ee) Accounting and Auditing Questions Latest Accounting and Auditing MC@ Objective Questions CER ABR he lial RI a eon Start Complete Exam Preparation jon Bank Ext Pann ee panocas Clits { Download App Question 1: View this Question Online > IFRS stands for : 1. International Financial Reporting Statements 2. International Financial Reporting Standards 3. Indian Financial Reporting Statements ‘ Financial Reporting Standards 5. None of the above/More than one of the above. Answer (Detailed Solution Below) Option 2: International Financial Reporting Standardscoaching India’s Super Teachers for all govt. exams Under One Roof — Accounting and Auditing Question 1 Detailed Solution Key Points International Financial Reporting Standards (IFRS) + The International Financial Reporting Standards (IFRS) are accounting standards that are issued by the International Accounting Standards Board (IASB) with the objective of providing a common accounting language to increase transparency in the presentation of financial information. + The IASB has the authority to set IFRS and to approve interpretations of those standards. + IFRS is intended to be applied by profit-oriented entities | ART Rar hia Rice here e roto Start Complete Exam Preparation CaaS fees Dr acrS Des cieloy Question Bank Extra D> Download App Question 2: Which one of the following is not an accounting practice - 1. Uniformity 2. Full disclosure4, Confidentiality 5. None of the above/More than one of the above. Answer (Detailed Solution Below) Option 4: Confidentiality Accounting and Auditing Question 2 Detailed Solution The answer is Confidentiality. © Key Points + Confidentiality is not an accounting practice. + It is a principle of information security that requires that information be kept secret from unauthorized individuals. + Accounting practices, on the other hand, are the principles and procedures that accountants use to record and report financial information. »# Important Points + Uniformity: Uniformity is the principle that accounting practices should be consistent from ‘one company to another. This allows investors and creditors to compare the financial statements of different companies and make informed decisions. + Full disclosure: Full disclosure is the principle that all relevant information should be disclosed in the financial statements. This includes both positive and negative information. + Importance: Importance is the principle that the significance of information should be considered when making accounting decisions. This means that not all information is created equal, and some information is more important than others. & Tare ei ORO este Pela mew emt le Lael) lon Practice ees Dos ciapey resend Etter Download App Question 3: View this Question Online > Pawan and Vikas are partners in firm sharing profits and losses in the ratio of 4:3.Balance Sheet (Extract) Liabilities [3] Assets z Inventory _|_2,00,000. If the value of Inventory reflected in the above balance sheet is overvalued by 25%, find out the value of inventory to be:shown inthe new Balance Sheet: 1. 1.60.00" 2.55200,000. 3. 2,40,000. 4. 3,00,000. 5. None of the above/More than one of the above. Answer (Detailed Solution Below) Option 1: 1,60,000. Accounting and Auditing Question 3 Detailed Solution The correct answer is #1,60,000 © Key Points Inventory: + Inventory refers to both the raw materials néeded in the manufacturing of commodities and the finished goods that wile sold on)themarket. + There are mainly three typ. ventory: raw materials, work-in-progress goods, and finished goods. + Inventory is categorized asa part of the current assets in the balance sheet of a company. - Inventory as per balance sheet ~ 2,00,000 This inventory is overvalued, which means the actual inventory is lower than what is shown in the balance sheet. Revalued Inventory = 2,00,000 x 100 / 125 Revalued Inventory = 1,80,000Start Complete Exam Preparation Pio Clint Download App Question 4: View this Question Online > If the amount of super profit is negative, what does it indicate? 1. There is average goodwill 2. There is no goodwill 3. Both 4. More than one of the above. ‘ ~~ of the above Answer (Detailed Solution Below) Option 2: There is no goodwill Accounting and Auditing Question 4 Detailed Solution The correct answer is There is no goodwill. © Key Points ‘Super Profit Method : The value of goodwill is computed using this method. A company’s surplus profits are higher than the average profits of other companies. A company with no expected extra earnings will have no goodwill. Super profits are the term for such extra profits, and they are used to determining goodwill. For example, if the normal rate of profit in a particular typeof business is 15%, and our firm is also ia that tune of bucinece and we have invected £1 000 000in eanital andiare earning 25 000 in orofitethe Normal Profits at 15% on %1,00,000 should be 215,000, whereas we are earning Actual Profits of 25,000. As a result, Super Profits equal 25,000-15,000 = 10,000. Goodwill is computed by dividing the Super Profits by a reasonable length of years, such as two or three years after purchase. Formula: (i) Normal Profit = (Capital Inve: rmal Rate of Return) / 100 (ii) Super profit = Average Profit - Normal Profit (i >» Important Points + If the amount of super profit is negative, it means that the company has no or negative goodwill. + It also demonstrates that the company has a relatively low market value because super profit is the difference between of the expected future profit and the usual profit, and if the expected future profit is less than the usual profit, super profit ceme negative which means the firm have no goodwill because it has no anticipated earning Goodwill = Super Profit * No. of years Purchased Eee Eee) PS eTa me) (CM cies tle Laced) aoa cen eee ieee ici foes eens Download App Question 5: View this Question Online > The following information is supplied to you: Gross Profit Rs. 50,000 Salaries Rs. 10,000 Rent Rs. 4,000 Office expenses Rs. 12,000 Sel enses Rs. 5,000 ow Rs. 8,000 Net Profit before commissi is Rs. 11,000 Calculate manager's commission @ 10% of the net profit after charging such commission.1, Rs. 1,100 2. Rs. 11,000 3. Rs. 1,000 4. Rs. 110 5. None of the above/More than one of the above, Answer (Detailed Solution Below) Option 3: Rs. 1,000 Accounting and Auditing a. Detailed Solution The correct answer is €1,000. + Net Profit After Charging Commission = Net profit before charging commission (Commission rate/100+Commission rate) + Net Profit After Charging Commission = 11,000 * (10/100+10) = €4,000. x Top Accounting and Auditing MC@ Objective Questions & & India’s #1 Leaming Platform gy Pela mee (CM CM n etl eel) Pnar Practice Mock Tests Gis Question Bank per Download App Question 6 View this Question Online > Which of the following is not an accounting convention? 1. Convention of full disclosure2 /~ of conservatism 3. Convention of accrual accounting 4. Convention of consistency Answer (Detailed Solution Below) Option 3: Convention of accrual accounting Accounting and Auditing Question 6 Detailed Solution The incorrect Answer is Convention of accrual accountins © Key Points + Accounting conventions are rules followed by business organisation as a practice worldwide. + There is no binding on such organisations te strictly follow those conventions, but same type of industries 9 x. follows the practices, thats why other organisations follows the same. + There are four major ing conventions namely > Convention of full disclosure + Convention of materiality > Convention of Conservatism + Convention of consistency Hence, Convention of accrual accounting is not an accounting convention € eee ee Start Complete Exam Preparation Caer es Girne pa eres Question Bank ics Download App rere ‘Question 7 View this Question Online > Accounting standard 1 in India talks about1. Cash flow statement 2. Disclosure of accounting policies 3. ae accounting 4, Inventory valuation Answer (Detailed Solution Below) Option 2:: Disclosure of accounting policies Accounting and Auditing Question 7 Detailed Solution The correct answer is Disclosure of Accounting Policies. Accounting Standards- + Finandal reporting standards are based on accounting standards (GAAP) + Finandal statements must be recognized, measured, presented, and reported according to accounting standards. + Its aim is to provide financial information to investors) lenders, creditors, donors, and others to help them decide to fund the company. AS-1 financial statements 's +t of this standard. + The disclosure of relevany ac policies used in the preparation and presentation of &; Additional Information ‘Accounting Standard (AS) About ast Disclosure of Accounting rinciples AS3 Cash flow statement AS 6 Removed Depreciation accounting AS2 Inventory evaluation eee see paca Cec a ott PS ela mew Chime Lelie) Py ansDownload App ‘Question 8 f > “View this Question Online > Which one of the following is a structured review of the systems and procedures of an organisation in order to evaluate whether they are being conducted efficiently and effectively? ft » 1, Financial audit ry zz» - 3. Management audit 4. Cost audit Answer (Detailed Solution Below) Option 3 : Management audit Accounting and Auditing Question 8 Detailed Solution The correct answer is Management audit © Key Points Management au: + An independent and systematic analysis and evaluation of a company's overall operations and performances constitutes a management audit. + It is a useful tool for evaluating the effectiveness, roles, successes, and accomplishments of the business. + The main goal of a mana’ nt audit is to’spot mistakes in management processes and recommend potential innliiments. + It directs management to 2 activities in the most efficient and effective manner possible. Objectives Of Management Audit: + Verify Efficiency- It aims to boost productivity at all levels of management and policy implementation. Nnmanagement-structured policies and plans to see whether they are being properly carried out. + Increase Profit - By offering ways to effectively maximise the company's resources, it helps to raise the profit margin. a CR ABR Rela) Start Complete Exam Preparation Reon cot ir ered Mock Tests Cres eae Exotic Download App Question 9 View this Quastion Online > Which of the following statements is NOT corrett regarding the duties of an auditor? 1. Physical verification of fixed assetsisyprimarily the responsibility of the auditor 2. Ownership of fixed assets should be verified by examining the title deed by the auditor 3 — astertain that the assets are in the possession of the client 4, The auditor should satisfy himself that the assets have been valued in the financial statements according to the accounting principles Answer (Detailed Solution Below) Option 1 : Physical verification of fixed assets is primarily the responsibility of the auditor Accounting and Auditing Question 9 Detailed Solution Audit: 1. Audit, as it exists today, is the result of the Industrial Revolution in the 18th century. 2. The word ‘audit’ is derived from the Latin word ‘audire’ which means, ‘to hear’. 3. Auditing is the systematic and scientific examination of the books of'accounts and records of a business to enable the auditor to satisfy himself that the Balance Sheet and the Profit and Loss Account are properly drawn up so as to exhibit a true and fair view of the financial state of affairs of the business and profit or lossfor the financial period. fr.I Some of the duties of an a, * Verifying ownership of fixed assets by examining the title deed by the auditor, + ascertaining that the assets are in the possession of the client, + satisfying himself that the assets have been valued in the financial statements according to the accounting principles, etc. Physical verification of fixed assets is primarily the responsibility of the Management. Therefore, Physical verification of fixed assets is primarily the responsibility of the auditor is NOT correct regarding the duties of an auditor. Cad eRe een Pertti) © Trusted by 1,06,00,409. Start Complete Exam Preparation Bliees eed Mock Test aca cr Question Bank ics Download App ‘Question 10 View this Question Online > X and Y are partners ina business sharing:profit and losses in the ratio of 3 : 2. They admit Z as a new partner with 1 / 5 share in the profits. Calculate the new profit sharing ratio of the partners. 1, 12:8:5 A Aaa Answer (Detailed Solution Below) Option 1:12:8:5 Accounting and Auditing Question 10 Detailed SolutionOld Profit Sharing Ratio (X and Y) = 3:2 Zis admitted for a 1/3th share. New Profit Sharing Ratio (X and Y) =4 - 1/5!= 4:5) A's New Profit Sharing Ratiogss3/5 * 4/5)= 12/25 B's New Profit Sharing ot 4/5 = 8/25 AB: = 12/25: 8/25: 1/5 Using the L.C.M method to make denominators common, is 12:8:5 New Profit Sharing Ratio Of Ai Thus, option 4 is the correct answer. ea eee arc) SP a= PS ela mew hci mee hated) eau Lest ieee Frnt a) Download App Question 11 View this Question Online > Which of the following are related to vouching of sales? A. Dispatch of goods B. Sales Book C. Direct notes D. Credit notes Choose the correct answer from the options given below: 1. Band D only 2. Aand D only 3. Band A only 4. Bland.¢ onlyAnswer (Detailed Solution Below) Option 3: Band A only Accounting and Auditing Question 11 Detailed Solution Vouching refers to reviewing documentary evidence to see if it properly supports entries made in the accounting records. While vouching, and the auditor is looking for any errors in the amount recorded in the accounting records, as well as ensuring that the transactions are recorded in the correct accounts. C9 Key-Points Asales voucher isa form of a receipt or documentation commonly given to a buyer of supplies or goods. It typically serves as proof of purchase when a provider must order or deliver the goods at a later point. Vouching of sales includes: Sales Book: « Sales book records only credit sales of goods to the customer. + When the goods are sold, invaices are sent out and that only becomes the source document or voucher for recording transactions in the sales book. Dispatch of good + Dispatching of goods refers to an act of sending goods to a particular place which is co undertaken by a logistic unit * The term “lead time” can be used to refer to the time elapsed between aC) itch of goods. + The document of dispatch clarifies that the goods have been exe Oe under the conditions specified, An auditor verifies and vouches for both the Sales Book and that they support the entries made in them and thi Jods documents to check ined accordingly or not. Therefore, options B and Aare only rel; othe ing of sales. [additional Informatio Det notes: + A debit note is a document used by @ vender to inform the buyer of current debt obligations. + It can provide information regarding an upcoming invoice or can serve as a reminder for funds currently due. + It is used in case of Purchase Returns, escalation/de-escalation in price, any other expenses incurred by the vendor on behalf of the party. Credit notes:such as when a customer wishes to change their original order or an incorrect amount. + In other words, itis issued in any scenario that would require the invoice to be changed or re- issued + It is used in case of Sales Return, issued by a seller to buyer informing that his account is credited. Se ee ee ne ee ng see aE eee en peta act PS ETa me CM cline) ieee cory MasterClasses J Question Bank Download App Question 12 View this Question Online > Which one of the following is a correct equation? 1. Opening capital = Closing)¢apital + Additional capital - Drawings - Profit 2. Opening capital =Closing capital + Drawings - Additional capital - Losses 3. A... = Closing capital + Drawings - Additional capital - Profit 4. Opening capital = Closing capital - Drawings - Additional capital - Profit Answer (Detailed Solution Below) Option 3: Opening capital = Closing capital + Drawings - Additional capital - Profit Accounting and Auditing Question 12 Detailed Solution Opening Capital = Closing Capital + Drawings - Additional Capital - Profit + Loss Key-Points 1. The opening balance is the balance that iS brought forward at the beginning of an accounting period from the énd of a previous accounting period or when starting out. 2. The opening balance is the number of finds in a company's account at the beginning of a new financial perio3. It is the first entry in the '@@@Qunts, either when a company is first starting up its accounts or after a year-end. 4. In an operating firm, the ending balance at the end of one month or year becomes the opening balance for the beginning of the next month or accounting year. 5, The opening balance may be on the credit or debit side of the ledger. 6. Opening Capital = Closing Capital + Drawings - Additional Capital - Profit + Loss Thus, option 3 is the correct answer. GR ABR kel Start Complete Exam Preparation We aucs ares bed roete t a Cee er cet Download App Question 13 View this Question Online > Which of the following is NOT a method for calculating or ascertaining the amount of purchase consideration? 1. Net Payment Method 2. Net Assets Method 3. Gross Receipts Method 4, Share Exchange Method Answer (Detailed Solution Below) Option 3:3Accounting and Auditing Question 13 Detailed Solution Purchase Consideration: In the case of amalgamation, purchase consideration is the agreed amount that the transferee company (Purchasing company) pays to the transferor company (Vendar company) in exchange of the ownership of the transferor company. It may be in form of cash, shares, or any other assets as agreed between both companies. CP key-Points Methods of Purchase Consideration: There are four various methods that can be used in this calculation 4. Net asset method: The purchase consideration is equal to the total net assets of the transferor company. The total agreed amount of asset — Total agreed amount of liabilities 2. Net payment method: Z Payment made to the shareholders of the f&nsferor company in form of cash, shares, or debentures. 3. Lump-sum method: Fixed amount paid by the transferee company to the transferor company. This method does not require any calculation as the amount is decided by the mutual consent of both companies. 4. Intrinsic value/ Share exchange method: Itis calculated by dividing the net asset value of the transferor company by the price of one share of the transferee company. The resulting figure then divided by the number of eyisting shares of the transferor company to find out the ratio. Therefore, Gross Receipts Method is NOT a method for calculating or ascertaining the amount of purchase consideration. India's #1 Learning Platform eee eee Start Complete Exam PreparationCees bee aaa ere Does teen Cresterirs Exe Download App Question 14 View this Question Online > Match List | with List II List! List Il baad as Provisions, Contingent Ady |. JLiabilities and Contingent Assets p,ind-AS:] |, {Consolidated Financial “po * Statements P Presentation of Financial * [Statements pd -AS: |, financial reporting in “10 * |Kyperinflationary Economies Choose the correct answer from the options given below: 1. A-W,B-Il,C-1LD-1 2. A-ll,B-IV,C-1,D-Il 3. A-Ill,B-1,C-ILD-IV 4. A-NV,B-Ill,C-D-Il Answer (Detailed Solution Below) Option 2: A- Ill, B-IV,C-1, D-Il Accounting and Auditing Question 14 Detailed Solution The correct answerisA-IB-IV.C-LD-I© Key Points List 1 List II resentation of Financial Afind -AS:1 [lh Ee nts B.|nd -AS: 29 | IV. Hyperinflationary Fyre reporting in -conomies rovisions, Contingent 4 q C.Jind -AS:37 | 1. hiabilities and ‘ontingent Assets c p.fnd AS: 110] 1, [OnsClidated Financial statements » Important Points Indian Accounting Standard (Ind AS) 4: + This Standard prescribes the basis for presentation of general purpose financial statements to ensure comparability both with the entity’s financial statements of previous periods and with the financial statements of other entities. + It sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content. Indian Accounting Standard (Ind AS) 29: + This Standard shall be applied to the financial statements, including the consolidated financial statements, of any entity whose functional currency is the currency ofa hyperinflationary economy + Ina hyperinflationary economy, reporting of operating results and financial position in the local currency without restatement is not useful. Indian Accounting Standard (Ind AS) 37: + The objective of this Standard is to ensure that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities and contingent assets and that sufficient information is disclosed in the notes to enable users to understand their nature, timing and amount. Indian Accounting Standard (Ind AS) 110: + The objective of this Indian Accounting Standard (Ind AS) is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. CR CeC La corteins Pakecas Celie bora Download App Question 15 View this Question Online > Capital invested by the owner is shown as a liability in the balance sheet due to in accounting. 1. separate entity concept 2. going concern concept 3. cost concept 4. moneyimeasuirement concept ”% ‘Answer (Detailed Solution Below) Option 1 : separate entity concept Accounting and Auditing Question 15 Detailed Solution The correct answer is separate entity concept. 6 Key Points Separate entity concept + It assumes that a business has its own identity distinct from the owners, creditors, debtors, managers, and others. + The capital invested by the owner is shown as a liability in the balance sheet. + It means that the trensactions of e business and its owners are separately recorded. + It is most critical in regard to a sole proprietorship. + It increases the owner's accountability whenever the business capital is utilized for/Bersonal use. ; § Additional Information Going concern concept.— + It is the assumption that an entity will remain i the foreseeable future. + It is assumed that the organisation will not or forced to discontinue operations + Certain expenses and assets pay 0 financial reports if a company is assumed to bea going concem. + Companies that are a goin’ may defer reporting long-term assets at current value or liquidating value. Cost concept + The cost concept is a concept of accounting which states that the value of an asset will be calculated on the basis of historical cost or acquisition cost. + Such as an asset purchased at 40 lac in 1977 and same cost will be shown in 2023 financial statement in all future years. Money measurement concept + Its also known as Measurability Concept. + It states that a business should only record an accounting transaction if it can be expressed in terms of money. + The records of the transactions are to be kept not in the physical units but in the monetary unit.