Financial Accountings - 5 PDF

[IMT-FINANCIAL ACCOUNTING]
FINANCIAL ACCOUNTINGS:
Exam Notes
CONCEPTUAL:
1) Financial control report comes under

a. Dynamic financial reports
b. Static financial reports
c. Extensive Activity report
d. None of the above
2) A balance sheet is a form of

- Published on 19 Oct 15
a. Dynamic financial reports

b. Static financial reports
c. Activity reports
3) Analytical reports are based on the ______ comparison of results.

a. Horizontal
b. Vertical
c. Symmetrical
4) ___________ are just income statements, wherein the results of one particular year are
compared with the findings of past several years.
a. Subsidiary trend reports
b. Analytical report
c. Activity reports
d. Master trend report
5) Which of the following is a kind of information report?

a. Trend reports
b. Analytical report
c. Activity reports
d. All of the above
6) There are three departments A, B and C in a company, The sales of A, B and C are Rs
3,52,000, Rs 2,88,000 and Rs 1,60,000, respectively. The variable costs of A, B and C are Rs
2,40,000, Rs 1,76,000 and Rs 1,44,000 respectively. The direct fixed costs of A, B and C are
Rs 28,000, Rs 22,400 and Rs 12,800. Rank the different departments on basis of relative
profitability.
a. A- Rank 3, B- Rank 1 and C- Rank 2
b. A- Rank 2, B- Rank 1 and C- Rank 3
c. A- Rank 3, B- Rank 2 and C- Rank 1
d. Insufficient data
7) Volume variance arises when

a. There is rise in overhead rate per hour
b. There is decline in overhead rate per hour
c. There is decrease or increase in actual output compared to the budgeted output
8) The type of standard that is best suited for cost control objective is
a. Normal standard
b. Basic standard
c. Expected standard
d. Ideal standard
9) The corrective actions after the analysis of variances has to be taken by
a. Cost accountant
b. Management
c. Both a and b
10) When actual price is higher or lower than the standard price, then it is
a. Sales price variance
b. Sales volume variance
c. Sales mix variance
d. Sales quantity variance
ACCOUNTING CONVENTIONS:
1) A business firm is separate and distinct from its owners is the assumption under which
of the following accounting concepts:
1) Business Entity
2) Going Concern Entity
3) Money Measuring Entity
4) Accounting Period concept
5) None of the above
2) Assumption of accounting entity or business entity concept is applicable for which of the
following business organizations.
1) Societies
2) Joint Stock Companies
3) Corporations
4) Partnership Firms
5) All the above
3) Under which of the following kinds of business concepts it is assumed that the
organization will last for a long time.
1) Accounting Entity
4) Accounting Period
4) Distinction between an expenditure whose benefit will be for a long period and whose
benefit for a short period of say up to one year, is made under which of the following.
2) Going concern Entity
5) A firm is expected not to curtail its present scale and continue at the operate at least at
the existing level under, which of the following:
6) It is assumed that only those transactions that could be expressed in monetary terms,
under which of the following concepts:
1) Dual Aspect Principle
3) Money Measurement Entity
4) Cost Principle
5) Accounting Principle
7) Entire life of a business entity is divided into shorter time intervals, say of one year,
under which of the following
3) Money Measuring Principle
4) Cost Principle
5) Accounting Principle
8) General rules that are used as a guide in accounting and as a basis of accounting
practices are called
1) Generally Accepted Accounting Practices
2) Basic Accounting Conventions
3) Accounting and Financing Principles
4) Accounting Principles
5) All the above
9) Every transactions has two aspects i.e., debit and credit, under which of the following
accounting principles:
1) Cash Accrual Principle
2) Revenue Accrual Principle
4) Double Entry Book-keeping System
5) C and D both
10) Anticipate no profits and provide for all possible losses. This is essence of which of the
following accounting principles:
2) Materiality Principle
3) Timeliness Principle
4) Consistency Principle
5) Conservatism Principle
11) Accounting procedures and accounting practices should remain same from year to year
under which of the following accounting principles:
12) An ink-stand has been purchased by a firm for a nominal amount that is to last for 4
year. It should not be classified as a fixed asset under which of the following accounting
principles:
13) When a machinery is purchased for cash, the cash balance is reduced and to that
extent, the amount of machinery as an asset is recorded. This is done to follow which of the
following accounting principles:
14) Rules of revenue recognition determine that earning process should be either complete
or near completion under:
1) Realization Concept
2) Materiality Concept
3) Historical Record Concept
4) Accounting Period Concept
5) Dual Aspect Concept
15) The business transactions are recorded date wise to create proper record for all
transactions. This is part of which of the following
16) Profit is a liability for a firm and the loss is an asset under which of the following
concepts
1) Business Entity Concept
17) The accounting equation ‘asset = capital + liability is part of which of the following
concepts
18) Under which conventions of accounting, the contingent liabilities are shown as a
footnote or explanatory notes in the balance sheet of a firm:
1) Convention Of Full Disclosure
2) Convention Of Materiality
3) Convention Of Conservatism
4) Convention Of Consistency
5) None Of The Above
19) A business firm creates provisions against doubtful debt under which of the following
conventions
2) Convection Of Materiality
4) Convention Of Consistency
20) Valuation of stocks is done by a business firm at cost price or market price, whichever
is lower basis, under
2) Convention Of Materiality
4) Convection Of Consistency
21) The concept that recognizes the distinction between the receipt of cash and the right to
receive the cash is called
1) Accrual Concept
2) Cash Concept
4) Full Disclosure Concept
ACCOUNTING FUNDAMENTALS
1. In the annual report, where would a financial statement reader find out if the company’s
financial statements give a fair depiction of its financial position and operating results?
a. Notes to the financial statements
b. Management discussion and analysis section
c. Balance sheet
d. Auditor’s report
e. None of the options listed
2. Which accounting assumption assumes that an enterprise will continue in operation long
enough to carry out its existing objectives and commitments?
a. Monetary unit assumption
b. Economic entity assumption
c. Time period assumption
d. Going concern assumption
Johnny’s Car Repair Shop started the year with total assets of $60,000 and total liabilities
of $40,000. During the year the business recorded $100,000 in car repair revenues, $55,000
in expenses, and dividends of $10,000.
3. The net income reported by Johnny’s Car Repair Shop for the year was
a. $35,000.
b. $45,000.
c. $20,000.
d. $90,000.
e. none of the options listed
4. The purchase of an office building by issuing long-term notes payable should be reported
as a
a. cash outflow in the financing section of the statement of cash flows.
b. cash outflow in the investing section of the statement of cash flows.
c. cash outflow in the operating section of the statement of cash flows.
d. noncash investing and financing activity.
5. If beginning capital was $25,000, ending capital is $37,000, and the owner's withdrawals
were $23,000, the
amount of net income or net loss for the period was:
a. net loss of $35,000
b. net income of $35,000
c. net income of $14,000
d. net loss of $14,000
6. The deferred income tax liability:
a. Represents income tax payments that are deferred until future years because of
temporary differences between GAAP rules and tax accounting rules.
b. Is a contingent liability.
c. Can result in a deferred income tax asset.
d. Is never recorded.
e. Is recorded whether or not the difference between taxable income and financial accounting
income is permanent or temporary.
7. A company normally sells it products for $20 per unit, which includes a profit margin of
25%. However, the selling price has fallen to $15 per unit. This company's current
inventory consists 200 units purchased at $16 per unit. Replacement cost has now fallen to
$13 per unit. Calculate the value of inventory at the lower of cost or market.
a. $2,550.
b. $2,600.
c. $2,700.
d. $3,000.
e. $3,200.
8. A measure of profitability is the
a. current ratio.
b. debt to total assets ratio.
c. return on assets ratio.
d. working capital.
9. Working capital is a measure of
a. consistency.
b. liquidity.
c. profitability.
d. solvency.
10. The difference between the balance of a plant asset account and the related
accumulated depreciation account
is termed
a. market value.
b. contra asset.
c. book value.
d. liability.
11. A company purchased a POS cash register on January 1 for $5,400. This register has a
useful life of 10 years and a salvage value of $400. What would be the depreciation expense
for the second-year of its useful life using the double-declining-balance method?
a. $ 500.
b. $ 800.
c. $ 864.
d. $1,000.
e. $1,080.
12. Which of the following is not an activity listed in the statement of cash flows?
a. Investing Activities
b. Funding Activities
c. Operating Activities
d. Financing Activities
13. Net present value is negative when
a. the present value of cash inflows is greater than the present value of cash outflows.
b. the present value of cash outflows is greater than the present value of cash inflows.
c. the future value of cash inflows is greater than the present value of cash outflows.
d. the present value of cash outflows is greater than the future value of cash outflows.
14. Which of the following is an example of a deferral?
a. Accruing year-end wages
b. Recognizing revenues earned but not yet recorded
c. Recording prepaid rent
d. Recognizing expenses incurred but not yet recorded
15. A company began the accounting period with $50,000 in owner’s capital, ended with
$75,000 in owner’s capital, and the owner withdrew $30,000 during the period for personal
use. What was the company’s net income or loss for the period?
a. $55,000 net income
b. $30,000 net loss
c. $5,000 net loss
d. $5,000 net income
16. Deciding whether to record a sale when the order for services is received or when the
services are performed is an example of a
a. classification issue.
b. valuation issue.
c. recognition issue.
d. communication issue.
BALANCE SHEET STRUCTURE AND ASSETS
1. Managerial accounting information is generally prepared for …………………

a) Shareholders
b) Creditors
c) Managers
d) Regulatory agencies
2. Which of the following is not an internal user of management information?

a) Creditor
b) Department manager
c) Controller
d) Treasurer
3. Management accounting is applicable to

a) Service entities
b) Manufacturing entities
c) Nonprofit entities
d) All of these
4. Creating Provision against fluctuation in the price of investment is an example of which

accounting convention
a) Convention of conservatism
b) Convention of full disclosure
c) Convention of materiality
d) Convention of consistency
5. The work of factory employees that can be physically associated with converting raw
material into finished goods is classified as
a) Manufacturing overhead
b) Indirect materials
c) Indirect labour
d) Direct labour
6. Double entry system is used in which type of accounting

a) Cost
b)Financial
c) Management
d) All
7. Management accounting concentrates on_____________

a) Opening books of account
b)Preparation of financial statements
c)Control of business activities
d) None of these
8. Which type of asset class includes those assets which have only definite use and become
valueless when the yield is over?
a) Fixed asset
b) Current asset
c) Fictitious asset
d)Wasting asset
9. An accounting that deals with the accounting and reporting of information to

management regarding the detail information is
a) Financial accounting
b) Management accounting
c) Cost accounting
d) Real Accounting
10. The primary objective of management accounting is

a) Prepare final a/c
b) Provide management complete and true information
c) Both (a) & (b)
d) None of these
11.Bad debt amount should be credited to

a) Debtors account
b) Bad debts account
c) Sales account
d) Creditors account
12. Identify which is wrong rule

a) Nominal account- debit all expenses & losses
b)Real account- credit what comes in
c)Nominal account- credit all incomes & gains
d) Personal account- debit the receiver
13. Cost of goods sold= opening stock+ net purchases+ expenses on Purchases – sales
Which part of formula is wrong?
a) opening stock
b) net purchases
c) expenses on Purchases
d)sales
14. Return of goods by a customer should be debited to___________

a) Customers account
b) Sales return account
c) Goods account
d) Purchase account
15. Sales made to Mahesh for cash should be debited to________________

a) Cash account
b) Mahesh Account
c) Sales account
d) Purchase account
16. Rent paid to landlord should be credited to

a) Landlords account
b) Rent account
c)Cash account
d) Expense account
17. Cash discount allowed to a debtor should be credited to

a) Discount account
b)Customer’s account
c) Sales account
d) Cash account
18. Opening stock + …………………+ Direct Expenses (Carriage on Raw material)-

Closing Stock = …………………
a) Sales, Purchases
b) Sales, Sales return
c) Purchases, Cost of goods produced
d) Purchases, Cost of goods sold
19. Financial accounting is concerned with –

a) Recording of business expenses and revenue
b) Recording of costs of products and services
c) Recording of day to day business transactions
d) None of the above
20. The nature of financial accounting is:

a) Historical
b) Forward looking
c) Analytical
d) Social
EQUITY LIABILITIES
1. Which of the following statements is incorrect?

(a) Liabilities + Assets = Capital
(b) Assets – Liabilities = Capital
(c) Liabilities + Capital = Assets
(d) Assets - Capital = Liabilities
2. On January 1st, 2009 an entity's balance sheet showed total assets of Rs. 750 and
liabilities of Rs. 250. Owners' equity at January 1st was?
(a) Rs. 750
(b) Rs. 1,000
(c) Rs. 500
(d) Rs. 250
3. If the assets of a business are Rs. 100,000 and equity is Rs. 20,000, the value of liability
will be?
(a) Rs. 100,000
(b) Rs. 80,000
(c) Rs. 120,000
(d) 20,000
4. Find out the missing value liabilities in an accounting equation with the help of given
data?
(a) Rs. 201,000 liabilities

(b) Rs. 111, 000 liabilities
(c) Rs. 290, 000 liabilities
(d) Rs. 291, 000 liabilities.
5. The accounting equation should remain in balance because every transaction affects how
many accounts?
(a) Only one
(b) Only two
(c) Two or more
(d) All of given options
6. Which of the following is not a correct form of the Accounting Equation?

(a) Assets = Claims
(b) Assets = Liabilities + Owner Equity
(c) Assets – Liabilities = Owner’s Equity
(d) Assets + Owner’s Equity = Liabilities
7. Consider the following data?

(a) Rs. 49,000
(b) Rs. 55,000
(c) Rs. 440,000
(d) Rs. 198,000
8. Find out value of account receivable from following Cash Rs. 48,000 account payable Rs.
33,000 office equipment Rs. 21,000 owner equity Rs. 77,000?
(a) Rs. 21,000
(b) Rs. 41,000
(c) Rs. 15,000
(d) Rs. 110,000
9. During a reporting period, a company’s assets increase by Rs. 80,000,000. Liabilities

decrease by Rs. 20,000,000. Equity must, therefore?
(a) Decrease by Rs. 100,000,000
(b) Increase by Rs. 100,000,000
(c) Decrease by Rs. 60,00,000
(d) Increase by Rs. 60,000,000
10. Which one of the following equations correctly expresses the relationship between
assets (A), liabilities (L), revenues (R), expenses (E) and capital (C)?
(a) A = L + R + E + C
(b) A = C + L + (R-E)
(c) A = C - (R - E) + L
(d) A = (L - C) + (R - E)
STATEMENT OF PROFIT AND LOSS
1) A person sold a stove for Rs. 423 and incurred a loss of 6%. At what price would it be
sold so as to earn a profit of 8%?
a. Rs. 525
b. Rs. 500
c. Rs. 490
d. Rs. 486
2) A fruit seller buys lemons at 2 for a rupee and sells then at 5 for three rupees. His gain
percent is
a. 10%
b. 15%
c. 20%
d. 25%
3) A sells a car to B at 10% loss. If B sells it for Rs. 54000 and gains 20%, the cost price of
the car for A was
a. Rs. 25000
b. Rs. 50000
c. Rs. 37500
d. Rs. 60000
4) Ramesh sold a statue for a price 25% higher than the original price of the statue. He
had however bought the statue at 20% discount on the original price. With the profit of Rs.
2025, find the original price of the statue.
a. Rs. 6000
b. Rs. 7500
c. Rs. 3500
d. Rs. 4500
5) If selling price of 40 articles is equal to cost price of 50 articles, the loss or gain percent
is
a. 25% loss
b. 20% loss
c. 25% gain
d. 20% gain
6) Two bicycles were sold for Rs. 3990 each, gaining 5% on one and losing 5% on the
other. The gain or loss percent on the whole transaction is
a. Neither gain nor loss
b. 2.5% gain
c. 2.5% loss
d. 0.25% loss
7) The ratio of cost price and selling price is 4:5. The profit percent is
a. 10%
b. 20%
c. 25%
d. 30%
8) If a person sells a ‘sari’ for Rs. 5200, making a profit of 30%, then the cost price of the
sari is
a. Rs. 4420
b. Rs. 4000
c. Rs. 3900
d. Rs. 3800
9) A shopkeeper earns a profit of 15% after selling a book at 20% discount on the printed
price. The ratio of the cost price and printed price of the book is?
a. 20:23
b. 23:20
c. 16:23
d. 23:16
10) Simran bought pet food worth Rs. 56000. She then sold 1/3rd of it incurring a loss of
40%. What profit she must earn on rest of the supplies to nullify this loss?
a. 25%
b. 20%
c. 45%
d. 50%
ACCOUNTING CYCLE:
1. Double entry bookkeeping means that?

(a) Entry in two sets of accounting books
(b) Entry at two dates
(c) Entry for two aspects of transaction
(d) All of above
2.Which one the following document is prepared for documentary evidence by business?
(a)Invoice
(b) Voucher
(c) Receipt
(d) All of above
3.The basic sequence in the accounting process can best be described as?
(a) Transaction, journal entry, source document, ledger account, trial balance
(b) Source document, transaction, ledger account, journal entry, trial balance
(c) Transaction, source document, journal entry, ledger account, trial balance
(d) Transaction, source document, journal entry, trial balance, ledger account
4.Revenue is generally recognized being earned at the point of time when?
(a) Cash is received
(b) Billed to customers
(c) Production is completed
(d) Goods are delivered
5.The accounting system, in which accounting entries are made on the basis of amount
having become due for payment or receipt, is known as?
(a) Cash system of accounting
(b) Current accounting period
(c) Accrual system of accounting
(d) None of the given options
6.Bookkeeping is mainly concerned with?

(a) Recording the Economic Activities
(b) Interpreting the data
(c) Designing the systems for recording, classifying and summarizing
(d) All of Above
7.Which one of the following system of recording transaction has a dual aspect concept of
accounting?
(a) Cash system of accounting
(b) Single entry system
(c) Accrual system of accounting
(d) Double entry system
8.The documents relating to purchase of asset must be authorized by?

(a) Senior management
(b) Middle management
(c) Lower level management
(d) None
9.Accrual-basis of accounting?
(a) Result in higher income than Cash-basis of accounting ?
(b) Is not acceptable under GAAP
(c) Leads to the reporting of more complete information than does cash-basis
(d) None of Above
10.A manufacturer is considering the point at which a transaction can be recognized within
its profit and loss account. At which of the following stages is this permitted?
(a) Order placed for the goods
(b) Products accepted by customer
(c) Product manufactured
(d) Sample products requested by cu stomper
Account of limited liabilities
Question 1
Which of the following is NOT an example of a business organisation?
a) A sole trader.
b) An employee.
c) A limited company.
d) A limited liability partnership.
Question 2
Which of the following are types of partner:
i) A 'typical' partner under the Partnership Act 1890.
ii) A silent partner.
iii) A salaried partner.
iv) A partner by estoppel.
a) All of the above.

b) i only.
c) ii, iii and iv.
d) ii and iii.
Question 3
Which of the following is NOT a duty imposed on partners
a) Disclosure of full information.
b) To account for benefits received.
c) Good faith.
d) Fidelity (where the partner enters a partnership in another, unrelated, industry).
Question 4
Which of the following is NOT a feature of a simple partnership?
a) Unlimited liability of the partners.
b) Joint and several liability.
c) The right to participate in the management of the firm.
d) Partnerships may only involve up to 20 persons.
Question 5
Under the Partnership Act 1890, which of the following events may lead to a partnership
being brought to an end:
i) When a partner suffers some permanent form of incapacity.
ii) Where a partner wilfully or persistently breaches the partnership agreement.
iii) Where it is just and equitable to end the partnership.
iv) Where a partner enters into competition with the partnership (with the other partners'
consent).
a) All of the above.

b) I,ii and iii.
c) ii iii and iv.
d) iii and iv.
Question 6
Which of the following is NOT a feature of a limited company?
a) The immunity from criminal prosecutions of the directors of a company.
b) The limited liability of the shareholders.
c) The perpetual succession of the business.
d) The separate legal personality of the company.
Question 7
A limited company may be established by three methods. Which is NOT one of these
methods?
a) By Royal charter.
b) By statute.
c) By contractual agreement of the members.
d) By registration.
Question 8
In relation to a private limited company and a public limited company, which of the
following are correct:
i) Only one shareholder is necessary and no secretary is required for a private limited company.
ii) The public limited company must have an allotted share capital of £50,000.
iii) The public limited company must hold an Annual General Meeting each calendar year.
iv) Only the private limited company may offer its shares to the public.
a) i and iii.
b) i, ii and iii.
c) ii and iii.
d) All of the above.
Question 9
One of the following features is NOT indicative of a 'small' company as provided for in the
Companies Act 2006 (as amended)?
a) The company is registered as a public limited company.

b) The company has a turnover of not more than £6.5 million.
c) The company has not more than 50 employees.
d) The company has a balance sheet of not more than £3.26 million.
Question 10
In relation to the 'veil of incorporation' that is a feature of a limited company's separate
legal personality, in which of the following circumstances will a court NOT lift the veil to
identify the true nature of the relationship:
i) Where the company has been established to commit a fraud.
ii) Where the company has been established to circumvent contractual agreements.
iii) In the interests of justice.
iv) Where two separate legal entities are run as one economic undertaking.
a) ii and iv.
b) ii, iii and iv.
c) All of the above.
d) iii and iv.
FUND FLOW AND CASH FLOW:
1. As per Accounting Standard-3, Cash Flow is classified into

a) Operating activities and investing activities
b) Investing activities and financing activities
c) Operating activities and financing activities
d) Operating activities, financing activities and investing activities
2. Cash Flow Statement is also known as

a) Statement of Changes in Financial Position on Cash basis
b) Statement accounting for variation in cash
c) Both a and b
d) None of the above.
3. The objectives of Cash Flow Statement are
A) Analysis of cash position
B) Short-term cash planning
C) Evaluation of liquidity
D) Comparison of operating Performance
a) Both A and B
b) Both A and C
c) Both B and D
d) A, B, C, D
4. In cash flow statement, the item of interest is shown in

A) Operating Activities
B) Financing Activities
C) Investing Activities
a) Both A and B
b) Both A and C
c) Both B and C
d) A, B, C
5. Cash Flow Statement is based upon

a) Cash basis of accounting
b) Accrual basis of accounting
c) Credit basis of accounting
6. Which of the following statements are false?

A) Cash Flow Statement is helpful in the formation of policies.
B) Cash Flow Statement is useful for external analysis
C) Cash Flow Statement is helpful in estimating future cash flow
a) Both A and B
b) Both A and C
c) Both B and C
7. Which of the following statements are true?

A) Cash flow reveals only the inflow of cash
B) Cash flow reveals only the outflow of cash
C) Cash flow is a substitute for income statement
D) Cash flow statement is not a replacement of funds flow statement.
a) Only A
b) Only B
c) Both B and C
d) Only D
8. Which statement is prepared in the process of funds flow analysis?

a) Schedule of changes in working capital
b) Funds Flow Statement
c) Both a and b
9. Funds Flow Statement is prepared on the basis of data of P&L statement and two
consecutive balance sheets.
a) True
b) False
c) Value delivery
10. Which of the following rules stands true while preparation of Schedule of changes in
working capital?
A) An increase in current assets increases working capital.
B) An increase in current assets decreases working capital.
C) An increase in current liabilities decreases working capital.
D) An increase in current liabilities increases working capital
a) A and C
b) A and D
c) B and D
d) A, B, C and D
11. If reserve for bad and doubtful debts is mentioned in the question of Funds Flow
Statement Preparation, it can be shown as
a) In the schedule by deducting from total debtors under current assets
b) In the schedule separately under the heading of capital liabilities
c) Both a & b
12. Funds Flow Statement is also known as

a) Statement of Funds Flow
b) Statement of Sources and Application of Funds
c) Statement of Sources and Uses of Funds
d) All of the above
13.. Given Net profit for the year Rs 2, 50,000 Transferred to general reserves Rs 40,000
and old machinery bought for Rs 50,000 was sold for Rs 20,000. Calculate funds from
operations.
a) Rs 2, 80,000
b) Rs 2, 20,000
c) Rs 2, 90,000
d) Rs 3, 00,000
14. Which of the following are sources of funds?

A) Issue of bonus shares
B) Issue of shares against the purchase of fixed assets
C) Conversion of debentures into shares
D) Conversion of loans into shares
a) A and C
b) A and D
c) A, B, C and D
FINANCIAL STATEMENT ANALYSIS:
1. The 3 Ps, i.e. the three objectives of analysis and interpretation of financial statements
are : Progress, Position and Prospects.
a) True
b) False
2. Which of the following statements are false?

A) When all the figures in a balance sheet are stated as percentage of the total, it is termed as
horizontal analysis.
B) When financial statements of several years are analyzed, it is termed as vertical analysis.
C) Vertical Analysis is also termed as dynamic analysis.
a) Both A and B
b) Both A and C
c) Both B and C
d) A, B , C
3. State which of them are true?

A) When ratios of previous years are compared with current years, they are called trend ratios.
B) Trend percentages and trend ratios are used in static analysis.
C) Reliability of financial analysis depends upon the reliability of financial data.
a) Both A and B
b) Both A and C
c) Both B and C
d) A, B, C
4. Comparison of financial statements highlights the trend of the _________ of the business.
a) Financial position
b) Performance
c) Profitability
d) All of the above
5. Analysis of any financial Statement comprises

a) Balance sheet
b) P&L Account
c) Trading account
d) All of the above

A) Common-size balance sheet shows relative value of te various items.
B) In the common size income statement, each product is represented as a percentage of the net
sales figure.
C) Common size income statements represent the various elements as a percentage of the gross
profit.
a) Both A and B
b) Both A and C
c) Both B and C
d) A, B, C

A) External analysis depends entirely on issued financial statements.
B) Interpretation and analysis both are different.
C) Financial analysis covers interpretation.
a) Both A and B
b) Both A and C
c) Both B and C
d) A, B, C
8. Which of the following are techniques, tools or methods of analysis and interpretation of
financial statements?
a) Ratio Analysis
b) Average Analysis
c) Trend Analysis
d) All of the above
9. Interpretation of accounts is the

a) Art and science of translating the figures
b) To know financial strengths and weaknesses of a business
c) To know the causes for the prevailing performance of business
d) All of the above
10. The form of balance sheet is

a) Vertical
b) Horizontal
c) Horizontal and vertical
d) Horizontal or vertical
RATIO ANALYSIS:
1. When the concept of ratio is defined in respected to the items shown in the financial
statements, it is termed as
a) Accounting ratio
b) Financial ratio
c) Costing ratio
2. The definition, “The term accounting ratio is used to describe significant relationship
which exist between figures shown in a balance sheet, in a profit and loss account, in a
budgetary control system or in a any part of the accounting organization” is given by
a) Biramn and Dribin
b) Lord Keynes
c) J. Betty
d) None of the above.
3. The relationship between two financial variables can be expressed in:
a) Pure ratio
b) Percentage
c) Rate or time
d) Either of the above
4. Liquidity ratios are expressed in
a) Pure ratio form

b) Percentage
c) Rate or time
5. Which of the following statements are true about Ratio Analysis?
A) Ratio analysis is useful in financial analysis.

B) Ratio analysis is helpful in communication and coordination
C) Ratio Analysis is not helpful in identifying weak spots of the business.
D) Ratio Analysis is helpful in financial planning and forecasting.
a) A, B and D
b) A, C and D
c) A, B and C
d) A, B , C, D
6. The ratio analysis is helpful to management in taking several decisions, but as a

mechanical substitute for judgment and thinking, it is worse than useless.
a) True
b) False
7. Profit for the objective of calculating a ratio may be taken as
a) Profit before tax but after interest

b) Profit before interest and tax
c) Profit after interest and tax
d) All of the above
8. Which of the following are limitations of ratio analysis?
A) Ratio analysis may result in false results if variations in price levels are not considered.
B) Ratio analysis ignores qualitative factors
C) Ratio Analysis ignores quantitative factors
D) Ratio Analysis is historical analysis.
a) A, B and D
b) A, C and D
c) A, B and C
d) A, B , C, D
Miscellaneous Questions
Question No. 1 Which of the following is (are) item (s) of cost of goods sold statement?
Purchase of raw material

Any tax/freight paid on purchases
Any expense incurred on carriage/transportation of raw material purchased items
All of the given options (Right Answer)
Question No. 2
Which of the following voucher is used to record transactions that do not affect bank &
cash?
Journal Voucher (Right Answer)
Receipt Voucher
Payment Voucher
Nominal Voucher
Question No. 3 Rs. 400

Rs. 2,500
Rs. 2,900 (Right Answer)
Rs.20, 900
Question No. 4 What would conversion costs if costs of raw materials, direct labor costs,
and manufacturing overhead costs Rs.80,000, Rs.50,000, and Rs.60,000, respectively?
Rs.130, 000
Rs.110, 000 (Right Answer)
Rs.140, 000
Rs.190, 000
Question No. 5 A form that allows individuals to compare their personal bank account
records to the bank's records of the individual's account balance in order to uncover any
possible discrepancies is known as:
Bank statement
Income statement
Financial statement
Bank Reconciliation statement (Right Answer)
Question No. 6 Cash and other resources that are expected to turn to cash or to be used up
within one year of the balance sheet date are called:
Current liability
Current assets (Right Answer)
Fixed assets
Long-term assets
Question No. 7
An accounting system is used by a business to:
Analyze transactions
Handle routine bookkeeping tasks
Structure information
Question No. 8 Particulars Rs. Opening written down value of machine 3,75,000 Cost of
machine 50,000 Depreciation during the year 11,500 Closing written down value (WDV) of
the Machines ?
Rs. 4,13,500 (Right Answer)

Rs. 4, 25,000
Rs. 3, 36,500
Rs. 61,500
Question No. 9 Furniture account (Right Answer)

Cash account
Business account
Bank account
Expenditure incurred in acquiring the patent right for the business is an example of:
Revenue expenditure (Right Answer)
Capital expenditure
Deferred revenue expenditure
Administrative expenditure
Question No. 10
Total assets - Total liabilities =?
Owner’s Equity (Right Answer)

Expenses
Retained earnings
Net profit
Question No. 11
What will be debited, if business bought goods on credit from Mr. Ali?
Purchases account (Right Answer)
Mr. Ali account
Cash account
Sales account
Question No. 12
Prepaid rent given in the Trial Balance will be treated as a (an):
Asset
Liability
Revenue (Right Answer)
Deferred expense
Question No. 13
A business event which can be measured in terms of money and must be recorded in books
of accounts is called:
Condition
Transaction (Right Answer)
Information
Record
Question No. 14
Which one of the following is NOT a feature of sole proprietorship business.
Easy Formation
Easy Dissolution
Unlimited Liability
Separate Legal Entity (Right Answer)
Question No. 15
In which of the following statement opening stock is shown?
Profit and loss account

Balance sheet (Right Answer)
Cash flow statement
Owner’s equity
Question No. 16
The profitability of its business operations for a period of time
Its financial position at the end of an accounting period

Its cash receipts and cash payments during an accounting period
None of the given options
Question No. 17
Which of the following is (are) example(s) of non-distributable profit?
General reserve
Accumulated profit and loss (credit balance)
Revaluation reserves
Question No. 18
Which of the following Organization converts raw material into finished goods?
Trading concern
Manufacturing concern (Right Answer)
Merchandising concern
Service concern
Question No. 19 In firms cash flow statements, which of the following would appear as a
cash outflow?
The payments for share in a company whose shares are treated on a stock exchange
A decrease in trade debtors over the course of an accounting period
Money received as a result of issuing new shares
Money received as result of selling fixed assets
Question No. 20 Which of the following particular/s is/are included in receipt voucher?
Name of organization
Bank receipt
Date
Question No. 21 Which of the following assets is most likely to appreciate rather than
depreciate?
Land (Right Answer)

Motor vehicles
Plant and machinery
Fixtures and fittings
Question No. 22 Which of the following item needs to be entered in the Cash Book in order
to bring it in line with the entries on the Bank Statement?
A bank charges (Right Answer)

An error on the Bank Statement
An uncredited deposit
An unpresented cheque
Question No. 23 Wages paid to laborers working in the manufacturing department is

treated as an expense of:
Cost of goods sold (Right Answer)

Administrative expenses
Selling expenses
Marketing expenses
Question No. 24 Bad debts written off (given in adjustment) always affect the:
Debtors account (Right Answer)

Creditors account
Cash account
Capital account
Question No. 25 Carriage paid Rs. 50 for the newly purchased machinery if debited to
carriage account will effect:
Only carriage account

Only machinery account (Right Answer)
Both carriage and machinery account
Cost of goods manufactured - opening work in process + ending work in process =?

Cost of goods sold
Prime cost
Conversion cost
Total factory cost (Right Answer)
Question No. 26 If cost of sales is Rs. 95,000, income from sales Rs. 200,000 and operating
expenses Rs. 300,000. What will be net result?
Rs. 1, 95,000 Losses (Right Answer)

Rs. 1, 95,000 Profits
Rs 1, 05,000 Profits
Rs1, 05,000 Losses
Question No. 27 What is the proper order of the following steps in the accounting process?
I. Prepare and analyze the trial balance II. Record relevant transactions and events in a
journal III. Analyze each transaction and event from source documents IV. Post journal
information to ledger accounts
III. IV. I. II.
I. II. III. IV.
III. II. IV. I. (Right Answer)
III. II. I. IV.
Question No. 28 All of the below items are directly recorded by bank without intimating
the business until the end of month, EXCEPT:
Bank Charges
Interest on Overdraft
Un-presented Cheques (Right Answer)
Direct Receipts
Question No. 29 Which of the following is Not an Asset Account?

Plant & Machinery
Loan to XYZ co.
Cash at Bank
Loan from ABC co. (Right Answer)
Question No. 30. A balance of pass book written in brackets ( ) by the bank is known as:
Favorable balance for customer(Right Answer)

Unfavorable balance for bank
Unfavorable balance for customer
None of the above
***Some Important Questions***
1. A business has paid the rent for the period Jan-March 2016 in J\llle'2016, in which year
financial statements this rent expenses will be recorded?
 2015
 2016
 2017
 All of the above
2. Security Premium Reserve is an example of
 Revenue Reserve
 Capital Reserve
 Reserve Capital
 Revaluation Reserve
3. Inwhich of the following books, separate account is maintained for each item?
 Ledger
 Accounting Equation
 Trial Balance
 Journal
4. Credit sales for the year is Rs 100000 and closing debtors are Rs 10000. Calculate the
collection period of the firm
 10 days
 36.5 days
 27.39 days
 None of the above
5. Advance from Customers is a example of
 Asset
 Liability
 income
 Expense
6. Both assets and owner 's equity would be increased by
 capital brought in
 Purchase of an asset on credit.
 Payment of creditors.
 Proprietors drawings.
7. The balance cash account it indicates
 Net income for the period
 Net loss for the period
 Net cash on hand
 Net worth of the business
8. Capital continued by owners is recorded as liability as per which of the following
concept.
 Monetary Unit
 Economic Entity
 Going Concern
 Dual Aspect
9. Which of the following can be categorized as discretionary Expense
 Purchase
 Salary
 Repair & Maintenance
 R&D Expense
10. Which of the following self-generated intangible asset can be recorded in books of
account.
 Goodwill
 Technical Know-How
 Software
 All of the Above
11. On 1st April 2017 P Ltd sells 100000 shares of Dabur India Ltd to Q Ltd at Rs 400
per share (Market price on that day) with an agreement to repurchase the same at Rs 4
12 per share on 31st Dec 2017. How the transaction should be presented in financial
statements of P Ltd
 Sale of Investment
 Sale of Shares
 Borrowings
 Investment
12. A credit sale of goods to Mohan should be credited to
 Sales account
 Mohan accowit
 Goods accowit
 Purchase accowit
13. Which of the following statement shows the financial position of a business entity as
on date?
 Income Statement
 Balance Sheet
 Trial Balance
 Cash Flow Statement
14. XYZ Ltd paid Salaries of Rs 200000 inthe month of March'2016. Journalize the
transaction.
 Cash Ale Debited to Salary
 Salary Ale Debited to Cash
 Employees Ale Debited to Cash
 Employees Ale Debited to Salary
15 . Proceeds on the sale of fixed assets will be shown in which part of the cash flow
statement, if indirect method is followed?
 Operating Cash Flow
 Financing Cash Flow
 Investing Cash Flow
16. A credit sale of goods to Mohan should be debited to
 Sales accowit
 Mohan accowit
 Goods accowit
 Purchase accowit
17. Which of the following is a financing item?
 Interest paid
 salary paid
 dividend received
 share capital issued
18. Which of the following is basic accounting equation?
 Capital-Liabilities =Assets
 Assets + Liabilities = Capital
 Assets+ Capital = Liabilities
 Liabilities+ Capital =Assets
19. Wages paid to workers must be debited to account
 Wages
 Machinery
 Factory Expenses
 Office Expenses
20. Which of the following is an example out Business liability?
 Land
 Building
 Cash
 Creditors
21. In which of the following firm structure liability of owners is unlimited
 Sole Proprietorship
 Ltd Liability Partnership
 Pvt. Ltd Company
 Public Ltd Company
22. Decline in the value of intangible assets in a given year is known as.
 Depreciation
 Amortization
 Depletion
 Any of the above_
23. If manufacturing expenses are Rs 20000, interest expenses Rs 4000, cash sales is Rs
30000. Increase in inventory and debtors is Rs 5000 and Rs 7000 respectively. While
increase in accounts payable is 9000. Calculate the cash flow from operations?
 Rs 9000
 Rs 3000
 Rs 7000
 Rs 12000
24. Higher Debt-Equity ratio indicates
 High Operating Risk
 Low Operating Risk
 High Financial Risk
 Low Financial Risk
25 . in which of the following firm structure compliance cost is maximum
 Ltd Liability Partnership
 Pvt. Ltd Company
 Public Ltd Company
26. Inwhich of the following form of business, income is taxed separately from its
owners
 Partnership
 Corporation
27. Inwhich of the following statement, final balances of all the accounts are prepared
in the form of a list
 Ledger
 Trial Balance
 Journal
28. If total liabilities decreased by Rs20000 and stockholders' equity increased by
Rs5,000 during a period of time, then total assets " must change by what amount and
direction during that same time period?
 Rsl5000 increase
 Rsl5000 decrease
 Rs 25000 increase
 Rs 25000 decrease
29. ABC Ltd Purchased Machinery on 1st October 2017 at cost price of Rs 5 Lacs.
There is no salvage value and estimated useful " life of Machinery is 5 years. How
much depreciation should be charged for Year 2017- 18?
 1 Lac
 Zero
 50000
30. While preparing cash flow statements, the repayments of a loan during the year
should be included wider the heading of.
31. When a Liability is increased, it is recorded on the

 Credit Side
 Debit Side
 Left Hand Side
 Any of the above
32. Operating expenses of Moon Ltd are Rs 18000, Interest expenses Rs 5000, Tax paid
Rs 4000. If Sales is Rs 35000 then calculate the Net Profit Margin?
 00.2285
 00.77 14
 00.51
 00.0657
33. In order to reflect the efficiency in debtor's management, Debtor turnover ratio
should be.?
 increased
 Decreased
 Kept Constant
 •None of the above
34. Which of the following is an financing item
 Interest paid
 salary paid
35. which of the following is an example ot business liability?
 land
 Building
 Cash
 Creditors
36. XYZ Ltd paid Salaries of Rs 200000 in the month of March'2016. Journalize the
transaction
 Cash Ale Debited to Salary
 Salary Ale Debited to Cash
 Employees Ale Debited to Cash
 Employees Ale Debited to Salary
37. which of the following is an operating item?
 Interest paid
 salary paid
38.There was a fire in M Ltd Go down. It resulted into loss of Rs 5 Cr goods. However
the insurance company accepted the claim of Rs 4 .5 Cr only. This will result in in
equity by Rs _
 Increase, 4.5 Cr
 Decrease, 0.5 Cr
 Increase, 0.5 Cr
 Decrease, 5 Cr
39. Who approves the financial statements of a company
 Auditors
 Shareholders
 Management
 Board of Directors
40. accounting Standards are issued by which of the following entity, in India?
 ICAI
 SEBI
 RBI
 IFRS
41. If Net Profit is Rs 10000, Preference Dividend is Rs 2000 and Number of Shares are
600, calculate the EPS?
 16.66
 20
 13.33
42. Loss on the sale of Fixed Assets will be shown in which part of the cash flow
statement, if indirect method is followed?
43. Which of the following is an example of business liability?
 Creditors
 Building
 Cash
 Land
44. Which of the following can be categorized as Revenue
 Sale of goods
 Sale of Old Furniture
 Dividend Received
45. A new firm commenced business on 1st January 20016 and purchased goods costing
Rs. 90,000 during the year. A sum of Rs. 6,000 was spent on freight inwards. At the end
of the year the cost of goods still unsold was Rs. 12,000. Sales during the year
Rs.1,20,000. What is the gross profit earned by the firm?
 Rs 36000
 Rs 30000
 Rs 42000
 Rs 38000
46. Which of the following statement shows the Net Profit/Loss earned by a business
entity?
 Income Statement
 Balance Sheet
 Trial Balance
 Cash Flow Statement
47. Purchase of machinery against issue of shares will be shown in which part of the cash
flow statement?
48. Which of the following is an operating item?
 Interest paid
 salary paid
49. Which of the following measure will be used for calculation of Inventory Turnover
Ratio
 Cost of Goods Sold
 Net Sales
 Cos of Sales
 Credit Sales
50. Capital contributed by owners is recorded as liability as per which of the following
concept?
 Dual Aspect
 Going Concern
 Monetary Unit
 Economic Entity
51. Which of the following is liquidity ratio
 Debt to Equity Ratio
 Return on Investment
 Total Asset Turnover Ratio
 Current Ratio
52. Every accounting transaction must at least affect-_________accounts?

 One
 Two
 Three
 Four
53. Both assets and owner's equity would be increased by __________________
 capital brought in
 Purchase of an asset on credit.
 Payment of creditors.
 Proprietors drawings.
54. In which of the following books, transactions are first time recorded?
 Ledger
 Trial Balance
 Journal
55. The Share Capital of a company is Rs 10 Cr divided in 10 Lac number of shares.
Calculate the face value of share
 Rs 100
 Rs 1000
 Rs10
 Rs1
56. The balance of cash account indicates______________
 Net income for the period
 Net loss for the period
 Net cash on hand
 Net worth of the business
57. Which of the following is a Current Assets ?
 Furniture
 Computers
 Debtor
 Car

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[IMT-FINANCIAL ACCOUNTING]

1) Financial control report comes under

2) A balance sheet is a form of

a. Dynamic financial reports

3) Analytical reports are based on the ______ comparison of results.

5) Which of the following is a kind of information report?

7) Volume variance arises when

9) The corrective actions after the analysis of variances has to be taken by

BALANCE SHEET STRUCTURE AND ASSETS

1. Managerial accounting information is generally prepared for …………………

2. Which of the following is not an internal user of management information?

3. Management accounting is applicable to

4. Creating Provision against fluctuation in the price of investment is an example of which

6. Double entry system is used in which type of accounting

7. Management accounting concentrates on_____________

9. An accounting that deals with the accounting and reporting of information to

10. The primary objective of management accounting is

11.Bad debt amount should be credited to

12. Identify which is wrong rule

14. Return of goods by a customer should be debited to___________

15. Sales made to Mahesh for cash should be debited to________________

16. Rent paid to landlord should be credited to

17. Cash discount allowed to a debtor should be credited to

18. Opening stock + …………………+ Direct Expenses (Carriage on Raw material)-

19. Financial accounting is concerned with –

20. The nature of financial accounting is:

1. Which of the following statements is incorrect?

(a) Rs. 201,000 liabilities

6. Which of the following is not a correct form of the Accounting Equation?

7. Consider the following data?

9. During a reporting period, a company’s assets increase by Rs. 80,000,000. Liabilities

STATEMENT OF PROFIT AND LOSS

1. Double entry bookkeeping means that?

6.Bookkeeping is mainly concerned with?

8.The documents relating to purchase of asset must be authorized by?

Account of limited liabilities

a) All of the above.

a) All of the above.

a) The company is registered as a public limited company.

FUND FLOW AND CASH FLOW:

1. As per Accounting Standard-3, Cash Flow is classified into

2. Cash Flow Statement is also known as

4. In cash flow statement, the item of interest is shown in

5. Cash Flow Statement is based upon

6. Which of the following statements are false?

7. Which of the following statements are true?

8. Which statement is prepared in the process of funds flow analysis?

12. Funds Flow Statement is also known as

14. Which of the following are sources of funds?

FINANCIAL STATEMENT ANALYSIS:

2. Which of the following statements are false?

3. State which of them are true?

5. Analysis of any financial Statement comprises

6. Which of the following statements are true?

7. Which of the following statements are true?

9. Interpretation of accounts is the

10. The form of balance sheet is

3. The relationship between two financial variables can be expressed in:

4. Liquidity ratios are expressed in

a) Pure ratio form

5. Which of the following statements are true about Ratio Analysis?

A) Ratio analysis is useful in financial analysis.

6. The ratio analysis is helpful to management in taking several decisions, but as a

Some Important Questions