
and written down method of depreciation. If an asset was purchased for $ 50,000 on 1st
Jan., 2006, what would be its value three years after if it was depreciated by both these
methods@ 10% p.a.
[Ans. Straight line method $ 35,000 W.D.V. method $36,450]
16. (a) Define depreciation. Why is it charged ? (b) A machine was bought for$ 9,500 and
was installed by companys workers, who were paid $ 50Ufor this. Show how it will be
depreciated reducing installment and reducing instalment method assuming that its working
life is 10 years. What would be its balance after 5 years, if it is depreciated@ 10% in each
case.
[Ans. Balance of Machinery Account. Straight line method $ 5,000.
(educing Instalment method$. 5,905]
17. On 1-1-2005, Mrs. Neelam Sharma bought a machine for $ 25,000 on which she spent $
5.000 for carriage and freight $ 1,000 for brokerage of the middle-man. $ 3,500 for
installation and $ 500 for an iron pad. The machine is depreciated @ 10% per annum on
written down value basis. After three years the machine was sold to Deepa for $ 30,500 and $
500 was paid as ccmmission to the broker through whom the sale was effected. Find out the
Profit or Loss on sale of machine if the accounts are closed on 31st December every year.
[Ans. Profit on sale of machine= $ 4,485]
18. The following information relates to the business of Maharaja Enterprises for the year
ended Dec. 31. 2001.
(a) A debit balance of plant and machinery account on Jan. 1, 2001 $ 26,840.
(b) During the year 2001 three machines standing in the books at $ 1.286 were sold for $
600.
(c) On April I, 200 I new machines costing $ 5,880 were purchased and were installed by
the manufacturers workman at an expenditure of $ 216 (i.e., wages $ 174 and materials $
42.)
(d) It is practice of the business to write-off IS% depreciation to all additions to the plant
during a year and 0% to all old plants. Prepare the plant and machinery account as it would
appear on Dec. 31, 200 I.
[Ans. Balance of Machinery Ale $ 25,626 approximate]
19. Nagi Road Transport Corporation (NRTC) purchased 5 minibuses at $ 2,00.000 each on 1
April 2000. On 1st October, 2002. One of the buses met an accident and was completely
destroyed. Insurance Co. paid $ 90.000 in full settlement of the claim. On the same day,
NRTC purchased a used minibus for $ 1,00.000 and spent $ 20.000 on its over/hauling.
13
Prepare minibus account for 3 years ending on 31 Dec. 2002. The depreciation is charged @
20% on straight line basis.
[Ans. Loss on bus destroyed 10,000: Balance of bus account $ 4,74.000]
[Ans. Loss on sale of machine $ 25.500 : Balance of Machinery Ale $ 6,00.000]
1. On January 1, 1992 there was a balance of Rs. 4,000 in the plant and machinery account.
An addition of Rs. 2,000 was made on July 1, 1992. Accounts were closed for the year on
December, 31, 1992. If depreciation was charged 10% per annum, the balance in the plant
and machinery account on the closing date would be:
(a) Rs. 5,300
(b) Rs. 5,400
(c) Rs. 5,500
(d) Rs. 5,600
Ans. (c)
2. A machinery having a residual value of Rs. 5,000 was purchased on 1-1-1988 for Rs. 1,
00,000 and was depreciated @ 9.5% on a straight line method. On 1-1-91, it was estimated
that its useful life has been reduced to eight years. Under the changed circumstances, the
annual depreciation charges for the year 1991 and onwards will be:
(a) Rs. 11,875
(b) Rs. 13,300
(c) Rs. 9,500
(d) Rs. 12,500
Ans. (b)
3. In which one of the following methods of charging depreciation shall the balance never be
reduced to zero?
(a) Fixed installment method
(b) Depreciation fund method
(c) Diminishing balance method
14
List-II
(Principles)
A. Real Accounts
B. Nominal Accounts
C. Personal Accounts
Codes:
ABC
(a) 3 2 1
(b) 1 3 2
(c) 2 3 1
(d) 1 2 3
Ans. (c)
5. Which one of the following branches of accounting primarily deals with processing and
Goodwill presenting of accounting data for internal one?
(a) Financial Accounting
(b) Tax Accounting
(c) Management Accounting
(d) Inflation Accounting
Ans. (c)
6. Holding gains in relation to stocks should not be used for payment of Dividend. Which
one of the following accounting principles is involved in this?
(a) Consistency
15
(b) Cost
(c) Materiality
(d) Realization
Ans. (d)
7. X started business with a capital of Rs. 20,000 and purchased goods worth Rs. 2,000 on
credit. These transactions may be expressed in the form of Accounting Equation such as:
(a) Rs. 22,000 = Rs. 20,000 Rs. 2,000
(b) Rs. 20,000 = Rs. 22,000 Rs. 2,000
(c) Rs. 22,000 = Rs. 22,000 + 0
(d) Rs. 22,000 = 0 + Rs. 22,000
Ans. (b)
8. Accounting records transaction in terms of:
(a) commodity units
(b) monetary units
(c) production units
(d) none of the above
Ans. (b)
9. Market price or actual cost, whichever is less, is the generally accepted accounting
principle for valuation of:
(a) Stock in trade
(b) Fixed assets
(c) Current assets
(d) All assets
Ans. (a)
10. Capital employed in a business is Rs.1, 50,000. Profits are Rs. 50,000 and the normal rate
of profits is 20%. The amount of goodwill as per capitalization method would be:
16
17
13. A manufacturing company spent the following amounts on the import and installation of a
machine:
Rs. 50,000 Price of the machine
Rs. 5,000 Freight
Rs, 1,050 Insurance premium
Rs. 6,000 Replacement of a part damaged in transit, not covered under the insurance policy.
Based on the above data, Capital expenditure would be:
(a) Rs. 50, 000
(b) Rs. 56, 050
(c) Rs. 62, 050
(d) Rs.57, 050
Ans. (b)
14. Given, subscription received in 1990:
For the year 1989 Rs. 500
For the year 1990 Rs. 7,000
For the year 1991 Rs 400
1990-Subscription outstanding Rs. 250.
The amount of subscription to be posted to Income on 31st December 1990 and Expenditure
account of 1990 is:
(a) Rs. 7,000
(b) Rs. 7,250
(c) Rs. 7,900
(d) Rs. 8,150
Ans. (b)
15. What is the correct sequence of the preparation of the following accounts and statements
of a non-profit organization?
18
19
stock of unsold goods at the beginning and at the end of the trading period were valued at Rs.
21,000 and Rs. 18,000 respectively. Goods worth Rs.1, 39,500 were purchased for resale
during the period. The proprietor withdrew goods worth Rs. 1, 500 during the accounting
period for personal use. What were the total sales during the period?
(a) Rs. 1, 80,000
(b) Rs. 2, 11,500
(c) Rs. 2, 25,000
(d) Rs. 2, 31,500
Ans. (b)
19. In the absence of partnership deed provision of Partnership Act, 1932 became applicable
under which a partner is entitled to interest on money advances to the firm at:
(a) 4% p.a.
(b) 5% p.a.
(c) 6% p.a.
(d) 10% pa.
Ans. (c)
20. Which one of the following as not applicable to a co-operative form of business
organization?
(a) Membership is open to all having a common interest
(b) Transferability of shares is permitted among general public
(c) Policy decisions are taken by the members in a general meeting
(d) Major portion of profit is distributed to members by way of dividend
Ans. (d)
21. Which one of the following statements is correct?
(a) A company consists of heterogeneous members
(b) A body corporate includes a co-operative society
(c) The expression corporation or Body corporate are the same
20
(d) A partner cannot contract with his firm, whereas a member of a company can
Ans. (d)
22. Dividend declared and paid by a company is:
(a) an expense of the company
(b) an income of the company
(c)the distribution of profit earned by the company
(d) the source of fund for the company
Ans. (c)
23. Long term liabilities are:
(a) fixed assets minus current assets
(b) fixed assets minus current liabilities
(c) current Assets plus current liabilities
(d) total liabilities minus current liabilities
Ans. (d)
24. A business entity has assets of Rs. 26,000 and liabilities of Rs. 6,000. Owners equity in
this case is:
(a) Rs. 32,000
(b) Rs. 26,000
(c) Rs. 20,000
(d) Rs. 6,000
Ans. (c)
25. While preparing Annual Financial Statements, credit balance shown by the Bank pass
book should be treated as:
(a) a liability
(b) an income
21
22
(a) each partner proportionately what is due to him on account of loans advanced by him
(b) each partner proportionately what is due to him account of capital
(c) each partner proportionately what is due to him on account of past profits
(d) the debts of the firm to the third parties
Ans. (d)
30. A limited company issued equity shares of Rs. 100 each. It has called up Rs. 75 on each
share but received only Rs. 60 per share. The share capital account will be credited with:
(a) Rs. 60 per share
(b) Rs. 75 per share
(c) Rs. 100 per share
(d) None of the above
Ans. (b)
31. Redeemable preference shares can be redeemed:
(a) only if they are fully paid
(b) even if they are partly paid
(c) if they are paid not less than 50% of the nominal value of shares
(d) only if they are issued at a premium
Ans. (a)
32. Where all the debentures are redeemed, the balance left in the Debenture Sinking Fund
Account is transferable to:
(a) Debentures Account
(b) Sinking Fund Investment Account
(c) Capital Redemption Reserve
(d) General Reserve
Ans. (d)
23
33. The balance in share forfeiture account, after the reissue of all forfeited shares, should be:
(a) added to paid up capital
(b) transferred to goodwill account
(c) transferred to capital reserve account
(d) shown as share forfeiture account
Ans. (c)
34. A company issued Rs. 20,000, 4% bonds repayable on equal installments over 10 years.
What is the amount required in the initial year, to pay interest and to redeem the bonds
(ignore tax and DCF)?
(a) Rs. 56,000
(b) Rs. 28,000
(c) Rs. 20,000
(d) Rs. 8,000
Ans. (b)
35. Match List-I with List-II and select the correct answer using the codes given below the
lists:
List-I
List-II
A. Deferred shares
1. Repayment obligation
B. Preference shares
C. Bonus shares
3. No dividend obligation
D. Equity Shares
Codes:
ABCD
(a) 4 3 1 2
(b) 4 1 3 2
(c) 3 2 1 4
24
(d) 4 1 2 3
Ans. (d)
36. Which one of the following statements is false?
(a) The process of issue of bonus shares is also known as capitalization of reserves
(b) Fully paid bonus shares are issued only out of capital reserves
(c) Only revenue reserves should be used when bonus is declared in order to make partly paid
shares into fully paid shares.
(d) Bonus shares one shares issued without payment.
Ans. (b)
37. The Balance Sheet of a company showed the following balances at the end of the year
under the head Reserves and surplus: General Reserve Rs. 5,00,000; Share Premium
account Rs. 50,000; Premium on issue of Debentures account Rs. 20,000; Dividends
equalization fund Rs. 40,000; Surplus on revaluation of assets Rs. 30,000 Profit and Loss
account (credit) Rs. 60,000. Maximum amount available for distribution as dividend to the
shareholders of the company will be:
(a) Rs. 60,000
(b) Rs.1, 00,000
(c) Rs. 6, 00,000
(d) Rs.6, 70,000
Ans. (c)
38. Capital Gearing ratio denotes the relationship between:
(a) assets and capital
(b) loan and capital
(c) equity shareholders fund and long term borrowed funds
(d) debentures and share capital
Ans. (c)
39. The following balances appear on the liability side of a companys Balance Sheet:
25
Rs.
Equity Share Capital: 10,000 Shares of Rs. 10 each
1.00.000
1, 00,000
40,000
2, 00,000
1, 50,000
50,000
M Co. (Rs)
Current Assets
7, 50,000
Closing inventory
3, 00,000
Goodwill
5, 00,000
Current Liabilities
3, 00,000
Z Co. (Rs)
7, 50,000
2, 50,000
3, 50,000
5, 00,000
Based on the above data, acid test of M Co. in comparison to Z Co. is:
(a) lower
(b) equal
(c) higher
26
(d) indeterminate
Ans. (c)
41. Match List-I with List-II and select the correct answer using the codes given below the
lists:
List-I
List-II
2. Coverage Ratio
27
43. Given that the net profit for a certain year of company X Ltd. is Rs. 1,23,000, equityshare capital for the same period is Rs. 10,00,000 and reserve and surplus is Rs. 2,30,000 the
rate of return on owners fund would be:
(a) 12:3%
(b) 10%
(c) 9.98%
(d) none of the above
Ans. (b)
44. Consider the following data:
Costs:
Fixed =
Variable
Rs. 40,000
Rs. 30,000
= 30%
125
150
200
Net Current
50
55
50
40
200
250
250
300
Assets
Sales
28
Contribution
150
196
200
180
Fixed Cost
20
27
30
60
If the cut off point of return on investment is l5% then which of the following companies
fulfill this criterion?
(a) A and C
(b) B and C
(c) A, B and D
(d) B, C and D
Ans. (c)
46. Which one of the following is an example of sources of funds?
(a) Decrease in share capital
(b) Increase in long term liabilities
(c) Decrease in long term liabilities
(d) Increase in Fixed assets
Ans. (b)
41. Current Assets are Rs. 3, 00,000 and current liabilities are Rs. 1, 50,000. Now, if the
debtors realized are Rs. 20,000, then its impact on working capital would be:
(a) an increase of Rs. 20,000
(b) a decrease of Rs. 40,000
(c) an increase of Rs. 40,000
(d) nil
Ans. (d)
48. Match List-I with List-II and select the correct answer using the codes given below the
lists:
List-I
A. Fund flow Analysis
List-II
1. Working Capital Management
29
2. Inventory Control
3. Management of receivables
Codes:
ABC D
(a) 4 1 2 3
(b) 1 4 2 3
(c) 2 3 1 4
(d) 3 1 2 4
Ans. (b)
49. The main object of audit is to:
(a) detect the errors and faults
(b) help the company in developing a sound accounting system
(c) verify the correctness of final accounts
(d) prevent commission of errors and faults
Ans. (c)
50. Surprise Checks are part of:
(a) an auditors working papers
(b) an audit programme
(c) an auditors report
(d) an accounting standard
Ans. (b)
30