Introduction to Financial Accountion.

1 If the land is purchased for Rs 500000 and the present market value is 2500000Rs, so what amount will get recorded in books
of accounts as per the historical concept?
500000

2 Money measurement concept is also known as?

Monetary unit concept
Monetary expression concept
Both A and B
None of the above

3 The entity concept is applicable to which form of business?

Sole trader
Partnership
Joint stock company
All of the above

4 The preparation of profit and loss account for the year ended is the best example of?
Matching concept
Accounting period concept
Monetary expression concept
All of the above
5 According to dual concept every transaction has aspects, in double entry book keeping system; every entry must have
minimum_______ effects?
Nil
One
Two
Three

6 ____________ Concept is also known as cost merge concept?

Cost attach concept
Accounting period concept
Matching cost
All of the above

7 The basic financial statement required by US GAAP is?

Income statement
Statement of retained earnings
Balance sheet
All of the above

8 An expert in financial accounting is called?

Chartered accountant
Certified public accountant
Both A and B
None of the above
9 Conservatism in short means the policy of playing safe, according to this convention while preparing accounts we must not take into
account any profits unless they are realized?
True
False

10 Financial statements have their use to several segments of the society who are called stakeholders, who is a stakeholder out of the
following?
Students of finance
Researchers
Government
All of the above

11 GAAP stands for?

Generally accepted accounting principles
Generally accepted accounting programme
Generally accounting accepted principle
None of the above

12 Financial accounting is governed by rules or guidelines collectively called?

SEBI
RBI
GAAP
None of the above

13 The basic financial statement required by Indian GAAP is?

 Profit and loss account
Balance sheet
Statement of cash flows
All of the above

14 What is the maximum limit of shareholders for private companies?

2
3
7
50

15 Banking companies are similar to joint stock companies, but the maintenance of books of accounts are governed by?
ICAI
ICWAI
Banking regulation act
None of the above

ch. 2, Accounting Mechanics - Processing Accounting Information

1 A person to whom business owes or required to pay some money is called?

Debtor
Creditor
Owner
Buyer

2 The debts which are not recoverable from debtors are known as?
 Reserve for doubtful debts
Bad debts
Both A and B
None of the above

3 Which is an example of Personal account?

Creditors account
India security press account
Mr. Ram’s loan account
All of the above

4 Which is an example of real account?

Discount account
Interest received account
Rates account
Equipment account

5 Which is an example of nominal account?

Loose tools account
Motor car account
Office furniture account
Wages account

6 The right of a writer of the books is known as?

Patents
 Copyright
Goodwill
None of the above

7 Money value of business reputation earned by the business over number of years?
Goodwill
Creditors
Debtors
Reputation

8 Reduction in the value of fixed assets due to wear and tear cause by its use is known as?
Loss
Profit
Depreciation
None of the above

9 Purchased machinery for Rs. 80000 and paid by cheque.

Machinery A/c 80000 debit and Bank Account 80000 credit
Bank A/c 80000 debit and Machinery A/c 80000 credit
Both A and B
None of them

10 What are the adjusting entries?

Deferral
Depreciation
 Accrual
All of the above

11 Debit what comes in credit what goes out is a rule for which account?
Real accounts
Personal account
Nominal accounts
None of the above

12 Debit the receiver credit the giver is a rule for which account?
Real accounts
Personal accounts
Nominal accounts
None of the above

13 Debit all expenses and assets, credit income and liabilities?

Real accounts
Personal accounts
Nominal accounts
None of the above

14 Personal accounts are related to?

Persons
Creditors
Debtors
 All of the above

15 Trade discount is the normal reduction from the maximum retail price or market price given to a trader?
True
False

ch. 3, Accrual Accounting and the Balance Sheet

1 _________ Cycle in which the business purchases inventory for cash, sells it to customers on account, and eventually collects the cash so that addition
purchased?
Operating
Business
Both A and B
None of the above

2 Out of these what is an intangible asset?

Organizational expenses
Market research
Both A and B
None of the above

3 Amount owed by customers arising from credit sales is known as?

Debtors
Accounts receivables
Both A and B
 None of them

4 The general reserve A/c shows________ balance?

Debit
Credit
Nil
Negative

5 A written promise to pay a definite sum at a future date is known as?

Notes receivables
Bills of exchange
Both A and B
None of them

6 ________ Liabilities listed in the footnotes are potential liabilities, which hopefully never become due?
Current liability
Contingent liabilities
Non-current liabilities
All of the above

7 The closing stock of the preceding year will be?

Closing stock
Opening stock
Purchases
Sales
8 The sale of equipment costing Rs. 8,000, with accumulated depreciation of Rs.6,700 and sale price of Rs.3,000, would result in a?
Loss of 700
Loss of 600
Gain of 1700
Gain of 2,000

9 Contingent liabilities include?

Lawsuits
Warranties
Cross guarantees
All of the above

10 Earned equity represents profits earned by the company and retained in the business?
True
False

11 The operating cycle of business is also known as?

Cash to cash cycle
Inventory cycle
Assets to liability cycle
None of the above

12 Purchased equity consists of?

Paid up equity shares
 Preference shares
Earned equity
All of the above

13 The cost price of a machine is Rs.1,20,000 and the depreciated value Of the machine after 3 years will be Rs.66, 000. If the company charges Deprec
method, the rate of depreciation will be
25%
20%
18%
15%

14 Outstanding expenses will be added to the concerned expenses and also shown on which side?
Asset
Liability
Income
Expenses

15 Current liabilities consist of the following obligation accounts?

Stock
Bills receivables
Accrued expenses
None of the above
ch. 4, The Profit

1 In US, the profit and loss statement is called?

Revenue statement
Income statement
Expenses statement
Profit and loss appropriation statement

2 If the cost of a fan is 100 RS and sold at 125 RS. Find the gross profit percentage?
22%
25%
35%
21%

3 _________ requires that expenses be recorded in the same period in which the revenues they helped produce are recorded?
Matching principle
Dual concept
Accrual basis
All of the above

4 Earnings before income and tax are also known as?

Operating income
Non-operating income
Retained earnings
None of the above
5 Manish sold some particulars at 20,000 RS. The cost price of those particulars is 12,000RS. Find the gross profit percentage?
27.71%
41.40%
33%
40%

6 If the net earnings of a company is 500000 and 25000 shares have been issued, the earnings per share will be?
20 Rs
30 Rs
40 Rs
50 Rs

7 PEPSI Company has sales revenue of Rs39, 000; cost of goods sold of Rs29, 000 and operating expenses of Rs9, 000 for the year ended December 31.
Rs 30000
Rs 10000
Rs 6000
Rs 0

8 _________ Principle that dictates that revenue be recognized in the accounting period in which it is earned?
Revenue recognition
Matching principle
Both A and B
None of the above

9 The creation of a provision for bad debts increases the net profit?
 True
False

10 A company deducts cost of sales, cost of goods sold from its revenue, showing the resultant
Net profit
Gross profit
Retained earnings
None of the above

11 Profit after tax is also called as?

Retained earnings
Profit and loss appropriation
Net earnings
None of the above

12 The total amount of a company’s net earnings since its inception, minus any payments made to shareholders by way of dividends, are called_______
Net profit
Retained earnings
Gross profit
Operating income

13 ________ show how much money the shareholders would receive for each share of the company if the company distributed all its net earnings to its
Dividend per share
Earnings per share
Interest per share
 None of the above

14 If Cost of sales in Rs. 90,000, income from sales Rs. 300,000 and operating expenses Rs.100,000,. What will be net results?
Rs 5000 loss
Rs 110000 profit
Rs 195000 profit
Rs 195000 loss

15 By which of the following ways companies can earn revenues?

By selling its products or services
By leasing or renting equipment or property
By receiving interest from loans made to other companies
All of the above

ch. 5, The Statement of Cash Flows

1 Cash flows are prepared under which method?

Direct
Indirect
Both A and B
None of the above

2 The statement of cash flows reports cash flows in which categories?

Operating activities
Investing activities
 Financing activities
All of the above

3 Which of these is an investing activity?

Fresh issue
Redemption of preference shares
Both A&B
None of the above

4 Which of these are equivalents are short term highly liquid instrument maturing 90 day or less?
Treasury bills
Certificate of deposit
Commercial paper
All of the above

5 In cash flow when current asset increases, then the working capital will be?
Increased
Decreased
Same
None of the above

6 In cash flow what results in decrease in working capital?

Increase in asset
Increase in liability
Increase in assets
 Decrease in asset

7 ________ are reported in a separate schedule on the statement of cash flows?

Non cash investing
Financing activities
Both A and B
None of the above

8 The statement of cash flows is one of the financial statements required by?
Company law board
GAAP
SEBI
RBI

9 A cash flow statement is not mandatory in India?

True
False

10 Which of these is an operating expense?

Debenture Interest paid
Issue of shares
Redemption of preference shares
None of the above

11 Which of these is not an investing activity?

 Purchase of fixed asset
Sale of fixed asset
Purchase of long term investment
None of the above

12 The vast majority of publicly traded firms use the indirect method?
True
False

13 Issue of right shares comes under which category of cash flow statement?
Operating
Investing
Financing
None of the above

14 There are six methods of preparing cash flow?

True
False

ch. 6, Accounting for Inventory

1 What is the simple average cost of 4units each at Rs30, Rs50, Rs120, and Rs20?
Rs 40
Rs 55
Rs 60
 Rs 70

2 The ABC Company has ending inventory of Rs 2000 and cost of goods available for sale of Rs 12,000. Its cost of goods sold is?
5000
10000
15000
20000

3 For its 2006 fiscal year, the PQR Company reported sales of Rs10, 500,000, cost of goods sold of Rs6, 300,000, and net income of Rs525, 000. The com
the year is 40%?
True
False

4 The M&M has ending inventory of Rs 2,000 and cost of goods available for sale of Rs 1, 0000. Its cost of goods sold is?
Rs. 120000
Rs 8000
Rs. 60000
None of the above

5 Periodic inventory system is used for ________ goods?

Expensive
Inexpensive
Perishable
All of the above
6 Which of these is accounting principal in inventory accounting?
Conservatism principle
Materiality concept
Consistency principle
All of the above

7 LIFO stands for?

Last in first out
Last in Fast out
Fish in fish out
All of the above

8 The TATA MOTORS has ending inventory of Rs 2000 and cost of goods available for sale of Rs 23,000. Its cost of goods sold is?
5000
21000
15000
20000

9 The inventory system that does NOT update the Inventory account automatically at the time of each purchase or sales is the perpetual method/system
True
False

10 Under LIFO method the last units acquired are assumed to be the first unit sold?
True
False
ch. 7, Accounting for Fixed Assets

1 Machinery was purchased for Rs20000. Its residual value was estimated to be Rs5000 while its monthly depreciation expenses are Rs500 using straig
following is the annual rate of depreciation?
50%
40%
29%
27%

2 What is an intangible asset?

Franchise rights
Patents
Copyrights
All of the above

3 If Current Assets Rs. 20,000, Current Liability Rs. 15,000 and Fixed Assets Rs. 2, 00,000. Calculate working capital?
Rs 5000
Rs 100000
Rs 150000
Rs 300000

4 The amount charged as fixed amount on yearly basis is known as?

Straight line method
Written down value method
Both A and B
None of the above
5 Rs 20000 for repairs necessitated by negligence of a worker?
Capital expense
Revenue expense
Deferred revenue expense
None of the above

6 Rs 5000 for the replacement of worn out parts?

Capital expense
Revenue expense
Deferred revenue expense
None of the above

7 Rs 10000 for setting a new device in the machine, which would increase production by 50%?
Capital expense
Revenue expense
Deferred revenue expenses
None of the above

8 Rs 2000 paid to technical consultants to advise the company as to how the machine can maintain on normal running condition?
Capital expenses
Revenue expenses
Deferred revenue expenses
None of the above
9 Legal expenses incurred in connection with issue of capital?
Capital expenses
Revenue expenses
Deferred revenue expenses
None of the above

10 Preliminary expenses incurred for the formation of a new limited company?

Capital expenses
Revenue expenses
Deferred revenue expenses
None of the above

11 What are the causes of depreciation?

Physical deterioration
Obsolescence
Efflux of time
All of the above

12 What are the objectives of depreciation accounting?

To spread the cost of fixed asset
Ascertainment of correct profits
Ascertainment of true and fair financial position
All of the above

13 What costs form part of fixed assets?

 Its purchase price
Import duties
Nonrefundable taxes
All of the above

14 Government grants related to depreciable fixed assets may be treated as deferred income which should be recognized in the profit and loss account
basis over the useful life of the assets?
True
False

15 Goodwill should not be accounted in books of account only when actually paid for the entity?
True
False

ch. 8, Current and Long Term Liabilities

1 Current liabilities are obligation due within one year?

True
False

2 Liabilities are generally classified on a balance sheet as?

Small liabilities and large liabilities.
Present liabilities and future liabilities.
Tangible liabilities and intangible liabilities
current liabilities and long-term liabilities
3 A low current ratio points to the possibility that the company may not be able to pay it’s?
Long term debts
Short term debts
Secured loan
Unsecured loan

4 Current ratio is calculated as?

Current assets/Current Liabilities
Current assets/ quick liabilities
Current liability/ Inventory
Current Assets/Fixed assets

5 ______measures the ability to repay long term liabilities?

Current ratio
Acid test ratio
Inventory ratio
All of the above

6 Current assets DIVIDED BY current liabilities is the?

Current ratio
Net worth ratio
Working capital
Net profit ratio

7 Mortgage bonds are also called?

 Debenture bond
Callable bond
Deferred bond
secured bond

8 Current ratio is 2:5.Current liability is Rs.30000.The Net working capital is?

Rs 18000
Rs 45000
Rs (-18000)
Rs (-45000)

9 Long term liabilities are also called?

Non-current liabilities
Medium term liabilities
Short term liabilities
None of the above

10 Which of the following is a liability?

Car
Building
Machinery
Bills payable

11 ________Liabilities which depend upon future events arising out of past events are called?
Estimated liabilities
 Deferred liabilities
Current liabilities
Contingent liabilities

ch. 9, Inflation Accounting

1 Price reflects the value of goods and services in?

Market
Country
Economy
All of the above

2 In inflation accounting what is maintenance of real value of capital?

Finance capital
Physical capital
Both A and B
None of the above

3 In inflation price changes can be classified as?

General
Specific
Relative price changes
All of the above

4 What are the methods of accounting for inflation?

 Current purchasing power
Current value system
Both A and B
None of the above

5 Inflation means an upward change in the prices of __________?

Goods
Services
Both A and B
Gas

6 General Price changes reflect increase and decrease in the value of the_________?
Monetary unit
Quality unit
Quantity unit
All of the above

7 The need for accounting for inflation arises due to?

Inflation adjusted profit
Replacement of asset
Effective composition
All of the above

8 Fixed asset is shown in the balance sheet at their historical cost?

True
 False

9 _______ could be determined by comparing economic values of net assets at successive balance sheet dates and adjusting for capital introduced?
Profit
Loss
Development
Progress

ch. 10, Questionable Accounting Practices

1 ____ is responsible for all the fraud and inappropriate accounting function?
CEO
CFO
Director
Managing Director

2 Statutory auditors are managed by the directors of the companies for doing such questionable accounting practices?
True
False

3 Company can use profits of the company without giving_________ to stake holders?
Dividend
Bonus
Both A and B
None of the above
4 Questionable accounting practice is?
Optimum utilization of resources
Multiple irregularities
Proper use of accounting policies
All of the above

5 If a company making profit and not paying taxes as per the taxation laws for their common benefit by manipulating things, what does this called?
Manipulating accounting records
Frauds
Both A and B
None of the above

ch.11, Financial Accounting in Computerized Environment

1 The computerized environment has tackled_________ of accounting system?

Volume
Repetitive transaction
Both A and B
None of the above

2 Arithmetical accuracy is one of the important benefits of computerized accounting?

True
False
3 Which are the common mistakes that are found in manual accounting system?
Posting of debit without corresponding credit
Mistake in totaling the books of account
Posting a credit for a corresponding credit
All of the above

4 One need not have to bother about __________ in computerized accounting?

Errors
Frauds
Both A and B
None of the above

5 Modact is accounting software?

True
False

chap 12 Understanding Financial Statements

1 _______ is an important friend in understanding financial statements.

Trend
Table
End year balance
Beginning year balance

2 _______ of earnings is as important the quantity of its earnings.

Reporting
 Quality
Size
Frequency

3 Book Value per share is calculated by dividing _______ by number of outstanding shares.
Net Worth
Net Earnings
Net Liabilities
Total Liabilities

4 EPS is calculated by dividing _______ by number of outstanding shares.

Net Worth
Net Earnings
Net Liabilities
Total Liabilities

5 Debt Equity ratio is calculated by dividing total debt by

Net Worth
Net Earnings
Net Liabilities
Total Liabilities

6 Interest cover ratio is classified as _____ ratio.

Profit
Balance Sheet
 Debt Paying Ability
None of the above

7 Return on sales is classified as _____ ratio.

Profit
Balance Sheet
Debt Paying Ability
None of the above

8 Book Value per share is classified as _____ ratio.

Profit
Balance Sheet
Debt Paying Ability
None of the above

9 Asset turnover ratio is calculated by dividing __________ by total assets.

Annual sales revenue
Total liabilities
Net earnings
Gross earnings

10 Solvency of the company is measured by

Profit
Balance Sheet
Debt Paying Ability
None of the above