Financial accounting and analysis

chapter 1 – MCQ’s
REFER ALL ACCOUNTING TERMS AND FINANCIAL STATEMENTS PG.5 FROM TEXTBOOK

!) The group of users of accounting information charged with achieving the the goals of the business is its
………..

1) auditors
1) Investors
2) Managers
3) Creditors

2) Which of the following groups uses accounting information to determine whether the company can pay its
obligations?

1) Investor in common stock

2) Marketing managers
3) Creditors
4) Chief financial officer

3) Which of the following groups uses accounting information to determine whether the company’s net
income will result in its stock price increase?

1) Investor in common stock

2) Marketing managers
3) Creditors
4) Chief financial officer

4) which of the following is the most appropriate and modern definition of accounting?

1) The information system that identifies, records and communicates the economic evets of an
organisation to interested users.
2) A means of collecting information
3) The interconnected network of sub-systems necessary to operate a business
4) Electronic collection, organization and communication of vast amounts of information

5) The common characteristics possessed by all assets is _______

1) long life
2) Great monetary value
3) tangible nature
4) future economic benefit

6) Resources owned by a business are preferred to as ______

1) Owners equity
2) Liabilities
3) Assets
4) Revenue

7) Debts and obligations of a business are referred to as ________

1) Assets
2) Equity
3) Liabilities
4) Expenses
Financial Accounting And Analysis
 Chapter – 2

1] To maintained the accounting record & all the accounts kept together is called as

a) Journal

b) Ledger

c) Subsidiary books

d) Financial statements

2] How many effects on the accounting equation

a) Single / One effect

b) Dual / Two effect

c) Triple / Three effect

d) None of above

3] A purchase a furniture / Building/ car for Rs.60 lac making a down payment of Rs.15 lac and
signing a Rs.45 lac bill payable due in 6 months. As a result of this transaction –

a) Total assets increased by Rs.5 lac.

b) Total liabilities increased by Rs.4 lac.

c) Total assets increased by Rs.4 lac.

d) Total assets increased by Rs.45 lac with corresponding increase in liabilities by

Rs.45 lac.

4] Capital brought in by the proprietor is an example of –

a) Increase in asset and increase in liability equity

b) Increase in liability and decrease in assets

c) Increase in assets and decrease in liability

d) Increase in one assets and decrease in another assets.

5] A Transaction results in a Rs.190,000 decrease in both assets and liabilities. The transaction
could have been a –

a) Repayment of bank loan of Rs.190,000

b) Collection from debtors of Rs.190,000

c) Purchase of an item of equipment for Rs.190,000

d) Sale of an item of equipment for Rs.190,000

6] The liabilities of a firm are Rs.2 Lac. The capital of the proprietor is Rs.3 lac. The total assets
are

a) Rs.3 lac

b) Rs.5 lac

c) Rs.2 lac

d) Rs.1 lac

7] The assets of business as on 31st Mar are worth Rs.8 lac & its capital is Rs.5 lac. Its liabilities
on that date shall be

a) Rs.13 lac

b) Rs.8 lac

c) Rs.5 Lac

d) Rs.3 lac

8] The accounting equation states that

a) Capital = Assets + Liabilities

b) Assets = Liabilities + Capital

c) Assets = Liabilities – Capital

d) Liabilities = Assets + Capital

9] The Owner’s equity [i.e.Capital] shall stand increased by

a) Proprietor’s drawings

b) Purchasing furniture on credit

c) Profit earned during the accounting year

d) Creditors payment

10] Solve the below transaction by using the Accounting equation

The starting capital – Rs.5 lac

Purchased goods for cash Rs.1 lac

Purchased goods on credit Rs.1 lac

Paid salaries Rs.90 Thousand

 Solution

Sr.No. Transaction Assets (Rs.) = Liabilities (Rs.) + Capital (Rs.)

1 Starting Capital 5,00,000 5,00,000

2 Purchased goods for cash 5,00,000 5,00,000
Rs.1,00,000
3 Purchased good on credit 6,00,000 1,00,000 5,00,000
Rs.1,00,000
4 Salaries paid Rs.90,000 5,10,000 1,00,000 4,10,000

11] Classification of accounts

a) Assets accounts

b) Liability & capital accounts

c) Expenses & Income accounts

d) All of these

12] What are the types of accounts

a) Personal account

b) Real account

c) Nominal account

d) All of these

13] What is the rule of Personal accounts

a) Debit the receiver & credit the giver

b) Debit what comes in & credit what goes out

c) Debit all expenses & losses & credit all incomes & gains

d) None of these

14] What is the rule of Real accounts

a) Debit the receiver & credit the giver

b) Debit what comes in & credit what goes out

c) Debit all expenses & losses & credit all incomes & gains

d) None of these

15] What is the rule of Nominal accounts

a) Debit the receiver & credit the giver

b) Debit what comes in & credit what goes out

c) Debit all expenses & losses & credit all incomes & gains

d) None of these

16] Customers, Suppliers, lenders & Bankers fall in which category

a) Real accounts

b) Personal accounts

c) Nominal accounts

d) Non of these

17] Land, Buildings, Investment, Fixed deposits, Cash balance & Furniture fall in which category

a) Real accounts

b) Personal accounts

c) Nominal accounts

d) Non of these

18] Salary paid, Interest paid, Commission received, Advertisement exp. etc fall in which category

a) Real accounts

b) Personal accounts

c) Nominal accounts

d) Non of these

19] Principal book called as

a) journal

b) Accounting transaction

c) Accounts

d) Ledger

20] Subsidiary book called as

a) Journal

b) Ledger

c) Account
d) Non of these

21] The process of entering the transactions in the journal is called

a) Journal

b) Journalizing

c) Subsidiary book

d) Principal book

22] Transactions are first recorded in the books are called as

a) Subsidiary book

b) Ledger

c) Journal

d) Purchase book

23] Commonly used books in subsidiary books are

a) Cash book

b) Purchase & Purchase return book

c) Sales & sales return book

d) All of these

24] Rent account is a

a) Nominal account

b) Personal account

c) Real account

d) Liability account

25] Salary outstanding account is a

a) Personal account

b) Nominal account

c) Real account

d) Assets account
26] Bank account is a

a) Real account

b) Personal account

c) Nominal account

d) Cash account

27] Loss on account of fire is a

a) Real account

b) Nominal account

c) Personal account

d) Fire account

28] In case of balance sheet accounts

a) Decrease in assets accounts are recorded by debits

b) Increase in assets accounts are recorded by credit

c) Decrease in liability accounts are recorded by debits

c) Increase in liability accounts are recorded by debits

29] Which of the following statements relating to revenue & expenses accounts is not correct?

a) Revenue accounts have debit balance

b) Expenses accounts have debit balance

c) Expenses are recorded as debits in ledger accounts

d) Revenue are recorded as credits in ledger accounts

30] Choose the incorrect answer

a) Drawings are withdrawals by the owners from the business

b) Drawings decrease the net income

c) Drawings decrease the owners capital

d) Drawings are not treat as business expenses.

31] A revenue account

a) is increased by debits
 b) is decreased by credits

c) has a normal balance of debit

d) is increased by credits

CHAPTER 3

Q1) What are the financial statements generally prepared by any business enterprise?

a) Income statement
b) Balance sheet
c) Cash flow statement
d) All of the above

Q2) Which statement is first component of financial statements?

a) Balance sheet
b) Cash flow statement
c) Income statement
d) Statement of changes in Equity

Q3) Income statement is also known as

a) Statement of basic income

b) Profit and Loss Statement
c) Cash flow statement
d) Net income and expense statement

Q4) The income statement is drawn up from the figures in the

a) Debtors Ledger
b) Creditors Ledger
c) Cash flow statement
d) Trial balance

Q5) A financial statement that summarizes company revenue and expenses is

a) Balance sheet
b) Statement of owner equity
c) Income statement
d) Cash flow statement

Q6) Which one of the following tangible fixed assets would not normally be depreciated?

a) Building
b) Land
c) Machinery
d) Equipment

Q7) Which financial statement presents a summary of the Assets, Liabilities, and Owners’ Equity of a
firm?

a) General Ledger
b) Work sheet
c) Balance sheet
d) Cash flow statement

Q8) Balance sheet shows the financial position of an entity

 a) For a year
b) For a month
c) On a particular date
d) For a particular period

Q9) Which of the following statements is incorrect?

a) Liabilities + Assets = Capital

b) Assets – Liabilities = Capital
c) Liabilities + Capital = Assets
d) Assets – Capital = Liabilities

Q10) Long term assets having no physical existence but, possessing a value are called

a) Intangible assets
b) Fixed assets
c) Current assets
d) Investments

Q11) The assets that can be easily converted into cash within a short period, i.e., 1 year or less are
known as

a) Fixed assets
b) Investments
c) Current assets
d) Intangible assets

Q12) Copyrights, Patents and Trademarks are

a) Current assets
b) Tangible assets
c) Investments
d) Intangible assets

Q13) The debts which are to be repaid within a short period (a year or less) are referred to as

a) Contingent liabilities
b) Fixed liabilities
c) Current liabilities
d) All of the above

Q14) The debts which are to be repaid after 3-4 years referred to as

a) Current liabilities
b) Long term liabilities
c) Fixed liabilities
d) None of the above

Q15) Which of the following is recorded under long term liabilities section of the balance sheet?

a) Creditors
b) Dividend payable
c) Debentures
d) Outstanding expenses

Q16) Sources of funds for an enterprise are reflected on the

a) Income side of profit and loss account

b) Expense side of profit and loss account
c) Liability side of Balance sheet
 d) Asset side of Balance sheet

Q17) Which of the following is incorrect about company’s balance sheet

a) It displays the sources and uses of cash

b) It displays the sources and uses of funds
c) It is an expansion of basic accounting equation: Assets= Liabilities + Qwner’s Equity
d) It is also referred as statement of financial position

Q18) The balance sheet

a) Summarizes the changes in retained earnings for a specific period of time

b) Reports the changes in assets, liabilities and stockholder’s equity over a period of time
c) Reports the changes in assets, liabilities and stockholder’s equity at a specific
date
d) Presents the revenues and expenses for a specific period of time

Q19) Which of the following is not regarded as the fundamental concept?

a) Going concern concept

b) Dual aspect concept
c) Business entity concept
d) Correction concept

Q20) The allocation of owner's private expenses to his/her business violates which of the following?

a) Cost concept
b) Going concern concept
c) Separate business entity concept
d) None of the above

Q21) The going concern concept assumes that

a) The entity continue running until the end of accounting period

b) The entity will close its operating in 10 years
c) The entity can't be liquidated
d) The entity continue running for foreseeable future

Q22) According to money measurement concept which of the following will be recorded in the books
of account?

a) Health of Chairman of company

b) Quality control in business
c) Value of a building
d) All of the above

Q23) The dual aspect concept means that

a) When a transaction is recorded in the accounting system, there are at least two
effects on the accounting equation
b) Both parties to a transaction have to record the transaction
c) Both the income statement and the balance sheet are affected by the transaction
d) One account increases and the other account decreases as a result of the transaction

Q24) The basic accounting equation is

a) Capital + Assets = Liabilities

b) Capital = Assets + Liabilities
c) Capital + Liabilities = Assets
d) All of the above
Q25) Profit and loss Account discloses:

a) Gross profit
b) Gross profit or Gross loss
c) Gross profit or Gross loss
d) None of these

Q26) The income statement shows

a) Cash balance at the end of period

b) Contributions by the owner during the period
c) Revenues earned during the period
d) Profit earned or loss incurred during the period

Q27) Which of the following statement is incorrect?

a) Net income is reported by an entity for a period of time

b) Net income increases the owner’s capital
c) Net income is equal to revenue minus expenses
d) Net income is equal to revenue minus the sum of expenses and drawings

Q28) Using “lower of cost and net realisable value(Market Value)” for the purpose of inventory
valuation is the implementation of which of the following concepts?

a) Going concern concept

b) Matching concept
c) Conservatism concept
d) Accrual concept

Q29) Revenue is considered as being earned on the date at which it is realised

a) Money measurement concept

b) Cost concept
c) Consistency concept
d) Realization concept

Q30) What is the underlying concept that supports the immediate recognition of an estimated loss?

a) Substance over form

b) Consistency
c) Matching
d) Conservatism

Q31) A businessman purchased goods for Rs. 2,500,000 and sold 80% of such goods during the
accounting year ended March 31, 2016. The market value of remaining goods was Rs. 400,000. He
valued the closing stock at Rs. 500,000. He violated

a) Money measurement concept

b) Accounting standard for revenue recognition
c) Accounting standard for valuation of inventory
d) Periodicity concept

Q32) According to which of the following concepts, for determining the net income from business, all
costs which are applicable to revenue of the period should be charged against that revenue?

a) Cost concept
b) Dual aspect concept
c) Materiality concept
d) Matching concept
Q33) A purchased goods for Rs. 1,500,000 and sold 4/5 th of the goods for Rs. 1,800,000 and met
expenses amounting to Rs. 250,000 during the year 2015. He counted the net profit as Rs. 350,000 .
Which of the accounting concepts was followed by him?

a) Entity
b) Periodicity
c) Matching
d) Conservatism

Q34) The determination of expenses for an accounting period is based on the principle of

a) Objectivity
b) Materiality
c) Matching
d) Periodicity

Q35) Showing purchased office equipments in financial statements is the application of which
accounting concept?

a) Historical cost convention

b) Materiality
c) Prudence
d) Matching concept

Q36) The inventories are recorded at the latest price but the production cost is changed old cost
price?

a) FIFO method
b) Average
c) Both a and b
d) None of the above

Q37) The latest cost of inventories is changed to production but the old prices are changed to
inventories on hand?

a) Average
b) FIFO method
c) LIFO method
d) All of the above

Q38) Regardless of how long it takes to produce and sell inventory, inventory is always considered to
be a?

a) Current asset
b) Current liability
c) Long term assets
d) Stockholder’s equity

Q39) Two criteria are required for a firm to recognize revenue under accrual accounting. One is that
the revenue must be earned and the other is that it must:

a) Be paid before earning

b) Have received cash
c) Be recognized
d) Nine of the above

Q40) Which of the following is not a current asset

a) Supplies
b) Land
 c) Accounts Receivable
d) Prepaid insurance

Q41) Which principle/guideline justifies a company violating an accounting principle because the
amounts are immaterial?

a) Conservatism
b) Going concern
c) Cost concept
d) Materiality

CHAPER – 4 PREPARATIONS OF FINANCIAL STATEMENTS

1) After the transactions posted in ledger, a statement showing debit & credit balances separately
that statement is called ------

a) Profit & loss statement

b) Trial balance

c) Bank reconciliation statement

d) Balance sheet

b) Trial balance

2) Which agreement implies that the accounting work is free from --------- errors?

a) Systematic error

b) Typing errors

c) Clerical errors

d) Compensating errors

c) Clerical errors

3) If debit & credit side does not match in the trial balance then the errors that has been committed
are as follows:

A) Debit amount is posted as a credit amount or vice- versa

b) Arithmetic mistakes in determining account balances

c) Errors in calculating totals of the trial balance

d) All of the above

d) All of the above

4) When any transaction has been failed/ forget to be entered in books of account that errors ----

a) Errors of commission

b) Errors of omission
c) Errors of principle

d) Compensating errors

b) Errors of omission

5) When the totaling of an account is incorrect or wrongly posted that errors are---

a) Errors of omission

b) Errors of commission

c) Errors of principle

d) Compensating errors

b) Errors of commission

6) A credit purchase might not recorded at all in the books is which type of errors –

a) Errors of commission

b) Errors of omission

c) Errors of principle

d) Compensating errors

b) Errors of omission

7) When any revenue expenditure treated as capital expenditure that errors are –

a) Errors of commission

b) Errors of omission

c) Errors of principle

d) Compensating errors

c) Errors of principle

8 Which one of the following items is not reported in the income statement ?

A) Salaries

B rent

C depreciation

D dividend

D dividend

9) Swati purchases a goods of Rs8800 from Raman is credited to his account as Rs8000, another
purchases 8000 from Ramu is credited to his account as Rs8800.Example of which error?

a) Errors of commission

b) Errors of omission

c) Errors of principle

d) Compensating errors

d) Compensating errors
10) For avoiding any delay the difference in trial balance transferred to which account –

a) Suspense account

b) Nominal account

c) Real account

d) Capital account

a) Suspense account

11) Rectifications of all errors will result in closure of ------ account

a) Suspense account

B Capital account

C prepaid account

D Nominal account

a) Suspense account

12) Any cost or a part of the cost whose benefits extend beyond the accounting period is treated as
----

A) Liabilities

B Equity

C) Assets

D) Capital

C assets

13 Which one of the following financial statements is generally prepared first?

A income statement

B balance sheet

C cash flow statement

D statement of retained earnings

A) Income statement

14) Sales revenue – cost of goods sold is -----

a) Gross profit

b) Net profit

c) Operating profit

d) None of the above

a) Gross profit

15) ---- is shown as a deduction from gross sales.

a) Income tax

B Goods & service tax

c prepaid tax

d accrued expenses

b Goods & service tax

16) Gross profit – operating expenses is ----

a) Gross profit

b) Net profit

c) Operating profit

d) None of the above

c) Operating profit

17 Administrative, selling & general expenses included in

A Operating expenses

B direct expenses

C indirect expenses

D none of the above

A Operating expenses

18 Non-operating income include

A Interest income

B Dividend income

C p & l on disposal of fixed assets

D all of the above

D all of the above

19 which tax is treated as a separate business expense?

A GST

B income tax

C Deferred tax

D None of the above

B income tax

20 Which one f the following items will not appear on a firm’s income statement?

A rent expense

B salaries

C insurance expense

D purchase price of furniture

D purchase price of furniture

21 A change in the owner’s capital is accompanied by a change in

A assets

B liabilities

C assets or liabilities

D none of the above

C) assets or liabilities

22 Adjustment needed to convert assets into expenses that are-

A Prepaid expense

B depreciation & amortization

C both

D none of the above

C both

23 ---- is a charge for the expiry of benefits from intangible assets.

a Depreciation

B Amortization

C none of the above

D both

B Amortization

24 Amortization includes ----

A Goodwill

B none of the above

C patents

D both b & c

D both a & c

25 Which accounts are temporary accounts as these are not carried forward to next accounting year.

a Revenue

B expenses

C none of the above

D both a & b

D both a & b

26 post closing trial balance is -

A prepared after closing the revenue & expense accounts

B consist only those account that appears in b/sheet

C none of the above

D both a & b

D both a & b

27 A firms received a rental income of rs50,000, during a year. It wrongly recorded it as rental
expense. what is the effect of this error on the firms income?

A (-50000)

B +50000

C +100000

D (-100000)

D -100000

28 Formula of COGS (cost of goods sold) =

A opening stock + purchases – closing stock

B opening stock + purchases (net of returns) + expenses – closing stock

C opening stock + purchases+ expenses – closing stock

D none of the above

B opening stock + purchases (net of returns) + expenses – closing stock

29 -------- keeps a detailed record of each inventory purchase & sale.

A purchase book

B periodic inventory system

C perpetual inventory system

D none of the above

C perpetual inventory system

30 Maintenance cost & security expenses part of ----- cost?

A administrative expenses

B Selling expenses

C General expense

D none of the above

C General expense

31 -------doesn’t keep a detailed record of inventory on hand.

A Balance sheet

B periodic inventory system

C perpetual inventory system

D none of the above

B periodic inventory system

32 calculate gross profit , operating profit & net profit from the following information?

Sales = 5,00, 000 Cogs = 285000 , salaries & benefits = 26000, rent & overhead = 16000 ,
depreciation = 6000 , Interest expense 5000 , Tax expense = 2000

A Gross profit = 211500

B Gross profit = 215000

C Gross profit = 251000

D Gross profit = 215500

B Gross profit = 215000

33 Net profit calculate

A Net profit= 1, 60,000

B Net profit= 1, 50, 000

C Net profit= 1, 55,000

D Net profit= 162000

A Net profit= 1, 60,000

34 Operating profit calculate-

A Operating profit 1,67,000

B Operating profit 161000

C Operating profit 1,35,000

D Operating profit 176000

A Operating profit 1, 67, 000

35 unearned income means

A Part of the payment received, which has not been earned at the end of the accounting year

B Part of the payment received, which has been earned at the end of the accounting year

C none of the above

D payment received, which has been earned at the end of the accounting year

A Part of the payment received, which has not been earned at the end of the accounting year

CHAPTER 5

1) Accounting Standards Board of India was established in the year

a)1970
b)1972
c)1977
d)1979
 c)1977

2) Accounting Standard board of India was set up by –

a) IFRS
b) ICAI
c) IGAAP
d) SEBI
b) ICAI (Institute of Chartered Accountants of India) - responsible
for putting all the accounting principles.

3) How many mandatory accounting standards are there in India?

a) 27
b) 29
c) 35
d) 39
b) 29
4) Who act as a whistleblower in an organization?
a) Auditor
b) Creditor
c) Employees
d) Shareholder
a) Auditor (Internal and External both auditors can be
whistleblower)

5) What is the full form of ASB?

a) Accounting Standards Bureau
b) Accounting Standards Bulletin
c) Accounting Standards Board
d) None of the above
c) Accounting Standards Board

6) The purpose of Accounting Standards is to –

a) To make financial statements more comparable
b) To ensure uniformity in accounting policies
c) To guide the judgement of professional accountants
d) All of the above
 d) All of the above.

7) Income tax raid can be initiated by ICAI

a) True
b) False
a) True

8) How many layers of procedure are there for issuing Accounting Standards?
a) Two
b) Three
c) Four
b) Three – There are three layers of procedure i.e. – Accounting
standard board (ASB), National Financial Reporting Authority
(NFRA) and Central Government Ministry of Finance.

9) Ind AS stands for?

a) Indian Financial Reporting Standard
b) International Financial Reporting Standards
c) International Accounting Standards
d) Indian Accounting Standards
d) Indian Accounting Standards

10) If a Company follows Accounting Standards, can it ignore what is given in Company’s Act 2013?

a) Yes
b) No

b) No. Both need to align to each other ( As per section 129 of Companies
Act, 2013 – The financial Statements have to comply with the accounting
standards – Which is also notified under section 133 of Companies act,
2013 to mandatory follow this)

11) As per Indian GAAP financial statements are presented at:

A) Market Value
B) Fair value
C) Cost
D) None of the above.

b) Fair Value
12) Which one of the following is not a consideration in selection of accounting policies?

a) Prudence
b) Substance over form
c) Materiality
d) Full Disclosure

d) Full disclosure

13) As per Sub-section 5 of Section 129, what all disclosures a company required when the financial
statements of a company do not comply with the accounting standards –

a) Deviation from the accounting standards

b) The reasons for such deviation

c) The financial effects, if any, arising out of such deviation

d) All of the above.

d) All of the above

14) The directors are required to attach “Directors” Responsibility statement’ to the report of Board
of Directors that is to place before the company in General Meeting. Is the following statement,
correct?

a) True

b) False

a) True – as per sub-section 3 of Section 134 it is mandatory

15) Which of the following disclosures does a company need to make if its financial statements do
not comply with the accounting standards?

a) Deviation from the accounting standards

b) The reasons for deviation from the accounting standards

c) The financial effects of deviation from accounting standards

d) All of the above

d) All of the above

16) Which Schedule of the Companies Act, 2013 prescribes the forms in which the financial
statements are required to be prepared?

a) Schedule II

b) Schedule VI
 c) Schedule III

d) None of the above

c) Schedule III

17) Cash Flow Statements has to be prepared as per which Accounting Standard –

a) AS 2

b) AS 4

c) AS 3

d) AS 5

c) AS 3

18) Contingencies are events which may or may not happen in Business for example – Legal Dispute ,
they will be shown below in notes to account but they will not be shown in Financial Statements.
This rule is followed as per which Accounting standard –

Answer – Accounting Standard – 4

19) All the aspects of Depreciation and Fixed Asset account are followed as per –

Answer – Accounting Standard 10 (revised)

20) IFRS Stands for –

a) International Financial Reporting Standards

b) Indian Financial Reporting Standards

c) Indian Federal Reporting Standards

d) International Financial Report Structure

a) International Financial Reporting Standards

21) ICAI and MCA (Ministry of Corporate Affairs) decided to –

a) adopt the IFRS

b) recreate the Accounting Standard

c) converge with IFRS

d) differ on their mandates

d) differ on their mandates

22) International Accounting Standard Board (IASB) was established in the year -

a) 1977

b) 2001

c) 2013

d) 2019

b) 2001

23) The accounting standards are mandatory for –

a) Sole trader

b) Firms

c) Companies

d) Societies

c) Companies

24) Accounting standards and Accounting Principles is one and the same thing

a) True

b) False

b) False

25) All listed and unlisted companies having a net worth above Rs ____ crore are required to follow
the new accounting standards.

a) 300

b) 500

c) 700

d) 600

b) 500 crores

CHAPTER 6 FINANCIAL REPORTING STANDARDS II

MCQ’S
1) GAAP STANDS FOR …
a- GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
b- GENERALLY AGREED ACCOUNTING PROTOCOLS
c- GENERALLY ACCOUNTING ACCREDITATION PROTOCOLS
d- GENERALLY ACCEPTED ACCOUNTING PROTOCOLS

2) IFRS STANDS FOR…

a- INDIAN FINANCIAL REPORTING STANDARDS
b- INTERNATIONAL FUND REPORTING STANDARDS
c- INTERNATIONAL FINANCIAL REPORTING STANDARDS
d- INDIAN FINANCIAL REPORTING STANDARDS

3) THE SOURCES OF GAAP INCLUDE _____, INDIAN ACCOUNTING STANDARDS AND

PROCUREMENTS OF ACCOUNTING PROFESSION.
a- INDIAN CONTRACT ACT
b- PARTNERSHIP ACT
c- COMPANIES ACT 2013
d- BUSINESS CORPORATION ACT

4) COMPANIES VOLUNTARILY AFOPT _______ FOR FINANCIAL REPORTING.

a- ICAI RULES
b- INDIAN GAAP
c- IND AS
d- IFRS

5) IFRS ARE COMMON ACCOUNTING RULES FOR _____.

a- MARKETING BUDGET
b- FINANCIAL REPORTING
c- INDIAN FIRMS
d- BSE AND NSE

6) BASED ON WHICH OF THE FOLLOWING INVESTORS CAN COMPARE FINANCIAL

STATEMENTS OF COMPANIES LOCATED IN DIFFERENT COUNTRIES AND DECIDE WHERE TO
INVEST MONEY?
a- IND ANS
b- ICAI RULES
c- INDIAN GAAP
d- IFRS

7) WHAT ARE THE ADVANTAGES OF ADOPTING IFRS?

a- TO COMPARE FINANCIAL STATEMENTS
b- TO RAISE MONEY
 c- INCREASE IN FOREIGN INVESTMENTS
d- ALL OF THE ABOVE

8) IFRS ARE _____ BASED RATHER THAN _____ BASED THAT CAN BE ADAPTED TO SPECIFIC
BUSINESS CONDITIONS IN A COUNTRY.
A- PRINCIPLE BASED, RULE BASED
B- LAW BASED, GOVERNMENT BASED
C- RULE BASED, PRINCIPLE BASED
D- NONE OF THE ABOVE

9) IAS STANDS FOR…

a) INDIAN ACCOUNTING STANDARDS
b) INDIAN ADOPTED STANDARDS
c) INTERNATIONAL ADOPTED STANDARDS
d) INTERNATIONAL ACCOUNTING STANDARDS

10) SIC STANDS FOR…

a) STANDING INTERPRETATIONS COMMITTEE
b) STANDING INDEPENDENT COMMITTEE
c) STANDARD INTERPRETATIONS COMPANY
d) STANDARD INDEPENDENT COMPANY

11) IFRIC STANDS FOR…

a) INTERNATIONAL FINANCIAL REPORTING INTERPRETATIONS COMPANY
b) INDIAN FINANCIAL REPORTING INTERPRETATIONS COMPANY
c) INDIAN FINANCIAL REPORTING INTERPRETATIONS COMMITTEE
d) INTERNATIONAL FINANCIAL REPORTING INTERPRETATIONS COMMITTEE

12) ASB STANDS FOR…

a) ACCOUNTING STATEMENT BOARD
b) ACCOUNTING STANDARDS BOARD
c) ACCOUNTING SOLUNTIN BOARD
d) ACCOUNTING SPECIFIC BOARD

13) THE PURPOSE OF GAAP IS TO ENSURE THAT THE INFORMATION PROVIDED IN FINANCIAL
STATEMENTS IS RELIABLE AND UNDERSTANDABLE TO THE USERS. TRUE OR FALSE

14) THE GAAP KEEP CHANGING FROM TIME TO TIME AS THE CIRCUMSTANCES OR THE
INFORMATION NEEDS OF THE USERS CHANGE. TRUE OR FALSE
15) THE COMPANY WHOSE NET WORTH IS BETWEEN 250 CRORES & 500 CRORES MUST
IMPLEMENT IFRS FROM 1ST APRIL 2017. TRUE OR FALSE.

16) A CHANGE IN THE METHOD OF DEPRECIATION IS SIMILER WITH REGARDS TO IFRS & IND
AS. TRUE OR FALSE.

17) IND. AS IS MORE OR LESS COVERED WITH IFRS. TRUE OR FALSE.

18) IND. AS PARTY DISCLOSURES ARE DISCLOSED IN AGGREGATE. TRUE OR FALSE.

19) IN YEAR ____ THE ICAI COMMENCED THE PROCESS OF DEVELPOING A COMPLETE SET OF
ACCOUNTING STANDARDS THAT ARE CONVERGED WITH IFRS.

a) 2007
b) 2009
c) 2010
d) 2005

20) Ind. As HAVE CERTAIN MODIFICATIONS TO IFRS TO REFLECT ____.

a) INDIAN COMMITTEES
b) INDIAN CONDITIONS
c) INDIAN COMPANIES
d) INDIAN ECONOMIC CHANGES

21) INSTEAD OF ADOPTING, INDIA HAS DECIDED TO COVERAGE ITS ACCOUNTING

STANDARDS WITH___.
a) IFRS
b) ICAI
c) IAS
d) IASB

22) MEMBERS OF THE ACCOUNTING STANDARD BOARD INCLUDE ____.

a) REPRESENTATIVES FROM SEBI
b) REPRESENTATIVES FROM RBI
c) REPRESENTATIVES FROM CII
d) ALL OF THE ABOVE

23) WHO IS RESPONSIBLE FOR DRAFTING, REVIEWING AND IMPLEMENTATION OF IFRS?

a) INDIAN ACCOUNTING STANDARD BOARD
b) INDIAN FINANCIAL STANDARD BOARD
c) INTERNATIONAL ACCOUNTING STANDARD BOARD
d) INTERNATIONAL FINANCIAL STANDARD BOARD

24) ______ HELPS TO BRIDGE THE GAP BETWEEN INDIAN GAAP AND IFRS?
 a) ICAI RULES
b) IND. AS
c) BOTH A & B
d) NONE OF THE ABOVE

25) TERM “MATERIAL” IS DEFINED AND PRESENTED IN THE FINANCIAL STATEMENTS ARE
SIMILAR IN ____.
a) IFRS
b) IND. AS
c) ONLY A
d) BOTH A & B

26) AN ACCOUNTING STANDARD THAT REDUCES THE VALUE OF AN ASSET?

a) IMPAIRTENT
b) IMPAIRMENT
c) BOTH A & B
d) ONLY B

27) ____ IS THE SET OF CONVENTIONS, RULES AND PROCEDURES THAT DEFINE THE
ACCEPTED ACCOUNTING PRACTICE AT A PARTICULAR TIME.
a) IFRS
b) IND.AS
c) ICAI
d) GAAP

28) IFRS WAS IMPLEMENTED IN INDIA ON______.

a) 1st APRIL 2015
b) 1ST JANUARY 2015
c) 1ST DECEMBER 2015
d) 1ST MARCH 2015

29) THE COMPANY WHOSE NETWORTH IS 500CRORES OR MORE MUST IMPLEMENT IFRS
FROM_____.
a) 1st January 2016
b) 1st APRIL 2016
c) 1ST MARCH 2016
d) 1ST DECEMBER 2016

30) THE COMPANY WHOSE NETWORTH IS LESS THAN 500 CRORES MUST IMPLEMENT IFRS
FROM_____.
a) 1st APRIL 2015
b) 1ST APRIL 2016
c) 1ST APRIL 2017
 d) 1ST APRIL 2018

31) IND. AS INCLUDE SET OF FINANCIAL STATEMENTS SUCH AS ___,

a) BALANCE SHEET
b) PROFIT & LOSS A/C
c) CASH FLOW STATEMENTS
d) ALL OF THE ABOVE

32) A FINANCIAL STATEMENT WHICH SHOWS A CHANGE IN EQUITY IS NOT REQUIRED TO

RECORD AS PER _____
a) INDIAN GAAP
b) IFRS
c) ICAI
d) IND. AS

33) A FINANCIAL STATEMENT WHICH SHOWS A CHANGE IN EQUITY ARE RECORDED AS A

PART OF BALANCE SHEET AS PER _____.
a) INDIAN GAAP
b) IFRS
c) IND. AS
d) BOTH B & C
34) THE REVENUE GENERATED FROM GROSS INFLOW OF CASH IS DEFINED BY ________.
a) ICAI
b) IFRS
c) IND.AS
d) INDIAN GAAP

35) THE IFRS USE ______ METHOD TO MEASURE REVENUE.

a) EFFICIENT INTEREST
b) ECONOMIC INTEREST
c) EFFECTIVE INTEREST
d) ECOLOGICAL INTEREST

36) THE _____ INTRODUCES THE CONCEPT TO RECORD EXTRA ORDINARY ITEMS IN
FINANCIAL STATEMENTS.
a) IFRS
b) INDIAN GAAP
c) ICAI
d) IND.AS

37) OPERATING SEGMENTS ARE IDENTIFIED IN ____.

A) IFRS
B) IND. AS
 C) INDIAN GAAP
D) BOTH A & B

38) IFRS REQUIRE DISCLOSURE OF INFORMATION ABOUT THE MANAGEMENT OF CAPITAL AND
COMPLIANCE WITH CAPITAL REQUIREMENT. TRUE OR FALSE

39) IND. AS INCLUDES ILLUSTRATIVE FORMATS FOR PRESENTATION OF FINANCIAL

STATEMENTS. TRUE OR FALSE.

40) IFRS COMPRISES OF TWO SERIES OF STANDARDS AND TWO SERIES OF

INTERPRETATIONS. TRUE OR FALSE.

FINANCIAL ACCPUNTING & ANALYSIS

CHAPTER 7-

1. A financial statement that summarizes company revenue and expenses

is?
(a) Balance sheet

(b) Statement of owner equity

(c) Income statement

(d) Cash flow statement

2. Which one of the following tangible fixed assets would not normally be
depreciated?
(a) Buildings

(b) Machinery

(c) Land

(d) Equipment

3. Which financial statement presents a summary of the Assets, Liabilities,

and Owners' Equity of a firm?
(a) General ledger
(b) Work sheet

(c) Balance sheet

(d) Cash flow statement

4. Subtracting all expenses from revenues yields?

(a) Net profit/Loss

(b) Carrying value

(c) Long-term assets

(d) Net liabilities

5. A financial statement to show what a business owns and owes at a

particular point in time?
(a) A cash flow statement

(b) The bank statement for the business

(c) A balance sheet

(d) A statement of retained earnings

6. If the Gross profit is Rs. 5,000 and the net profit is 25% of the Gross
profit. The expenses must be?
(a) Rs. 3,750

(b) Rs. 1,250

(c) Rs. 4,150

(d) Rs. 6,250

7. A financial document that indicates the success or failure of a business

trading over a period of time is called?
(a) A cash flow statement
(b) A retained earnings statement

(c) An income statement

(d) A bank statement

8. The report of company that shows overall profit on the sale of their
goods or the provision of their services?
(a) Trading and Profit & loss account

(b) Cash flow statement

(c) Income Statement

(d) Both a and c

9. A company has, by the end of its financial period, paid out more Tax
than it has to pay. How would this be shown in the balance sheet?
(a) As an accrual Revenue

(b) As a Prepaid within current assets

(c) As a 'creditor due within one year'

(d) As a creditor due after more than one year'

10. Which of the following financial statements is also known as financial

condition?
(a) Balance Sheet

(b) Income Statement

(c) Statement of Cash flows

(d) Bank Statement

11) Which report gives a review on the profitability of a business?

(a) Statement of changes in equity
(b) Cash flow statement
(c) Balance sheet
(d) Income statement
12)When assets are subtracted from liabilities it will be equal to?
(a) Capital
(b) Net income
(c) Working capital
(d) Goodwill

13)P&L statement is also known as?

(a) Statement of earnings
(b) Statement of balance sheet
(c) Statement of operations
(d) Statement of income

14)Which of the following options is not recorded in the Balance sheet?

(a) Cash
(b) Rent expenses
(c) Building
(d) Goodwill

15)Current assets are also known as:

(a) Cash
(b) Assets
(c) Invested capital
(d) Working capital

16)The main operation expenses of a business are termed as:

(a) Operating expenses
(b) Non-administration expense
(c) Selling expenses
(d) Administration expense
17)Cash receipt received from the sales fixed assets are recorded under the head of:
(a) Other activities
(b) Investing activities
(c) Financing activities
(d) Operating activities

18)A current asset that can be transferred into cash within three months is known
as:
(a) Cash equivalent
(b) Intangible asset
(c) Operating asset
(d) Cash asset

19)A method used in a comparative analysis of financial statement is:

(a) Returning analysis
(b) Common size analysis
(c) Preference analysis
(d) Graphical analysis

20)Which statement shows the flow of cash and cash equivalents during the
financial period?
(a) Statement of changes in equity
(b) Cash flow statement
(c) Balance sheet
(d) Income statement

21) What does the term “credit” mean in business?

A) It depends upon items

B) Provides benefits

C) It has no effect on business

D) Receiving benefits
22) When a Liability is decreased or reduced, it is registered on the

A) Debit side or left side of the account

B) Credit side or right side of the account

C) Debit side or right side of the account

D) Credit side or left side of the account

23)The unfavourable balance of Profit and Loss account should be

A) Subtracted from liabilities

B) Subtracted from capital

C) Subtracted from current assets

D) Added in liabilities

24) Business is said to be in a profit when

A) Expenditure exceeds income

B) Income exceeds expenditure

C) Income exceeds liability

D) Assets exceed expenditure

25) Dividend is the disturbution of profit by a company to its?

a) employees

b) shareholders

c) Prefrencers
 FINANCIAL ACCOUNTING AND ANALYSIS

CHAPTER 8

1. Cash Equivalents are ______________ , highly liquid investmens that are readily convertible
into cash without much risk of loss.
a. Long term
b. Short term
c. Midterm

2. 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.

3. Statement of cash flows includes:-

a. Financing Activities
b. Operating Activities
c. Investing Activities
d. All of the Above

4. What information would you find in a statement of cash flow that you would not be able to
get from the other two primary financial statements?
a. Cash provided by or used in financial activities
b. Cash balance at the of the period
c. Total liabilities due to creditors at the end of the period
d. Net income

5. The two approaches to reporting cash flows provided by operating activities are?
a. Direct and indirect methods
b. The basic and standard methods
c. The gross margin and contribution margin methods
d. The liquidity and profitability methods
6. In preparing cash flows provided by operating activities using the indirect method, which of
the following items is added to net income?
a. Non-cash expenses such as depreciation
b. Gains on investing and financing transactions
c. Increases in current asset balances
d. Decreases in current liability balances

7. The primary purpose of the statement of cash flows is to?

a. Provide information about the investing and financing activities during a period
b. Prove that revenues exceed expenses if there is a net income
c. Provide information about the cash receipts and cash payments during a
period
d. Facilitate banking relationships

8. If a company purchased treasury stock with cash, this would be reported on the statement of
cash flows as?
a. An operating cash outflow
b. An investing cash outflow
c. A financing cash outflow
d. A financing cash inflow

9. The statement of cash flows does not include cash inflows and outflows for which of the
following activities?
a. Financing activities
b. Investing activities
c. Operating activities
d. Revenue activities

10. A company had a net income of Rs.1,65,000 during 2015. It provided for depreciation of Rs.
75,000 during the year. During the year, accounts receivable increased by Rs. 55,000 and
accounts payable increased by Rs. 25,000. The company’s cash flow from operating activities
was _______.
a. Rs. 3,20,000
b. Rs. 1,70,000
c. Rs. 2,10,000
d. Rs. 1,20,000
11. Decrease in the number of creditors results in ___________.
a. Increase in cash
b. Decrease in cash
c. Decrease in assets
d. No change in assets

12. Dividend paid is always classified as a/an ___________

a. Operating activity
b. Investing activity
c. Financing activity
d. None of the above

13. Which of the following is not a financing activity in the cash flow statement of a non-finance
company?
a. Issue of share
b. Payment of dividends
c. Receipt of dividends
d. Borrowing money from a bank

14. Which of the following would be considered a cash-flow item from a "financing" activity?
a. A cash outflow to the government for taxes
b. A cash outflow to repurchase the firm's own common stock
c. A cash outflow to lenders as interest
d. A cash outflow to purchase bonds issued by another company

15. Which of the following would not be considered a cash flow from “operating” activities?

a. Payments for the inventory

b. Interest received on loans
c. Tax payments
d. Payment of debt principle

16. Which of the following cash flow activities represents a non-cash financing transaction?
a. Purchase of goods for cash
b. Issue of shares
c. Sale of equipment for cash
d. Purchase of plant by issuing shares
17. Which of the following cash flow activities represent a non-cash investing transaction?
a. Purchase of goods
b. Issue of shares
c. Sale of equipment for cash
d. Exchange of plant assets

18. A decrease in the balance of Accounts Receivable.

a. Operating activities
b. Investing activities
c. Financing activities
d. Revenue activities

19. In 2015, a company purchased land for Rs. 3,75,000. The company also sold a building for
Rs. 9,50,000. The company’s cash flow from investing activity was ___________.

a. Rs. 46,50,000
b. Rs. 28,50,000
c. Rs. 28,00,000
d. Rs. 35,50,000

20. Cash flow on total assets is determined by dividing operating cash flow by average total
assets.

a. True
b. False

CHAPTER 9

MCQ

1) The financial statement helps in forecasting:

a. Prospects for future earnings.
b. Expected dividend.
c. Ability of the business to pay interest and debt.
d. All of the above.
ANSWER: d

2) Ratio Analysis of financial analysis that is used by:

a. Owner and proprietor.
 b. Wholesaler and retailer.
c. Investors and lenders.
d. Employer and employees.
ANSWER: c

3) Ratio Analysis is used to make:

a. Important financial decision.
b. Balance sheet.
c. Accounting equations.
d. Profit and loss account.
Answer: a

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
ANSWER: 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
ANSWER: d) All of the above

6) 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
ANSWER: d) All of the above

7) Ratio of ‘net sales’ to’ net Working Capital’ is:

a. W.C. turnover ratio
b. Profitability ratio
c. Liquidity ratio
e. none of the above
Ans. (a)

8) Ratio analysis is usually employed to assess of company:

a. Profitability.
b. Efficiency.
c. Financial condition of an enterprise.
d. All of the above.
Answer: d
9) The profitability ratios are used to check:
a. Shares of company.
b. Acceptable return for its owners.
c. Net profit.
d. Interest from bank.
Answer: b

10) Lack of adequate profitability adversely affects:

a. Liquidity of the company.
b. Ability to raise external financing.
c. Growth prospectus.
d. All of the above.
Answer: d

11) Widely used measures of profitability include:

a. profit margins.
b. Earnings per share (EPS)
c. Return on capital employed (ROCE).
d. Return on assets (ROA).
e. Return on equity (ROE).
f. All of the above.
Answer: F

12) Profit margins are used to analyse the profit made on:
a. net profit.
b. Per unit of sales.
c. Cash balance.
d. Expenses.
Answer: b

13) _______ Kinds of profit margins are generally used:

a. 1.
b. 2.
c. 3.
d. 4.
Answer: C.

14) Profit margins generally used are:

a. Gross profit margin.
b. Operating profit margin.
c. Net profit margin.
d. All of the above.
Answer: D.

15) Gross profit ratio is calculated as:

a. Gross profit/ sales *100.
b. Gross profit/Purchase *100.
 c. Net profit/Sales * 100
d. Net profit/Purchase *100.
Answer: a.

16) Gross profit is the difference between:

a. Purchase value and cost of goods sold.
b. Net profit and gross profit.
c. Purchase value and sales value.
d. Sales value and cost of goods sold.
Answer: D.

17) Companies enjoying a ___________ have high gross profit ratio:

a. Perfect market.
b. Monopoly.
c. Imperfect market.
d. Monopolistic
Answer: b.

18) ____________ is the profit before interest and tax:

a. Net profit ratio.
b. Gross profit ratio.
c. Operating profit ratio.
d. Earnings per share.
Answer: C.

19) Operating profit ratio is calculated as:

a. Profit before interest and tax/sales *100
b. Profit before interest and tax/Purchases* 100
c. Profit after interest and tax/Sales*100.
d. Profit after interest and tax/purchases*100hey.
Answer: a.

20) Earnings per share are the net income available:

a. On gross profit.
b. Profit before interest and tax.
c. Per equity share.
d. Preference dividend.
Answer: c

21) Earnings per share is calculated as:

a. Net profit / sales. *100
b. gross profit /Net profit.
c. Net profit. -100 /number of equity shares.
d. Net profit - preference dividend /Number of equity shares.
Answer: d

22) Return on equity depends on 3 factors, namely, profit margin, asset turnover, and:
a. Sales.
 b. Leverage.
c. Inventory.
d. Share capital.
Answer: b.

23) The _____________ relates the cost of goods sold to the average inventory:
a. Return on equity ratio.
b. Return on asset ratio.
c. Debtor’s turnover ratio.
d. Inventory turnover ratio.
Answer: d.
24) The debt collection. May increase or decrease between one period and another for a
number of reasons, except for any one of those mentioned below:
a. if credit is given to unsatisfactory customers.
b. earlier the business had a zero debt collection period.
c. Credit terms to an existing customer changes.
d. If there is no consistent follow up of overdue debts.
Answer: b.

25) The creditors turnover ratio shows the relations between:

a. Purchases and outstanding amount due to the creditors.
b. Debtors and creditors.
c. Creditors and sales.
d. creditors and profit margin.
Answer: a.

26) _________________ measure the length of time between purchase of inventory and
collection of cash from sales:
a. Cash to sales operating cycle.
b. Cash to cash operating cycle.
c. Cash to purchase operating cycle.
d. None of the above.
Answer: b

27) Short term solvency focuses on the ___________ Of the business:

a. Profit.
b. Shares
c. Inventory.
d. liquidity position.
Answer: D.

28) A company must have sufficient ________ to meet its short-term obligations:
a. Shares
b. Fixed assets.
c. liquid assets.
d. Profit margin.
Answer: c
29) Two important ratios used to measure short term liquidity are ________ and ______ :
a. Current ratio and quick ratio.
b. Gross profit ratio and net profit ratio.
c. Debt, equity ratio and interest coverage ratio.
d. Dividend payout ratio and dividend yield ratio.
Answer: a.

30) The current ratio of a company depends on a number of factors listed below, except one of
the following options:
a. volatility of the working capital requirement.
b. nature of company’s business.
c. Imminence of current liabilities.
d. long term investments of the company.
answer: D.

31) Acid test ratio is the other name of:

a. Current ratio.
b. Quick ratio.
c. Depth on equity ratio.
d. Return on investment ratio.
Answer: b.

32) If X = (current asset – stocks), (current liability), X is known as:

a. Quick ratio.
b. acid test ratio.
c. current ratio.
d. both option A and B.
answer: d

33) Which of the following would normally be included in the calculation of debt equity ratio:
a. Debentures
b. Preference shares
c. bank overdraft.
d. All of the above.
answer : d
34) Which of the following ratio is considered to assess the likely growth prospectus of the
company and whether the company is a low risk investment?
a. Earnings per share.
b. diluted earnings per share.
c. Price earnings ratio.
d. dividend yield.
Answer: c

35) Financial analysis of a business may not be able to achieve anyone of the following issue:
a. improve the profitability of the project.
b. Delineate the risk involved in the project.
c. highlight the salient factors that did to the greatest uncertainty
d. possibly suggest methods by which the risk might be reduced.
 Answer: a.

36) Which of the following financial ratios will be affected by an error in recording the value of
inventory in the financial statement?
I. Inventory turnover ratio.
II. Current ratio.
III. Earnings per share.
IV. Interest coverage ratio.

a. Option 1 only.
b. Option 1 and 2.
c. Option 1, 2 and 3.
d. All of the above.
Answer : d