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ACCOUNTS

1 When money is given on loan, a fee is charged by the lender, which is called:
A. commission
B. fee
C. interest
D. discount
C When money is given on loan, a fee is charged by the lender, which is called, interest.
2 Simple rate of interest or flat rate of interest is the amount of interest which is paid every year as
a _____ of the
amount borrowed:
A. fixed percentage
B. varying percentage
C. fluctuating percentage
D. percentage as per discretion of the lender
A Simple rate of interest or flat rate of interest is the amount of interest which is paid every year as
a fixed percentage of the amount borrowed
3 Simple interest is calculated as:
A. principal x rate
B. product x rate x time
C. principal x rate x time
D. principal x time
C Simple interest is calculated as principal x rate x time
4 Loan is obtained by X for purchase of a car for Rs.1.50 lac at 12% interest rate over two years.
What is the amount of total simple interest?
A. 42000
B. 36000
C. 30000
D. 24000
B Amount of interest = (1.50 lac x 12 x 2) / 100 = 36000
5 Loan is obtained by X for purchase of a car for Rs.1.50 lac at 12% interest rate over two years.
What is the amount of total amount to be paid at simple rate of interest?
A. 186000
B. 172000
C. 160000
D. 150000
A Principal + interest = 150000 + 36000 [(1.50 lac x 12 x 2) / 100 = 36000] = 186000
6 Loan is obtained by X for purchase of a car for Rs.1.50 lac at 12% interest rate over two years.
What is the amount of weekly payment at simple rate of interest?
A. 3398.12
B. 3458.19
C. 3576.92
D. 3697.02
C Total amount payable 150000 + 36000 [(1.50 lac x 12 x 2) / 100 = 36000] = 186000 / 52 = 3576.92
7 Compound interest is paid on which of the following:

A. principal amount
B. interest amount
C. principal amount and interest already accrued
D. principal amount and interest to accrue
C Compound interest is calculated on the principal amount and interest already accrued till date of
compounding of interest. The period of compounding may differ.
8 If interest is to be compounded annually, which of the following will be used:
A. P (1+r)n
B. P (1+r/2)n x 2
C. P (1+r /4)n x 4
D. P (1+r /12)n x 12
A For annual compounding the formula P (1+r)n is used. For half-yearly compounding r is divided
by 2 and n is multiplied by 2. For quarterly compounding r is divided by 4 and n is multiplied by 4.
For monthly compounding r is divided by 12 and n is multiplied by 12.
9 If interest is to be compounded half-yearly, which of the following will be used:
A. P (1+r)n
B. P (1+r/2)n x 2
C. P (1+r /4)n x 4
D. P (1+r /12)n x 12
B For annual compounding the formula P (1+r)n is used. For half-yearly compounding r is divided
by 2 and n is multiplied by 2. For quarterly compounding r is divided by 4 and n is multiplied by 4.
For monthly compounding r is divided by 12 and n is multiplied by 12.
10 If interest is to be compounded quarterly, which of the following will be used:
A. P (1+r)n
B. P (1+r/2)n x 2
C. P (1+r /4)n x 4
D. P (1+r /12)n x 12
C For annual compounding the formula P (1+r)n is used. For half-yearly compounding r is
divided by 2 and n is multiplied by 2. For quarterly compounding r is divided by 4 and n is
multiplied by 4. For monthly compounding r is divided by 12 and n is multiplied by 12.
11 If interest is to be compounded monthly, which of the following will be used:
A. P (1+r)n
B. P (1+r/2)n x 2
C. P (1+r /4)n x 4
D. P (1+r /12)n x 12
D For annual compounding the formula P (1+r)n is used. For half-yearly compounding r is divided
by 2 and n is multiplied by 2. For quarterly compounding r is divided by 4 and n is multiplied by 4.
For monthly compounding r is divided by 12 and n is multiplied by 12.
12 X invested Rs.100000 in a bank FDR at 6% p.a. for one year. If interest is compounded on halfyearly basis, the amount payable shall be?
A. 106000
B. 106090
C. 106130
D. 106160
B P (1+r/2)n x 2 = 100000 x 1.03 x 1.03 = 106090

13 X invested Rs.100000 in a bank FDR at 6% p.a. for one year. If interest is compounded on
quarterly basis, the amount payable shall be?
A. 100600
B. 106090
C. 106130
D. 106160
C P (1+r/4)n x 4 = 100000 x 1.015 x 1.015 x 1.015 x 1.015 = 106130
14 The compound interest equation P = Ae rt is applicable in case of :
A. continuous compounding
B. daily compounding
C. weekly compounding
D. fortnightly compounding
A In continuous compounding (where n approaches infinity), the compound interest equation takes
the P = Ae rt form.
15 In a compound interest equation P = Ae rt e, the exponential number is approximately:
A. 2.82776
B. 2.71728
C. 2.77221
D. 2.82179
B In a compound interest equation P = Ae rt e, the exponential number is approximately 2.71728.
16 The rule of 72 determines the no. of years during which an amount ____ at a given rate of
interest:
A. becomes double
B. becomes half
C. remains same
D. becomes triple
A The amount becomes double, at a given interest rate.
17 An investor want to invest Rs.20000 to get double amount at 8% rate of interest. For how many
years, he should invest the money?
A. 10
B. 9
C. 8
D. 6
B 72 / rate of interest = 72 / 8 = 9
18 An investor want to invest Rs.30000 to get double amount at the end of 6 years. He should invest
the funds at ___ rate of interest.
A. 6%
B. 8%
C. 10%
D. 12%
D 72 / period = 72 / 6 = 12%
19 X deposited Rs.10000 in a post-office scheme at 8% with quarterly compounding, for 2 years.
What is the total amount payable?
A. 11412.34
B. 11716.59

C. 11926.56
D. 12111.23
B P (1+r/4) n x 4 = 10000 x 1.02 x 1.02 x 1.02 x 1.02 x 1.02 x 1.02 x 1.02 x 1.02 = 11716.59
20 Which of the following formulae can be used for calculation of equated monthly instalment
(EMI)?
A. P x r [ (1+r)n x (1+r)n -1]
B. P x r [ (1+r)n / (1+r)n +1]
C. P x r [ (1+r)n / (1+r)n -1]
D. P x r [ (1+r)n / (1+r)n ]
C To calculate EMI, the formulae P x r [ (1+r)n / (1+r)n -1] is used. In this formulae, P is the
amount of loan, r is the rate of interest per instalment period (if interest is 12% pa, r=0.01), n is no.
of instalment in the tenure.
21 X borrowed Rs.10000 from the bank at 12% p.a. for one year, payable on equated monthly
instalment basis. What is the amount of EMI?
A. 888.50
B. 877.50
C. 880.30
D. 878.20
A 10000 x 0.01 [(1.01)12 / (1.01)12 -1] = 888.50
22 Z raised a house loan of Rs.10 lac at 12% rate of interest repayable in 10 years. Calculate the
EMI?
A. 10654.17
B. 10799.21
C. 10987.11
D. 11281.34
C 1000000 x 0.01 [(1.01)120 / (1.01)120 -1] = 1000 x (3.300387 / 0.300387 = 10.98711) = 10987.11
23 Which of the following statement is not correct regarding interest rates:
A. fixed interest remains fixed throughout the period of the loan
B. floating interest is required to be re-set periodically throughout the period of the loan
C. total amount of interest is lower if interest rate is simple when compared to compound rate
D. total amount of interest is lower if interest rate is compounded, when compared to simple rate
D Total amount of interest is higher when calculated with compounding effect. It is lower when
calculated without compounding effect.
24 The floating rate of interest (a) increases (b) decreases (c) remains constant:
A. a and b are correct
B. a and c are correct
C. b and c are correct
D. all are correct
A The floating rate is market related, due to which it can increase or decrease. It will not remain
constant.
25 Repayment of house loan instalment for a pre-determined period on EMI basis is an example of:
A. single cash flow
B. annuity
C. perpetuity
D. any of these

B Annuity means a series of fixed payments to be made or to be received over a pre-determined


period
(similar to payment of EMI of house loan or receipt of fixed interest on a term deposit).
26 Annuity means (a) a series of payments (b) payments of fixed amount (c) payments to be
received or made (d)
payment for a fixed period.
A. a to c only
B. a, b and d only
C. b, c and d only
D. a to d all together
D Annuity includes all these features i.e. (a) it is a series of payments (b) the payments is of fixed
amount (c) the payments can be received or made (d) the payment are for a fixed period.
27 When the annuities are made or received in the beginning of the period, these are called:
A. ordinary annuities
B. annuities due
C. initial annuities
D. base period annuities
B The beginning of the period annuities are called Annuity Due and when payments are at end of
the period, these are known as ordinary annuities.
28 When the annuities are made or received at the end of a period, these are called:
A. ordinary annuities
B. annuities due
C. initial annuities
D. base period annuities
A The beginning of the period annuities are called Annuity Due and when payments are at end of
the period, these are called ordinary annuities..
29 Z rented his house for 2 years at a monthly rent of Rs.15000 to be received in advance. This is an
example of?
A. ordinary annuities
B. annuities due
C. initial annuities
D. base period annuities
B The beginning of the period annuities are called Annuity Due.
30 Z is to receive interest on govt. bonds each year, by year end for 7 years. This is an:
A. ordinary annuities
B. annuities due
C. initial annuities
D. base period annuities
A The beginning of the period annuities are called Annuity Due.
31 Future value of an ordinary annuity can be calculated as:
A. C [ (1+r)n -1] x r
B. C [ (1+r)n -1] / r
C. C [ (1+r)n +1] / r
D. C [ (1+r)n +1] x r
B It is calculated as C [ (1+r)n -1] / r where C stands for cash flow per period, r stands for rate of

interest and n stands for no. of payments.


32 Z is to invests Rs.100000 by end of each year for 5 years at 5% rate of interest. How much
amount he will receive?
A. Rs.555236
B. Rs.562461
C. Rs.552563
D. Rs.526477
C C [ (1+r)n -1] / r = 100000 [ (1+0.05)5 -1] / 0.05 = Rs.552563
33 The present value of ordinary annuity can be calculated as:
A. C [ (1+r)n -1] / r
B. C [ (1+r)n -1] / r (1+r)n
C. C [ (1+r)n -1] x r (1+r)n
D. C [ (1+r)n -1] / r (1+r)
B The present value of an ordinary annuity is calculated as C [ (1+r)n -1] / r (1+r)n
34 Z is to receive Rs.10000, as interest on bonds by end of each year for 5 years at 5% rate of
interest. Calculate the present value of the amount he is to receive?
A. Rs.43492.60
B. Rs.42397.70
C. Rs.43294.80
D. Rs.43249.22
C C [ (1+r)n -1] / r (1+r)n = 10000 [ (1+0.05)5 -1] / 0.05 (1+0.05)5 = Rs.43294.80
35 Population of a town is 100000. The rate of change is 4% per annum. What it will be after 5
years.
A. 129205
B. 121665
C. 122165
D. 121601
B C (1+r)n = 100000 (1+0.04)5 = 100000 x 1.21665 = 121665.
36 Population of a town is 100000. The rate of change is 4% per annum. What it was 5 years ago?
A. 82193
B. 82257
C. 80493
D. 82121
A C / (1+r)n = 100000 / (1+0.04)5 = 100000 / 1.21665 = 82193
37 XYZ purchased machinery of Rs.100000. Rate of depreciation is 10%. At WDV value method,
what is the amount of depreciation for 4 years.
A. 34390
B. 33291
C. 33109
D. 33012
A Depreciated value = C (1- r)n = 100000 (0.9)4 = 100000 x 0.6561 = 65610. Depreciation = 100000 65610 = 34390
38 XYZ purchased machinery of Rs.100000. Rate of depreciation is 10%. At WDV value method,
what is the depreciated value at the end of 4 years?

A. 65386
B. 65610
C. 65780
D. 65920
B Depreciated value = C (1- r)n = 100000 (0.9)4 = 100000 x 0.6561 = 65610.
39 XYZ purchased machinery of Rs.100000. Rate of depreciation is 10%. What is average rate of
depreciation?
A. 12.251%
B. 12.965%
C. 13.756%
D. 13.981%
C Depreciated value = C (1- r)n = 100000 (0.9)4 = 100000 x 0.6561 = 65610. Depreciation = 100000 65610 = 34390 Average depreciation = (34390 / 100000) / (100 / 4) = 13.756%
40 X wants to borrow Rs.25000 immediately and another Rs.20000 after a period of 2 years at 10%
interest. He wants to pay it in monthly instalments for 5 years. Calculate the amount of monthly
payment?
A. Rs.879.38
B. Rs.897.54
C. Rs.882.31
D. Rs.863.78
A We shall use the formula A {r / [ 1- {1 / (1+r) n ]} where R is the amount per payment period, n =
no. of
periods, r = rate per period . Rate of interest being p.a. and calculation to be made monthly, the
ROI =
0.10/12 and no. of time period = 5 x 12 = 15. Before calculation, we shall convert the future value
Rs.24000 to present value = 24000 / 1 / (1+0.10/12) 24 = 16388.19.
Hence total amount = 16388.19 + 25000 = 41388.19
EMI = 41388.19 x (0.10/12) / ([ 1- {1 / (1+0.10/12) 60 }] = Rs.879.38
41 A person wants to receive Rs.1250 every quarter for 5 years at 12% p.a. rate of interest. How
much he should invest now.
A. Rs.18969.85
B. Rs.18956.58
C. Rs.18596.85
D. Rs.18695.85
C We will use the formula A ([ 1- {1 / (1+r) n }] / r) where R is the amount per payment period, n =
no. of
periods, r=rate per period . Rate of interest being p.a. and calculation to be made quarterly, the
ROI = 12/4 = 3% and no. of time period = 5 x 4 = 20
= 1250 ([ 1- {1 / (1+0.03) 20 }] / 0.03) = 18596.85
42 X borrowed an amount of Rs.50000 for 8 years at 18% rate of interest. What shall be the
monthly payment.
A. Rs.986.11
B. Rs.968.16
C. Rs.968.11
D. Rs.986.16
D We use the formula A {r / [ 1- {1 / (1+r) n ]} where R is the amount per payment period, n = no. of
periods, r = rate per period . Rate of interest being p.a. and calculation to be made quarterly, the

ROI = 18/12 = 1.5% and no. of time period = 8 x 12 = 96


= 50000 x 0.015([ 1- {1 / (1+0.03) 20 }] = Rs.986.16
43 X wants to receive Rs.40000 per annum for 20 years by investing at 5%. How much will have to
invest now?
A. Rs.498488
B. Rs.489495
C. Rs.493128
D. Rs.489954
A We have to find present value of an annuity by using the formula A = R [1-(1+r)-n ] / r or A ([ 1{1 / (1+r) n }] / r) . where R is the amount per payment period, n = no. of periods, r=rate per period
= 40000 ([ 1- {1 / (1+0.05)20 }] / 0.05) = Rs.498488
44 X wants to receive a fixed amount for 15 years by investing Rs.9 lac at 9% interest rate. How
much he will receive annually.
A. Rs.101659
B. Rs.110983
C. Rs.111653
D. Rs.114282
C We shall use the formula A {r / [ 1- {1 / (1+r) n ]} where R is the amount per payment
period, n = no. of periods, r = rate per period . = 900000 x (0.09) / ([ 1- {1 / (1+0.09)15 }] = Rs.111653
45 Which of the following formula is used for calculation of present value of an annuity?
A. A / {r / [ 1- {1 / (1+r) n ]}
B. A {r / [ 1- {1 / (1+r) n ]}
C. A {r [ 1- {1 / (1+r) n ]}
D. A {r / [ 1+r) n ]}
B To calculate present value of an annuity, the formula is A {r / [ 1- {1 / (1+r) n ]}. It can be shown
as A = R [1- (1+r)-n ] / r also.
46 Which of the following formula is used for calculation of future value of an annuity:
A. A [ { (1+r) n -1} / r]
B. A / [ { (1+r) n -1} / r]
C. A [ { (1+r) n +1} / r]
D. A [ { (1+r) n -1} x r]
A The following formula is used A [ { (1+r) n -1} / r]
47 When a fund is created to meet the need of a specified amount in future and it is accumulated by
means of equal periodic deposits, it is called ___ fund:
A. mutual fund
B. sinking fund
C. accumulated fund
D. any of the above
B When a fund is created to receive a specified amount in future and it is accumulated by means of
equal periodic deposits, it is called sinking fund.
48 To calculate value of a sinking fund, which of the following formulae can be used:
A. A [ { (1+r) n -1} / r]
B. A / [ { (1+r) n -1} / r]
C. A [ { (1+r) n +1} / r]
D. A [ { (1+r) n -1} x r]

A It is basically the future value of an annuity and the following formula is used A [ { (1+r) n -1} / r]
to make the calculation.
49 A firm need Rs.170000 to replace its machinery at the end of 5 years. At 12% rate of interest,
how much it should contribute every month?
A. Rs.2051.65
B. Rs.2101.51
C. Rs.2081.56
D. Rs.2057.64
C The calculation shall be made by using the formula A [ { (1+r) n -1} / r]
170000 = A [ { (1+0.01)60 -1} / 0.01] = Rs.2081.56
50 For carrying out his studies, a student borrows Rs.3 lac from a bank at concessional rate of 5%
p.a. for 4 years of his professional course. What is the total amount payable by him at the end of 4th
year.
A. Rs.1284039.65
B. Rs.1286031.75
C. Rs.1290006.84
D. Rs.1293037.50
D The calculation shall be made by using the formula FV = A [ { (1+r) n -1} / r]
FV = 300000 [ { (1+0.05)4 -1} / 0.05] = Rs.1293037.50
51 X wants to send his daughter to a management school after 5 years and will be needing one time
payment of charges amounting to Rs.7 lac. At 12%, how much he should invest annually?
A. Rs.111105.21
B. Rs.110186.81
C. Rs.109672.22
D. Rs.109486.89
B The calculation shall be made by using the formula A = FV [ r/ (1+r)n -1]
= 700000 [ 0.12 / (1+0.12)5 -1] = Rs.110186.81
52 X opened a recurring account with a bank to deposit Rs.16000 by the end of each year at 10%
interest rate. How much
he would get at the end of 3rd year?
A. Rs.59260
B. Rs.56920
C. Rs.52690
D. Rs.52960
D Calculation can be made by using the formula = A [ { (1+r) n -1} / r]
16000 [ { (1+0.10) 3 -1} / 0.10] = Rs.52960
53 Z borrowed Rs.65600 for 2 years at 5% p.a., to be returned in 2 equal annual instalments. What
will be the amount of instalment?
A. Rs.35280
B. Rs.35320
C. Rs.35690
D. Rs.35820
A It can be calculated by using the formula = P x r [ (1+r)n / (1+r)n -1]
65600 x 0.05 [ (1+0.05)2 / (1+0.05)2 -1] = Rs.35280

54 X obtained a loan of Rs.92820 at 10%, which he is to pay in 4 equal annual instalment. Calculate
the amount of instalment?
A. Rs.28283
B. Rs.29282
C. Rs.29476
D. Rs.29822
B It can be calculated by using the formula = P x r [ (1+r)n / (1+r)n -1]
92820 x 0.10 [ (1+0.10)4 / (1+0.10)4 -1] = Rs.29282
55 The compound interest on a sum for 2 years is Rs.153 and simple interest is Rs.225 for 3 years.
What is rate of interest and the principal amount?
A. 4%, Rs.1875
B. 3%, Rs.1875
C. 4%, Rs.2075
D. 3%, Rs.2075
A Simple interest for 2 years = Rs.150 and compound Rs.153. The difference of Rs.3 represents
interest on Rs.75 (gap of Rs.225-150). Hence RoI = 3/75x100 = 4%. The principal = (225 x 100) / (4 x
3) = Rs.1875
56 X purchased a house and the payment terms are (a) Rs.10 lac immediately and balance Rs.7.50
lac after 2 years. The rate of interest is 6% p.a. and to be compounded semi-annually. What is the
cash value of the house.
A. Rs.1696395
B. Rs.1669760
C. Rs.1666365
D. Rs.1663635
C Rs.7.50 lac discounted at 6% on half-yearly basis by using the formula = FV / (1+r)n
= 750000 / (1+0.03)4 = 750000 / (1+r)n = Rs.666365 Total cash value = Rs.10 lac + Rs.666365 =
Rs.1666365
57 X had to pay certain amount to Z and had two options (a) to make payment of lump sum
amount of Rs.120000 immediately or (b) to pay Rs.150000 in 5 years at 5% p.a. rate of interest
(half-yearly compounding). Which option is more beneficial for X.
A. He should opt for (a) being lower amount
B. He should opt for (b) being lower at Rs.117179
C. He should opt for (b) being lower at Rs.119197
D. He should opt for (b) being lower at Rs.117971
B The present value Rs.150000 = FV / (1+r)n = 150000 / (1+0.025)10 = Rs.117179
58 The possibility of loss on account of default by a borrower in repayment of his obligation on
time, is called:
A. credit risk
B. market risk
C. default risk
D. operational risk
A Credit risk is the risk on account of possible default in repayment by the borrowers.
59 For measurement of credit risk, which of the following is not a correct approach, as adopted in
India for Basel 2 framework:
A. standardized approach
B. internal rating-based foundation approach

C. internal rating-based advance approach


D. none of the above
D Credit risk is measured on the basis of these approaches. In India, to start with standardized
approach for credit risk has been adopted.
60 Which of the following is a correct statement regarding various approaches for measurement of
operational risk as per Basel 2 framework:
A. basic indicator approach - it uses one indicator of operational risk for bank total activity
B. basic indicator approach - it uses many indicators of operational risk for bank total activity
C. basic indicator approach - it uses multi-indicator of operational risk for bank total activity
D. basic indicator approach - it specifies different indicators for different business lines
A The basic indicator approach utilizes one indicator of operational risk for bank total activity.
61 Which of the following approach under operational risk specifies different indicators for
different business lines, under Basel 2 framework?
A. basic indicator approach
B. standardized approach
C. advanced measurement approach
D. none of the above
B The standardized approach under operational risk specifies different indicators for different
business lines.
62 Which of the following approach under operational risk requires the banks to utilise their
internal loss data in the estimation of the required capital under Basel 2 framework?
A. basic indicator approach
B. standardized approach
C. advanced measurement approach
D. none of the above
C The advanced measurement approach under operational risk requires the banks to utilise their
internal loss data in the estimation of the required capital.
63 In the market risk for capital adequacy purpose, the trading book does not include which of the
following:
A. securities included under the held for trading category
B. securities included under the available for sale category
C. open gold position or open foreign exchange positions
D. securities included in held to maturity category
D The securities included in held to maturity category are part of banking book and not of the
trading book, as these are not meant to be disposed off, before maturity.
64 The minimum requirement for capital for market risk is expressed in terms of two separately
calculated charges called:
A. basic charge and advance charge
B. specific charge and general market risk
C. preliminary and final charge
D. none of the above
B The minimum requirement for capital for market risk is expressed in terms of two separately
calculated charges called, specific charge and general market risk.
65 Capital charge for______ , is designed to protect against an adverse movement in price of an
individual security due to factors related to the individual issuer.

A. specific risk in market risk


B. specific risk in operational risk
C. specific risk in credit risk
D. specific risk in liquidity risk
A Capital charge for specific risk in market risk, is designed to protect against an adverse
movement in price of an individual security due to factors related to the individual issuer.
66 Capital charge for general market risk , is designed to capture the risk of loss arising from
changes in the ______.
A. market prices
B. market interest rates.
C. all market variables
D. value of the portfolio
B Capital charge for general market risk , is designed to capture the risk of loss arising from
changes in the market interest rates.
67 To start with, in India the banks have adopted the ____ approach, for measurement of market
risk:
A. advance measurement approach
B. basic indicator approach
C. standardized approach maturity method
D. standardized approach duration method
D To start with, in India the banks have adopted the standardized approach duration method, for
measurement of market risk:
68 Which of the following approach to measure the credit risk for capital adequacy purpose, is not
there:
A. standardised approach
B. internal rating based approach
C. basic indicator approach
D. none of the above
C Basic indicatory approach is part of operational risk and not of credit risk.
69 Basic objective of capital adequacy framework is that a bank should have sufficient capital to
provide stable resources to absorb any loss out of risk to banking business. Which of the following
is not correct in this connection concerning capital fund:
A. capital fund is divided into tiers according to their characteristics
B. capital fund has three tiers i.e. Tier I, Tier II and Tier III in India
C. Tier I provides permanent sources and Tier II provides supplementary sources
D. Tier I has better loss absorption capacity than Tier II.
B There are two Tiers of capital fund and not three.
70 The term BCBS in the context of capital adequacy ratio stands for:
A. Banking Committee of basic supervision
B. Basel committee on banking supervision
C. Basel committee on basic supervision
D. Basel Committee on Business Supervision
B BCBS is Basel Committee on Banking Supervision, that recommended the CAR guidelines.
71 Which of the following combinations is correct with regard to 3 pillars of Basel II:
A. Capital Adequacy, Market Discipline, Risk Management
B. Risk Management, Supervisory Review, Minimum Capital Standard

C. Minimum capital standards, supervisory review and market discipline


D. Risk Management, Supervisory Evaluation process, market disclosures
C Three pillars are Pillar-1 Minimum capital standards, Pillar-2 supervisory review and Pillar-3
market
Discipline
72 Which of the following does not match with regard to the 3 pillars of Basel II capital framework:
A. Pillar1 - Minimum capital Standard
B. Pillar2 - Risk Management
C. Pillar3 - Market Discipline
D. None of the above
B Pillar 2 relates to supervisory review
73 Which of the following options are not available for calculating credit risk under Basel II
framework:
A. standardized approach
B. internal risk based approached
C. internal rating based approach - foundation
D. internal rating based approach - advance
B Internal risk based approach does not exists but internal rating based approach has two versions
i.e.
foundation and advance.
74 For computing operational risk, which of the following approach is available as per Basel II
framework.
A. basic indicator approach, standardized approach, advance measurement approach
B. basic indicator approach, internal approach, advance measurement approach
C. basic indicator approach, Risk based approach, advance measurement approach
D. basic indicator approach, standardized approach, Risk Based approach
A There are three approaches i.e. basic indicator approach, standardized approach and advance
measurement approach.
75 For market risk, which of the following approaches is not available as per Basel II framework:
A. internal rating based approach
B. internal risk based approach
C. standard approach - duration method
D. standard approach - maturing method
A Internal rating based approach relates to Credit risk assessment.
76 As per RBI directives, which of the following approach to different types of risk does not match
in the context of immediate implementation:
A. credit risk - standardized approach
B. market risk - standardized maturity method approach
C. operational risk - basic indicator approach
D. none of the above
B For market risk, the approach to be adopted immediately is standardized duration method
approach.
77 A board approved policy for ICAAP is required to be put in place by RBI for implementation of
Basel II framework. ICAAP stands for:
A. Internal capital adequacy assessment procedures

B. Internal capital adequacy appraisal process


C. Internal capital adequacy assessment process
D. Internal capital assessment and adequacy process
C It stands for internal capital adequacy assessment process as part of supervisory review i.e. part
of Pillar 2.
78 Capital adequacy ratio (CAR or CRAR) is to be calculated as under as per Basel II framework
applied in India:
A. Eligible total capital funds / risk weighted assets
B. Capital funds / risk weighted assets
C. Eligible total capital funds / (credit risk RWA + market risk RWA + operational risk RWA)
D. Paid-up capital / (credit risk RWA + market risk RWA + operational risk RWA)
C As per RBI directives applicable in India, the calculation is to be done as per this correct option.
79 The risk that may arise from movements of market prices in on-balance sheet or off-balance
sheet positions, is called:
A. market risk
B. trading risk
C. liquidity risk
D. settlement
A Such risk is called, market risk. It arises on account of positions (balance payable and balance
receivable) in on-balance sheet or off-balance sheet position.
80 The risk of loss arising on account of inadequate or failed internal processes, people and systems
or from external events is called:
A. external risk
B. operational risk
C. internal risk
D. credit risk
B Such risk is called operational risk that may arise due to internal developments or external
events.
81 Under Pillar 3 of CRAR mechanism of Basel 2 i.e. market discipline, who is required to be
enabled to assess the capital adequacy of a bank through disclosure of information, through balance
sheet:
A. Reserve Bank of India,
B. Market participants
C. Ministry of Finance
D. Bank for international settlement that has prescribed these requirements
B Purpose of disclosure through balance sheet is to enable market participants to judge the capital
adequacy of a bank.
82 Available for sale (AFS) securities in the trading book of a bank, under the market risk are those
securities:
A. which are to be held till maturity
B. which are purchased with the objective of trading
C. which are purchased neither with the intention to retain till maturity nor to trade
D. which can be sold at profit or at loss depending on the circumstances.
C AFS securities are purchased neither with the intention to retail till maturity nor to trade. These
are valued at their fair value on the basis of best available sources of current information.
83 Under market risk, the term BANKING BOOK comprises (which is not correct):

A. assets which are contracted for steady income and are held till maturity like loans
B. liabilities that are contracted to support the assets to be held till maturity like deposits
C. investments that are contracted for steady income and are held till maturity
D. investment under available for sale category and held for trading category
D Banking book represents assets and liabilities that are contracted for earning a steady income
and these are held till maturity. Examples are loans and deposits.
84 Which of the following is referred to as CORE CAPITAL:
A. capital fund of a bank
B. Tier 1 capital fund
C. Tier 2 capital fund
D. Tier 3 capital fund
B Tier 1 capital fund is called the core capital as it provides permanent support to the risk of loss
arising from banking operations to a bank.
85 If a bank is having exposure in Central and State Govt. guaranteed loans, the risk weight will be
as under:
A. Central Govt. guaranteed nil and State Govt. guaranteed 20%
B. Central Govt. guaranteed 5% and State Govt. guaranteed 20%
C. Central Govt. guaranteed 10% and State Govt. guaranteed 50%
D. Central Govt. guaranteed nil and State Govt. guaranteed 100%
A It is nil for Central Govt. guaranteed claims and 20% of State Govt. guaranteed claims.
86 Risk weight percentage does not match in which of the following:
A. Claims on RBI - zero
B. Claims on DICGC - zero
C. Claims on ECGC - zero
D. Claims on CGTMSE - zero
C Claims on ECGC has 20% risk weightage.
87 A loan given by Bank Z is guaranteed by a foreign govt. Which of the following does match in
connection with risk weightage, if the foreign govt. is rated by S & P Ratings:
A. 20% if rated AAA
B. 25% if rated A
C. 150% if rated below B
D. 150% if it is unrated
C AAA rated carries zero, A rated 20% and unrated 100%.
88 Claims on which of the following financial institutions operating abroad do not carry a risk
weight of 20%:
A. Bank for International Settlements
B. World Bank group institutions
C. European Central Bank
D. Asian Development Bank
C Except European Central Bank, the claims on all others, carry a risk weight of 20%.
89 A term loan of Rs.10 cr has been given by Bank Z to a company rated by an RBI approved
rating agency. What is the risk weight for this term loan for CAR purpose (which one matches):
A. AAA rating - 10%
B. AA rating - 30%
C. A rating - 60%

D. BBB rating - 75%


B It is 20% for AAA, 30% for AA, 50% for A and 100% for BBB.
90 A commercial paper issued by a company has been rated by CRISIL at P2 and Bank A makes
investment. The risk weight will be:
A. 20%
B. 30%
C. 50%
D. 100%
C For P1+ it is 20%, for P1, 30%, P2, 50% and P3, 100%.
91 If bank sanctions working capital limits of Rs.60 cr to an unrated large company during the year
2008-09, the risk weightage will be (which is correct):
A. 100% as applicable to unrated claims
B. 125% as the claim is unrated and above Rs.50 cr
C. 150% as the claim is unrated and above Rs.50 cr
D. 200% as the claim is unrated and above Rs.50 cr
C For any fresh sanctions or renewal during 2008-09 for unrated companies, the risk weight will be
150% if the amount exceeds Rs.50 cr.
92 If bank sanctions working capital limits of Rs.20 cr to an unrated large company during the year
2009-10. The risk weightage will be (which is correct):
A. 100% as applicable to unrated claims
B. 125% as the claim is unrated and above Rs.15 cr
C. 150% as the claim is unrated and above Rs.10 cr
D. 200% as the claim is unrated and above Rs.10 cr
C For any fresh sanctions or renewal during 2009-10, for unrated companies, the risk weight will be
150% if the amount exceeds Rs.10 cr.
93 For capital adequacy purpose, the exposure in retail portfolio shall carry a risk weight of:
A. 100%
B. 75%
C. 50%
D. 20%
B For retail portfolio, the risk weight is 75% as per Basel 2.
94 Which of the following is included in retail portfolio for the purpose of risk weight for CAR:
A. consumer credit including credit card
B. loan against shares or capital market exposure
C. education loans
D. all the above
C Only education loans are included. Others are excluded from the retail portfolio.
95 Which of the following would qualify to be included in retail portfolio:
A. if its total turnover is less than Rs.50 cr
B. if total exposure of the bank is 0.2% of overall regulatory retail portfolio
C. if the amount of exposure is restricted to Rs.50 cr.
D. all the above.
C The amount of exposure should be restricted to Rs.5 cr. The other conditions are correct.
96 If a loan is carrying loan to value (LTV) ratio of up to 75% and secured by mortgage of

residential property, the risk weight would be:


A. 75% if the loan is up to Rs.30 lac and 100% if the loan is above Rs.30 lac.
B. 50% if the loan is up to Rs.30 lac and 75% if the loan is above Rs.30 lac.
C. 50% if the loan is up to Rs.30 lac and 50% if the loan is above Rs.30 lac.
D. 75% if the loan is up to Rs.30 lac and 75% if the loan is above Rs.30 lac.
B If loan to value (LTV) ratio is not more than 75%, the risk weight is 50% for loan up to Rs.30 lac
and 75% for loan above Rs.30 lac.
97 If a loan is carrying loan to value ratio of above 75% and secured by mortgage of residential
property, the risk weight would be:
A. 100% whether the loan is up to Rs.30 lac or above Rs.30 lac.
B. 75% if the loan is up to Rs.30 lac and 100% if the loan is above Rs.30 lac.
C. 50% if the loan is up to Rs.30 lac and 50% if the loan is above Rs.30 lac.
D. 75% if the loan is up to Rs.30 lac and 75% if the loan is above Rs.30 lac.
A If loan to value (LTV) ratio is more than 75%, the risk weight is 100% in all cases.
98 The risk weight for capital adequacy ratio purpose, does not match in which of the following
cases:
A. commercial real estate exposure - 150%
B. capital market exposure - 125%
C. consumer credit - 125%
D. loans to public sector undertakings - as applicable to corporates.
A In case of commercial real estate it is 100%. Other options are correct.
99 The unsecured portion of an NPA account carries risk weight of (which does match):
A. 200% when specific provisions are less than 20% of outstanding amount of NPA
B. 150% when specific provisions are less than 20% of outstanding amount of NPA
C. 150% when specific provisions are at least 20% of outstanding amount of NPA
D. 150% when specific provisions are at least 50% of outstanding amount of NPA
B It carries risk weight of 150% if provisions are less than 20% of outstanding amount in NPA,
100%, when provisions are at least 20% and 50% when provisions are at least 50%.
100 Loans to members of bank staff carry a risk weight of (which one is not correct):
A. 20% if loan is secured by superannuation benefits
B. 75% if the loan is eligible to be included in retail portfolio
C. 100% in case of other loans
D. 125% in case of other loans
D Only the statement at option (a), (b) and (c) is correct.
101 Debts can be active or passive. Which of the following explanation matches in this context:
A. active debts means which we owe
B. passive debts means what is due to us
C. passive debts means which we owe and active debts means what is due to us
D. active debts means which we owe and passive debts means what is due to us
C Debts can be active or passive. The passive debts means which we owe (liability) and active debts
means what is due to us (asset).
102 The value stated on the bond certificate is called:
A. market value
B. redemption value
C. face value

D. net present value


C The value stated on the bond certificate is called face value. It represent the amount borrowed.
103 Coupon rate of a bond means:
A. the maturity value
B. the interest rate payable on the bond
C. the value accepted at the time of issue of the bond
D. the market value at a given point of time.
B Coupon rate of a bond means the interest rate payable on the bond.
104 The value which an investor receives on maturity of a bond is called,
A. market value
B. redemption value
C. face value
D. net present value
B The value which an investor receives on maturity of a bond is called redemption value.
105 Which of the following statement is not correct in connection with the market value of a bond:
A. it is the price at which the bond is usually purchased or sold
B. it can be different from the face value
C. it can be different from the redemption value
D. none of the above
D It is the price at which the bond is usually purchased or sold. It can be different from the face
value or different from the redemption value
106 The present value of a bond is equal to:
A. the amount of interest it will earn
B. the amount of future cash to be received in future till maturity of the bond
C. the present value of cash to be received in future till maturity of the bond
D. the amount to be received on maturity
C The present value of a bond is equal to the present value of cash to be received in future till
maturity of the bond.
107 ____ value of an asset is equal to the present value of the benefits associated with it.
A. market value
B. sale or purchase value
C. intrinsic value
D. net present value
C The intrinsic value of an asset is equal to the present value of the benefits associated with it.
108 The holding period of bond for which the interest rate risk disappears is called:
A. yield to maturity
B. duration of the bond
C. maturity period of the bond
D. redemption period of the bond
B The holding period for which the interest rate risk disappears is called, the duration of the bond.
109 A bond has been issued with a face value of Rs.1000 at 8% coupon for 3 years. The required
rate of return is 7 %. What is the value of the bond?
A. Rs.1026.25
B. Rs.1006.55

C. Rs.1087.45
D. Rs.1011.25
A The cash flow for different years will be discounted at 7% and present value calculated as under:
1st year= (80 x 1 / 1.07 = 74.77) + 2nd year = (80 x 1 / (1.07 x 1.07)= 69.88) + 3rd year = (1080 x 1 /
(1.07 x 1.07 x 1.07) = 881.60) = 1026.25 (in the 3rd year both the coupon of Rs.80 and face value of
Rs.1000 will be received, while in the 1st and 2nd year only the coupon of Rs.80 will be received).
110 A bond has been issued with a face value of Rs.20000 at 12% coupon for 3 years. The required
rate of return is 10 %. What is the value of the bond?
A. Rs.20689.70
B. Rs.20988.80
C. Rs.20898.30
D. Rs.20918.40
B The cash flow will be discounted at 10% for 3 years, separately for coupon for 3 years and face
value
receivable at the end of 3rd year. The present value factor (PVIFA) for regular cash flow for 3 years
of
Rs.2400 at 10% is 2.487 and present value factor (PVIF) for 3 years for single flow of Rs.20000 is
0.751. Value = (2400 x 2.487) + (20000 x 0.751) = 5968.80 + 15020 = 20988.80.
111 A bond has been issued with a face value of Rs.1000 at 10% coupon for 3 years. The required
rate of return is 8 %. What is the value of the bond if the coupon amount is payable on half-yearly
basis?
A. Rs.1025.47
B. Rs.1035.32
C. Rs.1042.84
D. Rs.1052.37
D The cash flow will be discounted at 8 for 3 years, separately for coupon for 6 half years and face
value receivable at the end of 3rd year. The present value factor (PVIFA) for regular cash flow for 6
half years of Rs.50 at 4 % (being half of 8%) is 5.24124 and present value factor (PVIF) for 3 years
for single flow of Rs.1000 is 0.79031. Value = (50 x 5.24124) + (1000 x 0.79031) = 262.62 + 790.31 =
Rs.1052.37
112 The rate of return earned on a bond when purchased at its current price when coupon interest
is received is called:
A. rate of return
B. current yield of the bond
C. yield to maturity
D. any of the above
B The rate of return earned on a bond when purchased at its current price when coupon interest is
received is called current yield of the bond.
113 Current yield of a bond can be calculated as under:
A. current interest / current market price
B. coupon interest / face value
C. coupon interest / current market price
D. current interest / face value
C Current yield of a bond can be calculated as coupon interest / current market price.
114 A 10% bond with face value of Rs.1000 is purchased at Rs.900. What is the current yield?
A. 11.11%

B. 10.00%
C. 9.09%
D. 8.71%
A 100 / 900 = 11.11%
115 A 10% bond with face value of Rs.1000 is purchased at Rs.1100. What is the current yield?
A. 11.11%
B. 10.00%
C. 9.09%
D. 8.71%
C 100 / 1100 = 9.09%
116 The rate of return earned by an investor who purchases the bond and holds it till its matures is
called:
A. rate of return
B. current yield of the bond
C. yield to maturity
D. any of the above
C The rate of return earned by an investor who purchases the bond and holds it till its matures is
called yield to maturity.
117 A 10%, 6 years bond, with face value of Rs.1000 has been purchased by Z for Rs.900. What is
his yield till maturity.
A. 12.50%
B. 12.20%
C. 11.80%
D. 11.60%
A If cost of capital i.e. kd, is the yield to maturity then 900 = 100 (PVIFA kd%, 9 years) + 10000
(PVIF kd, 9 years). More than one values have to be tried.
1st calculation at PVIFA 6 years at 12% factor = 4.11141 and PVIF 6 years at 12% factor = 0.50663.
The
value = (100 x 4.11141 = 411.14) + (1000 x 0.50663 = 506.63) = 917.77 (value more than the current
market price)
1st calculation at PVIFA 6 years at 15 % factor = 3.78448 and PVIF 6 years at 12% factor =
0.43233. The
value = (100 x 3.78448 = 378.45) + (1000 x 0.43233 = 432.33) = 810.78 (value less than the current
market
price).
YTM = 12% + (15%-12%) x [(917.77 - 900) / (917.77 - 810.78)]
YTM = 12% + (3%) x [17.77 / 106.99]
YTM = 12% + (3%) x 0.166
YTM = 12% + 0.498 = 12.498 say 12.50%
118 When the required rate of return is equal to the coupon rate, the value of the bond is:
A. less than face value
B. more than face value
C. equal to face value
D. maturity value
C Theory - When the required rate of return is equal to the coupon rate, the value of the bond is
equal to face value or par value
119 When the required rate of return is more than the coupon rate, the value of the bond is :

A. less than face value


B. more than face value
C. equal to face value
D. maturity value
A Theory - When the required rate of return (kd) is more than the coupon rate, the value of the
bond is less than the face value or par value
120 When the required rate of return is less than the coupon rate, the value of the bond is :
A. less than face value
B. more than face value
C. equal to face value
D. maturity value
B Theory - When the required rate of return (kd) is less than the coupon rate, the value of the bond
is greater than the face value or par value
121 When the required rate of return (kd) is greater than the coupon rate, the discount on the bond
____, as maturity approaches.
A. increases
B. declines
C. remains same
D. none of the above
B Theory - When the required rate of return (kd) is greater than the coupon rate, the discount on
the bond declines, as maturity approaches.
122 When the required rate of return (kd) is less than the coupon rate, the premium on the bond
___, as maturity
approaches:
A. increases
B. declines
C. remains same
D. none of the above
B Theory - When the required rate of return (kd) is less than the coupon rate, the premium on the
bond
declines, as maturity approaches.
123 The market price of a bond is ____ to its yield to maturity:
A. inversely proportional
B. positively proportional
C. equal
D. none of the above
A Theory - The market price of a bond is inversely proportional to its yield to maturity.
124 For a given difference between the YTM and the coupon rate of a bond, the longer the term to
maturity, the _____ with a change in YTM:
A. smaller will be the change in the price
B. greater will be the change in the price
C. greater will be the change in the maturity value
D. smaller will be the change in the maturity value
B Theory - For a given difference between the YTM and the coupon rate of a bond, the longer the
term to maturity, the greater will be the change in the price with a change in YTM. It is due to the
reason that in case of long maturity bonds, a change in YTM is cumulatively applied to the entire

series of coupon
payments and the principal payment is discounted at the new rate for the entire no. of years to
maturity.
125 For a given maturity, the change in bond price will be ____ with the decrease in the YTM of the
bond than the change in bond price with an equal increase in the YTM of the bond.
A. smaller
B. greater
C. equal
D. none of the above
B Theory - For a given maturity, the change in bond price will be greater with the decrease in the
YTM of the bond than the change in bond price with an equal increase in the YTM of the bond.
Which means that for equal sized increase and decreases in the YTM, the price movement are not
symmetrical.
126 For any given change in YTM, the %age price changes, in case of bonds of a high coupon rate,
will be ___ than in case of bonds of a low coupon rate, other things remaining the same.
A. smaller
B. greater
C. equal
D. none of the above
A Theory - For any given change in YTM, the %age price changes, in case of bonds of a high
coupon rate, will be smaller than in case of bonds of a low coupon rate, other things remaining the
same.
127 A change in the YTM affects the price of the bonds with a ____ YTM more than it does the
price of bonds with a ____ YTM.
A. lower, higher
B. higher, lower
C. lower, lower
D. higher, higher
B Theory - A change in the YTM affects the price of the bonds with a higher YTM more than it does
the price of bonds with a lower YTM.
128 X purchased two bonds Bond-1 and Bond-2 with face value of Rs.1000 each and coupon of 8%
and maturity of 4 years and 6 years respectively. If YTM is increased by 1%, the % change in price
of Bond-1 would be:
A. 3.04%
B. 3.12%
C. 3.17%
D. 3.24%
D At 8% YTM, the market price of 4 year Bond-1 is Rs.1000. If YTM is increased by 1% its price
will be = 80 PVIFA (9%, 4) + 1000 (9%, 4 years) = 80 x 3.2397) + 1000 x 0.7084 = 259.17 + 708.40 =
967.57. So % change = 32.43/1000 = 3.24%
129 X purchased two bonds Bond-1 and Bond-2 with face value of Rs.1000 each and coupon of 8%
and maturity of 4 years and 6 years respectively. If YTM is increased by 1%, the % change in price
of Bond-2 would be:
A. 4.48%
B. 4.37%
C. 4.27%

D. 4.14%
A At 8% YTM, the market price of 6 year Bond-2 is Rs.1000. If YTM is increased by 1% its price
will be = 80 PVIFA (9%, 6) + 1000 (9%, 6 years) = 80 x 4.4859) + 1000 x 0.5963 = 358.87 + 596.30 =
955.17. So % change = 44.83/1000 = 4.48%
130 X purchased a Bond with face value of Rs.1000 and coupon of 8% and maturity of 6 years. If
YTM is increased by 1%, the change in price of Bond-2 would be:
A. Rs.44.83 increase
B. Rs.44.83 decrease
C. Rs.48.33 increase
D. Rs.48.33 decrease
B At 8% YTM, the market price of 6 year Bond is Rs.1000. If YTM is increased by 1% its price will
be = 80 PVIFA (9%, 6) + 1000 (9%, 6 years) = 80 x 4.4859) + 1000 x 0.5963 = 358.87 + 596.30 =
955.17. So change in price = Rs.44.83
131 X purchased a bond with face value of Rs.1000 and coupon of 8% and maturity of 4 years. If
YTM is increased by 1%, the change in price of Bond-1 would be:
A. Rs.42.83 increase
B. Rs.42.83 decrease
C. Rs.32.43 increase
D. Rs.32.43 decrease
D At 8% YTM, the market price of 4 year Bond is Rs.1000. If YTM is increased by 1% its price will
be = 80 PVIFA (9%, 4) + 1000 (9%, 4 years) = 80 x 3.2397) + 1000 x 0.7084 = 259.17 + 708.40 =
967.57. So change = Rs.32.43.
132 X purchased a bond with face value of Rs.1000 and coupon of 8% and maturity of 4 years. If
YTM is reduced by 2%, the change in price of Bond would be:
A. Rs.61.81
B. Rs.62.11
C. Rs.69.18
D. Rs.79.81
C At 8% YTM, the market price of 4 year Bond is Rs.1000. If YTM is reduced by 1% its price will
be = 80 PVIFA (6%, 4) + 1000 (6%, 4 years) = 80 x 3.4651) + 1000 x 0.7921 = 277.08 + 792.10 =
1069.18. So change = Rs.69.18.
133 The duration of a bond can be calculated by:
A. ( summation pv x T) x (summation pv)
B. ( summation pv x T) / (summation pv)
C. (summation pv x T) x (summation fv)
D. ( summation pv x T) / (summation fv)
B The duration of a bond can be calculated by using the formulae (summation pv x T) / (summation
pv)
134 Z invested in 10% 3 year bond of face value of Rs.1000 each. The expected market rate is 12%.
What is the duration of the bond.
A. 2.73 years
B. 2.93 years
C. 2.63 years
D. 2.83 years
A ( summation pv x T) / (summation pv) = 2597.67 /951.99 = 2.73 years.
( summation pv x T) = Present value of all cash flows in three years x weightage in years = 2597.67
(summation pv) = Present value of all cash flows in three years = 951.99

135 Z invested in 12.5% 5 year bond of face value of Rs.100 each. The expected market rate is 15%.
What is the duration of the bond.
A. 3 yr 4 months
B. 3 yr 6 month
C. 3 yr 9 month
D. 4 years
D 375.11 /94.11
136 Which of the following is not correct regarding duration?
A. duration is less than the term to maturity
B. In case of zero coupon bonds, the duration = term to maturity
C. duration and YTM are positively correlated
D. none of the above
C duration and YTM are inversely correlated. Other options are correct
137 Which of the following is correct regarding duration?
A. Duration of perpetual bond = 1 +r / r
B. longer the term of a coupon paying bond to maturity, the greater the difference between its term to
maturity
and duration
C. larger the coupon rate, smaller the duration of the bond
D. all the above
D All the above statements are correct.
138 An increase in the frequency of coupon payments ____ the duration and a decrease in
frequency of coupons ____ it.
A. decreases, increases
B. decreases, decreases
C. increases, increases
D. increases, decreases
A Theory - An increase in the frequency of coupon payments decreases the duration and a decrease
in
frequency of coupons increase it.
139 Duration of bond ____ , as the bond approaches maturity.
A. increases
B. remains same
C. decreases
D. none of the above
C Theory - Duration of bond declines, as the bond approaches maturity.
140 The sensitivity of the bond price to changes in the interest rate is called:
A. duration of the bond
B. bond volatility
C. yield to maturity of the bond
D. intrinsic value of the bond
B The sensitivity of the bond price to changes in the interest rate is called bond volatility.
141 Interest rate elasticity (IE) is calculated as:
A. %age change in the price for bond / %age change in yield to maturity for bond
B. %age change in yield to maturity for bond / %age change in the price for bond in period t
C. %age change in the price for bond in period t / %age change in yield to maturity for bond
D. actual change in the price for bond in period t / actual change in yield to maturity for bond

C Interest rate elasticity (IE) is calculated as %age change in the price for bond in period t / %age
change in yield to maturity for bond.
142 D x YTM/1 + YTM gives: (D means duration and YTM means yield to maturity)
A. duration of the bond
B. bond price elasticity
C. yield to maturity of the bond
D. interest rate elasticity
D Interest rate elasticity can be calculated as D x YTM/1 + YTM where D means duration.
143 Z purchased 8%, 3 years bonds of Rs.10 lac, with annual interest payment and face value
payable on maturity. The YTM is assumed at 6%. Calculate the duration.
A. 2.69%
B. 2.79%
C. 2.87%
D. 2.99%
B Explanation: ( summation pv x T) / (summation pv) = 2938181 /1053441 = 2.79 years.
( summation pv x T) = Present value of all cash flows in three years x weightage in years = 2938181
(summation pv) = Present value of all cash flows in three years = 1053441
144 Z purchased 8%, 5 years bonds of Rs.10 lac, with annual interest payment and face value
payable on maturity. The YTM is assumed at 6%. Calculate the modified duration if duration is
2.79%.
A. 2.63%
B. 2.73%
C. 2.83%
D. 2.93%
A Modified duration = Duration / (1 + yield) = 2.79 / 1.06 = 2.63%
145 Z purchased 8%, 5 years bonds of Rs.10 lac, with annual interest payment and face value
payable on maturity. The YTM is assumed at 6%,. Calculate percentage change in the price of the
bond when the decrease in YTM is 100 basis points from 6% to 5% and the duration is 2.79% and
modified duration is 2.63%.
A. 2.63%
B. 2.73%
C. 2.83%
D. 2.93%
A Percentage change can be calculated as = -MD x change in the rate
-2.63 x 0.01= 0.0263 = 2.63%
146 12% , 4 year bonds of Rs.100 each were purchased by X for Rs.100. Calculate the YTM for X.
A. 12.30%
B. 12.00%
C. 11.90%
D. 11.80%
B Since the purchase price and face value of the bond is equal i.e. Rs.100, the YTM will be equal to
the coupon rate.
147 12% , 4 year bonds of Rs.100 each were purchased by X for Rs.100. If the market interest rate
increase by 1% what will be market price?
A. Rs.101.49
B. Rs.102.14
C. Rs.102.69
D. Rs.103.09

D 12 x PVIFA (11%, 4) + 100 x (13%, 4 years) = 12 x (3.10245) + 100 x (0.65873) = 37.22 + 65.87 =
Rs.103.09
148 The present value of a cash flow to be received in future, can be calculated as:
A. C / (1+r)n - 1
B. C / (1+r)n
C. C x (1+r)n
D. C / (1+r)n-1
B The future value of a cash flow can be calculated by using the formulae C / (1+r)n, where C is the
cash flow, r is rate of discount and n the no. of time intervals.
149 For comparing the future cash flows of different times in future:
A. these are converted into present values
B. these are increased by adding the interest
C. these are taken at their accounting value
D. any of the above can be used.
A When the cash flows relating to different time intervals are to be compared, these are converted
to present value by discounting at the given discount rate.
150 Z is to receive Rs.60000 from bank at the end of 3 years, being the maturity value of a term
deposit. How much he is depositing now, if the interest rate is 10%?
A. Rs.44097
B. Rs.45079
C. Rs.47075
D. Rs.49059
B C / (1+r)n = 60000 / (1+0.10)3 = 60000 / 1.331 = 45079
151 The cash flow expected from a project is Rs.700, Rs.1000 and Rs.1200 in the 1st, 2nd and 3rd
year. The discounting factor at 10% rate of interest is 1.10, 1.21 and 1.331. What is the total present
value of these cash flows?
A. Rs.2634.32
B. Rs.2463.88
C. Rs.2364.38
D. Rs.2261.72
C C / (1+r)n = 1st year - 700 / (1+0.10)1 = 700 / 1.1 = 636.36 + 2nd year (1000 / (1+0.10)2 = 1000 /
1.21 =)
826.44 + 3rd year (1200 / (1+0.10)3 = 1200 / 1.331 = ) 901.58 Total = Rs.2364.38
152 For project appraisal, which of the following pairs, are discounting techniques?
A. net present value & internal rate of return
B. net present value & accounting rate of return
C. pay back period & accounting rate of return
D. pay back period & internal rate of return
A Net present value & internal rate of return are the discounting techniques for project or
investment
appraisal. Payback period and accounting rate of return are non-discounting techniques.
153 Under net present value method of project appraisal,
A. the future cash flow is compared with the initial investment made in the project
B. the net present value is compared with the initial investment made in the project
C. the present value is compared with the initial investment made in the project

D. the present value is compared with the absolute value of future cash flows
C Under net present value method of project appraisal, the present value is compared with the
initial
investment made in the project. The difference between two, is the net present value which can be
positive or negative or zero.
154 The net present value of an investment at a given discount rate can be:
A. positive
B. negative
C. zero
D. any of these
D The net present value of an investment at a given discount rate can be positive, negative or zero.
155 The net present value of an investment can be calculated by using the formula:
A. summation *C1 / (1+r)1 + C2 / (1+r)2 + C n / (1+r)n + +1
B. summation *C1 / (1+r)1 + C2 / (1+r)2 + C n / (1+r)n + -1
C. *C1 / (1+r)1 x C2 / (1+r)2 x C n / (1+r)n + -1
D. summation *C1 / (1+r)1 - C2 / (1+r)2 - C n / (1+r)n + -1
B Net present value = summation *C1 / (1+r)1 + C2 / (1+r)2 + C n / (1+r)n + -1. Here 1 stands
for initial investment.
156 If the net present value of an investment or project is negative, it means:
A. the project cannot be taken up, as it would reduce the wealth of the shareholder
B. the project can be taken up, as it would increase the wealth of the shareholder
C. the project can neither be taken up nor it can be left, as it could prove to be remunerative
D. none of the above
A If the net present value of an investment or project is negative, it means that the project cannot be
taken up, as it would reduce the wealth of the shareholder
157 If the net present value of an investment or project is positive, it means:
A. the project cannot be taken up, as it would reduce the wealth of the shareholder
B. the project can be taken up, as it would increase the wealth of the shareholder
C. the project can neither be taken up nor it can be left, as it could prove to be remunerative
D. none of the above
B If the net present value of an investment or project is positive, it means, the project can be taken
up, as it would increase the wealth of the shareholder.
158 If the net present value of an investment or project is zero, it means:
A. the project cannot be taken up
B. the project can be taken up
C. the project can neither be taken up nor it can be left
D. none of the above
B If the net present value of an investment or project is zero, it means, that the project can be taken
up.
159 The net present value from project A is + Rs.505 and from project B, it is (-) Rs.505.
A. project A cannot be taken up for investment but project B can be
B. project B cannot be taken up for investment but project A can be
C. none of the projects can be taken up for investment
D. any of the projects can be taken up for investment
B The project with positive net present value can be taken up as that adds to the wealth of

shareholders. Project with negative net present value reduces the wealth of shareholders.
160 An investor invested Rs.7.50 lac in a project that gives profit of Rs.2 lac in the 1st year, Rs.2.60
lac in the 2nd year and Rs.4.50 lac in the 3rd year. At 10% discount rate, what is the present value
of the cash inflows?
A. Rs.7.15 lac
B. Rs.7.25 lac
C. Rs.7.35 lac
D. Rs.7.45 lac
C The present value of cash inflow will be Rs.1.82 lac for 1st year, Rs.2.15 lac for 2nd year and
Rs.3.38 lac for 3rd year, total being Rs.7.35 lac.
161 An investor invested Rs.7.50 lac in a project that gives profit of Rs.2 lac in the 1st year, Rs.2.60
lac in the 2nd year and Rs.4.50 lac in the 3rd year. At 10% discount rate, what is the net present
value of the project?
A. Rs.0.45 lac positive
B. Rs.0.45 lac negative
C. Rs.0.15 lac positive
D. Rs.0.15 lac negative
D The present value of cash inflow will be Rs.1.82 lac for 1st year, Rs.2.15 lac for 2nd year and
Rs.3.38 lac for 3rd year, total being Rs.7.35 lac. Hence Rs.7.35 less Rs.7.50 lac = 0.15 lac
162 Internal rate of return can be calculated as:
A. 0= summation *C1 / (1+r)1 + C2 / (1+r)2 + C n / (1+r)n + +1
B. 0= summation *C1 / (1+r)1 + C2 / (1+r)2 + C n / (1+r)n + -1
C. 0 = summation*C1 / (1+r)1 x C2 / (1+r)2 x C n / (1+r)n + -1
D. 0= summation *C1 / (1+r)1 - C2 / (1+r)2 - C n / (1+r)n + -1
B 0= summation *C1 / (1+r)1 + C2 / (1+r)2 + C n / (1+r)n + -1 where 0 is IRR, C1 means cash
inflow of 1st year and so on, and r is discount rate.
163 Which of the following meets the definition requirement of Internal Rate of Return?
A. cost of capital of a project
B. discount rate at which net present value is zero
C. discount rate at which net present value must be positive
D. discount rate at which net present value must be negative
B The discount rate at which net present value is zero, is called internal rate of return.
164 The net present value of a project is Rs.1.20 lac at 10% discount rate and (-) Rs.0.20 at 11%
discount rate. The internal rate of return of the project is:
A. 10.50%
B. 11.71%
C. 11.00%
D. 12.00%
B Low discount rate + [difference between 2 discount rates x (NPV at lower discount / absolute
difference between 2 NPVs) = 10% + [2 x (1.20 / 1.40)] = 11.71%
165 Z made an investment of Rs.18000 and he expects a return of Rs.3000 per annum for 12 years.
What is the present value of the cash flow at 10% discount rate?
A. Rs.20244
B. Rs.20364
C. Rs.20442
D. Rs.20544
C The calculation can be made by using Annuity formula i.e. PV = C [(1+r)n -1] / [r(1+r)n] =

Rs.20442
166 Z made an investment of Rs.18000 and he expects a return of Rs.3000 per annum for 12 years.
What is the net present value of the cash flow at 10% discount rate?
A. Rs.2244
B. Rs.2364
C. Rs.2442
D. Rs.2544
C The calculation can be made by using Annuity formula i.e. PV = C [(1+r)n -1] / [r(1+r)n] =
Rs.20442 - 18000 = Rs.2442
167 Z made an investment of Rs.18000 and he expects a return of Rs.3000 per annum for 12 years.
What is the present value of the cash flow at 15% discount rate?
A. Rs.16263
B. Rs.16675
C. Rs.16968
D. Rs.17214
A The calculation can be made by using Annuity formula i.e. PV = C [(1+r)n -1] / [r(1+r)n] =
Rs.16263
168 Z made an investment of Rs.18000 and he expects a return of Rs.3000 per annum for 12 years.
What is the net present value of the cash flow at 15% discount rate?
A. -1737
B. -1637
C. +1737
D. +1637
A The calculation can be made by using Annuity formula i.e. PV = C [(1+r)n -1] / [r(1+r)n] =
Rs.16263 NPV = 16263 - 18000 = -1737
169 A company invests Rs.2 lac on a new machine to be used for job work. It will be depreciated at
20% on SLM basis. The expected earning is Rs.1.60 lac per annum for 5 years. The firm will have
to incur 40% as operating expenses and shall pay 10% tax. Calculate the cash flow per annum.
A. Rs.43200
B. Rs.48200
C. Rs.50400
D. Rs.51900
C Revenue - (operating expenses + depreciation + tax) = 160000 - (64000 + 40000 + 5600) =
Rs.50400
170 A company invests Rs.2 lac on a new machine to be used for job work. It will be depreciated at
20% on SLM basis. The expected earning is Rs.1.60 lac per annum for 5 years. The firm will have
to incur 40% as operating expenses and shall pay 10% tax. Calculate the present value of the cash
flow by discounting it at 10%.
A. Rs.191056
B. Rs.192252
C. Rs.193086
D. Rs.193151
A Cash inflow = Revenue - (operating expenses + depreciation + tax) = 160000 - (64000 + 40000 +
5600) = Rs.50400
PV = C [(1+r)n -1] / [r(1+r)n] = 50400 [(1+0.1)n -1] / [0.1(1+0.1)5] = Rs.191056
171 A company invests Rs.2 lac on a new machine to be used for job work. It will be depreciated at

20% on SLM basis. The expected earning is Rs.1.60 lac per annum for 5 years. The firm will have
to incur 40% as operating expenses and shall pay 10% tax. Calculate the net present value of the
cash flow by discounting it at 10%.
A. Rs.8944 negative
B. Rs.8944 positive
C. Rs.9348 negative
D. Rs.9348 positive
A Cash inflow = Revenue - (operating expenses + depreciation + tax) = 160000 - (64000 + 40000 +
5600) = Rs.50400
PV = C [(1+r)n -1] / [r(1+r)n] = 50400 [(1+0.1)n -1] / [0.1(1+0.1)5] = Rs.191056
NPV = 191056 - 200000 = - Rs.8944
172 Original cost of a machinery is Rs.2 lac and its salvage value Rs.40000 after its use by the firm
for 5 years. The amount of depreciation shall be:
A. Rs.40000
B. Rs.36000
C. Rs.32000
D. none of the above
C (Original cost - salvage value) / no. of years = Rs.200000 - 40000 = 160000 / 5 = Rs.32000
173 Original cost of a machinery is Rs.2 lac and its salvage value Rs.40000 after its use by the firm
for 5 years. The depreciated value at the end of 4th shall be:
A. Rs.72000
B. Rs.70000
C. Rs.68000
D. Rs.66000
A Annual Depreciation = (Original cost - salvage value) / no. of years = Rs.200000 - 40000 =
160000 / 5 =
Rs.32000 Total depreciation for 4 years = 32000 x 4 = 128000. Hence the depreciated value = 2 lac
128000 = Rs.72000.
174 A firm purchased a machinery for Rs.2 lac. It is to be depreciated by 20% at written down
value method. What will be the amount of depreciation for 3rd year?
A. Rs.40000
B. Rs.32000
C. Rs.25200
D. Rs.21600
C 1st year = 200000 x 20% = 40000 2nd year = 160000 x 20% = 32000 3rd year = 128000 x 20% =
25200
175 A firm purchased a machinery for Rs.2 lac. It is to be depreciated by 20% at written down
value method. What will be the depreciated value at the end of 3rd year?
A. Rs.112200
B. Rs.102800
C. Rs.102100
D. Rs.101200
B 1st year = 200000 x 20% = 40000 2nd year = 160000 x 20% = 32000 3rd year = 128000 x 20% =
25200
Total depreciation = 40000 + 32000 + 25200 = 97200. Depreciated value = Rs.2 lac - 97200 =
Rs.102800

176 A firm purchased a machinery for Rs.2 lac. It is to be depreciated by 20% at written down
value method. It sold the machinery for Rs.1 lac at the end of 3rd year. What will be the profit or
loss on the sale?
A. Rs.3300 profit
B. Rs.3300 loss
C. Rs.2800 profit
D. Rs.2800 loss
D 1st year = 200000 x 20% = 40000 2nd year = 160000 x 20% = 32000 3rd year = 128000 x 20% =
25200
Total depreciation = 40000 + 32000 + 25200 = 97200. Depreciated value = Rs.2 lac - 97200 =
Rs.102800. Loss = 102800 - 100000 = Rs.2800
177 A computing machine costs Rs.10000. The life of the machinery is 3 years. What is the amount
of depreciation in the 2nd year as per double declining balance method ?
A. 1667
B. 3333
C. 6667
D. none of the above
B Rate of depreciation under SLM = 100 / 3 = 33.33%. So rate of depreciation under double
declining method = 33.33 x 2 = 66.67%. 1st year depreciation = 10000 x 66.67 % = 6667. WDV =
10000 - 6667 = 3333. 2nd year depreciation as per double declining balance method = 3333 x
66.67% = 2222. But the depreciation under SLM for 2nd year is Rs.3333. Hence higher of two is to
be taken. Hence for 2nd year, the depreciation = 3333
178 Under double declining method of depreciation, if the amount of depreciation in any year is less
than the amount of depreciation calculated as per SLM:
A. the amount calculated as per SLM to be taken
B. the amount calculated as per double declining balance method to be taken
C. the lower of the two amounts to be taken
D. none of the above
A If the amount of depreciation calculated as per double declining method of depreciation in any
year, is less than the amount of depreciation calculated as per SLM, the amount calculated as per
SLM to be taken.
179 Where the equipment may be required to be replaced earlier than its useful life (as in case of
computers), which of the following methods of depreciation, is more suitable?
A. double declining balance method
B. accelerated depreciation method
C. WDV method
D. SLM method
B Where the equipment may be required to be replaced earlier than its useful life (as in case of
computers), accelerated depreciation method is more suitable.
180 Which method of depreciation provides greater tax shielding effect than the SLM method of
depreciation?
A. double declining balance method
B. accelerated depreciation method
C. WDV method
D. sum of the years digits
B The accelerated depreciation method provides greater tax shielding effect than the SLM method

of
depreciation. The method is popular for writing off the equipment which may be replaced before
the end of its useful life, as in case of computers.
181 Where an asset assumes higher depreciation and greater tax benefit in the early years of life of
the asset, which of the following methods of depreciation is more suitable?
A. double declining balance method
B. accelerated depreciation method
C. WDV method
D. sum of the years digits
D Sum of the years digits method is used where an asset assumes higher depreciation and greater
tax benefit in the early years of life of the asset.
182 An asset (say a computer) has a life of 5 years. What will be depreciation %age in the 2nd year,
on the basis of sum of years digits method.
A. 20.25%
B. 25.57%
C. 26.67%
D. 29.61%
C 5 + 4 + 3 + 2 + 1 = 15 Hence in the 2nd year it will be 4/15 = 26.67%
183 A computer is purchased for Rs.50000 and its salvage value is assumed as Rs.2000. What will be
amount of
depreciation in the 2nd year, on the basis of sum of years digits method.
A. Rs.12802
B. Rs.12076
C. Rs.11985
D. Rs.11845
A Rate of depreciation = 5 + 4 + 3 + 2 + 1 = 15 Hence in the 2nd year it will be 4/15 = 26.67%.
Amount of
depreciation = (50000 - 2000) x 26.67% = 12802
184 A computer is purchased for Rs.50000 and its salvage value is assumed as Rs.2000. What will be
depreciated value at the end of 2nd year, on the basis of sum of years digits method.
A. Rs.37918
B. Rs.37198
C. Rs.38146
D. Rs.38262
B Rate of depreciation = 5 + 4 + 3 + 2 + 1 = 15 Hence in the 2nd year it will be 4/15 = 26.67%.
Amount of
depreciation = (50000 - 2000) x 26.67% = 12802. Depreciation value = 50000 - 12802 = Rs.37198
185 A computer is purchased for Rs.50000 and its salvage value is assumed as Rs.2000. What will be
amount of profit or loss, if the computer is sold for Rs.35000 at the end of 2nd year. The calculation
is to be made on the basis of sum of years digits method.
A. Rs.2846 profit
B. Rs.2846 loss
C. Rs.2198 profit
D. Rs.2198 loss
D Rate of depreciation = 5 + 4 + 3 + 2 + 1 = 15 Hence in the 2nd year it will be 4/15 = 26.67%.
Amount of
depreciation = (50000 - 2000) x 26.67% = 12802. Depreciation value = 50000 - 12802 = Rs.37198.

Loss =
37198 - 35000 = 2198
186 The home currency price of one unit of foreign currency is called:
A. selling rate
B. buying rate
C. direct rate
D. indirect rate
C The home currency price of one unit of foreign currency is called direct rate, where the home
currency unit is variable and foreign currency unit is fixed. Example 1 USD = Rs.46.10
187 1 US D = Rs.45.90 is an example of:
A. selling rate
B. buying rate
C. direct rate
D. indirect rate
C In a direct rate, the home currency unit is variable and foreign currency unit is fixed. Example 1
USD = Rs.46.10
188 The foreign currency price of one unit of Home currency is called:
A. selling rate
B. buying rate
C. direct rate
D. indirect rate
D The foreign currency price of one unit of home currency is called indirect rate, where the home
currency unit is fixed and foreign currency unit is variable. Example Rs.100 = USD 2.13
189 When direct rate of a foreign currency is not available, the rate calculated through a common
currency, is called :
A. floating rate
B. cross rate
C. fixed rate
D. direct rate
B It is called cross rate.
190 USD is available in Delhi at 1 USD = 46.10. USD rate in London is 1 USD = 0.75 Euro. What
will be the Euro / Re rate?
A. Rs.61.47
B. Rs.64.17
C. Rs.35.48
D. Rs.34.58
A 1 Euro = 46.10 / 0.75 = Rs.61.47
191 An exporter has submitted an export bill of 10000. The inter-bank foreign currency rates for
spot delivery are 1USD = Rs.45.32. In London the rate is = USD 1.832. How much amount in
Indian Rupees will be paid to the exporter.
A. Rs.836202.80
B. Rs.834026.30
C. Rs.830262.40
D. Rs.832026.70
C Cross rate = 45.32 x 1.832 = 83.02624. Total amount 83.02624 x 10000 = Rs.830262.40

192 The chain rule method is used in case of which of the following types of rates?
A. floating rate
B. cross rate
C. fixed rate
D. direct rate
B The chain rule method is used in case of cross rate. If a customer submits an export bill in and
no direct rate is available for , the calculation will be made through a common currency, say USD.
193 The term value date means:
A. the date on which the bill or currency is actually purchased
B. the date on which the exchange of currencies actually takes place.
C. the date on which the bill or currency is actually sold
D. none of the above
B The date on which the exchange of currencies actually takes place, is called value date.
194 When the exchange of currencies takes place on date of deal, which of the following type of
exchange rate will be applicable?
A. cash or ready rate
B. TOM rate
C. spot rate
D. forward rate
A When the exchange of currencies takes place on date of deal, cash or ready exchange rate will be
applicable.
195 When the exchange of currencies takes place on next working day (T+1) i.e. tomorrow, which of
the following type of exchange rate will be applicable?
A. cash or ready rate
B. TOM rate
C. spot rate
D. forward rate
B When the exchange of currencies takes place on next working day (T+1) i.e. tomorrow, TOM
exchange rate will be applicable.
196 When the exchange of currencies takes place on 2nd working day (T+2), which of the following
type of exchange rate will be applicable?
A. cash or ready rate
B. TOM rate
C. spot rate
D. forward rate
C When the exchange of currencies takes place on 2nd working day (T+2), the spot exchange rate
will be applicable.
197 When the exchange of currencies takes place after the spot date, which of the following type of
exchange rate will be applicable?
A. cash or ready rate
B. TOM rate
C. spot rate
D. forward rate
D When the exchange of currencies takes place after the spot date, the Forward exchange rate will
be

applicable.
198 A currency is said to be at a premium, when:
A. future rate is lower and spot rate is higher
B. future rate is higher and spot rate is lower
C. future rate and spot rate are same
D. none of the above
B A currency is said to be at a premium, when future rate is higher and spot rate is lower.
199 To calculate a forward rate in case of direct quote, if there is premium:
A. the premium is added to purchase rate and deducted from selling rate
B. the premium is deducted from purchase rate and added to selling rate
C. the premium is added to purchase rate and selling rate
D. the premium is deducted from purchase rate and selling rate
C To calculate a forward rate in case of direct quote the premium is added to purchase rate and
selling rate.
200 To calculate a forward rate in case of direct quote, if there is discount:
A. the discount is added to purchase rate and deducted from selling rate
B. the discount is deducted from purchase rate and added to selling rate
C. the discount is added to purchase rate and selling rate
D. the discount is deducted from purchase rate and selling rate
D To calculate a forward rate, in case of direct quote, the discount is deducted from the purchase
rate and selling rate.
201 Spot Euro = USD 1.3200 / 10. One month forward 40-35, 2 month forward 75-70, 3 month
forward 105-100. 2 month USD can be purchased at:
A. Euro 1 = USD 1.3235
B. Euro 1 = USD 1.3175
C. Euro 1 = USD 1.3160
D. Euro 1 = USD 1.3240
B Euro is at a discount and US D is at a premium. Hence Euro = 1.3210 - 0.0035 = 1.3175
202 Spot Euro = USD 1.3200 / 10. One month forward 40-35, 2 month forward 75-70, 3 month
forward 105-100. 1 month Euro can be sold at:
A. Euro 1 = USD 1.3160
B. Euro 1 = USD 1.3165
C. Euro 1 = USD 1.3175
D. Euro 1 = USD 1.3240
A Euro is at a discount and US D is at a premium. Euro = 1.3200 - 0.0040 = 1.3160
203 The forward rate has ___ components namely ___:
A. two components, sale and purchase
B. two components, spot rate and forward points
C. three components, spot rate, premium and discount
D. three components, spot rate, forward points, forward load
B The forward rate has two components namely, spot rate and forward points.
204 The spot rate is Euro 1 = USD 1.3200 and 2 month forward Euro 1 = USD 1.3325. The forward
points are equal to: A. 125

B. 250
C. 320
D. 325
A The spot rate is Euro 1 = USD 1.3200 and 2 month forward Euro 1 = USD 1.3325. The forward
points are equal to 125 i.e. difference between spot rate and forward rate.
205 Which of the following is not a factor that contributes to determine the forward points for
calculation of forward rate?
A. demand and supply position for the settlement date
B. market expectation about the future developments
C. interest rate differential between two countries
D. none of the above
D All these are the factors that contribute to determine the forward points for calculation of
forward rate.
206 _______ is an operation, through which a person can make risk free profits by undertaking
offsetting transactions (say borrow foreign currency in one market and lend in other market).
A. swap
B. arbitrage
C. forward
D. spot
B Arbitrage is an operation, through which a person can make risk free profits by undertaking
offsetting transactions (say borrow foreign currency in one market and lend in other market)
simultaneously.
207 The forward points can be calculated as:
A. (spot rate x interest rate differential / forward period) / (100 x no. of days in the year)
B. (spot rate / interest rate differential x forward period) / (100 x no. of days in the year)
C. (spot rate x interest rate differential x forward period) / (100 x no. of days in the year)
D. (spot rate x interest rate differential x forward period) x (100 x no. of days in the year)
C Forward points = (spot rate x interest rate differential x forward period) / (100 x no. of days in
the year).
208 Forward differential is known as:
A. swap rate
B. arbitrage rate
C. forward rate
D. spot rate
A Forward differential is also known as Swap Rate.
209 If spot exchange rate = 2.0000, interest rate differential = 4% p.a., forward period = 60 days,
calculate the forward points by taking an year = 360 days.
A. 0.011111
B. 0.012222
C. 0.013333
D. 0.014444
C (spot rate x interest rate differential x forward period) / (100 x no. of days in the year).
(2.0000 x 4 x 60) / (100 x 360) = 0.013333
210 Interest differential can be calculated as:
A. (100 x no. of days in the year x forward points) / (spot rate x forward period)

B. (100 x no. of days in the year x) / (spot rate x forward period)


C. (100 x no. of days in the year x) / (forward points x forward period)
D. (100 x no. of days in the year x forward period) / (spot rate x forward points)
A Interest differential = (100 x no. of days in the year x forward points) / (spot rate x forward
period)
211 If spot exchange rate = 2.0000, forward points = 0.016666., forward period = 60 days, calculate
the interest differential by taking an year = 360 days.
A. 3%
B. 4%
C. 5%
D. 6%
C Interest differential = (100 x no. of days in the year x forward points) / (spot rate x forward
period).
Interest differential = (100 x 360 x 0.016666) / (2.0000 x 60) = 5%
212 If spot rate Euro 1 = USD 1.3200 / 10, one month forward = 25-20, 2 month forward = 30-25
and 3 month forward = 35- 30. What is 3 month bid rate (buying rate) ?
A. Euro 1= USD 1.3170
B. Euro 1= USD 1.3165
C. Euro 1= USD 1.3230
D. Euro 1= USD 1.3235
B Forward bid rate = Spot bid rate - forward points Euro 1= 1.3200 - 0.0035 = USD 1.3165
213 If spot rate Euro 1 = USD 1.3200 / 10, one month forward = 25-20, 2 month forward = 30-25
and 3 month forward = 35- 30. What is 3 month offer rate (selling rate) ?
A. Euro 1= USD 1.3240
B. Euro 1= USD 1.3220
C. Euro 1= USD 1.3200
D. Euro 1= USD 1.3180
D Forward offer rate = Spot offer rate - forward points Euro 1= 1.3210 - 0.0030 = USD 1.3180
214 Cost accounting is concerned with the application of ____ for ascertaining the cost, with a view
to controlling them and assessing the profitability and efficiency of the enterprise.
A. costing principles
B. costing methods
C. costing techniques
D. all the above
D Cost accounting is concerned with the application of costing principles, methods and techniques
for
ascertaining the cost, with a view to controlling them and assessing the profitability and efficiency
of the enterprise.
215 ___ accounting is associated with the need of the business owners to keep records of their
transactions, the property and tools they own, the debts they owe and debts other owe them.
A. stewardship accounting
B. financial accounting
C. cost accounting
D. management accounting.
A Stewardship accounting is associated with the need of the business owners to keep records of
their

transactions, the property and tools they own, the debts they owe and debts other owe them.
216 Which of the following types of accounting system is associated with the preparation and
presentation of accounting and controlling information, in a form that assists the management, in
the formulation of policies and in decision making, on the various matters connected with
operations of the business enterprise.
A. stewardship accounting
B. financial accounting
C. social responsibility accounting
D. management accounting.
D The explanation given in the question above, relates to management accounting.
217 The managements of businesses are held responsible for what the business contributes to the
social well-being and progress, under an accounting system called:
A. stewardship accounting
B. human resources accounting
C. social responsibility accounting
D. management accounting.
C Under social responsibility accounting, the managements of businesses are held responsible for
what the business contributes to the social well-being and progress.
218 The accounting system that involves accounting for investment in people and replacement costs
as well as the accounting for the economic values of people to an organisation, is called:
A. inflation accounting
B. human resources accounting
C. social responsibility accounting
D. management accounting.
B Under human resources accounting, the accounting system involves accounting for investment in
people and replacement costs as well as the accounting for the economic values of people to an
organisation.
219 ____ accounting is concerned with the adjustment in the value of assets and of profits, in the
light of changes in the price level.
A. inflation accounting
B. human resources accounting
C. social responsibility accounting
D. management accounting.
A The inflation accounting is concerned with the adjustment in the value of assets and of profits, in
the light of changes in the price level.
220 The machinery is recorded in the books of a firm at the price paid to the supplier + the
expenses of bringing and installing the machinery. This is due to application of:
A. money measurement concept
B. cost concept
C. business entity concept
D. realization concept
B Every business transaction is recorded in the books of account at cost price. These costs are
required to put the machinery in working order.
221 The monetary value assigned to various assets is derived from:
A. money measurement concept

B. cost concept
C. business entity concept
D. realization concept
B The cost concept says that an asset is worth the price paid for or the cost incurred to acquire it.
Hence it should be recorded accordingly.
222 When the promoter of a business withdraws certain goods from the business for his personal
use, his drawing account is debited. This is done due to application of :
A. going concern concept
B. cost concept
C. business entity concept
D. realization concept
C The business and promoter are two different entities. Money put in by the promoter in business,
is liability of the business. Similarly, assets drawn from business by the promoter will be debited to
his account.
223 The profit made by a firm is a liability for the business and loss made by a firm is an asset. This
is due to application of:
A. going concern concept
B. cost concept
C. business entity concept
D. realization concept
C The profit is the amount that the promoter is entitled to withdraw from the business due to which
it is
liability of the business. Loss is the amount that is recoverable by the business from the promoter
due to which it becomes asset for the business.
224 Which of the following transaction is not covered by the application of going concern concept:
A. future income not to be taken into account
B. fixed assets are valued at their cost and not the market value
C. current assets are valued at market price or cost, whichever is less
D. provisions are created to meet any future liability
A No future income is taken into account due to application of realization concept and not due to
the going concern concept.
225 The accounting concepts used in preparation of accounts are:
A. methods for presentation of financial statements
B. broad assumption for preparation of accounts
C. basic rules for preparation the accounts
D. all the above
B These are broad assumptions that are taken into account for preparation of accounts by the
business firms.
226 In a business firm, the assets = capital + liability. It is due to :
A. going concern concept
B. money measurement concept
C. matching concept
D. dual aspect concept
D In the dual concept every transaction has double effect i.e. debit and credit. When capital was
brought in or some liability was contracted, it must have given rise to some asset.

227 A business firm has to make all adjustments for prepaid expenses and outstanding expenses due
to application of:
A. going concern concept
B. accounting period concept
C. matching concept
D. dual aspect concept
C As per matching concept, the income of a particular period is required to be matched with the
expenses of the same period.
228 In the balance sheet of a firm, the notes relating to those facts are included, that do not find a
place in the accounting statements. This is due to:
A. convention of materiality
B. convention of conservatism
C. convention of accounting of full disclosure
D. convention of consistency
C The concept of full disclosure suggests that all material facts affecting a business should be
disclosed.
229 Many small transactions are not recorded separately in the accounts of a firm. These are
included in the miscellaneous items for recording purposes. This is done because of use of :
A. convention of materiality
B. convention of conservatism
C. convention of account of full disclosure
D. convention of consistency
A As per convention of materiality, all material information should be recorded. It depends upon
the nature of business and circumstances as to what is material and what is not. Recording of small
transactions separately involves huge cost due to which these are grouped together. These do not
have significant bearing on the business.
230 Which among the following account concepts is observed at the recording stage (and not the
reporting stage) of the transactions:
A. matching concepts
B. business entity concept
C. materiality concept
D. matching concept
B Business entity concept relates to the recording stage while all others relate to the reporting stage.
231 If a firm has been following the straight line method of depreciation, it should continue to
follow the same rather than changing to the written down value method. This is due to:
A. convention of materiality
B. convention of conservatism
C. convention of account of full disclosure
D. convention of consistency
D Convention of consistency suggests that accounting practices should be followed continuously so
that fair picture of financial position of the business is reflected.
232 The ____ concept makes a distinction between the receipt of cash and right to receive it or
payment of cash and obligation to pay cash:
A. realization system
B. cash concept
C. accrual concept

D. consistency concept
C The accrual concept recognizes that in actual business operations, the receipt or payment of cash
may not coincide, but for fair accounting, if there is right to receive or obligation to pay, it should be
recorded. In cash concept the accounting is done on the basis of actual receipt of cash.
233 Which of the following accounting concept is observed at the reporting stage of accounting and
not at the recording stage:
A. business entity concept
B. cost concept
C. consistency concept
D. historical record concept
C Consistency concept is used at the reporting stage while the others are used at the recording
stage.
234 Which of the following concept forbids the inclusion of unrealized gains but advocates the
provision for possible losses:
A. consistency concept
B. conservatism concept
C. business entity concept
D. historic record concept
B The conservatism concept insist that unrealized gains should not be taken into account but
possible losses should be provided for to show fair picture of the business.
235 The ____ concept refers to the expectation that the organisation will have indefinite life due to
which it has bearing on the valuation of assets:
A. consistency concept
B. business entity concept
C. going concern concept
D. historic record concept
C In the going concern concept, the expectation is that organisation will run indefinitely due to
which the valuation of assets will be on the basis of their cost price.
236 The accounting period of a firm closes on Mar 31 every year. Neither it did pay the rent of
Rs.30000 relating to the last month of the year and nor accounted for in the books. It violated which
of the following:
A. cost concept
B. matching concept
C. accounting period concept
D. dual aspect concept
B In the matching concept, all the costs and revenues relating to a particular period are to be
accounted for.
237 The books of business should be closed and reopened after regular time period as per:
A. consistency concept
B. business entity concept
C. going concern concept
D. accounting period concept
D Accounting period concept suggest that though the business is going concern but after a short
period, of say, one year, the position of business should be ascertained.
238 In the balance sheet of a firm, the amount of stocks has been taken as Rs.50000 which is not the

cost price but the expected price at which it may be sold. It is violation of:
A. consistency concept
B. conservatism concept
C. going concern concept
D. historic record concept
B The conservatism concept suggests that the unrealized gains should not be recorded. Here the sale
price includes the unrealized profits which should not be shown as profit.
239 A firm supplied goods to another firm worth Rs.5000 but the payment has not been received as
on the date of annual closing of accounting:
A. the amount of Rs.5000 should not be taken in sale
B. the amount of Rs.5000 should be taken as part of stock
C. the amount should be recorded as sale and taken to profit and loss account
D. the amount should be shown as consignment stock
C As per accrual system of accounting, if the right to recover has accrued, it should be taken into
profit and loss account. Here actual sale has taken place and should be recorded as sale only.
240 In India, the accounting standards are formulated by:
A. Registrar of Companies
B. Accounting Standards Board of ICAI
C. Securities & Exchange Board of India
D. all the above
B In India, the accounting standards are formulated by Accounting Standards Board of ICAI
which was
constituted in April 1977.
241 Where a firm or company does not follow a mandatory accounting standard, the auditors of
that firm or company:
A. have to prepare the fresh accounts on the basis of accounting standard
B. have to qualify their audit report
C. cannot undertaking auditing assignment
D. have to seek permission of Accounting Standard Board of ICAI.
B Where a firm or company does not follow a mandatory accounting standard, the auditors of that
firm or company, have to qualify their audit report, failing which they will be guilty of professional
misconduct.
242 Where a company does not follow an accounting standard, it has to disclose the following
information:
A. the deviation from the accounting standards
B. the reasons for such a deviation
C. the financial effects, if any, arising out of such deviation
D. all the above
D Where a company does not follow an accounting standard, it has to disclose all the above
information.
243 Which of the following accounting standard, relates to valuation of inventories:
A. AS-2
B. AS-5
C. AS-9
D. AS-11
A AS2 relates to valuation of inventories.

244 Which of the following does not match?


A. AS-1 : Disclosure of accounting policies
B. AS-3 : Cash flow statements
C. AS-6 : Accounting for fixed assets
D. AS-9 : Revenue recognition
C AS -6 relates to depreciation accounting and not the fixed assets accounting.
245 Which of the following accounting standards does not match:
A. AS-17 : segment reporting
B. AS -20: Consolidated financial accounting
C. AS-26 : Intangible assets
D. AS-29 : Provisions, contingent liabilities and contingent assets
B AS-20 relates to earning per share. Consolidated financial accounting is covered under AS-21.
246 Which of the following accounting standards helps in better understanding of financial
statements:
A. AS-1 : Disclosure of accounting policies
B. AS-3 : Cash flow statements
C. AS-6 : Accounting for fixed assets
D. AS-9 : Revenue recognition
A AS-1 on disclosure of accounting policies helps in better understanding of financial statements.
247 If some important event has happened after the accounting date (such as imposition of penalty
by the Tax
authorities), it is dealt with as per :
A. AS-2
B. AS-4
C. AS-7
D. AS-9
B AS-4 deals with important event happened after the accounting date (such as imposition of
penalty by the Tax authorities).
248 The accounting rules used to prepare financial statements for the publicly traded companies
are called:
A. Accounting Standards
B. Generally Accepted Accounting Principles
C. Generally followed accounting standard
D. any of the above
B Generally Accepted Accounting Principles are the accounting rules used to prepare financial
statements for the publicly traded companies.
249 As per Generally Accepted Accounting Principles, the financial statements should be (a)
relevant (b) reliable (c) comparable (d) consistent :
A. a to d all
B. a to c only
C. b to d only
D. a, c and d only
A As per Generally Accepted Accounting Principles, the financial statements should be (a) relevant
(b) reliable (c) comparable (d) consistent.
250 Which of the following organisation in US of America, influences the development of Generally

Accepted Accounting Principles:


A. US Securities and Exchange Commission (SEC)
B. American Institute of Certified Public Accountants
C. Financial Accounting Standards Board
D. all the above
D All the above organisations, influence the development of Generally Accepted Accounting
Principles.
251 The system followed for pricing of goods and services within a multi-divisional organisation is
called:
A. Generally Accepted Accounting Principles
B. Transfer Pricing
C. Accounting Standard
D. Any of the above
B Transfer pricing means the system followed in pricing of goods and services within a multidivisional
organisation.
252 Which of the following is a method used under Transfer Pricing:
A. comparable uncontrolled price method
B. cost plus method
C. resale price method
D. all the above
D The methods used under Transfer Pricing include comparable uncontrolled price method, cost
plus method and resale price method.
253 Which method compares the price at which a controlled transaction is conducted to the price at
which a comparable uncontrolled transaction is conducted.
A. comparable uncontrolled price method
B. cost plus method
C. resale price method
D. none of the above
A The comparable uncontrolled price method, compares the price at which a controlled transaction
is
conducted to the price at which a comparable uncontrolled transaction is conducted.
254 Generally the ___ method is used for the trade of finished goods, under transfer pricing:
A. comparable uncontrolled price method
B. cost plus method
C. resale price method
D. none of the above
B Generally the cost plus method is used for the trade of finished goods, under transfer pricing
255 In the resale price method under Transfer Pricing:
A. the price is determined by subtracting an appropriate gross mark up from the sale price.
B. the price is determined by addition an appropriate gross mark up from the sale price.
C. the price is determined equal to the sale price.
D. none of the above
A In the resale price method, the price is determined by subtracting an appropriate gross mark up
from the sale price.

256 In the cost plus method under Transfer Pricing:


A. the price is determined by subtracting an appropriate gross mark up from the sale price.
B. the price is determined by addition an appropriate gross mark up from the sale price.
C. the price is determined equal to the sale price.
D. none of the above
B In the cost plus method, the price is determined by addition an appropriate gross mark up from
the sale price.
257 The price at which two unrelated and non-desperate parties would agree to a transaction is
called:
A. transfer pricing
B. arm length price
C. standard pricing
D. concessional pricing.
B The arm length price is the price at which two unrelated and non-desperate parties would agree
to a
transaction.
258 The Head Office of a bank evaluates the performance of its branches, by using :
A. generally accepted accounting practices
B. accounting standards
C. transfer price mechanism
D. any of the above.
C The Head Office of a bank evaluates the performance of its branches, by using transfer price
mechanism.
259 The Transfer price mechanism used in banks means:
A. the interest charged by the surplus funds branch to the deficit funds branch on transfer of funds.
B. the interest charged by the head office to the deficit funds branch on transfer of funds.
C. the interest charged by the surplus funds branch to the head office on transfer of funds.
D. the interest and other costs charged by the surplus funds branch to the deficit funds branch on transfer
of
funds.
A The Transfer price mechanism used in banks means, the interest charged by the surplus funds
branch to the deficit funds branch on transfer of funds.
260 Which of the following unconventional methods under transfer pricing is the unified version of
resale price method and cost plus method:
A. comparable uncontrolled price method
B. profit split method
C. transactional net margin method
D. all the above
C The transactional net margin method is the unified version of resale price method and cost plus
method.
261 Which of the following is description of the nominal account?
A. an account of a person from whom the firm purchased goods
B. account of machinery
C. account of wages paid to a labourer, while his services were used for construction of factory building.
D. none of the above
D None of these accounts falls under nominal category. Wages paid to labourer for using his

services for construction of factory building, are a real account (asset account).
262 Debit what comes in and credit the giver are the rules to debit and credit in respect of:
A. real account, nominal account
B. real account, personal account
C. nominal account, personal account
D. personal account, real account
B Debit what comes in is the rule applicable for real account and credit the giver is the rules to
credit a
personal account.
263 Debit all expenses and credit what goes out, are the rules, for debit and credit to:
A. nominal account, personal account
B. real account, nominal account
C. nominal account, real account
D. personal account, nominal account
C Debit all expenses is the rule applicable to a nominal account and credit what goes out, is the
rules, for credit to real account.
264 Firm sold old machinery to XYZ, for cash. This transaction involves:
A. one real account and other personal account
B. both the real accounts
C. both the personal accounts
D. one real account and other nominal account
B Old machinery and cash, both are real accounts.
265 A firm made profits and the owners did not withdraw these profits to full extent. The retained
amount of prof its will be shown as:
A. part of assets
B. part of current liabilities
C. part of capital of the owners
D. part of the reserves
D Retained profits become part of the reserves and not of capital. These are liabilities of the firm
towards the promoters of the firm.
266 The accounting concepts are part of which of the following:
A. format of presentation of accounting books
B. format for preparation of final accounts
C. broad assumptions
D. particular set of guidelines
C The accounting concepts are broad assumptions.
267 Cash book keeps records of :
A. all business transactions
B. all cash receipts and cash payments
C. all cash and non-cash transactions
D. only trading related cash receipts and payments.
B Cash book keeps records of all cash receipts and cash payments, irrespective whether these are
on revenue account or capital account.
268 Which of the following is correct in the context of cash book:

A. all receipts are recorded on the credit side and payments on the debit side.
B. all receipts are recorded on the debit side and payments on the credit side.
C. all receipts and payments are recorded on the credit side
D. all receipts and payments are recorded on the debit side
B In a cash book, all receipts are recorded on the debit side and payments on the credit side.
269 Cash book maintained by a firm is a:
A. book of original entry only
B. ledger account only
C. both the book of original entry and ledger account
D. neither book of original entry nor ledger account
C Cash book maintained by a firm is both, the book of original entry and ledger account.
270 From the journal, the amount payable to or receivable from a particular person can be
calculated by adding all the entries, which is a difficult task. This is made easy by which of the
following books:
A. ledger
B. cash book
C. journal itself
D. any of the above
A The ledger provides details of individual accounts wherein amount payable to or receivable from
a
particular person is automatically available.
271 Which of the following is correct sequence of book keeping or record keeping:
A. classifying, recording, summarizing
B. recording, classifying, summarizing
C. summarizing, recording, classifying
D. summarizing, classifying, recording,
B The correct sequence is recording, classifying, summarizing.
272 Preparing of trial balance and final accounts, with a view to ascertain profits from the business,
is called:
A. recording
B. classifying
C. summarizing
D. none of the above
C Summarizing means to prepare trial balance and final accounts, with a view to ascertain profits
from the business.
273 The process of recording transactions in the book of original entry is called:
A. recording
B. journalizing
C. posting
D. summarizing
B The process of recording transactions is called journalizing.
274 The process of recording transaction in the ledger is called:
A. recording
B. journalizing
C. posting

D. summarizing
C The process of recording transaction in the ledger is called posting.
275 Which of the following is a book of analytical records?
A. cash book
B. journal
C. ledger
D. none of the above
C Ledger is a book of analytical records.
276 Which of the following is a book of chronological record?
A. cash book
B. journal
C. ledger
D. none of the above
B Journal is the book of chronological record.
277 The process of equalizing the two sides of an account by putting the difference on the side
where the amount is short, is called:
A. balancing
B. journalizing
C. posting
D. summarizing
A The process of equalizing the two sides of an account by putting the difference on the side where
the
amount is short, is called balancing.
278 In the process of balancing, if the debit side of an account is more than the credit side, the
difference is put on:
A. debit side
B. credit side
C. either credit or debit side
D. neither side.
B In the process of balancing, if the debit side of an account is more than the credit side, the
difference is put on credit side.
279 The debit balance of an account is represented by (a) liability (b) expenses (c) asset (d) income:
A. b and c
B. b and d
C. a and c
D. a and b
A The debit balance of an account is represented by expenses or assets
280 The credit balance of an account is represented by (a) liability (b) expenses (c) asset (d) income:
A. b and c
B. b and d
C. a and c
D. a and d
D The debit balance of an account is represented by liability or income.
281 If balance is in debit in a personal account it represents:
A. creditors
B. debtors
C. liabilities

D. expenses
B If balance is debit in a personal account it represents debtors.
282 If balance is credit in a nominal account, it represents:
A. debtor
B. creditor
C. income
D. expenses
C The credit balance in a nominal account, is income
283 If balance is debit in a nominal account, it represents:
A. debtor
B. creditor
C. income
D. expenses
D The debit balance in a nominal account, is expense.
284 If balance in a real account is credit, it represents:
A. liability
B. assets
C. income
D. none of the above
D There cannot be a credit balance in a real account. A real account is an asset and cannot carry
credit
balance. It always has debit balance.
285 Which among the following is a personal account?
A. cash
B. bank overdraft
C. wages paid
D. machinery
B Bank overdraft is an account with a bank. Hence a personal account.
286 Which of the following is a personal account?
A. salary paid
B. rent receivable
C. vehicle
D. wage paid
B Rent receivable is a personal account under representative personal account category.
287 Which of the following is not a real account?
A. cash
B. machinery
C. land
D. bank term loan
D Bank term loan is a personal account while all other, a real account.
288 Which of the following is a nominal account?
A. rent payable
B. salary receivable
C. commission outstanding
D. none of the above
D All the accounts are personal accounts.
289 Which of the following is not a valuation account or a contra account?
A. provision for depreciation
B. provision for doubtful debts
C. stock reserve account

D. none of the above


D All these are valuation accounts, which are also called contra accounts
290 If there is debit balance in a personal account and one more entry is written on the debit side,
this signifies:
A. the amount due from the person has increased
B. the amount due from the person has decreased
C. the amount payable to the person has decreased
D. the amount payable to the person has increased
A If there is debit balance in a personal account (i.e. debtor account) and one more entry is written
on the debit side, this signifies that the amount due from the person has increased.
291 If there is credit balance in a personal account and one entry is written on the debit side, this
signifies:
A. the amount due from the person has increased
B. the amount due from the person has decreased
C. the amount payable to the person has decreased
D. the amount payable to the person has increased
C If there is credit balance in a personal account and one entry is written on the debit side, this
signifies that the amount payable to the person has decreased.
292 A debit entry in the real account signifies that (a) the value of asset has decreased (b) the value
of the asset has increased (c) a new asset has been acquired (d) an old asset has been sold:
A. a and c
B. b and c
C. c and d
D. a and d
B A debit entry in the real account signifies that the value of the asset has increased or a new asset
has been acquired.
293 A credit entry in the real account signifies that (a) the value of asset has decreased (b) the value
of the asset has increased (c) a new asset has been acquired (d) an old asset has been sold:
A. a and c
B. b and c
C. c and d
D. a and d
D A debit entry in the real account signifies that the value of the asset has decreased or a an asset
has been sold.
294 A debit entry to a nominal account means (a) some expense has been incurred (b) some income
has been received (c) some loss has taken place (d) some gain has been made.
A. a and c
B. b and c
C. b and d
D. a and d
A A debit entry to a nominal account means some expense has been incurred or some loss has taken
place
295 A credit entry to a nominal account means (a) some expense has been incurred (b) some income
has been received (c) some loss has taken place (d) some gain has been made.
A. a and c
B. b and c

C. b and d
D. a and d
C A credit entry to a nominal account means some income has been received or some gain has been
made.
296 The art of recording business transactions with a view to have a permanent record of them and
of showing their effect on wealth, is called:
A. accounting
B. book-keeping
C. analysis of accounts
D. management accounting
B Book-keeping refers to recording the business transactions with the objective of having
permanent record of the transactions and their effect on wealth.
297 Which of the following is not part of accounting cycle:
A. analyzing
B. recording
C. classifying
D. summarizing
A Analyzing is an activity which is used after the accounting cycle is complete. The other are options
part of the accounting cycle.
298 Which of the following is not correct regarding the cash book of a firm:
A. it is a book of secondary entry
B. it keeps record of all cash transactions
C. it is divided into two sides likes a ledger
D. the cash book is ledger account also
A Cash book is a book of original entry because all the cash transactions are originally recorded.
Other
features are correct.
299 The process of equalizing the two sides of an account by putting the difference on the side
where the amount is short, is called:
A. squaring
B. balancing
C. posting
D. summarizing
B Balancing refers to equalizing the two sides of an account by putting the difference on the side
where the amount is short, so as the make the total of transactions on both the sides of the account
equal.
300 Which of the following statement does match:
A. debit balance in the accounts is either an asset or an expense
B. balance in the personal accounts is either a liability or an asset
C. nominal account represents asset or liability
D. real account normally represents the asset
C Balance in the nominal account represent either an expense or income. Nominal accounts relate
to trading, manufacturing or profit and loss account
301 Accounts are classified into following categories:
A. two categories namely personal accounts and impersonal accounts
B. three categories namely personal accounts, notional accounts and real accounts

C. two categories namely nominal accounts and real account


D. four categories namely personal, impersonal, nominal and real
A There are two broad categories namely personal accounts and impersonal accounts. Impersonal
accounts are further sub-divided into real accounts and nominal accounts.
302 Which of the following statement does not match the type of account:
A. accounts of persons that are creation of God - natural personal accounts
B. accounts of business entities created through some law - artificial personal accounts
C. accounts that represent a certain person or group of persons - nominal account
D. accounts that represent the tangible articles like cash - real accounts
C The accounts that represent a certain person or group of persons are called representative
personal account such as rent payable, commission receivable etc.
303 The accounts of things that cannot be touched but can be measured in money terms are called:
A. nominal accounts
B. tangible real accounts
C. intangible real accounts
D. representative personal accounts
C The accounts of things that cannot be touched but can be measured in money terms are called
real
intangible accounts such as goodwill, patents.
304 Which of the following accounts is not a personal account:
A. bank loan account
B. rent payable account
C. trade mark
D. capital account of the partner
C Trade mark is a real intangible account. Other accounts fall in the category of personal accounts
305 The classification of which of the following accounts is not correct:
A. land and building - real tangible account
B. bank account - artificial personal account
C. capital account of the partner - natural personal account
D. wages payable - nominal expense account
D Wages payable is a representative personal account. Wages paid is a nominal expenses account.
306 The rules of debit or credit in which of the following is correct:
A. debit what comes in - personal account
B. credit the giver - real account
C. debit all expenses - nominal account
D. credit what goes out - nominal account
C Debit what comes in, relates to real accounts, credit the giver relates to personal accounts and
credit what goes out relates to real account.
307 Firm X purchased goods from Firm Y on cash basis. In this process, which of the following
statement is not correct:
A. goods account is a real tangible account
B. Firm Y account is a personal account
C. cash account is a real tangible account
D. none of the above
D All the statements are correct. Hence does not require any explanation.
308 When salary is paid to an employee in a firm in cash, the cash account is credited by following

the following principle:


A. since salary account is debited, the other account has to be credited
B. credit the giver, as cash is given
C. credit what goes out
D. any of the above
C Cash account is a real account and the debit and credit rule applicable for real account is debit
what comes in and credit what goes out.
309 A debit in a real account implies (which is not correct):
A. the value of the asset has increased
B. the business has disposed the existing assets
C. the business has acquired more of that asset
D. none of the above
B When asset is disposed off, it implies that the account will be credited and not debited. When
value of asset increases or more of that asset is acquired, it implies debit in a real account.
310 Firm A purchased goods from Firm B. Which of the following entries will be made in the books
of Firm A:
A. debit purchase account and credit goods account
B. debit Firm B account and credit purchase account
C. debit goods account and credit cash account
D. debit goods account and credit Firm B account
D Goods is a real account due to which it will be debited by following the rule, debit what comes in.
Firm B is a personal account and it will be credited by following the rule credit the giver.
311 Firm X made payment of rent to its landlord in cash. Which of the following is correct journal
entry in the books of
Firm A
A. debit cash and credit rent account
B. debit landlord and credit rent account
C. debit rent account and credit cash account
D. debit rent account and credit landlord account
C Rent is a nominal expense account due to which it will be debited. Cash is a real account due to
which it will be credited as cash has gone out.
312 Which of the following explanation does not match:
A. a summarized record of transactions - an account
B. the book that contains all the accounts - ledger
C. process of transferring the transaction from a journal to a ledger - journalizing
D. the net difference of debit and credit total of an account - balance
C The process of transferring the transaction from a journal to a ledger is called posting.
313 The description given to which of the following transaction does not match:
A. trade discount is the discount given for purchases made in large quantity
B. cash discount received represents the discount on account of bulk purchases made by the firm
C. trial balance is the statement that shows all ledger balances as on a particular date
D. cash discount allowed is the discount given when payment is received before the due date.
B Cash discount received represents the discount when payment is made before the due date.
314 What is the appropriate explanation of the journal:
A. it is book of double entry

B. it is a book of secondary entry


C. it is a book of original entry
D. it is a book of duplicate entry
C A journal is book of original entry as all transactions in the business are recorded first in the
journal (for cash transactions in the cash book).
315 The explanation given to which of the following is not correct:
A. when total of the debit side is greater than the total of credit side - Debit balance
B. when total of credit side is equal to total of debit side - zero balance
C. the account book where the cash transactions are recorded first - journal
D. account book where the records of nominal accounts are maintained - ledger
C The cash transactions are recorded first in the cash book which is also a book of original entry.
Non-cash transactions are recorded in the journal.
316 The credit balance in the capital account is :
A. liability in the balance sheet
B. asset in the balance sheet
C. shows debit balance
D. none of the above
A It will be shown as liability in the balance sheet. It will have credit balance.
317 The 3-column cash book records which of the following:
A. cash and bank transactions including discounts
B. cash and bank transactions excluding discounts
C. cash transactions only
D. bank transactions only
A It will include both the cash as well as bank transactions including discounts.
318 The name given to which of the following explanations does not match:
A. account book where the transaction is entered first - book of secondary entry
B. total of credit side is greater than the total of debit side of account - credit balance
C. discount that is recorded in the books of account - cash discount
D. ledger is the principal book of accounts - True
A The account book where the transaction is recorded first is called book of original entry.
319 Which of the following is not a correct statement:
A. all expenses are recorded on the credit side of the cash book
B. all receipts are recorded on the debit side of the cash book
C. cash column of the cash book can never have a debit balance
D. a debit in the nominal account denotes an expense
C The cash column of the cash book will always have a debit balance. It cannot have credit balance,
as cash is a real account.
320 In a two columnar cash book :
A. the cash column is cash book and cash account and discount column is not the discount account
B. the cash column is cash book and cash account and discount column is the discount account
C. the cash column is cash book but not cash account and discount column is not the discount account
D. the cash column is cash book but not cash account and discount column is the discount account
A In two columnar cash book, the cash column is cash book and also the cash account but discount
column is not the discount account. It is maintained separately.
321 In a three columnar cash book, which of the following is not shown:
A. cash column,
B. discount column

C. bank column
D. none of the above
D In a three columnar cash book, all the above i.e. cash column, discount column, bank column are
shown.
322 When bank column is recorded in the 3 columnar cash book, the bank account is:
A. nominal account
B. personal account
C. real account
D. both real and personal account
B When bank column is recorded in the 3 columnar cash book, the bank account is a personal
account.
323 In a 3 columnar cash book, if a transaction involves both the cash and bank account (a) it is
entered on both the sides
(b) one entry is made in cash column (c) another opposite entry is made in the bank column (d) it is
called contra entry.
A. a to d all correct
B. a to c only correct
C. b to d only correct
D. c and d only correct
A All the above statements given in the question are correct.
324 In a 3 columnar cash book, if a transaction involves cash and bank account and the cash
account is to be debited:
A. only debit entry will be made to cash account
B. debit entry will be made to cash account as well as bank account
C. credit entry will be made to cash account as well as bank account
D. credit entry will be made to bank account and debit entry to cash account
D In a 3 columnar cash book, if a transaction involves cash and bank account and the cash account
is to be debited, credit entry will be made to bank account and debit entry to cash account.
325 In a 3 columnar cash book, if a transaction involves cash and bank account and the bank
account is to be debited:
A. only debit entry will be made to cash account
B. debit entry will be made to cash account as well as bank account
C. credit entry will be made to cash account and debit entry to bank account
D. credit entry will be made to bank account and debit entry to cash account
C In a 3 columnar cash book, if a transaction involves cash and bank account and the bank account
is to be debited, credit entry will be made to bank account and debit entry to bank account.
326 A petty cash book is a :
A. book of original entry
B. subsidiary book
C. primary book
D. any of the above
B A petty cash book is a subsidiary book in which small payments are recorded.
327 Where the chief cashier disburses some cash to the junior cashier and after a fixed period, the
chief cashier makes up the amount spent by the junior cashier, it is called:
A. imprest system
B. cash advance system
C. suspense accounting
D. any of the above

A It is called imprest system. Under this system, the chief cashier disburses some cash to the junior
cashier and after a fixed period, the chief cashier makes up the amount spent by the junior cashier.
328 Which of the following statement is not correct?
A. in the purchase book only credit purchase of goods is recorded
B. in the sales book, only the credit sale of goods is recorded
C. in the sales books and purchase book all the entries whether purchase or sale on cash and credit is
recorded.
D. none of the above
C In the purchase book only credit purchase of goods is recorded and in the sales book, only the
credit sale of goods is recorded. Cash sales or purchases are recorded in the cash book.
329 A compound journal entry means:
A. journal entry involving a debit and a credit
B. journal entry involving interconnected transactions
C. journal entry involving more than one entry
D. none of the above
B A compound journal entry means a journal entry involving interconnected transactions i.e. more
than one entry on the debit side and or more than one entry on the credit side.
330 Where no special book exists for a transaction, it is recorded by way of:
A. direct posting
B. cash book
C. journalizing
D. any of the above
C Where no special book exists for a transaction, it is recorded by way of journalizing.
331 Entries relating to goods are made in (a) sales account (b) purchase account (c) sales returns
account (d) purchase returns account (e) stock account?
A. a to e all
B. a to d only
C. a to c only
D. b to d only
A Entries relating to goods are made in (a) sales account (b) purchase account (c) sales returns
account (d) purchase returns account (e) stock account.
332 The cash books are (a) simple cash book (b) double columnar cash book (c) three columnar
cash book
A. a and b only
B. b and c only
C. a and c only
D. a to c all
D The cash books are (a) simple cash book (b) double columnar cash book (c) three columnar cash
book.
333 If Z, the proprietorship firm brings cash, it is to be credited to:
A. bank account
B. cash account
C. capital account
D. drawing account
C If Z, the proprietorship firm brings cash, it is to be credited to his capital account.

334 Salary is paid to X, a clerk in the firm. The amount shall be credited to:
A. account of X
B. salary account
C. bank account
D. none of the above
D Salary is paid to X, a clerk in the firm. The amount shall be credited to cash account.
335 Goods were sold by ABC firm to another firm, but the other firm has returned the same. The
amount shall be credited to:
A. sales account
B. sales returns account
C. account of other firm
D. purchase account
C The amount will be debited to sales returns account and credited to account of other firm.
336 A firm returned the goods it purchased to the seller firm. The amount shall be credited to:
A. seller firm account
B. buyer firm account
C. purchase account
D. purchase returns account
D Amount shall be credited to purchase returns account and debited to seller firm account..
337 A firm wants to write off a bad debt. It shall:
A. debit the amount to bad debt provision account and credit to concerned debtor account
B. credit the amount to bad debt provision account and debit to concerned debtor account
C. debit the amount to profit and loss account and credit to concerned debtor account
D. credit the amount to profit and loss account and debit to concerned debtor account
A A firm wants to write off a bad debt. It shall debit the amount to bad debt provision account and
credit to concerned debtor account.
338 A firm has taken loan from one Mr. Sushil, who is also partner in the firm. The amount will be
credited to:
A. cash account
B. loan account of Sushil
C. partner capital account
D. none of the above
B The amount will be debited to cash account and credited to loan account of Sushil.
339 Goods are purchased in cash by XYZ firm from ABC firm. Which of the following two accounts
are involved in this transaction in the books of XYZ Firm?
A. cash account and ABC firm account
B. Goods account and ABC firm account
C. goods account and cash account
D. cash account and XYZ firm account
C Goods and cash account, are two accounts, that are involved in the transaction.
340 Goods are purchased in cash by XYZ firm from ABC firm. In this case,
A. goods account is a real account and cash account is a personal account
B. goods account is a personal account and cash account is real account
C. both the accounts are personal accounts
D. both the accounts are real accounts
D Goods and cash account are real accounts.
341 The left side entry in an account means:
A. debit to an account

B. credit to an account
C. decrease in balance in an account
D. increase in balance in an account
A The left side entry in account means debit to an account.
342 The right side entry in an account means:
A. debit to an account
B. credit to an account
C. decrease in balance in an account
D. increase in balance in an account
B The right side entry in account means credit to an account.
343 The nominal accounts are transferred to ___ at year end:
A. balance sheet
B. funds flow
C. profit and loss account
D. any of the above
C The nominal accounts are transferred to profit and loss account, at year end.
344 The balances in the real or personal accounts are:
A. transferred to balance sheet
B. transferred to profit and loss account
C. carried over to next year
D. closed at the year end
C The balances in the real or personal accounts are carried over to next year.
345 If there is an overdraft, the bank column of the cash book shows ____:
A. credit balance
B. debit balance
C. debit or credit balance
D. neither debit nor credit balance
A If there is overdraft, the bank column of the cash book shows a credit balance.
346 If a petty cash book has multiple columns, it is called:
A. imprest cash book
B. petty cash book
C. columnar cash book
D. none of the above
C If a petty cash book has multiple columns, it is called columnar cash book.
347 Which of the following statement is not true:
A. journal is a book of secondary entry
B. bank account is a personal account
C. cash book is a ledger account also
D. credit sales are not recorded in the cash book
A Journal is a book of original entry and not of secondary entry.
348 Which of the following statement is true:
A. if closing balance appears on the credit side of an account, it is said to have debit balance
B. cash account can show a debit balance or a credit balance
C. the important business transactions are directly debited to ledger
D. cash as well as credit sales are recorded in sales book
A Cash account can show only debit balance, business transactions are routed through the journal
and in the sales book only credit sales are recorded.
349 For which of the following reasons, the bank reconciliation is not required.
A. cheque issued but not presented for payment

B. interest credited by the bank


C. amount paid on the basis of standing instruction
D. cheque issued by the firm and paid by the bank
D If an entry has been passed by the firm and the bank also, it will not require reconciliation.
Reconciliation is required for those items only which have been completed by one party and not
completed by other party.
350 Reconciliation shall be required for which of the following transactions:
A. cheque deposited into bank but bank did not credit it so far
B. interest charged by the bank in the overdraft
C. a customer of the firm has directly deposited the amount in bank
D. all of the above
D If an entry has been passed by the firm and the bank also, it will not require reconciliation.
Reconciliation is required for those items only which have been completed by one party and not
completed by other party.
351 Which of the following transaction arise first in the books of the bank and later on in the books
of the firm:
A. cheque issued but not paid by the bank
B. cash deposited but not credited in the bank
C. direct deposit of amount in the bank, by a customer of the firm
D. cheque deposited but not credited in the bank
C If a customer has directly deposited the amount in the bank, this entry will arise first in the bank
books. Other entries will arise later.
352 Which of the following statement is a correct:
A. when balance in the pass book is credit, it is credit in cash book of the firm also
B. when balance in the pass book is debit, it is debit in cash book of the firm also
C. when balance in the pass book is credit, it is debit in cash book of the firm
D. when balance in the pass book is credit, it has no relationship with the balance in the cash book
C The balance in the pass book and the cash book maintained by the firm is opposite balance.
353 Which of the following statements is a correct statement:
A. when there is overdraft, it appears as credit balance in the cash book
B. when there is overdraft, it appears as credit balance in the pass book
C. when there is current account, it appears as credit balance in the cash book
D. when there is current account, it appears as debit balance in the pass book
A The current account has credit balance in the pass book and debit balance in the cash book.
Overdraft has debit balance in the pass book and credit balance in the cash book.
354 Which of the following does not match:
A. the credit balance in the cash book indicates excess of deposits over withdrawals - false
B. direct deposit by the customer reduces the bank balance in a current account at bank - True
C. direct payments by the bank are recorded on the withdrawal side of the pass book. - True
D. bank reconciliation statement shows the causes of difference between two balances - true
B Direct deposit by the customer increases the bank balance. But in case of overdraft it reduces the
bank balance.
355 Which of the following statement does not match:
A. direct deposit by the customer of the firm is recorded first by the bank - true
B. direct deposit by the customer of the firm increases the balance in the bank overdraft account - true
C. direct deposit by the customer of the firm is recorded on the debit side of the cash book - true

D. none of the above


B Direct deposit is recorded first by the bank, it reduces the balance in overdraft account and
increases the balance in current account at bank. It is recorded in the cash book on the debit side to
debit the bank account.
356 Which of the following statement is not correct:
A. normally the cash book shows debit balance - true
B. the cash book shows debit balance in case of overdraft - true
C. normally the pass book shows credit balance - true
D. the cash book shows debit balance in case of overdraft - true
B When there is overdraft, the cash book shows credit balance. Other options are correct.
357 Balance in the cash book is Rs.12000. A cheque of Rs.1000 deposited with the bank has been
dishonoured and bank has debited Rs.20 as cheque returning charges. The balance in the pass book
should be:
A. 11980
B. 11020
C. 10980
D. incomplete information
C Amount of cheque and returning charges will be deducted from the cash book balance of
Rs.12000, to reach the balance in the pass book.
358 The cash book has been showing a balance of Rs.55000. A cheque of Rs.3000 issued by the firm
has been entered twice in the cash book. A customer of the firm has deposited Rs.2000 directly in
the bank. What will be balance in the pass book.
A. 60000
B. 56000
C. 54000 debit
D. 54000 credit
A Balance as per cash book is Rs.55000. To match this with the pass book, the amount of cheque
entered twice shall be added and amount directly deposited by the customer will also be added.
359 The pass book has been showing a balance of Rs.15000. A cheque issued by the firm for Rs.1000
has been debited by the bank to another account and a cheque of Rs.3000 deposited in the account
has been dishonoured and bank has debited Rs.30 as returning charges. The balance as per cash
book should be:
A. 16970
B. 12970
C. 13070
D. 17030
D To tally the pass book balance with cash book, the amount of cheque issued by the firm shall be
reduced, the amount of cheque dishonoured shall be added and the amount of charges shall be
added.
360 Balance in the cash book of the firm is Rs.25000. It is overcast by Rs.1000. Out of cheques of
Rs.12000 deposited with the bank, cheques of Rs.10000 only have been credited so far. Out of
cheques of Rs.10000 issued, cheques of Rs.3000 have not been presented. The balance as per pass
book should be:
A. 24000
B. 27000
C. 25000
D. 26000
C Amount overcast will be deducted, the amount of cheque not credited so far Rs.2000 will be
deducted and amount of Rs.3000 of cheques not presented so far will be added.

361 The cash book of the firm has been showing a credit balance of Rs.22300. It is observed that an
amount of Rs.120 has been debited by bank. Further, a cheque of Rs.3000 deposited in the bank has
not been credited so far. What is the balance as per pass book?
A. 25280
B. 25420
C. 19280
D. 19420
B The overdraft balance is given as per cash book. To match it with the pass book, the amount of
cheque deposited and not credited and amount debited by the bank is to be added in the balance.
362 The balance in the current account of the firm at bank is Rs.56219. It is observed that bank has
credited a dividend amount of Rs.320. Out of total cheques of Rs.12000 issued by the firm, cheques
of Rs.9000 have been paid. What is the balance in the cash book.
A. 68219
B. 52899
C. 55219
D. 65899
B The balance in the pass book is to be matched with the balance in the cash book. The amount of
cheques issued and the amount of direct credit by the bank will be deducted.
363 It is observed by the firm that the bank has debited Rs.200 as service charges and an amount
not related to the firm Rs.2000, has been credited by the bank. Firm had issued a cheque of Rs.3000
which has been debited to the account of partner. The balance in the overdraft account at bank is
Rs.34500. What will be balance in the cash book.
A. 32900
B. 33300
C. 39300
D. 30900
C To match the balance with cash book, the amount of charges will be deducted, the amount
credited by bank incorrectly, will be added and the amount of cheque debited to account of partner
shall be added.
364 A cheque of Rs.3300 was deposited with the bank by the firm which has been collected by the
bank and credited to account of another party. A cheque of Rs.1200 issued by the firm has been
debited by the bank to account of another party. The balance as per cash book is Rs.12000
overdraft. What is the balance as per pass book.
A. 14100
B. 15300
C. 9900
D. 8700
A When balance as per cash book is overdraft, to reach the pass book balance, the amount of
cheque
deposited but credited to account shall be deducted and amount of cheque issued but not debited to
the account of the party shall be added.
365 Which of the following entries appears first in the books of the firm and then in the books of
the bank?
A. bank debited charges
B. party issued a cheque
C. bank credited interest
D. bank paid amount on the basis of standing instruction.
B Two entries appear in the books of the firm first i.e. party issued cheque or party deposited
cheque. Other items appears first in the books of the bank.

366 If there is positive balance, it appears as a:


A. debit balance in the cash book and credit balance in the pass book
B. credit balance in the cash book and debit balance in the pass book
C. credit balance in the cash book and credit balance in the pass book
D. debit balance in the cash book and debit balance in the pass book
A If there is a positive balance, it appears as a debit balance in the cash book and credit balance in
the pass book.
367 If there is overdrawn balance, it appears as a:
A. debit balance in the cash book and credit balance in the pass book
B. credit balance in the cash book and debit balance in the pass book
C. credit balance in the cash book and credit balance in the pass book
D. debit balance in the cash book and debit balance in the pass book
B If there is a overdraft balance, it appears as a credit balance in the cash book and debit balance
in the pass book.
368 State which of the following is true?
A. bank reconciliation statement is an account
B. a credit balance in the pass book indicates that the deposits are more than withdrawal
C. a credit balance in the cash book indicates that the deposits are more than withdrawal
D. none of the above
B Bank reconciliation statement is not an account. A credit balance in the cash book indicates that
the
deposits are less than the withdrawal.
369 Which of the following statement is not true?
A. debit balance in the bank pass book means credit balance in the cash book
B. when a cheque is received from a party, it is recorded on the receipt side of the cash book
C. cash book and pass book balance can also agree
D. interest paid by the bank increases the balance in the pass book.
D Interest paid by the bank increases the balance in the pass book if there is positive balance. It
reduces the balance in the pass book, if there is negative balance.
370 Direct payments made by the bank are recorded :
A. on the deposit side of the pass book
B. on the withdrawal side of the pass book
C. on the left side of the cash book
D. none of the above
B Direct payments made by the bank are recorded on the withdrawal side of the pass book.
371 If there is overcastting of receipt side of the cash book:
A. it increases the bank balance in the pass book
B. it reduces the bank balance in the cash book
C. it increases the bank balance in the cash book
D. it does not affect the balance in the pass book
C If there is overcastting of receipt side of the cash book, it increase the bank balance in the cash
book.
372 Which of the following statements do not match?
A. if there is credit balance in the pass book, this means overdraft
B. if there is debit balance in the cash book, this means overdraft
C. interest credited by the bank, is income for the bank and expenditure for the firm
D. none of the above
D If there is credit balance in pass book or debit balance in the cash book, it means positive balance.
Interest credited by bank is expenditure of the bank and income of the party.

373 If a customer of the firm directly deposits an amount with the bank:
A. it is recorded on credit side of the cash book
B. it is recorded on credit side of the pass book
C. it is recorded on debit side of the pass book
D. it is recorded on the credit side of cash book and pass book.
B If a customer directly deposits an amount with the bank, it is recorded on debit side of the cash
book and on credit side of the pass book.
374 If a cheque is issued and not presented at bank, its amount is :
A. deducted in the bank reconciliation statement, when it is started as overdraft in cash book.
B. added in the bank reconciliation statement, when it is started as overdraft in cash book.
C. added in the bank reconciliation statement, when it is started as positive balance in pass book.
D. added in the bank reconciliation statement, when it is started as overdraft in pass book.
A If a cheque is issued and not presented at bank, its amount is, deducted in the bank reconciliation
statement, when it is started as overdraft in cash book.
375 If a cheque is deposited in the bank and its amount is not credited, the amount is:
A. added in the bank reconciliation statement, when it is started as overdraft in pass book.
B. deducted in the bank reconciliation statement, when it is started as overdraft in pass book.
C. deducted in the bank reconciliation statement, when it is started as overdraft in cash book.
D. added in the bank reconciliation statement, when it is started as positive balance in pass book.
B If a cheque is deposited in the bank and its amount is not credited, the amount is, deducted in the
bank reconciliation statement, when it is started as overdraft in pass book.
376 If a cheque is issued and not presented at bank, its amount is:
A. added in the bank reconciliation statement, when it is started as overdraft in cash book.
B. added in the bank reconciliation statement, when it is started as positive balance in cash book.
C. added in the bank reconciliation statement, when it is started as positive balance in pass book.
D. none of the above
B If a cheque is issued and not presented at bank, its amount is, added in the bank reconciliation
statement, when it is started as positive balance in cash book..
377 When an entry is passed on the withdrawal side of the pass book, the bank balance:
A. declines
B. increases
C. remains same
D. none of the above
A When an entry is passed on the withdrawal side of the pass book, the bank balance declines.
378 The debit balance represents:
A. overdraft in the cash book and positive balance in the pass book
B. positive balance in the pass book and overdraft balance in the cash book
C. overdraft in the pass book and positive balance in the cash book
D. overdraft in the pass book and overdraft in the cash book
C The debit balance represents overdraft in the pass book and positive balance in the cash book.
379 The credit balance represents:
A. overdraft in the cash book and positive balance in the pass book
B. positive balance in the pass book and overdraft balance in the cash book
C. overdraft in the pass book and positive balance in the cash book
D. overdraft in the pass book and overdraft in the cash book
B The credit balance represents overdraft in the cash book and positive balance in the pass book.
380 Which of the following have to prepare bank reconciliation statement?
A. a business firm maintaining bank account
B. the bank which has opened the account
C. the debtors and the creditors

D. all the above


A The bank reconciliation statement is prepared by the business firm, maintaining bank account .
381 When the balance as the pass book is starting point, the cheques issued and not presented are:
A. added
B. deducted
C. kept constant
D. none of the above
B When the balance as the pass book is starting point, the cheques issued and not presented are
deducted.
382 When the payment side of the cash book is overcast, the pass book is the starting point, the
amount:
A. shall be added
B. shall be deducted
C. shall be kept constant
D. any of the above
B When the payment side of the cash book is overcast, the pass book is the starting point, the
amount shall be deducted.
383 Which of the following is a feature of the trial balance (which one is not correct):
A. it is a list of debit and credit balances taken from the ledger
B. it does not include cash and bank balances
C. main objective is to establish arithmetical accuracy of transactions
D. it is usually prepared at the end of the year.
B It includes cash and bank balances also. It can be prepared any time but usually prepared at the
end of the year.
384 Which of the following is not a type of clerical error:
A. error of omission
B. error of commission
C. error of principle
D. compensating error
C Error of principle is a separate set of errors and is not part of clerical errors. Other 3 are clerical
errors.
385 A purchase from X has been recorded in the purchase book but it remains to be posted in the
account of Mr. X. This is
classified as:
A. error of omission
B. error of commission
C. error of principle
D. compensating error
A When an entry is completely or partly omitted, it is classified as error of omission.
386 Which of the following is an error of commission:
A. posting of correct amount on the wrong side
B. posting of wrong amount on the correct side
C. posting of wrong amount on the wrong side
D. all the above
D All the above types of errors are errors of commission.
387 There is an error in a subsidiary book at the time of totaling. This is called an :
A. error of omission

B. error of commission
C. error of principle
D. compensating error
B Such error is called an error of commission.
388 One mistake has nullified the wrong effect of another mistake. It is called:
A. error of omission
B. error of commission
C. error of principle
D. compensating error
D When one error happens in such a way that it nullifies the wrong effect of another mistake, it is
called a
compensating error.
389 The wages paid for installation of machinery by a firm have been debited to the wages account
instead of the
machinery account. This is:
A. error of omission
B. error of commission
C. error of principle
D. compensating error
C This is error of principle because the basic accounting principle has not been observed. An entry
relating to asset or liability has been recorded for the nominal account.
390 Which of the following error will affect not the trial balance:
A. an amount of Rs.900 has been posted in a wrong account
B. an amount of Rs.900 has been posted on the wrong side of an account
C. Total of debit side of the account not done correctly
D. posting of wrong amount in the account.
A When posting of an amount is made to a wrong account, it will not affect overall balance in the
accounts.
Page 74 of 165
391 If there is a one side error, it can be corrected:
A. by deleting the entry
B. through a journal entry
C. by simply correcting the posting
D. in any of the above manner
C If there is one side error, it can be corrected by simply correcting the posting i.e. by deleting the
wrong
posting and making fresh posting with correct entry:
392 A firm has paid rent of Rs.900 but posted it as Rs.9000. How does this error be rectified:
A. through a journal entry by debiting the rent account for Rs.8100
B. through a journal entry by debiting the rent account and crediting the cash account
C. by correcting the posting from Rs.9000 to Rs.900
D. in any of the above manner
C This is a one side error. It will be corrected by correcting the posting.
393 The firm had paid salary of Rs.2000 to a staff member but his personal account has been
debited. What type of error it is.
A. error of omission
B. error of commission

C. error of principle
D. compensating error
C This is an error that involves nominal account (expense) and personal account (liability). Hence it
is an error of principle.
394 The firm had paid salary of Rs.5000 to a staff member but his personal account has been
debited. Pass the journal entry for rectification of this entry.
A. debit salary account and credit cash account
B. debit cash account and credit staff member account
C. debit salary account and credit staff member account
D. debit salary account and credit cash account
C The personal account that has been debited has to be credited and the salary account which was
not
debited has to be debited.
395 If there is an error that is detected after preparation of the trial balance, it can be removed in
the following manner:
A. by cutting the entry
B. by journal entry to debit the relevant account
C. through a temporary account called SUSPENSE account
D. in any of the above manner
C Where the error is detected after the preparation of the trial balance it can be removed by
temporarily
transferring it to a new account called SUSPENSE account.
396 The total of credit side of the trial balance is Rs.1 lac. It is observed that the amount in account
of a buyer (debtor) has been taken as Rs.10000 instead of Rs.1000. What is the actual balance of
the credit side.
A. Rs.1 lac
B. Rs.109000
C. Rs.101000
D. Rs.91000
A There will be no change. The debtors have a debit balance due to which it will affect the debit side
of the trial balance. Hence the credit side total will remain unchanged.
397 The firm has been able to recover amount from a debtor which was written off. The amount is
credited to personal account of the debtor. How the error shall be removed.
A. by crediting the amount to sundry debtor account
B. by crediting the amount to cash account
C. by debiting the debtor account and crediting the profit and loss account
D. by debiting the debtor account and crediting the provisions account
C As the amount has been credited to the personal account, it will have to be reversed and the profit
and loss account, would be credited.
398 Which of the following statement is not correct:
A. in preparation of gross trial balance, ledger account balances are extracted
B. fixed deposit with the bank will be shown on the debit side of trial balance
C. purchases are shown on the debit side of trial balance
D. sales are shown on the credit side of the trial balance
A In preparation of gross trial balance, ledger account balances are not extracted. Rather these are
taken on a gross basis.

399 Which of the following statement is not correct:


A. errors that are rectified without passing journal entries - one sided error
B. errors that are rectified by passing journal entries - two sided errors
C. an account to which difference in trial balance is temporarily transferred - suspense account
D. an error in which the transaction is not recorded in the books of account - error of commission
D Such errors are called error of omission as it has been omitted to be recorded.
400 In which of the following, the statement does match:
A. agreement of trial balance indicates that there is no error - true
B. repair to building should be debited to building account - true
C. compensating error do not affect the agreement of trial balances - true
D. suspense account is the balancing figure for trial balance - false
A With agreement of trial balance only arithmetic accuracy is ensured. Repairs to building are to
be debited to repair account. Suspense account is the balancing figure for trial balance.
401 Trial balances are of following types (a) gross trial balance (b) net trial balance (c) general trial
balance?
A. a and b only
B. a and c only
C. b and c only
D. a to c all
A Trial balances are either gross trial balance or net trial balance
402 In the gross trial balance system:
A. the gross balance in the ledger account is taken
B. only the total of debit side is taken
C. only the total of credit side is taken
D. total of credit side and debit side is taken
D In the gross trial balance system, total of credit side and debit side is taken. The net balance is not
taken. Net balance is taken in case of net trial balance.
403 In the net trial balance system:
A. the net balance in the ledger account is taken
B. the net total of credit side is taken
C. the net total of debit side is taken
D. the net total of debit and credit side is taken
A In the net trial balance system, the net balance in the ledger account is taken.
404 Trial balances are prepared with the objective of:
A. listing the totals of debit and credit side of various accounts
B. verifying the arithmetical accuracy of the transactions recorded in the books
C. ensuring compilation of books as per accounting standards and practices
D. all the above
B Trial balances are prepared with the objective of verifying the arithmetical accuracy of the
transactions recorded in the books.
405 Which of the following is an error of principle?
A. posting of correct amount on the wrong side of the account
B. mistake committed in the balancing of ledger account
C. debiting the depreciation to machinery account instead of depreciation account
D. totaling error in the subsidiary books
C Debit the depreciation to machinery account is an error of principle. Other errors are errors of
commission.
406 The accountant of the firm posted the wrong amount on wrong side of an account. This is error
of:

A. compensation
B. principle
C. commission
D. omission
C Posting wrong amount on wrong side of an account is an error of commission.
407 Total rent amount is undercast by Rs.300 and total of printing and stationery account is
overcast by Rs.300. This is an error of:
A. compensation
B. principle
C. commission
D. omission
A In error of compensation, the effect of one error is negated by another error.
408 One side error can be rectified by:
A. passing a journal entry
B. correcting the posting
C. deleting the entry
D. any of the above
B One side error can be rectified by correcting the posting. No journal entry is required to be
passed as it affects only one account.
409 An amount of Rs.1000 paid as rent has been posted as Rs.10000. The rectification of the error
can be done by:
A. rent account will be credited for Rs.9000
B. entry of Rs.10000 will be deleted and another entry will be posted as Rs.1000
C. no modification will be required as it affects only one account
D. none of the above
A The rent account will be credited for Rs.9000 being the difference between Rs.10000 and Rs.1000,
as excess
amount has been debited to the account.
410 Goods purchased from Ramesh for Rs.3000 were recorded in the sales book by debiting
account of Ramesh. The rectification entry shall be:
A. debit sales and credit purchase account
B. debit purchase account and credit sales account
C. debit purchase and sales account for Rs.3000 each and credit Ramesh for Rs.6000
D. debit purchase and sales account for Rs.3000 in all and credit Ramesh for Rs.3000
C The journal entry would be debit purchase and sales account for Rs.3000 each and credit Ramesh
for
Rs.6000. Sales account was wrongly credited and purchase account was not debited. Hence, these
two
accounts would be debited. Account of Ramesh will start showing correct balance of Rs.3000 credit.
411 The firm paid salary to one of its employees and debited his personal account. What is the
rectification entry?
A. debit cash and credit salaries account
B. debit salary account and credit cash account
C. debit salary account and credit employee account
D. debit cash account and credit employee account
C The error will be removed by debiting salary account and crediting the employee account. Salary
should have been debited to salary account and not to the personal account of employee.
412 After preparation of trial balance, if there is difference:
A. the difference is kept as it is
B. the difference is temporarily transferred to an account called suspense account

C. a journal entry is passed for the difference


D. any of the above
B After preparation of trial balance, if there is difference, the difference is temporarily transferred
to an
account called suspense account.
413 If the trial balance debit side is more than the credit side total, the difference :
A. will be placed on the credit side of the trial balance
B. will be placed on the credit side of the suspense account
C. will be placed on the debit side of the trial balance
D. will be placed on the debit side of the suspense account
B If the trial balance debit side is more than the credit side total, the difference, will be placed on
the credit side of the suspense account. If the credit side is more than the debit side, the difference
will be placed on the debit side of the suspense account.
414 If the trial balance credit side is more than the debit side total, the difference :
A. will be placed on the credit side of the trial balance
B. will be placed on the credit side of the suspense account
C. will be placed on the debit side of the trial balance
D. will be placed on the debit side of the suspense account
D If the trial balance debit side is more than the credit side total, the difference, will be placed on
the credit side of the suspense account. If the credit side is more than the debit side, the difference
will be placed on the debit side of the suspense account.
415 At the time of preparation of final account, if any balance remains in the suspense account:
A. it will be shown on the asset side of the balance sheet
B. it will be shown on the liability side of the balance sheet
C. it will be shown on the liability side of the balance sheet if balance is in debit and on the asset side of
the
balance sheet if balance is in credit
D. it will be shown on the asset side of the balance sheet if balance is in debit and on the liability side of
the
balance sheet if balance is in credit
D At the time of preparation of final account, if any balance remains in the suspense account, it will
be shown on the asset side of the balance sheet if balance is in debit and on the liability side of the
balance sheet if balance is in credit.
416 In the books of a firm, the total of debit side of trial balance is less than the credit side. One of
few entries indicates
that total of sales return is short by Rs.3200. How it will be rectified?
A. the sales return account will be credited by Rs.3200
B. debit suspense account and credit sales returns account
C. debit sales return account and credit suspense account
D. place the amount on the liability side of the balance sheet.
C The sales return account shall be debited and the suspense account will be credited.
417 A trial balance can be prepared on (a) monthly basis (b) quarterly basis (c) half-yearly basis (d)
annual basis.
A. only d
B. b and d only
C. b to d only
D. a to d any
D A trial balance can be prepared on monthly, quarterly, half-yearly or on annual basis. Generally
this
prepared on an annual basis.

418 Which of the following statement is not correct, in the context of trial balance?
A. wrong balancing of an account, affects the trial balance
B. trial balance takes care of arithmetic accuracy
C. trial balance can be prepared at the end of accounting year only
D. if debit and credit side of trial balance does not tally, there will be need to open a suspense account
C Trial balance can be prepared any time and not necessarily, at the end of accounting year.
419 Which of the following statement is a correct statement, in the context of trial balance?
A. purchases are shown on the credit side of the trial balance
B. bank account is shown on the credit side of the trial balance
C. trial balance is prepared after preparing the final account
D. security deposited by a firm, is shown on the debit side of the trial balance
D Purchases are shown on debit side, bank account on debit side and final accounts are prepared
after trial balance.
420 Which of the following does not match in the context of trial balance?
A. when gross trial balance is prepared, the net balance of each account is taken - correct
B. debit balance of a ledger account is shown on credit side of the trial balance - incorrect
C. overdraft is shown on credit side of trial balance - correct
D. ledger balances are carried to trial balance - correct
A In gross trial balance, the total of debit and credit side is taken to the trial balance, instead of net
balance in the account.
421 A statement or list showing debit and credit balances of various ledger accounts is called:
A. trial balance
B. final account
C. suspense account
D. any of the above
A The trial balance means a statement or list showing debit and credit balances of various ledger
accounts.
422 Balances in the liability accounts are recorded on ___ side and balance in asset accounts are
recorded on ___ side of the trial balance:
A. credit, debit
B. debit, credit
C. debit, debit
D. credit, credit
A The balances in the liability accounts are recorded on credit side and balance in asset accounts
are recorded on debit side of the trial balance because, liabilities have credit balance and assets
have debit balance.
423 If the credit side of the trial balance is cast short, the difference is placed on:
A. debit side of the suspense account
B. credit side of the suspense account
C. debit side of the trial balance
D. any of the above
B If the credit side of the trial balance is cast short, the difference is placed on credit side of the
suspense account.
424 Which of the following is a correct statement?
A. while recording a transaction if the book keeping principles are not followed, it is an error of omission
B. trial balances can disclose error of principle
C. if trial balances agree, this means, there is no error
D. incorrect totaling of subsidiary books, affects the agreement of trial balances
D If principles of book keeping are not followed, it is error of principle. Trial balance do not
disclose the error of principle and if trial balances agree, still there can be errors.

425 Which of the following is not the revenue expenditure?


A. it is shown in the profit and loss account
B. the benefit is available for a long period
C. the expenditure is for working capital and maintaining the fixed assets
D. the amount spent is relatively small.
B The benefit of this expenditure is for a short period, of say, one year.
426 The expenditure for which payment has been made or a liability has been incurred. But it is
carried forward on the assumption that benefit will be available for a no. of years, is called:
A. recurring expenditure
B. deferred revenue expenditure
C. revenue expenditure
D. capital expenditure
B Such expenditure is called deferred revenue expenditure. It is written off from future profits.
427 Which of the following is not an example of deferred revenue expenditure:
A. large expenditure on advertisement
B. expenditure for issue of raising loan
C. expenses relating to formation of a company
D. purchase of fixed assets
D All these expenses at option (a) to (c) are in the nature of deferred revenue expenditure. Item (d)
is a capital expenditure.
428 The receipts of a business that do not arise in normal course of business. Rather these are of
unusual nature. These are called:
A. revenue receipts
B. capital receipts
C. deferred receipts
D. none of the above
B Such receipts are called capital receipts. These include amount of capital issue, debenture, term
loan raised etc.
429 Which of the following is not part of revenue receipts:
A. interest on bank term deposit
B. commission on sales
C. capital contributed by the partner
D. none of the above
C Capital contributed by the partner is a capital receipt. Others are revenue receipts.
430 Which of the following is not a capital receipt:
A. share capital
B. share premium
C. trade creditor
D. debenture
C Trade creditors is a revenue receipt. It is available on a recurring basis.
431 The classification of which of the following is correct:
A. freight paid on bringing the machinery to the factor premises - revenue expenditure
B. labour welfare expenses - deferred revenue expenditure
C. loss of goods due to fire - capital expenditure
D. renovation expenses of old machines before installation- capital expenses
A Freight on bringing machinery is capital expenditure, labour welfare expenses are deferred
revenue
expenditure and loss of goods due to fire is revenue expenditure.
Page 82 of 165
432 Which of the following is a revenue expenditure (a) which is frequently taking place (b)

purchase of machinery (c)purchase of raw material?


A. a to c all
B. only a and b
C. only b and c
D. only a and c
D Purchase of machinery is a capital expenditure, while the others are revenue expenses.
433 If an expenditure helps in generating revenue over a no. of years, it is:
A. capital expenditure
B. revenue expenditure
C. deferred revenue expenditure
D. any of the above
A It is a capital expenditure, such as purchase of land or construction of building.
434 Which of the following does not match in the context of classification of revenue and capital
expenditure?
A. amount is normally very large - capital expenditure
B. purpose is to enhance the capacity - revenue expenditure
C. amount is relatively smaller - revenue expenditure
D. expenditure is non-recurring - capital expenditure
B When the purpose is to enhance the capacity, it is capital expenditure.
435 Which of the following does match in the context of revenue and capital expenditure?
A. it is shown in the balance sheet - capital expenditure
B. it is shown in the profit and loss account - revenue expenditure
C. the benefit is for a long period - revenue expenditure
D. it is recurring - revenue expenditure
C The benefit is available for a long period in case of capital expenditure and for short period , in
case of
revenue expenditure.
436 Which of the following is a revenue receipt?
A. receipt against supply of goods
B. receipt against rendering of services
C. receipt relating to the same period for which accounts are being prepared
D. all the above
D All these are revenue receipts.
437 An old machinery is sold by a firm for Rs.3 lac while the book value is Rs.2.00 lac.
A. the entire amount of Rs.3 lac is capital receipt
B. the entire amount of Rs.3 lac is revenue receipt
C. the amount up to Rs.2 lac is capital receipt and balance Rs.1 lac is revenue receipt
D. the amount up to Rs.1 lac is capital receipt and balance Rs.2 lac is revenue receipt
C The value realised over the book value is revenue receipt and value realised up to book value is
capital
receipt.
Page 83 of 165
438 If a machinery originally costing Rs.4 lac is sold for Rs.5 lac while its book value was Rs.3 lac
only:
A. the entire amount of Rs.5 lac is capital receipt
B. the entire amount of Rs.5 lac is revenue receipt
C. the amount up to Rs.1 lac is revenue receipt and balance Rs.4 lac is capital receipt
D. the amount up to Rs.3 lac is capital receipt and balance Rs.2 lac is revenue receipt
C The amount equal to book value is capital receipts + amount realised above the cost is capital
receipt.
Amount received as difference of book value and cost price, is revenue receipts.

439 Which of the following is a revenue receipt?


A. capital introduced by the promoters
B. loan raised from the bank
C. premium received on shares
D. none of the above
D All the above are capital receipts. These are non-recurring nature. Further, the funds are
available over a long period.
440 A firm incurred legal expenses in connection with (a) filing of suit to recover the dues of the
firm (b) raising a public issue (c) defending a suit by the firm. Which of these is capital
expenditure?
A. b only
B. c only
C. a and c only
D. a and b only
A Expenses incurred on filing of suit or defending the suit are revenue expenses while the expenses
on public issue are capital expenses.
441 An expenditure has been incurred to maintain good working conditions of the machines. It is?
A. revenue expenditure
B. capital expenditure
C. deferred revenue expenditure
D. any of the above
A It is revenue expenditure. If it was for purchase of machinery or for major renovation, it would
have been capital expenditure.
442 A firm acquired lease hold premises and paid certain professional fee. The amount of
professional fee is:
A. revenue expenditure
B. capital expenditure
C. deferred revenue expenditure
D. any of the above
B The expenditure is of non-recurring nature and also incurred as incidental to acquiring the asset,
due to which it is capital expenditure.
Page 84 of 165
443 Firm Z purchased goods worth Rs.4000, which is a revenue expenditure because:
A. the amount is small
B. it is recurring in nature
C. the purchase benefits the firm
D. none of the above
B The purchase of goods is a recurring transaction. The amount does not matter, in this case. The
recurring purchase can be of small amount or of large amount.
444 Firm X purchased a car for its partners incurring Rs.6 lac, which is a capital expenditure
because:
A. the amount is large
B. the benefit would be available for a no. of years
C. it will increase the earning capacity of the firm
D. a and b both
B The benefit of the expenditure would be available for a no. of years. The amount does not matter
in this case.
445 Wages paid to labourer for construction of factory building is a capital expenditure because:
A. it increases the earning capacity
B. the benefit is for a long period
C. it is non-recurring

D. all the above


D All these reasons are correct.
446 When the business is commenced by a firm and cash is brought, which of the following journal
entries is passed (which one is more appropriate):
A. debit cash and credit capital account or any other asset account
B. debit cash and credit capital account
C. debit cash and credit capital account or any other liability account
D. debit any liability account and credit cash account
C When business is commenced, cash comes in due to which it is debited and a liability account
such as capital account or any other account, such as loan account of a partner, may be credited.
Hence this option is more appropriate.
447 When goods are purchased by the firm out of the cash brought in as capital, what journal entry
is required to be passed:
A. debit cash and credit the stock account
B. debit purchase account and credit cash account
C. debit purchase account and credit capital account
D. debit cash account and credit purchase account
B When goods are purchased, the goods are coming in and cash is going out. Hence goods or
purchase account is debited and cash account is credited.
448 When sale of goods takes place on cash basis to another firm, what journal entry is passed:
A. debit the other firm account and credit cash account
B. debit the goods account and credit cash account
C. debit the cash account and credit sales account
D. debit the cash account and credit the account of other firm
C When the goods have been sold, the sales account will be credited and the cash account will be
debited.
449 When sale of goods takes place on credit basis to another firm (say Firm A), what journal entry
is passed:
A. debit Firm A account and credit sales account
B. debit the goods account and credit cash account
C. debit the cash account and credit sales account
D. debit the cash account and credit other firm account
A When the goods have been sold on credit, the sales account will be credited and the account of
other firm will be debited.
450 If there are certain outstanding expenses and the firm wants to make provision, what journal
entry will be required to be passed?
A. debit the related expenses account and credit expenses payable account
B. debit the expenses payable account and credit the related expenses account
C. debit outstanding expenses and credit the related expenses account
D. debit outstanding expenses and credit the profit and loss account
A If there are certain expenses that have not been paid, for such expenses provision will be made by
debiting the related expenses account and crediting to outstanding expenses account or expenses
payable account.
451 If there are certain expenses that were not due but have been paid in advance, what adjustment
entry will be
required?
A. debit the related expenses account and credit expenses payable account
B. debit the related pre-paid expenses account and credit the related expenses account

C. debit the related expenses outstanding account and credit the related expenses account
D. no journal entry is required as the expenses have been pre-paid and will be used in the next financial
year.
B When expenses have been paid in advance, the pre-paid expenses account shall be debited and
the related expenses account shall be credit.
452 Firm-B was to pay wages amounting to Rs.180000 to its workers. But it could not pay wages for
the last two months of the financial year. What journal entry will be required, if the per month
wages are same.
A. debit the wages payable account and credit the wages account for Rs.180000
B. debit the wages account and credit expenses payable account for Rs.30000
C. debit the wages account and credit expenses payable account for Rs.180000
D. debit the wages payable account and credit the wages account for Rs.30000
B For 2 months, the amount of wages will be Rs.30000 at Rs.15000 per month. Wages account will
be debited and expenses payable account shall be credited for this amount.
453 Firm-X was to receive some commission during the year which it could not. What journal entry
shall be passed for this adjustment:
A. debit the commission account and credit commission due but not received.
B. debit the account of related customer and credit commission income
C. debit the income due but not received account and credit the commission account
D. no entry will be required since the income has not been received and there is uncertainty
C Where the income is due and not received, the income due and not received account shall be
debited and the related income account shall be credited.
454 Firm - B received certain misc. income in advance that was not due. What journal entry shall
be required to be passed. A. debit related income account (misc. income) and credit income received in
advance account.
B. debit the income received in advance account and credit the related income account
C. debit the related income account and credit the profit and loss account
D. debit the profit and loss account and credit the party from whom that amount has been received.
A Where income is received in advance, the related income account shall be debited and the income
received in advance account shall be credited.
523 The unsold stocks with the consignee are valued in the books of the consignor, at which of the
following:
A. cost price or market price whichever is lower
B. cost price + expenses incurred by the consignor and consignee
C. cost price + expenses incurred by the consignor
D. cost price + expenses incurred by the consignee
B The valuation will take into account the cost price as well the expenses incurred by the consignee
and the consignor.
524 When does the del credere commission paid to the consignee in the case of consignment (which
of the following is not correct):
A. the goods are sold at credit, at the risk of consignor
B. the goods are sold at credit, at the risk of consignee
C. all losses shall go to the consignee
D. all collection charges and discounts are to the account of consignee
B The goods are sold on credit by the consignee for which he is liable. Since he is taking extra risk,
he earns additional commission, which is called del credere commission.
525 When does the consignee allow normal commission and not del credere commission:
A. losses due to bad debts are borne by the consignor
B. losses due to bad debts are borne by the consignee

C. losses due to bad debts are borne by both of them on pro-rata basis
D. none of the explanation is correct
A When normal commission is paid, the risk is that of the consignor for losses due to bad debt etc.
When del credere commission is paid, the risk is that of the consignee.
526 In the consignment sale if there is some accidental loss or unnecessary loss, it is:
A. transferred to profit and loss account
B. it is spread over the entire cost of the particular consignment
C. it is transferred to the consignee
D. it is shared between the consignee and consignor.
A If there is abnormal loss due to some accident etc. it is ascertained and transferred to profit and
loss
account.
527 Which of the following journal entry is not correctly matched in the books of the consignor:
A. for goods sent on consignment - debit consignment and credit goods sent on consignment
B. for adjusting the loading - debit goods sent on consignment and credit consignment account
C. for expenses incurred by the consignor - debit the consignee account and credit bank account
D. none of the above
C For expenses incurred by the consignor - debit the consignment account and credit bank account.
Other journal entries are correct.
528 When the goods are sent on consignment, which account is debited:
A. consignment account
B. consignee account
C. sales account
D. none of the above, as it is not a sale
A Consignment account is debited, when goods are sent on consignment.
529 What is the relationship between the consignor and the consignee?
A. seller and buyer
B. agent and principal
C. debtor and creditor
D. none of the above
D The relationship is of principal and agent, where the consignor is principal and consignee, is the
agent.
530 In the context of consignment sale, the loss which is unavoidable and natural, is called:
A. natural loss
B. normal loss
C. unavoidable loss
D. abnormal loss
B Normal loss is the loss which is unavoidable as well as natural.
531 If the loss is due to fire or theft or pilferage etc. such loss is called:
A. natural loss
B. normal loss
C. unavoidable loss
D. abnormal loss
D Abnormal loss means a loss due to fire, theft, pilferage etc.
532 If some abnormal loss takes place, it is transferred to ___, after making adjustment of recovery
or insurance claim etc.
A. consignment account
B. profit and loss account

C. consignee account
D. capital account of the consignor.
B If some abnormal loss takes place, it is transferred to profit and loss account, after making
adjustment of
recovery or insurance claim etc.
533 Calculation of Del Credere commission is made on the basis of:
A. total amount of sales
B. only credit sales
C. only cash sales
D. it has no relationship with the amount sale. It is a fixed amount
A Del Credere commission is paid on the basis of total amount of sales.
534 Which of the following journal entry in consignment account, is not correct, when passed in the
books of consignor?
A. for expenses incurred by the consignor - consignment account debit and bank account credit
B. for sale of goods by consignee - consignee account debit and consignment account credit
C. for goods taken over by consignee - consignee account and credit consignment account
D. none of the above
D All the above journal entries are correct.
535 Which of the following is not a feature of a joint venture:
A. it is an agreement for a specific purpose
B. the agreement gets terminated when the venture is completed
C. it is regular partnership
D. none of the above
C It is a partnership for a short period. But many features of partnership are missing.
536 Which of the following is a not correct statement:
A. In a joint venture the association is of a short term nature
B. the persons participating in a joint venture are called partners
C. the co-venturers contribute capital to the business
D. all the above
B The persons participating in a joint venture are called co-venturers.
537 The expenses incurred by co-venturers are debited to:
A. their personal account
B. joint venture account
C. bank account
D. cash account
B The expenses incurred by the co-venturers are debited to the joint venture account.
538 Which of the following statement is correct:
A. the co-venturers always share the profits in equal proportion
B. the co-venturers have to share the expenses incurred on the joint venture
C. the joint venture continues even after the specific task is accomplished
D. none of the above
B The co-venturers share the profit, in the ratio fixed by them and the venture comes to an end
when the specific task is finished. Expenses are shared by them.
539 Which of the following statement is not correct:
A. the co-venturers are agents and principal of each other
B. the co-venturers have unlimited liability
C. the joint venture cannot be a trading concern
D. all the above
D Co-venturers are not agents and principal, they have liability as per the contract and they can be

a trading concern also.


540 Which of the following journal entry in case of joint venture does not match:
A. for expenses incurred from joint bank account - debit the joint venture account
B. for expenses incurred from joint bank account - credit the bank account
C. for assets brought in by the co-venturers - debit the co-venturer account
D. for expenses incurred by the co-venturers - debit the joint venture account
C For assets brought in by the co-venturers the joint venture account is debited and co-venturers
account is credited.
541 In case of a joint venture, the profit and loss is ascertained :
A. at the end of each year in partnership firm and joint venture
B. at the completion in partnership firm and joint venture
C. at the end of each year in partnership firm and on completion of each venture in joint venture
D. at the end of each year in joint venture and on completion of each venture in partnership
C The profit and loss is ascertained at the end of each year in partnership firm and on completion
of each venture in joint venture.
542 In a joint venture, if no separate books of account are maintained, which of the following
account will be opened by each of them:
A. bank account and co-venturer account
B. joint venture and bank account
C. joint venture account and co-venturer account
D. any of these as per their suitability
C In a joint venture, if no separate books of account are maintained joint venture account and coventurers account will be opened by each of them.
543 In a lease transaction, the owner of assets is called:
A. principal
B. lessee
C. lessor
D. trustee
C Owner is called the lessor and user is called lessee
544 In a lease transaction, the user of assets is different from the owner, who is called:
A. principal
B. lessee
C. lessor
D. trustee
B The user is called the lessee
545 Which of the following is not a correct statement, in the context of lease?
A. it is a tool of tax planning for the lessor as well as lessee
B. the lessor remains owner throughout the currency of the lease
C. the contract of lease has no period
D. the lease helps the lessee to keep his capital investment low.
C The contract of lease normally has a period of around 5 years.
546 The lease can be of the following types (a) finance or capital lease (b) operating lease (c) service
lease (d) leveraged
lease.
A. a to d all
B. a, b and c only
C. b, c and d only

D. a, c and d only
A The lease can be finance or capital lease, operating lease, service lease and leveraged lease.
455 A firm has fixed assets of Rs.3 lac on which it provides depreciation at 10%. The auditors want
that the depreciation should be 15%. Firm agrees to make the adjustment. What journal entry shall
be passed:
A. debit the depreciation account and credit the fixed assets account for Rs.45000
B. debit the depreciation account and credit the fixed assets account for Rs.15000
C. debit the fixed asset account and credit the depreciation account for Rs.15000
D. no book entry is required to be passed as the depreciation is a non-cash expenditure
B The difference amount of depreciation at 5% i.e. Rs.15000 will be debited to depreciation account
and
credited to fixed asset account.
456 In order to reduce its profits, Firm B has provided depreciation on fixed assets at 20% instead
of usual 15% average. The amount of fixed assets is Rs.5 lac. What adjustment entry shall be
required to make the position correct.
A. debit depreciation account and credit fixed assets account for Rs.25000
B. debit the fixed assets account and directly credit the profit and loss account for Rs.25000
C. debit the fixed assets account and credit the depreciation account for Rs.25000
D. Depreciation being a non-cash expenditure, no adjustment entry shall be required.
C Depreciation is an expenditure and if it has been provided excess, it also requires adjustment. By
debiting fixed asset account, the depreciation account shall be credited for the amount of difference.
457 Partner-B of the ABC firm has taken certain goods for his personal use from the available
stocks with the firm. What adjustment shall be required:
A. Since goods have been taken by the partner, no adjustment shall be required.
B. debit goods accounts and credit capital account of the partner
C. debit drawings account and credit the purchase account
D. debit the capital account and credit the sales account
C When the goods have been taken by the partner for his personal use, his drawing account will be
debited and the purchase or goods account shall be credited.
458 What journal entry is required to be made to make provision for book-debts?
A. debit book-debits and credit provision
B. debit the expenses provision on book debts and credit provision on book debt account
C. debit provisions and credit book debt account
D. debit the expenses provision on book debts and credit the concerned book debt account
B When provision is required to be made on book debt, the expenses provision on book debt
account is to be debited and the provision on book debt account is to be credited.
459 Firm B has book debts of Rs.3 lac. Due to recession conditions, some of its book debts are likely
to be become difficult of recovery. It wants to make provision at 2%. What journal entry will be
passed.
A. debit the expenses provision on book debts and credit provision on book debt account
B. debit the provision on book debts and credit book debt account concerned
C. debit the expenses provision on book debts and credit related book debt account
D. debit the provision account and credit the expenses provision on book debt account
A The expenses provision on book debt account shall be debited for Rs.6000 and the amount shall
be credited to provision on book debt account which will be used for write off the book debt if any
in future.

460 Firm B had made provision on book debts at 5%, which was found to be excessive by the
auditors in the light of improved economic conditions. He suggests that a provision of 4% is
adequate. Presently, the amount of book debts is Rs.10 lac. What journal entry will be required.
A. debit the provision on book debt account and credit the expenses provision account for Rs.40000.
B. debit the provision on book debt account and credit the expenses provision account for Rs.10000.
C. debit the expenses provision on book debt account and credit the provision account for Rs.10000.
D. debit the expenses provision on book debt account and credit the provision account for Rs.40000.
B The excess provision will have to be reversed by debiting the provision on book debt account and
crediting the expenses provision on book debt account.
461 Firm-B wants to write off balance of a debtor amounting to Rs.10000. What journal entry shall
be passed.
A. debit the expenses provision on book debt and credit the related book debt account for Rs.10000
B. debit the related book debt account and credit the expenses provision on book debt account for
Rs.10000
C. debit the related book debt account and credit the provision on book debt account for Rs.10000
D. debit the provision on book debt account and credit the related book debt account for Rs.10000.
D To write off the account, the provision on book debt account shall be debited and the related book
debt
account shall be credited.
462 For transfer of closing of stocks of goods from trading account, what journal entry shall be
required?
A. debit trading account and credit the balance sheet stock
B. debit closing stock account and credit trading account
C. debit trading account and credit the stock account
D. debit the stock account and credit the profit and loss account
B For transferring the closing stock from the trading account, the closing stock will be debited and
the trading account shall be credited.
463 When the provision for outstanding expenses is made, which of the following is not correct,
regarding its effect:
A. the profit declines
B. the liability in the balance sheet declines
C. the profits declines and liability increases
D. the balance sheet and profit loss account are affected
B When outstanding expenses are provided, the profits come down to that extent and in the balance
sheet expenses payable appear as a liability.
464 When income accrued but not received is accounted for, which of the following effects does not
take place:
A. profits of the firm increase
B. the liabilities in the balance sheet increase
C. the profits increase and assets also increase
D. the profit and loss account and balance sheet both are affected
B When the accrued income is accounted for, it increases profit on the one hand and the accrued
income appears as an asset in the balance sheet.
465 If interest on capital of the partners has not been paid, what adjustment entry shall be
required.
A. debit the capital account and credit the interest on capital account
B. debit interest on capital account and credit the capital account

C. debit the interest account and credit the expenses payable account
D. no adjustment entry shall be required as it is internal matter for the firm
B To pay interest, the interest on capital account shall be debited and the capital account shall be
credited.
466 Which of the following accounting standard is applicable for inventory valuation?
A. AS-1
B. AS-2
C. AS-9
D. AS-12
B Accounting Standard AS-2 is applicable for inventory valuation.
467 Inventory has various components such as (a) raw material components (b) stock in process (c)
finished goods (d) capital work in progress.
A. a to c only
B. b to d only
C. a, c and d only
D. a to d all
A Inventory components include raw material, stock in process and finished goods. Capital working
in
progress is part of fixed assets and not of inventory.
468 Which of the following is included in the historical cost of the inventory (a) cost of purchase (b)
cost of conversion (c) other cost incurred in normal course of business in bringing the inventory to
it present location and condition.
A. a only
B. a and b only
C. a and c only
D. a to c all
D All these costs are part of historical cost of the inventory.
469 The stock in hand, at the time of valuation, are the stocks relating to latest consignment, in case
of:
A. first in first out method
B. last in first out method
C. average cost method
D. adjusting selling price method
A The stocks in hand, consist of stocks of latest consignment as the consumed stocks relate to earlier
consignments. Hence the valuation is based on price of latest consignments.
470 The stock in hand, at the time of valuation, are the stocks relating to earlier consignment, in
case of:
A. first in first out method
B. last in first out method
C. average cost method
D. adjusting selling price method
B The stocks in hand, consist of stocks of earlier consignment as the consumed stock relate to latest
consignment. Hence the valuation is based on price of earlier consignments.
471 In which of the following, the valuation of inventory is done on the basis of latest price:
A. first in first out method
B. last in first out method
C. average cost method
D. adjusting selling price method
A It is due to the reason, that the early consignment stock is consumed and stock relating to latest
consignment is in hand.

472 A firm purchased inventory in five lots at the rate of Rs.10, Rs.12, Rs.14, Rs.16 and Rs.18.
Under average cost method, the valuation of stock in hand will be:
A. at Rs.10
B. at Rs.18
C. at Rs.14
D. at Rs.12
C The valuation will be done on the average cost which is Rs.14 = (10 + 12 + 14 + 16 + 18) / 5.
473 In the month of Mar 2010, a firm had opening stock of inventory 1000 units at Rs.8 per unit. It
purchased 1200 units on Mar 2 at Rs.10, 200 units on Mar 4 at Rs.11 and 400 units on Mar 6 at
Rs.12. It consumed 600 units on Mar 3, 800 units on Mar 5 and 800 units on Mar 7. What is the
value of stocks that has been purchased ?
A. Rs.15000
B. Rs.19000
C. Rs.20000
D. Rs.27000
B Value as on Mar 01 : 1000 x 8 = 8000 + 12000 (1200 x 10) - 4800 (600 x 8) + 2200 (200 x11) - 7200
(400 x 8 + 400 x 10) + 4800 (400 x 12) - 8000 (800 x 10) = 7000
474 In the month of Mar 2010, a firm had opening stock of inventory 1000 units at Rs.8 per unit. It
purchased 1200 units on Mar 2 at Rs.10, 200 units on Mar 4 at Rs.11 and 400 units on Mar 6 at
Rs.12. It consumed 600 units on Mar 3, 800 units on Mar 5 and 800 units on Mar 7. What has been
the value of stock consumed as per first in first out method ?
A. 15000
B. 19000
C. 20000
D. 27000
C Value as on Mar 01 : 1000 x 8 = 8000 + 12000 (1200 x 10) - 4800 (600 x 8) + 2200 (200 x11) - 7200
(400 x 8 + 400 x 10) + 4800 (400 x 12) - 8000 (800 x 10) = 7000. Total consumption = 4800 + 7200 +
8000 = 20000
475 In the month of Mar 2010, a firm had opening stock of inventory 1000 units at Rs.8 per unit. It
purchased 1200 units on Mar 2 at Rs.10, 200 units on Mar 4 at Rs.11 and 400 units on Mar 6 at
Rs.12. It consumed 600 units on Mar 3, 800 units on Mar 5 and 800 units on Mar 7. What is the
value of the closing stocks as on Mar 31 under first in first out method.
A. 5000
B. 6000
C. 7000
D. 9000
C Value as on Mar 01 : 1000 x 8 = 8000 + 12000 (1200 x 10) - 4800 (600 x 8) + 2200 (200 x11) - 7200
(400 x 8 + 400 x 10) + 4800 (400 x 12) - 8000 (800 x 10) = 7000
476 In the month of Mar 2010, a firm had opening stock of inventory 1000 units at Rs.8 per unit. It
purchased 1200 units on Mar 2 at Rs.10, 200 units on Mar 4 at Rs.11 and 400 units on Mar 6 at
Rs.12. It consumed 600 units on Mar 3, 800 units on Mar 5 and 800 units on Mar 7. What is the
value of stock consumed as per last in first out method ?
A. 22200
B. 20400
C. 19300
D. 18600
A Value as on Mar 01 : 1000 x 8 = 8000 + 12000 (1200 x 10) - 6000 (600 x 10) + 2200 (200 x11) - 8200
(200 x 11 + 600 x 10) + 4800 (400 x 12) - 8000 (400 x 12 = 400 x 8) = 4800. Total consumption = 6000

+ 8200 +
8000 = 22200
477 In the month of Mar 2010, a firm had opening stock of inventory 1000 units at Rs.8 per unit. It
purchased 1200 units
on Mar 2 at Rs.10, 200 units on Mar 4 at Rs.11 and 400 units on Mar 6 at Rs.12. It consumed 600
units on Mar 3, 800 units on Mar 5 and 800 units on Mar 7. What is the valuation of the stocks as
on Mar 31 under last in first out method.
A. 5600
B. 5200
C. 5000
D. 4800
D Value as on Mar 01 : 1000 x 8 = 8000 + 12000 (1200 x 10) - 6000 (600 x 10) + 2200 (200 x11) - 8200
(200 x 11 + 600 x 10) + 4800 (400 x 12) - 8000 (400 x 12 = 400 x 8) = 4800
478 In retail trade or in such business where the inventory comprises such items, the cost of which
is not readily
ascertainable, which of the following method of inventory valuation is more suitable?
A. first in first out
B. base cost
C. last in first out
D. adjusting selling price
D Adjusting selling price method is more appropriate in retail trade or in such business where the
inventory comprises such items, the cost of which is not readily ascertainable.
479 The value of inventory is ascertained in the following ways (a) periodic inventory (b) perpetual
inventory (c) periodiccum- perpetual inventory.
A. a and b only
B. a and c only
C. b and c only
D. a to c all
A The value of inventory is ascertainable in two ways i.e. (a) periodic inventory (b) perpetual
inventory.
480 When value of stock is ascertained by physically counting the stock at the end of the year or as
on the accounting
date, this is called:
A. periodic inventory
B. perpetual inventory
C. continuous inventory
D. any of the above
A In periodic inventory method, the value of stock is ascertained by physically counting the stock at
the end of the year or as on the accounting date.
481 Under which of the following methods of inventory taking, the stock register is maintained
which gives the inventory balances at any time?
A. periodic inventory
B. perpetual inventory
C. continuous inventory
D. any of the above
B Under perpetual inventory methods of inventory taking, the stock register is maintained which
gives the nventory balances at any time

482 If the prices of material are increasing during a given year, the first in first out method will
result in costing of material
consumed at:
A. highest material cost
B. lowest material cost
C. highest initially and lower later on
D. any of the above
B If the prices of material are increasing within a given year, the first in first out method will result
in costing of material consumed at lowest material cost, as the cheaper material received first will
be used first.
483 If the prices of material are increasing within a given year, the last in first out method will
result in costing of material consumed at:
A. highest material cost
B. lowest material cost
C. highest initially and lower later on
D. any of the above
A If the prices of material are increasing within a given year, the last in first out method will result
in costing of material consumed at highest material cost as cost material received later on is
consumed first.
484 If the prices of material are decreasing within a given year, the first in first out method will
result in costing of material consumed at:
A. highest material cost
B. lowest material cost
C. highest initially and lower later on
D. any of the above
A If the prices of material are declining within a given year, the first in first out method will result
in costing of material consumed at highest material cost, as the high cost material will be used first.
485 If the prices of material are decreasing within a given year, the last in first out method will
result in costing of material consumed at:
A. highest material cost
B. lowest material cost
C. highest initially and lower later on
D. any of the above
B If the prices of material are declining within a given year, the last in first out method will result in
costing of material consumed at lowest material cost, as the low cost material will be used first.
486 If the prices of material are decreasing within a given year, the last in first out method will
result :
A. lower profits
B. higher profits
C. no effect on actual profits
D. none of the above
B If the prices of material are decreasing within a given year, the last in first out method will result
in higher profits as the material used will be at a lower cost.
487 If the prices of material are decreasing within a given year, the first in first out method will
result :
A. lower profits

B. higher profits
C. no effect on actual profits
D. none of the above
A If the prices of material are decreasing within a given year, the first in first out method will result
in lower profits as the material used will be at a highest cost.
488 Which of the following statement is correct in the context of FIFO and LIFO methods of
inventory valuation?
A. in a case of increasing prices of material, the profits will be higher under FIFO
B. in a case of increasing prices of material, the profits will be higher under LIFO
C. in a case of increasing prices of material, the profits will be lower under FIFO and higher under LIFO
D. none of the above, as it will not have any impact
A In a case of increasing prices of material, the profits will be higher under FIFO, as the material
consumed will have lower cost and material in hand will have higher price.
489 Which of the following statement is correct in the context of FIFO and LIFO methods of
inventory valuation?
A. in a case of declining prices of material, the profits will be higher under FIFO
B. in a case of declining prices of material, the profits will be higher under LIFO
C. in a case of decreasing prices of material, the profits will be lower under LIFO and higher under FIFO
D. none of the above, as it will not have any impact
B In a case of decreasing prices of material, the profits will be higher under LIFO, as the material
consumed will have lower cost and material in hand will have higher price.
490 As per requirement of Schedule VI of Companies Act, the inventories are classified as (a) stores
and spares (b) loose tools (c) stock in trade (d) work in progress.
A. a, b and d only
B. b, c and d only
C. a to d all
D. a, c and d only
C The inventories are classified in all the above 4 categories.
491 The test of objectivity and verifiability is taken care of, if the stock valuation is made at:
A. current replacement price
B. historical cost
C. net realisable value
D. any of these
B The test of objectivity and verifiability is taken care of, if the stock valuation is made at historical
cost.
492 When the value of inventory is ascertained from books of stock, it is called:
A. periodic inventory
B. first in first out inventory
C. perpetual inventory
D. last in first out inventory
C When the value of inventory is ascertained from books of stock, it is called perpetual inventory.
493 Accounting Standard AS-2 recommends which of the following inventory valuation method?
A. weighted averages only
B. last in first out
C. latest purchase price
D. first in first out or weighted average
D Accounting Standard AS-2 recommends first in first out or weighted average inventory valuation
method.

494 The valuation of inventory is ___ as it depends upon the accounting policies followed by the
firm / accountant.
A. objective
B. subjective
C. biased
D. perfect
B The valuation of inventory is subjective because it depends upon the accounting policies followed
by the firm / accountant.
495 The historical cost concept in inventory valuation are reduced to net realisable value due to
which of the following accounting convention?
A. realisation
B. accounting period
C. consistency
D. conservatism
D It is due to conservatism convention.
496 If the method of valuation of inventory is changed frequently, it will violate, which of the
following convention of accounting:
A. realisation
B. accounting period
C. consistency
D. conservatism
C The convention of consistency requires that the accounting practices once adopted should be
followed consistently.
497 Which of the following is not an example of deferred revenue expenditure:
A. large expenditure on advertisement
B. expenditure for issue of raising loan
C. expenses relating to formation of a company
D. purchase of fixed assets
D All these expenses at option (a) to (c) are in the nature of deferred revenue expenditure. Item (d)
is a capital expenditure.
498 The receipts of a business that do not arise in normal course of business. Rather these are of
unusual nature. These are called:
A. revenue receipts
B. capital receipts
C. deferred receipts
D. none of the above
B Such receipts are called capital receipts. These include amount of capital issue, debenture, term
loan raised etc.
499 Which of the following is not part of revenue receipts:
A. interest on bank term deposit
B. commission on sales
C. capital contributed by the partner
D. none of the above
C Capital contributed by the partner is a capital receipt. Others are revenue receipts.
500 Which of the following is not a capital receipt:
A. share capital
B. share premium
C. trade creditor
D. debenture
C Trade creditors is a revenue receipt. It is available on a recurring basis.

501 The classification of which of the following is correct:


A. freight paid on bringing the machinery to the factor premises - revenue expenditure
B. labour welfare expenses - deferred revenue expenditure
C. loss of goods due to fire - capital expenditure
D. renovation expenses of old machines before installation- capital expenses
A Freight on bringing machinery is capital expenditure, labour welfare expenses are deferred
revenue
expenditure and loss of goods due to fire is revenue expenditure.
502 Which of the following is a correct statement?
A. bill of exchange is a negotiable instrument
B. drawee is the person, who is to obtain the payment as per order of the drawer
C. payee is the person, who is make the payment as per order of the drawer
D. drawer is the person, who is to make the payment
A Drawee is the person to make the payment, the payee is to get the payment and drawer makes
order to make the payment.
503 Once a usance bill of exchange is accepted:
A. the drawee becomes primarily liable on it
B. the drawer is secondarily liable on it
C. the drawee is called acceptor
D. all the above
D All the above statements are correct.
504 A promisory note has the following parties (a) maker (b) drawee (c) payee (d) drawer.
A. a and d only
B. b and c only
C. a and c only
D. c and d only
C A promissory note has maker (the person who signs) and the payee (the person who is entitled to
get payment).
505 A bill of exchange has the following parties (a) maker (b) drawee (c) payee (d) drawer.
A. a and d only
B. a, b and c only
C. a and c only
D. b, c and d only
D A bill of exchange has 3 parties namely drawer, drawee and the payee.
506 When the sale of goods takes place on credit basis:
A. the seller becomes creditor and buyer becomes debtor
B. the seller becomes debtor and buyer becomes creditor
C. the seller becomes debtor and buyer becomes agent
D. none of the above
A When the sale of goods takes place on credit basis, the seller becomes creditor and buyer becomes
debtor.
507 Which of the following statement is not true in regard to accomodation bill?
A. it is drawn without any consideration
B. the objective is to provide temporary finance
C. accomodation bill should be accompanied by a railway receipt or goods receipt
D. none of the above
C Accomodation bill is not accompanied by a railway receipt or goods receipt.
Page 101 of 165
508 When the accomodation bill is discounted, the discount is :
A. borne by the drawer

B. borne by the drawee


C. shared by the parties in their sharing ratio
D. shared by the parties in equal ratio
C When the accomodation bill is discounted, the discount is shared by the parties in their sharing
ratio.
509 Which of the following does not match in the context of bill of exchange?
A. the bills which are drawn without any sale - demand bills
B. the amount received from the private estate of insolvent person - dividend
C. the amount not recoverable from the insolvent - bad debt
D. none of the above
A The bills which are drawn without any sale are called accomodation bills
510 Where the drawee of a bill makes payment of the bill on due date, the bill is treated as:
A. paid
B. retired
C. honoured
D. any of the above
C Honouring of bill means making payment by the drawee, on due date.
511 When a bill of exchange is paid before due date, it is called:
A. paid
B. retired
C. honoured
D. any of the above
B When a bill of exchange is paid before due date, it is called retiring of the bill.
512 On dishonour of bill of exchange or promissory note, when the holder causes such dishonour to
be noted and certified by a notary public, such certificate is called:
A. noting
B. protest
C. dishonour
D. any of the above.
B On dishonour of bill of exchange or promissory note, when the holder causes such dishonour to
be noted and certified by a notary public, such certificate is called protest.
513 X had drawn a bill on Y, which if duly accepted by Y. The bill is endorsed by X in favour of Z.
What will be journal entry on this endorsement, in the books of X:
A. debit Y - credit Z
B. debit Z - credit Y
C. debit Z - credit bills receivable
D. debit bills receivable - credit Z
C If bill is endorsed, the endorsee account is debited and bills receivable account is credited.
514 X had drawn a bill on Y which Y accepted. X endorsed the bill in favour of Z. What will be
journal entry in the books of Y:
A. debit Z, credit bills receivable
B. debit X, credit bills payable
C. debit Z, credit bills payable
D. debit bills payable, credit X
B If bill has been accepted, the drawer will be debited and bills payable account is credited.
515 The bills that are drawn by other parties on a business firm, which makes the purchases, are
recorded in which of the following:
A. sales ledger
B. bills receivable book

C. bills payable book


D. purchase book
C The bills that are drawn by other parties on account of purchases made by one firm are recorded
in the bills payable book from where these are directly posted to the account of respective
customers.
516 Which of the following statement is not correct?
A. the date on which the bill is to be paid is called due date
B. 3 days of grace are added to calculate the due date
C. if due date falls on a holiday, the bills is payable on the next business day
D. none of the above
C If due date falls on a holiday, the bill is payable on the next preceding business day i.e. previous
business day. If a bill falls due on Sunday, the payment to be made on Saturday.
517 Where the goods are sent on consignment, which of the following accounts is debited:
A. consignment account
B. account of consignee
C. sales accounts
D. goods on approval account
A When the goods are sent on consignment basis, the consignment account is debited.
518 If there is abnormal loss of stock after adjusting the recovery and insurance claim, it is
transferred to:
A. capital account
B. trading account
C. stock account
D. profit and loss account
D Such abnormal loss is transferred to profit and loss account.
Page 103 of 165
519 The account of the consignee in the books of consignor is a:
A. real account
B. personal account
C. nominal account
D. impersonal account
B Account of the consignee is a personal account. The consignor is dealing with a natural person or
a legal
person.
520 Which of the following statement, does not match:
A. the consignment account is a nominal account - false
B. the consignee account is a personal account - true
C. the consignor and consignees are buyers and sellers - false
D. none of the above
C the consignment account is a nominal account and consignor and consignee are principal and
agent.
521 The account sale is the sales account which appears in the books of:
A. consignee only
B. consignor only
C. consignor and consignee both
D. none of the above
D It is not an account. Rather it is the detail of sales and expenses that is given by consignee to the
consignor.
522 The consignment account is a:
A. real account

B. nominal account
C. personal account
D. it is not an account at all. It is only a statement
B Consignment account is a nominal account maintained in the books of the consignor.
547 Which of the following is the most popular lease?
A. leveraged lease
B. operating lease
C. service lease
D. finance lease
D Finance lease or capital lease, is the most popular lease.
548 In which of the following lease, the entire economic life of the asset is agreed to be transferred
for use by the lessee?
A. leveraged lease
B. operating lease
C. service lease
D. finance lease
D In the finance lease, the entire economic life of the asset is agreed to be transferred for use by the
lessee,though the ownership remains with the lessor.
549 In a finance lease, the lessor recovers the cost of asset and interest thereon during the ___:
A. base period
B. secondary period
C. primary period
D. primary + secondary period
C During the primary period, the lessor recovers the cost of asset and interest thereon in a finance
lease.
550 In case of lease of assets like telephones, vehicles, computers etc., which of the following lease is
used:
A. leveraged lease
B. operating lease
C. service lease
D. finance lease
B Operating lease is used in case of lease of assets like telephones, vehicles, computers etc.
551 The period of operating lease may range from:
A. one year to 7 years
B. one year to 5 years
C. one day to 3 years
D. one month to 3 years
C The period of operating lease may range from one day to 3 years.
552 In which of the following type of lease, there are 3 parties (lessor, lessee, financier):
A. leveraged lease
B. operating lease
C. service lease
D. finance lease
A In a leverage lease, there are 3 parties namely lessor, lessee, financier.
553 The leasing companies make use of borrowed funds to finance their leasing activities. Such
lease is called:
A. leveraged lease
B. operating lease

C. service lease
D. finance lease
A The leasing companies make use of borrowed funds to finance their leasing activities. Such lease
is called
leveraged lease.
554 The lease which covers the cost of maintenance and servicing the asset for a short period, is
called:
A. leveraged lease
B. operating lease
C. service lease
D. finance lease
C The lease which covers the cost of maintenance and servicing the asset for a short period, is called
service lease.
555 The annual lease rent includes (a) finance income (b) annual charges (c) lease charges.
A. a and b only
B. b and c only
C. a and c only
D. a to c all
A The annual lease rent includes finance income and annual charges.
556 In a lease transaction, the total finance income is calculated as under:
A. total annual lease rent for all years - residual value of leased assets - fair value of the leased asset at the
time
of beginning of the lease term
B. total annual lease rent for all years + residual value of leased assets - fair value of the leased asset at
the time
of beginning of the lease term
C. total annual lease rent for all years - residual value of leased assets + fair value of the leased asset at
the time
of beginning of the lease term
D. total annual lease rent for all years - residual value of leased assets - fair value of the leased asset at the
time
of beginning of the lease term
B It is calculated as, total annual lease rent for all years + residual value of leased assets - fair value
of the leased asset at the time of beginning of the lease term
557 The total finance income for a 4 year lease period is Rs.60000. What will be amount for the 3rd
year, by using sum of digits method.
A. Rs.24000
B. Rs.18000
C. Rs.12000
D. Rs.6000
C 1+2+3+4 = 10. For 3rd year, the years are 3 and years left only 2. Hence 2/10 x 60000 = Rs.12000.
558 When annual rent is paid by the lessee, what journal entry is passed in his books?
A. debit the lessor, credit the bank
B. debit the bank, credit the lessee
C. debit the lease rent, credit the bank
D. debit the bank, credit the lease rent
C The journal entry shall be debit the lease rent and credit the bank.
559 A lease is classified as ___ lease, if it does not earn for the lessor the recovery of his capital
outlay plus a return on the funds invested during the lease term:

A. leveraged lease
B. operating lease
C. service lease
D. finance lease
B A lease is classified as operating lease, if it does not earn for the lessor the recovery of his capital
outlay plus a return on the funds invested during the lease term
560 The buyer purchases capital assets and makes payment in instalments and not in lump sum, in
case of (a) hire purchase (b) instalment sale (c) lease
A. a to c all
B. a and b only
C. b and c only
D. a and c only
B The buyer purchases capital assets and makes payment in instalments and not in lump sum, in
case of hire purchase and instalment sale.
561 Which of the following is not correct in the context of hire purchase:
A. the buyer takes possession of the assets and uses them as owner
B. the price is not fully paid when the asset is being used.
C. the buyer is called hirer and the seller is called hire purchase seller
D. the hire purchase agreement can be in writing or oral.
D The hire purchase agreement can be in writing only.
562 The elements of hire purchase are (a) cash price (b) interest for delayed payments (c) rent for
use of the assets without making full payment.
A. a to c all
B. a and b only
C. a and c only
D. b and c only
B The elements of hire purchase are cash price and interest for delayed payments.
563 Down payment in a hire purchase agreement means:
A. the last payment made for the purchase of the asset
B. the first payment made for the purchase of the asset
C. a part of the payment made in the beginning at the time of purchase of the asset
D. any of the above
C Down payment in a hire purchase agreement means a part of the payment made in the beginning
at the time of purchase of the asset.
564 Lease of machinery or air conditioners can be covered under which of the following?
A. leveraged lease
B. service lease
C. operating lease
D. any of the above
B Lease of machinery or air conditioners can be covered under service lease.
565 In a hire purchase system, the ownership is transferred to the buyer at the time of:
A. first instalment
B. half the amount of payment
C. last instalment
D. any of the above, according to agreement
C In a hire purchase system, the ownership is transferred to the buyer at the time of last instalment.

566 Which of the following books are maintained by the non-trading organisations
A. cash book & journal
B. general ledger
C. register for membership, donation, property
D. all the above
D The non-trading organisations like educational institutions, hospitals, clubs etc. maintain books
such as cash book, general ledger, journal, register for membership, donation, property etc.
567 Final accounts of non-trading organisation consist of (a) receipt and payment account (b)
income and expenditure account (c) balance sheet (d) trading account.
A. a and b only
B. a to c only
C. b to d only
D. a to d all
B Final accounts of non-trading organisation consist of receipt and payment account, income and
expenditure account and balance sheet.
568 The receipt and payment account of non-trading organisation records :
A. cash receipts and cash payments only
B. all cash and non-cash receipts and payments
C. all capital and revenue transactions
D. all the above
A The receipt and payment account of non-trading organisation records cash receipts and cash
payments which may be on capital account or on revenue account.
569 Which of the following features of an income and expenditure account of a non-trading
organisation is not correct?
A. it is like a profit and loss account
B. it records the transactions of income and expenses relating to a particular period
C. it also records the transactions of capital receipt and payments relating to a particular period.
D. none of the above
C The capital receipts and capital payments are carried over to the balance sheet. These are not
recorded in the income and expenditure accounts.
570 The donations received by non-trading organisations are recorded :
A. on liability side of the balance sheet
B. as receipts in the income and expenditure account
C. as receipts in the income and expenditure account if received as routine revenue items and as liability
if
received for a specific purpose
D. as receipts in the income and expenditure account if received for specific purpose and as liability if
received as
routine revenue items.
C The donations received by non-trading organisations are recorded as receipts in the income and
expenditure account if received as routine revenue items and as liability if received for a specific
purpose
571 Which of the following are treated as liability in the balance sheet instead of receipt in the
income and expenditure account, by a non-trading organisation?
A. entrance fees by members
B. life membership fees
C. legacies

D. all the above


D Items such as entrance fees, life membership fees, legacies are of non-recurring nature. Hence
these are recorded on liability side of the balance sheet.
572 Which of the following does not match in connection with recording of the transaction by a
non-trading organisation?
A. government grants for maintenance - income
B. government grants for maintenance - income
C. special fund like building fund - income or liability
D. opening and closing stock of stationary - in balance sheet
C Special fund like building fund - all income and expenses relating to that fund are adjusted
against the fund.
573 If in the receipt and payment account of a non-trading organisation some receipt relating to
next year has been recorded, it will be shown as:
A. income in the income and expenditure account
B. expenditure in the income and expenditure account
C. liability in the balance sheet
D. asset in the balance sheet
C If any receipt relates to future, it will be treated as income received in advance, on the liability
side of the balance sheet.
574 If the opening bank balance appears on the payment side of the receipt and payment account of
a non-trading organisation, it means:
A. there is overdraft at the bank
B. there is cash in hand
C. there is current account at the bank
D. none of the above
A If the opening bank balance appears on the payment side of the receipt and payment account of a
nontrading organisation, it means that there is overdraft at the bank.
575 If in the receipt and payment account of a non-trading organisation some payment relating to
next year has been recorded, it will be shown as:
A. income in the income and expenditure account
B. expenditure in the income and expenditure account
C. liability in the balance sheet
D. asset in the balance sheet
D If any payment relates to future, it will be treated as prepaid expenditure, on the asset side of the
balance
sheet.
576 In case of a non-trading organisation, which of the following account description does not
match?
A. outstanding income - to be shown as asset in the balance sheet
B. outstanding expenses - to be shown as liability in the balance sheet
C. income received in advance - to be shown as asset in the balance sheet
D. expenditure incurred in advance - to be shown as asset in the balance sheet
C Income received in advance is to be shown as a liability in the balance sheet.
577 The difference between assets and liabilities of a non-trading organisation, in the opening
balances or closing balances is recorded as:

A. loss
B. profit
C. capital fund
D. any of the above
C The difference between assets and liabilities of a non-trading organisation, in the opening
balances or closing balances is recorded as capital fund
578 Which of the following explanation given to the term does not match in the context of accounts
of non-trading organisations?
A. amount paid to a person who is not employee - honorarium
B. amount received by way of a gift - donation
C. amount given as per will of the deceased person - legacy
D. some lump sum amount paid by the member instead of periodical payments - membership fee
D The lump sum amount paid by the member instead of periodical payments is called life
membership fee.
579 The income and expenditure account of a non-trading organisation is prepared on the basis of
which of the following accounting system?
A. realisation or cash system
B. mercantile system
C. hybrid system
D. accrual cum realisation system
B The income and expenditure account of a non-trading organisation is prepared on the basis of
mercantile accounting system according to which the income or expenditure relating to a particular
year only, is taken as income or expenditure.
580 A credit balance in the income and expenditure account of a non-trading organisation means:
A. excess of income over expenditure
B. excess of expenditure over income
C. excess of cash receipt over cash payment
D. excess of cash payment or cash receipts
A A credit balance in the income and expenditure account of a non-trading organisation means
excess of income over expenses. On the other hand, the debit balance means excess of expenditure
over income. It has no relationship with receipt and payment.
581 Which of the following items will not appear in the balance sheet of an educational institute?
A. donation received
B. sale of old computers
C. loss on sale of old lab equipment
D. none of the above
C The loss on sale of old lab equipment is the loss that will appear in the receipt and payment
account while others will appear in balance sheet.
582 In case of a club, the subscriptions receivable at the beginning and end of the year, are Rs.15000
and Rs.18000. The amount of subscriptions as per income and expenditure account is Rs.90000. The
amount relating to subscriptions, shown in receipt and payment account, should be:
A. 87000
B. 90000
C. 93000
D. 108000
A The amount is calculated as 90000 - (18000 - 15000) = 87000

583 Which of the following is not a correct statement regarding depreciation:


A. it is a charge on the profit and loss account for fall in value of an asset.
B. it is part of the operating cost
C. it is reduction in the value of the fixed asset
D. it is the reduction in the value created only by the use of asset
D The reduction in the value is created by use of asset, wear and tear or by other reasons.
584 For which of the following, the depreciation is not charged:
A. for ascertaining the correct profits
B. for showing correct financial position
C. for making provisions for replacement of asset
D. for insuring against future innovations
D Depreciation is charged for ascertaining the correct profits, to show the correct financial position
and for making provisions for replace of asset and not for insuring against future innovations.
585 While calculating depreciation, which of the following factors are not taken into account:
A. original cost of the asset
B. scrap value of the asset
C. market value of the fixed asset over the years
D. no. of useful years of life of the asset
C Market value of the fixed asset over the years is not a criteria for fixation of depreciation.
586 When depreciation is charged to an asset:
A. it can be credited to the asset account
B. it can be credited to provision for depreciation account
C. value of asset remains same if it is credited to the provision for depreciation account
D. The provision for depreciation will not appear in the balance sheet
D Where the depreciation is credited to provision for depreciation account, the provision for
depreciation will appear in the balance sheet and the value of fixed asset will remain the same.
587 Depreciation is recorded on the:
A. debit side of the profit and loss account
B. credit side of the profit and loss account
C. not recorded in the profit and loss account as it is not a cash expense
D. directly in the balance sheet as deduction from the value of fixed asset
A Depreciation is recorded on the debit side of the profit and loss account.
588 Depreciation is calculated on the book value (diminishing value) in case of:
A. straight line method
B. written down value method
C. sinking fund method
D. depletion method
B In the written down value method, the depreciation is calculated on the book value or depreciated
value.
589 When a 2nd hand machinery is purchased, which of the following is not included in the original
cost:
A. agreement price
B. renovation or overhauling before installation
C. installation and carriage
D. none of the above

D All these are included in the cost of a 2nd hand machinery.


590 When scrap value of the machinery is indicated, the depreciation is calculated as:
A. original cost / no. of expected years of life
B. (original cost + scrap value) / no. of expected years of life
C. (original cost - scrap value) / no. of expected years of life
D. any of the above methods
C When scrap value of the machinery is indicated, the depreciation is calculated as (original cost scrap value) / no. of expected years of life.
591 A machinery is purchased for Rs.2 lac with a useful life of 5 years. The scrap value is Rs.20000.
What will be the book value after 3 years if depreciation is calculated at SLM method.
A. Rs.92000
B. Rs.72000
C. Rs.68000
D. insufficient information
A Annual depreciation will be (200000 - 20000) / 5 = 36000. Depreciation for 3 years shall be 36000 x
3=
108000. The WDV shall be 200000 - 108000 = 92000
592 A machinery is purchased for Rs.4 lac with an expected life of 10 years. At the end of 6 year the
machinery is sold for Rs.150000. What is the profit or loss on sale of machinery.
A. Rs.20000 profit
B. Rs.10000 loss
C. Rs.10000 profit
D. inadequate information. Cannot be calculated
B Annual depreciation is Rs.40000. For 6 years = 240000. Book value is 400000 - 240000 - 160000. If
sale is for Rs.1.50 lac, there is loss 160000 - 150000 = 10000
593 A machinery is purchased on June 12, 2006 for Rs.60000. Another machinery is purchased on
January 22, 2007 for
Rs.40000. The depreciation rate is 10% SLM. What is the book value as at Mar 31, 2009 (it is
annual closing period).
A. 79000
B. 76000
C. 73000
D. 69000
C Book value of 1st machinery 60000 - 18000 (3 year depreciation) = 42000. 2nd machinery 40000 9000
(depreciation for 2 years and one quarter) = 31000. Total book value = 42000 + 31000 = 73000.
Minimum
depreciation of one quarter is chargeable where period is less than a quarter.
594 A firm is using SLM for charging depreciation on machinery of Rs.2 lac at 10%. Form 3rd
year, it changes the method of depreciation to written down value. What will be change in the profit
and loss position.
A. 4200, increase in profit
B. 4200, decrease in profit
C. 4000, increase in profit
D. insufficient information. Calculation not possible
C Depreciation for 3rd year as per SLM = 20000. Depreciation as per WDV = 16000. The difference

amount of Rs.4000 is the increase in profit as the amount of depreciation has declined.
595 Firm A purchased certain machinery for Rs. 2 lac on July 01, 2006. The rate of depreciation is
10%. What will be total amount of depreciation at WDV till Dec 31, 2008. The firm closes its books
as on 31st December.
A. 46100
B. 56100
C. 66100
D. insufficient information
A 1st year depreciation for 6 months = 10000. 2nd year 19000 and 3rd year Rs.17100. Total
depreciation = 46100
596 Which out of the following methods of depreciation is recognized for Income Tax purpose and
by the Companies Act
A. Straight Line Method
B. Written Down Value method
C. Sum of digits method
D. machine hour rate method
B WDV method is recognized for income tax purpose and also by the Companies Act.
597 The written down value of zero can never be there in which of the following methods of
deprecation:
A. Straight Line Method
B. Written Down Value method
C. Sum of digits method
D. sinking fund method
B Since the amount of depreciation is calculated on the depreciated value, the WDV can never be
zero in WDV method.
598 In the sinking fund method of depreciation, which of the following journal entries is made to
provide the depreciation:
A. debit depreciation and credit fixed asset account
B. debit depreciation and credit bank account
C. debit depreciation and credit sinking fund account
D. no journal entry is required. Investment is directly made
C The sinking fund is credited to the debit of depreciation. To make investment, the sinking fund is
debited and bank account is credited.
599 When provision for depreciation account is created, which of the following is not correct?
A. depreciation account goes to the debit of profit and loss account
B. the value of fixed asset is shown at the original cost in the balance sheet
C. in the journal entry, the depreciation account is debited and fixed asset account is credited
D. the provision for depreciation appears in the balance sheet as deduction from value of the fixed assets.
C In the journal entry, the depreciation account is debited and provision for depreciation account is
credited
600 Which of the following methods of depreciation does not match to its explanation:
A. fixed percentage on original cost - straight line method
B. fixed instalment - written down value method
C. fixed percentage on the diminishing value - written down value method
D. creating fund for replacement - sinking fund method
B Fixed instalment depreciation is the straight line method.

601 Original cost of an equipment is Rs.1.60 lac and useful life of 5 years. If the scrap value is
Rs.10000, what is the amount of depreciation for 3 years, under SLM?
A. 100000
B. 90000
C. 70000
D. 60000
B Depreciation = (1.60 - 0.10) = 1.50 / 5 = 0.30 x 3 = 0.90 lac
602 Original cost of an equipment is Rs.1.60 lac and useful life of 5 years. If the scrap value is
Rs.10000, what is the written down value at the end of 3rd year under SLM?
A. 100000
B. 90000
C. 70000
D. 60000
C Depreciation = (1.60 - 0.10) = 1.50 / 5 = 0.30 x 3 = 0.90 lac Depreciated value = 1.60 -.090 = 0.70
lac
603 Original cost of an equipment is Rs.1.60 lac and useful life of 5 years. If the scrap value is
Rs.10000, and machinery is sold at the end of 3rd year for Rs.75000, what is the gain or loss on sale,
under SLM?.
A. Rs.10000 profit
B. Rs.10000 loss
C. Rs.5000 loss
D. Rs.5000 profit
D Depreciation = (1.60 - 0.10) = 1.50 / 5 = 0.30 x 3 = 0.90 lac Depreciated value = 1.60 -.090 = 0.70
lac. Profit or loss = 0.75 - 0.70 = 0.05 lac.
604 Original cost of an equipment is Rs.2.00 lac and depreciation rate is 20% If machinery is sold at
the end of 3rd year for Rs.1 lac, what is the gain or loss on sale, under WDV method?.
A. 2000 profit
B. 2000 loss
C. 6000 profit
D. 6000 loss
B Book value at end of 3rd year = (1st year) 2.00 - 0.40 (20% of Rs.2.00 lac) = 1.60 (2nd year 1.60 0.32 (1.60 x 20%) = 1.28 (3rd year 1.28 - 0.26 (1.28 x 20%) = 1.02 Loss = 1.02 - 1.00 = 0.02 lac.
605 What journal entry will be passed at the end of 1st year if the sinking fund method of
depreciation is used, to make investment of funds in securities?
A. debit depreciation credit sinking fund
B. debit sinking fund and credit depreciation account
C. debit sinking fund investment and credit bank account
D. debit bank account and credit sinking fund investment
C For making investment of funds transferred from depreciation account to sinking fund, the
journal entry at the time of investment shall be debit sinking fund investment and credit bank
account.
606 In the year of replacement of fixed asset, under the sinking fund method of depreciation, what
journal entry is passed for sale of investment?
A. debit sinking fund investment account, credit sinking fund account
B. debit bank account, credit sinking fund investment account

C. debit sinking fund account, credit sinking fund investment account


D. debit depreciation account, credit sinking fund investment account
B For selling investment, the journal entry will be debit bank account and credit sinking fund
investment account.
607 Any system of accounting which is not exactly the double entry system is called?
A. single entry system of accounting
B. semi-single entry system of accounting
C. semi-double entry system of accounting
D. non-double entry system of accounting.
A Single entry system of accounting is any system of accounting which is not exactly the double
entry system.
608 The single entry system does not consist of which of the following:
A. double entry for certain transactions
B. single entry for certain transactions
C. no entry for certain transactions
D. none of the above
D The single entry system consists of double entry for certain transactions such as debtors,
creditors, single entry for certain transactions such as cash purchase or cash sale and no entry for
certain transactions such as depreciation, bad debt etc.
609 Which of the following is a salient feature of the single entry accounting system (a) no
uniformity (b) maintenance of personal accounts (c) maintenance of cash book (d) suitability (e)
dependence on original vouchers.
A. a to e all
B. a, c and d only
C. b, d and e only
D. b to e only
A All the above are features of single entry accounting system.
610 Which of the following is not a limitation of single entry accounting system?
A. true profits cannot be known
B. arithmetical accuracy can be checked
C. financial position of the business cannot be judged
D. the task of planning and decision making becomes difficult
B Arithmetical accuracy cannot be checked.
611 The profit and loss can be computed under single entry book keeping system by using (a) net
worth method (b) conversion method (c) interpolation method.
A. a to c all
B. a and b only
C. a and c only
D. b and c only
B The profit and loss can be computed under single entry book keeping system by using net worth
method and conversion method. There is no method like interpolation method.
612 The capital of a business was Rs.2 lac in the beginning of the year and it increased to Rs.2.30 lac
at the end of the year. What is amount of profit during the year under net worth method in single
entry accounting system.
A. Rs.30000

B. Rs.2 lac
C. Rs.2.30 lac
D. unascertainable
A The profit is calculated by comparing the opening and closing balance of net worth. Hence the
profit = 2.30 lac - 2.00 = 0.30 lac
613 The capital of a business was Rs.2 lac in the beginning of the year and it increased to Rs.2.30 lac
at the end of the year. During the year, there were drawings of Rs.40000. What is amount of profit
during the year under net worth method in single entry accounting system.
A. 30000
B. 70000
C. 2.30 lac
D. unascertainable.
B The profit is calculated by comparing the opening and closing balance of net worth + the amount
of
drawings. Hence the profit = 2.30 lac - 2.00 = 0.30 + 0.40 = 0.70 lac
614 The capital of a business was Rs.2 lac in the beginning of the year and it increased to Rs.2.30 lac
at the end of the year.
During the year, there were drawings of Rs.40000 and capital introduction was Rs.20000. What is
amount of profit
during the year under net worth method in single entry accounting system.
A. 30000
B. 50000
C. 70000
D. cannot be calculated
B The profit is calculated by comparing the opening and closing balance of net worth + the amount
of
drawings - amount of capital introduced. Hence the profit = 2.30 lac - 2.00 = 0.30 + 0.40 = 0.70 lac 0.20 = 0.50 lac
615 In single entry accounting system under conversion method, which of the following is a correct
statement?
A. trial balance has to be prepared.
B. to prepare trial balance, double entry method is required to be used for certain transactions
C. the final accounts can be prepared in the usual way after the trial balance
D. all the above
D All these statements are correct statements.
616 Under a single entry system, the statement of affairs is a statement:
A. that gives details of all receipts and payments in cash
B. that gives details of assets and liabilities as on a particular date
C. that gives income and expenditure details for a particular period
D. that gives income and expenditure, assets and liabilities and receipt and payment position.
B The statement of affairs is a statement that gives details of assets and liabilities as on a particular
date. It is like the balance sheet of the firm.
617 Which of the following groups of ratio does match:
A. liquidity ratios - current ratio, debt equity ratio
B. solvency ratios - debt equity ratio, debtor turnover ratio
C. activity ratios - debtor velocity ratio, stock turnover ratio

D. profitability ratios - return on capital employed ratio, return on net worth ratio
C Debt equity ratio is not part of liquidity ratios, it is a solvency ratio. Debtor turnover ratio is an
activity ratio. Debt service coverage ratio is part of solvency ratios.
618 Which of the following is correct in regard to liquidity ratios:
A. objective of liquidity ratios is to check long term solvency of the firm
B. current ratio examines the liquidity position in a one year period
C. quick ratio examines the liquidity position of 9-10 months
D. net working capital indicates the availability of funds for repayment of term loan
B Liquidity ratios are used to examine the liquidity position. For very short term liquidity position,
quick ratio is used. Net working capital indicates, the position of availability of margin for working
capital.
619 The formula for which of the following ratios is correct:
A. current ratio = current assets / current liabilities
B. quick ratio = quick assets / quick liabilities
C. net working capital = current liabilities + current assets
D. none of the above
A Quick ratio is calculated as quick assets / current liabilities and net working capital is calculated
as current assets less current liabilities or long term sources less long term uses.
620 To calculate quick assets, which of the following is not reduced from current assets:
A. stocks
B. inventories
C. pre-paid expenses
D. trade debtors
D Trade debtors are part of quick assets but other assets in the question are not quick assets
although these are current assets.
621 A firm has stocks of 10, debtors 12, trade creditors of 7, cash 1, bank overdraft 4, prepaid
expenses 2 and expenses outstanding 2. Which of the following is not correct:
A. quick assets = 12
B. current assets = 25
C. current liabilities = 13
D. quick ratio = 1:1
A Quick assets should be 13. (25 - 12).
622 The details of assets and liabilities of a firm are as under: stocks 15, debtors 16 (including those
outstanding more than 6 months 3), term loan 24 (including instalment payable within 12 months
6), bank overdraft 8, cash in hand 4, prepaid expenses 4, outstanding expenses 5 and provisions 2.
(which of the following is not correct)
A. current assets = 36 and current liabilities = 22
B. current ratio = 1.72:1
C. quick ratio = 0.81
D. net working capital = 15
A Current liabilities will be 21 (6+8+5+2) for current ratio purpose and current assets 36
(15+13+4+4). Amount of TL instalment will be added to current liabilities and amount of old book
debts will not be included in current assets. Quick assets are 17 (36 - 15 - 4)
623 Current ratio of a firm was 1.33:1 in the previous year which continues to be same. But the
quick ratio has changed from 0.69:1 to 0.97:1. The change will be on account of:
A. %age of stocks in total current assets increased

B. %age of quick assets in total current assets increased


C. %age of stocks in total current assets increased slightly
D. %age of quick assets in total current assets decreased
B If %age of quick assets in the total current assets increases and that of current assets increases,
the current ratio remaining same, the quick ratio can increase.
624 Net working capital of a firm is 80 and current ratio 1.5:1. Its current liabilities and assets are:
A. 80, 120
B. 160, 240
C. 240, 320
D. 120, 200
B As per current ratio, current assets are 1.5 and current liabilities 1.0, which means NWC = 0.5. If
NWC is 0.5 the current assets are 1.5 i.e. 3 times, if NWC is 80, current assets should be three times
i.e. 240. In this manner current liabilities can be calculated.
625 Capital of a firm is 35, reserves 11. Its debentures are 80 and preliminary expenses 6. The debt
equity ratio will be:
A. 0.5:1
B. 2:1
C. 1.7:1
D. none of the above
B Long term liabilities are 80 and tangible net worth 40 (35+11-6). Hence ratio is 2 (80/40)
626 Which of the following formula for solvency ratios is not correct:
A. debt equity ratio = long term liabilities / net worth
B. proprietary ratio = tangible assets / tangible net worth
C. tangible net worth = net worth - intangible assets
D. tangible assets = total assets - intangible assets
A Debt equity ratio is calculated with tangible net worth as denominator and not net worth.
627 The debt equity ratio is 3:1 and current ratio 1.5:1. If current assets are 45 and long term
liabilities are 45, which of the following is correct:
A. current liabilities are 15 and tangible net worth 30
B. current liabilities are 30 and tangible net worth 15
C. current liabilities are 30 and tangible net worth 30
D. current liabilities are 15 and tangible net worth 15
B Current liabilities = 45 / 1.5 and tangible net worth = 45 / 3
628 Debt service coverage ratio is calculated as :
A. (net profit + depreciation + term loan interest) / term loan instalment
B. (net profit + depreciation + term loan instalment) / term loan interest
C. (net profit + depreciation + term loan interest) / (term loan instalment + term loan interest)
D. (net profit + depreciation + term loan interest) / (term loan instalment + depreciation)
C DSCR is calculated as per option C.
629 Net profit of a firm is 45, depreciation 20 and term loan interest 15. If term loan instalment is
25, what will be DSCR:
A. 1.5
B. 2
C. 2.5
D. 3
B DSCR = (45+20+15) / (15+25) = 2
630 DSCR coverage ratio is used for which of the following purposes:

A. to calculate the amount of term loan


B. to calculate working capital limits
C. to decide whether to sanction a term loan and to fix instalments
D. all the above
C DSCR is calculated to decide whether to sanction a term loan and also to fix instalment.
631 Which of the following ratios is not correctly shown as the ideal level of the concerned ratio:
A. current ratio = 1.33:1
B. debt equity = 2:1
C. debt service coverage ratio = 2
D. quick ratio = 1:1
D There is no ideal level for quick ratio. Other options are correct.
632 Firm -A has sales of 5000 and stocks of 400. Firm-B has stocks of 600 and sales of 7200. In this
connection which of the following is not correct:
A. stock turnover ratio of Firm-A = 12.5
B. stock turnover ratio of Firm-B = 12
C. stock turnover ratio of Firm-A is better than of Firm B
D. Stock utilisation of Firm-B is better than of Firm-A.
D Stock utilisation is slightly better of Firm-A. The higher stock turnover ratio indicates better use
of stocks.
633 Which of the following is correct with regard to debtor turnover ratio :
A. ratio is calculated as = debtors / sales
B. ratio indicates credit period extended by the firm to its customer
C. ratio indicates the efficiency of recovery of debtors
D. debt velocity ratio is another variant of this ratio
A Ratio is calculated as sales / debtors.
634 Firm -A has sales of 4000 and debtors of 200. Firm-B has debtors of 500 and sales of 8000. In
this connection which of the following is not correct:
A. debtor turnover ratio of Firm-A = 20
B. debtor turnover ratio of Firm-B = 16
C. debtor recovery performance of Firm-A is better than of Firm B
D. debtor recovery performance of Firm-B is better than of Firm-A.
D A higher debtor turnover ratio is better.
635 When debtor turnover is calculated in terms of time period : (which one is incorrect):
A. it is called debtor velocity ratio
B. it is calculated as debtor / sales x 12
C. it is calculated as sales / debtors x 12
D. it is called debt collection period
C Options at (a), (b) and (d) are correct. Require no explanation.
636 Firm -A has sales of 4000 and debtors of 200. Firm-B has debtors of 500 and sales of 8000. In
this connection which of the following is not correct:
A. debtor velocity ratio of Firm A = 0.6 months
B. debtor velocity ratio of Firm B = 0.75 months
C. debtor collection efficiency of Firm A is better than Firm-B
D. debtor collection efficiency of Firm B is better than Firm-A
D Shorter debt collection period is better which indicates quicker recovery of debtors.

637 Sales of a firm are 6000 and its debtors 300. Debtor velocity of the firm in the previous year was
0.8 months. Which of the following statements is not correct:
A. debtor turnover ratio is 20 times
B. debtor velocity ratio is 0.6 months
C. debt collection has improved over the previous year
D. debt collection has shown deterioration over the previous year
D Debtor velocity ratio in the previous year was 0.8 months which has come down to 0.6 month,
which means improvement in debt collection.
638 The return on equity or return on net worth is calculated as:
A. net profit / net worth
B. net profit / long term sources
C. net profit / tangible net worth
D. gross profit / net worth
C Ratio is calculated with reference to tangible net worth.
639 A firm has net profits of 40 and its capital and reserves are 210. If it has goodwill of 10, what is
return on net worth.
A. 25%
B. 20%
C. 18.5%
D. 17.5%
B To calculate the ratio the tangible net worth will be 200 (200-10). Calculation will be as 40 / 200 x
100 = 20%
640 Return on capital employed (ROCE) is calculated as:
A. net profit / net worth
B. net profit / tangible net worth
C. net profit / long term sources
D. net profit / (tangible net worth + long term loans)
D ROCE is calculated as net profit / (tangible net worth + long term loans
641 A firm has net profits of 40. It capital and reserves are 150 and long term loans 260. If the firm
has goodwill of 10, what is the return on capital employed.
A. 10%
B. 12%
C. 20%
D. 40%
A Ratio is calculated as net profit / (tangible net worth +long term liabilities). Hence 40 / 400 = 10%.
(Tangible net worth = 150-10 = 140)
642 The traditional classification of ratios include:
A. profit and loss account ratios
B. balance sheet ratios
C. profit and loss cum balance sheet ratios
D. all the above
D The traditional classification of ratios consists of profit and loss account ratios, balance sheet
ratios and profit and loss account cum balance sheet ratios.
643 The functional classification of ratios include (a) profitability ratios (b) turnover or activity
ratios (c) financial or solvency ratios
A. a and b only

B. b and c only
C. a to c all
D. a and c only
C The functional classification of ratios include profitability ratios, turnover or activity ratios and
financial or solvency ratios.
644 The short-term solvency ratios include:
A. current ratio
B. quick ratio
C. acid test ratio
D. all the above
D Short term solvency ratios include current ratio and quick ratio. Quick ratio is also called acid
test ratios.
645 The return on investment is calculated as:
A. net profit before interest and tax / (tangible net worth + long term liabilities)
B. net profit after interest and tax / (tangible net worth + long term liabilities)
C. net profit before interest and tax / (tangible net worth + outside liabilities)
D. net profit before interest and tax / (net worth + long term liabilities)
A The return on investment is calculated as net profit before interest and tax / (tangible net worth +
long term liabilities).
646 The net profit before tax of a firm is 200. The interest amount is 20. The tangible net worth is
300 and long term liabilities of 400. The return on investment shall be:
A. 29.5%
B. 29.5%
C. 31.4%
D. 32.8%
C The ratio is calculated as net profit before interest and tax / (tangible net worth + long term
liabilities). (200 + 20) / (300 + 400) = 220 / 700 = 31.4%
647 The earning per share can be calculated with the help of following?
A. net profit after tax and preference dividend / no. of total shares
B. net profit after tax and preference dividend / no. of equity shares
C. net profit after tax / no. of total shares
D. net profit before tax / no. of total shares
B The ratio can be calculated as net profit after tax and preference dividend / no. of equity shares.
648 A company has 2 lac shares and its net profit after tax is Rs.10 lac. The earning per share is:
A. Rs.20
B. Rs.10
C. Rs.5
D. Rs.2
C Calculation shall be made as net profit after tax and preference dividend / no. of equity shares.
Hence 10 lac / 2 lac = Rs.5 per share
649 A company has 2 lac shares including 40000 preference shares and its net profit after tax is
Rs.10 lac and preference dividend is Rs.1 lac. The earning per share is
A. Rs.8.10
B. Rs.7.05
C. Rs.5.63
D. Rs.4.98

C Calculation shall be made as net profit after tax and preference dividend / no. of equity shares.
Hence (10 - 1 lac ) / (2 00000 - 40000) = 900000 / 160000 = Rs.5.63
650 Price earning ratio can be calculated as:
A. total no. of equity share / earning per share.
B. market price of equity share / total no. of equity shares.
C. market price of equity share / earning per share.
D. Total no. of shares / earning per share.
C PER is calculated as market price of equity share / earning per share.
651 A company has 2 lac shares and its net profit after tax is Rs.10 lac. The current market price of
the share is Rs.60. The
price earning ratio is:
A. 12
B. 11
C. 10
D. 9
A Earning per share = 10 lac / 2 lac = Rs.5 per share. The PER = market price of equity share /
earning per share. Hence 60 / 5 = 12.
652 The debt equity ratio can be calculated as:
A. external equities / internal equities
B. long term liabilities / net worth - intangible assets
C. long term liabilities / tangible net worth
D. any of the above
D DE Ratio can be calculated in any of the above manner. External equities means long term
liabilities and internal equities means the tangible net worth.
653 Fixed charges cover can be calculated as:
A. income after interest and tax / interest charges
B. income before interest and tax / interest charges
C. income before interest / interest charges
D. income before tax / interest charges
B Fixed charges cover can be calculated as income before interest and tax / interest charges.
654 Dividend yield ratio is calculated as:
A. market price per share / dividend per share
B. dividend per share / market price per share
C. Earning per share / market price per share
D. Total dividend / market price per share
B Dividend yield ratio can be calculated as dividend per share / market price per share.
655 In which of the following cases, how the current ratio will move (which one is wrong):
A. payment of creditors - decline
B. purchase of machinery - no change
C. recovery of debtors - no change
D. issue of new shares - no change
A If creditors are paid, the current liabilities will decline. This will increase the current ratio.
656 Which of the following statement is not correct regarding balance sheet equations?
A. assets are equal to liabilities
B. liabilities are claims of owners and outsiders, on the business
C. transactions are recorded in the books of business from the point of view of business

D. none of the above


D All the statements given above are correct.
657 Which of the following equation is not correct?
A. assets = equities (total claims)
B. assets - liabilities = capital
C. assets = capital + liabilities
D. capital = assets + liabilities
D Capital = assets - liabilities
658 Which of the following statement regarding balance sheet is correct?
A. amount invested by the owners which is a claim on the firm - capital
B. amount that firms owes to outsiders - liability
C. the value of things owned by the firm - assets
D. all the above
D All the above statements are correct.
659 Firm X has assets of Rs.5 lac and liabilities of Rs.2 lac. The amount of capital will be:
A. Rs.7 lac
B. Rs.3 lac
C. Rs.2 lac
D. inadequate information
B Assets - liabilities = capital. Hence 5-2 = 3 lac.
660 Find out the incorrect statement out of the following?
A. capital will be reduced if the firm borrows amount from outsiders - false
B. if the firm has no liability, it will have no assets - true
C. assets minus capital = liabilities - true
D. none of the above
B If firm has no liability, the assets will be equal to capital.
661 Which of the following is a correct statement?
A. creditors are the persons who owe money to the firm
B. debtors are the persons to whom money is owed by the firm
C. the difference between revenue and expense is called income
D. none of the above
C Creditors are the persons, to whom money is owed by the firm and debtors are the persons who
owe
money to the firm.
662 On which of the following basis the partners maintain capital in a partnership firm (which one
is not correct):
A. fixed capital method
B. fluctuating capital method
C. If a particular method is stated, as per that method
D. If nothing is stated as per Fixed capital method
D If nothing is stated, capital is maintained as per fluctuating method.
663 Under the fixed capital method, the following types of accounts are maintained (which is not
correct):
A. capital account of the partner
B. current account of the partner
C. in capital account, the partner contributes the capital
D. in the current account, contributed capital, interest on capital and drawings etc. are recorded.
D In the current account adjustments regarding interest on capital, interest on drawing, share in
profit of loss
account are recorded.

664 What is correct regarding rate of interest to be paid on capital or loan:


A. interest on loan shall be equal to bank rate of RBI
B. interest on loan shall be equal to 6% p.a.
C. interest on capital shall be equal to bank rate of RBI
D. interest on capital shall be equal to 6% p.a.
B Interest on loan shall be equal to 6%. On capital it is as per agreement between the partners.
665 Under which met hod of calculation of goodwill, the profits earned by the firm are taken into
account and the normal rate of return in such business is not taken into account.
A. average profit method
B. super profit method
C. capitalization of profit method
D. none of the above
A In average profit method, the average profits of the firm are the basis for calculation of goodwill.
In other two methods, the normal rate of profits of the industry is taken into account.
666 The profits of a firm are Rs.18000, Rs.20000 and Rs.22000. The firm decides to create goodwill
equal to purchase of 3 years average profit for 4 years. What is the amount of goodwill:
A. Rs.72000
B. Rs.80000
C. Rs.88000
D. insufficient information
B Average profits are (18000+20000+22000) / 3 = 20000. By purchase of these profits for 4 years, the
amount of goodwill = 80000 (20000 x 4).
Page 126 of 165
667 A firm has invested Rs.2 lac as capital and it is earning average profits of Rs.70000. The
average return in the business of all firms is 10%. What is the amount of super profits.
A. Rs.70000
B. Rs.50000
C. Rs.20000
D. Rs.10000
B For a capital of Rs.2 lac at 10% return the profits should be Rs.20000. The firm has been earning
profits of Rs.70000. Hence super profits are Rs.50000 (70000 - 20000).
668 The actual normal profit of a firm are Rs.25000 with a capital of Rs.1 lac. Normal return in the
business is 10%. What is amount of goodwill as per capitalization of profit method.
A. 100000
B. 150000
C. 250000
D. 300000
B The normal value of capital in business = 25000 / 10 x 100 = 250000. The actual capital is
Rs.100000. Hence the goodwill is Rs.150000 (250000 - 100000)
669 When the goodwill is not brought by the new partner in cash and it is raised by the old partners
and shown in the balance sheet what journal entry shall be passed:
A. debit old partner capital account, credit bank account
B. debit cash or bank account, credit goodwill account
C. debit goodwill account, credit old partners capital account
D. debit all partners account, credit goodwill account
C When the goodwill is not brought by the new partner in cash and it is raised by the old partners
and shown in the balance sheet, the goodwill account is debited and old partners capital account is
credited.

670 When the goodwill is not brought by the new partner in cash, it is raised and written off
immediately, what journal entry is passed for writing off:
A. debit old partner capital account, credit bank account
B. debit cash or bank account, credit goodwill account
C. debit goodwill account, credit old partners capital account
D. debit all partners account, credit goodwill account
D When the goodwill is not brought by the new partner in cash, it is raised and written off
immediately, the journal entry passed for writing of is, debit all partners account, credit goodwill
account
671 A firm has three partners X, Y and Z with sharing ratio of 5:4:3. On retirement of Z, the
goodwill is calculated at Rs.120000. Which of the following journal entry will be correct to pay
goodwill to Z.
A. debit goodwill account, credit Z account Rs.120000
B. debit goodwill account, credit Z account Rs.30000
C. debit goodwill account, credit X, Y, Z account for Rs.50000, 40000, 30000
D. none of the above
B To pay goodwill to outgoing partner, goodwill account will be debited and capital account of
outgoing partner shall be credited.
672 Firm A has three partners A, B and C with a sharing ratio of 4:3:2. Partners C wants to retire.
His share is taken up by A and B in the ratio of 3:2. What will be new sharing ratio of partners A
and B.
A. 4:3
B. 3:2
C. 26:19
D. 27:18
C A gets 3/5 of Share of C i.e. 2/9 x 3/5 = 6/45. His total share i.e. existing + additional shall be 4/9 +
6/45 =26/45. The remaining 19/45 (1 - 26/45) shall be taken up by B
673 Firm A has three partners A, B and C with a sharing ratio of 4:3:2. Partners C wants to retire.
His share is taken up by A and B in the ratio of 3:2. What will be gain ratio between A and B
A. 3:2
B. 4:3
C. 4:2
D. 26:19
A The gain ratio is already given in the question i.e. 3:2 and need not be calculated again.
674 Firm XY with X and Y as partners (sharing ratio 5:3) decides to allow Z to join as new partner
with 1/8 share. What will be the new sharing ratio amongst X, Y and Z
A. 34:23:8
B. 35:21:8
C. 36:20:8
D. information is not adequate to make the calculation
B Z will get 5/8 out of remaining share of 7/8 (1/8 is given to Z). Hence his share = 5/8 x 7/8 = 35/64.
Y gets 3/8 share out of remaining 7/8. His share = 3/8 x 7/8 = 21 / 64. Share of Z is 8/64 (1/8 x 8/8).
675 Firm XY with X and Y as partners (sharing ratio 5:3) decide to allow Z to join as new partner.
He obtains 1/8 from X and 1/8 from Y. What is new sharing ratio;
A. 1:1:1
B. 2:1:1
C. 3:2:1

D. 5:4:3
B Remaining share of X = 5/8 - 1/8 = 4/8. Remaining share of Y = 3/8 - 1/ 8 = 2/8. Share of Z = 1/8 +
1/8 = 2/8. Hence new ratio is 4:2:2 or 2:1:1
676 Firm XY with X and Y as partners (sharing ratio 5:3) decide to allow Z to join as new partner.
He obtains 1/8 from X and 1/8 from Y. What is sacrifice ratio of X and Y.
A. 2:1
B. 1:1
C. 1:2
D. insufficient information
B No fresh calculation is required. The sacrifice 1/8 : 1/8 is already given. Hence the ratio is 1:1.
677 Which of the following feature does not exist in case of a partnership?
A. it is agreement between 2 or more persons
B. the agreement can be in writing only
C. the agreement is for sharing profits from business
D. the business can be conducted by one or more partners on behalf of all partners
B The agreement can be oral agreement or in writing in the form of partnership deed.
678 Which of the following statement is correct regarding a partnership and a company?
A. a partnership and a company are separate legal entities
B. the no. of partners is limited while the no. of shareholders can be unlimited
C. the partners are liable to any extent while the shareholder is liable to the extent of unpaid value of the
shares
owned by him
D. the partners and the shareholders are agents of each other.
C Partnership is not a separate legal entity. The no. of shareholders is limited to 50 in case of a
private
company, though there is no ceiling in case of a public company. The shareholders are not agent of
each other although the partners are agents.
679 A firm creates goodwill in which of the following situations (a) change in profit sharing ratio (b)
admission of a new
partner (c) retirement, expulsion or death of a partner (d) sale of business.
A. a, c and d only
B. b, c and d only
C. a, b and c only
D. a to d all
D The goodwill is created in all the above situations.
680 In which of the following methods of creation of goodwill, the goodwill is created taking into
account the difference between the actual profits and normal expected profit in the trade.
A. average profit method
B. super profit method
C. capitalization of profits method
D. all the above
B In the super profit method, the goodwill is calculated on the basis of super profits calculated as
the
difference between the actual profits and normal expected profit in the trade.
681 When a new partner makes payment of goodwill privately, to the existing partners, the journal
entry would be:
A. debit cash account and credit bank account

B. debit bank account and credit new partner account


C. debit new partner and credit existing partners account
D. no journal entry will be required
D No journal entry is required, if the payment is made privately.
682 If the incoming partner does not bring cash for goodwill but the goodwill is raised and written
off immediately, what journal entry will be there for raising the goodwill?
A. debit new partner, credit existing partners
B. debit goodwill, credit new partner
C. debit goodwill, credit capital account of existing partners
D. debit capital account of existing partners and credit goodwill.
C To create goodwill, the goodwill account to be debited and capital account of existing partners to
be
credited. To write off the goodwill, the goodwill account shall be credited by debiting the capital
account of all partners.
683 X, Y and Z have equal share in a firm. X retires. The goodwill on date of retirement is fixed at
Rs.180000. What is the amount of goodwill payable to X?
A. Rs.180000
B. Rs.90000
C. Rs.60000
D. inadequate information to make the calculation
C The amount of goodwill shall be shared equally. Hence 180000 / 3 = Rs.60000
684 X, Y and Z have equal share in a firm. X retires. The goodwill on date of retirement is fixed at
Rs.180000. What is the new sharing ratio between Y and Z?
A. 1/3 : 1/3
B. 1:1
C. 1/6 : 1/6
D. inadequate information to make the calculation
B The new sharing ratio shall be : or 1:1
685 X, Y and Z have equal share in a firm. X retires. The goodwill on date of retirement is fixed at
Rs.180000. What is the gain ratio of Y and Z?
A. 1/3 : 1/3
B. 1:1
C. 1/6 : 1/6
D. inadequate information to make the calculation
C 1/3rd share of X is shared equally by both. Hence each of them gains 1/3 x = 1/6.
686 X, Y and Z have equal share in a firm. X retires. The goodwill on date of retirement is fixed at
Rs.180000. What amount
of goodwill shall be paid by Y and Z respectively to have share of X ?
A. Rs.60000 each
B. Rs.30000 each
C. Rs.15000 each
D. inadequate information.
B Share of X in goodwill = 180000 / 3 = 60000. It will be shared equally by Y and Z i.e. Rs.30000
each.
687 If on admission of a new partner, the value of existing assets on revaluation, increases (a) it is a
profit (b) it is a loss (c)
it goes to account of existing partners (d) it goes to account of all partners including the incoming
partner:

A. a and d correct
B. b and c correct
C. c and a correct
D. a to d all correct
C If on admission of a new partner, the value of existing assets on revaluation, increases it is a profit
and it goes to account of existing partners and not the incoming partner.
709 As per provisions of Section 2 of Bankers Book Evidence Act, the banker book does not include,
which of the following?
A. ledgers
B. day book or cash book
C. account book and any other book used in the ordinary business of a bank
D. none of the above
D All the above are books within the meaning of Bankers Book Evidence Act.
710 Slip system of posting, in the context of banking transaction means which of the following?
A. when pay in slip is first entered in book of original entry
B. when posting of ledgers is done on the basis of pay in slips or withdrawal slip rather than from book of
original
entry
C. when posting of ledgers is done after positing in the original entry
D. any of the above
B Slip system of posting, in the context of banking transaction means, when posting of ledgers is
done on the basis of pay in slips or withdrawal slip rather than from book of original entry.
711 Banks generally maintain the following types of books (a) principal books of account (b)
subsidiary books (c) statistical records
A. a and b only
B. b and c only
C. a and c only
D. a to c all
D Banks generally maintain principal books of account, subsidiary books and statistical records.
712 The liabilities in the bank balance are recorded in 5 different schedules in Form A. The correct
order of these schedules is:
A. capital, reserves, borrowing, deposits, other liabilities and provisions
B. capital, reserves, deposits, borrowing, other liabilities and provisions
C. capital, reserves, deposits, other liabilities and provisions, borrowing
D. capital, reserves, other liabilities and provisions, borrowing, deposits
B The correct order is Schedule 1-capital, 2-reserves and surplus, 3-deposits, 4-borrowing, 5-other
liabilities and provisions.
713 The assets are recorded in 6 different schedules (6 to 11) in the balance sheet of a bank. The
correct order of these schedules is:
A. cash & balances with RBI, balances with other banks, investments, advances, fixed assets, other assets
B. cash & balances with RBI, balances with other banks, advances, investments, fixed assets, other assets
C. advances, cash & balances with RBI, balances with other banks, investments, fixed assets, other assets
D. cash & balances with RBI, balances with other banks, fixed assets, investments, advances, other assets
A The correct order is Schedule 6- cash & balances with RBI, 7- balances with other banks, 8investments, 9- advances, 10-fixed assets, 11-other assets.
714 Schedule 12 to Form A, the balance sheet of a Banking Company, as per Banking Regulation
Act, relates to which of
the following:
A. investments made by the bank

B. total income
C. other liabilities and provisions
D. none of the above
D It relates to contingent liabilities.
715 The capital in Schedule 1, in the balance sheet of a bank is shown in the following order:
A. paid up capital, issued capital, subscribed capital, called up capital
B. paid up capital, subscribed capital, issued capital, called up capital
C. paid up capital, subscribed capital, called up capital, issued capital,
D. paid up capital, issued capital, subscribed capital, called up capital less calls unpaid plus forfeited
shares
D The capital is shown as paid up capital, issued capital, subscribed capital, called up capital less
calls unpaid plus forfeited shares. The no. of shares and amount of each is also given.
716 In Schedule 11 of Bank Balance, which of the following is not included?
A. inter-office adjustments
B. interest accrued
C. tax paid in advance or TDS
D. none of the above
D All the above are included in addition to stationery and stamps in hand, non-banking assets and
others in Schedule 11 (Other assets).
717 Which of the following will not be taken in Schedule 12 (Contingent Liabilities) in the balance
sheet of a bank?
A. claims against the bank acknowledged as debts
B. liability for party paid investment
C. guarantees given on behalf of customers
D. none of the above
D All the above are taken, in addition to the liability on account of outstanding forward exchange
contracts, acceptances and endorsements and other obligations, and other items.
718 The balance of profit, will be shown in the balance sheet of a bank, as part of which of the
following reserves?
A. statutory or capital reserves
B. share premium reserve
C. revenue or other reserve
D. none of the above
D It will be shown as balance of profit under Reserves and Surplus in Schedule 2.
719 Deposits in Schedule 3 of Bank balance sheet are classified as:
A. demand deposits and time deposits
B. demand deposits, saving bank deposits and term deposits
C. demand deposits, term deposits and other deposits
D. current deposit, saving deposits, term deposits and other deposits
B The deposits are classified as demand deposits, saving bank deposits and term deposits.
720 The other liabilities in the balance sheet of a bank in Schedule 5 are classified as (a) bills
payable (b) inter office adjustment (c) interest accrued (d) others including provisions
A. a to c only
B. a, c and d only
C. a to d all
D. b to d all
C All the above are taken into account.
721 If a bank has to make provision for bad debts, it can do so:

A. by debit to bad debt account in the balance sheet


B. by debit to bad debt provision in the profit and loss account
C. by debit to provisions and contingencies in the profit and loss account
D. any of the above
C The provisions on bad debt are created by the bank by debit to provisions and contingencies in
the profit and loss account.
722 If there is any unearned discount taken by the bank to profit and loss account as income in a
financial year, it will be
reversed by passing the following journal entry?
A. debit discount account, credit rebate on bills discounted account
B. debit interest account, credit rebate on bills discounted account
C. debit bills discounted account, credit discount account
D. no entry is required to be passed.
A Discount account shall be debited and rebate on bills discounted account shall be credited.
723 Rebate on bills discounted account shall appear:
A. as an expenditure in the profit and loss account
B. as income in the profit and loss account
C. as a liability in the balance sheet
D. as an asset in the balance sheet
C Rebate on bills discounted account shall appear as a liability in the balance sheet.
724 In Form B, profit and loss account of a banking companies, there are 4 schedules (13 to 16)
which appear in the following order:
A. interest earned, interest expended, other incomes, operating expenses
B. interest earned, interest expended, operating expenses, other incomes,
C. interest earned, other incomes, interest expended, operating expenses
D. interest earned, other incomes, interest expended, operating expenses, net profit
C The order is 13- interest earned, 14- other incomes, 15- interest expended, 16- operating expenses.
725 Operating expenses (Schedule 16) of a bank balance sheet does not include, which of the
following?
A. payments to and provisions for employees
B. rents, taxes, lighting, printing and stationery
C. repairs and depreciation
D. none of the above
D All the above items are covered under operating expenses in addition to few other items.
726 Endorsements and acceptances are the liabilities assumed by the banks on behalf of their
customers in the following manner (a) by opening LCs (b) by accepting bills on behalf of the
customers (c) by making endorsements on promissory notes prepared by the customers (d) by
issuing bank guarantees to make payments, if customers fail to pay.
A. a to d all
B. a and d only
C. a, b and d only
D. b, c and d only
A All the above are included in the endorsements and acceptances.
727 Schedule 17 to the balance sheet of a bank relates to which of the following:
A. contingent liabilities
B. disclosure as notes to accounts
C. details of unrealised income

D. details of provisions made


B Schedule 17 to the balance sheet of a bank relates to disclosure as notes to accounts.
728 The conversion of reserves into share capital is done through which of the following:
A. bonus shares
B. rights shares
C. preference shares issue
D. equity share issue
A The bonus shares are issued by debiting the reserves and crediting the capital. It is also called
capitalization of reserves.
729 The preference shares of a company has preferential rights in respect of (which of the following
is not correct):
A. payment of dividend at a fixed rate
B. return of capital on winding up of a company
C. if dividend is skipped in one year it becomes payable in next year
D. none of the above
C The shareholders have preference in payment of dividend at a fixed rate. If dividend is not
declared, they cannot claim the dividend unless the shares are cumulative preference shares.
730 Which of the following shares fall in the category of preference shares:
A. cumulative preference shares
B. redeemable preference shares
C. participating preference shares
D. all the above
D All the above type of shares fall the category of preference shares.
688 If on admission of a new partner, on revaluation, the value of existing assets declines (a) it is a
profit (b) it is a loss (c) it goes to account of existing partners (d) it goes to account of all partners
including the incoming partner:
A. a and d correct
B. b and c correct
C. c and a correct
D. a to d all correct
B If on admission of a new partner, the value of existing assets on revaluation, decreases it is a loss
and it goes to account of existing partners and not the incoming partner.
689 The increase or decrease in value of assets on revaluation, when a new partner enters, is
adjusted to the account of existing partners through an account called (a) profit and loss
adjustment account (b) revaluation account (c) revaluation adjustment account:
A. a and b
B. a only
C. b and c only
D. b only
A The adjustment is made through profit and loss adjustment account or revaluation account.
690 Which of the following journal entry is not correct on revaluation of assets and liabilities?
A. for increase in value of assets - debit asset account, credit revaluation account
B. for increase in amount of liability - debit revaluation account, credit liability account
C. for profit on revaluation - debit revaluation account, credit capital account of all partners
D. none of the above
C If there is profit on revaluation, debit the revaluation account and credit capital account of old
partners
(and not all partners).
Page 135 of 165

691 If there is loss on revaluation of assets and liability, the journal entry will be:
A. debit capital account of old partners, credit revaluation account
B. debit capital account of all partners, credit revaluation account
C. debit revaluation account, credit capital account of old partner
D. no journal entry is required.
A If there is loss on revaluation of assets and liability, the journal entry will be debit capital account
of old partners, credit revaluation account.
692 X, Y and Z are 3 partners with sharing ratio of 7:5:4. In this connection, which of the following
is correct?
A. if X retires, the new sharing ratio between Y and Z shall be 4:5
B. if X retires, the new sharing ratio between Y and Z shall be 7:4
C. if X retires, the new sharing ratio between Y and Z shall be 5:4
D. inadequate information to make calculation
C If the outgoing partner does not gives his share in a particular ratio to the existing partners, the
new sharing ratio of remaining partners shall be equal to their old sharing ratio.
693 If joint life policy is taken by partners, what journal entry shall be made to make payment of
insurance premium:
A. debit cash, credit insurance premium account
B. debit insurance premium account, credit cash or bank account
C. debit insurance premium account, credit profit and loss account
D. debit profit and loss account, credit bank account
B The payment shall be made by debiting the insurance premium account and crediting the cash
account. Later on, the profit and loss account shall be debited and insurance premium account shall
be credited.
694 If joint life policy is taken by partners, what journal entry shall be made on receipt of amount
of insurance policy:
A. debit bank account, credit capital account of partners
B. debit bank account, credit insurance company
C. debit insurance company, credit bank account
D. debit insurance company, credit capital account of partners
A When amount is received, the bank account shall be debited at the time of deposit of amount
received from insurance company with the bank and the capital account of partners shall be
credited.
695 When a prominent persons lends his name to a firm so that the firm enjoys his goodwill, such
person is called:
A. sleeping partner
B. nominal partner
C. regular partner
D. an outsider, not a partner
B He is called a nominal partner or quasi partner.
Page 136 of 165
696 If a person has made investment in a partnership (without involving himself in day to day
work) while the other
partners agree to work, he is known as:
A. sleeping partner
B. nominal partner
C. quasi partner
D. an outsider, not a partner

A He is called sleeping partner. Nominal or quasi partner is the person, who simply lends his name
and is not a
partner.
697 What is the liability of a sleeping partner or a quasi partners?
A. they are equally liable among themselves
B. they are fully liable to outsiders, jointly as well as severally
C. sleeping partner is equally liable to outsiders but quasi partner is not liable to outsiders
D. quasi partner is equally liable to outsiders but sleeping partner is not liable to outsiders
B quasi partner is equally liable to outsiders but sleeping partner is not liable to outsiders
698 Which of the following statement does not match?
A. partnership is a separate legal entity - false
B. if partnership deed does not mention the method of maintaining capital accounts, the fixed capital
method
shall be followed - false
C. there should be maximum 10 partners for banking business as per provisions of Indian Partnership Act
- True
D. If a firm is following fixed capital method and salary is paid to a partner, it will be credited to his
current
account - True
C The provisions are in Companies Act Section 11 and not in Indian Partnership Act.
699 Which of the following statement is correct?
A. If a partnership firm is silent on certain issues, the relevant provisions of Indian Partnership Act will
prevail
B. drawings made by partners are entered into profit and loss appropriation account
C. all existing firms must have goodwill account
D. the share which a new partner gets, is called his sacrifice ratio
A Drawings are not entered into profit and loss account. It is not compulsory to have goodwill
account. The share which a new partners gets, is called share of incoming partner, which is a
sacrifice of old partners.
700 The final accounts of banking companies are to be prepared as per provisions of:
A. Companies Act
B. Banking Regulation Act
C. RBI Act
D. All the above
B The final accounts of banking companies are to be prepared as per provisions of Banking
Regulation Act.
701 Wef Mar 31, 1992, the balance sheet of a banking company is to be prepared as per:
A. Form A of Companies Act
B. Form B of Companies Act
C. Form A of 3rd schedule to Banking Regulation Act
D. Form B of 3rd schedule to Banking Regulation Act
C Balance sheet of a banking company is to be prepared as per revised Form A of 3rd Schedule of
Banking Regulation Act, as per RBI directions.
702 Wef Mar 31, 1992, the profit and loss account of a banking company is to be prepared as per:
A. Form A of Companies Act
B. Form B of Companies Act
C. Form A of Banking Regulation Act
D. Form B of Banking Regulation Act

D Profit and loss account of a banking company is to be prepared as per revised Form B of Banking
Regulation Act, as per RBI directions.
703 Banks prepare audited balance sheet and profit and loss account as on Mar 31st every year, as
per:
A. directions of Govt. of India
B. regulations of Reserve Bank of India
C. provisions of RBI Act
D. all the above
A Banks prepare audited balance sheet and profit and loss account as on Mar 31st every year, as
per
directions of Govt. of India
704 Accounts of banks should be audited by a person duly qualified under any law, to be auditors of
the company, as per provisions of ____ and with approval of ____:
A. Banking Regulation Act Section 29, RBI
B. Banking Regulation Act Section 30, RBI
C. Banking Regulation Act Section 30, Central Govt.
D. Banking Regulation Act Section 29, Central Govt.
B Accounts of banks should be audited by a person duly qualified under any law, to be auditors of
the
company, as per provisions of Banking Regulation Act Section 30 and with approval of RBI.
705 Which of the following provision is correct regarding final accounts of a banking company?
A. 3 copies of the final accounts are to be submitted by banks to RBI
B. period of submission of copies of final accounts to RBI is 3 months
C. RBI can extend the period by 3 months
D. all the above
D All the above statements are correct.
706 Under Rule 15 of Banking (Regulating (Company) Rules 1949 banks are to publish their final
accounts and auditor report in a news paper within ___ months from the period to which these
relate?
A. one month
B. 3 months
C. 6 months
D. 9 months
C These reports are to be published within 6 months from the period to which these relate.
707 Which of the following is not a debit voucher for a bank branch?
A. cheque issued by the customer for payment from his account
B. cheque deposited by the customer for credit to his account
C. demand draft issued by one branch for payment at another branch
D. none of the above
B Cheque deposited by the customer for credit to his account if drawn on another bank, is not a
debit voucher for the collecting bank branch.
708 Which of the following can be treated as a credit voucher for a bank branch?
A. application for issue of a demand draft
B. pay in slip used by the customer for deposit of cheque in his account
C. credit vouchers prepared by the branch on its printed stationery.
D. all the above

D All these forms / authority letters are credit vouchers.


731 Where the preference shareholders can take part in the management of a company, such shares
are called:
A. cumulative preference shares
B. redeemable preference shares
C. participating preference shares
D. management preference shares
C Such shares are called participating preference shares, where the shareholders get the right to
vote i.e. to take part in management of the company.
732 Which of the following is correct regarding the authorised capital of a company:
A. it is mentioned in Memorandum of Association of a company
B. it is divided into equity and preference shares and is the maximum amount up to which the company
can raise
capital.
C. it is called nominal or registered capital
D. all the above are correct statements
D All the statements at (a), (b) and (c) are correct. Hence no explanation is required.
733 Against subscription, the amount of capital which is actually asked for payment by
shareholders is called:
A. authorised capital
B. paid up capital
C. subscribed capital
D. called up capital
D It is called up capital and the amount which is paid by the shareholders is called paid up capital.
734 What is meant by term CALL in the context of issue of shares by a company:
A. amount offered for subscription
B. amount called with application
C. amount which is demanded after allotment
D. amount which becomes due before allotment
C Call means the amount which becomes due from shareholders and called after allotment.
735 When a public issue is made by the company and money is received alongwith application
(which of the following is not correct):
A. it is kept in a temporary account
B. it can be used before allotment of shares
C. it is credited to share application money account
D. it is debited to bank account
B The money cannot be used before allotment and before submission of certificate of
commencement of business.
736 Where all applications are accepted for allotment on a pro-rata basis due to oversubscription,
the following journal entry is made for refund or adjustment against future dues on shares:
A. debit bank account, credit share capital account
B. debit share application account, credit share capital account and bank account
C. debit share application account, credit share capital account
D. debit share capital account, credit bank account
B Since the excess amount is to be refunded and shares are to be allotted, the share application
money is debited and share capital account is credited for the accepted shares and bank account is

credited for the refunded amount.


737 The amount of a call cannot exceed which of the following:
A. 10% of the face value of the share
B. 20% of the face value of the share
C. 25% of the face value of the share
D. 30% of the face value of the share
C The amount of a single call cannot exceed 25% of the face value of the share.
738 A company called 1st call amount from the shareholders for 10000 shares at Rs.3 per share, but
it did receive the amount for 9500 shares. What journal entry will be passed:
A. debit 1st call account, credit share capital account - Rs.30000
B. debit bank account, credit share capital account - Rs.28500
C. debit bank account, credit 1st call account - Rs.28500
D. debit 1st call account, credit share capital account - Rs.28500
C When the money is not received for all the shares, only that amount is credited to 1st call account
which is actually received instead of full amount although the 1st call account was debited for the
full amount. Thus there is some outstanding amount in the 1st call account.
739 If there is any amount in default that share holders have not paid either on allotment or on 1st
call, the amount is required to be transferred to a separate account. What journal entry will be
passed for this purpose.
A. Debit amount in default account, credit share allotment account
B. debit amount in default account, credit 1st call allotment account
C. debit calls in arrear account, credit share allotment and 1st call account
D. debit share allotment and 1st call account, credit calls in arrear account.
C Where a company decides to transfer the amount in arrears in a separate account, the journal
entry is debit calls in arrear account and credit share allotment and 1st call account. It is not a legal
requirement to transfer the amount in calls in arrears.
740 Which of the following statements is not correct regarding calls in advance:
A. amount can be called, if the Articles of Association permit.
B. when amount is received it is credited to calls in advance account
C. interest can be paid on calls in advance
D. interest can be equal to prevailing bank rate
D The interest can be maximum 6% per annum.
741 The premium collected by a company on shares, cannot be used for which of the following
purposes:
A. buy back of shares or payment of premium on redemption of preference shares or debenture
B. issue of fully paid bonus shares
C. writing off the preliminary expenses or discount on issue of shares or debentures
D. none of the above
D The amount of premium collected by the company can be used by any of the purposes mentioned
at (a), (b) or (c).
742 When the shares are issued at a discount, the maximum discount can be:
A. 5% of the face value of the share
B. 5% of the market value of the share
C. 10% of the face value of the share
D. 20% of the face value of the share
C Shares can be issued at a discount on the basis of resolution passed by the shareholders in a
general body meeting. It cannot be more than 10% of the face value of the share.
743 When issue is at a discount, which of the following is not a correct statement:

A. discount on issue of shares account is debited


B. discount amount is adjusted into books at the time of passing journal entry when allotment money
becomes
due.
C. discount amount is recorded on the asset side under the head discount of shares.
D. amount of discount is written off over a period of time
C The discount amount is recorded on the assets side under the head MISC. EXPENSES.
744 When the partly paid shares are forfeited, which amount is forfeited:
A. face value of the share
B. paid up value of the share
C. face value less paid up value
D. any of the above, whichever is higher
A The face value of the share is forfeited.
745 If shares are forfeited, what journal entry is passed:
A. debit share forfeiture account, credit share capital account
B. debit share forfeiture account and calls in arrear account, credit share capital account
C. debit share capital account, credit calls in arrear account and forfeited shares account
D. debit share capital account, credit bank account and forfeited shares account
C When shares are forfeited, the face value is forfeited. Hence the share capital account is debited
and calls in arrear account and forfeited shares account is credited for the amount already received
against the shares to be forfeited.
746 1000 shares, with a face value of Rs.10 each, against which Rs.6 have already been received, are
issued at Rs.8 per share. What amount will be credited to Capital reserve account:
A. Rs.8 per share i.e. Rs.8000
B. Rs.6 per share i.e. Rs.6000
C. Rs.4 per share i.e. Rs.4000
D. Rs.2 per share i.e. Rs.2000
C Total amount received per share is Rs.14 (Rs.6 + Rs.8) against the face value of Rs.10. Hence Rs.4
per share will be credited to the Capital reserve account.
747 If a company is to re-issue 200 forfeited shares with face value of Rs.10 each at a discount of
Rs.2, for which allotment money of Rs.4 has not been received, what amount will be credited to
forfeited shares account:
A. Rs.200
B. Rs.800
C. Rs.1200
D. Rs.1600
C The company has received Rs.6 per share (because allotment money of Rs.4 is pending for
payment against the face value of Rs.10). Hence Rs.1200 (200 x 6) will be credited to the forfeited
shares account.
748 What is meant by the term that the company has a perpetual succession?
A. the company is a separate legal entity
B. the death or insolvency of the shareholders does not affect existence of the company
C. the death of the directors affect the existence of the company
D. all the above
B The company has a perpetual succession which means that the death or insolvency of the
shareholders does not affect existence of the company.
749 The liability of member of a company :
A. limited to the share holding of the company
B. limited to the paid up value of the share
C. limited to the unpaid amount of the face value of shares held by the member

D. unlimited
C The liability of member of a company it limited to the unpaid amount of the face value of shares
held by the member.
750 Based on the incorporation, the companies can be classified as under (which one is not correct):
A. chartered company
B. statutory company
C. registered company
D. holding company
D A company is classified as subsidiary or holding company on the basis of ownership.
751 Which of the following classification is wrong on the basis of ownership?
A. private company,
B. public company,
C. govt. company
D. foreign company
D The classification foreign company is based on the incorporation and not on the basis of
ownership.
752 The company that is created by a special Act of the Parliament is called:
A. chartered company
B. statutory company
C. registered company
D. holding company
B Statutory companies like State Bank of India are created by a special Statute (Act) passed by the
Parliament.
753 Companies like Reliance Industries Ltd, TATA Consultancy Services Limited, WIPRO Ltd are
examples of:
A. chartered company
B. statutory company
C. registered company
D. holding company
C Registered companies means the companies incorporated under Companies Act 1956.
754 A company having a place of business in India but not having its incorporation in India is
called:
A. private company,
B. public company,
C. govt. company
D. foreign company
D Foreign company is a company, having place of business in India but incorporated outside India.
755 A company is a govt. company where:
A. at least 51% of its total net worth is with the govt.
B. major portion of its shares is held by govt.
C. govt. is managing that company
D. none of the above
D A company is a govt. company if at least 51% of its paid up capital is held by Govt. (Central or
State, any).
756 If members of a company undertake to pay up to a certain fixed amount, in case of liquidation
of a company, which is no relationship with the no. of shares held by them, such company is called:
A. company limited by shares
B. company limited by guarantee
C. company with unlimited liability

D. none of the above


B If members of a company undertake to pay a certain amount, in case of liquidation of a company,
which is
not restricted to no. of shares held by them, such company is called company limited by shares.
757 A company is a private company where its Articles restrict (a) no. of members to 50 (b) Right of
transfer of shares (c) invitation to public to subscribe for the shares (d) obtain certificate of
incorporation:
A. a to d all
B. a to c only
C. a and b only
D. b and c only
B A company is a private company where its Articles restrict (a) no. of members to 50 (b) Right of
transfer of shares (c) invitation to public to subscribe for the shares.
758 A company that holds majority shares of another company i.e. not less than ___ %, it is called
____:
A. 26%, holding company
B. 49%, subsidiary company
C. 51%, holding company
D. 74%, subsidiary company
C A company that holds majority shares of another company i.e. not less than 51%, it is called
holding
company.
759 If majority shares i.e. ___ of a company are held by another company, such company whose
share are held is called:
A. 26%, holding company
B. 49%, holding company
C. 51%, subsidiary company
D. 74%, subsidiary company
C If majority shares i.e. 51% of a company are held by another company, such company whose
share are held, is called subsidiary company.
760 Amount due on shares can be called up in the following manner (a) in one lot (b) certain
amount with application (b)
certain amount on allotment (d) balance amount on calls
A. a only
B. b, c and d only
C. a to d all
D. a and d only
C Amount due on shares can be called up in the following manner (a) in one lot (b) certain amount
with
application (b) certain amount on allotment (d) balance amount on calls, depending upon the terms
mentioned in the prospectus.
761 A company has issued shares at Rs.20 with face value of Rs.20. The shares are issued:
A. at par
B. at premium
C. at discount
D. any of the above
A When amount of issue is equal to face value, it is called issued at par.
762 Equity shares issued by a company to its directors or employees at a discount for a

consideration other than cash are


called:
A. golden shares
B. sweat equity shares
C. employees stock option shares
D. any of the above
B Sweat equity shares means the equity shares issued by a company to its directors or employees at
a
discount for a consideration other than cash, for providing know how or making available
intellectual
property rights etc.
763 If a company permits its employees to apply shares at a predetermined price (normally a lower
than market price), during a specified period, these are called:
A. golden shares
B. sweat equity shares
C. employees stock option shares
D. any of the above
C If a company permits its employees to apply shares at a predetermined price, during a specified
period, these are called sweat equity shares.
764 If a company forfeits a share with a face value of Rs.10, for which Rs.5 have already been
received and then re-issues the share at a discount of Rs.1, how much amount will be credited to
capital reserve account?
A. Rs.5
B. Rs.4
C. Rs.1
D. Rs.9
B Amount received Rs.5+9 = 14. Amount used for credit to share capital =10, balance amount = 4
765 What is the maximum extent up to which a company can issue equity shares without voting
rights?
A. 25% of its paid up capital
B. 20% of its paid up capital
C. 25% of its authorised capital
D. 20% of its authorised capital
A A company can issue maximum 25% of its paid up capital, as equity shares without voting rights.
766 Which of the following statement is not correct regarding voting shares?
A. the shares issued with voting rights cannot be converted into shares without voting rights
B. such shareholders are entitled to all other rights of equity shareholders
C. such shares holders are entitled to bonus shares
D. any company can issue such shares.
D Such shares can be issued by public company limited by shares.
767 If shares at a discount are to be issued, it requires permission of which of the following?
A. Registrar of Companies
B. Security and Exchange Board of India
C. Company Law Board
D. Ministry of Corporate Affairs
C Permission of Company Law Board is required for issuing shares at a discount.

768 Balance sheet of a company is prepared in the form set out:


A. in Schedule 2 to Banking Regulation Act
B. in Schedule 5 to Companies Act
C. in Part I of Schedule VI to Companies Act
D. in Part II of Schedule VI to Companies Act
C U/s 211 of Companies Act, the companies are required to prepare their balance sheet as per form
set out in Part I of Schedule VI to Companies Act
769 The profit and loss account is to be prepared in case of a company that must meet the
requirement of:
A. Schedule 2 to Banking Regulation Act
B. Schedule 5 to Companies Act
C. Part I of Schedule VI to Companies Act
D. Part II of Schedule VI to Companies Act
D The profit and loss account is to be prepared in case of a company that must meet the
requirement of Part II of Schedule VI to Companies Act. The schedule does not prescribe any
format. It only suggests that requirement should be met.
770 Part I of Schedule VI to Companies Act prescribes two alternative forms for preparation of
balance sheet by a
company, which are:
A. paper, electronic
B. horizontal, vertical
C. direct, indirect
D. none of the above
B The format suggested are horizontal and vertical.
771 Which of the following is not shown as part of fixed asset in the balance sheet of a company?
A. goodwill
B. live stock
C. patents, trademarks and designs
D. none of the above
D All these are shown as part of fixed assets.
772 Which of the following is not to be included in current assets for the purpose of balance sheet of
a company?
A. advances recoverable in cash or kind
B. loose tools
C. work in progress
D. none of the above
D All the above are to be shown as part of current assets.
773 Which of the following is to be shown in the misc. expenditure (as asset) in the balance sheet of
a company?
A. preliminary expenses
B. discount allowed on issue of shares or debenture
C. development expenses not adjusted
D. all the above
D All the above are to be shown as misc. expenses.
774 If an asset is purchased from abroad and later on if there is reduction or increase in the foreign
exchange rate, how it will affect the value of asset?
A. the value of asset to be reduced or increased accordingly
B. the value of asset already purchased will not be affected
C. the value of asset shall be increased if there is reduction in exchange rate

D. the value of asset shall be reduced if there is increase in exchange rate


A The value of asset shall be reduced or increased with reduction or increase respectively in the
foreign exchange later on.
775 If any amount has been written off on reduction a reduction of capital or revaluation of assets,
it shall be stated in the
subsequent balance sheet of the company for a period of:
A. 2 years
B. 3 years
C. 4 years
D. 5 years
D If any amount has been written off on reduction a reduction of capital or revaluation of assets, it
shall be stated in the subsequent balance sheets of the company for a period of five years.
776 Which of the following statement is correct regarding the legal requirement relating to share
capital?
A. company should mention under each head the classes of shares i.e. preference shares, equity shares.
B. shares allotted as fully paid, for consideration other than cash must be specifically stated
C. shares allotted as bonus shares must be separately stated and source should be stated
D. all the above
D All the above statements are correct.
777 Profit and loss account of a company must disclose (a) profit before tax (b) provision for tax (c)
profit after tax.
A. a only
B. a and c only
C. b and c only
D. a to c all
D Profit and loss account of a company must disclose (a) profit before tax (b) provision for tax (c)
profit after
tax.
778 Classification of which of the following assets is not correct, as per provisions of Schedule VI of
Companies Act:
A. leaseholds - fixed asset
B. loans and advances to subsidiary - current asset
C. balances with Custom Deptt. - intangible asset
D. none of the above
C It is a current asset. There is no sub-classification like intangible assets.
779 Which of the following classification is not correct, as per provisions of Schedule VI of
Companies Act?
A. sundry creditor - current liability
B. sinking fund - reserves and surplus
C. provision for tax - expenditure
D. all the above
C Provisions for tax is a current liability.
780 Unclaimed dividend is to be classified as ___, in the balance sheet of a company?
A. part of reserves
B. part of current liability
C. part of net worth
D. part of profit
B It will be shown as part of current liability.

781 Computerized accounting is (a) high speed (b) accurate (c) low cost (d) error free
A. a, b and c only
B. b, c and d only
C. a, c and d only
D. a to d all
A There can be errors like error of principle, or error of commission etc. in computerized
accounting.
782 Computerised accounting software can be (a) single user (b) multi-user
A. only a
B. only b
C. a and b both
D. none of the above
C Computerised accounting software can be (a) single user (b) multi-user
783 Computerised accounting software can be (a) customized (b) tailor made.
A. a and b both
B. only a
C. only b
D. none of the above
A Computerised accounting software can be (a) customized (b) tailor made.
784 Which of the following statement is not correct?
A. computer is an electronic information processing device
B. computer receives inputs and processes it with the help of program
C. the results given by the computer are called output
D. none of the above
D All the statements are correct.
785 Computerised accounting means which of the following?
A. making accounting entries in a computer
B. performing various accounting functions on a computer
C. getting output from the computer
D. all the above
B Computerised accounting means performing various accounting functions on a computer.
786 Banks have adopted computerised accounting and for this purpose they prefer to make use of:
A. core business solution environment
B. centralized banking solution environment
C. stand alone networking
D. all the above
B Banks have adopted computerised accounting and for this purpose they prefer to make use of
centralized
banking solution environment.
787 While selecting a password, which of the following should be avoided:
A. own name or family name
B. personal information like date of birth, telephone number
C. commonly used words
D. all the above
D While selecting a password, all the above type of words should be avoided.
788 Which of the following is not correct regarding end of the day (EOD) operation in a bank:
A. it has to be done for bank as a whole
B. it has to be done at the branch level
C. the objective is to find out whether there is some pending transaction requiring authorisation
D. after EOD, operations can be done under special authorisation
D After EOD, no operations except account enquiries, can be done.

789 Which of the following is a not correct statement regarding beginning of the day (BOD)
operation?
A. it has to be done at the branch level
B. it is mandatory to start the transactions for a particular day
C. it is to be done at least 2 hours before beginning the operations of the day
D. after BOD, the users are given access to the full module so that they can do the transactions
C BOD is to be done just before beginning the operations of the day.
790 Computerised accounting faces which of the following types of difficulties?
A. data stored in computer not visible
B. trail of events is difficult to establish
C. accounting data can be manipulated to generate various other reports
D. all the above
D All the above are the challenges or difficulties, faced by computerised accounting.
791 The health condition of the proprietor of the firm or the effect of dispute with Labour Union is
not recorded in the account books of a firm due to application of:
A. money measurement concept
B. going concern concept
C. business entity concept
D. realization concept
A In accounting, only those items are to be recorded that can be expressed in terms of money. The
items shown above are not expressed in terms money although these have monetary effects.
792 The promoters or shareholders of a business require the accountant to report to them the
changes in the wealth and financial position for the short term period on a regular basis. It is
application of the concept of:
A. going concern concept
B. accounting period concept
C. matching concept
D. dual aspect concept
B In the accounting period concept, the running time of business is divided in different parts to
know the wealth and financial position from time to time or a regular basis.
793 Which of the following concepts states that the transactions should be recorded in the books of
account as and when
they take place:
A. consistency concept
B. conservatism concept
C. going concern concept
D. historic record concept
D In the historic record concept, the transactions are recorded in the chronological manner i.e.
date-wise
Page 150 of 165
794 Which of the following is not correct statement in connection with the ledger and the journal.
A. transactions are first recorded in the ledger
B. journal is a book of chronological record
C. journal is more reliable
D. the ledger is book of analytical record
A Transactions are first recorded in the journal and then posted to the ledger. Other options are
correct.
795 Which of the following accounts is not a nominal account:
A. wages paid
B. rent paid
C. discount payable

D. commission received
C Discount payable is a representative personal account. Other accounts are nominal expense or
nominal income account.
796 A debit to a nominal account, signifies which of the following:
A. there is purchase of some asset
B. there is some expense
C. there is some payment to a creditor
D. there is some profit to the business
B In a nominal account, the debit is made on account of some expense or on account of loss in the
business.
797 Which of the following entries appear first in the books of the firm i.e. in cash book:
A. interest debited to overdraft account
B. bank debited certain charges
C. firm issued the cheque
D. dishonour of the cheque by bank
C There are two entries that normally arise first in the books of the firm i.e. cheque deposited or
cash
deposited and cheque issued. Other entries shown in the question arise first at the bank.
798 The bank statement has been showing a balance of Rs.31200 overdraft. It is observed that a
cheque issued by the firm for Rs.2000 has been dishonoured by bank and charges of Rs.20 have
been recovered. What will be balance in the cash book.
A. 33180 debit
B. 33180 credit
C. 29180 debit
D. 29180 credit
B Balance as per pass book is Rs.31200. To adjust it with cash book, the amount of cheque issued
will be added and the amount of bank charges shall be reduced.
Page 151 of 165
799 The goods have been returned by the customer of the firm.
A. sales account shall be credited
B. account of the customer should be credited
C. account of the customer should be debited
D. purchase account should be debited
B The account of the customer shall be credited for return of goods and sale returns account shall
be debited.
800 Which of the following is not a correct statement:
A. the left side of a ledger account is called debit entry
B. the right side of a ledger account is called credit entry
C. nominal accounts are transferred to balance sheet at the end of the financial year
D. petty cash book is generally maintained on imprest system
C Nominal accounts are transferred to profit and loss account at the end of the year.
801 A mistake has been committed in the balancing of the ledger account. What type of error it is:
A. error of omission
B. error of commission
C. error of principle
D. compensating error
B This is an error at the time of balancing of ledger which falls in the category of error of
commission.
802 The total of salary account has been under-cast and the total of carriage account has been
overcast for a similar amount. This is a:
A. error of omission

B. error of commission
C. error of principle
D. compensating error
D When one error happens in such a way that it nullifies the wrong effect of another mistake, it is
called a compensating error.
803 The total of debit side of the trial balance is Rs.2 lac. It is observed that wages amounting to
Rs.5400 have been recorded in the wages account as Rs.4500. What should be actual balance.
A. Rs.199100
B. Rs.205400
C. Rs.204500
D. Rs.200900
D The amount of wages is recorded at a lower amount due to which the total of debit side of trial
will be
short. So the difference amount has to be added to the trial balance amount.
804 Which of the following is not an example of capital expenditure?
A. amount is usually large
B. it is recurring in nature
C. it is shown in the balance sheet
D. none of the above
B It is not recurring in nature i.e. it is not done again and again for the same purpose.
805 Sale of goods, commission earned etc. are the receipts, that fall in ___ category:
A. revenue receipts
B. capital receipts
C. deferred receipts
D. none of the above
A These are revenue receipts which are available on a recurring basis. These broadly relate to profit
and loss account.
806 The liability on a usance bill of exchange is that of (which one is not correct):
A. the drawer before it is accepted
B. the payee
C. the drawee, after acceptance
D. after acceptance primary liability of the drawee and secondary liability of the drawer
B The payee is not liable on the bill of exchange. After acceptance, the primary liability is of the
drawee and Seconda ry liability is of the drawer.
807 A bill of exchange of Rs.10000 has been drawn by Z on Y. It is discounted by Z. What journal
entry will be made by Z in
his books:
A. debit - cash account, credit - bills discounted account
B. debit - bank account, credit - bills receivable account
C. debit - bank and discount account, credit - bills receivable account
D. debit - bills receivable account, credit - bank account
C On discount, the cash or bank account would be debited. For discounting charges, the discount
account would be debited and bills receivable account will be credited for the entire amount of the
bill.
808 Between the consignor and consignee, which of the following type of relationship is established:
A. buyer and seller
B. debtor and creditor
C. principal and agent
D. bailee and bailor
C The consignee is agent and the consignor is the principal.

809 The additional commission that is given to the consignee for selling the goods on credit basis is
called:
A. super commission
B. special commission
C. del credere commission
D. it is part of normal commission
C Such additional commission is called del credere commission.
Page 153 of 165
810 In the consignment sale, when the consignor prepares the proforma invoice at a higher price
than the cost price, the excess amount over the cost price is called:
A. loading
B. premium
C. proforma invoice
D. none of the above
A It is called loading. It is the excess amount over the cost price.
811 In the books of consignor, when the expenses are incurred and commission is payable to
consignee, what journal entry is passed:
A. debit consignment stock account and credit bank account
B. debit consignment account and credit consignee account
C. debit consignee account and credit consignment account
D. debit bank account and credit consignment stock account
B the consignment account will be debited and consignee account will be credited.
812 A debit balance in a joint venture means:
A. there is some amount due from one of the co-venturer
B. there is some loan due to a co-venturer
C. there is loss
D. there is profit
C When there is debit balance in a joint venture, it indicates loss.
813 When the co-venturers initially contribute capital and deposit in the bank account, what is the
journal entry:
A. debit co-venturers account and credit cash account
B. debit cash account and credit bank account
C. debit joint bank account and credit co-venturer account
D. debit co-venturer account and debit the joint bank account
C When the co-venturers initially contribute capital and deposit it in the bank account, the journal
entry is debit joint bank account and credit co-venturer account.
814 Which of the following is not a reason for charging depreciation on a fixed asset:
A. wear and tear due to actual use
B. accident to the asset
C. mere passage of time
D. none of the above
D All these are the reasons for charging depreciation on a fixed asset. In addition, it can be
accidents or obsolescence i.e. a new invention.
815 In case of a new machinery, which of the following is not included in the original cost:
A. invoice price of the machinery
B. taxes
C. carriage cost + installation cost
D. none of the above
D In case of new machinery, all these are included.

816 A business does not take into account, the future income. Similarly the goods sold on approval
are not included in the sales but these are taken at cost only. This is because of application of:
A. going concern concept
B. money measurement concept
C. business entity concept
D. realization concept
D The concept explains that the revenue is to be treated as realized when property in the goods
passes to the buyer and he becomes liable to pay.
817 Which of the following is not covered by the application of convention of conservatism:
A. creation of provision for bad debts
B. if there are a large no. of small items, these are shown as a misc. group
C. taking value of stock at market price or cost price whichever is lower
D. showing the joint life policy at surrender value on asset side rather than the paid up amount
B This is part of convention of materiality and not of conservatism. Other items are part of
conservatism.
818 Loss on sale of a fixed assets would be reflecting:
A. debit balance in the profit and loss account
B. credit balance in the real account
C. credit balance in the personal account
D. debit balance in the real account
B Normally the real accounts have debit balance. But if there is loss on sale of fixed assets, it will
show credit balance in the real account.
819 The identification of the type of account in which of the following transaction is not correct:
A. salary paid to the staff - cash account and salary account
B. purchase of goods from Firm A - Goods account and Firm A account
C. sale of old machinery in cash to Firm B - machinery account and Firm B account
D. depreciation charged on a fixed asset - Depreciation and fixed asset account
C Sale of old machinery in cash to Firm B involves cash due to which the account should be cash
account instead of Firm B account. When a transaction is in cash, the cash account is affected.
820 A truck was purchased for Rs.8 lac with expected life of 8 years. At the end of 5th year it was
sold for Rs.312000. What is the profit or loss on sale of this vehicle.
A. profit Rs.10000
B. loss Rs.10000
C. profit Rs.12000
D. loss Rs.10000
C Book value at end of 5th year 800000 - 500000 (depreciation of 5 years at Rs.1 lac per annum) =
300000. Profit = 312000 - 3 lac = 12000
821 State which of the following does not match:
A. bank reconciliation statement is an account - False
B. bank reconciliation statement is not prepared by the bank - False
C. normally the bank reconciliation statement is prepared at the end of the month - True
D. if receipt side of the cash book is overcast, it increases the bank balance in the cash book - true
B Bank reconciliation statement is prepared by the firm only and not by the bank. Other statements
are
correctly given

822 A cheque of Rs.540 deposited with the bank was entered twice in the cash book. Bank paid a
subscription of Rs.200. The balance in the pass book is Rs.23400. What will be the balance as per
cash book?
A. 23200
B. 23600
C. 24140
D. 23740
C To reach the balance as per cash book from the pass book, the amount of cheque deposited and
entered twice (one entry of cheque only shall be responded by the bank and other entry has to be
reversed by the party in its books) will have to be added. Amount of direct debit in the form of
subscription also has to be added.
823 When an entry is partly omitted, it is classified as:
A. error of omission
B. error of commission
C. error of principle
D. compensating error
A When an entry is completely or partly omitted, it is classified as error of omission.
824 Firm A had purchased goods from Firm B for Rs.500 but it recorded it in the sales ledger. The
rectification will be as under:
A. sales account debit, Firm B account credit for Rs.500
B. debit purchase account and credit Firm B account Rs.1000
C. debit sales Rs.500 and debit purchases Rs.500 and credit Rs.1000 to Firm B
D. debit sales Rs.1000 and credit purchases Rs.500 and Rs.500 to Firm B
C The sales account has been wrongly credited but purchase account has not been debited. Account
of Firm B has been wrongly debited instead of crediting it.
825 Which of the following statement does not match:
A. wrong balancing of accounts does not affect the trial balance
B. trial balance ensures the arithmetic accuracy
C. debit balance of a ledger account is shown in the debit side of the trial balance.
D. closing stock does not appear in the trial balance
A Wrong balancing of accounts affects the trial balance. Closing stock does not appear in the trial
balance.
826 The expenditure, the benefit of which is not consumed in just one year and is available for a no.
of years is called:
A. recurring expenditure
B. deferred revenue expenditure
C. revenue expenditure
D. capital expenditure
D Such expenditure is called capital expenditure. Its benefit is available for a no. of year. Example
expenditure on purchase of fixed asset.
827 Where the drawer of a bill fails to make the payment for full amount and makes request to the
drawer to accept part amount and for the balance amount and interest, may draw another bill, it is
called:
A. honouring of bill
B. dishonouring of the bill

C. renewal of the bill


D. payment of the bill
C Such process is known as renewal of the bill.
828 In which of the following methods of depreciation, the amount is kept aside to replace the
machinery when it is worn out.
A. Straight Line Method
B. Written Down Value method
C. Sum of digits method
D. sinking fund method
D In the sinking fund method, the amount is kept invested in a separate fund for use at the time of
purchase of new machinery to replace the worn out machinery.
829 The bills that are received from suppliers by a business firm, are recorded in which of the
following:
A. sales ledger
B. bills receivable book
C. bills payable book
D. purchase book
C All bills inward received from suppliers are recorded in the bills payable book from where these
are directly posted to the accounts of respective suppliers.
830 Which of the following accounts is not maintained by the consignor in his books:
A. consignment account
B. consignee account
C. goods sent on consignment
D. account sale account
D Consignor maintains all the three accounts at (a) to (c). Account sale is not an account, it is details
of sales and expenses sent by the consignor to the consignee.
831 There is loss on a consignment due to leakage, such loss would be:
A. written of to the debit of profit and loss account
B. ignored taking it as a normal business loss
C. spread over the entire consignment while doing the valuation of the consignment stock
D. none of the above
C When there is unavoidable loss like leakage, the cost is spread over the remaining consignment
stock for the purpose of valuation.
832 When co-venturers decide to have a separate set of accounts, with the bank, they open:
A. account in their individual name
B. joint bank account
C. a common account called pool account
D. any of the above
B When co-venturers decide to have a separate set of accounts, with the bank, they open a joint
bank account.
833 Which of the following is not a correct feature of a joint venture vis--vis a partnership firm:
A. a joint venture does not possess a common name like a partnership
B. in a partnership there is unlimited liability and in case of a joint venture the liability is determined as
per
contract
C. normally the cash accounting system is followed in a partnership and joint venture

D. none of the above


C In a partnership accrual system is followed and in case of joint venture, normally the cash system
of
accounting is followed.
834 When the amount of depreciation is calculated on the basis of original cost of the fixed assets as
a fixed amount, it is called:
A. straight line method
B. fixed instalment method
C. fixed %age on the original cost method
D. any of the above
D When the amount of depreciation is calculated on the basis of original cost of the fixed assets as a
fixed amount, it is called straight line method, fixed instalment method or fixed %age on the
original cost method.
835 A firm purchased machinery of Rs.200000 on January 10, 2009. The useful life of the
machinery is 5 years. What is amount of annual depreciation if the scrap value is Rs.20000.
A. Rs.40000
B. Rs.36000
C. Rs.35000
D. insufficient information
B To calculate the amount of depreciation first deduct the amount of scrap value from the purchase
cost and then divide by the no. of years. Annual depreciation will be (200000 - 20000) / 5 = 36000
836 A firm is calculating depreciation on written down value basis on its machinery of Rs.2 lac at
10%. From 3rd it changes the method of depreciation from WDV to SLM. What will be change in
the profit and loss position.
A. Rs.4000, decrease in profit
B. Rs.4000, increase in profit
C. Rs.3800, increase in profit
D. Rs.3800, decrease in profit
C Depreciation in the 3rd year at WDV = 16200 and at SLM Rs.20000. The difference of Rs.3800 is
the increase in amount of depreciation which means decline in profit
837 With regard to the fluctuating capital method, which of the following is correct:
A. all transactions relating to a partner are entered
B. capital account is credited with capital contribution and interest on capital and share of profit
C. capital account is debited for drawings, share of loss
D. all the above
D All the above statements are correct. Hence no explanation is required.
838 A firm has invested Rs.1 lac in business and it is earning average profit of Rs.28000. In the
industry, the normal rate of profit is 10%. What is the amount of goodwill, if the super profits are
purchased for 3 years.
A. Rs.28000
B. Rs.42000
C. Rs.54000
D. insufficient information for calculation
C The super profits are Rs.18000 ( 28000 - 10% of Rs.1 lac). With 3 years purchase of profits, the
amount of goodwill will be Rs.54000 (18000 x 3).
839 On retirement of a partner when goodwill is raised for the share of outgoing partner only, what
journal entry is passed to pay him goodwill:

A. debit old partners account, credit goodwill


B. debit remaining partners account, credit goodwill
C. debit goodwill, credit outgoing partner account
D. debit goodwill, credit continuing partners account.
C On retirement, when goodwill is raised for the share of outgoing partner only, the goodwill
account is
debited and account of outgoing partner is credited.
840 Firm XY with X and Y as partners (sharing ratio 5:3) decide to allow Z to join as new partner
with 1/8 share. What will be sacrifice ratio of X and Y.
A. 35:21
B. 7:3
C. 5:3
D. 3:2
C When the incoming partner takes his share out of the total share and not individually from the
existing partner, the sacrifice ratio is equal to the existing sharing ratio of old partners. Hence no
calculation is required to be made. It will be 5:3
841 In which of the following situations, the need for creation of goodwill arises:
A. admission of new partner
B. retirement of old partner
C. sale of business
D. all the above
D The need for creation of goodwill arises due to all these reasons.
842 When the new partner brings the goodwill in cash which is retained in the business, which of
the following journal entry is not made:
A. debit old partner capital account, credit bank account
B. debit cash or bank account, credit goodwill account
C. debit goodwill account, credit old partners capital account
D. none of the above
A When the goodwill is brought in cash and retained in business the entry at (a) is not required to
be passed. It is required when the goodwill is withdrawn by the old partners.
843 Firm A has three partners A, B and C with a sharing ratio of 4:3:2. Partners C wants to retire.
What will be new sharing ratio of partners A and B.
A. 5:4
B. 4:3
C. 3:2
D. Insufficient information for calculation
B When the share of outgoing partner is not distributed separately amongst the remaining
partners, there is no change in the existing sharing ratio of remaining partners.
844 On admission of a new partner, the revaluation of assets is taken up. The increase or decrease in
their value is adjusted through an account, called:
A. adjustment account
B. profit and loss account
C. revaluation account
D. none of the above
C The adjustment is done through an account called revaluation account or profit and loss
adjustment

account.
845 Which of the following is not the correct classification of receipts and expenses:
A. legal expenses incurred on public issue - revenue expenditure
B. purchase of machinery - capital expenditure
C. payment of wages - revenue expenditure
D. expenditure on removing the old building for constructing the new building on that place - capital
expenditure
A The legal expenses incurred on public issue are capital expenditure and not revenue expenditure.
846 To transfer to opening stock to the trading account, what journal entry shall be required:
A. debit the stock account and credit the trading account
B. debit the trading account and credit the opening stock account
C. debit the trading account and credit the stock account
D. no adjustment shall be required, as the opening stock is automatically taken as part of the trading
account
B To transfer the opening stock to the trading account, the journal entry shall be required in which
the trading account shall be debited and opening stock account shall be credited.
847 Firm-A got its fixed asset insured on Jan 01, 2009 for one year by paying insurance premium of
Rs.24000. It closed its financial year as on Mar 31, 2009. What adjustment entry is required to be
passed.
A. debit the pre-paid expenses account and credit the insurance expenses account for Rs.24000
B. debit the insurance expenses account and credit the pre-paid expenses account for Rs.18000
C. debit the insurance expenses account and credit the pre-paid expenses account for Rs.24000
D. debit the pre-paid expenses account and credit the insurance expenses account for Rs.18000
D Insurance for 3 months (Rs.6000) will be used up to 31.3.2009. The balance amount of Rs.18000
will be used for 9 months in the coming year. Hence by debiting the pre-paid expenses for Rs.18000,
the insurance expenses account shall be credited.
848 When a firm changes the method of charging depreciation from written down value to straight
line method or vice versa, which of the following accounting conventions is violated:
A. realization
B. consistency
C. materiality
D. conservatism
B The convention of consistency requires that the accounting policies should not be changed and
should be continued once they are adopted in a particular manner.
849 The balance as per cash book of the firm is Rs.40000 overdraft. It is observed that the firm had
issued two cheques of Rs.3000 each and only one of these has been encashed. The bank also credited
Rs.1000 as dividend received through ECS-Credit. The balance as per pass book should be:
A. 36000
B. 38000
C. 42000
D. 44000
A When balance is overdraft in cash book, the amount of cheque issued and not paid by bank and
the amount directly credited by the bank is to deducted from the opening balance. Hence 40000 30000 - 1000 = 36000
850 The debit side of Trial balance of the firm shows a balance of Rs.185500. The amount of

depreciation amounting to Rs.2500 has not been provided in the books. The debit balance in the
trial balance should be if the amount is provided:
A. Rs.183000
B. Rs.185500
C. Rs.188000
D. Rs.190500
B When the depreciation will be provided, the debit balance in depreciation account will increase
and the debit balance in fixed asset account will decline. The net change will be zero. Hence there
will be no change in the debit total of the trial balance.
851 A firm had purchased machinery of Rs.2 lac with expected life of 6 years. The scrap value is
Rs.20000. The machinery is sold at the end of 4th year, for Rs.85000. What is the profit or loss, on
sale of machinery.
A. Rs.15000 profit
B. Rs.5000 profit
C. Rs.10000 loss
D. Rs.15000 loss
B The book value of machinery at the end of 4th year shall be Rs.80000. (2 lac - depreciation at
Rs.30000 x 4 years). When it is sold for Rs.85000, the firm shall make profit of Rs.5000.
852 A firm has total book debts of Rs.2 lac. It has to keep provision of 3% on these book debts
which it already has. It writes off a debtor of Rs.4000. What will be amount of additional provision
to be provided after the write off to
maintain 3% balance in the provision account:
A. 4680
B. 4280
C. 4000
D. 3880
D Amount of provision is Rs.6000 (2 lac x 3%). It uses Rs.4000 out of this and left with a provision
of Rs.2000 only. The balance amount of debtors after write off, shall be Rs.196000 (2 lac - 4000) on
which provision at 3% shall be Rs.5880. Hence the additional provision shall be Rs.3880 (5880 2000).
853 Wages paid for installation of machinery Rs.300 have been paid to the debit of wages account.
What type of error has taken place and what journal entry will be passed to remove the error.
A. error of commission, debit machinery account and credit wages account
B. compensating error, debit machinery account and credit wages account
C. error of principle, debit machinery account and credit wages account
D. clerical error, debit wages account and credit machinery account
C It is an error of principle where a nominal account has been debited instead of debiting a real
account. The error can be rectified by debiting the machinery account and crediting the wages
account.
854 Which of the following classification of capital and revenue expenditure is not correct:
A. purchase of machinery - capital expenditure
B. freight paid on bringing the machine for installation - revenue expenditure
C. expenses relating to removal of stocks from old site to new site - revenue expenditure
D. payment of labour welfare expenses - revenue expenditure
B Freight paid for bringing the machine for installation is a capital expenditure and will be debited
to the machinery account.
855 The preference shares, the amount of which is returned by the company as per pre-fixed terms
are called:

A. cumulative preference shares


B. redeemable preference shares
C. participating preference shares
D. repayable preference shares
B Such shares are called redeemable preference shares but these are subject to conditions as per
Section 80 of Companies Act 1956.
856 The amount of share capital that is offered to the prospective shareholders for subscription, is
called:
A. authorised capital
B. issued capital
C. subscribed capital
D. called up capital
B The amount of capital which is offered to prospective shareholders for subscription is called
issued capital.
857 When the Board of Director of a company accepts the applications for allotment, the following
journal entry is passed:
A. debit bank account, credit share capital account
B. debit bank account, credit share application account
C. debit share capital account, credit share application account
D. debit share application account, credit share capital account
D When the applications are accepted for allotment and the shareholders are allotted the shares,
the share application account is debited to credit the share capital account.
858 When the Board of a company decided to call share allotment money, the following journal
entry is passed, before the money is actually demanded and received:
A. debit bank account, credit share capital account
B. debit bank account, credit share allotment account
C. debit share allotment account, credit share capital account
D. debit share allotment account, credit bank account
C When the share allotment amount is made due for payment by shareholders, the entry to be
passed is debit share allotment account and credit the share capital account.
859 When a company decides to call the 1st or 2nd call amount, what journal entry is passed before
the money is actually demanded and received.
A. debit share capital, credit 1st call or 2nd call
B. debit the 1st call or 2nd call, credit share application account
C. debit the 1st call or 2nd call, credit the bank account
D. debit the 1st call or 2nd call, credit the share capital account
D Once the money on 1st or 2nd call is made due, the 1st call or 2nd call account is debited and
share capital account is credited before the money is called and actually received.
860 When a call is received in advance and later on the amount of that call is made due by the
company, what journal entry is passed in respect of that amount received in advance:
A. debit calls account, credit calls in advance account
B. debit calls in advance account, credit calls account
C. debit calls in advance account, credit bank account
D. debit bank account, credit calls account
B Since the amount has already been received, the amount is to be transferred from calls in advance
account to calls account. The journal entry shall be - debit the calls in advance account and credit
calls account.

861 When a premium is received by the company it is credited to ___ and shown on ___ side of the
balance sheet:
A. reserves and surplus account, liability
B. capital account, liability
C. bank account, asset
D. provision account, liability
A The amount of premium received is shown as part of reserves and surplus in the liability side of
the balance sheet.
862 When the company decided to issue shares at a discount, these should be issued within ___
months after permission from ____:
A. 2 months, shareholders
B. 2 months, company law board
C. 2 months, registrar of companies
D. 1 month, shareholder resolution
B The issue at a discount should be completed within 2 months from date of permission of
Company Law Board or the time extended by Company Law Board.
863 The capitalization of profits can be made by a company through which of the following (which
is more appropriate answer):
A. by making partly paid up shares fully paid up
B. by issuing new shares called bonus shares
C. by issuing shares at a discount
D. (a) and (b) both
D The capitalization of profits can be both by making partly paid up shares fully paid up or by
issuing bonus shares.
864 If the forfeited shares are to be reissued at a discount, which of the following statement is
correct:
A. the discount can be maximum 10% of the face value
B. the amount of re-issued price cannot be lower than the amount in arrears.
C. the amount of re-issued price can be lower than the amount in arrears
D. the company cannot re-issue the shares at a discount as it is to the detriment of existing shareholders
which
have been allotted shares at par.
B The amount at which the forfeited shares can be issued cannot be lower than the amount in
arrears. In other words the maximum discount can be to the extent of amount already received.
865 If a company is to re-issue partly paid share with face value of Rs.100, what journal entry of the
following is not
correct, if the first and final call is Rs.30 per share and the discount is 10%.
A. Debit share capital Rs.100
B. Credit 1st and final call Rs.30
C. Credit discount on issue of share account Rs.10
D. Credit Forfeited shares account Rs.70
D Forfeited shares account will be credited for Rs.60 (100 - 30-10). Rs.10 is the 10% discount for the
calculation given in the bracket.
866 The debit or credit in which of the following transactions is not correct in the context of joint
ventures:
A. for cash sales - joint venture account is credited

B. for cash sales - joint bank account is debited


C. for receipt of purchase consideration on completion of joint venture - joint venture account is credited
D. for receipt of purchase consideration in the form of shares of debenture on completion of joint venture
shares / debenture account is debited
D For receipt of purchase consideration on completion of joint venture, the joint venture account is
credited and not debited.
867 Which of the following statement regarding receipt and payment and income and expenditure
account is non correct in case of accounts of non-trading organisations?
A. receipt and payment account is a personal account
B. income and expenditure account is a nominal account
C. receipt and payment account include, income, expenditure, capital receipts and payment
D. receipt and payment account begins with opening balance and ends with closing balance.
A Receipt and payment account is a real account. Other options are correct.
868 In the context of payment of interest on the capital or loans of partners, which of the following
is not correct:
A. interest on capital shall be paid if provided in the agreement
B. in the absence of any agreement, no interest shall be paid on capital
C. in the absence of any agreement, interest on the loan from partner shall be paid
D. if there is no profit, interest on loan or capital shall not be paid.
D If there is no profit, interest on loan from partner will have to be paid at 6%.