Accounting Concepts and Standards
1. Match List I with List II and select the correct answer using the code given below lists:
List -I List -II
A. Fixed assets are valued at cost less depreciation 1. Going-concem concept
B. Appending notes regarding contingent liabilities in 2. Materiality convention
accounting statements
C. Insignificant items or events having an insignificant 3. Business entity concept
economic effect need not be disclosed
D. Cash withdrawn by the owner to meet 4. Full-disclosure convention
personal expenses
Codes:
A B C D
(a) 3 4 2 1
(b) 3 2 4 1
(c) 1 4 2 3
(d) 1 2 4 3
Ans. (c)
2. Match List I with List II and select the correct answer using the code given below the Lists:
List –I List- II
(Content) (Accounting Standard)
A. Accounting for amalgamations 1. AS-3
B. Cash flow statements 2. AS-14
C. Net profit or loss for the period, prior period 3. AS-b
items and changes in accounting policies
B. Accounting for Fixed Assets 4. AS-5
Code:
A B C D
(a) 2 1 4 3
(b) 2 4 1 3
(c) 3 1 4 2
(d) 3 4 1 2
Ans. (a)
3. Which one of the following pairs is correctly matched?
(a) Share premium Revenue reserve
(b) Valuation of shares Super profit method
(c) Profit prior to incorporation Capital reserve
(d) Valuation of Goodwill Intrinsic value
Ans. (c)
4. By which of the following methods is secret reserve created?
1. Charging capital expenditure to revenue account
2. Showing contingent liability as actual liability
3. Providing less depreciation on fixed assets
4. Omitting some liabilities
Select the correct answer using the code given below:
Codes:
(a) 1 and 2 only
(b) 2 and 3 only
(c) 3 and 4 only
(d) l, 2, 3 and 4
Ans. (a)
5. Which one of the following is the correct sequence of steps followed in accounting of transactions?
(a) Classification – Source – document – Summarization Recording
(b) Source of Summarization – document –Recording- Classification
(c) Recording—Summarization -Classification—Source of document
(d) Source of document -Classification—Recording— Summarization is Reg process of accounting
Ans. (b)
6. If Opening stock is-Rs 10000, Net purchases-Rs 70000, Wages-Rs 2500, Carriage inward-Rs. 500 and Closing stock-Rs. 15000.
Which one of the following is the Merchandizing cost?
(a) Rs.65000
(b) Rs 83000
(c) Rs 68000
(d) Rs 73000
Ans. (c)
7. If Assets of a business entity are—Rs 43000, Liabilities—Rs 3000, Capital—Rs 40000 op,0 1.03.2008 and on that date it sold goods costing Rs 4000 at Rs 4500 for cash. Which one of the following is the new accounting equation?
(a) Assets Rs 45500 = Liabilities Rs 3000 + Capital Rs 42500
(b) Assets Rs 43500= Liabilities Rs 3000 + Capital Rs 40500
(c) Assets Its 41000 = Liabilities Nil + Capital Rs 41000
(d) Assets Its 40500 = Liabilities Rs 3000 + Capital Rs 37500
Ans. (b)
8. Given below are the incomes and expenses an entity for the year 2007
Fee received in cash-Rs 24000, Accrued fees-Rs 6000, Rent for chamber paid 6000, Outstanding rent-Rs 2000, salary to staff paid-Rs 6000, Miscellaneous expenses paid-Rs 200 and Salary paid in advance to the staff-Rs 1000. Which one of the following is the amount of income under accrual basis?
(a) Rs 11800
(b) Rs 30000
(c) Rs 13200
(d) Rs 16800
Ans. (d)
9. Match List I with List I and select the correct answer using the code given below the Lists:
List I List II
A. Capital expenditure 1. Money raised by issue of shares
B. Revenue expenditure 2. Preliminary expenses
C. Deferred revenue expenditure 3. Depreciation
D. Capital receipt 4. Freight on machinery purchased
Code:
A B C D
(a) 1 2 3 4
(b) 1 3 2 4
(c) 4 3 2 1
(d) 4 2 3 1
Ans. (c)
10. How is renewal fee for patent treated as?
(a) Capital expenditure
(b) Deferred revenue expenditure
(c) Revenue expenditure
(d) Development expenditure
Ans. (b)
11. Given, Purchases Rs. 100000, Sales-Rs. 180000, Closing stock-Rs. 14000 and Manufacturing expenses-Rs 10000. Which one of the following is the value of Opening stock if the rate of gross profit is 33.3 % on cost?
(a) Rs. 28000
(b) Rs. 39000
(c) Rs. 37000
(d) Rs. 42000
Ans. (b)
12. X started a garment business on 01.01.2007 with a capital of Rs. 100000. Her capital on 31.12.2007 was Rs. 180000. During the period she introduced further capital of Rs. 30000 and withdrew from the business for domestic purpose Rs. 20000. Which one of the following is the value of her profit for the year ended 31.12.2007?
(a) Rs. 70000
(b) Rs. 170000
(c) Rs. 190000
(d) Rs. 77000
Ans. (a)
13. If a trader’s sales amount to Rs 18000 and his gross profit and net profit are 60% and 40% of sales respectively, which one of the following are his expenses if there is no indirect income?
(a) Rs 7200
(b) Rs 2500
(c) Rs 3600
(d) Rs 6480
Ans. (c)
14. Given, Balance of creditors of a firm as on January 01, 2007—Rs. 50000, Cash paid to creditors—Rs. 44000, Bills payable accepted during the year—Rs. 10000, Purchase returns Rs 1000 and Creditors as on December 31, 2007—Rs. 15000. Which one of the following is the credit purchase of the firm for the same period?
(a) Rs 15000
(b) Rs.25000
(c) Rs 20000
(d) Rs 30000
Ans. (c)
15. What does the balance of joint life policy account in the Balance Sheet of a partnership firm represent?
(a) Total premium paid to date
(b) Annual installment of premium payable each year
(c) The policy’s surrender value
(d) Amount receivable on maturity
Ans. (c)
16. Given the following information relating to bad debts and provision for doubtful debts of a concern during a period. Provisions for doubtful debts on 01.01 .2007—Rs. 6000, Bad debts written off during the current year 2007—Rs. 1200, Total debtors as on 31. l2.2007—Rs. 80000. A provision for doubtful debts to be made 5%
Which one of the following amounts is to be transferred to Profit and Loss Account?
(a) Rs. 5200 Dr.
(b) Rs. 800 Cr.
(c) Rs. 2000 Dr
(d) Rs. 800 Dr.
Ans. (a)
17. Given the following information of subscription for a period:
Subscription received during the year 2007—Rs. 12000
Subscription received in advance as on 01.01 .2007—Rs. 1500
Subscription outstanding as on 01.01 .2007—Rs. 500
Subscription outstanding as on 31.01 .2007—Rs. 700
Subscription received in advance as on 31. 12.2007—Rs. 2500
Which one of the following is the amount of subscription to be credited to Income and Expenditure Account?
(a) Rs. 14200
(b) Rs. 10700
(c) Rs. 11200
(d) Rs. 9100
Ans. (c)
18. X, Y and Z are partners in the ratio of 3:2:1. K, a new partner, is admitted for one-fourth share. Which of the following statements in this regard are correct?
1. K and Y will get equal amount of profit.
2. Z will have to bear the lowest amount of loss.
3. The ratio among X, Y and Z will not change.
Select the correct answer using the code given below:
Code:
(a) 1, 2 and 3
(b) 1 and 2 only
(c) 1 and 3 only
(d) 2 and 3 only
Ans. (d)
19. A and B are partners sharing profits in the ratio of 3: 2. C is admitted with one-third share in the profits. Which one of the following is the new profit-sharing ratio of the partners?
(a) 3:2:3
(b) 6:4:3
(c) 6:4:5
(d) 3:2:5
Ans. (d)
20. A and B are partners sharing profits in the ratio of 5 :3. C is admitted. The new profit sharing ratio among A, B and C is agreed at 3 2 1. There was a General reserve of Rs. 18000 before C’s admission. The General reserve will be distributed
(a) among A, B and C in the ratio of 3 :2: 1
(b) among A, B and C equally
(c) between A and B in the ratio of 5 : 3
(d) as per sacrificing ratio
Ans. (c)
21. Which one of the following transactions does not affect the Balance Sheet totals?
(a) Purchase of Rs. 5000 supplies on credit
(b) Payment of Rs. 30000 not payable
(c) Collection of Rs. 40000 from debtors
(d) Withdrawal of Rs. 8000 by owner
Ans. (c)
22. Consider -the following:
1. Fixed Assets
2. Investment
3. Current Assets
4. Loans and Advances
5. Profit and Loss Account
6. Miscellaneous Expenditure
Which one of the following is correct sequence of the above items appearing in the asset side of the Balance Sheet of a company as per Schedule VI, Part I of the Companies Act?
(a) 1-2-3-4
(b) 2-5-3-4-6
(c) 2-1-3-5-6-4
(d) 1-2-3-4-6-5
Ans.(d)
23. Consider the following items of liability side of Balance Sheet of a company under the Head Reserve and Surplus:
1. Securities Premium Account
2. Sinking Fund
3. Capital Reserve
4. Capital Redemption Reserve
Which one of the following is the correct sequence of appearance of the above items in the Balance Sheet?
(a) 1-3-2-4
(b) 3-4-2–1
(c) l-3-4-2
(d) 3-4-1-2
Ans. (b)
24. Which one of the following accounts is -neutralized in the event of issue of fully paid bonus shares by a company?
(a) Capital Reserve Account
(b) Bonus to Shareholders Account
(c) Share Capital Account
(d) General Reserve Account
Ans. (a)
25. Assertion (A) : Sinking fund is a charge against Profit and Loss Account.
Reason (R) : Sinking fund is created for repayment of a liability.
Code:
(a) Both A and R are individually true and R is the correct explanation of A
(b) Both A and Rare individually true but R is not the correct explanation of A
(c) A is true but R is false.
(d) A is false but R is true.
Ans. (d)
26. Assertion (A) : When a company earns any profit prior to incorporation, it is called capital profit.
Reason (R) : Capital profit cannot be used for distribution as dividend to the shareholders.
Code:
(a) Both A and R are individually true and R is the correct explanation of A.
(b) Both A and Rare individually true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true.
Ans. (c)
27. The following Journal Entry -appears in the books of F Ltd:
Dr. Cr.
Rs. Rs.
Bank Account 96000
Loss on Issue of Debenture Account 10000
To 8% Debenture Account 10000
To Premium on Redemption of 6000
Debenture Account
At which one of the following discounted rates have the debentures been issued?
(a)10%
(b) 4%
(c) 6%
(d)10.42%
Ans. (b)
28. X Ltd. forfeited 20 shares of Rs. 10 each on which Rs.5 per share were paid up. The company issued these shares @ Rs. 8 as fully paid up. Which one of the following is the amount transferred to Capital Reserve Account?
(a) Rs.40
(b) Rs.60
(c) Rs. 20
(d) Rs. 100
Ans. (b)
29. An increase in Share Premium Account is
(a) an application of fund
(b) a source of fund
(c) no flow of fund
(d) None of the above
Ans. (b)
30. Which of the following is/are actually forfeited in case of share forfeiture?
1. Money already paid
2. Share certificate
3. Share capital
Select the correct answer using the codes given below
Code:
(a) 1 only
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1,2, and 3
Ans. (a)
31. Consider the following:
1. Payment to preference shareholders who paid calls in advance
2. Preference dividend
3. Payment to debenture holders
4. Preferential creditors
Which one of the following i the correct order of preferential payments of the above to be followed by the official liquidator in the event of liquidation of the company as per the provisions of the Companies Act, 1956?
(a) 1-2-3-4
(b) 3-4-2-1
(c) 2-1-4-3
(d) 3-2-1-4
Ans. (a)
32. Which of the following transactions will improve acid-test ratio?
1. Bills payable dishonored
2. Cash collected from customers
3. Issue of convertible debentures
Select the correct answer using the code given below
Code:
(a) 1,2 and 3
(b) 2 only
(c) 3 only
(d) 1 and 3 only
Ans. (c)
33. Given, Sundry debtors-Rs. 15000, Bills receivable-Rs. 12500,
Cash at bank-Rs. 17500, Stock-Rs. 15000, Profit-Rs 20000,
Creditors-Rs. 25000, Bills payable-Rs. 15000 and Sales-Rs.
100000. Which one of the following is the acid-test ratio?
(a) 1.5:1
(b) 1.l25: 1
(c) 1:1.5
(d) 1:1.125
Ans. (b)
34. Given below are some of the items of Profit and Loss Account of X Company Ltd:
Sales-Rs. 160000, Closing stock-Rs. 38000, Non-operating expenses-Rs. 800, Non-operating income-Rs. 4800 and Net profit-Rs. 28000
Which one of the following is the operating profit ratio?
(a)18%
(b) 20%
(c)15%
(d) 57%
Ans. (c)
35. A company offers to its shareholders the right to buy one share of Rs. 100 at Rs. 150 for every three shares of Rs. 100 each held. The market value of each share is Its 200. Which one of the following is the value of the right for one share?
(a) Rs. 12.50
(b) Rs. 10.00
(c) Rs. 12.00
(d) Rs 11.50
Ans. (a)
36. X Ltd. issued 10000, 12% debentures of Rs 100 each at Its 94 on 01.01.2003 under the term that j-th of the debentures are redeemable annually by drawings. Which one of the following is the amount of discount to be written off at the end of the year 2003?
(a) Rs. 20000
(b) Rs.40000
(c) Rs. 66000
(d) Cannot be computed
Ans. (a)
37. Assertion (A) : Audit means checking of the arithmetical accuracy of books of accounts and statements by mechanical ticking of figures.
Reason (R) Mere knowledge of Accountancy is not sufficient for auditing.
Code:
(a) Both A and R are individually true and It is the correct explanation of A.
(b) Both A and Rare individually true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true.
Ans. (d)
38. How can a subsequent auditor be removed from office before the expiry of his term?
(a) With the prior approval of the Company Law Board
(b) With the prior approval of the Central Government
(c) Simply by passing resolution in the Board of Directors’ meeting
(d) With the prior approval of the Registrar of Companies
Ans. (b)
39. Which one of the following is maintained by the auditor to record all matters of material importance which may require discussion with the client and are generally used in the preparation of his audit report?
(a) Auditor’s handbook
(b) Audit file
(c) Auditor’s diary
(d) Audit notebook
Ans. (d)
40. Consider the following functions of purchase department:
1. Preparation of purchase order
2. Preparation of approved vendor list
3. Invitation of competitive quotation
4. Preparation of debit notes for materials returned
Which one of the following is the correct sequence in which
an auditor verifies the above functions?
(a) 1-2-3-4
(b) 2-1-3-4
(c) 2-3-4-1
(d) 2-3-1-4
Ans. (d)
41. As per AAS-l5, which of the following should be considered by an auditor while determining the sample size?
1. Sampling risk
2. Market risk
3. Expected error
4. Tolerable error
Select the correct answer using the code given below:
Code:
(a) 1,2,3 and 4
(b) 2 and 3 only
(c) 1,3 and 4 only
(d) 1 and 2 only
Ans. (c)
42. Who among the following can fill a casual vacancy caused in a company by way of resignation of the auditor?
(a) Board of Directors
(b) Shareholders through general meeting
(c) Central government
(d) Comptroller and Auditor General
Ans. (a)
43. Within which one of the following time periods, the first auditor of a newly incorporated company should be appointed?
(a) One week
(b) Three weeks
(c) One month
(d) Two months
Ans. (c)
44. Flow would the auditors approve the treatment of a lump sum amount by way of repairs to machinery damaged in the course of its shifting to a new site?
(a) As revenue expenditure
(b) As capital expenditure
(c) As deferred revenue expenditure
(d) None of the above
Ans. (c)
45. Which one of the following may be the opinion of an auditor where he fails to obtain sufficient information to warrant an expression of opinion?
(a) Qualified opinion
(b) Adverse or negative opinion
(c) Disclaimer of opinion
(d) Piecemeal opinion
Ans. (a)
46. Consider the following statements:
1. Management audit is statutorily compulsory.
2. Management auditor can be appointed either by Board of Directors or by the Shareholders.
Which of the statement(s) given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Ans. (d)
47. Which one of the following is known as a systematic examination of organizational structure of a concern, its plans, objectives, means of operation and the use of physical facilities and their constructive and comprehensive appraisal?
(a) System audit
(b) Management audit
(c) Statutory audit
(d) Procedural audit
Ans. (b)
48. As per the ICAI guidelines, for minimum how many years an auditor should maintain records relating to audit and other works done?
(a) One year
(b) Five years
(c) Seven years
(d) Ten years
Ans. (d)
49. Which one of the following courses of action is legally available to a company in the event of non-compliance of accounting standards?
(a) The company shall report the matter to the institute of Chartered Accountants of India
(b) The company shall report the matte. to the National Company Law Tribunal
(c) The company shall disclose the deviation from the accounting standards, reason for such deviation and the financial effect thereof
(d) The company shall ignore it
Ans. (c)
50. Match List -I with List -II and select the correct answer using the code given below the Lists:
List- I List-II
(Type of Fraud) (Example)
A. Suppression of receipts 1. Making payments against fictitious voucher
B. Inflating payments 2. Inflating the value of closing stock
C. Suppression of profits 3. Not accounting for receipts
B. Inflating profits 4. Charging items of capital nature to revenue
Code:
A B C D
(a) 2 4 1 3
(b) 3 4 1 2
(c) 3 1 4 2
(d) 2 1 4 3
Ans. (c)
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