SEBI GRADE A 2020

COMMERCE AND ACCOUNTANCY

Exam Oriented – 25 MCQs
 QUESTION 1

Q. As per Ind AS - 2, Cost of inventories comprise of ________________

a) Purchase Price
b) Cost of conversion
c) Freight inwards
d) Duties and Taxes
e) All of the above
 QUESTION 1
Answer : (e) All of the above
 QUESTION 2

Q. Which of the following relationships is/are false ?

a) Net Profit = Gross Profit – Administration and Other expenses
b) Net Profit = Gross Profit + Administration expenses and Other expenses
c) Opening Stock + Purchases – Closing Stock = Cost of Sales
d) Both (b) and (c) above
e) Both (a) and (c) above
 QUESTION 2

Answer : (d) Both (b) and (c) above

Net Profit= Gross Profit- Administration and other expenses. Hence option (b) is false.
Opening stock+ Purchases-Closing stock= Cost of material consumed not cost of sales.
Option (c) is false.
 QUESTION 3

Q. The shareholder shall be given not less than ___ days and not more than ____ days to
accept the offer of Rights shares.
a) 15; 30
b) 15; 45
c) 30; 60
d) 30; 45
e) 60; 90
 QUESTION 3

Answer : (a) 15;30

The shareholder shall be given not less than 15 days and not more than 30 days to accept
the offer and if the offer is not accepted with in that period then the offer will be assumed to
be declined
 QUESTION 4
Q. Given : Stock of stationery as on Apr. 1, 2019 Rs 400
Stock of stationery as on Mar. 31, 2020 Rs 100
Payment for stationery during 2019-20 is Rs 1,200
Creditors for stationery as on Mar. 31, 2020 is Rs 150.
What is the amount of stationery that will be posted to the Income and Expenditure
A/c for the year ending Mar. 31, 2020?
a) Rs 1,150
b) Rs 1,650
c) Rs 850
d) Rs 1,050
e) Rs 1,500
 QUESTION 4

Answer : (b) Rs 1,650

Calculation of Amount of stationary for the year ended 31st March, 2020
Opening stock of stationary ,1st Apr 2019 = Rs 400
+ Payment made during the year = Rs 1200
+ Creditors for stationary as on 31st Mar, 2020 = Rs 150
- Closing stock as on 31st Mar, 2020 = Rs 100
= Rs 1,650
 QUESTION 5

Q. Compensation paid to employees who were retrenched is ______________.

a) Capital expenditure
b) Revenue expenditure
c) Deferred revenue expenditure
d) Prepaid Expenses
e) None of the above
 QUESTION 5

Answer : (b) Revenue expenditure

Compensation paid to retrenched employees is revenue expenditure. These expenditure

arise due to normal business operations and these expenditure are not done to acquire
fixed assets.
 QUESTION 6

Q. If Office Equipment is purchased for cash, what effect will this transaction have on
the financial position of the company ?
a) There is no change in the Assets, Liabilities and Owner's Equity
b) There is a decrease in Assets, increase in Liabilities and no change in Owner's Equity
c) There is a decrease in Assets, no change in Liabilities and a decrease in Owner's Equity
d) There is an increase in Assets, decrease in Liabilities and no change in Owner's Equity
e) There is an increase in Assets, no change in liabilities and no change in Owner's Equity
 QUESTION 6

Answer : (a) There is no change in the Assets, Liabilities and Owner's Equity

When Office Equipment is purchased for cash, there is no change in the assets, liabilities
and owner‘s equity. Thus, the alternative (a) is the correct answer. The cash on hand is
used for purchase of furniture and it is only a change in the composition of the assets. The
other alternatives (b), (c) and (d), which indicate a change either an increase or a decrease
in assets/ liabilities/owners equity are not the correct answers. Hence (a) is the correct
answer
 QUESTION 7

Q. What is the Accounting Standard issued by ICAI for Share based payment plan ?
a) Ind AS 101
b) Ind AS 102
c) Ind AS 103
d) Ind AS 104
e) Ind AS 105
 QUESTION 7

Answer : (b) Ind AS 102

Ind AS 102 - The objective of this Standard is to specify the financial reporting by an entity
when it undertakes a share-based payment transaction. In particular, it requires an entity
to reflect in its profit or loss and financial position the effects of share-based payment
transactions, including expenses associated with transactions in which share options are
granted to employees.
 QUESTION 8

Q. Total Depreciable amount of a depreciable asset over a lifetime is its

____________________assuming zero residual value and no revaluation of asset
a) Depreciated Value
b) Book Value
c) Historical Cost
d) Replacement Cost
e) None of the above
 QUESTION 8

Answer : (c) Historical Cost

The depreciable amount of a depreciable asset is its historical cost in the financial
statements, less the estimated residual value. Residual value or salvage value is the
expected recovery or sales value of the asset at the end of its useful life
 QUESTION 9

Q. Which of the following transactions would cause a change in 'owners' equity ?

a) Repayment of a Bank Loan
b) Payment of Dividends and Unprofitable Operations
c) Sale of Land on Credit
d) Purchase of Assets and incurrence of Liabilities
e) Both A and D
 QUESTION 9

Answer : (b) Payment of Dividends and Unprofitable Operations

Accounting Equation is Assets = Liabilities+ Owners‘ equity.

Repayment of bank loan results in reduction in both assets and a liability with the same amount and hence does not affect
owners‘ equity.
Owners equity is directly increased by introduction of further capital or incurrence of profits, similarly a dividend payment
and an operating loss reduces the owners‘ equity. Hence option (b) results in change in the owners‘ equity.
Sale of land on credit results in decrease in fixed assets (on the left side of the equation) and increase in current assets
(i.e., debtors), as a result the owners‘ equity is not affected. Hence option (c ) results in no change in owners‘ equity.
Purchase of assets and incurrence of liabilities results in increase in assets and increase in liabilities, hence does not
result in change in owners‘ equity.

So option (b) is the right option.

 QUESTION 10

Q. If the Going Concern concept is no longer valid, which of the following is true ?
a) All prepaid assets would be completely written-off immediately
b) Total contributed Capital and Retained Earnings would remain unchanged
c) Intangible Assets would continue to be carried at net Amortized historical cost
d) Land held as an Investment would be valued at its realizable value
e) All of the above
 QUESTION 10

Answer : (d) Land held as an Investment would be valued at its realizable value

Under the Going Concern Concept, it is assumed that the business will exit for a long time
and transactions are recorded from this point of view. It is this that necessitates distinction
between expenditure that will render benefit over a long period and that whose benefit will
be exhausted quickly. If the concept ceases to be valid, then land held as an investment
would be valued at its realizable value.
 QUESTION 11

Q. Expenses on a Foreign Tour to purchase a machinery is _________________.

a) Capital Expenditure
b) Revenue Expenditure
c) Deferred Revenue Expenditure
d) Prepaid Expenses
e) None of the above
 QUESTION 11

Answer : (a) Capital Expenditure

All expenses which incur for acquiring capital asset are classified as capital expenditure.
Expenses on a foreign tour to purchase a machinery classified as capital expenditure as it
incurred for acquiring capital asset
 QUESTION 12

Q. If a company opts to buyback its shares, then which of the following statements
would be true?
a) Cash flow of company will decrease
b) There will be no change in the face value of the shares
c) The net worth of the company will decrease
d) The EPS would increase
e) All of the above
 QUESTION 12

Answer : (e) All of the above

All of the above statements are true with regard to buyback of shares
 QUESTION 13

Q. As per the Balances Method, A Contra Expense Account will have a ________ balance
a) High
b) Low
c) Debit
d) Credit
e) Zero
 QUESTION 13

Answer : (d) Credit

As per the Balances Method, A Contra Expense Account will have a Credit Balance
A contra expense account is a general ledger expense account that is expected to have a
credit balance instead of the usual debit balance.
In other words, the account's credit balance is contrary to (or opposite of) the usual debit
balance for an expense account.
Another description of a contra expense account is an account that reduces or offsets the
amounts reported in one or more of the other general ledger expense accounts.
 QUESTION 14
Q. The process of balancing of an account involves equalization of both sides of the account. If
the debit side of an account exceeds the credit side, the difference is put on the credit side. The
said balance is
(i) A Debit balance
(ii) A Credit balance
(iii) An expenditure or an Asset
(iv) An Income or a Liability
a) Only (ii) above
b) Only (iv) above
c) Both (i) and (iii) above
d) Both (ii) and (iii) above
e) Both (ii) and (iv) above
 QUESTION 14

Answer : (c) Both (i) and (iii) above

The process of balancing of an account involves equalization of both sides of the account. If
the debit side of an account exceeds the credit side, the difference is put on the credit side.
The said balance is a debit balance and it represents either expenditure or an asset or both.
Thus, the combination of items under (i) and (iii) i.e., alternative (c) is the correct answer.
The other alternatives are incorrect because, the excess of debit over credit side is not a
credit balance and it is neither an income nor a liability
 QUESTION 15

Q. Which of the following is 'NOT' a contingent liability ?

a) Claims against the company not acknowledged as debts
b) Debts included on debtors which are doubtful in nature
c) Uncalled liability on partly paid shares
d) Arrears of cumulative fixed dividends
e) None of the above
 QUESTION 15

Answer : (b) Debts included on debtors which are doubtful in nature

A contingent liability is the loss which will be known or determined only on the occurrence
or non-occurrence of one or more future uncertain events. Debts of debtors is not an
uncertain event but only the realization of a part of the debt is doubtful for which provision
must be provided, and hence it is not a contingent liability
 QUESTION 16

Q. The profit on re-issue of shares is transferred to _____________________.

a) General Reserve
b) Capital Reserve
c) P&L Account
d) P&L Appropriation Account
e) Reserve Capital
 QUESTION 16

Answer : (b) Capital Reserve

Forfeited shares can be re-issued. Any amount of profit on re-issue is a capital receipt and
should be transferred to capital reserve account because this profit is a capital gain for the
company.
 QUESTION 17

Q. The Cash account of the balance sheet should not include which of the following
items?
a) Currency
b) Deposit in transit
c) Money orders
d) Travel Advances to employees
e) Commercial paper
 QUESTION 17

Answer : (d) Travel Advances to employees

Cash includes legal tender, bills, coins, checks received but not deposited, and checking
and savings accounts ,bank certificates of deposit, banker's acceptances, money orders,
Treasury bills, commercial paper, and other money market.
Travel advance is an advance which need to be shown with advances in current assets.
Cash account is having a debit balance and to be shown in balance sheet as current assets.
 QUESTION 18

Q. A company buys a machine on 1st January. The machinery is sent for customization
and is customized by 10th Jan. The actual production starts on 20th Jan? What would
be the date of commencement of depreciation
a) 1st Jan
b) 10th Jan
c) 15th Jan
d) 20th Jan
e) Any of the above depending on depreciation policy of the company
 Depreciation

Answer : (b) 10th jan

Depreciation of an asset begins when it is available for use, i.e., when it is in the location and condition necessary for it to
be capable of operating in the manner intended by the management

Kept Truck in garage and paid rent of 5000

(not to be added in cost of asset)

h
Denting/Painting
Buy Old done on 20th Started the use
Truck June, of the truck on
1oth June Truck is in 30th June
running
condition

Depreciation will start

from this date because it is
ready to use at this date
 QUESTION 19

Q. If Ind AS becomes applicable to any company ____________________.

a) its holding and subsidiary companies will also have to adopt Ind AS (subject to their
turon over).
b) its holding and subsidiary companies will also have to adopt Ind AS (subject to their net
worth)
c) its subsidiary, associate and joint venture companies will also have to adopt Ind AS
(subject to their net worth).
d) its holding, subsidiary, associate and joint venture companies will also have to adopt Ind
AS (irrespective of their net worth).
e) None of the above
 QUESTION 19
Answer : (d) its holding, subsidiary, associate and joint venture companies will also
have to adopt Ind AS (irrespective of their net worth).

If IND AS become applicable to any company, then IND AS shall automatically be made
applicable to all the subsidiaries, holding companies, associated companies, and joint
ventures of that company, irrespective of individual qualification of such companies.
 QUESTION 20

Q. The total number of shares issued in market are 500. Earnings of company are
5000. The share options have been granted for 500 shares which will vest after 5
years. Calculate EPS
a) Rs 10
b) Rs 5
c) Rs 15
d) Rs 20
e) Rs 30
 QUESTION 20

Answer : (a) Rs 10

EPS = 5000 / 500 = Rs 10

NOTE: The shares granted as ESOP shall not be considered for calculating EPS till the time,
they are exercised
 QUESTION 21

Q. A machine was purchased by the company on 1st Jan,2010 in foreign currency. The
price of machine was 100$ and exchange rate was Re 50 for 1 $. In 2015, the exchange
rate is Re 60 = 1$. What shall be the value recorded in the balance sheet in 2015?
a) 6000
b) 5000
c) Average Cost of 5500
d) Either of 5000 or 6000
e) Either of 5000, 6000 or 5500
Answer : (B) 5000 Accounting for Foreign Currency Transactions

Subsequent Recognition of Foreign Exchange Transaction on

2
date of Balance sheet or on Settlement Date

Non- Monetary Items are Recorded at

Monetary Items are Recorded at exchange exchange rate which is on the date of their
rate which is closing rate or average rate if purchase (Historical cost) or on the date of
closing rate is not available calculation of fair value

Monetary items are money held and assets Non-monetary items are assets and liabilities
and liabilities to be received or paid in fixed or other than monetary items. For example -
determinable amount of money. For example - fixed assets, inventories, and investment in
cash, receivable and payable. equity shares. .

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 Accounting for Foreign Currency Transactions

Item Name Monetary/Non-Monetary

Machine Non-Monetary
Bills Payable Monetary
Loan payable Monetary
Debtors Monetary
Land, Property, Equipment Non-Monetary
Inventory Non-Monetary
Investment in Shares Non-Monetary
Pension Payable Monetary
Provisions to be settled in Cash Monetary

Cash dividends to be paid Monetary

Debt Securities Monetary

Good will, Intangible Asset Non-Monetary

Right-of-use assets Non-Monetary

provisions that are to be settled by the Non-Monetary

delivery of a non-monetary asset
 QUESTION 22

Q. Land was reported at its market price which is substantially higher than its cost.
The increase in value was included in the income statement, which accounting
principle is violated ?
a) Materiality Principle
b) Going Concern Concept
c) Entity Concept
d) Conservatism
e) Money Measurement
 QUESTION 22

Answer : (d) Conservatism

The concept of conservatism provides guidance for recording transactions so that conscious
approach can be adopted in ascertaining income so that profits of the enterprise are not
overstated. Recording of the increase in the value in the income statement will overstate the
profits and hence, the concept is violated.
 QUESTION 23

Q. Match the following

(A) AS 26 (i) Impairment of Assets
(B) AS 10 (ii) Discounting operations
(C) AS 28 (iii) Intangible assets
(D) AS 24 (iv) Accounting for Property Plant and Equipment
a) (A) – (iii), (B) – (iv), (C) – (ii), (D) – (i)
b) (A) – (ii), (B) – (iv), (C) – (i), (D) – (ii)
c) (A) – (ii), (B) – (iv), (C) – (iii), (D) – (i)
d) (A) – (iii), (B) – (iv), (C) – (i), (D) – (ii)
e) None of the alternatives are correct
 QUESTION 23

Answer : (d) (A) – (iii), (B) – (iv), (C) – (i), (D) – (ii)

The correct order is - (A) – (iii), (B) – (iv), (C) – (i), (D) – (ii)
 QUESTION 24

Q. If unexpired insurance appears in the Trial Balance, it should be

________________________.
a) Credited to the Profit & Loss Account
b) Debited to the Profit & Loss Account
c) Shown on the liabilities side of the Balance Sheet
d) Shown on the assets side of the Balance Sheet
e) Both A and D
 QUESTION 24

Answer : (d) Shown on the assets side of the Balance Sheet

Unexpired insurance or prepaid insurance must be shown on the assets side of the Balance
Sheet, because it is an asset. It cannot be shown on the liabilities side of the Balance Sheet.
It cannot be debited to Profit & Loss A/c. Also it cannot be credited to Profit & Loss A/c.
Hence (d) is true
 QUESTION 25

Q. A company took a loan in foreign currency of 100$ on 1st Jan when the exchange
rate was 1$ = Re 50. Then on 31st March the exchange rate is 55$. Which account
would be debited on 31st March to account for Exchange Difference
a) Foreign Creditor A/c
b) Profit and Loss A/c
c) Bank A/c of company
d) Foreign Currency A/c
e) Suspense A/c
 QUESTION 25

Answer : (b) Dr. of Profit and Loss A/c

When Loan is Taken On 31st March

Bank A/c Dr. 5000 Foreign Exchange Diff (loss) Dr. 500
To Foreign Creditor 5000 To Foreign Creditor 500

Profit and Loss A/c 500

To Foreign Exchange Diff 500