Practicing questions

1. Which of the following is not associated with International Accounting Standard

a. IASB
b. SFAS
c. IFRS
d. IFRIC
e. SIC

2. Presentation of Annual Accounts is prescribed as per

a. Schedule VI of Indian Companies Act 1956 revised to Schedule II of Companies Act 2013
b. Schedule II of Indian Companies Act 1956 revised to Schedule VI of Companies Act 2013
c. Schedule V of Indian Companies Act 1956 revised to Schedule II of Companies Act 2013
d. Schedule II of Indian Companies Act 1956 revised to Schedule V of Companies Act 2013
e. Schedule XIV of Indian Companies Act 1956 revised to Schedule II of Companies Act 2013

3. As per US GAAP, a significant customer of the organization may be disclosed in the annual report through
a. Footnotes
b. Schedules
c. Statement of Profit and Loss
d. Balance Sheet
e. Cash Flow Statement

4. Conservation of energy should be an annexure to

a. Chairman’s Report
b. Management Discussion and Analysis
c. Director’s Report
d. Corporate Governance’s Report
e. Business Responsibility Report

5. Which of the following authorities prescribe corporate governance report to be presented in the annual
report
a. Ministry of Company Affairs
b. Ministry of Commerce
c. Ministry of Industry
d. Stock Exchanges
e. SEBI

6. Given below is an excerpt from the schedule to the Statement of Accounts .

Schedules to Statement of Accounts
As at As at
31.03.2010 31.03.2009
(Rs.) (Rs.)
1. Share Capital

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Authorised 70,000,000 70,000,000
70,000,000 (Previous Year 70,000,000) Equity Shares of Re. 1/- each 70,000,000 70,000,000
Issued, Subscribed & Paid-up
55,000,000 (Previous Year 300,000) 55,300,000 300,000
Equity Shares of Re.1/-each fully paid up
Equity Share Capital includes 55,000,000 equity shares issued for consideration other
than cash, pursuant to the Scheme of demerger of RSWM Limited.

55,300,000 300,000
Cash flow from Financing Activity for the period is:

a. 70,000,000 – Inflow
b. 55,000,000 – Inflow
c. 14,700,000 – Inflow
d. Nil -
e. (55,000,000) Outflow

7. Paper Co. had net income of $70,000 during the year. Dividend payment was $10,000. The following
information is available:
Mortgage repayment $20,000
Available-for-sale securities purchased 10,000 increase
Bonds payable—issued 50,000 increase
Inventory 40,000 increase
Accounts payable 30,000 decrease
What amount should Paper report as net cash provided by operating activities in its statement of cash
flows for the year?
a. $0
b. $10,000
c. $20,000
d. $30,000
e.$40,000

8. Which one of the following companies is most likely to run into cash flow problems?

a. A loss making company making components of vital strategic importance on advance payment
basis?
b. A company which has recently sold part of its operations so as to concentrate on its core areas
c. A profitable new retailer about to embark on ambitious expansion plans
d. A reasonably profitable, long established company with no expansion plans
e. A long standing profitable company with positive cash flows and a sustainable business model

9. When analyzing a Statement of Cash Flow, in which of these situations can a company generally be said to
be a growing company? (positive implies net cash inflows, negative implies net cash outflows)
Operating Investing Financing
a. Positive PositivePositive
b. Negative Negative Positive
c. Positive Positive Negative
d. Negative Positive Negative
e. Positive Negative Negative

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10. The standard accounting practice of valuing inventories for presentation in the financial statements is
a. At cost
b. At Fair Value
c. At Net Realizable Value
d. At lower of cost or Fair Value
e. At lower of cost or Net realizable value.

11. Which of the following cannot be included in determination of cost of inventory?

a. Direct labor
b. Allocated fixed overheads
c. Variable production overheads
d. Foreign Exchange differences
e. Other costs incurred to bringing the inventories to their present location.

12. As a component of conversion cost of inventory, fixed overheads allocation is to be based on

a. Normal production capacity
b. Maximum production capacity
c. Planned production capacity
d. Actual production capacity
e. Minimum Production Capacity

13. From a balance sheet perspective, inventories with cost flow assumption of __________ are preferable.
a. LIFO method
b. Weighted Average Method
c. FIFO method
d. Simple Average Method
e. Both (a) and (c) .

14. During periods of raising prices, which method of inventory cost flow assumption results in lower working
capital?
a. LIFO method
b. Weighted Average Method
c. FIFO method
d. Simple Average Method
e. Specific Identification Method.

15. Ruby Inc. follows LIFO Method of inventory valuation for reporting purpose
The Ending inventory as on December 31, 2013 was $13,500,000, while the Cost of Goods Sold was
$62,000,000.
The LIFO Reserve appearing in the Balance sheet as on December 31, 2012 was $5,500,000 and on
December 31, 2013 was $11,500,000.
The value of ending inventory under FIFO Method of inventory Valuation is
a. $ 19,000,000
b. $25,000,000
c. $19,500,000
d. $50,500,000
e. $8,000,000

16. Emerald Inc. follows LIFO Method of inventory valuation for reporting purpose

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 The Ending inventory as on December 31, 2013 was $13,500,000, while the Cost of Goods Sold was
$62,000,000.
The LIFO Reserve appearing in the Balance sheet as on December 31, 2012 was $5,500,000 and on
December 31, 2013 was $11,500,000.
The Cost of Goods sold under FIFO Method of inventory method is
a. $73,500,000
b. $67,500,000
c. $56,000,000
d. $56,500,000
e. $68,000,000

17. An example of an error in distinguishing between revenue expenditures and capital expenditures is:
a. Failure to consider residual salvage value in estimating depreciation.
b. Inclusion in the Building account of payments for property taxes.
c. Inclusion in the Delivery Truck account of state sales taxes paid on the purchase of a truck.
d. Inclusion in Utilities Expense of the cost of electrical repairs made on the air-conditioning.
e. Inclusion in the Machinery account of payments made for installation of the same.

18. Which of the following statements is correct:

It is permitted to add to the cost of the corresponding asset the cost incurred for
i. Routine repairs and maintenance
ii. Replacing a roof, treated separately for depreciation, on completion of its life
iii. Overhauling a building used as a warehouse for intended use as office premises
iv. Re-decoration of the building in preparation for silver jubilee celebrations
a. i only
b. ii and iii
c. ii and iv
d. i and ii
e. i, ii and iii

19. Which of the following attributes are essential for a resource to be recognised as an asset:
i) It must be owned by the entity and remain in its custody
ii) It must be within the entity’s control
iii) Its control should have been established by a past transaction or event
iv) There must be reasonable assurance of flow of future economic benefits
a. ii, iii, & iv
b. i, ii, iii & iv
c. i, ii, iii
d. ii and iii
e. iii& iv only.

20. Which of the following is true

a. USA GAAP is Rule based IAS is principle based.
b. IAS is rule based and USA GAAP is principle based.
c. Both the standards are principle based
d. Both the standards are rule based.
e. There is no pre dominance of interpretation in both the Accounting Standards.

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21. When India is planning full convergence of IFRS
a. 2014
b. 2018
c. 2020
d. 2016
e. 2025

22. Which of the following has been introduced in the Annual Accounts of the company recently as per
Companies Act 2013 in line with the International Accounting Standard
a. Balance Sheet
b. Statement of Profit and Loss
c. Statement of Cash Flows
d. Statement of Stockholder’s Equity
e. Schedules

23. A major difference between AS and IAS relating to cash flow is

a. IAS follows Direct Method and AS follows Indirect Method
b. IAS follows Indirect Method and AS follows Direct Method
c. AS analyzes cash flow in three categories and there is no such classification in IAS
d. Cash Equivalent excludes Bank Overdraft in AS while it is included in cash equivalent in IAS
e. Cash Equivalent includes Bank Overdraft in AS while it is excluded from cash equivalent in IAS

24. Which of the following is correct?

a. Both AS and IAS consider historical value for Depreciation Accounting
b. Both AS and IAS consider either historical cost or revaluation amount in Depreciation Accounting
c. IAS considers Revaluation Amount or Historical Cost and AS considers Historical Cost only
d. AS considers either Historical Cost or Revaluation amount and IAS considers Revaluation amount
only
e. AS considers either Historical Cost or Revaluation amount and IAS considers Historical Cost only.

25. When revaluation method is adopted in Depreciation Accounting IAS specifies that
a. Must be revalued once in every three years.
b. Must be revalued whenever the management deems fit
c. The company will have to resolve the revaluation in AGM
d. Revaluation is allowed once only in the life period of the asset
e. Every year asset must be revalued.

26. Which of the following is not part of the financial statements presented in the Annual Report as per US
GAAP?
a. Statement of Comprehensive Income
b. Statement of Cash flow
c. Statement of Profit and Loss
d. Statement of Stockholder’s Equity
e. Funds Flow statement

27. Which of the following principles may be used to hide significant data ?(most appropriate answer)

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 a. Consistency
b. Comparability
c. Materiality
d. Neutrality
e. Timeliness

28. Which of the following in the annual report talk about the operation of the company in detail
a. Chairman’s Report
b. Board of Director’s report
c. Management Discussion and Analysis
d. Corporate Governance Report
e. Business Responsibility Report

29. Which of the following information may not be provided in the annual report
a. Names of Directors
b. Name and Address of the Auditor
c. Address of the registered office
d. Financial Highlights
e. Address of the Branch offices

30. Which of the following involves a movement of cash?

a. Creation of a provision for pensions

b. Depreciation of fixed assets
c. A bonus issue
d. A rights issue
e. Conversion of debt to equity

31. Which one of the following is false?

a. If cash outflows exceed cash inflows on an ongoing basis, the business will eventually run out of
cash
b. A profitable company will never run out of cash
c. Rapidly expanding companies can sometimes face a cash shortage
d. Cash is the lifeblood of a business and without it the business will die
e. In a sound business operating cash inflows are greater than operating cash outflows

32. A company with healthy profits is facing a cash shortage. Which of the following events could account for
this?

a. Delaying payments to creditors

b. Speeding up of collection from debtors
c. An increase in dividends proposed by the directors
d. The recent acquisition of equipment
e. The shortening of the credit period granted to debtors

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33. A business may incur an operating loss in a given financial year yet has more cash in the bank at the end. A
reason for this could be that:

a. Some fixed assets were sold for cash

b. Dividends paid were higher this year than last
c. Debtors were allowed a longer period of credit
d. Payments to creditors were made more promptly
e. Loan was converted to Equity

34. A company has a negative cash flow from operating activities. What could explain this negative cash
flow?

a. A sudden increase in credit sales

b. High level of borrowings
c. High levels of dividend payments
d. A substantial investment in new fixed assets
e. The repayment of a loan

35. In an IAS 7 Statement of Cash Flows where would you find a bank current account overdraft?

a. In operating activities
b. In cash and cash equivalents
c. In investing activities
d. In operating or in investing activities
e. In financing activities

36. Whichof the following is the adjustment that is added during the reconciliation of netincome to operating
cash flows in indirect method?
a. An increase in Accounts Receivable
b. An increase in Inventories
c. An increase in Prepaid Expenses
d. Gain on sale of capital assets
e. Amortization Expense

37. Which of the following is deducted from the net income while preparing cash flow statement by indirect
method?
a. Decrease in inventories
b. Increase in accounts payable
c. Decrease in Accounts receivable
d. Depreciation
e. Increase in inventories

38. A company has interest expense of Rs. 35,000, its accrued interest liabilities are increased by Rs.7000.
Calculate the cash payments for the interest.
a. Rs. 28,000

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 b. Rs. 42,000
c. Rs.35,000
d. Rs. 30,000
e. Rs. 18,000

39. Which method of cost determination of inventory results in distorting the presentation of Balance Sheet?
a. FIFO Method
b. LIFO Method
c. Weighted Average Method
d. Specific Identification Method
e. Simple Average Method

40. Which method of cost flow of inventory results in distorting the profitability of the firm in circumstance of
raising prices?
a. FIFO Method
b. LIFO Method
c. Weighted Average Method
d. Specific Identification Method
e. Simple Average Method

41. During periods of changing prices or growing inventories from an Income Statement perspective,
inventories with cost flow assumption of ___________ are preferable.
a. LIFO method
b. Weighted Average Method
c. FIFO method
d. Simple Average Method
e. Any method

42. Which of the following is not true of LIFO Method in period of rising prices
a. Cost of Goods sold is higher than under FIFO Method
b. Ending Inventory is lower than under FIFO Method
c. Working Capital is higher than under FIFO Method
d. Tax payable is lower than under FIFO Method
e. Net Income is lower than under FIFO Method.

43. Each of the following should be classified as plant and equipment in the balance sheet of Chin's Nursery
except:
a. The office building.
b. Patents held on specific varieties of roses.
c. Land on which the nursery is located.
d. Plants held for resale to customers.
e. Water Sprinklers

44. The Modified Accelerated Cost Recovery System (MACRS) is used primarily to determine:
a. The minimum length of time to recover the after-tax cost of alternative investment opportunities.
b. The fastest way to recover the cost of converting from a manual to a computer-based accounting
system.

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 c. Depreciation expense deductible for income tax purposes.
d. The estimated useful lives to be used in computing depreciation expense for financial reporting
purposes.
e. The companies act lays the rules for using MACRS method.

45. Even when a resource has all the attributes necessary for recognition as an asset, a business has a policy of
treating the resource as an expense unless it costs Rs. 5,000 or more. This is an example of complying with
which accounting concept?
a. Relevance concept.
b. Prudence concept.
c. Substance over form concept.
d. Materiality concept.
e. Dual Aspect Concept.

46. Which of the following costs relating to acquisition of a machine cannot be included in its cost:
a. Cost of re-locating the machine when senior staff complained of noise pollution.
b. Cost of re-enforcing the factory floor and fitting shatter-proof glasses to factory windows.
c. Cost of building a concrete pedestal with iron girders to which the machine is harnessed.
d. Cost of material used in Trial run.
e. Invoice cost of machinery.

47. Which of the following would you regard as the threshold criteria when deciding whether or not to
capitalise any part of borrowing costs:
a. Is it the policy of the business to capitalise borrowing costs?
b. Is it common practice for competitors to capitalise borrowing costs?
c. Is the asset a qualifying asset in that it took a substantial time to bring it to intended use?
d. Is the asset financed by the borrowing an acquired one or self-constructed one?
e. Is the cost of borrowing paid or not?
48. Which of the following countries have adopted IFRS in its entirety
a. Australia
b. USA
c. India
d. China
e. Singapore

49. Which of the following GAAP refers to Cash Flow Statements

a. AS3& IAS 7
b. AS 6 & IAS 5
c. AS 3 & IAS 5
d. AS 6 & IAS 7
e. AS 5 & IAS 2

50. Which of the following GAAP refers to Valuation of Inventories

a. AS 3 & IAS 5
b. AS 5 & IAS 2

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 c. AS 2& IAS 2
d. AS2 & IAS 7
e. AS 6 & IAS 3

51. Which of the Indian GAAP refers to Fixed Asset Accounting

a. AS 8 & AS 6
b. AS 8 & AS 5
c. AS 6& AS 8
d. AS 6 & AS 10
e. AS 5 & AS 10

52. Bottom line of a company should relate to

a. Net Income and Stockholder’s Equity
b. Liquidity & Activity
c. Solvency & Profitability
d. Corporate Social Responsibility
e. Basic Manufacturing Cost

53. Which of the following information is beyond the financial reporting process
a. Financial Expenses
b. Addition of Assets
c. Conversion of Preference Shares
d. Repayment of Loan
e. Effect of changing prices

54. Which of the following information is most crucial to the creditors?

a. Profitability
b. Liquidity
c. Solvency
d. Activity
e. Market Potential

55. Which of the following is not a qualitative parameter of financial statements?

a. Relevance
b. Timeliness
c. Reliability
d. Accuracy
e. Neutrality

56. Which of the following provides information about macro environment of the organization
a. Balance Sheet
b. Chairman’s Report
c. Notice
d. Corporate Governance Report
e. Business Responsibility Report

57. Which of the following statements is correct :

a. As per SFAS 95 firms are not permitted to report cash from operations directly
b. As per IAS 7 firms are not permitted to report cash from Operations directly.

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 c. As per SFAS 95 firms are not permitted to report Cash from operations directly but as per IAS 7 they
are allowed to report Cash from Operations directly.
d. As per SFAS 95 and IAS7 firms are not allowed to report Cash flow from Operations directly but
should report only indirectly.
e. As per SFAS 95 and IAS 7 firms are permitted to report Cash from Operations either directly or
indirectly.

58. Which one of the following events will increase the cash balances of a business?

a. Payments by Debtors
b. Bank granting it an overdraft facility
c. Loan repayment to banks
d. Sale of stock on credit
e. Conversion of bonds to Equity Shares

59. Which one of the following events will reduce the cash balances of a business?

a. Purchase of fixed assets on interest free credit

b. Dividend proposed pending shareholder approval
c. Payments made to creditors
d. Purchase of stock on credit
e. Sale of Machinery for Cash

60. What is the immediate effect of making a rights share issue?

a. On profit - None; On cash - Increase

b. On profit - Increase; On cash - Decrease
c. On profit - Decrease; On cash - Increase
d. On profit - Increase; On cash – Increase
e. On Profit –Decrease; On cash - Decrease

61. What is the immediate effect of making a repayment on a loan on cash flow and profits?

a. On profit - None; On cash - Decrease

b. On profit - Decrease; On cash - Decrease
c. On profit - Decrease; On cash - None
d. On profit - Increase; On cash – Decrease
e. On Profit – Increase; On cash – None

62. Under which activity would you expect to find the cash proceeds from a share issue?

a. Operating activities
b. Investing Activity
c. Cash and Cash Equivalents
d. Returns from investment and servicing of finance activity
e. Financing activities

63. Which of the following would be considered a cash-flow item from an "operating" activity?
a. Cash outflow to the government for taxes
b. Cash outflow to shareholders as dividends
c. Cash inflow to the firm from selling new common equity shares

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 d. Cash outflow to purchase bonds issued by another company
e. Cash outflow to the firm in repayment of Bonds issued earlier

64. When cash flow statement is prepared by using indirect method, which part of it isdifferent from the direct
method?
a. Cash flow from investing activities
b. Cash flow from financing activities
c. Cash and Cash equivalents
d. Cash flow from operating activities
e. All parts are same in both methods

65. Short term investments in marketable securities and treasury bills that will mature within
ninety days from the date of acquisition, must be classified as:
a. Receivables
b. Receipts from Capital
c. Short term investments
d. Current and intangible assets
e. Cash equivalents

66. According to the statement of cash flows; following are the examples of investing
activities except:
a. Sales of machinery
b. Capital invested by the owners
c. Purchase of building for the business use
d. Cash received from the disposal of equipment
e. Purchase of Machinery

67. Which of the following is NOT a cash outflow for the firm?
a. Depreciation expense
b. Dividends payments
c. Loan Repayment
d. Interest payments
e. Tax payments

68. Which of the following items are not included in the financing activities section of the
statement of cash flows?
a. Cash effects of transactions involving making loans
b. Cash effects of transactions involving collecting loans

c. Cash effects of acquiring and disposing of investments and property, plant, and
a. equipment
d. Cash effects of transactions obtaining resources from owners and providing them with a
a. return on their investment
e. Cash effects declaration of dividends

69. While preparing the cash flows statement, transactions involving production anddelivering goods or
providing services must be classified as:
a. Business activities
b. Operating activities
c. Financing activities
d. Either ( a) or (c )

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 e. Investing activities

70. Which of the following section of cash flow statement shows the cash effects of thosetransactions reported
in the income statement?
a. Cash flow from investing activities
b. Cash flow from financing activities
c. Cash flow from operating activities
d. Cash flow from profiting activities
e. Cash flow from acquisition activities

71. Which of the following items can be included in the cost of inventory in accordance with International
Accounting Standards?
a. Salaries of sales department
b. Warranty costs
c. Research for new products
d. Audit and tax consultation fees
e. Storage costs incurred on purchased material for production process .

72. Depreciation arises because of:

a. Fall in the market value of an asset;
b. Physical wear and tear;
c. Fall in the value of money;
d. Time Value of Money
e. Decrease in prices of assets

73. Depreciation is a process of:

a. Valuation;
b. Allocation;
c. Both valuation and allocation;
d. General day to day accounting transaction
e. None of the above.

74. Under the straight line method of providing depreciation it:

a. Increase every year;
b. Remain constant for the entire life till the written down value is equal to salvage value;
c. Decreases every year;
d. Remains constant for first three years of its life and changes subsequently
e. Remain constant for the entire life till the written down value is equal to zero

75. Under the diminishing balance method depreciation:

a. Increases every year;
b. Decreases every year;
c. Remain constant every year;
d. Depreciation charged is lower in the earlier years than the later years;
e. Profits will continually decrease in the course of the assets utility.

76. Under the fixed instalment method of providing depreciation it is calculated on:
a. Original cost of acquisition;
b. Cost of installation plus cost of acquisition

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 c. Cost of purchase plus cost of installation minus scrap value
d. on balance amount
e. On scrap value

77. The amount of depreciation charged on machinery will be charged to:

a. Miscellaneous account
b. Depreciation account
c. Cash account
d. Repair account
e. Profit and loss account

78. The fictitious assets like ……………. are written off or amortized over a period.
a. Patents
b. Patterns
c. Preliminary Expenses
d. Goodwill
e. Copyrights

79. Which of the term is used to write off with reference to tangible fixed assets?
a. Depreciation
b. Depletion
c. Amortization
d. Impairment
e. Dilution

80. Which item among the following is not an intangible asset?

a. Trademark.
b. An account receivable.
c. Patent.
d. Goodwill.
e. Patterns.

81. Which of the following transaction results in increase in an asset?

a. Rs. 78,500 due from customers in respect of sales.
b. Rs. 45,000 spent on providing computer training for all members of the staff.
c. Rs. 4,500 paid on a contract to service all business vehicles during the current year.
d. Rs. 2,400 paid for repairing a vehicle which met with an accident.
e. Rs. 80 paid for stationery and printing.

82. Which of the following is not a necessary attribute of a tangible non current asset:
a. Physical existence.
b. Use for production / supply, administrative purposes or for letting to others.
c. Possibility of selling in the open market without selling the whole business.
d. Continuing use after the end of current accounting period.
e. Kept aside for resale.

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83. Which of the following statements is correct?
a. Normally land need not be depreciated.
b. Difficulty of estimating economic life is a valid reason for not depreciating airline terminals
c. If residual value of building, adjusted for inflation, is more than its cost there is no depreciable cost
and, therefore, there is no need to depreciate.
d. In view of long life depreciation of buildings is immaterial and could therefore be ignored.
e. Depreciation charged reporting purposes need to be taken from the tax laws.

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