Accounting & Finance Mcqs

___________ is concerned with the acquisition, financing, and management of assets with
some overall goal in mind.

A. Financial management
B. Profit maximization
C. Agency theory
D. Social responsibility
Having some overall goal in mind, financial management is concerned with:
A. Acquisition of assets
B. Financing of assets
C. Management of assets
D. All of them
The investment decision is the most important of the firm’s three major decisions, when it
comes to:
A. Value creation
B. Value addition
C. Value proposition
D. Value deletion
Annual cash dividends divided by annual earnings; or alternatively, dividends per share
divided by earning per share is termed as:
A. Earning per share ratio
B. Proposed dividend ratio
C. Dividend payout ratio
D. Expected dividend ratio
Profit maximization is the maximizing a firm’s Earning:
A. Before Tax
B. After Tax
C. Both A and B
D. None of Them
An individual authorized by another person, called the principle, to act on the latter’s on
behalf is known as an/a:
A. Agent
B. Servant
C. Subordinate
D. Assistant
Stakeholders include:
A. Stakeholders
B. Creditors and customs
C. Employees and suppliers
D. All of Them
All the constituencies with a stake in the fortunes of the company are termed as:
A. Stakeholders
B. Directors
C. Chief executives
D. Subordinates
The system by which companies are managed and controlled is known as:
A. Management System
B. Strategic System
C. Corporate Governance
D. Internal System
Corporate governance encompasses the relationship among a company’s:
A. Shareholders and board of director
B. Board of directors and senior management
C. Shareholders and senior management
D. Shareholders, board of directors and senior management
The Board of Directors sets company-wide policy and advices the CEO and other senior
executies, who manage the company’s:
A. Managerial activities
B. Year-to-Year activities
C. Day-to-Day activities
D. Financial activities
A major facet of financial management involves providing the financing necessary to support:
A. Liabilities
B. Debts
C. Loans
D. Assets
The market price of a firm’s stock represents the focal judgment of all market participants as
to the value of the:
A. Particular market
B. Particular firm
C. Particular creditor
D. Particular debtor
Agency theory suggests that managers(the agents), particularly those of large , publically-
owned firms, may have different objectives from those of the:
A. Workers
B. Subordinates
C. Shareholders
D. Employees
Maximizing Shareholder wealth:
A. Relieves the firms responsibility towards society
B. Does not relieve the firm’s responsibility towards society
C. Partially relives the firm’s responsibility towards society
D. None of Them
Earning per share is computed as:
A. Earning After Tax / No of common shares outstanding
B. No of common shares outstanding / Earning after Tax
C. Earning before Tax /Common shares
D. None of Them
Period costs include which of the following?
A. Selling expense
B. Raw material
C. Direct labor
D. Manufacturing overhead
Product costs include which of the following?
A. Selling expenses
B. General expenses
C. Manufacturing overhead
D. Administrative expenses
Financial policy is evaluated by which of the following?
A. Profit Margin
B. Total Assets Turnover
C. Debt-equity ratio
D. None of the given options
Cash flow from assets involves which of the following component(s)?
A. Operating cash flow
B. Capital spending
C. Change in net working capital
D. All of the given options
Which of the following refers to the cash flows that result from the firm‟s day-to-day
activities of producing and selling?
A. Operating Cash Flows
B. Investing Cash Flows
C. Financing Cash Flows
Finance is vital for which of the following business activity (activities)?
A. Marketing Research
B. Product Pricing
C. Design of marketing and distribution channels
Which of the following costs are reported on the income statement as the cost of goods sold?
A. Product cost
B. Period cost
C. Both product cost and period cost
D. Neither product cost nor period cost
Standard Company had net sales of Rs. 750,000 over the past year. During that time, average
receivables were Rs. 150,000. Assuming a 365-day year, what was the average collection
period?
A. 5 days
B. 36 days
C. 48 days
D. 73 days
Which of the following terms refers to the use of debt financing?
A. Operating Leverage
B. Financial Leverage
C. Manufacturing Leverage
In which type of market, new securities are traded.
A. Primary market
B. Secondary market
C. Tertiary market
Which of the following ratios are particularly interesting to short-term creditors?
A. Liquidity Ratios
B. Long-term Solvency Ratios
C. Profitability Ratios
D. Market Value Ratios
Quick Ratio is also known as_______________?
A. Current Ratio
B. Acid-test Ratio
C. Cash Ratio
D. Solvency Ratio
A portion of profits, which a company retains itself for further expansion, is known as:
A. Dividends
B. Retained Earnings
C. Capital Gain
Which of the following is measured by profit margin?
A. Operating efficiency
B. Asset use efficiency
C. Financial policy
D. Dividend policy
Which of the following set of ratios is used to assess a business’s ability to generate earnings
as compared to its expenses and other relevant costs incurred during a specific period of
time?
A. Liquidity Ratios
B. Leverage Ratios
A company having a current ratio of 1 will have __________ net working capital.
A. Positive
B. Negative
C. zero
Which of the following equation is known as Cash Flow (CF) identity?
A. CF from Assets = CF to Creditors – CF to Stockholder
B. CF from Assets = CF to Stockholders – CF to Creditors
C. CF to Stockholders = CF to Creditors + CF from Assets
D. CF from Assets = CF to Creditors + CF to Stockholder
The difference between current assets and current liabilities is known as____________?
A. Surplus Asset
B. Short-term Ratio
C. Working Capital
D. Current Ratio
The principal amount of a bond at issue is called____________?
A. Par value
B. Coupon value
C. Present value of an annuity
D. Present value of a lump sum
Which of the following is the process of planning and managing a firm‟s long-term
investments?
A. Capital Structuring
B. Capital Rationing
C. Capital Budgeting
D. Working Capital Management
A standardized financial statement presenting all items of the statement as a percentage of
total is:
A. a common-size statement
B. an income statemen
C. a cash flow statement
D. a balance sheet
The DuPont Identity tells us that Return on Equity is affected by:
A. The DuPont Identity tells us that Return on Equity is affected by:
B. asset use efficiency (as measured by total assets turnover)
C. financial Leverage (as measured by equity multiplier)
D. all of the given options (a, b and c)
A series of constant cash flows that occur at the end of each period for some fixed number of
periods is ____________ .
A. an ordinary annuity
B. annuity due
C. multiple cash flows
D. perpetuity
Which of the following is the overall return the firm must earn on its existing assets to
maintain the value of the stock?
A. IRR (Internal Rate of Return)
B. MIRR (Modified Internal Rate of Return)
C. WACC (Weighted Average Cost of Capital)
D. AAR (Average Accounting Return)
Which of the following is known as the group of assets such as stocks and bonds held by an
investor ?
A. Stock Bundle
B. Portfolio
C. Capital Structure
D.. None of the given options
Which of the following relationships holds TRUE if a bond sells at a discount?
A. Bond Price < Par Value and YTM > coupon rate
B. Bond Price > Par Value and YTM > coupon rate
C. Bond Price > Par Value and YTM < coupon rate D. Bond Price < Par Value and YTM < coupon
rate
Which of the following strategy belongs to restrictive policy regarding size of investments in
current assets?
A. To maintain a high ratio of current assets to sales
B. To maintain a low ratio of current assets to sales
C. To less short-term debt and more long-term debt
D. To more short-term debt and less long-term debt
Which of the following statement is CORRECT regarding compound interest?
A. It is the most basic form of calculating interest.
B. It earns profit not only on principal but also on interest.
C. It is calculated by multiplying principal by rate multiplied by time.
D. It does not take into account the accumulated interest for calculation.
When real rate is high, all the interest rates tend to be ___________?
A) Higher
B) Lower
C) Constant
D) None of the given options
Profitability index (PI) rule is to take an investment, if the index exceeds___________?
A. -1
B. 0
C. 1
D. 2
Average Accounting Return is a measure of accounting profit relative to:
A. Book value
B. Intrinsic value
C. Cost
D. Market value
Which of the following is the cheapest source of financing available to a firm?
A. Bank loan
B. Commercial papers
C. Trade credit
D. None of the given options.
_______________refers to the extent to which fixed-income securities (debt and preferred
stock) are used in a firm’s capital structure?
A. Financial risk
B. Portfolio risk
C. Operating risk
D. Market risk
The use of Personal borrowing to alter the degree of financial leverage is called__________?
A. Homemade leverage
B. Financial leverage
C. Operating leverage
D. None of the given option
_________ refers to the most valuable alternative that is given up if a particular investment is
undertaken?
A. Sunk cost
B. Opportunity cost
C. Financing cost
A model which makes an assumption about the future growth of dividends is known as:
A. Dividend Price Model
B. Dividend Growth Model
C. Dividend Policy Model
Which of the following is not a quality of IRR ?
A. Most widely used
B. Ideal to rank the mutually exclusive investments
C. Easily communicated and understood
D. Can be estimated even without knowing the discount rate
Which of the following is a series of constant cash flows that occur at the end of each period
for some fixed number of periods?
A. Ordinary annuity
B. Annuity due
C. Perpetuity
During the accounting period, sales revenue is Rs. 25,000 and accounts receivable increases
by Rs. 8,000. What will be the amount of cash received from customers for the period?
A. Rs. 33,000
B. Rs. 25,000
C. Rs. 17,000
D. Rs. 8,000
The conflict of interest between stockholders and management is known as:
A. Agency problem
B. Interest conflict
C. Management conflict
D. Agency cost
Which of the following form of business organization is least regulated?
A. Sole-proprietorship
B. General Partnership
C. Limited Partnership
D. Corporation
Which of the following ratios are intended to address the firm’s financial leverage?
A. Liquidity Ratios
C. Asset Management Ratios
D. Profitability Ratios
Balance Sheet is based upon which of the following formula?
A. Assets = Liabilities – Stockholder’s equity
B. Assets + Liabilities = Stockholder’s equity
C. Assets + Stockholder’s equity = Liabilities
D. Assets = Liabilities + Stockholder’s equity
Quick Ratio is also known as_________?
A. Current Ratio
B. Acid-test Ratio
C. Cash Ratio
Which of the following is a special case of annuity, where the stream of cash flows continues
forever?
A. Ordinary Annuity
B. Special Annuity
C. Annuity Due
D. Perpetuity
You just won a prize, you can either receive Rs. 1000 today or Rs. 1,050 in one year. Which
option do you prefer and why if you can earn 5 percent on your money?
A. Rs. 1,000 because it has the higher future value
B. Rs. 1,000 because you receive it sooner
C. Rs. 1,050 because it is more money
D. Either because both options are of equal value
Which of the following ratios are particularly interesting to shortterm creditors?
A. Liquidity Ratios
In which form of Business, owners have limited liability?
A. sole proprietorship
B. partnership
C. joint stock company
D. none of the above
Which of the following item provides the important function of shielding part of income from
taxes?
A. Inventory
B. Supplies
C. Machinery
D. Depreciation
The process of determining the present value of a payment or a stream of payments that is to
be received in the future is known as:
A. Discounting
B. Compounding
C. Factorization
You need Rs. 10,000 to buy a new television. If you have Rs. 6,000 to invest at 5 percent
compounded annually, how long will you have to wait to buy the television?
A. 8.42 years
B. 10.51 years
C. 15.75 years
D. 18.78 years
In which of the following type of annuity, cash flows occur at the beginning of each period?
A. Ordinary annuity
B. Annuity due
C. Perpetuity
Between the two identical bonds having different maturity periods, the price of the ______
bond will change less than that of ______ bond.
A. long-term; short-term
B. short-term; long-term
C. lower-coupon; higher-coupon
Which of the given area is NOT addressed by Business Finance?
A. Financing
B. Investing
C. Managing day today expenses
A company having a current ratio of 1 will have ________ net working capital.
A. Positive
B. Negative
C. zero
Business Finance addresses which of the following?
A. Capital budgeting
B. Capital structure
C. Working capital management
In which type of business, all owners share in gains and losses and all have unlimited liability
for all business debts?
C. Limited Partnerhsip
D. Corporation
Which of the following is measured by retention ratio?
A. Operating efficiency
B. Asset use efficiency
C. Financial policy
D. Dividend policy
How many years will it take to pay off a Rs. 11,000 loan with a Rs. 1,241.08 annual payment
and a 5% interest rate?
A. 6 years
B. 12 years
C. 24 years
D. 48 years
Which one of the following terms refers to the risk arises for bond owners from fluctuating
interest rates?
A. Fluctuations Risk
B. Interest Rate Risk
C. Real-Time Risk
D. Inflation Risk
Which of the following set of ratios relates the market price of the firm’s common stock to
selected financial statement items?
A. Liquidity Ratios
B. Leverage Ratios
If a firm uses cash to purchase inventory, its quick ratio will?
A. Increase
B. Decrease
C. Remain unaffected
D. Become zero
Standard Corporation sold fully depreciated equipment for Rs.5,000. This transaction will be
reported on the cash flow statement as a(n):
A. Operating activity
B. Investing activity
C. Financing activity
Which of the following ratios are particularly interesting to short term creditors?
A. Liquidity Ratios
Mr. Y and Mr. Z are planning to share their capital to run a business. They are going to
employ which of the following type of business?
B. Partnership
C. Corporation
When the market’s required rate of return for a particular bond is much less than its coupon
rate, the bond is selling at:
A. Premium
B. Discount
C. Par
D. Cannot be determined without more information
Which of the following statement is considered as the accountant’s snapshot of firm’s
accounting value as of a particular date?
A. Income Statement
B. Balance Sheet
C. Cash Flow Statement
D. Retained Earning Statement
The most important item that can be extracted from financial statements is the actual
________ of the firm.
A. Net Working Capital
B. Cash Flow
C. Net Present Value
A firm has paid out Rs. 150,000 as dividends from its net income of Rs. 250,000. What is the
retention ratio for the firm?
A. 12%
B. 25%
C. 40%
D. 60%
Which of the following ratios is NOT from the set of Asset Management Ratios?
A. Inventory Turnover Ratio
B. Receivable Turnover
C. Capital Intensity Ratio
D. Return on Assets
Which of the following statement about bond ratings is TRUE?
A. Bond ratings are typically paid for by a company’s bondholders.
B. Bond ratings are based solely on information acquired from sources other than the bond
issuer.
C. Bond ratings represent an independent assessment of the credit-worthiness of bonds.
If you plan to save Rs. 5,000 with a bank at an interest rate of 8%, what will be the worth of
your amount after 4 years if interest is compounded annually?
A. Rs. 5,400
B. Rs. 5,900
C. Rs. 6,600
D. Rs. 6,802
Which of the following statement is TRUE regarding debt?
A. Debt is an ownership interest in the firm.
B. Unpaid debt can result in bankruptcy or financial failure.
C. Debt provides the voting rights to the bondholders.
D. Corporation’s payment of interest on debt is taxable.
A firm reports total liabilities of Rs. 300,000 and owner’s equity of Rs. 500,000. What would
be the total worth of the firm’s assets?
A. Rs. 300,000
B. Rs. 500,000
C. Rs. 800,000
D. Rs. 1100,000
Which of the following measure reveals how much profit a company generates with the
money shareholders have invested?
A. Profit Margin
B. Return on Assets
C. Return on Equity
D. Debt-Equity Ratio
If you have Rs. 850 and you plan to save it for 4 years with an interest rate of 10%, what will
be the future value of your savings?
A. Rs. 1,000
B. Rs. 1,244
C. Rs. 1,331
D. Rs. 1,464
In case of international business which of the given factor(s) must be considered?
A. Role of foreign exchange
B. Balance of payments
C. Attitude of Governments
Which of the following refers to the difference between the sale price and cost of inventory?
A. Net loss
B. Net worth
C. Markup
D. Markdown
Who of the following make a broader use of accounting information?
A. Accountants
B. Financial Analysts
C. Auditors
D. Marketers
The Yield to Maturity of a bond is the same as_____________?
A. The present value of the bond
B. The bonds internal rate of return
C. The future value of the bond
D. None of these
Choose from the following a symptom which is not relating to “Over Trading”?
A. Cash shortage
B. Low inventory turnover ratio
C. Low current ratio
D. High inventory turnover ratiO
The formula to calculate the present value of a single cash flow is given by:
A. CF1 / (1+r)n
B. C2 / (1+r)
C. C0 + C (1+r)n
D. None of these
The effect of purchasing power or inflation on present value is important because
_________?
A. It increases the real value of cash flows received in the future
B. It reduces the real value of cash flows received in the future
C. It has no effect on real value of cash flow received in the future
D. None of these
An Asset is __________?
A. Sources of funds
B. Use of funds
C. Inflow of funds
D. None of these
If a company revaluates its fixed assets, the current ratio of the company will:
A. Improve if assets are revalued upward
B. Remain unaffected
C. Improve if assets are revalued downwards
D. Undergo change only if liabilities are remaining constant
If we were studying a sample of 100 students and their examination performance and if the
standard deviation of the list of results was say 14, then we could calculated the standard
error by ___________?
A. Dividing the square root of the number of items in the sample by the mean
B. Dividing standard deviation by number of items in the sample
C. Dividing the standard deviation by the square root of the number of items in the sample
D. We cannot calculate standard error on account of inadequacy of information
Rule of 72 as a short cut method is explained by the formula:
A. 72 divided by the annual interest rate
B. Annual interest rate dividend by 72
C. 72 divided by (annual interest rate multiplied by discount factor)
D. None of these
Full Form of BCCI ?
A. Bank of Commerce and Cooperation International
B. Bank of Central Cooperation International
C. Bank of Credit and Commerce International
D. None of These
The Capital Asset Pricing Model calculate expected:
A. Risk
B. Risk and Return
C. Return
D. None of the above
A technique uses in comparative analysis of financial statement is____________?
A. Graphical analysis
B. Preference analysis
C. Common size analysis
D. Returning analysis
Net income available to stockholders is $125 and total assets are $1,096 then return on
common equity would be________?
A. 0.11%
B. 11.40%
C. 0.12 times
D. 12%
Price per share is $30 and an earnings per share is $3.5 then price for earnings ratio would
be_____________?
A. 8.57 times
B. 8.57%
C. 0.11 times
D. 11%
Formula such as net income available for common stockholders divided by total assets is used
to calculate__________________________?
A. Return on total assets
B. Return on total equity
C. Return on debt
D. Return on sales
Price per ratio is divided by cash flow per share ratio which is used for
calculating___________?
A. Dividend to stock ratio
B. Sales to growth ratio
C. Cash flow to price ratio
D. Price to cash flow ratio
A techniques uses to identify financial statements trends are included____________?
A. Common size analysis
B. Percent change analysis
C. Returning ratios analysis
D. Both A and B
Companies that help to set benchmarks are classified as__________?
A. competitive companies
B. Benchmark companies
C. Analytical companies
D. Return companies
Total assets divided common equity is a formula uses for calculating___________?
A. Equity multiplier
B. Graphical multiplier
C. Turnover multiplier
D. Stock multiplier
Price per share divided by earnings per share is formula for calculating_________?
A. Price earnings ratio
B. Earning price ratio
C. Pricing ratio
D. Earning ratio
In independent projects evaluation, results of internal rate of return and net present value
lead to_____________?
A. Cash flow decision
B. Cost decision
C. Same decisions
D. Different decisions
Company low earning power and high interest cost cause financial changes which
have_____________?
A. High return on equity
B. High return on assets
C. Low return on assets
D. Low return on equity
Projects which are mutually exclusive but different on scale of production or time of
completion then the__________________?
A. External return method
B. Net present value of method
C. Net future value method
D. Internal return method
A point where profile of net present value crosses horizontal axis at plotted graph indicates
project____________________?
A. Costs
B. Cash flows
C. Internal rate of return
D. External rate of return
Profit margin multiply assets turnover multiply equity multiplier is used to
calculate____________?
A. Return on turnover
B. Return on stock
C. Return on assets
D. Return on equity
Payback period in which expected cash flows are discounted with help of project cost of
capital is classified as___________________?
A. Discounted payback period
B. Discounted rate of return
C. Discounted cash flows
D. Discounted project cost
Ratios which relate firm’s stock to its book value per share, cash flow and earnings are
classified as_________?
A. Return ratios
B. Market value ratios
C. Marginal ratios
D. Equity ratios
An equation in which total assets are multiplied to profit margin is classified
as_____________?
A. Du DuPont equation
B. Turnover equation
C. Preference equation
D. Common equation
In capital budgeting, term of bond which has great sensitivity to interest rates
is______________?
A. Long-term bonds
B. Short-term bonds
C. Internal term bonds
D. External term bonds
Price earning ratio and price by cash flow ratio are classified as___________?
A. Marginal ratios
B. Equity ratios
C. Return ratios
D. Market value ratios
High price to earning ratio shows company’s_____________?
A. Low dividends paid
B. High risk prospect
C. High growth prospect
D. High marginal rate
Process of comparing company results with other leading firms is considered
as____________?
A. Comparison
B. Analysis
C. Bench marking
D. Return analysis
An equity multiplier is multiplied to return on assets to calculate_________?
A. Return on assets
B. Return on multiplier
C. Return on turnover
D. Return on stock
A project whose cash flows are more than capital invested for rate of return then net present
value will be___________?
A. Positive
B. Independent
C. Negative
D. Zero
In mutually exclusive projects, project which is selected for comparison with others must
have____________?
A. Higher net present value
B. Lower net present value
C. Zero net present value
D. All of above
Profitability index in capital budgeting is used for_________?
A. Negative projects
B. Relative projects
C. Evaluate projects
D. Earned projects
Relationship between Economic Value Added (EVA) and Net Present Value (NPV) is
considered as____________?
A. Valued relationship
B. Economic relationship
C. Direct relationship
D. Inverse relationship
An uncovered cost at start of year is $200, full cash flow during recovery year is $400 and
prior years to full recovery is 3 then payback would be__________?
A. 5 years
B. 3.5 years
C. 4 years
D. 4.5 years
Present value of future cash flows is divided by an initial cost of project to calculate_______?
A. Negative index
B. Exchange index
C. Project index
D. Profitability index
First step in calculation of net present value is to find out_________?
A. Present value of equity
B. Future value of equity
C. Present value cash flow
D. Future value of cash flow
Life that maximizes net present value of an asset is classified as__________?
A. Minimum life
B. Present value life
C. Economic life
D. Transaction life
In capital budgeting, positive net present value results in_________________?
A. Negative economic value added
B. Positive economic value added
C. Zero economic value added
D. Percent economic value added
In estimating value of cash flows, compounded future value is classified as its__________?
A. Terminal value
B. Existed value
C. Quit value
D. Relative value
If two independent projects having hurdle rate, then both projects should________?
A. Be accepted
B. Not be accepted
C. Have capital acceptance
D. Have return rate acceptance
Cash flow which starts negative than positive then again positive cash flow is classified
as__________?
A. Normal costs
B. Non-normal costs
C. Non-normal cash flow
D. Normal cash flow
Cash inflows are revenues of project and are represented by__________?
A. Hurdle number
B. Relative number
C. Negative numbers
D. Positive numbers
Net present value, profitability index, payback and discounted payback are methods
to______________?
A. Evaluate cash flow
B. Evaluate projects
C. Evaluate budgeting
D. Evaluate equity
A type of project whose cash flows would not depend on each other is classified
as______________?
A. Project net gain
B. Independent projects
C. Dependent projects
D. Net value projects
Bonds issued by corporations and exposed to default risk are classified as_________?
A. Corporation bonds
B. Default bonds
C. Risk bonds
D. Zero risk bonds
Falling interest rate leads change to bondholder income which is__________?
A. Reduction in income
B. Increment in income
C. Matured income
D. Frequent income
Bonds that have high liquidity premium are usually have_________?
A. Inflated trading
B. Default free trading
C. Less frequently traded
D. Frequently traded
Treasury bonds are exposed to additional risks that are included________?
A. Reinvestment risk
B. Interest rate risk
C. Investment risk
D. Both A and B
Payment divided by par value is classified as______________?
A. Divisible payment
B. Coupon payment
C. Par payment
D. Per period payment
An annual interest payment divided by current price of bond is considered as_____________?
A. Current yield
B. Maturity yield
C. Return yield
D. Earning yield
Coupon rate of convertible bond is_________?
A. Higher
B. Lower
C. Variable
D. Stable
An outstanding bond are also classified as__________?
A. Standing bonds
B. Outdated bonds
C. Dated bonds
D. Seasoned bonds
A market interest rate for specific type of bond is classified as bond’s_____________?
A. Required rate of return
B. Required option
C. Required rate of redemption
D. Required rate of earning
An inflation rate includes in bond’s interest rates is one which is inflation rate________?
A. At bond issuance
B. Expected in future
C. Expected at time of maturity
D. Expected at deferred call
An average inflation rate which is expected over life of security is classified as__________?
A. Inflation premium
B. Off season premium
C. Nominal premium
D. Required premium
Type of bond which pays interest payment only when it earns is classified as__________?
A. Income bond
B. Interest bond
C. Payment bond
D. Earning bond
Price of an outstanding bond increases when market rate___________?
A. Never changes
B. Increases
C. Decreases
D. Earned
If coupon rate is less than going rate of interest, then bond will be sold________?
A. Seasoned par value
B. More than its par value
C. Seasoned par value
D. At par value
A bond whose price will rise above its face value is classified as________?
A. Premium face value
B. Premium bond
C. Premium stock
D. Premium warrants
Stated value of bonds or face value is considered as_____________?
A. State value
B. Par value
C. Bond value
D. Per value
Real risk-free interest rate in addition with an inflation premium is equal to_____________?
A. Required interest rate
B. Quoted risk-free interest rate
C. Liquidity risk-free interest rate
D. Premium risk-free interest rate
Bonds with deferred call have protection which is classified as__________?
A. Provision protection
B. Provision protection
C. Deferred protection
D. Call protection
When price of bond is calculated below its par value, it is classified as___________?
A. classified bond
B. Discount bond
C. Compound bond
D. Consideration earning
Rate on debt that increases as soon market rises is classified as________?
A. Rising bet rate
B. Floating rate debt
C. Market rate debt
D. Stable debt rate
Bonds that can be converted into shares of common stock are classified as_________?
A. Convertible bonds
B. Stock bonds
C. Shared bonds
D. Common bonds
Reinvestment risk of bond’s is usually higher on______?
A. Income bonds
B. Callable bonds
C. Premium bonds
D. Default free bonds
Market in which bonds are traded over-the-counter than in an organized exchange is
classified as__________?
A. Organized markets
B. Trade markets
C. Counter markets
D. Bond markets
Coupon payment of bond which is fixed at time of issuance____________?
A. Remains same
B. Becomes stable
C. Becomes change
D. Becomes low
Coupon payment is calculated with help of interest rate, then this rate considers as________?
A. Payment interest
B. Par interest
C. Coupon interest
D. Yearly interest rate
An effect of interest rate risk and investment risk on a bond’s yield is classified as_________?
A. Reinvestment premium
B. Investment risk premium
C. Maturity risk premium
D. Defaulter’s premium
Yield of interest rate which is below than coupon rate, this yield is classified as_________?
A. Yield to maturity
B. Yield to call
C. Yield to earning
D. Yield to investors
If market interest rate falls below coupon rate then bond will be sold__________?
A. Below its par value
B. Above its par value
C. Equal to return rate
D. Seasoned price
Rate of return (in percentages) consists of___________?
A. Capital gain yield interest yield
B. Return yield + stable yield
C. Return yield + unstable yield
D. Par value + market value
Type of bonds that are issued by foreign governments or foreign corporations are classified
as__________?
A. Zero risk bonds
B. Zero bonds
C. Foreign bonds
D. Government bonds
If market interest rate rises above coupon rate, then bond will be sold_____________?
A. Equal to return rate
B. Seasoned price
C. Below its par value
D. Above its par value
An interest rate which is used in calculation of cash flows of bonds is called______________?
A. Required rate of redemption
B. Required rate of earning
C. Required rate of return
D. Required option
Type of options that permit bond holder to buy stocks at stated price are classified as______?
A. Provision
B. Guarantee
C. Warrants
D. Convertibles
Bond that has been issued in very recent timing is classified as_______?
A. Mature issue
B. Earning issue
C. New issue
D. Recent issue
Bonds issued by local and state governments with default risk are____________?
A. Municipal bonds
B. Corporation bonds
C. Default bonds
D. Zero bonds
Maturity date decides at time of issuance of bond and legally permissible is classified
as____________?
A. Original maturity
B. Permanent maturity
C. Artificial maturity
D. Valued maturity
Value generally promises to pay at maturity date and a firm borrows is considered as
bond’s__________?
A. Bond value
B. Per value
C. State value
D. Par value
Bonds issued by government and backed by Pak government are classified as_________?
A. Issued security
B. Treasury bonds
C. U.S bonds
D. Return security
An increasing in interest rate leads to decline in value of__________?
A. Junk bonds
B. Outstanding bonds
C. Standing bonds
D. Premium bonds
Coupon rate of bond is also called____________?
A. Nominal rate
B. Premium rate
C. Quoted rate
D. Both a and c
Bonds issued by small companies tend to have_____________?
A. High liquidity premium
B. High inflation premium
C. High default premium
D. High yield premium
Type of bonds that pays no coupon payment but provides little appreciation are classified
as______________?
A. Depreciated bond
B. Interest bond
C. Zero coupon bond
D. Appreciation bond
Reinvestment risk of bonds is higher on__________?
A. Short maturity bonds
B. High maturity bonds
C. High premium bonds
D. High inflated bonds
In large expansion programs, increased riskiness and flotation cost associated with project
can cause_______________?
A. Rise in marginal cost of capital
B. Fall in marginal cost of capital
C. Rise in transaction cost of capital
D. Rise in transaction cost of capital
Cash outflows are costs of project and are represented by___________?
A. Negative numbers
B. Positive numbers
C. Hurdle number
D. Relative number
Sum of discounted cash flows is best defined as____________?
A. Technical equity
B. Defined future value
C. Project net present value
D. Equity net present value
If net present value is positive, then profitability index will be__________?
A. Greater than two
B. Equal to
C. Less than one
D. Greater than one
Cash flows occurring with more than one change in sign of cash flow are classified
as________?
A. Non-normal cash flow
B. Normal cash flow
C. Normal costs
D. Non-normal costs
Situation in which firm limits expenditures on capital is classified as________?
A. Optimal rationing
B. Capital rationing
C. Marginal rationing
D. Transaction rationing
An internal rate of return in capital budgeting can be modified to make it representative
of_________?
A. Relative outflow
B. Relative inflow
C. Relative cost
D. Relative profitability
Other factors held constant, greater project liquidity is because of___________?
A. Less project returns
B. Greater project return
C. Shorter payback period
D. Greater payback period
Project whose cash flows are sufficient to repay capital invested for rate of return then net
present value will be_________?
A. Negative
B. Zero
C. Positive
D. Independent
Process in which managers of company identify projects to add value is classified
as__________?
A. Capital budgeting
B. Cost budgeting
C. Book value budgeting
D. Equity budgeting
Number of years forecasted to recover an original investment is classified as________?
A. Payback period
B. Forecasted period
C. Original period
D. Investment period
In capital budgeting, a negative net present value result in______________?
A. Zero economic value added
B. Percent economic value added
C. Negative economic value added
D. Positive economic value added
Modified rate of return and modified internal rate of return with exceed cost of capital if net
present value is____________?
A. Positive
B. Negative
C. Zero
D. One
Set of projects or set of investments usually maximize firm value is classified as_________?
A. Optimal capital budget
B. Minimum capital budget
C. Maximum capital budget
D. Greater capital budget
In internal rate of returns, discount rate which forces net present values to become zero is
A. Positive rate of return
B. Negative rate of return
C. External rate of return
D. Internal rate of return
High price to earnings ratio shows company’s_________?
A. Low dividends paid
B. High risk prospect
C. High growth prospect
Return on assets = 5.5%, Total assets $3,000 and common equity $1,050 then return on equity
would be_________?
A. $22,275
B. 15.71%
C. 1.93%
D. 1.925 times
Net income available to stockholders is $150 and total assets are $2,100 then return on total
assets would be_________?
A. 0.07%
B. 7.14%
C. 0.05 times
D. 7.15 times
A technique uses in comparative analysis of financial statement is_________?
A. Graphical analysis
B. Preference analysis
C. Common size analysis
D. Returning analysis
Price per share is $30 and an earnings per share is $3.5 then price for earnings ratio would
be___________?
A. 8.57 times
B. 8.57%
C. 0.11 times
D. 11%
Set of rules made by corporation founders such as directors election procedure are classified
as_________?
A. Stock laws
B. By laws
C. Liability laws
D. Corporate laws
Legal entity separation from its legal owners and managers with help of state laws is
classified as____________?
A. Controlled corporate business
B. Corporation
C. Limited corporate business
D. Unlimited corporate business
Notes, mortgages, bonds, stocks, treasury bills and consumer loans are classified
as______________?
A. Financial instruments
B. Capital assets
C. Primary assets
D. Competitive instruments
Set of rules consisting of behavior towards its directors, creditors, shareholders, competitors
and community is considered as____________?
A. Agency governance
B. Hiring governance
C. Corporate governance
D. External governance
Price for debt is called_________?
A. Debt rate
B. Investment return
C. Discount rate
D. Interest rate
In financial markets, period of maturity less than one year of financial instruments is
classified as________________?
A. Short-term
B. Long-term
C. Intermediate term
A markets which deals with long-term corporate stocks are classified as
A. Liquid markets
B. Short-term markets
C. Capital markets
D. Money markets
Bonds issued to individuals by corporations are classified as__________?
A. Municipal bonds
B. Corporate bonds
C. U.S treasury bonds
D. Mortgages
Markets dealing loans of autos, education, vacations and appliances are considered
as__________?
A. Consumer credit loans
B. Commercial markets
C. Residential markets
D. Mortgage markets
Capital gain expected by stockholders and dividends are included in____________?
A. Debt rate
B. Investment return
C. Interest rate
D. Cost of equity
In weighted average cost of capital, rising in interest rate leads to_________________?
A. Increase in cost of debt
B. Increase capital structure
C. Decrease in cost of debt
D. Decrease capital structure
Forecast by analysts, retention growth model and historical growth rates are methods used
for an______________?
A. Estimate future growth
B. Estimate option future value
C. Estimate option present value
D. Estimate growth ratio
An interest rate which is paid by firm as soon as it issues debt is classified as pre-
tax__________?
A. Term structure
B. Market premium
C. Risk premium
D. Cost of debt
In weighted average cost of capital, capital components are funds that usually offer
by____________?
A. Stock market
B. Investors
C. Capitalist
D. Exchange index
Capital budgeting decisions are analyzed with help of weighted average and for this
purpose____________?
A. Component cost is used
B. Common stock value is used
C. Cost of capital is used
D. Asset valuation is used
Risk free rate is subtracted from expected market return is considered as___________?
A. Country risk
B. Diversifiable risk
C. Equity risk premium
D. Market risk premium
Beta which is estimated as regression slope coefficient is classified as___________?
A. Historical beta
B. Market beta
C. Coefficient beta
D. Riskier beta
In weighted average capital, capital structure weights estimation does not rely on value
of__________?
A. Investors equity
B. Market value of equity
C. Book value of equity
D. Stock equity
Method uses for an estimation of cost of equity is classified as___________?
A. Market cash flow
B. Future cash flow method
C. Discounted cash flow method
D. Present cash flow method
Variability for expected returns for projects is classified as___________?
A. Expected risk
B. Stand-alone risk
C. Variable risk
D. Returning risk
A risk associated with project and way considered by well diversified stockholder is classified
as______________?
A. Expected risk
B. Beta risk
C. Industry risk
D. Returning risk
During planning period, a marginal cost for raising a new debt is classified as__________?
A. Debt cost
B. Relevant cost
C. Borrowing cost
D. Embedded cost
If coupon rate is more than going rate of interest, then bond will be sold________?
A. More than its par value
B. Seasoned par value
C. At par value
D. Below its par value
Type of bond in which payments are made on basis of inflation index is classified
as_____________?
A. Borrowed bond
B. Purchasing power bond
C. Surplus bond
D. Deficit bond
Price of an outstanding bond decreases when market rate is_______________?
A. Increased
B. Decreased
C. Earned
D. Never changed
Right held with corporations to call issued bonds for redemption is considered
as___________?
A. Artificial provision
B. Call provision
C. Redeem provision
D. Original provision
Required rate of return in calculating bond’s cash flow is also classified as_______?
A. Going rate of return
B. Yield
C. Earning rate
D. Both A and B
If default probability is zero and bond is not called, then yield to maturity is_____________?
A. Mature expected return rate
B. Lower than expected return rate
C. Higher than expected return rate
D. Equal to expected return rate
Cash flows that could be generated from an owned asset by company but not use in project
are classified as_________________?
A. Occurred cost
B. Mean cost
C. Opportunity costs
D. Weighted cost
Relevant cash flow which company expects when its will implement project is classified
as_____________?
A. Irrelevant cash flow
B. Relevant cash flow
C. Incremental cash flow
D. Decrease cash flow
Nominal interest rates and nominal cash flows are usually reflected the____________?
A. Inflation effects
B. Opportunity effects
C. Equity effects
D. Debt effects
In cash flow estimation, depreciation shelters company’s income from_______?
A. Expansion
B. Salvages
C. Taxation
D. Discounts
Weighted average cost of debt, preferred stock and common equity is classified
as_____________?
A. Cost of salvage
B. Cost of interest
C. Cost of taxation
D. Cost of capital
In cash flow estimation and risk analysis, real rate will be equal to nominal rate if there
is__________?
A. No inflation
B. High inflation
C. No transactions
D. No acceleration
Rate of return which is required to satisfy stockholders and debt holders is classified
as__________?
A. Weighted average cost of interest
B. Weighted average cost of capital
C. Weighted average salvage value
D. Mean cost of capital
In cash flow estimation, depreciation is considered as________________?
A. Cash charge
B. Non cash charge
C. Cash flow discounts
D. Net salvage discount
Net investment in operating capital is subtracted from net operating profit after taxes to
calculate___________?
A. Relevant inflows
B. Free cash flow
C. Relevant outflows
D. Cash outlay
Real interest rate and real cash flows do not include_____________?
A. Equity effects
B. Debt effects
C. Inflation effects
D. Opportunity effects
Real rate expected cash flows and nominal rate expected cash flows must
be______________?
A. AcceleratedB. Equal
C. Different
D. Inflated
Double declining balance method and sum of years digits are included in__________?
A. Yearly method
B. Single methods
C. Double methods
D. Accelerated methods
Interest rates, tax rates and market risk premium are factors which an/a_____________?
A. Industry cannot control
B. Industry cannot control
C. Firm must control
D. Firm cannot control
In retention growth model, payout ratio is subtracted from one to calculate___________?
A. Present value ratio
B. Future value ratio
C. Retention ratio
D. Growth ratio
Rate of required return by debt holders is used for estimation the__________?
A. Cost of debt
B. Cost of equity
C. Cost of internal capital
D. Cost of reserve assets
Current option price is added to present value of portfolio for calculating_________?
A. Future value of portfolio
B. Current value of stock
C. Future value of stock
D. Present value of portfolio
If stock market price is higher than strike price so call option____________?
A. Price will be lower
B. Rate will be higher
C. Price will be higher
D. Rate will be lower
Projects which are mutually exclusive but different on scale of production or time of
completion then the___________?
A. External return method
B. Net present value of method
C. Net future value method
D. Internal return method
Long period of bond maturity leads to_________?
A. More price changes
B. Stable prices
C. Standing prices
D. Mature prices
If coupon rate is equal to going rate of interest, then bond will be sold________?
A. At par value
B. Below its par value
C. More than its par value
D. Seasoned par value
Risk of fall in income due to fall in interest rates in future is classified as__________?
A. Income risk
B. Investment risk
C. Reinvestment risk
D. Mature risk
As free bonds issue for welfare by industrial agencies or pollution control agencies are
A. Agent bonds
B. Development bonds
C. Pollution control bonds
D. Both B and C
Financial security with low degree risk and investment held by businesses is classified
as________________?
A. Treasury bills
B. Commercial paper
C. Negotiable certificate of deposit
D. Money market mutual funds
Document in a corporation which consists of amount of stock, name and addresses of
directors is classified as_____________?
A. Liability plan
B. Stock planning
C. Corporation paperwork
D. Charter
A price for equity is called______________?
A. Interest rate
B. Cost of equity
C. Debt rate
D. Investment return
Hewlett-Packard and Microsoft are examples of__________?
A. Limited corporate business
B. Unlimited corporate business
C. Controlled corporate business
D. Corporation
Type of financial security in which firms do not borrow money rather lease their assets is
classified as____________________?
A. Leases
B. Preferred stocks
C. Common stocks
D. Corporate stocks
Ability to trade at net price very quickly is classified as___________?
A. Original trading
B. Liquidity
C. Offline trading
D. Fixed price trading
Price of stock that companies observe in financial markets is called____________?
A. Market price
B. Intrinsic price
C. Extrinsic price
D. Fundamental price
Collection of money from investors and spending money in other investment activities is
classified as__________________?
A. Future funds
B. Hedge funds
C. Retirement funds
D. Pension funds
In financial markets, period of maturity within one to five years of financial instruments is
classified as_________________?
A. Short-term
B. Long-term
C. Intermediate term
D. Capital term
Bonds which are riskier than corporate bonds and are issued by major corporations are
classified as___________?
A. Common stocks
B. Corporate stocks
C. Leases
D. Preferred stocks
Markets for products such as wheat, rice, cotton, real estate and autos dealing is classified
as___________?
A. Physical asset markets
B. Intangible assets
C. Competitive markets
D. Easy markets
Professionals such as doctors, accountants and lawyers often make corporations are classified
as____________?
A. General professionals
B. Professional corporation
C. Professional association
D. Both B and C
Firm’s promise to pay and is backed or guaranteed by bank is classified as____________?
A. Customer’s acceptance
B. Banker’s acceptance
C. Federal acceptance
D. Treasury acceptance
Markets which deals with high liquid and short-term debt securities are classified
as_____________?
A. Capital markets
B. Money markets
C. Liquid markets
D. Short-term markets
Bonds issue by corporations which are more riskier than preferred stocks are classified
as_____________?
A. Leases
B. Preferred stocks
C. Common stocks
D. Corporate stocks
Financial markets include___________?
A. Primary markets
B. Capital markets
C. Physical asset markets
D. All of above
Loans by finance companies, banks and credit unions is classified as___________?
A. Consumer credit loans
B. Dollar bonds
C. Eurodollar market deposits
D. Euro bonds
Method of matching orders by posting orders of buying and selling is classified
as______________?
A. Electronic communication network
B. Electronic dealer network
C. Electronic stock network
D. Electronic order network
Funds which are used as interest-bearing checking accounts are classified as____________?
A. Money market funds
B. Capital market funds
C. Money mutual funds
D. Insurance money funds
Federal Reserve policy and federal surplus or deficit of budget affect the____________?
A. Cost of production
B. Cost of money
C. Opportunity cost
D. Inflation risk
Transfer through institutions such as mutual funds or banks are classified
as________________?
A. Non-financial intermediary
B. Financial intermediary
C. Savers intermediary
D. Discounted intermediary
Market where market makers keep record of stock of financial instruments is classified
as_________________?
A. Stock market
B. Dealer market
C. Outcry auction system
D. Face to face communication
Money lends to corporations by banks is classified as___________?
A. Eurodollar market deposits
B. Commercial loans
C. Consumer credit loans
D. Consumer credit loans
Future beta is needed to calculate in most situations is classified as____________?
A. Historical betas
B. Adjusted betas
C. Standard betas
D. Varied betas
Beta reflects stock risk for investors which is usually_________?
A. Individual
B. Collective
C. Weighted
D. Linear
Difference between actual return on stock and predicted return is considered
as___________?
A. Probability error
B. Actual error
C. Prediction error
D. Random error
If book value is greater than market value comparison with investors for future stock are
considered as_______________?
A. Pessimistic
B. Optimistic
C. Experienced
D. Inexperienced
An unsystematic risk which can be eliminated but market risk is the__________?
A. Aggregate risk
B. Remaining risk
C. Effective risk
D. Ineffective risk
Stocks which has lower book for market ratio are considered as__________?
A. Optimistic
B. More risky
C. Less risky
D. Pessimistic
An efficient set of portfolios represented through graph is classified as an__________?
A. Attained frontier
B. Efficient frontier
C. Inefficient frontier
D. Unattainable frontier
Stocks which has high book for market ratio are considered as_____________?
A. More risky
B. Less risky
C. Pessimistic
D. Optimistic
If market value is greater than book value, then investors for future stock are considered
as___________________?
A. Experienced
B. Inexperienced
C. Pessimistic
D. Optimistic
In capital market line, risk of efficient portfolio is measured by its____________?
A. Standard deviation
B. Variance
C. Aggregate risk
D. Ineffective risk
A high portfolio return is subtracted from low portfolio return to calculate_________?
A. HML portfolio
B. R portfolio
C. Subtracted portfolio
According to capital asset pricing model assumptions, investors will borrow unlimited amount
of capital at any given___________?
A. Identical and fixed returns
B. Risk free rate of interest
C. Fixed rate of interest
D. Risk free expected return
According to capital asset pricing model assumptions, quantities of all assets
are______________?
A. Given and fixed
B. Not given and fixed
C. Not given and variable
D. Given and variable
According to capital asset pricing model assumptions, variances, expected returns and co-
variance of all assets are__________?
A. Identical
B. Not identical
C. Fixed
D. Variable
Stock issued by company have higher rate of return because of______________?
A. Low market to book ratio
B. High book to market ratio
C. High market to book ratio
D. Low book to market ratio
All assets are perfectly divisible and liquid in___________?
A. Tax free pricing model
B. Cost free pricing model
C. Capital asset pricing model
D. Stock pricing model
Betas tend to move towards 1.0 with passage of time are classified as__________?
A. Standard betas
B. Varied betas
C. Historical betas
D. Adjusted betas
In capital asset pricing model, characteristic line is classified as____________?
A. Regression line
B. Probability line
C. Scattered points
D. Weighted line
A theory which states that assets are traded at price equal to its intrinsic value is classified
as___________________?
A. Efficient money hypothesis
B. Efficient market hypothesis
C. Inefficient market hypothesis
D. Inefficient money hypothesis
Type of relationship exists between an expected return and risk of portfolio is classified
as___________?
A. Non-linear
B. Linear
C. Fixed and aggregate
D. Non-fixed and non-aggregate
In capital asset pricing model, assumptions must be followed including________?
A. No taxes
B. No transaction costs
C. Fixed quantities of assets
D. All of above
Stock issued by company have lower rate of return because of___________?
A. High market to book ratio
B. Low book to market ratio
C. Low market to book ratio
D. High book to market ratio
Positive minimum risk portfolio of any security shows that market security
sold____________?
A. Equal to original price
B. Equal to sum of stocks
C. Less than original price
D. Greater than original price
Risk affects any firm with factors such as war, recessions, inflation and high interest rates is
A. Diversifiable risk
B. Market risk
C. Stock risk
D. Portfolio risk
An analysis of decision making of investors and managers is classified as_________?
A. Riskier finance
B. Behavioral finance
C. Premium finance
D. Buying finance
An inflation free rate of return and inflation premium is two components of_________?
A. Quoted rate
B. Unquoted rate
C. Steeper rate
D. Portfolio rate
Two alternative expected returns are compared with help of__________?
A. Coefficient of variation
B. Coefficient of deviation
C. Coefficient of standard
D. Coefficient of return
Sum of market risk and diversifiable risk are classified as total risk which is equivalent
to_______________?
A. Sharpe’s alpha
B. Standard alpha’s
C. Alpha’s variance
D. Variance
Standard deviation of tighter probability distribution is____________?
A. Long-termed
B. Short-termed
C. Riskier
D. Smaller
Type of risk in which beta is equal to one is classified as____________?
A. Multiple risk stock
B. Varied risk stock
C. Total risk stock
D. Average risk stock
External factors such as expiration of basic patents and industry competition
effect____________?
A. Patents premium
B. Competition premium
C. Company’s beta
D. Expiry premium
Beta coefficient is used to measure market risk which is an index of__________?
A. Coefficient risk volatility
B. Market risk volatility
C. Stock market volatility
D. Portfolio market portfolio
A portfolio consists of all stocks in a market is classified as____________?
A. Market portfolio
B. Return portfolio
C. Correlated portfolio
D. Diversified portfolio
Risk which is caused by events such as strikes, unsuccessful marketing programs and other
lawsuits is classified as____________?
A. Stock risk
B. Portfolio risk
C. Diversifiable risk
D. Market risk
In capital asset pricing model, stock with high standard deviation tend to have________?
A. Low variation
B. Low beta
C. High beta
D. High variation
Standard deviation is divided by expected rate of return is used to calculate_________?
A. Coefficient of variation
B. Coefficient of deviation
C. Coefficient of standard
D. Coefficient of return
A tighter probability distribution shows the___________?
A. Higher risk
B. Lower risk
C. Expected risk
D. Peaked risk
Coefficient of variation is used to identify an effect of__________?
A. Risk
B. Return
C. Deviation
D. Both A and B
Chance of happening any unfavorable event in near future is classified as___________?
A. Chance
B. Event happening
C. Probability
D. Risk
Stock which has higher correlation with market tend to have__________?
A. High beta, less risky
B. Low beta, more risky
C. High beta, more risky
D. Low beta, less risky
Tendency of measuring correlation of two variables is classified as_________?
A. Tendency coefficient
B. Variable coefficient
C. Correlation coefficient
D. Double coefficient
Term structure premium, an inflation of bond and bond default premium are included
in_________________?
A. Risk factors
B. Premium factors
C. Bond buying factors
D. Multi model
Chance of occurrence of any event is classified as_____________?
A. Probability
B. Risk
C. Chance
D. Event happening
Tendency of moving together of two variables is classified as_____________?
A. Correlation
B. Move tendency
C. Variables tendency
D. Double tendency
Relationship between risk and required return is classified as___________?
A. Security market line
B. Required return line
C. Market risk line
D. Riskier return line
Coefficient of beta is used to measure stock volatility_____________?
A. Coefficient of market
B. Relative to market
C. Ir-relative to market
D. Same with market
Mostly in financials, risk of portfolio is smaller than that of asset’s________?
A. Mean
B. Weighted average
C. Mean correlation
D. Negative correlation
Portfolio which consists of perfectly positive correlated assets having no effect
of___________?
A. Negativity
B. Positivity
C. Correlation
D. Diversification
Correct measure of risk of stock is called_____________?
A. Alpha
B. Beta
C. Variance
D. Market relevance
According to market risk premium, an amount of risk premium depends upon
investor______________?
A. Risk taking
B. Risk aversion
C. Market aversion
D. Portfolio aversion
Weighted average of probabilities is classified as____________?
A. Average rate of return
B. Expected rate of return
C. Past rate of return
D. Weighted rate of return
In an individual stock, relevant risk is classified as___________?
A. Alpha coefficient
B. Beta coefficient
C. Stand-alone coefficient
D. Relevant coefficient
Standard deviation is 18% and coefficient of variation is 1.5% an expected rate of return will
be_____________?
A. 27%
B. 12%
C. 19.50%
D. none of above
Proceeds of company shares of sold stock is recorded in___________?
A. Preferred stock account
B. Common stock account
C. Due stock account
D. Preceded stock account
In time value of money, nominal rate is_______________?
A. Not shown on timeline
B. Shown on timeline
C. Multiplied on timeline
D. Divided on timeline
An annual estimated cost of assets uses up every year is included__________?
A. Depreciation and amortization
B. Net sales
C. Net profit
D. Net income
In calculation of net cash flow, depreciation and amortization are treated as________?
A. Current liabilities
B. Income expenses
C. Non-cash revenues
D. Non-cash charges
Stockholders that do not get benefits even if company’s earnings grow are classified
as_____________?
A. Preferred stockholders
B. Common stockholders
C. Hybrid stockholders
D. Debt holders
Number of shares outstanding if it is divided by net income for using to
calculate___________?
A. Earning per share
B. Dividends per share
C. Book value of share
D. Market value of shares
An income available for shareholders after deducting expenses and taxes from revenues is
classified as______________?
A. Net income
B. Net earnings
C. Net expenses
D. Net revenues
Process of calculating future value of money from present value is classified as____________?
A. Compounding
B. Discounting
C. Money value
D. Stock value
In balance sheet, sum of retained earnings and common stock are considered as ________?
A. Preferred equity
B. Due equity
C. Common perpetuity
D. Common equity
Purchase cost of assets over its useful life is classified as_________?
A. Appreciation
B. Depreciation
C. Appreciated assets
D. Appreciated liabilities
Securities with less predictable prices and have longer maturity time is considered as ____?
A. Cash equivalents
B. Long-term investments
C. Inventories
D. Short-term investments
An information uses by investors for expecting future earnings is all recorded in__________?
A. Five years report
B. Annual report
C. Stock report
D. Exchange report
Rate of return that an investment provides its investor is classified as__________?
A. Investment return rate
B. Internal rate of return
C. International rate of return
D. Intrinsic rate of return
In calculation of net cash flow, deferred tax payments are classified as______________?
A. Non-cash revenues
B. Non-cash charges
C. Current liabilities
D. Income expense
Method of inventory recording gives lower cost of goods sold in income statement is
classified as ______________?
A. Last in first out
B. Last out receivable
C. First out receivable
D. First in first out
Non-cash revenues and non-cash charges if it subtracted from net income is equal to _____?
A. Free cash flow
B. Retained cash flow
C. Net cash flow
D. Financing cash flow
Land, buildings, and factory fixed equipment are classified as____________?
A. Tangible asset
B. Non-tangible assets
C. Financial asset
D. Financial liability
An interest rate which is paid by money borrower and charged by lender is considered as __?
A. Annual rate
B. Periodic rate
C. Perpetuity rate of return
D. Annuity rate of return
Intangible assets such as copyrights, trademarks and patents are applicable for ________?
A. Depreciation
B. Amortization
C. Stock amortization
D. Perishable assets
A loan that is repaid on monthly, quarterly and annual basis in equal payments is classified as
A. Amortized loan
B. Depreciated loan
C. Appreciated loan
D. Repaid payments
Nominal rate which is quoted to consumers on loans is considered as__________?
A. Annual percentage rate
B. Annual rate of return
C. Loan rate of return
D. Local rate of return
Financial securities that can be converted into cash at closing to their book value price are
classified as_______________?
A. Inventories
B. Short-term investments
C. Cash equivalents
D. Long-term investments
Prices of bonds will be decreased if an interest rates_________?
A. Rises
B. Declines
C. Equals
D. None of above
If payment of security is paid as $100 at end of year for three years, it is an example of __?
A. Fixed payment investment
B. Lump sum amount
C. Fixed interval investment
D. Annuity
Collection of net income, amortization and depreciation is divided by common shares
outstanding to calculate______________?
A. Cash flow of financing activities
B. Cash flow per share
C. Cash flow of investment
D. Cash flow of operations
In time value of money, periodic rate is_________?
A. Not shown on timeline
B. Shown on timeline
C. Multiplied on timeline
D. Divided on timeline
Payment if it is divided with interest rate will be formula of__________?
A. Future value of perpetuity
B. Present value of perpetuity
C. Due perpetuity
D. Deferred perpetuity
In calculation of time, value of money, “N” represents___________?
A. Number of payment periods
B. Number of investment
C. Number of installments
D. Number of premium received
Procedure of finding present values in time value of money is classified as____________?
A. Compounding
B. Discounting
C. Money value
D. Stock value
A company who issues bonds or stocks in result raised funds which finally_______?
A. Increases liabilities
B. Increases equity
C. Increases cash
D. Decreases cash
A stock which is hybrid and works as a cross between debt and common stock is considered
as_______________?
A. Hybrid stock
B. Common liabilities
C. Debt liabilities
D. Preferred stock
An annuity with an extended life is classified as_____________?
A. Extended life
B. Perpetuity
C. Deferred perpetuity
D. Due perpetuity
Rate which is divided by compounding periods to calculate periodic rate must be _______?
A. Annuity return
B. Deferred annuity return
C. Nominal rate
D. Semiannual discount rate
Future value of interest if it is calculated two times a year can be a classified as ___________?
A. Semiannual discounting
B. Annual discounting
C. Annual compounding
D. Semiannual compounding
In a statement of cash flows, a company investing in short-term financial investments and in
fixed assets results in______________?
A. Increased cash
B. Decreased cash
C. Increased liabilities
D. Increased equity
Total amount of depreciation charged on long term assets is classified as______________?
A. Accumulated depreciation
B. Depleted depreciation
C. Accumulated appreciation
D. Accumulated appreciation schedule
Payment of security if it is made at end of each period such as beginning of year is classified
as______________?
A. Annuity due
B. Payment fixed series
C. Ordinary annuity
D. Deferred annuity
Values recorded as determined in marketplace are considered as_______________?
A. Market values
B. Book values
C. Appreciated values
D. Depreciated values
In situation of bankruptcy, stock which is recorded above common stock and below debt
account is_____________?
A. Debt liabilities
B. Preferred stock
C. Hybrid stock
D. Common liabilities
Accounts payable, accruals and notes payable are listed on balance sheet as________?
A. Accrued liabilities
B. Current liabilities
C. Accumulated liabilities
D. Non-current liabilities
Net income is $2250 and non-cash charges are $1150 then net cash flow would be
_________?
A. $1,100
B. $3,400
C. $2,200
D. $3,500
Stocks in market portfolio are graphically represented with_____________?
A. Dashed line
B. Straight line
C. Market line
D. Risk line
An attitude of investor towards dealing with risk determines the____________?
A. Rate of return
B. Rate of exchange
C. Rate of intrinsic stock
D. Rate of extrinsic stock
Relevant information about stock market price if it is given, then this price is called ______?
A. Market price
B. Intrinsic price
C. Extrinsic price
D. Unstable price
Financial security issued by banks operating outside U.S is classified as ___________?
A. Dollar bonds
B. Euro deposits
C. Eurodollar market deposits
D. Euro bonds
Markets which deal with buying and selling of bonds, mortgages, notes and stocks are
considered as_____________?
A. Financial instruments
B. Financial asset markets
C. Physical asset markets
D. Easy markets
Financial security kept by non-financial corporations is____________________?
A. Deposit cheque
B. Distribution cost
C. Short term treasury bills
D. Short term capital cost
Condition in which company’s imports are more than its exports is classified as ________?
A. Foreign trade
B. Foreign trade deficits
C. Foreign trade surplus
D. Trade surplus
Cost of money is affected by factors which includes______________?
A. Production opportunities
B. Risk
C. All of above
D. Inflation
Process of selling company stock at large to general public and get lending from banks is
classified as an____________?
A. Initial public offering
B. External public offering
C. Internal public offering
D. Unprofessional offering
Partners who are only liable for their own part of investment are considered as ________?
A. Venture partners
B. Corporate partners
C. Limited partners
D. General partners
Markets which bring closer institutions needing funds and with surplus funds are classified
as______________?
A. Financial markets
B. Corporate institutions
C. Hedge firms
D. Retirement planners
Corporations that buy financial instruments with money accepted from savers are classified
as_________________?
A. Debit funds
B. Credit funds
C. Mutual funds
D. Insurance funds
Type of financial securities that matures in less than a year are classified as _________?
A. Money market securities
B. Capital market securities
C. Saving intermediaries
D. Discounted intermediaries
Rate of return which is asked by investors is classified as____________?
A. Average cost of capital
B. Mean cost of capital
C. Weighted cost of capital
D. Weighted average cost of capital
In financial markets, period of maturity more than five years of financial instruments is
classified as___________________?
A. Intermediate term
B. Capital term
C. Short-term
D. Long-term
Type of financial securities that mature in less than a year are classified as___________?
A. Saving intermediaries
B. Discounted intermediaries
C. Money market securities
D. Capital market securities
Type of financial security in which loans are secured by borrowers’ property is classified
as__________?
A. Municipal bonds
B. Corporate bonds
C. U.S treasury bonds
D. Mortgages
Markets dealing with residential loans, industry real estate loans, agricultural loans and
commercial loans are called___________?
A. Residential markets
B. Mortgage markets
C. Agriculture markets
D. Commercial markets
All partners have limited liability in_________________?
A. Unlimited liability partnership
B. Limited liability partnership
C. Controlled partnership
D. Uncontrolled partnership
Financial security which is tax exempted and issues by state governments to individuals is
A. U.S treasury bonds
B. Mortgages
C. Municipal bonds
D. Corporate bonds
Federal government tax revenues if it exceeds government spending then it is classified
as___________?
A. Budget surplus
B. Budget deficit
C. Federal reserve
D. Federal budget
Step in initial public offering in which hired agents act on behalf of owners is classified
as______________?
A. Hiring problems
B. Agency problems
C. Corporation internal problems
D. Corporation external problems
Mutual fund allows investors to sale out their share during any normal trading hours is
A. Exchange traded fund
B. Management expense
C. Money trade fund
D. Capital trade fund
A regulatory body which licenses brokers and oversees traders is classified as__________?
A. International firm of auction system
B. International association of network dealers
C. National firm of equity dealers
D. National association of securities dealers
Corporations such as Citigroup, American Express and Fidelity are classified as ___________?
A. Financial services corporations
B. Common service corporations
C. Preferred service corporations
D. Commercial service corporations
Companies take savings as premium, invest in bonds and make payments to beneficiaries are
classified as_____________?
A. Debit unions
B. Life insurance companies
C. Credit unions
D. Auto purchases
Financial corporations which serve individual savers and commercial mortgage borrowers are
A. Savings associations
B. Loans associations
C. Preferred and common associations
D. Savings and loans associations
Movement of price or rise or fall of prices of options is classified as_________?
A. Option lattice
B. Pricing movement
C. Price change
D. Binomial lattice
According to Black Scholes model, selling and buying of stock have_______?
A. Discount rate
B. Transaction costs
C. No transaction costs
D. No discounts
If current price increases from lower to higher then an____________?
A. Option value equal to one
B. Option value will increase
C. Option value will decrease
D. Option value equal to zero
Greater value of option, larger span of time value is usually results in__________?
A. Shorter call option
B. Longer call option
C. Longer put option
D. Shorter put option
An investor who buys shares and writes a call option on stock is classified as__________?
A. Put investor
B. Call investor
C. Hedger
D. Volatile hedge
An investor who writes stock call options in his own portfolio is classified as__________?
A. Due option
B. Covered option
C. Undue option
D. Uncovered option
In financial planning, most high option price will lead to__________?
A. Longer option period
B. Smaller option period
C. Lesser price
D. Higher price
An increase in value of option leads to low present value of exercise cost only if it has _____?
A. Low volatility
B. Interest rates are high
C. Interest rates are low
D. High volatility
An option that gives investors right to sell a stock at predefined price is classified as _______?
A. Put option
B. Call option
C. Money back options
D. Out of money options
Long-term equity anticipation security is usually classified as__________?
A. Short-term options
B. Long-term options
C. Short money options
D. Yearly call
Low price for earnings ratio is result of________________?
A. Low riskier firms
B. High riskier firms
C. Low dividends paid
Return on assets = 6.7% and equity multiplier = 2.5% then return on equity will be ________?
A. 16.75%
B. 2.68%
C. 0.37%
D. 9.20%
An uncovered cost at start of year is divided by full cash flow during recovery year then added
in prior years to full recovery for calculating__________?
A. Original period
B. Investment period
C. Payback period
D. Forecasted period
In capital budgeting, an internal rate of return of project is classified as its__________?
A. External rate of return
B. Internal rate of return
C. Positive rate of return
D. Negative rate of return
In capital budgeting, number of non-normal cash flows have internal rate of returns are ____?
A. One
B. Multiple
C. Accepted
D. Non-accepted
Bond which is offered below its face value is classified as______________?
A. Present value bond
B. Original issue discount bond
C. Coupon issued bond
D. Discounted bond
Redemption option which protects investors against rise in interest rate is considered as ___?
A. Redeemable at deferred
B. Redeemable at par
C. Redeemable at refund
D. Redeemable at finding
Cash flows that should be considered for decision in hand are classified as____________?
A. Relevant cash flows
B. Irrelevant cash flows
C. Marginal cash flows
D. Transaction cash flows
Project which is started by firm for increasing sales is classified as______________?
A. New expansion project
B. Old expanded project
C. Firm borrowing project
D. Product line selection
Cost which has occurred already and not affected by decisions is classified as ___________?
A. Sunk cost
B. Occurred cost
C. Weighted cost
D. Mean cost
Cost of common stock is 16% and bond yield is 9% then bond risk premium would be ______?
A. 7%
B. 8%
C. 1.78%
D. 25%
Cost of capital is equal to required return rate on equity in case if investors are only ______?
A. Valuation manager
B. Common stockholders
C. Asset seller
D. Equity dealer
A type of beta which incorporates about company such as changes in capital structure is
A. Industry Beta
B. Market Beta
C. Subtracted Beta
D. Fundamental Beta
A formula of after-tax component cost of debt is___________?
A. Interest rate-tax savings
B. Marginal tax-required return
C. Interest rate + tax savings
D. Borrowing cost + embedded cost
According to Black Scholes model, stocks with call option pays the__________?
A. Dividends
B. No dividends
C. Current price
D. Past price
Standard deviation is 18% and expected return is 15.5% then coefficient of variation would
be__________?
A. 0.86%
B. 1.16%
C. 2.50%
D.−2.5%
A systematic way to maintain the books of accounts is called_________?
A. Accountancy
B. Economics
C. Book Keeping
D. Auditing
An Art of reading, classifying & Summarizing of accounts in a systematic way is
called__________?
A. Accounting
B. Accountancy
C. Auditing
D. Book Keeping
The maintenance of accounts in a systematic way is called__________?
A. Accounting
B. Reading
C. Book Keeping
D. Auditing
Goods Return by the customer are termed as :
A. Purchase return
B. Customer return
C. Sales return
D. Inventory return
Modern system of book keeping is called______________?
A. Double entry system
B. American system
C. Single entry system
D. Italic system
The person to whom goods are sold on credit is called___________?
A. Buyer
B. Seller
C. Debtor
D. Creditor
Double entry means______________?
A. Entry in two sets of books
B. Entry at two ends
C. Entry at two dates
D. Entry for two aspects of the transaction
Discount received is a/an:
A. Asset
B. Expense
C. Liability
D. Revenue
Obligation of the Business are known as___________?
A. Liabilities
B. Revenues
C. Expenses
D. Assets
The amount invested by the proprietor to start the business is called:
A. Capital
B. Business
C. Drawings
D. All of them
Cash discount is provided on _______________?
A. Purchases
B. Prompt payment
C. Sales
D. Sales return
Goods return to supplier are known as:__________?
A. Merchandise return
B. Purchase return
C. Return inwards
D. Sales return
The excess of current assets over current liabilities is called:
A. Working Capital
B. Circulating capital
C. Fixed capital
D. Trading capital
When goods, in which business deals are sold, it is called___________?
A. Purchases
B. Return inward
C. Sales
D. Return outwards
Sales return is also known as____________?
A. Return received
B. Return Payed
C. Return inward
D. Return outward
(more…)
Reduction in price is called:
A. Paid price
B. Invoice price
C. Book price
D. Discount
Cash brought by the owner to start business is called__________?
A. Capital
B. Loan
C. Drawing
D. None of these
The concession received on the price of defective goods is called:
A. Discount
B. Cash discount
C. Allowance
D. Trading discount
In support of business transaction, any written evidence is called ___________?
A. Discount
B. Voucher
C. Allowance
D. Price
Building and furniture are called ____________?
A. Current asset
B. Fictitious asset
C. Tangible asset
D. Fixed assets
For the business, capital is ____________?
A. Expense
B. Liability
C. Assets
D. All of them
When owner withdraw cash for its private use, it is called ___________?
A. Profit
B. Income
C. Expense
D. Drawing
Assets having physical existence are called ___________?
A. Current asset
B. intangible asset
C. Tangible asset
D. Liquid asset
The assets which have some market value are called ____________?
A. Fixed asset
B. Quick asset
C. Fictitious assets
D. Real assets
The assets which come into existence upon the happening of a certain event are called ___?
A. Contingent assets
B. Fixed assets
C. Fictitious assets
D. Quick assets
Income earned but not received is called ____________?
A. Fictitious assets
B. Quick asset
C. Real asset
D. Outstanding asset
Debts which are payable in the course of a month are called _____________?
A. External liabilities
B. Fixed liabilities
C. Current liabilities
D. Liquid Liabilities
The unsold goods are ______________?
A. Equity
B. Sale return
C. Inventory
D. Purchases
The systems of accounting are _____________?
A. Two
B. Three
C. Five
D. Six
A sale of Rs. 50.000 to A was entered as a sale to B. This is an example of____________?
A. Error of omission
B. Error of commission
C. Compensating error
D. Error of principle
Goods sent on approval basis’ have been recorded as ‘Credit sales’. This is an example
of____________?
A. Error of principle
C. Error of omission
D. Error of duplication
Institute of Chartered Accountants of Pakistan was established in____________?
A. 1949
B. 1956
C. 1961
D. 1972
Trial balance is prepared to check accuracy of_______________?
A. Ledger accounts balances
B. Balance sheet balances
C. Income statement balances
D. Cash flow statement balances
If a transaction is completely omitted from the books of accounts, will it affect the agreement
of a trial balance?
A. Yes
B. No
C. Transactions can’t be omitted
D. none of these
________ is the common base for preparing a trial balance?
A. Ledger accounts
B. General Journal
C. Specialized journals
D. Balance sheet
Which of the following is true about a trial balance?
A. It lists down the balances of accounts
B. It lists down the balances of a balance sheet
C. It is a kind of financial statement
D. It is not a part of accounting cycle
Debit balance = Credit balance in a trial balance indicates that:
A. No error in recording transactions
B. No error in posting entries to ledger accounts
C. Account balances are correct
D. Mathematically Capital + Liabilities = Assets
Trial balance is commonly prepared?
A. Frequently during the year
B. At the end of an accounting period
C. At the end of a month
D. At the end of a year
Which of the following will affect the agreement of a trial balance?
A. Complete omission of a transaction
B. Partial omission of a transaction
C. Error of principle
D. Compensating errors
If debit balances = credit balances, trial balance only shows or check the ____________ and it
does not indicate that no errors were made during recording and posting.
A. Arithmetic accuracy
B. Errors of commission
C. Omissions of economic events
D. Understatements of balances
Which of the following account with normal balance is shown at the debit side of a trial
balance?
A. Rent income account
B. Creditors account
C. Unearned income account
D. Cash account
Which of the following account with normal balance is shown at the credit side of a trial
balance?
A. Cash account
B. Bank account
C. Equipment account
D. Accrued expenses account
Which of the following specialized journals records “goods returned by customers”?
A. Purchase journal
B. Sales journal
C. Purchases return journal
D. Sales return journal
Sales on credit is recorded in which of the following journal?
A. Purchase journal
B. Sales journal
Transactions that a BUSINESS doesn’t record in any specialised journal are recorded in which
of the following journals or day books?
A. Cash payments journal
B. Cash receipts journal
D. General journal
Another name of journal is_____________?
A. Specialized journal
B. Day book
C. Cash book
D. Record book
Which of the following specialised journals will record “goods returned by the BUSINESS “?
A. Purchase journal
B. Sales journal
Sales and purchase journal don’t record__________?
A. Credit sales
B. Credit purchases
C. Credit sales and purchases
D. Cash sales and purchases
Cash received from debtor is recorded in which of the following SPECIALIZED journals?
A. Purchase journal
B. Sales journal
C. Cash receipts
D. Cash payments journal
Which of the following is a type of cash receipt journal + cash payment journal?
A. Bank statement
B. Statement of cash flow
C. Cash book
D. Cash documents
Cash purchases is recorded in which of the following specialized journals?
A. Purchase journal
B. Sales journal
D. Cash payments journal
A brief explanation recorded below every entry in general journal is commonly known as __?
A. Narration
B. Explanation
C. Summary
D. Other information
Credit purchase of plant and machinery is recorded in which of the following journals?
A. General journal
B. Cash journal
C. Purchase journal
D. Purchase return journal
Debit note is the basis for recording a transaction in which of the following journals?
A. General journal
B. Cash journal
C. Purchase journal
D. Purchase return journal
SALE of old furniture” will be recorded in which of the following specialised journals?
A. Purchase journal
B. Sales journal
C. General journal
D. Cash receipt journal
Credit note is the basis for recording a transaction in which of the following SPECIALIZED
journals?
A. Purchase journal
B. Sales return journal
C. General journal
D. Cash receipt journal
Specialized journals are more adequate for which TYPE OF BUSINESSES?
A. Small businesses
B. Big businesses
C. Sole proprietorship
D. Partnership
Which of the following is known as an evidence that a transaction took place?
A. Cash receipts journal
B. General journal
C. Source document
D. Cash book
BUSINESS paid rent amounting to $100″ which of the following specialized journals records
this transaction?
A. Cash receipts journal
B. Cash payments journal
C. Sales journal
D. Purchase journal
Credit memo or credit note No. is entered in which of the following journal?
A. General journal
B. Cash journal
C. Purchase journal
D. Sales return day book
In accounting an Economic event is referred to as:
A. Cash
B. Bank statement
C. Transaction
D. Exchange of money
Identify the correct sequence of accounting process
A. Communicating→Recording→Identifying
B. Recording→Communicating→Identifying
C. Identifying→communicating→recording
D. Identifying→recording→communicating
Bookkeeping mainly concerns with which part of accounting process?
A. Analyzing
B. Preparing financial statements
C. Recording financial information
D. Auditing the books of accounts
Financial accounting provides financial information to all of the following external users
except:
A. Government agencies
B. investors
C. Creditors
D. Managers
For which step of accounting process the accountants of business entity prepare financial
statements?
A. Identification of economic event
B. Communication of financial information
C. Recording financial information
D. Making decisions about business
Keeping the log of financial information in books of original entries is called__________?
A. Recording
B. summarizing
C. Grouping
D. Processing
Auditing is what?
A. Reporting the financial information
B. Examination of financial statements
C. Preparation financial statements
D. maintaining the ledger records
Which of the following is the external user of financial statements?
A. Manager of the business
B. CEO of the business
C. Creditor of the business
D. Controller of the business
Which of the following is the internal user of financial statements?
A. Creditor of the business
B. Government agency
C. Shareholder of the business
D. Manager of the business
_________ is the first phase of accounting cycle?
A. Identifying an economic event or transaction
B. Preparing journals
C. Posting entries to ledger accounts
D. Making decisions about business
Financial statements differ from management account because
A. They are mainly prepared for external users of financial information
B. They are more complex and hard to prepare
C. The are the summary of accounting data
D. The are prepared on basis of actual concept
________ is a separate legal entity that Total capital can be divided in many shares.
A. Partnership
B. Sole proprietorship
C. Company
D. Non-profit organization
An asset posses which of the following?
A. Future economic benefits for the business
B. All kind of benefits for the business
C. Expenses for the business
D. Merits and Demerits for the business
Liabilities are which of the following?
A. Resources
B. Obligations
C. Future benefits
D. Expenses
________ is the gross inflow of economic benefits?
A. Assets
B. Liabilities
C. Income
D. Expenses
The gross decrease in economic benefits for the business are what?
A. Expenses
B. Obligations
C. Creditors
D. Income or gain
An asset must be _______ by the business to be shown as an asset in its “balance sheet”
A. Possessed
B. Owned
C. Controlled
D. Used
Liability are arisen from which of the following events?
A. Present event
B. Future event
C. Past event
D. None of them
Which of the following can be considered as the most important phase of accounting cycle
and it is the primarily objective of financial accounting?
A. Identifying transactions
B. Preparing “T Accounts”
C. Preparing financial statements
D. Preparing trial balances
Which is the most important characteristic that all assets of a business have?
A. Long life of assets
B. Value of assets
C. Intangible nature of assets
D. Future economic benefits
What is the basic accounting equation?
A. Capital+Liabilities=Assets
B. Assets+ liabilities =Capital
C. Capital+assets=liabilities
D. Liabilities+Capital
Which of the following is a liability?
A. Cash
B. Equipment
C. Debtors
D. Creditors
What is equity?
A. Cash from the business
B. liability of a business
C. Owner’s claim on total assets
D. Owner’s claim on total liabilities
Identify the asset from the following:
A. Cash and cash equivalent
B. Creditors
C. Notes payable
D. Bank loan
The withdrawal of cash and goods by the owner of the busienss for his/her personal use?
A. Depreciation
B. Drawings
C. Outflow of cash
D. Appreciation
Net loss occurs when______________?
A. Expenses are greater than Income
B. Expenses are less than Income
C. Expenses=Income
D. Liabilities are greater than income
Double entry implies that
A. Recording entries in journal
B. Recording entries in Ledger account
C. Recording two aspects of every transaction
D. Recording every transaction in books
Identify the nominal account
A. Machinery account
B. Building account
C. Creditors account
D. Rent expenses account
Which of the following accounts can be classified as a real account?
A. Rent expenses account
B. Rent income account
C. insurance expenses account
D. Cash account
Transferring entries from journal to ledger account is commonly known as____________?
A. Recording
B. Transferring
C. Posting
D. Entry making
An account records the ___________ in the balance of an item?
A. Increase
B. Decrease
C. Increase or decrease
D. Appreciation
If credit side of a bank account is greater than the debit side, it indicates which of the
following?
A. Bank overdraft
B. Cash at bank
C. Bank balance
D. Current Asset
If debit side of a bank account is greater than credit side it indicates which of the following?
A. Cash at bank
B. Bank understatement
C. Bank overdraft
D. Balance overstatement
_________ will be credited if goods are given as charity?
A. Cash
B. Charity
C. Purchases
D. Sales
Which of the following is known as the base for preparing trial balance?
A. Journal
B. Cash account
C. Ledger account
D. Balance sheet
If debit balance is greater than creadit balance then the account blance will be__________?
A. Credit balance
B. Debit and credit balance
C. Cash balance
D. Debit balance
The normal balance of capital account is_____________?
A. Credit balance
B. Debit balance
C. Cash balance
D. Neither debit nor credit balance
The normal balance of asset account is____________?
A. Credit balance
B. Debit balance
C. Cash balance
The normal balance of liability account is____________?
A. Debit balance
B. Credit balance
C. Cash balance
Which of the following statements is incorrect regarding capital account?
A. Debit increases the capital account balance
B. Credit increases the capital account balance
C. Fresh capital increases the capital account balance
D. Net income increases the capital account balance
Which of the following is the normal balance of a rent expense account?
A. Credit balance
B. Cash balance
C. Overdraft
D. Debit balance
Revenue and expense accounts are referred as______________?
A. Nominal accounts
B. Real account
C. Cash accounts
D. Banks account
The real accounts are accounts of Assets, liabilities and ___________?
A. Expenses
B. Revenues
C. Capital
D. Drawing
Building account is classified as _________ account?
A. Nominal
B. Real
C. Cash
D. Capital
Office equipments account is classified as _________ account?
A. Nominal
B. Real
C. Cash
D. Capital
___________ helps business to classify transactions according to their nature?
A. General journal
B. Real accounts
C. Ledger accounts
D. Cash accounts
Which of the following is a real account?
A. Office equipment
B. Rent expenses
C. Rent income
D. Insurance expense
Which of the following accounts are closed at the end of an accounting period?
A. Nominal accounts
B. Balance sheet accounts
C. Real accounts
D. None of them
Which of the following is the closing balance of a ledger account?
A. Balance c/d
B. Balance b/d
C. Balance e/d
D. Balance f/c
The Basic accounting equation is___________?
A. Asset=Expense +Income
B. Assets=Cash+Capital
C. Assets=Capital+Liabilities
D. Assets=Expenses+Capital
Find out the value of assets if: Liabilities=$5000 and Capital=$1000
A. $4000
B. $6000
C. $7000
D. $3000
Calculate the amount of cash if: Total assets=$10,000 Total liabilities=$10,000 Total
Capital=$5000
A. $6000
B. $10,000
C. $5000
D. $1000
Capital increases if _________ increases?
A. Expenses
B. Drawings
C. Interest on capital
D. Revenue
Capital of a business decreases if there is an increase in___________?
A. Drawings
B. Income
C. Gains
D. Fresh capital
If the total liabilities of a business decrease by $5000 what will be the effect on total asset?
(assuming the amount of capital remain same)
A. Remain constant
B. Decrease by $5000
C. Increase by $5000
D. Increase by $10,000
If the business’s owner withdraws cash for his/her personal use what will be the effect on
capital?
A. Increase in capital
B. Remain the same
C. Decrease in capital
D. No effect on capital
Net income equal to Revenues minus____________?
A. Gains
B. Depreciation
C. Expenses
D. Capital expenditures
Collection of account receivable will
A. Increase assets and decrease assets
B. Increase assets and decrease liabilities
C. Increase assets and increase capital
D. Increase assets and increase cash
Payment of expenses will ______ the assets
A. Increase
B. Reduce
C. apportion
D. Overstate
Which of the following is the practical implementation of the accounting equation?
A. Cash flow statement
B. Income statement
C. Statement of changes in equity
D. Statement of financial position
Which of the following accounting equation is correct?
A. Cash+Other assets=Capital-Liabilities
B. Capital+ Liabilities=Assets+Income
C. Assets-Liabilities=Capital
D. Assets+Capital=Liabilities
Fresh capital introduction will increase____________?
A. Assets and liabilities
B. Assets and equity
C. Liabilities and equity and bank balance
D. Capital and liabilities
Cash received for services rendered will______________?
A. Increase cash and liability
B. Increase equity and liability
C. Increase fixed assets and cash
D. Increase cash and equity
Which of following best describes the increase in equity expands___________?
A. Business operations
B. cash outflows
C. Inflows of cash
D. Appropriation expenses
If Cash=$1000 inventories=$4000 Debtors=$5000 fixed assets=? Capital+Liabilities=$15000
What is the Amount of total assets?
A. $5000
B. $10,000
C. $15,000
D. $20,000
Depreciation decreases____________?
A. Liabilities
B. Cash
C. Bank
D. Capital
An increase in provision for bad debt will____________?
A. Decrease net income
B. Decrease liabilities
C. Increase net income
D. Increase liabilities
Current assets – Current liabilities=?
A. Capital
B. Absorbed capital
C. Net assets
D. Net working capital
Assets-Liabilities=____________?
A. Cash
B. Equity
C. Net income
D. Net expenses
The process of recording is done?
A. Two times a year
B. once a year
C. Frequently during the accounting period
D. At the end of a accounting period
General journal is a book of _______ entries?
A. First
B. Original
C. Secondary
D. Generic
The process of recording transactions in different journals is called_________?
A. Posting
B. Entry making
C. Adjusting
D. Journalizing
Every business transaction affects at least ________ accounts?
A. One
B. Two
C. Three
D. Infinite
Discount allowed is a kind of deduction from_____________?
A. Account payable
B. Account receivable
C. Cash account
D. Discount account
The other name of journal is____________?
A. Ledger
B. T account
C. Day book
D. Cash book
A journal entry in which two or more account is debited or credited is referred
as____________?
A. Journal entry
B. Multi entry
C. Additional entry
D. Compound entry
he term 2/10-n/30 implies that ______ % discount will be given if the payment is made within
days or full amount is receivable within 30 days?
A. 2,10
B. 10,2
C. 10,30
D. 3,15
Goods returned by customer should be debited to which of the following accounts?
A. Sales income account
B. Sales account
C. Return inward account
D. Expenses account
Discount allowed is___________?
A. Expense of business
B. Income of business
C. Loss of business
D. Abnormal loss of business
_________ is the evidence that a transaction took place?
A. Source documents
B. Ledger
C. Bonds
D. Journals
Which of the following will be debited if a business purchases goods on credit?
A. Cash
B. Debtor
C. Creditor
D. Purchases
Which of the following accounts will be debited if the business’s owner withdraws cash from
business for his personal use?
A. Drawings
B. Cash
C. Business
D. Stock
Journals are also referred as_____________?
A. Book of entries
B. Book of original entries
C. T account
D. Books of economic event
The standard format of journal does not include which of the following?
A. Assets column
B. Date column
C. Description column
D. Amount column
In which of the following orders data is entered in journal?
A. Alphabetical order
B. Numeric order
C. Bullets order
D. Chronological order
Which of the following accounts will be credited if a company purchases building for cash?
A. Capital account
B. Fixed assets account
C. Building account
D. Cash account
Discount for quick repayment of debt is normally referred as____________?
A. Trade discount
B. Prompt payment discount
C. Cash discount
D. Bulk discount
The first step in accounting process is___________?
A. Recording the transaction
B. Identifying the transaction
C. Posting the transaction
D. Preparing the source documents
A chart of accounts generally start with which of the following types of accounts?
A. Assets accounts
B. liability accounts
C. Cash accounts
D. Revenue accounts
Total depreciation of an asset cannot exceed its:
A. Scrap value
B. Residual value
C. Market value
D. Depreciable value
Amount paid to Masood posted to the credit side of his account would affect___________?
A. Masood’s account
B. Cash account
C. Cash account and Gagan’s account
D. None of these
Which of the following statements is/are true ?
A. A sale of an asset is recorded in the Sales Book
B. Total of Return Outward Book is debited to Return Outward Account
C. The balance of Petty Cash Book is a liability
D. Cash Book is a subsidiary book as well as a ledger
Which of the following is true regarding closing entries?
A. They must be followed by reversing entries
B. They transfer the balances in all of the Nominal Accounts to the Trading and Profit and Loss
Account
C. They must be made after the reversing entries but before the adjusting entries
D. They must be made after the adjusting entries but before the reversing entries
Closing stock is generally valued at______________?
A. Cost Price
B. Market Price
C. Cost price or Market price whichever is higher
D. Cost price or Market price whichever is lower
Which of the following assets is/are to be valued at the lower of cost and net realizable
value?
A. Goodwill
B. Inventories
C. Investments
D. Both B. and C. above.
A few errors committed in Ahhiwalia’s books of account are given below. State which errors
would affect the Trial Balance.
(a). Sales of `950 to Ram completely omitted from books of account
(b). Purchases of `720 from Shyam entered in the purchases journal as `700
(c). Purchases Journal is overcast by `1,000
(d). Sales returns journal is undercast by `200
(e) Amount paid to Agarwal wrongly posted to the debit to Mittal’s account
(f) Bank overdraft shown under debit column in the Trial Balance
(g) Sales of `500 to Sadiq entered in sales journal as sales to Mushtaq
(h) Wages paid for installation of machinery debited to wages account
A. a, c and g
B. c, d and f
C. c, d, e and h
D. c, d, f and h
Which of the following methods is not a practical way of realizing revenue?
A. Delivery method
B. Percentage-of-completion method
C. Production method
D. Moving average method
The amount payable to a person as consideration for the use of rights vested in him is
A. Dividend
B. Royalty
C. Purchase consideration
D. Installment
Buildings account is debited with an amount towards repairs. This is an example of?
A. Error of commission
B. Error of principle
D. Compensating error
The concept of conservatism will have the effect of______________?
A. Overstatement of Assets
B. Understatement of Assets
C. Overstatement of Liabilities
D. Understatement of Liabilities
During the year 2011-2012, the value of closing inventory was overstated by 25,000. Which of
the following is true?
A. The cost of goods sold was overstated during 2011-2012 and income will be understated
during 2012-2013
B. The income was overstated during 2011-12 and closing inventory will be overstated during
2012-2013
C. The retained earnings was overstated during 2011-2012 and retained earnings will be
understated during 2012-2013
D. The cost of goods sold was understated during 2011-2012 but retained earnings will not be
affected during 2012-2013
Which of the following errors is an error of omission?
A. Sale of ` 100 was recorded in the Purchases Journal
B. Wages paid to Mohan have been debited to his account
C. The total of the sales journal has not been posted to the Sales Account
D. Repairs to buildings have been debited to buildings account
Which of the following statements is /are true?
A. Entering wrong amount in the subsidiary book affects the agreement of the Trial Balance
B. Undercasting or overcastting of a subsidiary book is an example or error of commission
C. Errors of principle do not affect the agreement of Trial Balance
D. Both B. and C. above
Which of the following is true?
A. Error of casting affects personal accounts
B. Omission of a transaction from a subsidiary record affects only one account
C. Error of carry forward affects two accounts
D. Error of principle involves an incorrect allocation of expenditure or receipt between capital
and revenue
Journal proper is meant for recording_____________?
A. Credit purchase of fixed assets
B. Return of goods
C. All such transactions for which no special journal has been kept by the business
D. None of these
Closing stock in the Trial Balance implies that______________?
A. It is already adjusted in the opening stock
B. It is adjusted in the Purchase A/c
C. It is adjusted in the Cost of Sale A/c
D. It is adjusted in the Profit &Loss A/c
Which of the following statements is true?
A. If a Trial Balance tallies, it always means that none of the transactions has been completely
omitted
B. A Trial Balance will not tally if a transaction is omitted
C. A customer to whom goods have been sold on credit cannot avail himself of a cash discount
D. A credit balance in the Pass Book indicates excess of deposits over withdrawals
The adjustment to be made for income received in advance is:
A. Add income received in advance to respective income and show it as a liability
B. Deduct income received in advance from respective income and show it as a liability
C. Add income received in advance to respective income and show it as asset
D. Deduct income received in advance from respective income and show it as an asset in the
Balance Sheet
Which of the following statements is correct about Trial Balance?
A. The Trial Balance is prepared after preparing the Profit and Loss Account
B. The Trial Balance shows only balances of Assets and Liabilities
C. The Trial Balance shows only nominal account balances
D. The Trial Balance has no statutory importance from the point of view of law
While finalizing the current year‘s accounts, the company realized that an error was made in
the calculation of closing stock of the previous year. In the previous year, closing stock was
valued more by 50,000. As a result
A. Previous year‘s profit is overstated and current year‘s profit is also overstated.
B. Previous year‘s profit is understated and current year‘s profit is overstated.
C. Previous year‘s profit is overstated and current year‘s profit is understated.
D. There will be no impact on the profit of either the previous year or the current year
Which of the following is not correct about Errors?
A. Errors which affect one account can be errors of posting
B. Errors of omission arise when any transaction is left to be recorded
C. Errors of carry forward from one year to another year affect both Personal and Real A/c
D. Errors of commission arise when any transaction is recorded in a fundamentally incorrect
manner
If goods worth 1,750 returned to a supplier is wrongly entered in sales return book as 1,570,
then
A. Net Profit will decrease by 3,140
B. Gross Profit will increase by 3,320
C. Gross Profit will decrease by 3,500
D. Gross Profit will decrease by 3,320
For the past 3 years, DK Ltd. has failed to accrue unpaid wages earned by workers during the
last week of the year. The amounts omitted, which were considered material, were as
follows:
March 31,2010 – ` 56,000
March 31, 2011 – ` 51,000
March 31, 2012 – ` 64,000
The entry on March 31, 2012 to rectify these omissions would include a
A. Credit to wage expense for ` 64,000
B. Debit to wage expense for ` 64,000
C. Debit to wage expense for ` 51,000
D. Debit to wage expense for ` 13,000
Purchase journal is kept to record_____________?
A. All purchases of goods
B. All credit purchases of goods
C. All credit purchases
D. None of these
The beginnings inventory of the current year is overstated by 5,000 and closing inventory is
overstated by 12,000. These errors will cause the net income for the current year by
A. 17,000 (overstated.
B. 12,000 (understated.
C. 7,000 (overstated.
D. 7,000 (understated.
The accountant of Leo Ltd. recorded a payment by cheque to a creditor for supply of
materials as 1,340.56. The bank recorded the cheque at its correct amount of 3,140.56. The
Company has not passed any rectification entries and the error is not detected through the
bank reconciliation. The impact of this error is
A. The Trial Balance will not agree
B. The balance of creditors is understated
C. The purchases are understated
D. The favorable bank balance as per Pass Book is less than the Bank balance as per Cash
book
Which of the following errors affects the agreement of a Trial Balance?
A. Mistake in balancing an account
B. Omitting to record a transaction entirely in the subsidiary books
C. Recording of a wrong entry in the subsidiary books
D. Posting an entry on the correct side but in the wrong account
Which of the following should not be treated as revenue expenditure?
A. Interest on loans and debentures
B. Annual fire insurance premiums on Plant and Equipment
C. Sales tax paid in connection with the purchase of office equipment
D. Small expenditures on long- lived assets, such as ` 20 for a paper weight.
Capital expenditure is an expenditure which
A. Benefits the current accounting period
B. Will benefit the next accounting period
C. Results in the acquisition of a permanent asset
D. Results in the acquisition of a current asset
Which of the following is not a deferred revenue expenditure?
A. Expenses in connection with issue of equity shares
B. Preoperative expenses
C. Heavy advertising expenses to introduce a new product
D. Legal expenses incurred in defending a suit for breach of contract to supply good
Any donation received for a specific purpose is a_________?
A. Liability
B. Assets
C. Revenue receipts
D. Capital receipts
Which of the following is an item of capital expenditure?
A. Research and development costs during the year
B. Interest on borrowed fund utilized for acquisition of Office Furniture
C. Installation charges paid in conjunction with the purchase of Office Equipment
D. Monthly rent of a machinery used in the business
The balance of which of the following accounts do not disappear, once they are
debited/credited to Trading Account?
A. Sales
B. Purchases
C. Inward returns
D. Closing stock
Which one of the following should be considered a revenue expenditure?
A. 1000 paid for the execution of a new plant
B. Loss of 10,000 incurred in increasing the sitting accommodation of a hotel
C. Damage paid on account of breach of a contract to supply certain goods
D. Repair to machinery purchased, second hand.
Which of the following statements are / is true? – Events after Balance Sheet are?
A. All the significant events after the Balance Sheet date
B. The events after Balance Sheet date but before submitting it to the Registrar of Companies
C. The events after Balance Sheet date but before its approval by the board
D. All changes after Balance Sheet date before its approval
Which one of the following is a capital expenditure?
A. Compensation paid to Directors on termination of their services
B. Expenditure incurred in connection with the renewal of a Trade Mark.
C. Gratuities paid to Directors on termination of their services.
D. Royalty paid in installments for the purchase of rights to manufacture and sell patient
medicines.
Which of the following enhances the earning capacity of an asset?
A. Increase in working capacity of an asset
B. Reduction in operating costs
C. Replacing damaged parts of an asset
D. Both A. and C. above
Which of the following items should not be capitalized relating to fixed assets?
A. Interest payable on loans or deferred credits taken for the acquisition or construction of
fixed assets before they are ready for use
B. Stand by equipment and servicing equipment
C. Expenditure incurred on test runs and experimental production
D. Administration and general expenses
Which of these errors affect only one account?
A. Errors of casting
B. Errors of carry forward
C. Errors of posting
D. All the three
Which of these errors affect two or more accounts
A. Errors of complete omission
B. Errors of principle
C. Errors of posting to wrong account
D. All the three
Which of the following error is an error of principle
A. 5,000 received from Sham credited to Ram A/c
B. 5,000 incurred on installation of new plant debited to travelling expenses A/c
C. 500 paid for wages debited to salary A/c
D. 500 being purchase of raw material debited to purchase A/c ` 50
Which of the following is an one sided error?
A. 500 purchase of old equipment not recorded in the books of A/c at all
B. 500 being expense on travelling expense credited to travelling expenses
C. Both
D. None
Any gain on the sale of non-current assets should be _________ from the net profit and the
loss must be _________to the net profit in determining fund from operation?
A. Added, Reduced
B. Added, Added
C. Deducted, Added
D. Deducted, Deducted
Cash book records?
A. Only cash sales
B. All types of cash receipts and payments
C. Only revenue receipts
D. Only capital receipts
In a three column cash book __________ does not exist?
A. Cash column
B. Bank column
C. Petty cash column
D. Discount column
Which of these transactions will not be recorded in cash book?
A. Cash received from debtors
B. Cash paid to creditors
C. Salary remained outstanding
D. Cash deposited with bank
The closing balance of a petty cash book is a / an___________?
A. Liability
B. Gain
C. Assets
D. Loss
Which column of a cash book will not have credit balance___________?
A. Bank column
B. Discount column
C. Cash column
D. None
Petty cash balance is a/an___________?
A. Assets
B. Expenditure
C. Liability
D. None
Which of these is a Part of cash in hand?
A. Postage stamps
B. B/R
C. Cheque Deposited with Bank
D. B/R endorsed
Which of the following is a Real A/c?
A. Salary A/c
B. Bank A/c
C. Building A/c
D. Goodwill A/c
Which of the following is a representative Personal A/c?
A. Outstanding Salary A/c
B. Rent A/c
C. SBI A/c
D. Bad debts A/c
Which of the following is a Nominal A/c ?
A. Outstanding Salary A/c
B. Rent A/c
C. SBI A/c
D. Debtors A/c
Goodwill A/c is a/an__________?
A. Nominal A/c
B. Tangible Asset
C. Intangible Asset
D. Fictitious Asset
Posting is the process of____________?
A. Posting the letters in drop box
B. Posting suitable person to a suitable job
C. Entering in the ledger the information contained in the ledger
D. All the three
A book wherein various accounts are opened is called____________?
A. Subsidiary books
B. Journal
C. Ledger
D. Trial Balance
Which of these is not a special purpose journal?
A. Cash journal
B. Purchase journal
C. Debtors journal
D. Sales journal
The periodic total of sales day book is posted to___________?
A. Sales A/c
B. Cash sales A/c
C. Sales return A/c
D. Credit sales A/c
The periodic total of purchase day book is posted to____________?
A. Purchase register
B. Purchase A/c
C. Cash purchase A/c
D. Credit purchase A/c
Capital expenses are shown in___________?
A. Balance Sheet
B. Profit and Loss A/c
C. Trading A/c
D. None of these
Revenue receipts are shown in___________?
A. Balance Sheet
B. Profit and Loss appropriation A/c
C. Manufacturing A/c
D. Trading and Profit and Loss A/c
Revenue is generally recognized as being earned at that point of time when?
A. sale is effected
B. cash is received
C. production is completed
D. debts are collected
Which of the following is a revenue expenses?
A. Raw material consumed
B. Plant purchased
C. Long term loan raised from bank
D. Share Capital
Which of the following is a capital expenditure?
A. Repair of plant and machinery
B. Salary paid to workers
C. Cost of stand by equipment
D. Annual whitewash of the office building
Which of these types of expenditure would not be treated as a Capital Expenditure?
A. Acquisition of an Asset
B. Extension of an Asset
C. Improvement of the existing Asset
D. Maintenance of the Asset
Expenses of the following nature are treated as a Revenue expenses except__________?
A. Expenses for day to day running of the business
B. Putting the new asset in working condition
C. Depreciation
D. Purchase of raw material
Cash received from debtors would be deemed as___________of funds.
A. No flow
B. Sources
C. Uses
D. Gain
Generally the term fund is used to mean the difference between?
A. Current assets and current liabilities
B. Profit and loss A/C and Balance sheet
C. Current assets and non-current liabilities
D. Current liabilities and non-current liabilities
Which of these documents is not required for Bank Reconciliation?
A. Bank column of Cash Book
B. Bank Pass Book
C. Bank Statement
D. Trial Balance
Which of these items are taken into consideration for preparation of adjusted Cash Book
A. Mistake in Cash Book
B. Mistake in Pass Book
C. Cheque issued but not presented for payment
D. Cheques deposited but not cleared
Credit balance as per Cash Book mean____________?
A. Surplus cash
B. Bank overdraft
C. Terms deposits with bank
D. None of these
Debit side of Bank Pass book corresponds to___________?
A. Credit side of Cash Book
B. Debit side of Cash Book
C. Debit side of Trial Balance
D. Credit side of Balance Sheet
Difference in Bank Balance as per Pass Book and Cash Book may arise on account
of_____________?
A. Cheque issued but not presented
B. Cheque issued but dishonoured
C. Cheque deposited and credited by bank
D. All of A. and B. above
The Bank Reconciliation Statement is prepared?
A. To rectify the mistakes in the Cash Book
B. To arrive at the Bank Balance
C. To arrive at the Cash Balance
D. To bring out the reasons for the difference between the Balance as per Cash Book and the
Balance as per Bank Statement
Bank reconciliation is a statement prepared to reconcile__________?
A. Trial balance
B. Cash book
C. Bank A/c
D. Cash as per cash book with bank balance as per bank pass book
Bank reconciliation statement is a part of_________?
A. Cash book
B. Trial balance
C. Auditors report
D. None of these
Benefits of preparing Bank Reconciliation Statement includes___________?
A. It bring out any errors committed in preparation of Cash book / Bank Pass Book
B. Highlights under delay in clearance of cheques deposited but not credited
C. Help know actual bank balance
D. All the three
Debit balance as per bank pass book mean_____________?
A. Surplus cash
B. Bank Overdraft
C. Terms deposits with bank
D. None of these
Which of the following is not a cause of difference in balance as per cash book and balance as
per bank pass book___________?
A. Errors in cash book
B. Errors in pass book
C. Cheques deposited and cleared
D. Cheques issued but not presented for payment
Provision is created for____________?
A. Unknown Liabilities
B. Known Liabilities
C. Creation of Secret Reserves
D. All the Three
Which of the following is not a method of charging depreciation?
A. Straight line Method
B. Written down value Method
C. Discounted present value Method
D. Sum of digits Method
A second hand car is purchased for 2,00,000 and sold at 1,40,000 after two years. If
depreciation is charged @ 10% on SLM method, find the profit or loss on sale of the car?
A. 20,000 Loss
B. 20,000 Profit
C. 10,000 Loss
D. 10,000 Profit
A second hand car is purchased for 2,00,000 and sold at 1,40,000 after two years. If
depreciation is charged @ 10% on written down value method, find the profit or loss on sale
of the Second hand car?
A. Loss of 20,000
B. Loss of 22,000
C. Loss of 11,000
D. Profit of 11,000
Which of the following is true with respect to providing depreciation under diminishing
balance method?
A. The amount of depreciation keeps increasing every year while the rate of depreciation keeps
decreasing
B. The amount of depreciation and the rate of depreciation decrease every year
C. The amount of depreciation decreases while the rate of depreciation remains the same
D. The amount of depreciation and the rate of depreciation increases every year
Which of the following statements best describes the purpose of depreciation?
A. Regular reduction of asset value to correspond to changes in market value as the asset ages
B. A process of correlating the market value of an asset with its gradual decline in physical
efficiency
C. Allocation of cost in a manner that will ensure that Plant and Equipment items are not
carried on the Balance Sheet in excess of net realizable value
D. Allocation of the cost of an asset to the periods in which services are received from the
asset
The main objective of providing depreciation is to ?
A. Calculate the true profit
B. Show the true financial position in the Balance Sheet
C. Provide funds for replacement of fixed assets
D. Both A. and B. above
Depreciation is a process of________ ?
A. Valuation
B. Valuation and allocation
C. Allocation
D. Appropriation
The portion of the acquisition cost of the asset yet to be allocated is known as________ ?
A. Written down value
B. Accumulated value
C. Salvage value
D. Residual Value
Which of the following statements is true with regard to written down value method of
depreciation?
i. The rate at which the asset is written off reduces year after year
ii. The amount of depreciation provided reduces from year to year
iii. The rate of depreciation as well as the amount of depreciation reduce year after year
iv. The value of the asset gets reduced to zero over a period of time
A. Only (i) above
B. Only (ii) above
C. Both (i) and (ii) above
D. (i),(ii) and (iii) above
The accounting process of gradually converting the unexpired cost of fixed assets into
expenses over a series of accounting periods is_________?
A. Depreciation
B. Physical deterioration of the asset
C. Decrease in market value of the asset
D. Valuation of an asset at a point of time
Which of the following factors are primarily considered to determine the economic life of an
asset?
A. Passage of time, asset usage, and obsolescence
B. Tax regulations and SEBI guidelines
C. Tax regulations and asset usage
D. SEBI guidelines and Asset usage
In which of the following methods, the cost of the asset is spread over in equal proportion
during its useful economic life?
A. Straight-line method
B. Written down value method
C. Units-of-production method
D. Sum-of-the years‘-digits method
Which of the following statements is correct about Depreciation?
A. Depreciation cannot be provided in case of loss in a financial year
B. Depreciation is a charge against profit
C. Depreciation is provided in the books only when there is profit
D. Depreciation is an appropriation of profit
Depreciation is calculated on the____________?
A. Cost price of asset
B. Market price
C. Cost+ Transport+ Installation expenses
D. Cost or market values whichever is less
Which of the following is an external cause of depreciation?
A. Routine repair and maintenance
B. Misuse
C. Obsolescence
D. Wear and tear
Which of the following is not depreciated?
A. Building
B. Land
C. Plant and Machinery
D. Office equipment
____________is also known as Appraisal system of depreciation?
A. Inventory system
B. Survey system
C. Annuity system
D. Insurance
Bad debts recovered account will be transferred to______________?
A. Debtor‘s Account
B. Profit and Loss Account
C. Provision for Doubtful Debt Account
D. Either (b )or C. above
The entry for creating a Provision for bad debts is_____________?
A. Debit Provision for Bad Debts A/c and credit Debtors A/c
B. Debit Debtors A/c and credit Provision for Bad Debts A/c
C. Debit Provision for Bad Debts A/c and credit Profit & Loss A/c
D. Debit Profit and Loss A/c and credit Provision for Bad Debts A/c.
When a person purchasing goods on credit he becomes a_________in the books of the seller?
A. Debtor
B. Creditor
C. Defaulter
D. Offender
Cost of goods sold excludes___________?
A. Opening Stock
B. Carriage inward
C. Wages & Salary
D. Postage & Stamps
Tax deducted at source A/c appears in___________?
A. Assets side
B. Liability side
C. Profit & Loss A/c
D. Debited to Capital A/c
Investment in own share A/c appears in____________?
A. Asset side
B. Liability side
C. Netted from Capital
D. Profit & Loss A/c
Payments received in advance from a customer for a contract can be__________?
A. Shown as a deduction from contract work-in-progress on asset side
B. Shown as a liability
C. Credited to P&L A/c
D. Either A. or B. above
If a company has contingent liabilities, they appear in the__________?
A. Balance Sheet
B. Directors‘ report
C. Notes on account to Balance Sheet
D. Chairman‘s report
Contingent liabilities are disclosed in the notes to Balance Sheet
Recent developments have made much of a company‘s inventory obsolete. This obsolete
inventory should be?
A. Written down to zero or its scrap value
B. Shown in the Balance Sheet at its replacement cost
C. Shown in the Balance Sheet at cost, but classified as a non-current asset
D. Carried in the accounting records at cost until it is sold
Which of the following is not classified as inventory in the financial statements?
A. Finished goods
B. Work-in-process
C. Stores and spares
D. Advance payments made to suppliers for raw materials
If actual bad debts are more than the provision for bad debts, then there will be a _____?
A. Credit balance of Provision for Bad Debts Account
B. Debit balance of Provision for Bad Debts Account
C. Debit balance of Bad Debts Account
D. Debit balance of Discount on Debtors Account
The creation of provision for doubtful debts given as an adjustment requires________?
A. Debit Profit and Loss Account and deduct the provision from debtors
B. Credit Profit & Loss Account and deduct the provision from debtors
C. Credit Profit and Loss Account and add the provision to debtors
D. Debit Profit & Loss Account and add the provision to debtors
Under the direct write-off method of recognizing a bad debt expense. Which of the following
statements is/are true?
A. The bad debt expense is not matched with the related sales
B. Revenue is overstated in the year of sales
C. It violates the matching principle of accounting
D. All of the above
At the time of preparation of financial accounts, bad debt recovered account will be
transferred to?
A. Debtors A/c
B. Profit & Loss A/c
C. Profit & Loss Adjustment A/c
D. Profit & Loss Appropriation A/c
The balance of Revaluation Reserve pertaining to an asset that has been disposed off or
retired can be transferred to?
A. General Reserve A/c
B. Profit & Loss A/c
C. Asset A/c
D. Capital Reserve A/c
Average Accounting Return is a measure of accounting profit relative to:
A. Book value
B. Intrinsic value
C. Cost
D. Market value
During the accounting period, sales revenue is Rs. 25,000 and accounts receivable increases
by Rs. 8,000. What will be the amount of cash received from customers for the period?
A. Rs. 33,000
B. Rs. 25,000
C. Rs. 17,000
D. Rs. 8,000
Which of the following form of business organization is least regulated?
C. Limited Partnership
D. Corporation
Which of the following statement is considered as the accountant’s snapshot of firm’s
accounting value as of a particular date?
A. Income Statement
B. Balance Sheet
C. Cash Flow Statement
D. Retained Earning Statement
Period cost include which of the following ?
A. selling Expense
B. Direct labor
C. factory overhead
D. selling Expenses & administrative expenses
The compensation paid by the borrower of fund to lender, from the borrower point of the
cost of borrowing fund is called?
A. Interest Rate
B. Required rate of return
C. Nominal interest rate
D. All of the above
An income statement in which each item expressed as percentage of Sale?
A. Balance sheet
B. income statement
C. common size income statement
D. All of the Above
Short term Assets expected to be converted into cash within 1 year or less than?
A. Current Assets
B. Fixed Assets
C. Current Assets& current liabilities
D. All of the above
_________is the cost of converting raw material into finished products?
A. Prime cost
B. Explicit cost
C. Job order cost
D. Conversion cost
Net sales equals, sales minus:
A. Return outwords
B. Return inwards
C. cost of goods sold
D. carriage on sales
LIFO stands for__________?
A. Lots in , Few out
B. Link input, Format Output
C. Last input, First Output
D. Last in, First Out
Property, Plant and Equipment are conventionally presented in the Balance Sheet at ____?
A. Replacement cost – Accumulated Depreciation
B. Historical cost – Salvage Value
C. Historical cost – Depreciation portion thereof
D. Original cost adjusted for general price-level changes
Outstanding salaries is shown as___________?
A. An Asset in the Balance Sheet
B. A Liability
C. By adjusting it in the P & L A/c
Insurance prepaid is shown as:___________?
A. Current Asset
B. Current Liability
C. Fixed Asset
D. Income
Depreciation appearing in the Trial Balance should be?
A. Debited to P&L A/c
B. Shown as liability in Balance Sheet
C. Reduced from related asset in Balance Sheet
A club paid subscription fees of `1,400. Out of which ` 200 is prepaid. In such case
A. P&L A/C is debited with 1,400
B. P&L A/C is debited with 1,200
C. 200 is shown as current asset
Bad debts recovered is:
A. Credited to P&L A/c
B. Debited to P&L A/c
C. Reduced from debtors in Balance Sheet
D. Added to debtors in Balance Sheet
The adjustment to be made for prepaid expenses is____________?
A. Add prepaid expenses to respective expenses and show it as an asset
B. Deduct prepaid expenses from respective expenses and show it as an asset
C. Add prepaid expenses to respective expenses and show it as a liability
D. Deduct prepaid expenses from respective expenses and show it as a liability
On scrutiny of a firm‘s books of accounts, it was observed that the following errors have
occurred in the previous years but have not yet been rectified.
i. Depreciation for 2011-2012- 7,000 understated
ii. Accrued expenses as at March 31, 2013 – 10,000 understated
The impact of this on the reported net income for the year ending March 31, 2013 is
A. 7,000 Overstated
B. 10,000 Overstated
C. 17,000 Understated
D. 17,000 Overstated
Which of the following entries is correct in respect of reserve for discounts on accounts
payable?
A. Debit P&L A/c and Credit Reserve for Discount on Accounts Payable A/c
B. Debit Accounts Payable A/c and Credit P&L A/c
C. Debit Reserve for Discount on Accounts Payable A/c and Credit P&L A/c
D. Debit Reserve for Discount on Accounts Payable A/c and credit Accounts Payable A/c
Sundry debtors as per Trial Balance is 43,000 which includes 2,200 due from ‗H in respect of
goods sent to him on approval basis, the cost price of which is 1,800. Rectification would
involve:
A. Adding 2,200 to closing stock
B. Deducting 1,800 from closing stock and deducting 2,200 each from debtors and sales
C. Adding 1,800 to closing stock and deducting 2,200 each from debtors and sales
D. Deducting 1,800 from debtors
Goods in stock worth 800 are destroyed by fire and the Insurance Co. is accepted the claim
for 600. Adjustment would involve
A. Debit of 800 to Trading Account and credit of 600 and 200 to insurance company and
Profit and Loss Account respectively
B. Deduct the 800 from closing stock in the Trading Account
C. Credit insurance company for 600
D. Debit of 600 and 200 to insurance company and Profit and Loss Account respectively and
credit of 800 to Trading Account
Prepaid expenses are valued on the Balance Sheet at
A. Replacement cost
B. Current cost
C. Cost to acquire less accumulated amortization
D. Cost less expired portion
Which of the following relationships is/are false?
A. Net Profit = Gross Profit – Administration and Other expenses
B. Net Profit = Gross Profit + Administration expenses and Other expenses
C. Opening Stock + Purchases – Closing Stock = Cost of Sales
Gross Profit is equal to_________?
A. Sales – Cost of goods sold
B. Sales – Closing Stock + Purchases
C. Opening Stock + Purchases – Closing Stock
Which of the following shall not be deducted from net profit while calculating managerial
remuneration?
A. Loss on sale of undertaking
B. Debts considered bad and written off
C. Liability arising from a breach of contract
D. Director‘s remuneration
Which of the following equations is correct?
A. Gross Profit+ Sales+ Direct expenses+ Purchases+ Closing stock = Opening stock
B. Gross Profit+ Sales+ Direct expenses+ Purchases- Closing stock = Opening Stock
C. Gross Profit + Opening Stock + Direct expenses + Purchases- Closing stock = Sales
D. Gross Profit – Opening Stock + Direct expenses + Purchases +Closing stock = Sales
Which of the following is not true with regard to preparation of Profit & Loss Account?
A. Profit & Loss Account is prepared for a certain period and hence it is an interim statement
B. Profit & Loss Account does not disclose the effect of non-financial items
C. Net Profits are ascertained on the basis of current costs
D. Net Profits as disclosed by P&L Account is not absolute
The Profit and Loss Account shows the:
A. Financial results of the concern for a period
B. Financial position of the concern on a particular date
C. Financial results of the concern on a particular date
D. Cost of goods sold during the period
Which of the following will not appear in Profit and Loss Account of a business?
A. Drawings
B. Bad debts
C. Accrued expenses
D. Reserve for discount on Sundry Creditors
Which of the following is not a financial statement?
A. Profit and Loss Account
B. Balance Sheet
C. Funds Flow Statement
D. Trial Balance
If unexpired insurance appears in the Trial Balance, it should be:
A. Credited to the Profit & Loss Account
B. Debited to the Profit & Loss Account
C. Shown on the liabilities side of the Balance Sheet
D. Shown on the assets side of the Balance Sheet
Which of the following are/is not a fixed asset?
A. Stock
B. Vehicle
C. Fixed deposit in bank
Which of the following are/is a current asset?
A. Sundry Debtors
B. Stock
C. Prepaid insurance
D. All of A. B. and C. above
Tax deducted at source appears in the Balance Sheet
A. On the assets side under current assets
B. On the assets side under loans and advances
C. On the liabilities side under current liabilities
D. On the liabilities side under provisions
Which of the following statements is false ? select the false from below options
A. Balance Sheet discloses financial position of the business
B. A person who owes to the business is called Debtor
C. Decrease in the value of the asset could decrease the value of a liability
D. Assets are to be shown in the Balance Sheet at the realizable value
The Balance Sheet gives information regarding the____________?
A. Results of operations for a particular period
B. Financial position during a particular period
C. Profit earning capacity for a particular period
D. Financial position as on a particular date
Which of the following accounts appear(s) in the Balance Sheet of a business?
i. Stock at the end of the financial year
ii. Stock at the beginning of the financial year
iii. Drawings
iv. Prepaid Rent
v. Interest received but not yet earned
A. Only (i) above
B. Only (iii) above
C. Both (i)and (iii) above
D. (i), (iii), (iv) and (v) above
Computers taken on hire by a business for a period of twelve months should be classified
as:___________?
A. Current assets
B. Intangible assets
C. Deferred revenue expenditure
D. Not an asset
Which of the following is not an intangible asset?
A. Trade mark
B. Franchise
C. Accounts Receivable
D. Secret Profit
Which of the following is a current liability?
A. Prepaid expenses
B. Trademark
C. Discount on issue of shares
D. Outstanding Salaries
Based on which of the following concepts, is Share Capital Account shown on the liabilities
side of a Balance Sheet?
A. Business entity concept
B. Money measurement concept
C. Going concern concept
D. Matching concept
Which of the following is not a contingent liability?
A. Debts included in Sundry Debtors which are doubtful in nature
B. Uncalled liability on partly paid shares
C. Claims against the company not acknowledged as debts
D. Arrears of fixed cumulative dividend
Which of the following are current assets of a business?
i. Income received in advance
ii. Stock
iii. Debtors
iv. Pre-paid expenses
v. Accrued income
A. Both (i) and (iv) above
B. Both (ii) and (iii) above
C. (i),(ii) and (iii) above
D. (ii),(iii),(iv) and (v) above
Closing entries are generally passed:
A. At the time of opening new books of account
B. At the time of closing the accounts
C. During the course of accounting period any time
D. After certification of accounts
Closing stock appearing in the Trial Balance is shown in:
A. Trading A/c and Balance Sheet
B. Profit and Loss A/c
C. Balance Sheet only
D. Trading A/c only
Depreciation Account appearing in the Trial Balance is shown in:
A. Profit and Loss A/c
B. Trading A/c
C. Deducted from the concerned assets A/c
D. Shown on the liability side
Profit on sale of old plant is:___________?
A. In Trading A/c
B. In Profit and Loss Appropriation A/c
C. Profit and Loss A/c
D. Being a non operating item ignored
Carriage on goods purchased is shown in:___________?
A. Profit and Loss A/c
B. Capitalized with work in progress
C. Trading A/c
D. Shown in Balance Sheet
Which of these is not an operating income?
A. Income from sale of trading goods
B. Bad debts recovered
C. Interest on FDs
D. None
Riaz holds an average inventory of 36,000(CP) with an inventory turnover of 5 times. If the
firm makes a gross profit of 25% on sales, find the total sales of the company.
A. 2,40,000
B. 2,10,000
C. 2,00,000
D. 1,80,000
From the following details what will be the partners commission? Net profit before charging
partners commission 65,000. Partners commission @ 11% after charging such commission.
A. 6441
B. 5431
C. 7654
D. 9876
From the following details what will be the partners commission? Net profit before charging
partners commission 65,000. Partners commission 11% before charging such commission
A. 6441
B. 5431
C. 7150
D. 5876
Arrangement of Balance Sheet in a logical order is known as __________?
A. Dressing Balance Sheet
B. Marshalling Balance Sheet
C. Formatting Balance Sheet
D. Make up of Balance Sheet
Find the cost of goods sold if goods are sold for 2,000 at 25% profit on cost?
A. 1,600
B. 1,500
C. 1,000
D. 1,800
Find the value of opening stock from the following data. Purchases 1,50,000, Closing stock
30,000 Sales 2,20,000, Gross profit 40,000.
A. 50,000
B. 55,000
C. 60,000
D. 65,000
A Bill of Exchange is drawn on 1st April, 2018 payable after 3 months. The due date of the bill
is?
A. 30th June,2018
B. 1st July,2018
C. 4th July,2018
D. 4th August,2018
When bill discounted with the bank is dishonored?
A. Acceptor‘s Account is debited in the books of drawer
B. Bills Receivable Account is credited in the books of drawer
C. Bank Account is debited in the books of drawer
D. Bills Payable Account is debited in the books of drawer
In the books of the drawer, the accounting treatment involved on receipt of a bill of exchange
duly accepted by the drawee is?
i. Debit Bills Receivable Account
ii. Debit Drawee‘s Account
iii. Credit Drawee‘s Account
iv. Credit Sales Account
A. Only (i) above
B. Both (ii) and (iv) above
C. Both (i) and (iii) above
D. Both (i) and (iv) above
The noting charges levied on dishonour of an endorsed bill by the Notary Public are to be
borne by
A. The drawer of the bill
B. The person responsible for dishonour
C. The holder of the bill
D. The endorser of the bill
The drawer of a trade bill passes relevant entries with regard to the transaction involved in it.
But, in case of an accommodation bill, he passes an entry in addition to the usual entries. The
additional entry so passed is with respect to
A. Discounting of the bill with the bank
B. Payment of the bill on due date
C. Remitting or receiving the amount
D. Sending the bill to bank for collection
Under which of the following situations, is journal entry not passed in the books of the
drawer?
A. When a discounted bill is honoured by the drawee on the due date
B. When a bill is sent to the bank for collection
C. When a bill is renewed at the request of the drawee
D. When a debtor accepts a bill drawn by the drawer
Which of the following is not a feature of a promissory note?
A. It must be in writing
B. It contains an unconditional promise to pay
C. It is payable to the bearer
D. It must be signed by the maker
How many parties are generally found in a Bill of Exchange?
A. 4
B. 2
C. 3
D. 5
Negotiable Instrument Act was enacted in_________?
A. 1981
B. 1881
C. 1871
D. 2001
Which of these is not an essential feature of a bill of exchange?
A. Unconditional
B. Certainty of amount
C. In writing
D. Amount to be paid in foreign currency
A foreign bill of exchange is generally drawn up in___________?
A. Triplicate
B. Duplicate
C. Single
D. Quadruplicate
Which of these are not required in a promissory note?
A. Acceptance
B. Unconditional promise to pay
C. Properly stamped
D. Payment to be made legal currency
X draws a Bill of Exchange on Y for 10,000 on 1-1-2013 for 3 months. The due date of the bill
will be_________?
A. 4-4-2013
B. 3-4-2013
C. 1-4-2013
D. 31-3-2013
Accommodation bills are generally for?
A. Genuine trade reasons
B. For mutual financial accommodation
C. To help augment money supply
D. All the three
A cash deposit made by business appears on the bank statement as _______ balance?
A. Debit
B. Credit
C. Expenses
D. Liability
A check returned by bank marked “NSF” means that:
A. Bank can’t verify your identity
B. There are not sufficient funds in your account
C. Check has been forged
D. Check can’t be cashed being illegal
Bank reconciliation statement is prepared by____________?
A. Accountant of the business
B. Manager of the business
C. Controller of the bank
D. Accountant of the bank
Bank charges amounting to $5000 was not entered in the cash book. Identify the correct
adjustment in cash book?
A. Bank charges will be debited in cash book
B. Bank charges will be added to cash book balance
C. Bank charges will be credited in cash book
D. Bank charges need no adjustment in cash book
Favorable balance of cash book implies that
A. Credit balance of cash book
B. Debit balance of cash book
C. Bank overdraft
D. Adjusted balance of cash book
Bank reconciliation statement is the comparison of a bank statement (sent by bank) with the
_________ (prepared by business).
A. Cash receipt journal
B. Cash payment journal
C. Cash book
D. Financial statements
In the Bank reconciliation statement “Deposit in transit” is usually:
A. Subtracted from bank balance
B. Added to bank balance
C. Added to Cash book balance
D. Subtracted from cash book balance
Unpresented checks also referred as____________?
A. Uncollected checks
B. Uncredited checks
C. Outstanding checks
D. Bounced checks
A discount of $2000 was given to a supplier on his prompt repayment of debt but the cashier
entered the gross amount in cash book. What should be the adjustment in cash to work out
the correct balance of cash book?
A. $2000 will be debited in cash book
B. $2000 will be credited in cash book
C. $4000 will be debited in cash book
D. $4000 will be credited in the cash book
Standing orders are ________
A. Credited in the cash book
B. Debited in the cash book
C. Entered in the bank statement
D. Entered in the petty cash balance
Uncollected checks also referred as______________?
A. Unpresented checks
D. Bounced checks
___________ are checks that are issued by the business but not yet presented to bank
A. Uncollected checks
D. Bounced checks
Bank sent debit advice of $500 to company being interest on overdraft. It wasn’t entered in
cash book. Identify the correct adjustment in cash book.
A. $500 will be debited
B. $500 will be credited
C. Non-adjustable
D. $1000 will be subtracted
In bank reconciliation statement the amount of outstanding checks is added to ________
balance of cash book.
A. Adjusted
B. Unadjusted
C. Understated
D. Overstated
Which of the following error results in unadjusted cash book balance?
A. Outstanding checks
B. Unpresented checks
C. Deposit in transit
D. Omission of Bank charges
_________ Checks that are presented to bank but not yet credited by the bank.
A. Unpresented checks
D. Bounced checks
Favorable balance of bank statement implies that
A. Credit balance
B. Debit balance
C. Bank overdraft
D. Adjusted balance
Balance as per cash book(adjusted.=$1000, Unpresented checks=$2000, Uncredited
checks=$500, Deposit in transit=$500. Compute the balance as per bank statement.
A. $2000
B. Zero
C. $3000
D. $2500
A company was entered in hire purchase agreement and had to pay $1000 per month. Three
payments were made via bank account but no entry was found in cash book. Identify the
correct adjustment in cash book
A. $1000 will be added to cash book balance
B. $2000 will be deducted from cash book balance
C. $3000 will be added to cash book balance
D. $3000 will be subtracted from cash book balance
$5000 deposited in bank account was entered twice in the cash book. Identify the correct
adjustment in cash book.
A. $5000 will be credited
B. $5000 will be debited
C. $10,000 will be credited
D. $10,000 will be debited
An entry which is made on both sides of a cash book is called__________?
A. Cash entry
B. Contra entry
C. Payment entry
D. Compound entry
Cash book records:______________?
A. Cash payments
B. Cash receipts
C. Cash payments and cash receipts
D. Neither cash payments nor cash receipts
Cash book is prepared by____________?
A. Bank
B. Accountant of business
C. Manager of a company
D. Bank’s cashier
Discount received is recorded on which of the following side of a cash book?
A. Receipts
B. Payments
C. Incomes
D. Expenditures
The closing balance of petty cash book is considered as_________?
A. Liability
B. Asset
C. Expenses
D. Income
A credit balance in cash book indicates?
A. Bank balance
B. Cash at bank
C. Bank overdraft
D. Bank underdraft
Petty cash fund is supposed to be replenished.
A. Every day
B. Every half year
C. Every year
D. At the end of every accounting period
Postdated checks are considered as__________?
A. Cash
B. Bank balance
C. Accounts receivable
D. Cash reserve
Which of the following is generally not the party to a check?
A. Payee
B. Payer
C. Bank
D. Seller
Cash book with cash and discount column is mostly referred as________?
A. Simple cash book
B. Two column cash book
C. Three column cash book
D. Petty cash book
A simple or one column cash book usually has which of the following main columns?
A. Bank
B. Payments
C. Discount
D. Cash
Purchase of office equipment for cash will be recorded on which of the following sides of a
cash book?
A. Receipts
B. Payments
C. Incomes
D. Expenditures
Postage stamps on hand are considered as_________?
A. Bank
B. Prepaid expenses
C. Accounts receivable
D. Creditor
A cash book that is used to record the small payments of cash is generally referred
as_________?
A. Simple cash book
B. Two column cash book
C. Three column cash book
D. Petty cash book
Drawings by owner of business are generally recorded on which of the following side of a
cash book?
A. Receipts
B. Payments
C. Incomes
D. Expenditures
Payment of rent expenses is recorded on which side of cash book?
A. Receipts
B. Payments
C. Income
D. Expense
Cash discount is allowed on _______ repayment of debt.
A. Lump sum
B. Prompt
C. Actual
D. None of them
Introduction capital by owner of business is recorded on which side of a cash book?
A. Receipts
B. Payments
C. Incomes
D. Expenditures
A cash book with cash, bank and discount column is commonly referred as________?
A. Cash book
B. Two columns cash book
C. Three columns cash book
D. Petty cash book
The most common imprest system is the ________ system?
A. Petty cash
B. Cash book
C. Cash receipt
D. Discount
Which English alphabet is similar to the shape of an account?
A. I
B. T
C. H
D. None
When production is equal to sales, which of the following is TRUE?
A. No change occurs to inventories for either use absorption costing or variable costing
methods
B. The use of absorption costing produces a higher net income than the use of variable costing
C. The use of absorption costing produces a lower net income than the use of variable costing
D. The use of absorption costing causes inventory value to increase more than they would
though the use of variable costing
An average cost is also known as________?
A. Variable cost
B. Unit cost
C. Total cost
D. Fixed cost
Costs that change in response to alternative courses of action are called___________?
A. Relevant costs
B. Differential costs
C. Target costs
D. Sunk costs
The total cost incurred in the operation of a business undertaking other than the cost of
manufacturing and production is known as________?
A. Direct cost
B. Variable cost
C. Commercial cost
D. Conversion cost
Consider the following data for a company during the month of June 2012 Budgeted hours
4,000 Standard hours for actual production 4,400 Maximum possible hours in the budget
period 4,800 Actual hours 3,800 The activity ratio of the company during the month is
A. 111%
B. 120%
C. 95%
D. 117%
Which of the following bases is not appropriate for apportionment of Transport department‘s
cost ?
A. Crane hours
B. Crane value
C. Truck Mileage
D. Truck value
The cost of obsolete inventory acquired several years ago, to be considered in a keep vs.
disposal decision is an example of :
A. Uncontrollable cost
B. Sunk cost
C. Avoidable cost
D. Opportunity cost
Budgeted sales for the next year is 5,00,000 units. Desired ending finished goods inventory is
1,50,000 units and equivalent units in ending W-I-P inventory is 60,000 units. The opening
finished goods inventory for the next year is 80,000 units, with 50,000 equivalent units in
beginning W-I-P inventory How many equivalent units should be produced?
A. 5,80,000
B. 5,50,000
C. 5,00,000
D. 5,75,000
If the asset turnover and profit margin of a company are 1.85 and 0.35 respectively, the
return on investment is.
A. 0.65
B. 0.35
C. 1.50
D. 5.29
A company is currently operating at 80% capacity level. The production under normal
capacity level is 1,50,000 units. The variable cost per unit is ` 14 and the total fixed costs are `
8,00,000. If the company wants to earn a profit of ` 4,00,000, then the price of the product
per unit should be
A. 37.50
B. 38.25
C. 24.00
D. 35.00
Consider the following data pertaining to the production of a company for a particular month
Opening stock of raw material 11,570
Closing stock of raw material 10,380
Purchase of raw material during the month 1,28,450
Total manufacturing cost charged to product 3,39,165
Factory overheads are applied at the rate of 45% of direct labour cost.
The amount of factory overheads applied to production is
A. 65,025
B. 94,287
C. 95,020
D. 1,52,624
If the minimum stock level and average stock level of raw material are 4,000 and 9,000 units
respectively, find out its reorder quantity.
A. 8,000 units
B. 11,000 units
C. 10,000 units
D. 9,000 units
A worker has a time rate of 15/hr. He makes 720 units of component (standard time : 5
minutes/ unit) in a week of 48 hours. His total wages including Rowan bonus for the week is
A. 792
B. 820
C. 840
D. 864
One of the most important tools in cost planning is__________?
A. Direct cost
B. Cost Sheet
C. Budget
D. Marginal Costing.
A Ltd. Has sales of 2,200, total fixed cost of 570, variable cost of 1,540, raw material
consumed of ` 1,100, number of units sold 22,000. What shall be the BEP 9 in units) if raw
material price is reduced by 2%?
A. 18,387
B. 18,560
C. 18,750
D. 19,000
____________ is a systematic examination of the books and records or a business?
A. Auditing
B. Vouching
C. Verification
D. Checking
The term ‘Audit’ is derived from a Latin word “audire” which means___________?
A. To inspect
B. To examine
C. To hear
D. To investigate
The main object of an audit is _____________?
A. Expression of opinion
B. Detection and Prevention of fraud and error
C. Both (A) and (B)
D. Depends on the type of audit.
An auditor is like a_______________?
A. Blood haunt
B. Watch dog
C. May both according to situation
D. None of these
Process of verifying the documentary evidences of transactions are known as___________?
A. Auditing
B. Testing
C. Vouching
D. Verification
Auditing is compulsory for____________?
A. Small scale business
B. Partnership firms
C. Joint stock Companies
D. Proprietary Concerns
Concealment of shortage by delaying the recording of cash receipts is known
as_____________?
A. Embezzlement
B. Misappropriation
C. Lapping
D. None of these
The fundamental objective of the audit of a company is to_____________?
A. Protect the interests of the minority shareholders
B. Detect and prevent errors and fraud
C. Assess the effectiveness of the company’s performance
D. Attest to the credibility of the company’s accounts
The concept of stewardship means that a company’s directors________________?
A. Are responsible for ensuring that the company complies with the law
B. Are responsible for ensuring that the company pays its tax by the due date
C. Safeguard the company’s assets and manage them on behalf of the shareholders
D. Report suspected fraud and money laundering to the authorities
Why do auditors concentrate their efforts on material items in accounts?
A. Because they are easier to audit
B. Because it reduces the audit time
C. Because the risk to the accounts of their being incorrectly stated is greater
D. Because the directors have asked for it
Which of the following is NOT the responsibility of a company’s directors?
A. Reporting to the shareholders on the accuracy of the accounts
B. Establishment of internal controls
C. Keeping proper accounting records
D. Supplying information and explanations to the auditor
International auditing standards are issued by the______________?
A. International Accounting Standards Board
B. Financial Accounting Standards Board
C. International Standards Board
D. Auditing Practices Board
Which of the following is not true about opinion on financial statements?
A. The auditor should express an opinion on financial statements.
B. His opinion is no guarantee to future viability of business
C. He is responsible for detection and prevention of frauds and errors in financial statements
D. He should examine whether recognized accounting principle have been consistently
A sale of Rs. 50.000 to A was entered as a sale to B. This is an example of____________?
A. Error of omission
C. Compensating error
D. Error of principle
When an auditor is proposed for removal from office, which one of the following is he NOT
permitted to do?
A. Circulate representations to members
B. Apply to the court to have the proposal removed
C. Speak at the AGM/EGM where the removal is proposed
D. Receive notification of the AGM/EGM where the removal is proposed
Which one of the following is NOT a duty of the auditor?
A. Duty to report to the company’s bankers
B. Duty to report to the members
C. Duty to sign the audit report
D. Duty to report on any violation of law
Assuming that it is not the first appointment of the auditor, who is responsible for the
appointment of the auditor?
A. The shareholders in a general meeting
B. The managing director
C. The board of directors in a board meeting
D. The audit committee
The independent auditor’s primary responsibility is to______________?
A. the directors
B. the company’s creditors (payables)
C. the company’s bank
D. the shareholders
How long is the auditor’s term of office?
A. Until the audit is complete
B. Until the financial statements are complete
C. Until the next AGM (Annual General Meeting)
D. Until the directors remove them
Which of the following is correct in relation to materiality?
A. A matter is material only if it changes the audit report
B. A matter is material if the auditor and the directors both decide that further work needs to
be done in the area under question
C. A matter is material only if it affects directors’ emoluments
D. A matter is material if its omission or misstatement would reasonably influence the
decisions of an addressee of the auditors’ report
Which one of the following is NOT considered to be part of planning?
A. Background i.e. industry
B. Previous year’s audit i.e. any qualifications in the report
C. Considering the work to be done by the client staff e.g. internal audit
D. Considering whether the financial statements show a true and fair view
Audit risk is composed of 3 factors. Which of the following is NOT one of those factors?
A. Compliance risk
B. Detection risk
C. Control risk
D. Inherent risk
Which of the following should NOT be considered at the planning stage?
A. The timing of the audit
B. Analytical review
C. Last year’s written representation letter
D. Obtaining written representations
At the planning stage you would NOT consider____________?
A. the timing of the audit
B. whether corrections from the inventory count have been implemented
C. last year’s audit
D. the potential use of internal audit
Which of the following describes sampling risk?
A. The risk of the auditor carrying out a test the wrong way round
B. The risk of reliance on unsuitable audit evidence
C. The risk that the sample does not reflect the population
D. The risk of the auditor reaching the wrong conclusions from testing
Which of the following is NOT an accepted method of selection in sampling?
A. Systematic selection
B. Pervasive selection
C. Random selection
D. Haphazard selection
Which of the following are you unlikely to see in the current file of auditors’ working papers?
A. Memorandum & articles of association
B. Audit planning memorandum
C. Summary of unadjusted errors
D. Details of the work done on the inventory count
According to ISA 500, the strength of audit evidence is determined by which two qualities?
A. Appropriateness & competence
B. Sufficiency & appropriateness
C. Reliability & extensiveness
D. Objectivity & independence
Which of the following is normally the most reliable source of audit evidence?
A. Internal audit
B. Suppliers’ statements
C. Board minutes
D. Analytical review
The degree of effectiveness of an internal control system depends on:
A. The design of the internal control system and the implementation of the controls
B. The design of the internal controls and the implementation of the control system
C. The implementation of the controls and the correctness of the accounting records
D. The design of the internal control system and the correctness of the accounting records
According to ISA 315, which of the following is NOT an element of the control environment?
A. Participation of management
B. Information processing
C. Commitment to competence
D. Human resource policies and practices
According to ISA 315, which of the following is NOT a control activity?
A. Performance reviews
B. Physical controls
C. Organizational structure
D. Segregation of duties
Lapping is also known as___________?
A. Teeming and lading
B. Looping
C. Embezzlement
D. Hacking
Goods sent on approval basis’ have been recorded as ‘Credit sales’. This is an example
of____________?
A. Error of principle
D. Error of duplication
Which of the following statements is not true?
A. Management fraud is more difficult to detect than employee fraud
B. Internal control system reduces the possibility of occurrence of employee fraud and
management fraud
C. The auditor’s responsibility for detection and prevention of errors and frauds is similar.
D. All statements are correct.
Internal audit is undertaken:
A. By independent auditor
B. Statutorily appointed auditor
C. By a person appointed by the management
D. By a government auditor
The scope of internal audit is decided by the___________?
A. Shareholders
B. Management
C. Government
D. Law
Audit of banks is an example of_____________?
A. Statutory audit
B. Balance sheet audit
C. Concurrent audit
D. All of the above
Concurrent audit is a part of____________?
A. Internal check system
B. Continuous audit
C. Internal audit system
D. None of these
Audit in depth is synonymous for____________?
A. Complete audit
B. Completed audit
C. Final audit
D. Detailed audit
Institute of Chartered Accountants of Pakistan was established in____________?
A. 1949
B. 1956
C. 1961
D. 1972
Which of the following statements is not true about continuous audit?
A. It is conducted at regular interval
B. It may be carried out on daily basis
C. It is needed when the organization has a good internal control system
D. It is expensive
Internal check is carried on by___________?
A. Staff specially appointed for the purpose
B. Internal auditor
C. Supervisor of the staff
D. Members of the staff
Errors of Omission are_____________?
A. Technical errors
B. Errors of principle
C. Compensating errors
Window dressing implies_______________?
A. Curtailment of expenses
B. Checking of Wastages
C. Under valuation of assets
D. Over Valuation of assets
Test Checking refers to___________?
A. Testing of accounts and records
B. Checking of selected number of transactions
C. Examination of adjusting and closing entries
D. Checking of all transactions recorded
Which of the following statements is not correct about materiality?
A. Materiality is a relative concept
B. Materiality judgments involve both quantitative and qualitative judgments
C. Auditor’s consideration of materiality is influenced by the auditor’s perception of the needs
of an informed decision maker who will rely on the financial statements
D. At the planning state, the auditor considers materiality at the financial statement level
only
______the audit risks _______ the materiality and _________ the audit effort.
A. Lower, Higher, Lower
B. Lower, Lower, Higher
C. Higher, Lower, Lower
D. Lower, Higher, Higher
When issuing unqualified opinion, the auditor who evaluates the audit findings should be
satisfied that the___________?
A. Amount of known misstatement is documented in working papers
B. Estimates of the total likely misstatement is less than materiality level
C. Estimate of the total likely misstatement is more than materially level
D. Estimates of the total likely misstatement cannot be made
In determining the level of materiality for an audit, what should not be considered?
A. Prior year’s errors
B. The auditor’s remuneration
C. Adjusted interim financial statements
D. Prior year’s financial statements
Analytical procedures issued in the planning stage of an audit, generally
A. Helps to determine the nature, timing and extent of other audit procedures
B. Directs attention to potential risk areas
C. Indicates important aspects of business
D. All of the above
Which of the following statements is most closely associated with analytical procedure
applied at substantive stage?
A. It helps to study relationship among balance sheet accounts
B. It helps to discover material misstatements in the financial statements
C. It helps to identify possible oversights
D. It helps to accumulate evidence supporting the validity of a specific account balance
Verification refers to_________?
A. Examining the physical existence and valuation of assets.
B. Examining the journal and ledger
C. Examination of vouchers related to assets.
D. None of the above.
Stock should be valued at_________?
A. Cost
B. Market price
C. Cost or Market price whichever is lower.
D. Cost less depreciation.
Floating assets are valued at____________?
A. cost
B. Market price
C. Cost or market price whichever is lower
D. Cost less depreciation
Goods sold on the basis of ‘sales or return ‘ should:
A. Be included in the stock
B. Not be included in the stock
C. Not be checked by auditor
Of the following, which is the least persuasive type of audit evidence?
A. Bank statements obtained from the client
B. Documents obtained by auditor from third parties directly.
C. Carbon copies of sales invoices inspected by the auditor
D. Computations made by the auditor
Which of the following statements is, generally, correct about the reliability of audit
evidence?
A. To be reliable, evidence should conclusive rather than persuasive
B. Effective internal control system provides reliable audit evidence
C. Evidence obtained from outside sources routed through the client
D. All are correct.
In an audit of financial statements, substantive tests are audit procedures that __________?
A. May be eliminated for an account balance under certain conditions
B. Are designed to discover significant subsequent events
C. Will increase proportionately when the auditor decreases the assessed level of control risk
D. May be test of transactions, test of balance and analytical procedures
The nature, timing and extent of substantive procedures is related to assessed level of control
risk
A. Randomly
B. Disproportionately
C. Directly
D. Inversely
Which of the following factors is most important in determining the appropriations of audit
evidence?
A. The reliability of audit evidence and its relevance in meeting the audit objective
B. The objectivity and integrity of the auditor
C. The quantity of audit evidence
D. The independence of the source of evidence
When is evidential matter, generally, considered sufficient?
A. When it constitutes entire population
B. When it is enough to provide a basis for giving reasonable assurance regarding truthfulness
C. When it is objective and relevant
D. When auditor collects and evaluates it independently
Which of the following is not corroborative evidence?
A. Minutes of meetings
B. Confirmations from debtors
C. Information gathered by auditor through observation
D. Worksheet supporting consolidated financial statements
What would most appropriately describe the risk of incorrect rejection in terms of
substantive testing?
A. The auditor concludes balance is materially correct when in actual fact it is not
B. The auditor concludes that the balance is materially misstated when in actual fact it not
C. The auditor has rejected an item for sample which was material
Which of the following affects audit effectiveness?
A. Risk of over reliance
B. Risk of incorrect rejection
C. Risk of incorrect acceptance
D. Both A and C
What would most effectively describe the risk of incorrect acceptance in terms of substantive
audit testing?
A. The auditor has ascertained that the balance is materially correct when in actual fact it is
not
B. The auditor concludes the balance is materially misstated when in actual fact is not
C. The auditor has rejected an item from sample which was not supported by documentary
evidence
D. He applies random sampling on data which is inaccurate and inconsistent
Audit programme is prepared by____________?
A. The auditor
B. The client
C. The audit assistants
D. The auditor and his audit assistants
The working papers which auditor prepares for financial statements audit are___________?
A. Evidence for audit conclusions
B. Owned by the client
C. Owned by the auditor
D. Retained in auditor’s office until a change in auditors
The quantity of audit working papers complied on engagement would most be affected
by__________?
A. Management’s integrity
B. Auditor’s experience and professional judgment
C. Auditor’s qualification
D. Control risk
Which of the following best describes the primary purpose of audit programme preparation?
A. To detect errors or fraud
B. To comply with GAAP appropriate evidence
C. To gather sufficient
D. To assess audit risk
Which of the following is not an advantage of the preparation of working paper?
A. To provide a basis for review of audit work
B. To provide a basis for subsequent audits
C. To ensure audit work is being carried out as per programme
D. To provide a guide for advising another client on similar issues
The auditor’s permanent working paper file should not normally, include__________?
A. Extracts from client’s bank statements
B. Past year’s financial statements
C. Attorney’s letters
D. Debt agreements
For what minimum period should audit working papers be retained by audit firm?
A. For the time period the entity remains a client of the audit firm.
B. For a period of ten years
C. For a period auditor opines them to be useful in servicing the client
D. For the period the audit firm is in existence.
Which of the following factors would least likely affect the quantity and content of an
auditor’s working papers
A. The assessed level of control risk
B. The possibility of peer review
C. The nature of auditor’s report
D. The content of management representation letter
Which of the following statement is true regarding an auditor’s working papers?
A. They document the level of independence maintained by the auditor
B. They should be considered as the principle support for the auditor’s report
C. They should not contain details regarding weaknesses in the internal control system
D. They help the auditor to monitor the effectiveness of the audit firm’s quality control
Which of the following statement best describes the understanding with respect to
ownership and custody of working papers prepared by an auditor?
A. The working papers may be obtained by third parties when they appear to be relevant to
issues raised in litigation
B. The safe custody of working papers is the responsibility of client, if kept at his premises
C. The working papers must be retained by an audit firm for a period of 10 years
D. Successor auditors may have access to working papers of the predecessor auditors. The
approval of client is not required.
The current file of the auditor’s working papers, generally, should include____________?
A. A flowchart of the internal controls
B. Organisation charts
C. A copy of financial statements
D. Copies of bond and debentures
Auditing is what?
A. Reporting the financial information
B. Examination of financial statements
C. Preparation financial statements
D. maintaining the ledger records

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