Account Amount

Title (Rs)

Retained earnings on January 1, 2021 57,000

Dividend paid for the year 52,000
Transferred to reserves 51,000
Retained earnings on December 31,2020 50,000

1. The above information has been taken from the books of Realtech Limited as
on March 31, 2018. What is the Net income/ (Net loss) forthe year ended
December 31, 2020?
A. 110,000
B. 96,000
C. (96,000)
D. 6,000

Feedback 1 SLO number, SLO text, cognitive level, difficulty level and
reference are missing.
Feedback 2 Years mentioned in the question are not CORRECT due to which
answer key cannot be verified.
Feedback 3 Option C is the only option in negative which may lead test-smart
students to select option C as key. This will affect the reliability and
validity of the item. Similarly, only ONE amount i.e., 96,000 is twice
which may force test smart student to believe that key is either B
or C.
Feedback 4 Money denomination in the options is missing.

2. Which of the following reserves, a company cannot legally paydividends

to its shareholders.
A. Secret reserve.
B. Capital reserve.
C. General reserve.
D. Revenue reserve.

Feedback 1 SLO number, SLO text, cognitive level, difficulty level and
reference are missing.
Feedback 2 Question seems a bit confusing and wordy.
Suggestion: The reserve that CANNOT be used for the payment of
dividends is OR Which of the following reserve CANNOT be used
for the payment of dividends?
Feedback 3 Full stop in the lead in (question/ instruction/ requirement) is
missing.
3. A company issues 100, 000 ordinary shares of Rs 10 each at apremium
of Rs 20. The market value is Rs 50 per share.
Which statement is correct?
A. Capital reserves increase by Rs 2,000,000.
B. Shareholder’s Equity increases by Rs 5,000,000
C. Ordinary share capital increases by Rs 2,000,000
D. Revenue Reserves increase Rs 2,000,000

Feedback 1 SLO number, SLO text, cognitive level, difficulty level and
reference are missing.
Feedback 2 Option B is the only option with amount Rs 5,000,000 which may
lead test-smart students to select option B as key.
Feedback 3 Lead in is not clear.
Suggestion: With reference to the given situation, which of the
following statements is CORRECT? OR The given transaction will
result in an increase in [NOTE: In this case options will be
rephrased as A. capital reserves by Rs 2,000,000. etc.]
Feedback 4 Full stop in the option is inconsistent. See option B,C and D.
Feedback 5 Extra space in option B.

4. The equity section of a limited liability company will not show which one of the
following items
A. ordinary share capital
B. share premium
C. retained earnings
D. debentures

Feedback 1 SLO number, SLO text, cognitive level, difficulty level and
reference are missing.
Feedback 2 The word ONE should be deleted as it is not needed.

5. A company finances it long term borrowing requirements by issuing10%

debentures.
What is the effect on the company’s net income and equity in the yearof issue?
Net equity
income
A decrease No effect
B decrease decrease
C no effect no effect
D increase no effect

Feedback 1 SLO number, SLO text, cognitive level, difficulty level and
reference are missing.
Feedback 2 Rephrasing of Lead in is required for clarity.
Suggestion: In the year of issue, what will be the effect of the
given transaction on the net income and equity of the company?
6. Which one of the following advantages of a private limited company istrue?

A. A private limited can easily raise cash by issuing shares to members of the
general public
B. A private limited company’s shares can be easily sold because they are traded
on a stock exchange after listing process.
C. A private limited company is easier to control by the founder because there are
restrictions on the transfer of shares on other shareholders
D. Private companies do not have to present yearly accounts to their shareholders

Feedback 1 SLO number, SLO text, cognitive level, difficulty level and
reference are missing.
Feedback 2 Lead in is too wordy. It can be rephrased as
Suggestion: The statement that is TRUE for a private limited
company is… OR
Which of the following is the advantage of a private limited
company?
Feedback 3 Inconsistency of full stop in options.

7. Rabia Limited offered 200,000 shares of Rs 10 each at par. Later on,the bank
informed that applications for 220,000 shares were received. The company
refunded the excess amount after finalizing the allotment
The general journal entry that will be made to record the receipt of the
application money would be

Particula P.R. Debit Credit

rs

Bank 200,00
A 0

Share application 200,00

0

Share application 200,00

B 0

Bank 200,00
0

Bank 2,200,0
C 00
 Share application 2,200,0
00

Share application 2,200,0

D 00

Bank 2,200,0
00

Feedback 1 SLO number, SLO text, cognitive level, difficulty level and
reference are missing.
Feedback 2 Stem (scenario/ situation) should mention the par value as well
because par value may not always be 10.
Suggestion: Rabia Limited offered 200,000 ordinary shares at a
par value of Rs 10.
Feedback 3 Amounts in option A and B are wrong. These should be 2,000,000
instead of Rs 200,000.
Feedback 4 Proper format of general journal entry should be used.
Feedback 5 Full stop in the stem is missing.

8. The directors of Halai Limited announced a transfer to general reserve

of be issued to its shareholders.
The said amount of transfer will be allocated from

A. Share capital.
B. Share premium.
C. Retained earnings.
D. Capital reserves.

Feedback 1 SLO number, SLO text, cognitive level, difficulty level and
reference are missing.
Feedback 2 Stem needs some corrections because general reserves are not
transferred to shareholders. This statement is also not
grammatically correct it should be either
A. decided to transfer to general reserve OR
B. announced a dividend to shareholders.
USE THE GIVEN INFORMATION TO ANSWER Q.9 AND Q.10.
The following details have been extracted from the books of LakhaniLimited as on
December 31, 2018.

Account January 01, December 31,

Title 2020 2020
(Rs in 0000s) (Rs in 000s)

Trade receivables (accounts 50,000 65,000

receivable)

Trade payables (accounts payable) 30,000 38,000

Inventory 25,000 30,000
Debentures 30,000 40,000

9. What would be the change in working capital shown in the cash flowfrom
operations for the year ended December 31, 2021?
A. (20,000,000)
B. (12,000,000)
C. (38,000,000)
D. 12,000,000

Feedback 1 SLO number, SLO text, cognitive level, difficulty level and
reference are missing.
Feedback 2 Years mentioned in the question are not CORRECT due to which
answer key cannot be verified. But if we consider it for 2020 then
key would be B.
Feedback 3 In option B and D only ONE amount i.e., 1,200,000 is twice which
may force test-smart students to believe that key is either B or D.
Similarly, all the options are negative EXCEPT for option D which
may also affect reliability and validity of the item.
Feedback 4 Money denomination in the options is missing.
Feedback 5 Option C, seems irrelevant and could be replaced by either
20,000,000 OR 28,000,000

10. On 1 July 2020, debentures were issued, at par of Rs10,000,000,

where would this amount be shown
A. Cash flow from Operating activities
B. Cash flow from Financing activities
C. Cash flow from Investing activities
D. Cash and cash equivalent at the start of the year

Feedback 1 SLO number, SLO text, cognitive level, difficulty level and
reference are missing.
Feedback 2 In stem, par value and total amount are overlapping so it should
 be clearly mentioned in the stem.
Feedback 3 Lead in should be rephrased for clarity.
Suggestion: In the cash flow statement, the given transaction will
be reflected under [NOTE in this case, options will be rephrased
as A. Operating activities etc.….