13 Exam Guide - MCQs - A.D. Cost Recruitment Under ICoAS-2022 V.1

Exam Guide with MCQs for the
preparation of A.D. Cost recruitment under

ICoAS – 2022
Dedication
This Guide is dedicated to all A.D. Cost exam Aspirants.
Contributed by:
CMA NAVNEET KUMAR CMA MANISH KANDPAL CMA JEEWAN CHANDRA

JAIN
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Exam Guide with MCQs for the preparation of A.D. Cost recruitment under ICoAS – 2022
DISCLAIMER
• The compilation is being done for the purpose of helping/assisting members of the CMA Profession
willing to join Indian Cost Accounts Service (ICoAS).
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1
Table of Contents
CH. Name Of Chapter Page No.
1 Overview 4
2 Syllabus 9
Cost Concepts and Classifications: Cost Objects, Cost Centres and Cost Unit;
3 Collection, classification, allocation and apportionment of cost - Material Cost, 11
Employee Cost, Direct Expenses, Overheads etc.
Generally Accepted Cost Accounting Principles (GACAP), Cost Accounting

4 Standards, Cost Audit, Companies (Cost Record & Audit) Rules, 2014 as 25
amended from time to time; Cost Auditing and Assurance Standards.
Methods of Costing: Single Output Costing, Job Costing, Batch Costing,

5 54
Contract Costing, Process Costing, Service Costing.
Marginal v. Absorption Costing, Cost-Volume-Profit analysis, Decision making
6 74
involving alternative choices.
Pricing decisions and Strategies-New Product Pricing, Monopoly Pricing v.
7 79
Competitive Pricing, Pricing of Service Sector
Cost Control and Cost Reduction; Cost Control Techniques- Standard Costing
8 83
&Variance Analysis; Budget and Budgetary Control.
Transfer Pricing- Methods (Cost Based, Market Price Based, Negotiated
9 Pricing), Criteria for setting Transfer Prices, Transfer Price in different 88
situations.
Emerging concepts in Cost and Management Accounting: Life Cycle costing,

Activity Based costing, Learning Curve and its application, Socio-economic
10 119
costing, Target costing, Total Quality Management, Environmental
Management Accounting, Six Sigma etc.
Generally Accepted Accounting Principles (GAAPs), Accounting Standards
11 126
and Ind AS.
Financial Statements and Analysis: Preparation of Corporate Financial
12 135
Statements, Ratio Analysis, Cash Flow Analysis.
Appraisal of Projects: Capital Budgeting, Cost of Capital, Leverage Analysis;
Methods of Project Appraisal-Payback Period, Net Present Value (NPV),
13 153
Financial Internal Rate of Return (FIRR), Economic Internal Rate of Return
(EIRR), Benefit Cost Ratio.
Project Management: Project Planning, Project Life Cycle, Gantt Charts, PERT
14 199
and CPM.
2
Government Accounting: General Principles and Comparison with

Commercial Accounting; Government Accounting Standards issued by
15 212
Government Accounting Standards Advisory Board, Role of Comptroller and
Auditor General of India and Public Accounts Committee.
Goods and Services Tax Act &Rules: Chargeability of GST, Scope of Supply
(Section 7 of CGST Act, 2017 read with Schedule I, II and III), Classification of
Goods and Services under GST, Time, Value and Place of Supply of Goods and
16 213
Services, Input Tax Credit (Eligibility, Blocked Credits, Method of Reversal of
Credits, Recovery of Input Tax Credit), Exports, Imports and Refunds under
GST, Anti-profiteering, Audit under GST.
Customs Law : Classification under Customs, Types of Duties (Basic customs

duty, IGST replacement of CVD and Special CVD, Protective duties, Safeguard
17 duty, Countervailing duty on subsidized articles, Anti dumping duty), 218
Valuation under Customs of Imported Goods and Export Goods, Deemed
export, Duty drawback.
Companies Act, 2013 with special emphasis on provisions relating to

Declaration and Payment of Dividend (Chapter VIII and Schedule II) Accounts
18 240
of Companies (Chapter IX, Schedule III and Schedule VII), Audit and Auditors
(Chapter X), Government Companies (Chapter XXIII).
Corporate Governance: Overview, Issues and Concepts, Corporate Governance

19 Practices/Codes in India, Corporate Governance in state-owned business MOU 258
system
20 Topic Wise Costing Formulas 267
3
CHAPTER ONE
Overview
ACCOUNTING SERVICES UNDER GOVERNMENT OF INDIA
Indian Audit & Accounts Service
Indian Cost Accounts Service
Indian Civil Accounts Service
Indian Defence Accounts Service
Indian Postal & Telecom Finance Service
Indian Railway Accounts Service
NOTE:
• ICoAS is the only Accounting Service exclusively manned by Professional Accountants i.e. either Cost or
Chartered Accountants.
• Generally, they Advise to Ministries and Government Undertakings on Cost Accounts matters and attend to
Cost Investigation work on their behalf.
4
INDIA COST ACCOUNTS SERVICE
HISTORIC PERSPECTIVE
• In 1978, Indian Cost Account Service (ICoAS) was constituted and recruitment rules were notified in 1982.
• Only Accounting Service having professional Cost/Chartered Accountants.
• Chief Adviser Cost is managing authority and central repository of the cadre.
• 31 participating offices of various Ministries/Departments such as Economic Affairs, Revenue, Commerce,

Company Affairs, Defence, Chemicals & Fertilizers, Industry, Agriculture, Consumer Affairs and PD, Supply
National Pharmaceutical Pricing Authority, I&B etc.
VISION OF ICoAS
• To assist the Government in Achieving Cost Efficiency In Operations, Schemes And Projects.
SELECTION PROCEDURE
APPOINTMENT:
ü Test Conducted by UPSC
ü Interview
NATURE OF POST:
ü Permanent
ü Group “A” Gazetted
SCHME OF THE TEST:
ü The test is normally of two hours duration
ü It normally carries a maximum of 100 marks
ü The medium of the question paper is in English only.
ü The test contains objective type questions with multiple choices answers
ü There is a penalty for wrong answers.
ü Every wrong answer carries a deduction of one third of the marks assigned to that question.
ü If no answer is marked for a question, there is no penalty for that question.
5
CORE COMPETENCIES
A Repository of Expertise in Cost And Management Accounting Matters in the

Central Government.
Prime Professional Agency in Dealing with Matters Relating to Costing And

Pricing, Studies on Cost Reduction And Cost Efficiency.
To Render Professional Assistance to Different Ministries And Government

Agencies.
Cost Benefit Analysis of Non-Profit Schemes.
To Serve as an Independent Agency of the Central Govt.
6
List of Participating Offices

• Office of Chief Adviser Cost
1. Ministry of Finance • PF-C Div, PF-S Div and Finance
Department of Expenditure Commission Division
• Department of Economic Affairs

2. Ministry of Finance
Department of Economic
Affairs
• Government Opium & Alkaloid
3. Ministry of Finance Factories
Department of Revenue • CGST Audit
• Income Tax Department (CBDT)
• Department of Heavy Industries

4. Ministry of Heavy Industries • Department of Public Enterprises
and
Public Enterprises
• Department of Pharmaceuticals
5. Ministry of Chemicals and • National Pharmaceuticals Pricing
Fertilizers Authority (NPPA)
• Department of Fertilizers (FICC)
• Ministry of Corporate Affairs

6. Ministry of Corparate Affairs • Serious Fraud Investigation Office
• Directorate General of Trade Remedies

7. Ministry of Commerce and (DGTR)
Industry • Tariff Commission
• Office of Jute Commissioner, Kolkata

8. Ministry of Textiles
• Ministry of Defence (Finance)
9. Ministry of Defence • Department of Defence Production
• Minitry of Food Processing Industries

10. Ministry of Food Processing
Industries
• Delhi Milk Scheme
11. Ministry of Agriculture &
Farmenrs' Welfare
7
• Department of Food & Public

12. Ministry of Consumer Distribution
Affairs, • Department of Consumer Affairs
Food & Public Distribution
• Films Division, Mumbai
13. Ministry of Information &
Broadcasting
• Ministry of Health & Family Welfare
14. Ministry of Health &
Family Welfare
• Ministry of Home Affairs
15. Ministry of Home Affairs
• Ministry of External Affairs
16. Ministry of External Affairs
• Department of Space
17. Ministry of Space
• ACC Secretariat
18. Ministry of Personnel
Training
8
CHAPTER TWO
Syllabus
1. Cost Concepts and Classifications: Cost Objects, Cost Centres and Cost Unit; Collection, classification,
allocation and apportionment of cost - Material Cost, Employee Cost, Direct Expenses, Overheads etc.
2. Generally Accepted Cost Accounting Principles (GACAP), Cost Accounting Standards, Cost Audit,
Companies (Cost Record & Audit) Rules, 2014 as amended from time to time; Cost Auditing and Assurance
Standards.
3. Methods of Costing: Single Output Costing, Job Costing, Batch Costing, Contract Costing, Process Costing,
Service Costing.
4. Marginal v. Absorption Costing, Cost-Volume-Profit analysis, Decision making involving alternative choices.
5. Pricing decisions and Strategies-New Product Pricing, Monopoly Pricing v. Competitive Pricing, Pricing of
Service Sector.
6. Cost Control and Cost Reduction; Cost Control Techniques- Standard Costing &Variance Analysis; Budget
and Budgetary Control.
7. Transfer Pricing- Methods (Cost Based, Market Price Based, Negotiated Pricing), Criteria for setting Transfer
Prices, Transfer Price in different situations.
8. Emerging concepts in Cost and Management Accounting: Life Cycle costing, Activity Based costing, Learning
Curve and its application, Socio-economic costing, Target costing, Total Quality Management,
Environmental Management Accounting, Six Sigma etc.
9. Generally Accepted Accounting Principles (GAAPs), Accounting Standards and Ind AS.
10. Financial Statements and Analysis: Preparation of Corporate Financial Statements, Ratio Analysis, Cash Flow
Analysis.
11. Appraisal of Projects: Capital Budgeting, Cost of Capital, Leverage Analysis; Methods of Project Appraisal-
Payback Period, Net Present Value (NPV), Financial Internal Rate of Return (FIRR), Economic Internal Rate
of Return (EIRR), Benefit Cost Ratio.
12. Project Management: Project Planning, Project Life Cycle, Gantt Charts, PERT and CPM.
13. Government Accounting: General Principles and Comparison with Commercial Accounting; Government
Accounting Standards issued by Government Accounting Standards Advisory Board, Role of Comptroller
and Auditor General of India and Public Accounts Committee.
14. Goods and Services Tax Act &Rules: Chargeability of GST, Scope of Supply (Section 7 of CGST Act, 2017
read with Schedule I, II and III), Classification of Goods and Services under GST, Time, Value and Place of
Supply of Goods and Services, Input Tax Credit (Eligibility, Blocked Credits, Method of Reversal of Credits,
9
Recovery of Input Tax Credit), Exports, Imports and Refunds under GST, Anti-profiteering, Audit under
GST.
15. Customs Law: Classification under Customs, Types of Duties (Basic customs duty, IGST replacement of
CVD and Special CVD, Protective duties, Safeguard duty, Countervailing duty on subsidized articles,
Antidumping duty), Valuation under Customs of Imported Goods and Export Goods, Deemed export, Duty
drawback.
16. Companies Act, 2013 with special emphasis on provisions relating to Declaration and Payment of Dividend
(Chapter VIII and Schedule II) Accounts of Companies (Chapter IX, Schedule III and Schedule VII), Audit
and Auditors (Chapter X), Government Companies (Chapter XXIII).
17. Corporate Governance: Overview, Issues and Concepts, Corporate Governance Practices/Codes in India,
Corporate Governance in state-owned business MOU system.
10
CHAPTER THREE
Cost Concepts and Classifications: Cost Objects, Cost Centres and Cost Unit;
Collection, classification, allocation, and apportionment of cost - Material Cost,
Employee Cost, Direct Expenses, Overheads etc.
1. Example of a production overhead would be:

a) Material.
b) Rent
c) Labour cost.
d) Supervisory cost
2. All such expenses which are incurred for creating and enhancing the demands for the products are
a) Selling expenses
b) Administrative expenses
c) Distribution expenses
d) All of the above
3. To control costs, it is essential to keep control on

a) Prime cost
b) Overheads
c) Indirect materials and tools cost.
d) All of the above
4. cost that is easily traceable to a cost object is known as:

a) Direct cost
b) Indirect cost
c) Variable cost
d) Fixed cost
5. Which of the following best describes a fixed cost? A cost which:
a) Represents a fixed proportion of total costs
b) Remains at the same level up to a particular level of output
11
c) Has a direct relationship with output.
d) Remains constant irrespective of the level of activity.
6. Which of the following is a valid classification of the salary paid to the foreman in charge of the packing
department?
a) Indirect departmental cost
b) Direct product cost
c) Direct departmental cost
d) Service department cost.
7. A cost that changes in total dollar amount with the change in the level of activity is known as:
a) Direct cost
b) Indirect cost
c) Variable cost
d) Fixed cost
8. Which of the following costs is treated as indirect labour?
a) Idle time
b) Overtime premium
c) Fringe benefits
d) All of the above
9. Which definition best describes indirect costs?
a) Indirect costs are those costs which are not controlled directly by a manager.
b) Indirect costs are those costs which cannot be directly associated with a product or
service.
c) Indirect costs are always fixed.
d) Indirect costs are always manufacturing overhead costs.
10. What would be the most appropriate way of apportioning depreciation costs across different manufacturing
departments in a business?
a) Floor space
b) Numbers of personnel
c) Value of buildings and equipment
d) Administration costs
11. Which of the following cost is also known as overhead cost or on cost:
12
a) Cost of direct labour
b) Cost of direct material
c) Direct expenses
d) Indirect expenses
12. Which of the following calculate the actual cost of product:
a) Cost estimation
b) Costing
c) Both a and b
d) None of these
13. Costing is specialized branch of accounting which deals with:
a) Classification, recording, allocation, and control of asset
b) Classification, processing, allocation and directing
c) Classification, recording, planning and control of asset
d) Classification, recording, allocation and directing
14. In cinema halls, composite cost unit is :
a) A seat per show
b) Cost of screening
c) Salary of staff
d) Rent of cinema hall
15. The stage of production at which separate products are identified is known as_ :
a) Process costing
b) Reverse cost method
c) Subsequent cost
d) Equivalent production
16. What item is not included in cost accounting?
a) Product costing
b) Profit-sharing
c) Planning
d) Controlling
17. A total of all the direct costs is known as
13
a) Cost of production
b) Cost of sales
c) Prime cost
d) Works cost
18. Which of the following is not included in functional classification of overheads?
a) Repairs and maintenance
b) Lubricating oil
c) Consumable stores
d) Chargeable expenses
19. The process of distribution of overheads allotted to a particular department or cost center over the units
produced is called:
a) Allocation
b) Apportionment
c) Absorption
d) Departmentalization
20. A product with a high gross profit could be an unprofitable product.
a) True
b) False
21. To control costs it is essential to keep control on
a) Prime cost
b) Overheads
c) Indirect materials and tools cost
d) All of the above
22. The overhead cost for a particular job =
a) man hour rate x man hours spent on that job
b) man hour rate / man hours spent on that job
c) man hour rate + man hours spent on that job
d) man hour rate – man hours spent on that jab
23. The following method is an improvement over the percentage on direct labour cost method.
a) Machine hour rate
14
b) Percentage on prime cost
c) Percentage on direct material cost
d) Man hour rate
24. Which of the following is/are the basic object/s of job analysis?
a) Determination of wage rates
b) Ascertain the relative worth of each job
c) Breaking up job into its basic elements
d) All of the given options
25. An overhead absorption rate is used to:
a) Share out common costs over benefiting cost canters
b) Find the total overheads for a cost centre
c) Charge overheads to products
d) Control overheads
26. Economic Batch Quantity depends on ……………….and ……..costs
a. Material, labour
b. Set-up costs, carrying
c. Transportation, carrying
d. Warehousing, labour
27. The wages paid to maintenance department workers who do repair work principally for production
departments but also on the vehicles in the distribution department should be charged as:
a) Service cost
b) Distribution cost
c) General cost
d) Production cost
28. Which of the following costs of management is likely to have least control?
a) Machine breakdown cost
b) Wages cost
c) Advertising cost.
d) Buildings insurance cost
15
a) Represents a fixed proportion of total costs.
b) Remains at the same level up to a particular level of output.
c) Remains constant irrespective of the level of activity
d) Has a direct relationship with output
30. Which of the following would not be considered as a component of 'cost' of stock?
a) Transportation inward cot
b) Import duties
c) Purchase price
d) Salaries of selling staff
31. Cost apportionment involves:
a) The sharing out of overheads to service departments
b) The sharing out of common costs to departments
c) The allocation of direct costs to departments
d) The sharing out of costs to products
32. What would be the most appropriate way of apportioning depreciation costs across different manufacturing
departments in a business?
a) Floor space
b) Numbers of personnel
c) Value of buildings and equipment
d) Value of land.
33. Which of the following is a conventional method of ascertaining cost?
a) Absorption costing
b) Full Costing
c) Both a & b
d) None of the above
34. The total cost of a product will include:
a) Prime costs plus direct production overhead plus indirect-production overhead plus tax
b) Prime cost plus absorbed direct production overhead
c) Prime costs plus direct production overhead plus indirect production overhead
d) Prime cost only
16
35. Which of the following is not considered to be a benefit of activity-based costing?
A. More accurate product costs
B. Reduced complexity of calculating costs
C. Inclusion of non-manufacturing costs
D. More detailed understanding of what drives cost.
36. Wages paid to a labour who was engaged in production activities can be termed as.
a. Direct cost.
b. indirect cost
c. sunk cost
d. Imputed cost.
37. The cost which is to be incurred even when a business unit is closed is a.
a. Imputed cost.
b. Historical cost.
c. Sunk cost.
d. shutdown cost
a. Actual direct labour time per unit being greater than budget.
b. Actual cost of direct labour being greater than budget.
c. Actual overheads incurred being less than budget.
d. The number of units produced being greater than budget.
39. Which of the following is most likely to be an allocated production overhead cost to the finishing cost centre?
a. Factory rates.
b. Salary of the finishing cost centre supervisor.
c. Power used on finishing cost centre machines.
d. Salary of the production manager.
40. Wages paid to a office cleaning staff who was engaged in Administration activities a can be termed as.
a. Direct cost.
b. indirect cost
c. sunk cost
17
d. Imputed cost.
41. Overhead is the cost incurred in the course of making a product, providing a service or running a department,
but which cannot be traced directly and in full to the product, service or department.
a. Correct
b. Incorrect
42. Indirect expenses are also known as overheads.
a. True
b. False
43. Overhead is actually the total of:
a. Indirect materials
b. Indirect expenses
c. Indirect labour
d. All of the above
44. Overhead costs may be classified according to the function of the organization as:
a. Production/Manufacturing overheads
b. Non-production/Non-manufacturing overheads
c. Both A&B
d. None
45. Production Overheads are costs related to the production process other than direct labour and materials. They
are also known as factory overheads since they are incurred inside the factory, other overheads such as selling
and administrative overheads are always charged to in the period in which they are incurred
a. The above statement is true
b. The above statement is false
46. Production overheads represent indirect materials, indirect wages and indirect
expenses attributable to:
a. Production activities
b. Service activities
c. Both A&B
d. None
47. Indirect production costs are incurred in three main ways:
a. Production activities: costs arising in production departments such as fuel, depreciation, supervision
18
b. Service activities: the cost of operating non-producing departments such as materials handling,
canteen
c. Establishment costs: general production overheads such as factory rent/rates, heating and lighting
A. True
B. False
48. Which of the following procedure is incorrect for attributing overhead costs to cost units?
I. Collecting production overhead costs by item
II. Establishing cost centres
III. Allocating and apportioning overhead costs to cost centres
IV. Apportioning service cost centre costs to production cost centres
V. Absorbing production cost centre costs into cost units
A. All of the above are correct
B. All of the above are incorrect
C. (II) and (IV) are incorrect
D. (II) is incorrect
49. The total amount of factory overhead represents:
a. Allocated costs
b. Apportioned costs
c. Share of service department costs
d. All of the above
50. Allocation is where overheads are allocated to cost centres. If a cost centre is responsible for the entire cost of
an item of expenditure, the entire cost is charged directly to the cost centre.
a. Correct
b. Incorrect
51. Apportionment means sharing on a reasonable basis. Many overhead costs are costs that cannot be allocated
directly to one cost centre, because they are shared by two or more cost centres. These costs are apportioned
between the cost centres.
a. Incorrect
b. Correct
52. Absorption is also called:
a. Allocation
19
b. Sharing
c. Overhead recovery
d. None
53. When overheads have been allocated and apportioned to production cost centres, they are charged to the cost
of products manufactured in the cost centre.
a. The above statement is correct
b. The above statement is incorrect
54. Production overheads are the overhead costs of both the production departments and the service departments.
a. False
b. True
55. The apportionment of production overhead costs might be in two stages:
• sharing (or dividing) general costs between production centres and service centres; and
• Then sharing the costs of the service centres between the production centres.
a. Correct
b. Incorrect
56. Sharing the costs of the service centres between the production centres is called:
a. Reapportionment
b. Reallocation
c. Secondary apportionment
d. None
57. The total overhead costs of each production centre should be:
a. Costs allocated directly to the production centre
b. Shared costs apportioned to the production centre
c. A share of the costs of each service department, apportioned to the production centre
d. All of the above
58. The absorption rate may be calculated by the fraction:
• Total overhead costs;
• Total of absorption basis.
a. Correct
b. Incorrect
20
59. Overheads can be absorbed into cost units by means of:
• Physical unit produced
• Percentage of prime cost
• Percentage of direct wages
• Direct labour hour rate
• Machine hour rate
a. All of the above
b. (I) (IV) and (V) only
c. (IV) and (V) only
d. None
60. The purpose of allocation and apportionment of overheads is to calculate an absorption rate for each
production department.
a. False
b. True
61. Absorption rates are used to add overhead costs to:
a. The Admin costs
b. Other expenses
c. The costs of production
d. None
62. A situation may arise where both service departments do work for the other service department, as well as the
production departments. The secondary apportionment is more complex. The process is called reciprocal
apportionment
63. The reciprocal apportionment and can be done using:
a. Repeated distribution method
b. Simultaneous equations method
c. Both A&B
d. None
64. A single overhead absorption rate might be used for all the production departments in the factory.
i. True
21
ii. False
65. Single overhead absorption rate is also known as:
a. Blanket rate
b. Factory-wide absorption rate
c. Both A&B
d. None
66. A blanket overhead absorption rate is an absorption rate used throughout a factory and for all jobs and units
of output irrespective of the department in which they were produced.
i. True
ii. False
67. Blanket overhead rates are not appropriate in the following circumstances.
a. There is more than one department
b. Jobs do not spend an equal amount of time in each department
c. Both A&B
d. None
68. Administration overheads and sales and distribution overheads are not absorbed into product costs. Instead,
they are treated in full as an expense in the financial period to which they relate.
69. Non-production overhead costs are never added to the value of inventory.
a. False
b. True
70. It is possible to add non-production overheads to the full production cost of units produced and sold (i.e. No
cost will be carried forward to the next period in the form of closing stock), to obtain a full cost of sale.
a. True
b. False
71. Overhead absorption is the process whereby overhead costs allocated and apportioned to production cost
centres are added to unit, job or batch costs.
a. True
b. False
72. Overhead absorption is sometimes called overhead recovery.
a. False
22
b. True
73. Overheads are usually added to cost units using a predetermined overhead absorption rate, which is calculated
using figures from the budget.
a. False
b. True
74. Predetermined absorption rates is where, the absorption rate calculated in advance using estimates for cost
and production volume in the annual financial plan or budget.
a. Correct
b. Incorrect
75. A predetermined overhead absorption rate is also known as:
a. Fixed overhead absorption rate
b. The fixed overhead recovery rate
c. The fixed overhead applied
d. All of the above
76. If the amount of production overheads absorbed into product costs is more than the actual production
overhead expenditure, there is:
a. Over-absorbed overhead
b. Under-absorbed overhead
c. Neither A or B
d. None
77. The over-absorbed overhead is accounted for as an adjustment to the profit in the period, and is added to
profit in the cost accounting income statement.
a. Correct
b. Incorrect
78. Under or over absorption is caused by the actual fixed overhead and production volume being different from
those figures used to calculate the predetermined rate.
a. False
b. True
79. Identify the circumstances where under- or over-recovery of overhead will occur:
a. Actual overhead costs are different from budgeted overheads
b. The actual activity level is different from the budgeted activity level
c. Actual overhead costs and actual activity level differ from the budgeted costs and level
23
d. All of the above
80. Variable overhead is overhead that increases as more production work is done. Total variable overhead
expenditure therefore depends on the volume of production. Variable overhead is usually calculated as an
amount for each direct labour hour worked.
24
CHAPTER FOUR
Generally Accepted Cost Accounting Principles (GACAP), Cost Accounting Standards, Cost
Audit, Companies (Cost Record & Audit) Rules, 2014 as amended from time to time, Cost
Auditing and Assurance Standards.
1. Part C of the Annexure to the Cost Audit Report in CRA 3 deals with .
(A) Manufacturing Sector
(B) Service Sector
(C) Regulated Sector
(D) Unregulated Sector
2. Cost Accounting Standard 8 is a Cost Accounting Standard on .
(A) Employee Cost
(B) Utilities Cost
(C) Pollution Control Cost
(D) Selling and Distribution Cost
3. Under the Generally Accepted Cost Accounting Principles, the cost of cane supplied from own farm to the
sugar mill is treated as .
(A) Direct Materials Cost
(B) Indirect Materials Cost
(C) Production Overhead
(D) Administrative Overhead
4. Constitution of Audit Committee by the Board of Directors is mandatory for .
(A) all companies
(B) all listed companies only
(C) all listed companies and those prescribed under the Companies (Meetings of Board and its
Powers) Rules only
(D) all public companies having turnover of ₹100 crore or more only
5. Cost Auditing Standard 102 deals with .
(A) planning an Audit of Cost Statements
(B) Cost Audit Documentation
25
(C) knowledge of process and business
(D) overall objectives of the Independent Cost Auditor
6. A shoe manufacturing company has a plant capacity of producing 700 shoes per shift. During the year of 300
working days, 3 shifts of 8 hours with half-hour recess per shift, it produces 35.91 lakh shoes. The Normal
Capacity Utilization percentage is .
(a) 82%
(b) 76%
(c) 74%
(d) 78%
7. Propriety Audit in the context of Government Audit seeks to ensure that .
(A) public money are not spent for the benefit of a particular person
(B) public officer should exercise same vigilance as in respect of expenditure his/her own money
(C) no authority should pass an order which will be directly or indirectly to its own advantage
(D) All the above
8. The Cost Accounting Standard 15 is a Cost Accounting Standard on.
(A) Employee Cost
(B) Utilities Cost
(C) Pollution Control Cost
(D) Selling and Distribution Overheads Cost
9. Overall Objectives of the independent Cost Auditor and conduct of an Audit in accordance with Cost
Auditing Standard is dealt in .
(A) Cost Auditing Standard 101
(B) Cost Auditing Standard 102
(C) Cost Auditing Standard 103
(D) Cost Auditing Standard 104
10. A company, engaged in construction business, is covered under the Companies (Cost Records and Audit)
Rules, 2014 but does not include .
(A) outsourcing by a sub-contracting company
(B) a company working on BOT (Build, Operate, Transfer) mode
(C) a company working in a Special Economic Zone
(D) a project undertaken as EPC (Eng., Procurement, Const.) contract
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11. A manufacturing unit showed, during the Financial Year 2016-17, the following financial data (in ₹lakh):
Net Sales 1,250, Export Incentives 85, Other income 106, Adj. of Finished Stock (+) 95, Materials 634,
Salaries 425, Overheads 101.8, and Tax 52.6. The Value Added as per Rules is (in ₹lakh) .
(A) 946
(B) 796
(C) 755
(D) 688
12. Royalty paid on production ₹35,000, Job Charges ₹20,000, Special Design Charges ₹ 20,000, Software
Development Charges related to Production ₹27,000, and Travelling abroad for Training ₹25,000 The
Direct Expenses as per CAS 10 is ₹ .
(A) 92,000
(B) 1,00,000
(C) 1,02,000
(D) 1,27,000
13. Operational Audit can lead to better management with the focus on .
(A) Transaction-based analysis for Fraud Prevention
(B) Compliance of Rules
(C) Risk Identification, Process Improvement
(D) Budget Monitoring
14. Penalty paid to PF authorities is in Employee Cost.
(A) included
(B) excluded
(C) based on individual case
(D) partly included
15. Item appearing only in Cost Records is .
(A) Profit on Sale of Assets
(B) Interest Received
(C) Loss on Sale of Assets
(D) Notional Interest on Capital
16. Analysis is evaluation of every resource declared in the industry.
(A) Capacity
(B) Energy
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(C) Productivity
(D) Efficiency
17. Which one of the following is not a professional misconduct in relation to Cost Accountants in Practice as
per the S econd Schedule of The CWA Act, 1959?
(A) He / she fails to invite attention to any material departure from the generally accepted procedure of
costing and pricing applicable to the circumstances
(B) He / she does not exercise due diligence or is grossly negligent in the conduct of his/her professional
duties
(C) He/ she fails to report a material misstatement known to him /her to appear in a cost or pricing statement
with which he / she is concerned in a professional capacity
(D) In the opinion of the Council, he /she brin gs disrepute to the Profession or the Institute as a
result of his/her action whet her or not related to his/her professional work
18. In which CRA Form, is the Cost Audit Report of a company filed with the Central Government?
(A) CRA-4
(B) CRA-3
(C) CRA-1
(D) CRA-2
19. CAS 23 deals with .........................................
(A) Quality Control
(B) Manufacturing Cost
(C) Overburden Removal Cost
(D) Treatment of Revenue in Cost Statements
20. As per the Cost Auditing Standard 101, the risk of Material Misstatements has two components, viz.,
……………………………
(A) Inherent Risk and Control Risk
(B) Detection Risk and Audit Risk
(C) Material Risk and Implicit Risk
(D) Financial Risk and Explicit Risk
21. As per Part D, Para 4 of the Companies (Cost Records and Audit) Rules, 2014, Value Addition and
Distribution of Earnings are to be computed based on
(A) Audited Financial Data
(B) Cost Record Data
(C) Unaudited Financial Data
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(D) Both (A) and (B)
22. The audit of data or information, depicting social performance of a business in contrast to its normal economic
performance as measured in financial audit, is
(A) Energy Audit
(B) Efficiency Audit
(C) Social Audit
(D) Propriety Audit
23. Which of the following is not a Professional Misconduct as per the First Schedule of The CWA Act, 1959, in
relation to the Cost Accountants in Practice?
(A) Pays or allows or agrees to pay or allow, directly or indirectly, any share, commission or brokerage in th
e fees or profits of his/her professional work, to any person other than a member of the Institute or a
partner or a retired partner or the legal representative of a deceased partner
(B) Enters into a partnership, in or outside India, with any person other than a Cost Accountant in Practice
or such other person who is a member of any other professional body having such qualifications as may
be prescribed
(C) Advertises his/her professional attainments or services or uses any designation or expression other than
Cost Accountant on professional documents, visiting cards, letter heads or sign boards, unless it is a
degree of a University established by law in India or recognized by the Central Government or a title
indicating membership of The ICAI or any other institution that has been recognized by the Central
Government or may be recognized by the Council
(D) Expresses his/ her opinion on cost or pricing statements of any business or enterprise in which,
he / she, his/her firm or a partner in his / her firm has substantial interest
24. Remuneration of the Non-Executive Di rectors is treated as ....................
(A) Employee Costs
(B) Administrative Overheads
(C) Salaries and Wages
(D) Management Expenses
25. As per the CAS 23, the activity of Overburden Removal that benefits the identified component of an ore to
be mined by the entity is called as ......
(A) Mining Activity
(B) Overburden Removal
(C) Stripping Activity
(D) Advance Stripping
26. Cost Audit conducted by a Chartered Accountant.
29
(A) May be
(B) Can be
(C) Cannot be
(D) May not be
27. The Cost Auditor appointed has to render the cost audit report to the board of directors of the Company,
as per the specified time limit, in Form .
(A) CRA-3
(B) CRA – 1
(C) XBRL
(D) CRA – 2
28. The cost records are to be maintained as specified in:
(A) CRA3
(B) CRA1
(C) CRA 4
(D) CRA 2
29. ‘Sugar and Industrial Alcohol’ belong to sector for the purpose of Application of Cost Records.
(A) Regulated
(B) Non-Regulated
(C) Both depending on circumstances
(D) None of above
30. Cost Audit was initially introduced in the year
(A) 1959
(B) 1965
(C) 1949
(D) 1975
30
31. The Central Govt. released the CCRA – Rules, 2014 in pursuance to the powers vested with it U/ s of
the Companies Act, 2013
(A) Section 469
(B) Section 148
(C) Section 465
(D) Section 469 and 148
32. The CCRA – Rules, 2014 supersedes
(A) Companies (Cost Accounting Records) Rules, 2011
(B) Companies (Cost Audit Report) Rules, 2011
(C) Cost Accounting Records (Telecommunication Industry) Rules, 2011
(D) All the above
33. The provisions related to maintenance of cost records were introduced in the year --------- by amendment to
the companies act, 1956.
(A) 1960
(B) 1965
(C) 1966
(D) 1970
34. The CCRA – Rules, 2014 is not applicable to
(A) MSME
(B) Export oriented units
(C) Private limited companies
(D) Units operating from SEZ
35. The cost audit report under CCRA – Rules, 2014 is to be submitted in ---------------
(A) Form – 3
(B) Form – 4
(C) Form – 1
(D) Form – 2
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36. The cost audit report under CCRA – Rules, 2014 is to be filed as an attachment to -----------
(A) Form – 3
(B) Form – 4
(C) Form – 2
(D) None of the above
37. Which one of the below is not a regulated industry
(A) Fertilizers
(B) Aluminium
(C) Sugar
(D) Petroleum products
38. The turnover criteria for applicability of CCRA – Rules, 2014 is
(A) At the end of immediately preceding financial year
(B) At the end of the financial year
(C) Average of 3 preceding financial year
(D) When the company achieves the turnover during the current financial year
39. The cost auditor to be appointed within_____days of the beginning of the financial year.
(A) 90 days
(B) 180 days
(C) 6 months
(D) 270 days
40. CCRA – Rules, 2014 is applicable from the financial year commencing on or after
(A)01.01.2014
(B) 01.04.2014
(C) 01.07.2014
(D) 01.04.2015
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41. Which Para in covered in Part D to the Annexures to Cost audit report.
(A) Profit Reconciliation
(B) Value addition and distribution of profit
(C) Reconciliation of Indirect taxes
(D) Abridge Cost Statement
42. CAS 11 deals with:
(A) Administrative Overhead
(B) Factory Overhead
(C) Selling & Distribution Overhead
(D) Financial Cost
43. CAS 5 deals with
(A) Equalized cost of transportation
(B) Captive consumption
(C) Capacity determination
(D) Cost classification
44. The foreign exchange component of imported material is converted at the rate on –
(A) Date of Payment
(B) Date of Delivery
(C) Date of Transaction
(D) Date of Use
45. Variances due to abnormal reasons form part of cost as per GACAP.
(A) Will Not
(B) Is
(C) Are
(D) Will
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46. As per CAS 2 Actual Capacity utilization shall be presented as a percentage of capacity.
(A) Installed Capacity
(B) Practical Capacity
(C) Abnormal Loss (%)
(D) Actual Production
47. CAS-20 deals with
(A) Royalty and Technic al Knowhow fee
(B) Material Cost
(C) Research & Development Cost
(D) Financial Cost
48. The objective of CAS – 101 is to .
(A) Prepare cost records
(B) Prepare cost audit documentation
(C) Guide the members to make planning for the audit of cost statement
(D) Enable the cost auditor to have knowledge of the clients business
49. The procedures followed by the cost auditor to reduce the audit risk to an acceptable level will not detect a
misstatement that exists and that could be material is .
(A) Inherent risk
(B) Detection risk
(C) Control risk (D). None of these
50. Cost auditing standard deals with .
(A) Auditors responsibility
(B) Auditors power
(C) Auditors right
(D) Auditors flexibility
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51. Cost auditing standards preface to the standards on .
(A) Quality control
(B) Planning
(C) Development
(D) None of these
52. Cost auditing standards preface to the standards on auditing, quality control review and related services
rendered by the cost accountant has been issued by .
(A) ICAI
(B) ICMAI
(C) CAASB
(D) ICWAI
53. CAS ensures the achievement of audit objectives with available
resources and securing coordination with the auditee on audit work.
(A) CAS – 102
(B) CAS –104
(C) CAS – 103
(D) CAS- 101
54. CAS 104 enables the cost auditor .
(A) To have knowledge of the clients business
(B) Overall objectives of the cost auditor and the conduct of an audit
(C) Guide the members to prepare cost audit documentation
(D) Making plan for audit of cost statement
55. Requirements of CAS – 104, the cost auditor shall .
(A) Comply with the relevant ethical requirements
(B) Have adequate level of understanding of the knowledge of business
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(C) Prepare audit documentation
(D) None of these
56. The cost auditing standards deal with the of the cost auditor.
(A) Efficiency
(B) Effectiveness
(C) Qualifications
(D) Responsibility
57. Which one of the following KPI is used to measure productivity & efficiency a machinery
(A) % of Idle time to total available time
(B) Machine downtime ratio
(C) Cost per of Break-Down Hour
(D) Contribution per unit of material used
58. KPI can be classified in following Category.
(A) Quantitative & Qualitative
(B) Actionable
(C) Trending
(D) All of the above
59. Which one of the following is covered under performance analysis report
(A) Cost per unit of material used
(B) Cost of utilities
(C) Impact of IFRS on the Cost Structure
(D) Impact of CAS and GACAP
60. Performance Prism is basic ally used for the purpose of
(A) Cost Reduction
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(B) Cost Control
(C) Total performance management
61. Kaizen Costing & Lean Manufacturing (Management Accounting Tool) are used as
(A) Cost Reduction Tool
(B) Cost Computation Tool
(C) Performance Measure Tool
(D) Control Tool
62. The main objectives of management audit is to .
(A) Suggest improvement in methods of operations
(B) Framing basic policies for the organization
(C) Setting up an organizational framework
(D) None of these
63. Management audit on financial matters.
(A) Involves
(B) Only concentrate
(C) Does not concentrate
64. None of theseThe main emphasis of Management Audit is:
(A) Problem solving
(B) Problem identification
(C) Problem definition
(D) Problem avoidance
65. Efficiency Audit ensures return on Capital Employed
(A) optimum
(B) maximum
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(C) minimum
(D) average
66. There are no fixed items of evidence to be checked by Management Auditor
(A) The statement is true
(B) The statement is false
(C) The statement is partly true
(D) The statement is partly false
67. Consumer Service Audit is part of
(A) Business Activity Audit
(B) Social Audit
(C) Service Audit
(D) None of Above
68. Management Audit Report Submitted to:
(A) Cost Audit Branch
(B) Audit Committee
(C) Central Government
(D) Management of Concern
69. There are no fixed items of evidence to be checked by Management Auditor. A Management Auditor has to
rely more on
(A) his experience and acumen
(B) Auditors Working Paper
(C) Physic al Verification Sheet
(D) Information Provided by Management
70. Assurance engagements involve
(A) Only Individual Parties
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(B) Three separate parties
(C) Contractor and Contractee
(D) None of them
71. Zero base budget (ZBB) system was modeled by
(A) Peter A Woodcock
(B) Peter A Phyrrh
(C) P F Ducker
(D) None of them
72. Important point in Corporate planning is
(A) Time and Work Study
(B) Imposing Control System
(C) Forecasting and goal setting
(D) SWOT analysis.
73. Internal control system can be comprised of
(A) Preventive Control
(B) Detective Control
(C) Corrective Control
74. Who can be appointed as Internal Au ditor as per the Companies Act, 2013
(A) A Chartered Accountant
(B) A Cost Accountant
(C) Such other professional
75. Which section of Companies Act deals with Internal Audit
(A) Section 138
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(B) Section 148
(C) Section 139
(D) Section 192
76. One of the major components of government audit is/ are
(A) Government Revenue
(B) Union Budget and Control
(C) Government Expenditure
(D) Taxation and Fiscal Policies
77. Internal Audit can be performed by
(A) Employee of the Organization
(B) External Agencies
(C) Management itself
(D) Both (A) and (B)
78. NGO(s) are incorporated under
(A) Societies Registration Act, 1860
(B) India Trust Act, 1882
(C) As Section 8 Company
79. The management auditor shall consider in the evaluation of capacity utilization –
(A) Method of measuring base machine capacity
(B) Capacity measurement is based on “capital output ratio” or sundry other factors
80. Technical terminology like licensed capacity, installed capacity, rated capacity etc should be properly defined
(A) All of the above
81. Qualities of good Internal Auditor are/is
(A) Right Attitude
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(B) Technic al Expertise
(C) Communication and other soft skills
82. An audit of or for a government agency is composed
(A) Financial compliance
(B) Economy and efficiency
(C) Program results
83. Aspects may be taken into consideration for proper inventory control
(A) Maximum, minimum and reorder level fixation
(B) Fixed order quantity system and different replenishment systems
(C) Fast moving, slow moving and non-moving analysis etc
84. Internal Audit is
(A) One time activity
(B) A continuous activity
(C) Half yearly
(D) None of above
85. There is no requirement of Audit Working P apers while conducting audit and they only result in loss of time.
(A) The Statement is Correct
(B) The Statement is Incorrect
(C) The Statement is Incomplete
(D) None
86. Field Balance Sheet Approach to audit can be applied in case of audit of the
(A) Co-Operative societies
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(B) Local Body Corporate
(C) Self-Help Group
(D) Club
87. Under ‘propriety audit’, the auditors try to bring out what type of expenditure:
(A) Improper
(B) Avoidable
(C) In fructuous
88. States about the audit of accounts of Municipalities.
(A) Article 243Z of the Constitution
(B) Article 243J of the Constitution
(C) Both (A) and (B)
89. What is the first step to conduct Hospital Audit?
(A) Check the letter of appointment
(B) Study Trust Deed
(C) Examine Records
(D) Physical Verification
90. Who appoint the auditor for Government Company?
(A) Board of Directors
(B) Audit Committee
(C) C&AG
(D) CBDT
91. C&AG has right to direct the manner in which the company’s accounts shall be audited by the auditor and to
give such auditor instructions in regard to any matter relating to the performance of his functions as per section
42
(A) 44AB of income Tax
(B) 143 of the Companies Act, 2013
(C) 173 of the Companies Act, 2013
(D) 134 of the Companies Act, 2013
92. Financial Administration of Local Bodies includes
(A) Budgetary Procedure
(B) Expenditure Control
(C) Accounting System
93. Non-Governmental Organizations can be incorporated as a company
(A) Section 25 of the Companies Act, 1956
(B) Section 8 of the Companies Act, 2013
(C) Section 28 of the Companies Act, 2013
94. The government also engages in commercial activities and for the purpose it may incorporate type of
entities.
(A) Five
(B) Three
(C) Many
(D) Various
95. Which one of the followings in an example of “Profitability Ratio”
(A) Inventory Turnover Ratio
(B) Proprietary Ratio
(C) Expenses Ratio
(D) Capital Gearing Ratio
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96. Which one of the followings in an example of “Solvency Ratio”
(A) Capital turnover Ratio
(B) Debt Equity ratio
(C) Debtors Turnover Ratio
(D) None of above
97. Which one of the following is not an utilities.
(A) Steam
(B) Water
(C) Compressed Air
(D) Broadband internet services
98. Cost of Inventory does not include
(A) Costs of Purchase
(B) Costs of Conversion
(C) Other Direct Cost
(D) Administrative overheads that do not contribute to bringing inventories to their present location
and condition
99. Which one of the following costs appeared only in Cost Accounts?
(A) Interest on mortgage and loans
(B) Notional Interest on Capital
(C) Dividend equalization fund, sinking, fund etc
(D) Loss due to scrapping of plan and machinery
100. Royalty paid on sales ₹30,000; Royalty paid on units produced ₹20,000, Hire Charges of equipment
used for production ₹2,000, Design charges ₹15,000, Software development charges related to
production ₹22,000. The Direct Expenses amount is:
(A) ₹88000
(B) ₹89000
(C) ₹99000
(D) ₹98000
44
101. Royalty paid on units produced ₹20,000, Hire Charges of equipment used for production ₹2,000,
Design charges ₹15,000, Software development charges related to production ₹22,000. The Direct Expenses
is:
(A) ₹57000
(B) ₹59000
(C) ₹37000
(D) ₹44000
102. Gross Sales ₹16500 lacs, Excise Duty ₹1240 lacs, Increase in stock ₹42 lacs Cost of raw materials
₹6250 lacs, Power ₹2220 lacs, other overheads ₹215 lacs, Value Added is:
(A) ₹15260 Lac

(B) ₹6617 Lac
(C) ₹6533 Lac
(D) ₹15302 lac
103. Rule 4 of the Companies (Cost Records and Audit) Rules, 2014 deals with:
(A) Application of Cost Records
(B) Application of Cost Audit
(C) Appointment of Cost Auditor
(D) Cost Audit Report
104. Abnormal Loss due to flood or earthquake is charged to:
(A) Administrative Overhead Cost

(B) Material Cost
(C) Costing Profit and Loss Account
(D) Selling and Distribution Cost
105. XBRL is a language based on:
(A) XBL family of languages
(B) XRL family of languages
(C) XML family of languages
(D) XGL family of languages
106. Part B of the Annexure to Cost Audit Report deals:
(A) Service Sector
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(B) Manufacturing Sector
(C) Both manufacturing and service sector
107. CAS 14 deals with:
(A) Repair and Maintenance Cost
(B) Pollution Control Cost
(C) Direct Expenses
(D) Packing material cost
108. Operating Expense does not include:
(A) Rent
(B) Equipment
(C) Interest
(D) Payroll
109. Outward transportation cost shall form part of :
(A) Cost of material
(B) Cost of Sale
(C) Packing material
(D) Administration Overhead
110. Rule 6 of the Companies (Cost Records and Audit) Rules, 2014 deals with:
(A) Application of Cost Records
(B) Application of Cost Audit
(C) Appointment of Cost Auditor
(D) Cost Audit Report
111. Product and Profitability Statement (For audited products/services) is shown under
of Annexure to Cost Audit Report.
46
(A) Part A
(B) Part B
(C) Part C
(D) Part D
112. Any casual vacancy in the office of a cost auditor, shall be filled by the Board of Directors within
days of occurrence of such vacancy.
(A) 180
(B) 90
(C) 30
(D) 60
113. The Companies are required to maintain Cost Records if turnover exceeds
crores or more during immediately preceding Financial Year in respect of the products and services specified
(A) ₹25
(B) ₹30
(C) ₹35
(D) ₹10
114. Which one of the following is not a professional misconduct in relation to Cost Accountants in
Practice as per the First Schedule of The CWA Act, 1959?
(A) discloses information acquired in the course of his professional engagement to any person other
than his client so engaging him, without the consent of his client, or otherwise than as required by
any law for the time being in force
(B) allows any person to practice in his name as a cost accountant unless such person is also a cost accountant in
practice and is in partnership with or employed by himself
(C) accepts or agrees to accept any part of the profits of the professional work of a person who is not a member of
the Institute
(D) secures, either through the services of a person who is not an employee of such cost accountant or who is not
his partner or by means which are not open to a cost accountant, any professional business
115. CAS 9 deals with
(A) Direct Material Cost
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(B) Indirect Material Cost
(C) Packing Material Cost
(D) Imported Material Cost
116. Operational Audit is a Level Management Audit.
(A) Macro
(B) Micro
(C) Depends on situation
117. Exemptions from application of the Rules are provided to Companies whose revenue from exports,
in foreign exchange, exceeds of total revenue and companies operating from Special Economic Zones.
(A) 45%
(B) 50%
(C) 75%
(D) 80%
118. In XBRL Format process of determining the elements that correspond to lines and columns in a
financial statement and which elements must be created by extension is:
(A) Mapping
(B) Label
(C) Hierarchy
(D) Scaling
119. Before submission to the Auditor for Report, the Form CRA 3 should be signed by
(A) The Secretary and the Chief Finance Officer of the company
(B) The Secretary and the Cost Accounts Officer of the company
(C) The Secretary and one Director of the company
(D) The Chief Finance Officer and the Managing Director of the company
48
120. Cost of self-generation utilities for own consumption shall comprise .
(A) Administrative overheads
(B) Distribution cost
(C) Factory overheads
121. Cost Audit Documentation is dealt in the
122. A member of The ICAI shall be deemed to be guilty of other misconduct, if he/she is held guilty by
any civil or criminal court of an offence which is punishable with imprisonment .
(A) For a term exceeding 3 years
(B) For a term exceeding 3 months
(C) For a term exceeding 6 months
(D) For a term exceeding 2 years
123. Costing Taxonomy is best defined as a .
(A) Dictionary
(B) Made Easy
(C) Tax Ready Reckoner
(D) Referencer
124. Which of the following ratios appears as Profit ability Ratio in Part D of Annexure to the Cost Audit
Report ?
(A) Net Profit to Net Sale
(B) Value added to Net Sales
(C) Profit before Tax to Value Added
(D) Net Profit to Share Capital
49
125. CAS 24 deals with .
(A) Overburden Removal Cost
(B) Interest and Financing Charges
(C) Royalty and Technic al Knowhow Fee
(D) Treatment of Revenue in Cost Statements
126. ORS Ltd is a multi-product company having annual turnover of ₹103 crore, Table A items under
CARO being ₹26 crore, Table B items ₹8 crore and the rest are not covered in either of the Tables. Cost Audit
will be .
(A) not applicable to the company
(B) applicable for Table A products only
(C) applicable for all products
(D) applicable for Table A and Table B products only
127. The wages of employees of contractor engaged in the organization for the past period is
Employee Cost.
(A) included in
(B) excluded from
(C) included to the extent of statutory contribution of employer
(D) partly included
128. The figures below are available for Reliable Ltd Budgeted production - 800 units, Standard hours per
unit 25, Actual production 576 units and actual working— 12000 hours. What is the Efficiency Ratio?
(A) 110%
(B) 120%
(C) 100%
(D) 125%
129. Machinery used in defense, space and atomic energy sector and fulfilling turnover criteria is under
(A) regulated sector
(B) unregulated sector
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(C) exempted by different statute
(D) not applicable category
130. Cost Auditing Standard 102 deals with .
(A) knowledge in performing of audit of cost statements, records etc
(B) ensuring conduct of audit of cost statements
(C) planning on audit of cost statements, records etc
(D) documentation of audit of cost statements, records etc
131. The abridged cost statement (CRA 3) need not be separate for
(A) each product with separate (CTA) CETA heading
(B) each product having separate industry specific expenses
(C) each product having different unit of measure
(D) self/captive consumption of each product
132. The Management Auditor should evaluate MIS of an organization after _.
(A) studying content, quality and source of information
(B) studying flow of information
(C) studying correlation of information in decision areas
(D) studying all the above
133. The first step in audit of Educational Institutions —
(A) Read through the minutes of the meetings of the Managing Committee or Governing Body
(B) Check admission fees with admission slips signed by the head of the institution and confirm that the amount
had been credited to a Capital Fund
(C) Verify the annual statement of accounts
(D) To examine the Trust Deed or Regulations
134. SHYAN Ltd. has a machine of productive capacity of 1500 unit per hour. It runs 3 shifts with 1
weekly off and 12 holidays per year, each shift has one hour stoppage due to lunch, change shift etc
Maintenance is done in running time. The Normal Capacity of the plant as per CAS-2 will be
51
(A) 131.40 lakh units
(B) 94.815 lakh units
(C) 108.36 lakh units
135. BORS & Co., a firm of Cost Accountants was appointed as Cost Auditor of PANTEX LTD on
31.07.2018 for auditing the cost records for the FY 2018-19. The Auditor appointed as such shall continue in
such capacity up to
(A) 31.07.2019, on expiry of one year of appointment
(B) 30.09.2019, on expiry of six months from close of accounts
(C) 30.08.2019, date of submission date of Cost Audit Report
(D) 15.09.2019, date of holding of Annual General Meeting of PANTEX LTD
136. Which one of the following KPI (Key Performance Indicator) is used to measure efficiency of
manufacturing performance?
(A) Production per Machine Hour
(B) Operating Cycle of Materials turnover
(C) Material as % of Total Cost
(D) % of idle time to total available time
137. The consumer service audit critically examines:
(A) Outstanding payment of consumers
(B) Price consumers are ready to pay for particular product/ service
(C) An appraise management of business enterprise of responsibility towards consumers
(D) Demand of a product by consumers
138. “Related Party” with relation to a party means
(A) a director or his relative
(B) a Key Managerial Person or his relative
(C) a firm, in which a Director, Manager or his relative is a partner
(D) Either or all the above
52
139. Once the instance document is successfully validated from the tool, the next step is to
(A) download XBRL validation tool
(B) pre-scrutinize the validated instance document
(C) convert to human readable format and verify correctness of the instance document
(D) attach instance document to the Form CRA-4
140. The knowledge of Entity’s Internal Control is to be understood by the Cost Auditor as required by
141. Profit Reconciliation of the company as a whole is dealt in
(A) Part D para 2 of the Annexure to Cost Audit Report
(B) Part C para 1 of the Annexure to Cost Audit Report
(C) Form of the Cost Audit Report
(D) Part A para 1 of the Annexure to Cost Audit Report
142. The following details relating to MENG LTD are given
Royalty paid on Units produced 25,000
Hire charges on Equipment 20,000
Design Charges 18,000
Software Development Charges for 22,000

Production
What will be the Direct Expenses of the Company (as per CAS-10)?
(A)₹60,000
(B) ₹63,000
(C) ₹65,000
(D) ₹85,000
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CHAPTER FIVE
Methods of Costing: Single Output Costing, Job Costing, Batch Costing, Contract
Costing, Process Costing, Service Costing.
1. The monetary value attributed to normal losses in a process should be
a) A share of the process cost according to the stage of completion of the losses.
b) A nil value with no other monetary adjustment under any circumstances.
c) A full share of process cost on the same as good output.
d) A nil share of process costs which have been reduced by the scrap value of the normal loss.
2. Details for the past month of a continuous process are:
a) Opening W.I.P. (400 units) (60% complete)
b) Closing W.I.P. (600 units ) (20% complete)
c) Unit started 1,000
d) Unit finished 800

3. An abnormal gain in a process occurs in which of the following situations?
a) When actual losses are greater than the normal loss level.
b) When costs are reduced through increased machine speed
c) When actual losses are less than the normal level.
d) When the process output is greater than planned.

4. Where process scrap is recycled for use in conjunction with new material as well as being so externally, which of
the following is most likely to be the value at which is debited to the process?
a) At the same price as it sold externally.
b) At the cost of normal losses.
c) At the cost attached to abnormal losses.
d) Nil value.
5. The physical flow of units into and out of departments is shown on the:
a) Quantities schedule.
b) Emulgent production schedule.
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c) Cost of account for schedule.
d) Cost of Accounted for schedule.

6. An equivalent unit of material or conversion cost is equal to
a) The amount of material conversion cost necessary to complete one unit of production.
b) A unit of work-in-process inventory.
c) The amount of material or conversion cost necessary to start a unit of production into work in
process inventory.
d) Fifty percent of material or conversion cost of a unit to finished goods inventory

7. Which of the following manufacturers would most likely not use a process-cost accounting system?
a) A producer of computer monitors.
b) A paint manufacturer.
c) A producer of frozen orange juice
d) A builder of customized yachts
e) A lumber mill.
8. If beginning work in process equivalent units are 2500 units, work done in current period equivalent units are
3800 units and ending work in process equivalent units are 5000, then complete equivalent units in current period
are
a) 1500 units
b) 1300 units
c) 1500 units
d) 1800 units
9. First step in process costing system is to
a) compute cost for each equivalent unit
b) summarize total costs
c) compute output in units
d) summarize flow of output

10. If total incurred cost in a production process are ₹30000 and number of output units are 5000 units, then units
cost will be
a) 26
b) 6
c) 60
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d) 16
11. If cost incurred for work in process inventory is ₹350000 and total equivalent units completed till date are
3500, then weighted average cost will be
a) 1,200
b) 1,000
c) 100
d) 10
12. In Process industries there is a flow of from one operation to the next operation.
a) Material
b) Labour
c) Overhead
d) Expenses
13. Make or But Decisions are involved before and after different……………….
a. Service.
b. Contract.
c. Processes.
d. Indirect Cost.
14. In process costing each process is treated as a separate………………
a) Cost Centre
b) Cost Unit
c) Cost Structure
d) Cost Industry
15 are produced from the same basic raw materials.
a) Joint Product.
b) By Product
c) Main Product
d) Final Product
16. Husk produced in the process of Rice milling, is an example of ………………
a) Joint Product.
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b) By Product
c) Main Product
d) Final Product
17. Joint Cost are to individual joint products.
a) Non-Traceable
b) Separate
c) Traceable
d) Combined
18. Subsequent cost are… to individual product.
a) Non-Traceable
b) Separate
c) Traceable
d) Combined
19. Skimmed milk and Butter are the example of……………..
a) Joint Product.
b) By Product
c) Main Product
d) Final Product
20. Post separation costs are attributable to each products.
a) Joint Product.
b) By Product
c) Main Product
d) Final Product.
21. Process costing provides a system of costing where the following characteristics occur. Identify which of the
following are correct:
A. Output is continually produced from the manufacturing process. Materials might be added in full
at the start of a process or might be added gradually throughout the process.
B. There might be losses in the process. Process costing provides a method of measuring and costing
incomplete WIP.
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C. When more than one product is output, they might be called joint products or a by-product,
depending upon the relative value of the products. Process costing offers methods of costing each
of the different products.
D. All of the above are correct
22. Process costing is used when output is produced in a continuous process system, and it is difficult to separate
individual units of output.
A. True
B. False
23. Examples of manufacturing where process costing is used include:
A. Chemicals manufacture, Petroleum refining, the manufacture of liquids
B. The continuous processing of high volumes of low-cost food items such as tins of peas or beans,
or bottles of tomato ketchup.
C. Both A&B
D. None
24 The task that sits at the heart of process costing is always to allocate the costs collected on the debit side of the account
to the possible outputs (good output, closing WIP and lost units) on the credit side.
A. The above statement is correct
B. The above statement is incorrect
25 In process costing questions, you will need to:
A. Identify the losses and output
B. Calculate the cost of good output, losses and WIP
C. Use the costs you have calculated to assign values to the good output, losses and WIP
D. All of the above
26 It is possible to have abnormal loss and abnormal gain on the same process account in the same period.
A. False
B. True
27. In a process costing system loss might be:
A. Normal
B. Abnormal
C. Both A&B
D. None
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28. Normal loss is usually expressed as a percentage of the input units of materials.
A. Correct
B. Incorrect
29. Normal loss is in the normal course of events. It is inherent in the physical and chemical reactions that take
place in a process.
A. Avoidable
B. Unavoidable
30. The normal loss is something that is unavoidable in order to get the good output. The cost of the lost units is part
of the cost of obtaining the good output.
A. True
B. False
31. Normal loss comes with:
A. No recovery/scrape value
B. Recovery/scrape value
C. Either A or B
D. None
32. The normal loss has no scrap value it is given a nil value.
A. False
B. True
33. If normal loss has a scrap value the company is able to recover some of the input costs to the process. The scrap
value reduces the cost of the process.

34. In some cases, a company might have to pay to dispose of losses in a process. The cost of disposal represents an
additional cost to the process. To reflect this in the process account the normal loss is measured at zero but the
expected costs of disposal are debited to the process account.
A. The above statement is incorrect
B. The above statement is correct
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35. The disposal cost of abnormal loss is included in the abnormal loss account and therefore in the transfer of the
cost of abnormal loss to the statement of profit or loss.
A. True
B. False
36. When actual loss exceeds normal loss, there is:
A. Abnormal loss
B. Abnormal gain
C. Extra loss
D. None
37. The difference between total actual loss and normal loss is abnormal loss.
A. Incorrect
B. Correct
38. If it is assumed that all losses in process occur at the end of the process, units of abnormal loss are costed in exactly the
same way in the as units of finished output.
A. True
B. False
39. The cost of abnormal loss is built into inventory.
A. False
B. True
40. The cost of units of abnormal loss is treated as an for the period, and charged as an for the period
A. Product cost, inventory cost
B. Expense, expense in the income statement
C. Extra cost, suspense cost
D. None
41. Abnormal loss comes with
A. No recovery/scrape value
B. Recovery/scrape value
C. Either A or B
D. None
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42. When the abnormal has a scrape value the net cost of abnormal loss (cost of abnormal loss minus its scrap value) is
then transferred as a cost to the cost accounting income statement at the end of the accounting period.

43. When actual loss is less than the expected (normal) loss there is:
A. Extra ordinary loss
B. Abnormal loss
C. Abnormal gain
D. None
44. Identify which of the following statement is correct.
A. Abnormal gain is a benefit rather than a cost. Whereas abnormal loss is written off as a cost at the
end of the financial period.
B. Abnormal gain is an adjustment that increases the profit for the period.
C. Abnormal gain is recorded as a debit entry in the process account, because it is a benefit.

45. When there is closing work in progress (WIP) the concept of is used.
A. Equivalent units
B. Expected units
C. Fair allocated units
D. None
46. An equivalent unit means ‘equal to one finished unit of output’.
A. False
B. True
47. When there is closing work in progress, costs are shared between finished units and inventory by calculating a cost
per equivalent unit.
A. True
B. False
48. When there is opening work in progress there are two types of cost on the debit side of the account. These are the
costs that were incurred last period and brought forward as work in progress and the costs that were incurred in the
current period.
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49. Are the costs of opening WIP, incurred in last period and brought forward as work in progress and the costs that were
incurred in the current period, treated the same way?
A. Yes, treated together
B. Treated Separately
C. This question is addressed in the accounting policy adopted for opening work in progress.
D. None
50. Joint products are two or more products generated simultaneously, by a single manufacturing process using common
input, and being substantially equal in value.

51. In order to calculate a cost for each joint product, the common costs must be
between the joint products.
A. Identified
B. Allocated
C. Apportioned
D. None
52. Which of the methods of apportionment is normally used for apportioning common costs between joint products?
A. Units basis
B. Sales value at the split-off point basis
C. Net realizable value
D. Either of the above

53. In Units basis, Common costs are apportioned between joint products on the basis of the total number of units
produced. The cost per unit is the same for all the joint products. (This is also described as the physical quantities
basis).
A. Correct
B. Incorrect
54. The units basis has the following limitations.
A. Where the products separate during the processes into different states, for example where one
product is a gas and another is a liquid, this method is unsuitable.
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B. This method does not take into account the relative income-earning potentials of the individual
products, with the result that one product might appear very profitable and another appears to be
incurring losses.
C. Both A&B
D. None
55. The relative sales value method is the most widely used method of apportioning joint costs because (ignoring the
effect of further processing costs) it assumes that all products achieve the same profit margin.
A. True
B. False
56. By products are outputs from a joint process that are relatively minor in quantity and/or value.
A. False
B. True
57. How are the sales proceeds from by-products treated?
A. As revenue (adding it to the revenue from sales of other products)
B. As other income
C. As a deduction from joint process costs (this is the most commonly used method)
D. Either of the above

58. Since a by-product does not have any substantial value, there is no sense in charging it with a share of the common
processing costs.
A. False
B. True
59. Which of the following statement is correct?
A. A joint product is regarded as an important sale-able item, and so it should be separately costed.
The profitability of each joint product should be assessed in the cost accounts.
B. A by-product is not important as a sale-able item, and whatever revenue it earns is a ‘bonus’ for
the organisation. Because of their relative insignificance, by-products are not separately costed.
C. Both A&B are correct
D. None
60. The point at which joint products and by-products become separately identifiable is known as:
A. The split off point
B. Separation point
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C. Either A or B
D. None
61. Service costing is also called as:
A. Operating Costing
B. Non-Operating Costing
C. Overhead Costing
D. Product Costing
62. In service cost sheet costs are classified into :
A. Indirect charges.
B. Overheads.
C. Standing charges.
D. Fixed expenses.
63. In service costing division is an / a :
A. Operation
B. Process
C. Contract
D. Department
64. In transport service, cost sheet depreciation cost are grouped under:
A. Fixed Cost.
B. Stand by cost.
C. Semi-variable cost.
D. Variable cost.
65. An example of composite unit in transport costing is:
A. Per passenger per km
B. Per passenger per seat
C. Per km per seat
D. Per passenger per travel

66. Operating cost is the cost incurred for providing:
A. Job.
64
B. Operation.
C. Service.
D. Product.
67. Number of passenger kilometer= Number of passengers X………………
A. Number of kms.
B. Number of seats.
C. Number of buses.
D. Number of distances.
68. IF the profit are 50% of operating cost, it is of invoice price.
A. 20%
B. 25%
C. 16.66667%
D. 33.33334%
69. Operating costing system is more suitable to:
A. Product industries.
B. Contraction industries.
C. Service industries.
D. Manufacturing industries.
70. Per kilometer is an example of……..cost unit used in transport undertakings.
A. Simple
B. Composite
C. Dual
D. Joint
71. The production operations of most businesses can be categorized as either being:
A. Specific orders
B. Continuous operations
C. Both A or B
D. None
65
72. Specific order costing methods are appropriate for organizations which produce cost units which are separately
identifiable from one another.

73. Identify the types of specific order costing.
A. Job costing
B. Batch costing
C. Process costing
D. Both A&B only

74. Job costing is used when a business entity carries out tasks or jobs to meet specific customer orders.
A. The above statement is false
B. The above statement is true

75. A job is a cost unit which consists of a single order or contract.
A. True
B. False
76. Job costing is used when a business entity carries out tasks or jobs to meet specific customer orders.
A. True
B. False
77. In Job costing a cost is calculated for each individual job, and this cost can be used to establish the profit or loss from
doing the job.
A. The above statement is incorrect
B. The above statement is correct
78. Which of the following statement is correct with regard to job costing?
A. Job costing differs from most other types of costing system because each cost unit is a job, and no
two jobs are exactly the same. Each job is costed separately.
B. The expected cost of a job has to be estimated so that a price for the job can be quoted to a
customer.
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C. A costing system should also calculate the actual cost of each job that has been carried out to work
out the relative profitability of relevant jobs.

79. A job costing system is usually based on absorption costing principles, and in addition a cost is included for non-
production overheads.
A. False
B. True
80. Non-production overheads might be added to the cost of the job:
A. As a percentage of the prime cost of the job
B. As a percentage of the production cost of the job
C. Either A or B
D. None
81. In job costing each job is given a unique:
A. Identity number, or job number
B. Account name
C. Costing system
D. None
82. In a costing system, a job account is similar to a work in progress account, except that it is for one job only. In a
company that specialises in jobbing work, the work in progress account is the total of all the individual job accounts.
83. Job costing is a costing method applied where work is undertaken to customers’ special requirements and each order
is of comparatively short duration.
A. True
B. False
84. Costs for each job are collected on a:
A. Job cost sheet
B. Job card
C. Either A or B
67
D. None
85. separate record must therefore be maintained to show the details of individual jobs. Such records are often known as
job cost sheets or job cost cards.
A. Correct
B. Incorrect
86. The items recorded on job cost sheet would include:
A. Job number, description of job, specifications, etc.
B. Customer details, estimated costs, selling price, estimated profit
C. Delivery date promised, actual delivery date, delivery note number
D. All of the above

87. The usual method of fixing prices in a jobbing concern is cost plus pricing.
A. True
B. False
88. Cost plus pricing means that a desired profit margin is added to total costs to arrive at the selling price.
A. False
B. True
89. A computerized job accounting system contain which of the following features:
A. Every job will be given a job code number, which will determine how the data relating to the job
is stored.
B. A separate set of codes will be given for the type of costs that any job is likely to incur. Thus ‘direct
wages’, say, will have the same code whichever job they are allocated to.
C. In a sophisticated system, costs can be analysed both by job (for example all costs related to Job
456), but also by type (for example direct wages incurred on all jobs). It is therefore easy to perform
control analysis and to make comparisons between jobs.
D. A job costing system might have facilities built into it which incorporate other factors relating to
the performance of the job. In complex jobs, sophisticated planning techniques might be
employed to ensure that the job is performed in the minimum time possible: time management
features may be incorporated into job costing software.
E. All of the above

90. It is possible to use a job costing system to control the costs of an internal service department, such as the maintenance
department and the printing department.
68

91. What would be the effect of inaccurate estimation of overhead absorption rates on a Job?
A. If the jobs are over-priced, customers will go elsewhere
B. If the jobs are under-priced, sales revenue will fail to cover costs and/or provide an adequate return
C. Both A&B
D. None
92. Batch costing is similar to job costing in that each batch of similar articles is separately identifiable.
A. False
B. True
93. The cost per unit manufactured in a batch is the total batch cost divided by the number of units in the batch.
A. Correct
B. Incorrect
94. The job costing method can therefore be applied in costing batches. The only difference is that a number of items are
being costed together as a single unit, instead of a single item or service.

95. Identify the characteristics of services:
I. Intangibility: They do not have a physical substance unlike goods. They cannot be held or seen.
II. Inseparability: Consumption and creation of a service cannot be separated. Services are consumed
as they are created.
III. Variability: Services face the problem of maintaining consistency in the standard of output.
IV. Perishability: Services cannot be stored.
V. Lack of ownership: Services do not result in the transfer of property in anything.
A. All of the above
B. (I) (II) and (V) only
C. (I) and (V) only
D. None
96. The loss incurred on an incomplete contract is transferred to account.
A. Costing profit and loss account
B. profit and loss account
69
C. trading account
D. deferred to next year.

97. When the completion stage of the contract is more than half, the profit to be credited to Profit and Loss account will
be equal to…………..
A. 1/3rd of Notional Profit x cash received Work certified
B. ½ of Notional Profit x cash received Work certified
C. 2/3rd of Notional profit x cash received Work certified
D. Full Notional Profit.

98. If the amount of work certified is less than of the contract price,then no profit
should be taken to Profit & Loss Account.
(A) 20%
(B) 25%
(C) 33 1/3%
(D) 40%
99. Contract costing is not used in one of the following industries.
A. Ship building
B. Civil Construction
C. Automobiles
D. Construction of Bridges
100. The sum of value of work certified and uncertified appearing in the Contract Account is called ……………..
A. Work done.
B. Work in Process
C. Work Completed
D. Work in Progress
101. Total costs incur in a production process, is divided by total number of output units to calculate the
a) unit costs
b) cost of direct material
c) cost of direct labour
d) cost of indirect labour
70
102. If beginning work in process equivalent units are 2500 units, work done in current period equivalent units are
3800 units and ending work in process equivalent units are 5000, then complete equivalent units in current period
are
a) 1500 units
b) 1300 units
c) 1500 units
d) 1800 units
103. WIP in contract means:
a) Work certified
b) Work certified and work uncertified
c) Cash received
d) None of these
104. Profit remaining as reserve is :
a. Transfer to p/L
b. Deducted from WIP
c. Not taken into account.
d. Deducted from cost of the contract.

105. Profit in incomplete contract in known as notional profit because:
a. It is not real profits
b. Real profit is ascertain when the contract is complete
c. There is no such incomplete contract.
d. The profit is only an approximation.

106. The contract undertaken are completed away from the premises.
a. Contractors
b. Contractee
c. Party
d. Builder
107. A contract is generally of duration.
a. Long
b. Small
71
c. Average
d. Very Small
108. Escalation clause is generally included in case of contract agreement .
a. Variable Cost
b. Fixed Cost
c. Fixed Price
d. Variable Price
109. Cost -plus- contract are undertaken for production of products.
a. SSI
b. Small
c. Low value
d. Highly specialized
110. Retention money serves as a with the contractee.
a. Security
b. Balance
c. Profit
d. Loss
111. When cash ratio is……..retention money is 13%.
a. 50%
b. 87%
c. 78%
d. 99%
112. Work certified in a subsequent year is always than that the in
preceding year.
a. Greater
b. Less
c. Equal
d. Greater than Equal to
72
113. Cost of defective materials should be……..to costing P/L account and…….to contract account.
a. Debited, Credited
b. Credited, Debited
c. Charged, record
d. Record, Apply
114. Escalation Clause aims at safeguarding the interest of the against unforeseen rise in cost.
a. Contractor
b. Contractee
c. Builder
d. Party
115. Sub-contract cost is always to be treated as to the contract.
a. Indirect charge
b. Direct charge
c. Income
d. Revenue
73
CHAPTER SIX
Marginal v. Absorption Costing, Cost-Volume-Profit analysis, Decision making

involving alternative choices.
1. If the total cost of 1000 units is Rs.60000 and that of 1001 units is Rs.60400, then the increase of Rs.400 in
the total cost is _________.
a. Prime cost
b. All variable overheads
c. Marginal cost
d. None of the above
2. Which of the following statements are true about marginal costing?
a. In marginal costing, fixed costs are treated as product costs
b. Marginal costing is not an independent system of costing
c. The elements of cost in marginal costing are divided into fixed and variable components
d. Both b and c
3. The costing method where fixed factory overheads are added to inventory is called __________.
a. Activity-based costing
b. Absorption costing
c. Marginal costing
d. All of the above
4. While computing profit in marginal costing, ________.
a. The fixed cost gets added to the contribution
b. The total marginal cost gets deducted from total sales revenue
c. The total marginal cost gets added to total sales revenue
5. Which of the following assumptions are made while calculating marginal cost?
a. Total fixed cost is constant at all levels of output
b. Total variable cost varies according to the volume of output
c. All elements of cost can be divided into fixed and variable components
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d. All of the above
6. Contribution margin in marginal costing is also known as _________.
a. Net income
b. Gross profit
c. Marginal income
7. The term ‘Contribution’ refers to the ___________.
a. Excess of selling price over variable cost per unit
b. Difference between the selling price and total cost
c. Subscription towards raising capital
8. Which of the following techniques of costing differentiates between fixed and variable costs?
a. Marginal costing
b. Standard costing
c. Absorption costing
9. Fixed cost is also referred to as ________ in the marginal costing technique.
a. Total cost
b. Product cost
c. Period cost
10. Variable cost is also referred to as ________ in the marginal costing technique.
a. Total cost
b. Product cost
c. Period cost
11. The margin of safety, which is the difference between actual sales and break-even point, can be improved by
_________.
a. Lowering variable costs
b. Lowering fixed costs
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c. Increasing sales volumes
d. All of the above
12. An increase in the variable cost ________.
a. Decreases the break-even point
b. Improves margin of safety
c. Improves the profit/volume ratio
d. All of the above
13. The profit/volume ratio in marginal costing can be improved by ________.
a. Lowering fixed cost
b. Increasing the selling price
c. Increasing variable cost
14. Under marginal costing, the stock is valued at ________.
a. Total Cost
b. Fixed Cost
c. Variable Cost
15. The profit at which total revenue is equal to the total cost is known as ___________.
a. Margin of safety
b. Break-even point
c. Both a and b are incorrect
d. Both a and b are correct
16. The cost that does not fluctuate based on the volume of the production is known as ___________.
a. Variable cost
b. Fixed cost
c. Semi-variable cost
17. How is the break-even point affected by the fixed cost?
a. If the fixed cost decreases, the break-even point decreases
b. If the fixed cost increases, the break-even point decreases
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c. If the fixed cost remains constant, the break-even point decreases
18. Fixed cost includes _________.
a. Property taxes
b. Rent
c. Insurance premium
d. All of the above
19. Variable cost includes _________.
a. Cost of raw materials
b. Salaries and wages
c. Electricity bills
d. All of the above
20. Marginal cost is equal to _________.
a. Variable overheads
b. Prime cost plus variable overheads
c. Prime cost minus variable overheads
21. Decision making helps in the smooth function of the ______.
a. business
b. Staffing.
c. Organization.
d. Planning.
22. The transmission of thoughts from person to another is ________
A. communication
B. controlling.
C. consultative.
D. Organizing.
23. Selecting a best course of action among the alternatives is called as______
A. decision making.
B. Planning.
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C. Organizing.
D. Controlling
24. A decision which is taken to meet unexpected situation______.
A. problem decision.
B. certainly decisions.
C. crisis decision.
D. Organizational decision.
78
CHAPTER SEVEN
Pricing decisions and Strategies-New Product Pricing, Monopoly Pricing v.

Competitive Pricing, Pricing of Service Sector.
1. Product ________ is the primary function of the exporter.
a. Planning
b. Development
c. Marketing
d. Packaging
2. _________ provides information of the product and matters related to the product being exported.
a. Labelling
b. Marking
c. Packing
d. Positioning
3. ________ refers to symbols printed on export packages.
a. Marking
b. Packaging
c. Branding
d. Designing
4. Formula of FOB Price =
a. FOB Cost + Profit – DBK
b. All the expenses until goods loaded on ship + Freight + Profit –Incentive
c. All the costs until goods loaded on board the ship + Freight +Insurance – Incentive
d. FOB Expenses + Customs @ port of destination – DBK
5. Formula of C&F Price =
a. All expenses until goods loaded on board the ship + Freight +Profits – DBK
b. C&F Price + Marine Insurance
c. CIF Price – Profits
d. C&F Costs + Customs@ port of destination + Profits
6. Formula of CIF Price =
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a. FOB Price + Incentives
b. CIF Costs + Profits – DBK
c. C&F Price – Marine Insurance
d. FOB Costs + Customs @ port of destination + Profits
7. Export quotation is_______ .
a. an offer made by importer to exporter in reply to exporter’s query
b. commercial invoice
c. an offer made by exporter to importer in reply to importer’s query
d. Importer’s Bill
8. Under FOB quotation, which among the following is not aresponsibility of the exporter ?
a. Expenses upto goods loaded on board the ship
b. Production Management
c. Customs at port of Shipment
d. Freight Expenses
9. Under C&F quotation, which among the following is not a responsibility of the exporter ?
b. Production Management
c. Payment of Marine Insurance
d. Payment of Freight expenses
10. Under CIF quotation, which among the following is not a responsibility of the exporter?
b. Marine Insurance
c. Customs at port of Destination
d. Freight Expenses
11. __________ gives an identity to the exporter and its brands sold in foreign markets.
a. Branding
b. Marking
c. Labelling
d. Packaging
12. ________ helps to distinguish the company’s brand among its competitors.
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a. Brand name
b. Company name
c. Product marking
d. Product price
13. Product price is not directly affected by _______ .
a. Costs
b. Product nature
c. Competitor’s prices
d. Quota restrictions
14. INCO terms refer to _______ .
a. International Commercial Terms
b. In-trade Commercial Terms
c. Interim Compensation
d. International Company
15. The main objective of export pricing is _________ .
a. Maximizing the profits
b. Applying for Government incentives
c. Ease in documentation
d. Facilitates distribution
16. Product mix is _______ .
a. a specific category of product line
b. a range of companies’ offerings
c. a part of product depth
d. a restricted line of companies’ offerings
17. ________ among the following is not an element of branding.
a. Brand name
b. Logo
c. Brand colour
d. Country of origin mark
18. Packaging helps in ________ .
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a. Protection against damages
b. Preservation of quality
c. Promotion of product
d. All of the above
19. __________ refers to creating a distinct image in the minds of the audience towards a specific brand.
a. Positioning
b. Promotion
c. Packaging
d. Product Labelling
20. Product promotion in export business is mainly done through ________ .
a. Advertising
b. Publicity
c. Salesmanship
d. Participation in trade-fairs and exhibitions
21. EU requires labelling requirement in _______ language/s.
a. One
b. Two
c. Three
d. Four
22. EU needs ________ packaging requirements.
a. Eco-friendly
b. Thermoformed
c. Laminated
d. Corrugated
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CHAPTER EIGHT
Cost Control and Cost Reduction; Cost Control Techniques- Standard Costing
&Variance Analysis; Budget and Budgetary Control.
1. Which of the following is true about Standard Costing?
a. It is a technique of implementing cost control within the organisation
b. It helps in planning out business activities within the organisation
2. Which of the following industries is Standard Costing most suited for?
a. It is suitable for industries that produce standard products
b. It is suitable for enterprises that are engaged in service activities
c. It is suitable for industries that produce non-standard products
3. Which of the following is not a demerit of the Standard Costing System?
a. The traditional cost variances are not tied to any specific product lines
b. Standard Costing System is much more expensive than other systems
c. It is usually less expensive than normal or actual costing
d. All of the above
4. Which of the following is an advantage of the Standard Costing System?
a. It helps in promoting and measuring efficiencies within an organisation
b. It helps to control and reduce the overall costing within an organisation
c. It helps to fix the selling price for the products manufactured within an organisation
d. All of the above
5. Which of the following activities is the Standard Costing System used for?
a. It is a basis for implementing cost control and fixing the price of products through variance
analysis
b. It helps to ascertain the cost-volume relationship between products manufactured by the business
c. It helps to establish the breakeven point for the products manufactured by the company
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6. Which of the following activities is true about the cost variance under the Standard Costing System?
a. Cost variance is the difference between the standard cost and the actual cost
b. Cost variance is the difference between the standard cost and the budgeted cost
c. Cost variance is the difference between the standard cost and the marginal cost
d. Cost variance is the difference between the actual cost and the marginal cost
7. Which of the following activities is true under the Standard Costing System?
a. The overhead volume variance is always beneficial
b. The ideal time variance is never favorable
c. To calculate the overall costs, a company can either use budgetary control or standard costing but
not both of those techniques
d. The overhead efficiency variance plus overhead expense variance is equal to the overhead budget
variance for variable overheads
8. Which of the following statements is true under the Standard Costing System?
a. Standard cost is a predetermined or estimated cost to either produce a good/service or perform an

activity within the organization
b. Standard cost is a control technique that helps to report variances by comparing pre-set standards to
actual costs to facilitate action
9. Which of the following statements is not a reason for price variance of unfavourable direct materials?
a. The actual loss is greater than the estimated loss
b. The actual rate is lower than the standard rate
c. Both a and b are correct
d. Both a and b are incorrect
10. Which of the following is the audit fees a part of under the Standard Costing System?
a. Audit fees is a part of the administration overhead in an organisation
b. Audit fees is a part of the distribution overhead in an organisation
c. Audit fees is a part of the selling overhead in an organisation
d. Audit fees is a part of the works on cost in an organization
11. Which of the following parties are responsible for material price variances?
a. Production supervisors
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b. Purchasing managers
c. Production schedules
12. Which of the following is a part of the Standard Costing process within an organisation?
a. Comparison of standard and actual costing process
b. Preparation and usage of the standard costing
c. Analysis of variances
d. All of the above
13. The basic standard within the Standard Costing process is established for __________.
a. A long period
b. The current period
c. The short period
d. An indefinite period
14. Which of the following is not a part of the cost accounting concept?
a. Product costing
b. Profit sharing
c. Controlling
d. Planning
15. The ascertaining of costs after they are incurred is known as _____.
a. Historical costing
b. Notional costing
c. Marginal costing
d. Sunk cost
16. Which of the following is the true meaning of timekeeping?
a. The time spent by a worker in the factory
b. The time spent by a worker without work
c. The time spent by a worker off their job
d. The time spent by a worker on their job
17. It is not possible to measure labour productivity by comparing ______.
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a. Standard time with actual time
b. Total output with total wage
c. Total person-hours with the total output
18. The loss that arises in manufacturing due to the nature of a product is known as ______.
a. Abnormal loss
b. Net loss
c. Normal loss
19. A company maintains a _____ to avoid stopping production due to the shortage of material.
a. Minimum stock level
b. Reorder level
c. Maximum stock level
20. The discarded materials that have zero value are called _______.
a. Scrap
b. Waste
c. Spoilage
21. Standard costing is a technique of:
a. Planning business activities
b. Cost control
c. Staffing
d. Motivating
22. Standard costing is a yard stick for:
a. Measuring efficiency
b. Controlling prices
c. Reducing losses of business
d. Planning business activities
23. Standard costing involves:
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a. Preparation and use of standard costs
b. Comparison of standard with actual
c. Analysis of variances
d. All of the above
24. Standard costing is suitable for industries which are:
a. Producing standard products.
b. Producing goods of repetitive nature
c. Sugar, textiles, fertilizers, steel industries
d. All of the above
25. Which of the following is not the main component of standard cost?
a. Standard rate
b. Standard output
c. Actual yield
d. All of the above
26. Standard costing is not applicable in :
a. Job order industries
b. Non-standard product manufacturers
c. Service industries
d. All of the above
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CHAPTER NINE
Transfer Pricing- Methods (Cost Based, Market Price Based, Negotiated Pricing),
Criteria for setting Transfer Prices, Transfer Price in different situations.
1. In its evolutionary stage, Transfer pricing, was introduced for setting the right (i.e., arm’s length) price, that should
be charged for product sold or services rendered by –
a. One segment of an enterprise, to another segment of the same enterprise.
b. One enterprise to another enterprise
c. Both A and B
d. Neither A nor B
2. The purpose of transfer pricing was to ensure that the profit of a tax holiday segment were not –
a) Overstated
b) Understated
c) A or B
d) Neither A nor B
3. The purpose of transfer pricing was to ensure that the profit of a non-tax holiday segment were not –
a) Overstated
b) Understated
c) A or B
d) Neither A nor
4. The purpose of transfer pricing was to ensure that the expenses of a tax holiday segment are not
……………………. and transferred to non-tax holiday unit –
a) Overstated
b) Understated
c) A or B
d) Neither A nor B
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5. The purpose of transfer pricing was to ensure that the expenses of a non-tax holiday segment were not –
a) Overstated
b) Understated
c) A or B
d) Neither A nor B
6. Transfer pricing provisions are applicable on transactions between –
a) Two group companies of same MNE group

b) A foreign company and its Indian branch
c) An Indian company and its subsidiary availing tax holiday
d) All of the above
7. Transfer Price means the price, which is charged between –
a. Two or more entities of a MNE [Associated Enterprises (AE’s)] operating in one country.
b. Two or more entities of a MNE [Associated Enterprises (AE’ s)] operating in different
countries
c. Both A and B
d. Neither A nor B
8. X Ltd. operates in Country A, wherein the tax rates are 30%. It intends to sell goods costing USD 100 to a customer
in Country B for USD 150. To save taxes, X Ltd. incorporated a subsidiary in Country Y, namely Subsidiary C,
where tax rate is 10% and sold the goods to C for USD 125, which in turn, sold the goods to buyer in Country B for
USD 150. In such a case, tax will be: –
a) USD15
b) USD 10
c) USD 5
9. Transfer pricing is, arriving at of the price for goods and services, which are transacted between
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a) Controlled legal entities within an enterprise

b) Independent entities within an enterprise
c) Both A and B
d) Neither A nor B
10. Tax planning opportunities arise due to difference in amongst various Countries
a) Tax rates
b) Tax exemptions
c) Both A and B
d) Neither A nor B
11. Transactions between unrelated entities are carried out at –
a. Arm’s Length Price

b. Control Price
c. Either A or B
d. Both A and B
12. The objective of transfer pricing is to ensure that –
a) Taxes are paid in Country of residence

b) Taxes are paid in Country of Source
c) Taxes are not paid
d) Taxes are paid in the jurisdiction where economic activity takes place
13. Transfer pricing analysis aims to arrive at arm’s length price on the assumption that the parties to the transaction are
parties –
a) Independent
b) Related
c) Controlled
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d) Both B and C
14. Which of the following is true in the context of transfer pricing –
(D) Income arising from international transaction shall be computed on the basis of arm’s length price.
(E) Any expense/ allowance for any interest, for computing income for international transaction shall also
be computed on the basis of arm’s length price of such expense/interest.
(F) The cost or expenses allocated or apportioned between associated enterprises under a mutual agreement
or arrangement shall be at arm’s length price.
(G) All of the above
15. The transfer pricing provisions are intended to ensure that –
a) Profits are not understated

b) Expenses are not understated
c) Losses are not overstated
d) Both A and C
16. The basic intention underlying the transfer pricing regulations is to prevent –
a) Shifting of profits by increasing prices charged by overseas entity or paid by Indian entity in
international transactions
b) Shifting of profits by decreasing prices charged by overseas entity

c) Shifting of profits by decreasing prices paid by Indian entity
17. Transfer pricing provision should not be applied in cases where the adoption of the arm’s length price would result
in a –
a) Reducing the tax payable in India

b) Increasing the tax payable in India
c) Increasing the expenditure of the Indian company
d) Both A and C
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18. ABC Ltd. purchased goods at USD 200 per unit from its AE in USA. However, it was purchasing the same material
at USD 250 per unit from independent third party located in USA. In this case, the Arm’s Length Price would be:
(A) Rs 200
(B) Rs 250
(C) A or B
(D) Neither A nor B
19. As per Section 92A (1) of the Act, Associated enterprise refers to an enterprise which participates directly or
indirectly or through one or more intermediaries in:
a) Management of the other enterprise

b) Control of the other enterprise
c) Capital of the other enterprise
d) All of the above
20. Prior to amendment made by Finance Act, 2001, the AO was empowered to compute reasonable amount of profit
by application of which of the following Rules of Income-Tax Rules, 1962:
a) Rule 10
b) Rule 11
c) Both A and B
21. Two enterprises shall be deemed to be an associated enterprise when one enterprise directly holds shares carrying:
a) 26% or less of the voting power in the other enterprise.

b) 25% of the voting power in the other enterprise.
c) 26% or more of the voting power in the other enterprise.
22. Two enterprises shall be deemed to be an associated enterprise when one enterprise indirectly holds shares carrying:
a) 26% or less of the voting power in the other enterprise.
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b) 25% of the voting power in the other enterprise.

c) 26% or more of the voting power in the other enterprise.
23. Generally, two enterprises shall be deemed to be associated enterprise when one enterprise holds, directly or
indirectly 26% or more in the other enterprise
a) Equity shares
b) Preference Shares
c) Compulsorily convertible debentures
d) Non-convertible debentures
24. FCO holds 100% equity shares (all equity shares carry equal voting rights) in ICO 1. ICO 1 holds 49% equity shares
(all equity shares carry equal voting rights) in ICO 2. Who all will be the associated enterprises?
a) FCO and ICO1

b) ICO1 and ICO2
c) FCO and ICO2
d) All of the above
25. Two enterprises shall be deemed to be associated enterprise if any common person or enterprise holds, directly or
indirectly, shares carrying –
a) 25% voting power in each of such enterprises,

b) 26% or more of the voting power in each of such enterprises
c) Less than 26% of the voting power in each of such enterprises
26. Two enterprises shall be deemed to be associated enterprises if a loan advanced by one enterprise to the other
enterprise constitutes –
a) 50% or more of the book value of the total assets of the other enterprise.
b) Less than 50% of the book value of the total assets of the other enterprise.
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c) More than 51% of the book value of the total assets of the other enterprise.
d) 51% or more of the book value of the total assets of the other enterprise.
27. HOLO Inc. (USA) advanced loan of Rs 130 crores to POLO India. Select the correct statement:
a) Both are Associated Enterprises when POLO India has total assets worth Rs 250 crores
b) Both are Associated Enterprises when POLO India has total assets worth Rs 260 crores
c) Both are Associated Enterprises when POLO India has total assets worth Rs 300 crores
28. A Inc. owns 20% equity shares of B India. A has also advanced loan of Rs 200 crores to B, whose total assets are Rs
300 crores. In such a case A and B would be ………………….
a) Associated Enterprises
b) Independent parties
c) Strangers
d) Relatives
29. Two enterprises shall be deemed to be associated enterprises when one enterprise:
a) Guarantees 10% or more of the total borrowings of the other enterprise.

b) Guarantees less than 10% of the total borrowings of the other enterprise
c) Holds 26% or more voting power in other enterprises
d) Both A and C
30. Zero India Private Ltd. borrowed Rs 500 crores from an Indian Bank. Y Inc. (USA) guaranteed the borrowings
of Indian Company. Select the correct statement:
a) Both are associated enterprises when the Y Inc. guarantees Rs 40 crores on behalf of Zero India
b) Both are associated enterprises when the Y Inc. guarantees Rs 49 crores on behalf of Zero India
c) Both are associated enterprises when the Y Inc. guarantees Rs 50 crores on behalf of Zero India
d) Both are associated enterprises irrespective of amount of guarantee made by Y Inc.
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31. Two enterprises, shall be deemed to be Associated Enterprises, when one enterprise appoints
a) More than half of the Board of Directors or members of the Governing Board of other enterprise
b) One or more Executive Directors of the Governing Board of other enterprise
c) One or more Executive Members of the Governing Board of other enterprise.
d) All of the above
32. Two enterprises, shall be deemed to be Associated Enterprises when one enterprise:
a) Has power to appoint one or more executive members of the Governing Board of other enterprise, even if it
actually does not appoint them
b) Actually, appoints one or more executive members of the Governing Board of other enterprise ,
exercising power of such appointment
c) Neither A nor B
d) Both A and B
33. In which of the following cases would the Indian Company and Foreign company would be deemed as associated
enterprise:
a) Foreign company has made the appointment of 5 out of 11 Board of Directors of the Governing Board in Indian
company.
b) Foreign company has made the appointment of 8 out of 15 Board of Directors of the Governing Board
in Indian company.
c) Both A and B
d) Neither of the above
34. In which scenario, Indian Company and Foreign company would be deemed as associated enterprise:
a) Foreign company has made the appointment of Mr. B as an Executive Director of the Governing Board of the
Indian Company.
b) Foreign company has made the appointment of Mr. C as an Executive Member of the Governing Board of the
Indian Company.
c) Both A and B
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35. In which of the following scenarios, two enterprises shall be deemed to be associated enterprises:
a) More than half of the Board of Directors or members of the Governing Board of each of the two enterprises, are
appointed by same person or persons, or
b) One or more Executive Directors of the Governing Board of each of the two enterprises, are appointed by same
person or persons, or
c) One or more Executive Members of the Governing Board of each of the two enterprises, are appointed by same
person or persons.
d) All of the above
36. In which of the following scenarios, two enterprises shall be deemed to be associated enterprises:
a) The business of one enterprise is wholly dependent on the know-how, patents, copyrights, etc. of
which the other enterprise is the owner
b) The business of one enterprise is wholly dependent on the know-how, patents, copyrights, etc. of which the
other enterprise has non exclusive rights
c) Both A and B
37. Two enterprises shall be deemed to be associated enterprises when –
a) 50% or less of raw materials and consumables required for the manufacturing of goods by one enterprise, are
supplied by the other enterprise.
b) At least 80% of raw materials and consumables required for the manufacturing of goods by one enterprise, are
supplied by the other enterprise.
c) 90% or more of raw materials and consumables required for the manufacturing of goods by one
enterprise, are supplied by the other enterprise
38. Zogo Inc. (USA) supplied raw material A, worth Rs 170 crores to MEC India during the FY 2017-18. *Both
enterprises would be deemed as associated enterprises when Mec India consumed total raw material A of
a) Rs 200 crores or more during the FY 2017-18

b) Rs 340 crores or more during the FY 2017-18
c) Rs 180 crores or more during the FY 2017-18
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d) Rs 250 crores or more during the FY 2017-18
39. Two enterprises shall be deemed to be associated enterprise when the –
a) The goods manufactured by one enterprise, are sold to the other enterprise.
b) The goods manufactured by one enterprise, are sold to persons specified by the other enterprise, and the prices
and other conditions relating thereto are influenced by such other enterprise.
c) The goods manufactured by one enterprise, are sold to persons specified by the other enterprise, based on price
independently negotiated with the other enterprise.
d) Both A and B
40. Two enterprises shall be deemed to be associated enterprise, where
a) one enterprise is controlled by an individual, the other enterprise is also controlled by such individual, or
b) One enterprise is controlled by an Individual and the other enterprise is controlled by relative of such Individual.
c) One enterprise is controlled by an Individual and the other enterprise is jointly controlled by such Individual
and his relative.
d) All of the above
41. Two enterprises shall be deemed to be associated enterprise, where
a) one enterprise is controlled by an individual and the other enterprise is controlled by a friend of such Individual.
b) one enterprise is controlled by an individual and the other enterprise is controlled by brother of such Individual.
c) one enterprise is controlled by an individual and the other enterprise is controlled by wife of such Individual.
d) Both B and C
42. Two enterprises shall be deemed to be associated enterprise, where –
a) One enterprise is controlled by a HUF, the other enterprise is controlled by a member of such HUF
b) One enterprise is controlled by a HUF, the other enterprise is controlled jointly by member of HUF and his
friend.
c) One enterprise is controlled by a HUF, the other enterprise is controlled jointly by member of HUF and his
sister.
d) Both A and C
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43. Indian Company and Foreign Company would be deemed to be Associated Enterprises where –
a) HUF controls Indian company and brother of member of HUF also controls such Indian company
b) HUF controls Indian company; member of HUF and his wife jointly control Foreign company.
c) HUF controls Indian company and member of HUF controls Foreign Company
d) Both B and C
44. Indian firm and foreign company would be deemed as associated enterprises when –
a) Foreign company holds 5% interest in such Indian firm

b) Foreign company holds 10% interest in such Indian firm
c) Foreign company holds 11% interest in such Indian firm
d) Both B and C
45. Indian AOP and foreign company would be deemed as associated enterprises when –
a) Foreign company holds 51% interest in such Indian AOP

b) Foreign company holds 50% interest in such Indian AOP
c) Foreign company holds 20% interest in such Indian AOP
d) All of the above
46. A Ltd. (India) and AB international (Mauritius) would be deemed as associated enterprises when –
a) A Ltd.(India) holds 26% non-voting Preference shares in AB International (Mauritius).

b) A Ltd.(India) holds 26% equity shares in AB International (Mauritius).
c) A Ltd.(India) holds 26% debentures in AB International (Mauritius).
d) All of the above
47. G Ltd. (India) holds 30% Equity shares in U Inc. (USA). It also holds 25% Equity shares in XZ International (UK).
Who all would be the Associated enterprises in this example?
a) G Ltd. and U Inc.
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b) G Ltd. and XZ International

c) U Inc. and XZ International
d) All of the above
48. Y Ltd. (India) holds 30% Equity shares in Yo Inc. (USA) and 40% Equity shares in Z International (UK). Who all
would be the Associated enterprises?
a) Y ltd. and Yo Inc.

b) Y ltd. and Z International
c) Yo Inc. and Z International
d) All of the above
49. Section 92A (2) provides that two enterprises shall be deemed to be associated enterprises if, they satisfy any one or
more of 13 conditions of being an AE :-
a) For whole of the previous year

b) At the end of the previous year
c) At the beginning of the previous year
d) At any time during the previous year
50. X Ltd. (India) holds 30% equity shares in Z International (Switzerland) as on April 1, 2016. Both would be deemed
as associated enterprises even when –
a) Shareholding of X ltd. reduced to 10% in Z International as on March 31, 2017.

b) Shareholding of X ltd. reduced to 20% in Z International as on Nov 30, 2016, which was further increased to
29% as on March 31, 2017.
c) There is no reduction in shareholding of X Ltd.
d) All of the above
51. Transfer pricing provisions are applicable to determine –
a) Cost of international transactions between Associated enterprises.

b) Selling price/purchase price of international transactions between Associated enterprises.
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c) Market value of transaction u/s 50C between Associated enterprises.
d) The arm’s length price of international transaction between Associated enterprises.
52. For transfer pricing purposes, “transaction” includes an arrangement, understanding or action in concert, –
a) Which is in writing
b) Which may be oral
c) Which may be in writing or oral
53. None of the aboveFor transfer pricing purposes, “transaction” includes an arrangement, understanding or action in
concert, –
a) Which is intended to be enforceable by legal proceedings

b) Which is not intended to be enforceable by legal proceedings
c) Which may or may not be intended to be enforceable by legal proceedings
54. RT India Private Ltd. has a show room of cars in New Delhi. Due to high demand of cars during Diwali, RT India
places an order for certain cars with X Inc. (USA), the overseas parent of RT India. Such arrangement would be
deemed as transaction under transfer pricing when –
a) X Inc. agrees to supply the cars to RT India even if there is no formal arrangement for such purpose
b) X Inc. agrees to supply the cars to RT India and there is formal arrangement for such purpose.
c) V Incl. agrees to supply the furniture to RT India irrespective of whether there is formal
arrangement/contract or not.
d) All of the above
55. Under transfer pricing, International Transaction “Means”
a) Transactions between two or more Associated Enterprises either or both of whom are non-
residents
b) Transactions between three or more Associated Enterprises who are non-residents
c) Transactions between two or more Associated Enterprises who are residents
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56. The International transaction shall be in nature of:
a) Purchase, sale or lease of tangible or intangible property

b) Provision of services or lending or borrowing money; or
c) Any other transaction having a bearing on the profits, income, losses or assets of the enterprises
d) All of the above
57. Which of the following conditions should be satisfied in order to consider a transaction as International transaction
under Transfer Pricing regulations :-
a) Transaction should be between Associated enterprises.

b) Either or both of the parties to transaction should be non-residents
c) Transaction should relate to purchase, sale or lease of tangible or intangible property or provisions of services,
etc.
d) All of the above
58. Which of the following should be considered as International transaction:
a) Royalty payment made by UB India to its group concern UV India.

b) Payment made by UG (India) to its holding company UG (UK) for installation services.
c) Repayment of buyer’s credit by X (India) to third party Mauritius Bank.
59. Z India issued 10,000 shares at Rs 110 (face value of Rs. 10 each) at a premium of Rs. 100 per share to its holding
company, W International. Choose the correct statement:
a) Transfer pricing provisions would be applicable on such transaction when the fair market value of share is Rs
150 per share
b) Transfer pricing provisions would be applicable on such transaction when the fair market value of share is Rs
90 per share
c) Transfer pricing provisions would not be applicable on such transaction irrespective of the market
value of shares.
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60. A Ltd. (India), purchases raw material from its parent AB Ltd for Rs. 30 crore during FY 2017-18. (India). Such
transaction may be considered as :-
a) International Transaction under Transfer Pricing

b) Specified Domestic Transaction
c) Any of the above
61. D Ltd. (India) imports goods from E International (Switzerland). D Ltd holds 10% shares in E International. Such
transaction :-
a) Would be considered as International transaction

b) Would be considered as Specified domestic transaction
c) A or B
62. C Ltd. (India) imports 10,000 units of goods from its Associated enterprise C International (Germany) at USD 50
per unit. Such transaction :-
a) Would not be considered as international transaction, where the Arm’s length price of such transaction is USD
50 per unit
b) Would be considered as international transaction when arm’s length price of such transaction is USD 40 per
unit.
c) Would be considered as international transaction irrespective of the Arm’s length price of such
transaction.
63. A ltd. (India) is the subsidiary of AB International (UK). A Ltd. import certain goods from B International
(Australia), independent third party. There exists a prior agreement between B International and AB International
(UK) for import of such goods. Such transaction of import from third party :-
a) Shall not be deemed to be an international transaction as both parties (i.e. A ltd. and AB International) are not
associated enterprises.
b) Shall be deemed to be an international transaction even if transaction is made with Independent third
party.
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c) Any of the above
64. GO Ltd. (India) is the subsidiary of GO International (UK). Go Ltd. imports goods from B ltd. (India), independent
third party. There exists a prior agreement between Go International (UK) and B ltd. (India) for import of such
goods. Such transaction of import from independent third party :-
a) Shall not be deemed to be an international transaction as both parties (i.e. Go Ltd. and B Ltd.(India)) are not
associated enterprises.
b) Shall not be deemed to be an international transaction as neither GO ltd. nor B ltd. is foreign company.
c) Shall be deemed to be an international transaction.
65. “Arm’s length price” means a price which is applied or proposed to be applied in a transaction between persons
(other than associated enterprises) in …………….
a) Controlled conditions
b) Uncontrolled conditions
c) Market conditions
66. Provision relating to arm’s length price are not applicable where such application results in for tax
purposes in India.
a) Increase in losses
b) Reduction of taxable income
c) Reduction of expense
d) Any of the above
67. Hozo India Ltd. sold ‘Product A’ to Mozo International (UK). The arm’s length price of product A can be
ascertained under CUP Method, where : –
a) Hozo India sold similar goods to unrelated party, YO International (UK).

b) Unrelated enterprise, D India sold similar goods to MO International (UK), which is not a related party of D
India
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c) Hozo India sold similar goods to another related party, ZOZO International (UK).
d) Both A and B
68. AB India purchases product X from its subsidiary AB International (UK). Select internal CUP from the folowing
transactions :-
a) AB India purchases similar product from its another subsidiary ABB Inc. (UK)
b) AB India purchases similar product from unrelated party BC International (UK)
c) BC India purchases similar product from unrelated party RC International (UK)
69. AB India purchases product X from its subsidiary AB International (UK). Select external CUP from the following
transactions :-
a) AB India purchases similar product from its another subsidiary ABB Inc. (UK)
b) AB India purchases similar product from unrelated party BC International (UK)
c) BC India purchases similar product from unrelated party RC International (UK)
70. Associated Enterprise 1 sold coffee beans to Associated Enterprise 2. Associated Enterprise 1 did not sell similar
coffee beans to third party (Non- Associated Enterprise). Thus, sale of coffee beans of similar type, quality and
volume between non- Associated Enterprise 1 and non- Associated Enterprise 2 would be CUP.
a) External CUP
b) Internal CUP
c) Any of the above
71. While calculating arm’s length price under CUP method:-
a) Use of external CUP is preferred over internal CUP

b) Only internal CUP can be used
c) Use of Internal CUP is preferred over external CUP
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72. After calculating CUP on basis of internal or external CUP adjust the price so arrived at for functional differences
between the international transaction under review, and the comparable uncontrolled transactions :-
a) Which could materially affect the price in the open market.

b) Which could affect price in the open market, even if immaterial
c) Which does not affect price in the open market

73. Associated Enterprise 1 sold Product B to Associated Enterprise 2 at Rs 5,00,000. Associated Enterprise 1 sold
Product B of similar type, quality and quantity to third party (Non- Associated Enterprise) at Rs 4,00,000. The
Arm’s Length Price of such transaction between Associated Enterprises would be
a) Rs 5,00,000
b) Rs 4,00,000
c) Either A or B
74. Associated Enterprise 1 sold Product B to Associated Enterprise 2 at Rs 3,00,000. Associated Enterprise 1 sold
Product B of similar type, quality and quantity to third party (Non- Associated Enterprise) at Rs 6,00,000. The
Arm’s Length Price of such transaction between Associated Enterprises would be
a) Rs 3,00,000
b) Rs 6,00,000
c) Either A or B
75. Associated Enterprise 1 sold Product C to Associated Enterprise 2 at Rs 5,00,000. Associated Enterprise 1 sold
Product C of similar type, quality and quantity to third party (Non- Associated Enterprise) at Rs 5,50,000.
Independent third party (i.e., Non- Associated Enterprise) sold Product C of similar type, quality and quantity to
third party (Non-AE) at Rs 6,00,000. In this case the Arm’s length Price under CUP method would be :-
a) 5,00,000.
b) 5,50,000.
c) 6,00,000.
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76. Under Resale Price Method, derived by an enterprise, from the resale price of such property or services in comparable
uncontrolled transactions, should be reduced from the price in controlled transaction :-
a) Normal Net Profit Margin

b) Profit Margin
c) Normal Gross Profit Margin
77. In Resale Price Method, impact of Functional and other differences, which could materially affect the amount of
in the open market should be considered :-
a) Gross profit margin

b) Net Profit Margin
c) Profit Margin
78. Under Resale Price Method, the resale price margin earned by re-seller in comparable uncontrolled transactions
would be considered as …………. Comparable –
a) External
b) Suitable
c) Internal
79. The resale price margin earned by an independent enterprise, in comparable uncontrolled transactions would be
considered as Comparable
a) External
b) Suitable
c) Internal

80. Under Cost plus Method, Arms Length Price is determined by adding appropriate gross profit margin to the
Associated Enterprise’s of producing goods/ providing services.
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a) Selling price
b) Resale price
c) Cost
81. As per the Organisation for Economic Co- operation and Development (OECD), Cost Plus Method is applicable
when :-
a) Semi-finished goods are sold between Associated enterprises,

b) There is contract manufacturing
c) Any other transfer pricing method is not applicable
d) Both A and B
82. Under the Cost-Plus Method, in a
tested party transaction is determined, and then normal gross profit mark-up would be added to such costs, arising from
the transfer or provision of the same or similar goods or services to determine the Arm’s Length Price
a) Direct costs of production

b) Indirect costs of production
c) Cost of sales
d) Both A and B
83. Profit-based transfer pricing methods, recognised by the TP legislation, as satisfying the arm’s length principle are :
–
a) Profit Split Method;

b) Transactional Net margin method.
c) CUP Method
d) Both A and B
84. Profit Split Method is typically applicable :-
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a) In international transactions that are so interrelated that they cannot be evaluated separately to
determine Arm’s Length Price of any one transaction
b) When CUP Method is not applicable

c) When Resale Price Method is not applicable
85. The allocation of profit or loss under the Profit Split Method must be made in accordance with one of the following
allocation methods :-
a) Comparable Profit Split Method

b) Uncontrolled Profit Split Method
c) Residual Profit Split Method
d) Both A and C
86. A comparable profit split is derived, from the………………of uncontrolled taxpayers whose transactions and activities
are similar to those of the controlled taxpayers.
a) Operating Profit
b) Combined Operating Profit
c) Comparable Uncontrolled Price
87. Under Transaction Net Margin Method, the Arm’s Length Price is arrived at by comparing ……………….
of the “tested” party with the of an uncontrolled party engaged in comparable transactions, with an appropriate base.
a) Uncontrolled Price
b) Resale Price
c) Operating Profit
d) Combined Operating Profit
88. CBDT has prescribed the ‘Other Method’ by inserting a new rule 10AB to the Income-Tax Rules. For
determination of arm’s length price in relation to international transaction, the Other Method shall be :-
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a) Any method which takes into account the price which has been charged or paid, for the same or similar
uncontrolled transaction, between Non-Associated enterprises, under similar circumstances
b) Resale Price Method

c) Transaction Net Margin Method
d) Profit Split Method
89. There are various participants in an international transaction. In order to find comparables for a transaction, is
selected as tested party.
a) Assessee, resident in India

b) Foreign Associated Enterprise
c) One of the participant
90. Under Transfer Pricing any party which is chosen as Tested Party from two parties, shall be : –
a) “Least complex”
b) Does not own valuable intangible property
c) Both A and B
91. Under Transfer Pricing, Profit Level Indicator (PLI) is :-
a) Ratio that measure relationships between profits and cost incurred or resources employed.
b) Break-even point
c) A and B
92. The most appropriate method under the transfer pricing shall be: –
a) CUP Method
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b) Resale Price Method

c) Transaction Net Margin Method
d) The Method which is best suited to facts and circumstances of each particular international transaction,
and which provides the most reliable measure of an arm’s length price
93. Which factors should not be taken into consideration in determining the most appropriate method?
a) Nature and class of transaction

b) Class of Associated Enterprise
c) Availability, coverage and reliability of data
d) Country of Associated Enterprise entering into international transaction
94. In case of royalty payments between Associated Enterprises, which of the following methods are generally used
under transfer pricing?
a) CUP Method
b) Transaction Net Margin Method
c) Resale Price Method
d) Other Method
95. In case of sale of semi-finished goods between Associated Enterprises, which of the following methods are generally
used under transfer pricing?
a) CUP Method
c) Resale Price Method
d) Cost Plus Method

96. Where the most appropriate method for determination of ALP of an international transaction entered into on or
after 1.4.2014 is Resale price method, or Cost plus method, or Transactional net margin method, then, the data to
be used for analyzing the comparability of an uncontrolled transaction with an international transaction shall be the
data relating to –
a) Current year
b) Financial year immediately preceding the current year, if the data relating to the current year is not available at
the time of furnishing the return of income.
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c) Preceding three years
d) Both A or B
97. When the price determined by the application of Most Appropriate Method is a single price, then
…………………. would apply :-
a) Arithmetic Mean
b) Range
c) Mean

98. DD India Ltd. enters into certain transaction from DDI International (UK) of Rs 10,000. It determines arm’s length
price of such transaction as Rs 20,000 and Rs 15,000 under CUP Method. Such calculation is made by using four
comparables. The arms’ length price of such transaction would be –
a) Rs 20,000
b) Rs 15,000
c) Rs 10,000
d) Rs 17,250
99. Where more than one price is determined by use of most appropriate method, and the range concept is not
applicable then, Arm’s Length price shall be taken to be……………
a) Arithmetic Mean of such prices

b) Median
c) +-3% variation from actual transaction price
100. Actual transaction price would be taken as Arm’s Length Price, where variation between the Arm’s length
price (determined by use of Arithmetic Mean), and actual transaction price does not exceed –
a) 1% of actual transaction price – In case of whole sale trading

b) 3% of actual transaction price – In case of other business
c) 2% of actual transaction price – In case of whole sale trading/other business
d) Both A and B
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101. AE India sold product A to AE Incl. (USA) at Rs. 2,00,000 (Equivalent to USD 3077). Sale price of product
A determined under CUP method are Rs. 1,50,000, Rs. 1,00,000, Rs. 3,00,000, Rs. 50,000 and Rs. 4,00,000.
Determine the Arm’s Length Price when AE India is not a wholesale trader?
a) Rs 2,00,000
b) Rs 1,45,500
c) Rs 1,54,500
102. Range concept is applicable when : –
a) More than one price are determined by use of Most Appropriate Method and Transaction is undertaken
on or after April 1, 2014
b) Arm’s length price is determined by use of Transactional Net Profit Method (TNMM), or Comparable
uncontrolled price Method (CUP Method), or Cost Plus Method (CPM), or Resale Price Method (RPM).
c) Six or more comparables are available in the dataset
d) All of the above
103. Range concept is not applicable when……………….. is used to determine the Arm’s length price.
a) Profit Split Method

c) Other method (given under Rule 10AB)
d) A or C
104. Range concept is applicable when ……………….method is used to determine the Arm’s length price.
a) CUP Method
c) Other method (given under Rule 10AB)
d) A and B
105. Under Transfer Pricing, actual transaction price or profit margin would be accepted if it falls in the range of
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a) 35th-65th percentile of the given dataset

b) 65th-75th percentile of the given dataset
c) 35th-45th percentile of the give dataset
d) 15th-35th percentile of the given dataset
106. Under Range Concept, of dataset would be computed and taken as arm’s length price if, actual
transaction price or profit margin is outside the range of 35th-65th percentile
a) Arithmetic Mean
b) Median
c) Mode
107. First step to determine range under transfer pricing to arrange dataset of Prices or profit margins in :-
a) Ascending order
b) Descending order
c) Either A or B
108. When a single price is determined by use of any transfer pricing method:-
a) Range is applicable
b) Arithmetic Mean is applicable
c) A or B
109. Arithmetic Mean is applicable when : –
a) Transactions were undertaken before April 1, 2014

b) Profit Split Method is the most appropriate method
c) Other Method (Rule 10AB) is applicable
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d) Either of the above is applicable
110. When more than one price is determined for international transaction undertaken after March 1, 2014 : –
a) Range is applicable
b) Arithmetic Mean is applicable
c) A or B
111. Functions, Assets and Risk (‘FAR’) analysis is the method of finding and organizing facts about the business
of a MNE in terms of –
a) the functions performed;

b) assets used
c) risks assumed by business
d) All of the above
112. A manufacturer of software can be selected as comparable under transfer pricing for :-
a) A BPO service provider,

b) KPO Service Provider
c) Trader of software
113. Components of FAR analysis are :-
a) Functions performed, Asset employed, risk assumed by business

b) Fixed Assets, Asset employed, Ratio of Gross Profit to Asset employed
c) Functions performed, Analysis of comparables, Risk assumed
114. Associated Enterprise undertaking intra group transactions (specified) are required to keep and maintain :-
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a) Entity related information and documents

b) Price related information and documents
c) Transaction related information and documents
d) All of the above
115. The assessee is not obliged to maintain the information and documents for international transaction under
transfer pricing, where the aggregate value of international transactions is :-
a) Rs 20 crore or less
b) Rs 5 crore or less
c) 1 crore or less
d) Rs 50 lakhs or less
116. AV India Ltd. is claiming profit linked deduction u/s 80-IC and it has obtained certain services amounting to
Rs 5 crores with its other Indian group concern during the FY 2017-18. In this case, AV India is :-
a) Required to maintain documentation under Rule 10D as aggregate value of transaction is more than Rs 1
crore
b) Not required to maintain documentation under Rule 10D as it is a specified domestic transaction
c) Not required to maintain documentation under Rule 10D as provisions of specified domestic
transactions are not applicable
117. Every person who enters an………. during a previous year is required to obtain a report from a Chartered
Accountant and furnish such report on or before 30th November of the relevant assessment year in Form No.3CEB.
a) International transaction above Rs 1 crore

b) International transaction of any amount
c) Both A or B
118. For under-reported income, penalty is leviable u/s 270A @ of tax payable.
a) 100%
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b) 300%
c) 50%
d) 200%
119. Indian company imports raw material from its foreign subsidiary at Rs. 5 lakhs during the P.Y. 2017-
18. ICO has maintained documents for such international transaction as per Section 92D and included such transactions
in income-tax return and Form No.3CEB at Rs. 5 lakhs. During assessment proceedings, the TPO determined the ALP
of such transaction at Rs. 3 lakhs. Amount of penalty to be levied on Indian Company for underreporting of income
u/s 270A would be :-
a) 100%
b) 300%
c) 50%
d) Nil
120. Failure to furnish transfer pricing report in Form 3CEB would attract penalty u/s 271BA of :-
a) Rs 1,00000
b) Rs 5,00,000
c) Rs 10,00,000
121. Transfer Pricing information and documents are required to be kept and maintained for a period of
………………. from the end of relevant AY :-
a) 5 years
b) 10 years
c) 8 years
122. Failure to keep and maintain information and documentation as required by Section 92D would attract
penalty u/s 271AA for :-
a) @ 50% of the value of international transaction entered into by a taxpayer
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b) @ 2% of the value of international transaction entered into by a taxpayer for which documents
are not kept
c) @ 2% of the value of all transactions entered into by a taxpayer
123. Penalty u/s 271AA @ 2% shall be computed on…………………of international transaction. :-
a) Actual Price
b) Arm’s Length Price
c) Fair Value
124. None of the aboveIf any person who has entered into an international transaction fails to furnish any such
information or document as required by Assessing Officer or Commissioner (Appeals) within a period
of………..from the date of receipt of a notice, then such person shall be liable to a penalty up to 2% of the value of
international transactions or specified domestic transaction.
a) 60 days
b) 30 days
c) 90 days
125. The key objectives of the Country by Country Reporting are: –
a) To articulate consistent transfer pricing position, across the globe.

b) To provide tax administration with useful information to assess TP risk in given cases.
c) To determine Arm’s Length Price of International Transaction
d) Both A and B
126. International group shall maintain information and documents in Master file when Consolidated group
revenue of the international group is (as reflected in Consolidated Financial Statements of the international group)
is
a) More than Rs 500 crores

b) Less than 2500 crores
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c) Less than Rs 500 crores
127. Monetary threshold for maintaining a master file is :-
a) Consolidated group revenue of the international group is less than Rs 500 crores and aggregate value of
international transaction is more than Rs 50 crores.
b) Consolidated group revenue of the international group is less than Rs 500 crores and aggregate value of
international transaction is more than Rs 10 crores in respect of purchase, sale, transfer, lease or use of
intangible property.
c) Consolidated group revenue of the international group is more than Rs 500 crores and aggregate
value of international transaction is more than Rs 50 crores.

128. Master file shall be filed in Form 3CEAA. Part A of Form 3CEAA needs to be filed by constituent entity of
international group when Consolidated group revenue of the international group is
a) More than Rs 500 crores and aggregate value of international transaction is more than Rs 50 crores.
b) More than Rs 500 crores and aggregate value of international transaction is more than Rs 10 crores in
respect of purchase, sale, transfer, lease or use of intangible property.
c) More than Rs 500 crores or aggregate value of international transaction is more than Rs 50 crores.
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CHAPTER TEN
Emerging concepts in Cost and Management Accounting: Life Cycle costing,

Activity Based costing, Learning Curve and its application, Socio-economic
costing, Target costing, Total Quality Management, Environmental Management
Accounting, Six Sigma etc.
1. Place the following steps for the implementation of target costing in order :
A = Derive a target cost
B = Develop a target price
C = Perform value engineering
D = Determine target profit
a. B, D, A, C
b. B, A, D, C
c. A, D, B, C
d. A, B, C, D
2. In target costing
a. the target cost is established first, then the target price.
b. the target cost is the estimated long-run cost that enables a product or service to achieve a desired
profit
c. the focus of target costing is to undercut the competition
d. target costs are generally higher than current costs
3. The product strategy in which companies first determine the price at which they can sell a new product and then
design a product that can be produced at a low enough cost to provide adequate operating income is referred to as
a. Cost-plus pricing
b. Target costing
c. Benchmark costing
d. Full costing
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4. The costing technique that produces a stipulated profit when a product is sold at its estimated market-driven price
is termed:
a. Life cycle costing
b. Product costing
c. Target costing
d. Standard costing
5. The four tasks that follow take place in the concept known as target costing:
(1) Value engineering
(2) Establish a target selling price
(3) Establish a target cost
(4) Establish a target profit
Which is the correct sequence of these tasks?
a. 1, 3, 4, 2
b. 3, 1, 4, 2
c. 2, 4, 3, 1
d. 2, 3, 1, 4
6. Ramesh uses target costing and sells a product for Rs 36 per unit. The company seeks a profit margin equal to 25%
of sales. If the current manufacturing cost is Rs 29 per unit, the firm will need to implement a cost reduction of
a. Rs 0
b. Rs 2
c. Rs 9
d. Rs 20
7. Sun Corporation uses target costing and sells a product for Rs 40 per unit. The company seeks a profit margin equal
to 30% of sales. If target-costing calculations revealed a need for a Rs 4 cost reduction, the firm’s current
manufacturing cost must be:
a. Rs 12
b. Rs 24
c. Rs 28
d. Rs 32
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8. Which of the following denotes a target cost?
a. Market price – Desired profit margin
b. Standard selling price – Standard profit margin
c. Standard selling price – Target profit margin
d. Desired selling price – Desired profit margin
e. Market price – Return on Investment (ROI)
9. Which of the following is true with respect to target costing?
a. It is a method of price determination
b. It is used to develop a short run price
c. It is a process where the cost of the product is determined and then an appropriate price is chosen
d. It is the maximum manufacturing cost for a product which is arrived at by subtracting

the acceptable profit margin from the expected market price
10. Which of the following is usually the longest stage in the product life cycle?
a. Introduction phase
b. Growth phase
c. Maturity phase
d. Saturation phase
e. Decline Phase
11. Which of the following is not a characteristic or assumption of Product Life Cycle Costing?
a. Product cost, revenue and profit patterns tend to follow predictable courses through the
product life cycle
b. Each phase of the product life cycle poses different threats and opportunities
c. The products have infinite life period
d. Profit per unit varies as product move through their life cycle
e. Products require different functional emphasis in each phase
12. Most of a product’s life-cycle costs are locked in by decisions made during the business function of the value chain.
a. Design
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b. Manufacturing
c. Customer-service
d. Marketing
13. Life-cycle costing is particularly important when
a. the development period for R&D is short and inexpensive
b. there are significant non-production costs
c. most costs are locked in during production
d. a low percentage of costs are incurred before any revenues are received
14. Life-cycle costing
a. has little in common with target costing
b. is most useful to companies that manufacture small items such as household plastics
c. helps companies estimate revenues over a multiyear horizon
d. gives companies more insight into total costs when manufacturing costs consume the majority
of the resources
15. The comparison of a company’s practices and performance levels against those of other organizations is most
commonly known as
a. Benchmarking
b. Continuous improvement
c. Re-engineering
d. Comparative analysis
16. Comparing the way a “best-in-class” company performs a specific activity (such as distribution) is called
a. Competitive Benchmarking
b. Internal Benchmarking
c. Analogus Benchmarking
d. Operational Benchmarking
17. Benchmarking allows a company to
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a. identify its strengths and weaknesses
b. imitate those ideas that are readily transferable
c. improve on methods in use by others
d. all of the above
18. In ABC indirect costs are allocated to the products based on
a. types of activities used by the product
b. the extent to which the activities are used
c. both (a) and (b)
d. none of the above
19. Four basic steps are used in an ABC system. List the proper order of these steps given below:
(A) Identify the primary activities and estimate a total cost pool for each.
(B) Allocate the costs to the cost object using the activity cost allocation rates.
(C) Select an allocation base for each activity.
(D) Calculate an activity cost allocation rate for each activity.
a. C, A, B, D
b. A, C, D, B
c. B, A, C, D
d. A, D, C, B
20. All of the following are considered to be part of the activity levels often used to implement ABC, with the exception
of
a. production-level activity
b. batch-level activity
c. product-level activity
d. unit-level activity
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21. Which of the following systems focuses on activities as the fundamental cost objects and uses the costs of those
activities for compiling the indirect costs of products?
a. Job costing
b. Activity-based costing
c. Process costing
d. Product costing
22. Regarding activity-based costing systems, which of the following statements is true?
a. ABC systems accumulate overhead costs by departments.
b. ABC costing systems are less complex and, therefore, less costly than traditional systems.
c. ABC costing systems have separate indirect cost allocation rates for each activity.
d. ABC costing systems can be used in manufacturing firms only.
23. Examples of activities at the batch level of costs include:
a. cutting, painting, and packaging
b. material ordering, machine set up, and inspection
c. designing, part-specification, and advertising
d. heating, lighting, and security
e. none of the above
24. In an activity-based costing system, direct materials used would typically be classified as a
a. unit-level cost
b. batch-level cost
c. product-sustaining cost
d. facility-level cost
25. In an activity-based costing system, materials receiving would typically be classified as a
a. unit-level activity
b. batch-level activity
c. product-sustaining activity
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d. facility-level activity
26. The salaries of a manufacturing plant’s management are said to arise from
a. unit-level activities
b. batch-level activities
c. product-sustaining activities
d. facility-level activities
27. An activity that has a direct cause-effect relationship with the resources consumed is a (n)
a. cost driver
b. overhead rate
c. cost pool
d. product activity
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CHAPTER ELEVEN
Generally Accepted Accounting Principles (GAAPs), Accounting Standards and Ind

AS.
1. GAAP stands for:
(a) Generally Accepted Accounting Provisions
(b) Generally Accepted Accounting Policies
(c) Generally Accepted Accounting Principles
(d) None of these
2. Which accounting principle states that companies and owners should be treated as separate entities.
(a) Monetary Unit Assumption
(b) Business Entity Concept
(c) Periodicity Assumption
(d) Going Concern Concept
3 Cost or expenses must be recorded at the same time as the revenue to which they correspond is specified by which
principle?
(a) Matching Principle
(b) Going Concern Principle
(c) Consistency Principle
(d) Prudence Principle
4 Which concept states that “for every debit, there is a credit”?
(a) Money Measurement Concept
(b) Accounting Period Concept
(c) Separate Entity Concept
(d) Dual Aspect Concept
5 For measuring income, the most acceptable method is?
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(a) To apply normal rate of return on capital invested
(b) To apply the average return in industry on capital
(c) To match the cost with revenue
(d) To find out the difference in net worth as on two dates
6 The correct form of Accounting equation is
(a) Assets – Receivable = Equity
(b) Assets + Receivable = Equity
(c) Assets – Liabilities = Equity
(d) Assets + Liabilities = Equity
7. As per revenue recognition principle, sales revenues should be recognized at the time when?
(a) Order is taken for merchandise
(b) Ownership of goods gets transferred from the seller to the buyer
(c) Cash is received
(d) All of the above
8. Due to which concept, accounting does not record non-financial transactions?
(a) Going concern concept
(b) Money measurement concept
(c) Accrual concept
(d) Cost concept
9. The owner of the business is treated as a creditor of the business according to which of the following concept?
(a) Entity concept
(b) Materiality concept
(c) Consistency concept
(d) Periodicity concept
10. As per the accrual concept of accounting, any financial or business transaction should be recorded:
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(a) when profit is computed
(b) when balance sheet is prepared
(c) when cash is received or paid
(d) when transaction occurs
11. Which of the following methods is the most acceptable for determining income?
A. The application of the normal rate of return on capital invested
B. To use the average return on capital in the industry as a guideline.
C. To ensure that costs and revenues are in sync.
D. To make the distinction in net worth between two different dates.
12. Because of this, a contingent liability is recorded on the balance sheet
A. The Convention on Public Disclosure
B. The Convention on the Materiality of Things
C. The consistency convention is a formal agreement between two parties.
D. None of the options is available.
13. The classification of assets into current and fixed assets is as follows
A. The concept of “going concern”
B. Aspects that are dual in nature
C. The price
D. The Measurement of Money
14. Which accounting principle governs expenses that have not yet been paid but are nevertheless documented in the
accounting records?
A. Realization is the first step.
B. Conservatism is a political philosophy that advocates for the preservation of traditional values.
C. The Measurement of Money
D. Accumulation
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15. Which principle implies that the same accounting methods should be applied from one period to the next?
A. Consistency is important.
B. The time in which the accounting records are kept.
C. Conservatism is a political philosophy that advocates for the preservation of existing institutions.
D. The importance of materiality
16. Because of this, the corporation is required to prepare financial statements on a regular basis.
A. The idea of accrual
B. The concept of “going concern”
C. The Concept of Time
D. The idea of a business entity
17. A contingent liability, which appears on the balance sheet, is created.
B. The importance of materiality
C. Conservatism is a political philosophy that advocates for the preservation of existing institutions.
D. Information disclosure
18. Making provisions for dubious debts is in accordance with the…… convention.
B. Publication of information
C. Conservatism is a political philosophy that advocates for the preservation of existing institutions
19. The stock is valued at the lower of its cost or market value since it is more stable.
B. Conservatism is a political philosophy that advocates for the preservation of traditional values.
C. Information disclosure
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20. Application of the convention to append components of financial statements
A. Affirmation of faith (conversions)
B. Publication of information
C. Consistency is important.
21. When revenue exceeds earnings, the term “earnings” is used.
A. The transaction is completed.
B. The manufacturing process has been completed.
C. The payment is made in cash.
D. None of the options are available.
22. Which accounting principle states that companies and their owners should be treated as separate legal entities in
accounting?
A. Assumption of the Monetary Unit
B. The Concept of a Business Entity
C. The Assumption of Periodicity
D. The Concept of a Going Concern
23. How many Ind AS are there in India
A. 39
B. 38
C. 42
D. 41
24. Income taxes Comes under
A. Ind AS 11
B. Ind AS 12
C. Ind AS 13
D. Ind AS 14
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25. Intangible assets come under
A. AS 22
B. AS 23
C. AS 24
D. AS 26
26. The main aim of accounting standard is
A. Standardize diverse accounting policies
B. Lower the accounting dissimilarities
C. Ensuring the comparability of financial statement
D. All of the above
27. How many number of accounting standard have been issued by ICAI
A. 38
B. 41
C. 32
D. 12
28. Interim financial reporting comes under
A. Ind AS 31
B. Ind AS 32
C. Ind AS 33
D. Ind AS 34
29. The global key professional accounting body is
A. The International Accounting Standards Board
B. The Institute of Chartered Accountants of India
C. The Financial accounting standard boa
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30. International Public Sector Accounting Standards were issued by
A. International Accounting Standards Board.
B. International Auditing Practices Committee.
C. International Federation of Accountants.
D. None of the above
31. The process of recording financial data up to trial balance is
A. Book keeping
B. Classifying
C. Summarizing
D. Analyzing
32. In which of the following cases, accounting estimates are needed?
A. Employs benefit schemes
B. Impairment of losses
C. Inventory obsolescence
D. All of the above
33. The long term assets that have no physical existence but, possess a value is known as,
A. Current assets
B. Fixed assets
C. Intangible assets
D. Investments
34. Which of these best explains fixed assets?
A. Are bought to be used in the business.
B. Are expensive items bought for the business
C. Are items which will not wear out quickly
D. Are of long life and are not purchased specifically for resale
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35. The assets that can be easily converted into cash within a short period (i.e., 1 year or less is known as,
A. Current assets
B. Fixed assets
C. Intangible assets
D. Investments
A. The amount of Goodwill or Capital Reserve is found out in the books of purchasing company only
B. The amount of Goodwill or Capital Reserve is found out in the books of vendor company only.
C. Goodwill = Net Assets – Purchase price
D. The face value of shares of purchasing company will be taken in to account while calculating purchase consideration.
37. Hitesh Ltd.’s purchase consideration is Rs.12,345 and Net Assets Rs.3,568,then...........
A. Goodwill Rs. 8,777
B. Capital Reserve Rs. 8,777
C. Goodwill Rs. 15,913
D. Capital Reserve Rs. 15,913
38. 10. If the two companies have different accounting policies in respect of the same item, then they make necessary
changes to adopt..............accounting policies .
A. Same
B. Different
C. Important
D. Some
39. When two or more companies carrying on similar business decide to combine, a new company is formed, it is known
as…………………………
A. Merger
B. Amalgamation
C. Absorption
D. Demerger
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40. When one of the existing companies take over business of another company or companies, it is known
as…………………………………
A. Merger
B. Amalgamation
C. Absorption
D. Demerger
41. In case of .............., one existing company takes over the business of another company and no new company is formed
A. Merger
B. Amalgamation
C. Absorption
D. Demerger
42. While calculating purchase consideration ............... values of assets is to be considered.
A. Total
B. Half
C. Net
D. 25%
43. Net Assets minus Capital Reserve is………………………
A. Purchase consideration
B. Goodwill
C. Liabilities
D. Total Assets
44. 16. The original amount of preference share capital should be transferred to ............ account in the time of
amalgamation in the books of vendor co.
A. Equity shareholders
B. Preference share holders
C. Debenture holders
D. vendors
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CHAPTER TWELVE
Financial Statements and Analysis: Preparation of Corporate Financial Statements,

Ratio Analysis, Cash Flow Analysis.
1. Working Capital is the ______.
a. Capital borrowed from the Banks.
b. Difference between Current Assets and Current Liabilities.
c. Difference between Current Assets and Fixed Assets.
d. Cash and Bank Balance.
2. Liquid Ratio is equal to liquid assets divided by ______.
a. Current Liabilities
b. Total Liabilities.
c. Contingent Liabilities.
d. Non-Current Liabilities.
3. Which of the following transactions will improve the Current Ratio?
a. Purchase of Goods for Cash.
b. Payment to Trade Payables.
c. Credit purchase of Goods.
d. Cash collected from Trade Receivables.
4. The ______ is a measure of liquidity that excludes generally the least liquid asset.
a. Liquid ratio, Accounts receivable.
b. Current ratio, inventory.
c. Liquid ratio, inventory.
d. Current ratio, Accounts receivable.
5. Two basic measures of liquidity are _____.
a. Current ratio and Quick ratio.
b. Gross Profit ratio and Operating ratio.
c. Current ratio and Average collection period.
d. Inventory turnover and Current ratio.
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6. The ________ of a business firm is measured by its ability to satisfy its short-term obligations as they become
due.
a. Liquidity
b. Debt
c. Profitability
d. Activity
7. Inventory ratio is a relationship between ______.
a. Cost of goods purchased and cost of average inventory.
b. Cost of goods sold and cost of average inventory, and cost of goods purchased and cost of average
inventory.
c. Cost of goods sold and cost of average inventory.
d. None of the options is correct.
8. Debt to equity ratio establishes the relationship between ______.
a. Long-term debt (external equities) and current assets (internal equities).
b. Long-term debt (external equities) and equity (internal equities), and long-term debt (external equities)
and current assets (internal equities).
c. Long-term debt (external equities) and equity (internal equities).
d. None of the options are correct.
9. Operating ratio is ______.
a. Cost of the production + Operating expenses / Net revenue from operations.
b. Cost of revenue from operation + Operating expenses / Net revenue from operations.
c. Cost of production / Net revenue from operations.
d. Cost of revenue from operations + Selling expenses / Net revenue from operations.
10. Equity or Shareholders fund is equal to _____.
a. Equity share capital + Preference share capital.
b. Equity share capital + Revenues and Surplus.
c. Equity share capital + Preference share capital + Revenues and Surplus.
d. None of the options are correct.
11. Two basic measures of liquidity are :
a. Inventory turnover and Current ratio
b. Current ratio and Quick ratio
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c. Gross Profit ratio and Operating ratio
d. Current ratio and Average Collection period
12. Current Ratio is :
a. Solvency Ratio
b. Liquidity Ratio
c. Activity Ratio
d. Profitability Ratio
13. Current Ratio is :
a. Liquid Assets/Current Assets
b. Fixed Assets/Current Assets
c. Current Assets/Current Liabilities
d. Liquid Assets/Current Liabilities
14. Liquid Assets do not include :
a. Bills Receivable
b. Debtors
c. Inventory
d. Bank Balance
15. Ideal Current Ratio is :
a. 1:1
b. 1:2
c. 1:3
d. 2 : 1
16. Working Capital is the :
a. Cash and Bank Balance
b. Capital borrowed from the Banks
c. Difference between Current Assets and Current Liabilities
d. Difference between Current Assets and Fixed Assets
17. Current assets include only those assets which are expected to be realised within ……………………..
a. 3 months
b. 6 months
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c. 1 year
d. 2 years
18. The ………………… of a business firm is measured by its ability to satisfy its short term obligations as they become
due.
a. Activity
b. Liquidity
c. Debt
d. Profitability
19. Quick Assets do not include
a. Cash in hand
b. Prepaid Expenses
c. Marketable Securities
d. Trade Receivables
20. Quick Ratio is also known as :
a. Liquid Ratio
b. Current Ratio
c. Working Capital Ratio
d. None of the Above
21. Liquid Assets include :
a. Debtors
b. Bills Receivable
c. Bank Balance
d. All of the Above
22. Liquid Ratio is equal to liquid assets divided by :
a. Non-Current Liabilities
b. Current Liabilities
c. Total Liabilities
d. Contingent Liabilities
23. Patents and Copyrights fall under the category of:
a. Current Assets
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b. Liquid Assets
c. Intangible Assets
d. None of Above
24. Cash Balance Rs.15,000; Trade Receivables Rs.35,000; Inventory Rs.40,000; Trade Payables Rs.24,000 and
Bank Overdraft is Rs.6,000. Current Ratio will be :
a. 3.75 : 1
b. 3:1
c. 1:3
d. 1 : 3.75
25. Trade Receivables Rs.40,000; Trade Payables Rs.60,000; Prepaid Expenses Rs.10,000; Inventory Rs.1,00,000
and Goodwill is Rs.15,000. Current Ratio will be :
a. 1:2
b. 2:1
c. 2.33 : 1
d. 2.5 : 1
26. Cash Balance Rs. 5,000; Trade Payables Rs. 40,000; Inventory Rs. 50,000; Trade Receivables Rs. 65,000 and
Prepaid Expenses are Rs. 10,000. Liquid Ratio will be
a. 1.75 : 1
b. 2:1
c. 3.25 : 1
d. 3:1
27. Current Assets Rs.4,00,000; Current Liabilities Rs.2,00,000 and Inventory is Rs. 50,000. Liquid Ratio will be
:
a. 2:1
b. 2.25 : 1
c. 4:7
d. 1.75 : 1
28. Which of the following transactions will improve the Current Ratio :
a. Cash Collected from Trade Receivables
b. Purchase of goods for cash
c. Payment to Trade Payables
d. Credit purchase of Goods
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29. Which of the following transactions will improve the quick ratio?
a. Sale of goods for cash
b. Sale of goods on credit
c. Issue of new shares for cash
d. All of the Above
30. A company’s Current Ratio is 2 : 1. After cash payment to some of its creditors, Current Ratio will:
a. Decrease
b. Increase
c. As before
d. None of these
31. A Company’s Current Assets are Rs.8,00,000 and its current liabilities are Rs.4,00,000. Subsequently, it
purchased goods for Rs.1,00,000 on credit. Current ratio will be
a. 2:1
b. 2.25 : 1
c. 1.8 : 1
d. 1.6 : 1
32. A company’s Current assets are Rs. 3,00,000 and its current liabilities are Rs. 2,00,000. Subsequently, it paid
Rs. 50,000 to its trade payables. Current ratio will be
a. 2:1
b. 1.67 : 1
c. 1.25 : 1
d. 1.5 : 1
33. Current Assets of a Company were Rs. 1,00,000 and its current ratio was 2 : 1. After this the company paid
Rs.25,000 to a Trade Payable. The Current Ratio after the payment will be :
a. 5:1
b. 2:1
c. 3:1
d. 4:1
34. Current liabilities of a company were Rs. 2,00,000 and its current ratio was 2.5 : 1. After this the company paid
Rs.1,00,000 to a trade payable. The current ratio after the payment will be :
a. 2:1
b. 4:1
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c. 5:1
35. A Company’s liquid assets are Rs.10,00,000 and its current liabilities are Rs.8,00,000. Subsequently, it
purchased goods for Rs.1,00,000 on credit. Quick ratio will be
a. 1.11 : 1
b. 1.22 : 1
c. 1.38 : 1
d. 1.25 : 1
36. The is a measure of liquidity which excludes generally the least liquid asset.
a. Current ratio, Accounts receivable
b. Liquid ratio, Accounts receivable
c. Current ratio, inventory
d. Liquid ratio, inventory
37. Assuming that the current ratio is 2 : 1, purchase of goods on credit would:
a. Increase Current ratio
b. Decrease Current ratio
c. have no effect on Current ratio
d. decrease gross profit ratio
38. Assuming that the current ratio is 2 : 1, Cash paid against Bills Payable would:
a. increase current ratio
b. Decrease Current ratio
c. have no effect on Current ratio
d. decrease gross profit ratio
39. Assuming liquid ratio of 1.2 : 1, cash collected from debtors would :
a. increase liquid ratio
b. decrease liquid ratio
c. have no effect on liquid ratio
d. increase gross profit ratio
40. Liquid Assets :
a. Current Assets – Prepaid Exp.
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b. Current Assets – Inventory + Prepaid Exp.
c. Current Assets – Inventory – Prepaid Exp.
d. Current Assets + Inventory – Prepaid Exp.
41. Current Assets Rs.85,000; Inventory Rs.22,000; Prepaid Expenses Rs.3,000. Then liquid assets will be :
a. Rs.63,000
b. Rs.60,000
c. Rs.82,000
d. Rs.1,10,000
42. A Company’s Quick Ratio is 1.5 : 1; Current Liabilities are Rs.2,00,000 and Inventory is Rs.1,80,000. Current
Ratio will be :
a. 0.9 : 1
b. 1.9 : 1
c. 1.4 : 1
d. 2.4 : 1
43. A Company’s Current Ratio is 2.8 : 1; Current Liabilities are Rs.2,00,000; Inventory is Rs.1,50,000 and
Prepaid Expenses are Rs.10,000. Its Liquid Ratio will be :
a. 3.6 : 1
b. 2.1 : 1
c. 2:1
d. 2.05 : 1
44. A Company’s Current Ratio is 3 : 1; Current Liabilities are Rs.2,50,000; Inventory is Rs.60,000 and Prepaid
Expenses are Rs.5,000. Its Liquid Assets will be :
a. Rs.6,90,000
b. Rs.6,95,000
c. Rs.6,85,000
d. Rs.8,15,000
45. Current ratio of a firm is 9 : 4. Its current liabilities are Rs.1,20,000. Inventory is Rs.30,000. Its liquid ratio will
be :
a. 1:1
b. 1.5 : 1
c. 2:1
d. 1.6 : 1
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46. A firm’s current ratio is 3.5 : 2. Its current liabilities are Rs.80,000. Its working capital will be :
a. Rs.1,20,000
b. Rs.1,60,000
c. Rs.60,000
d. Rs.2,80,000
47. A Company’s Current Ratio is 3 : 1 and Liquid Ratio is 1.2 : 1. If its Current Liabilities are Rs.2,00,000, what
will be the value of Inventory?
a. Rs.2,40,000
b. Rs.3,60,000
c. Rs.4,00,000
d. Rs.40,000
48. Current Ratio of a Company is 2.5 : 1. If its working capital is Rs.60,000, its current liabilities will be :
a. Rs.40,000
b. Rs.60,000
c. Rs.1,00,000
d. Rs.24,000
49. A Company’s Current Assets are Rs.6,00,000 and working capital is Rs.2,00,000. Its Current Ratio will be :
a. 3:1
b. 1.5 : 1
c. 2:1
d. 4:1
50. A Company’s Current Ratio is 2.4 : 1 and Working Capital is Rs.5,60,000. If its Liquid Ratio is 1.5, what will
be the value of Inventory?
a. Rs.6,00,000
b. Rs.2,00,000
c. Rs.3,60,000
d. Rs.6,40,000
51. If a Company’s Current Liabilities are Rs.80,000; Working Capital is Rs.2,40,000 and Inventory is Rs.40,000,
its quick ratio will be:
a. 3.5 : 1
b. 4:1
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c. 4.5 : 1
d. 3:1
52. A Company’s Liquid Assets are Rs.2,00,000, Inventory is Rs.1,00,000, Prepaid Expenses are Rs.20,000 and
Working Capital is Rs.2,40,000. Its Current Ratio will be:
a. 1.33 : 1
b. 4:1
c. 2.5 : 1
d. 3:1
53. Long term solvency is indicated by :
a. Current Ratio
b. Quick Ratio
c. Net Profit Ratio
d. Debt/Equity Ratio
54. Debt Equity Ratio is :
a. Liquidity Ratio
b. Solvency Ratios
c. Activity Ratio
d. Operating Ratio
55. Debt Equity Ratio is :
a. Long Term Debts/Shareholder’s Funds
b. Short Term Debts/Equity Capital
c. Total Assets/Long term Debts
d. Shareholder’s Funds/Total Assets
56. Proprietary Ratio is :
a. Long term Debts/Shareholder’s Funds
b. Total Assets/Shareholder’s Funds
c. Shareholder’s Funds/Total Assets
d. Shareholder’s Funds/Fixed Assets
57. The ………….. ratios provide the information critical to the long run operation of the firm.
a. Liquidity
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b. Activity
c. Solvency
d. Profitability
58. Fixed Assets Rs.5,00,000; Current Assets Rs.3,00,000; Equity Share Capital Rs.4,00,000; Reserve Rs.2,00,000;
Long-term Debts Rs.40,000. Proprietary Ratio will be :
a. 75%
b. 80%
c. 125%
d. 133%
59. Proprietary Ratio indicates the relationship between Proprietor’s Funds and
a. Long-Term Debts
b. Short Term & Long Term Debts
c. Total Assets
d. Debentures
60. Debt equity ratio of a company is 1 : 2. Which of the following transactions will increase it:
a. Issue of new shares for cash
b. Redemption of Debentures
c. Issue of Debentures for cash
d. Goods purchased on credit
61. Satisfactory ratio between Long-term Debts and Shareholder’s Funds is :
a. 1:1
b. 3:1
c. 1:2
d. 2 : 1
62. On the basis of following data, the Debt-Equity Ratio of a Company will be: Equity Share Capital Rs.5,00,000;
General Reserve Rs.3,20,000; Preliminary Expenses Rs.0,000; Debentures Rs.3,20,000; Current Liabilities
Rs.80,000.
a. 1:2
b. 52 : 1
c. 4:1
d. 37 : 1
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63. On the basis of following information received from a firm, its Debt-Equity Ratio will be : Equity Share Capital
Rs.5,80,000; Reserve Fund Rs.4,30,000; Preliminary Expenses Rs.40,000; Long term Debts Rs.1,28,900;
Debentures Rs.2,30,000.
a. 42 : 1
b. 53 : 1
c. 63 : 1
d. 37 : 1
64. On the basis of following information received from a firm, its Proprietary Ratio will be : Fixed Assets
Rs.3,30,000; Current Assets Rs.1,90,000; Preliminary Expenses Rs.30,000; Equity Share Capital Rs.2,44,000;
Preference Share Capital Rs.1,70,000; Reserve Fund Rs.58,000.
a. 70%
b. 80%
c. 85%
d. 90%
65. Opening Inventory Rs.1,00,000; Closing Inventory Rs.1,50,000; Purchases Rs.6,00,000; Carriage Rs.25,000;
Wages Rs.2,00,000. Inventory Turnover Ratio will be :
a. 6.6 Times
b. 7.4 Times
c. 7 Times
d. 6.2 Times
66. On the basis of following data, the cost of revenue from operations by a company will be : Opening Inventory
Rs.70,000; Closing Inventory Rs.80,000; Inventory Turnover Ratio 6 Times.
a. Rs.1,50,000
b. Rs.90,000
c. Rs.4,50,000
d. Rs.4,80,000
67. Opening Inventory of a firm is Rs.80,000. Cost of revenue from operations is Rs.6,00,000. Inventory
Turnover Ratio is 5 times. Its closing Inventory will be:
a. Rs.1,60,000
b. Rs.1,20,000
c. Rs.80,000
d. Rs.2,00,000
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68. Cost of revenue from operations Rs.6,00,000; Inventory Turnover Ratio 5; Find out the value of opening
inventory, if opening inventory is Rs.8,000 less than ” the closing inventory.
a. Rs.1,12,000
b. Rs.1,16,000
c. Rs.1,28,000
d. Rs.1,24,000
69. Revenue from Operations Rs.2,00,000; Inventory Turnover Ratio 5; Gross Profit 25%. Find out the value of
Closing In ventory, if Closing Inventory is Rs.8,000 more than the Opening Inventory.
a. Rs.38,000
b. Rs.22,000
c. Rs.34,000
d. Rs.26,000
70. If the inventory turnover ratio is divided into 365, it becomes a measure of
a. Sales efficiency
b. Average Age of Inventory
c. Sales Turnover
d. Average Collection Period
71. If average inventory is Rs.50,000 and closing inventory is Rs.2,000 less than the opening inventory, opening
and closing inventory will be :
a. Rs.52,000 and Rs.50,000
b. Rs.50,000 and Rs.48,000
c. Rs.48,000 and Rs.46,000
d. Rs.51,000 and Rs.49,000
72. Opening Inventory Rs.50,000; Closing Inventory Rs.40,000 and cost of revenue from operations Rs.7,20,000.
What will be Inventory Turnover Ratio?
a. 18 Times
b. 16 Times
c. 14.4 Times
d. 8 Times
73. Average Inventory Rs.60,000; Inventory Turnover Ratio 8; Gross Profit 20% on revenue from operations;
what will be Gross Profit?
a. Rs.1,20,000
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b. Rs.96,000
c. Rs.80,000
d. Rs.15,000
74. Opening Inventory Rs.75,000; Closing Inventory Rs.1,05,000; Inventory Turnover Ratio 6; Gross Profit 20%
on cost; what will be Gross Profit?
a. Rs.1,35,000
b. Rs.1,08,000
c. Rs.90,000
d. Rs.18,000
75. Opening Inventory Rs.40,000; Purchase Rs.4,00,000; Purchase Return Rs.12,000, what will be Inventory
turnover ratio if Closing Inventory is less than Opening Inventory by Rs.8,000?
a. 9 Times
b. 10.78 Times
c. 11 Times
d. 8.82 Times
76. Total revenue from operations Rs.27,00,000; Credit revenue from operations Rs.18,00,000;Opening Debtors
Rs.3,20,000; Closing Debtors Rs.4,00,000; Provision for Doubtful Debts Rs.60,000.Trade Receivables
Turnover Ratio will be :
a. 7.5 times
b. 9 times
c. 6 times
d. 5 times
77. Credit revenue from operations Rs.24,00,000; Trade Receivables Turnover Ratio 6 times; Opening Debtors
Rs.3,20,000. Closing Debtors will be :
a. Rs.4,00,000
b. Rs.4,80,000
c. Rs.80,000
d. Rs.7,20,000
78. A firm makes credit revenue from operations of Rs.2,40,000 during the year. If the trade receivables turnover
ratio is 8 times, calculate closing debtors, if the closing debtors are more by Rs.6,000 than the opening debtors
:
a. Rs.33,000
b. Rs.36,000
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c. Rs.24,000
d. Rs.27,000
79. Credit revenue from operations Rs.3,00,000. Trade Receivables Turnover Ratio 5; Calculate Closing Debtors,
if closing debtors are two times in comparison to Opening Debtors.
a. Rs.40,000
b. Rs.60,000
c. Rs. 80,000
d. Rs.1,20,000
80. Credit revenue from operations Rs.5,60,000; Debtors Rs.70,000; B/R Rs.10,000. Average Collection Period
will be :
a. 52 Days
b. 53 Days
c. 45 Days
d. 46 Days
81. Credit revenue from operations Rs.6,00,000; Cash revenue from operations Rs. 1,50,000; Debtors
Rs.1,00,000; B/R Rs.50,000. Average Collection Period will be :
a. 2 Months
b. 2.4 Months
c. 3 Months
d. 1.6 Months
82. Credit Purchases Rs.12,00,000; Opening Creditors Rs.2,00,000; Closing Creditors Rs.1,00,000. Trade
Payables Turnover Ratio will be :
a. 6 times
b. 4 times
c. 8 times
d. 12 times
83. Total Purchases Rs.4,50,000; Cash Purchases Rs.1,50,000; Creditors Rs.50,000; Bills Payable Rs.10,000.
Trade Payables Turnover Ratio will be :
a. 7.5 times
b. 6 times
c. 9 times
d. 5 times
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84. Credit Purchases Rs.6,00,000; Trade Payables Turnover Ratio 5; Calculate closing creditors, if closing
creditors are Rs.10,000 less than opening creditors.
a. Rs.1,15,000
b. Rs.1,25,000
c. Rs.1,30,000
d. Rs.1,10,000
85. Credit Purchases Rs.9,60,000; Cash Purchases Rs.6,40,000; Creditors Rs.2,40,000; Bills Payable Rs.80,000.
Average Payment Period will be :
a. 3 months
b. 4 months
c. 2.4 months
d. 6 months
86. Current Assets Rs.5,00,000; Current Liabilities Rs.1,00,000; Revenue from Operations Rs.28,00,000.
Working Capital turnover Ratio will be:
a. 7 times
b. 5.6 times
c. 8 times
d. 10 times
87. On the basis of following data, the Waiting Capital Turnover Ratio of a company will be : Liquid Assets
Rs.3,70,000; Inventory Rs.80,000; Current Liabilities Rs.1,50,000; Cost of revenue from operations
Rs.7,50,000.
a. 2.5 Times
b. 3 Times
c. 5 Times
d. 3.8 Times
88. Opening Inventory Rs.1,00,000; Closing Inventory Rs.1,20,000; Purchases Rs.20,00,000; Wages Rs.2,40,000;
Carriage Inwards Rs.1,50,000; Selling Exp. Rs.60,000; Revenue from Operations Rs.30,00,000. Gross Profit
ratio will be
a. 29%
b. 26%
c. 19%
d. 21%
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89. Cash Revenue from Operations Rs.4,00,000 Credit Revenue, from Operations Rs.21,00,000; Revenue from
Operations Return Rs.1,00,000; Cost of revenue from operations Rs.19,20,000. G.P. ratio will be
a. 4%
b. 23.2%
c. 80%
d. 20%
90. A film’s credit revenue from operations is Rs.3,60,000, cash revenue from operations is Rs.70,000, Cost of
reverse from operations is Rs.3,61,200, Its gross profit ratio will be :
a. 11%.
b. 23.2%
c. 18%
d. 20%
91. On the basis of following data, a Company’s Gross Profit Ratio will be : Net Profit Rs.40,000; Office Expenses
Rs.20,000; Selling Expenses Rs.36,000; Total revenue from operations Rs.6,00,000.
a. 16%
b. 20%
c. 6.67%
d. 12.5%
92. What will be the amount of Gross Profit. if revenue from operations are Rs.6,00,000 and Gross . Profit Ratio
is 20% of cost?
a. Rs.1,50,000
b. Rs.1,00,000
c. Rs.1,20,000
d. Rs.5,00,000
93. What will be the amount of Gross Profit, if revenue from operations are Rs.6,00,000 and Gross Profit Ratio
20% of revenue from operations?
a. Rs.1,50,000
b. Rs.1,00,000
c. Rs.1,20,000
d. Rs.5,00,000
94. Revenue from operations is Rs.1,80,000; Rate of Gross Profit is 25% on cost. What will be the Gross Profit?
a. Rs.45,000
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b. Rs.36,000
c. Rs.40,000
d. Rs.60,000
95. Operating ratio is :
a. Cost of revenue from operations + Selling Expenses/Net revenue from operations
b. Cost of production + Operating Expenses/Net revenue from operations
c. Cost of revenue from operations + Operating Expenses/Net Revenue from Operations
d. Cost of Production/Net revenue from operations.
96. Cost of Revenue from Operations =
a. Revenue from Operations – Net Profit
b. Revenue from Operations – Gross Profit
c. Revenue from Operations – Closing Inventory
d. Purchases – Closing Inventory
97. Total Revenue from Operations Rs.15,00,000; Cost of Revenue from Operations Rs.9,00,000 and Operating
Expenses Rs.2,25,000. Calculate operating ratio :
a. 75%
b. 25%
c. 60%
d. 15%
98. Purchases Rs.7,20,000; Office Expenses Rs.30,000; Selling Expenses Rs.90,000; Opening Inventory
Rs.1,40,000; Closing Inventory Rs.80,000; Revenue from Operations Rs.12,00,000. Calculate operating ratio
a. 60%
b. 75%
c. 70%
d. 65%
99. Revenue from Operations Rs.6,00,000; Gross Profit 20%; Office Expenses Rs.30,000; Selling Expenses
Rs.48,000. Calculate operating ratio
a. 80%
b. 85%
c. 96.33%
d. 93%
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CHAPTER THIRTEEN
Appraisal of Projects: Capital Budgeting, Cost of Capital, Leverage Analysis;

Methods of Project Appraisal-Payback Period, Net Present Value (NPV), Financial
Internal Rate of Return (FIRR), Economic Internal Rate of Return (EIRR), Benefit
Cost Ratio.
1. The cost of equity share or debt is known as .
a. The specific cost of capital

b. The related cost of capital
c. The burden on the shareholder
2. Which of the following methods involves computing the cost of capital by dividing the dividend by market
price/net proceeds per share?
a. Adjusted price method

b. Price earning method
c. Dividend yield method
d. Adjusted dividend method
3. In weighted average cost of capital, an organisation can affect its cost of capital through .
a. The policy of investment

b. The policy of capital structure
c. The policy of dividends
d. All of the above
4. is the rate of return for the most viable investment opportunity for a company that they will forgo by selecting
any other project.
a. Implicit cost
b. Specific cost
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c. Explicit cost
5. What is Marginal Cost?
a. It is the cost of raising an additional unit of capital

b. It is the additional cost of capital when the company decides to raise finance for its operations
c. It is the weighted average cost of raising finance
d. All of the above
6. Which of the following statements are true?
a. When the dividends, earnings and the price of an equity share are growing at the same rate, the dividend growth
method can compute the cost of equity capital
b. The risk premium for a stock is arrived at by adding the risk-free rate to the market rate of return
c. Both a and b are false
d. Both a and b are true
7. The premium that is considered to be the difference between the current yield on treasury bonds and the expected
return on common stock is .
a. Current risk premium

b. Past risk premium
c. Expected premium
8. Which among the following figures is not relevant while calculating the cost of the redeemable preference shares?
a. Earnings per share

b. Flotation cost
c. Discount
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9. Which of the following factors affecting the cost of capital can be controlled by the firm?
a. Tax rates
b. Dividend policy
c. Level of interest rates
d. All of the above
10.Which of the following is an uncontrollable factor that affects the cost of capital for a firm?
a. Capital structure policy

b. Debt service charges
c. Investment policy
11. is the cost that is used to raise the common equity of a firm by reinvestment of the internal earnings.
a. Cost of reserve assets

b. Cost of stocks
c. Cost of mortgage
d. Cost of common equity
12.Which of the following factors affects the determination of the cost of capital for a firm?
a. Operating and financing decisions

b. General economic factors
c. Market conditions
d. All of the above
13.The cost of capital for a firm .
a. Is the return required on the total assets of a firm
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b. Refers to the internal rate of return

c. Varies inversely with the overall cost of debt
14.The cost of equity share capital is greater than the cost of debt because
a. Equity shares carry a higher risk than debts

b. The face value of equity shares is lower than the face values of debentures in most cases
c. Equity shares do not provide a fixed dividend rate
d. Equity shares are not easily saleable
15.The cost of preference share capital is calculated by .
a. Dividing the price per preference share by the fixed dividend per share
b. Dividing the book value per preference share by the fixed dividend per share
c. Dividing the price per preference share by the fixed dividend per share and then adding the growth rate
d. Dividing the price per preference share by the fixed dividend per share and then adding the risk premium
16.Cost of capital is a concept in financial management.
(A) central
(B) departmental
(C) dual
(D) none of the above
17.In modern times, cost of capital is widely used as basis of .
(A) investment projects

(B) evaluating the alternative sources of finance
(C) both (A) and (B)
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18.From Investors’ View Point, cost of capital may define as “the measurement of the made by him in capital
formation.”
(A) investment
(B) sacrifice
(C) expenditure
19.From Firms Point, cost of capital is the minimum required needed to justify the use of capital.
(A) investment
(B) amount
(C) rate of return
20.Cost of capital is that minimum , which a firm must and is expected to earn on its so as to maintain the
market value of its shares.
(A) investments, rate of return

(B) rate of return, investments
(C) expenditure, rate of return
(D) rate of return, expenditure
21.Cost of capital is also known as
(A) composite cost of capital

(B) weighted average cost of capital
(C) combined cost of capital
(D) all of the above
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22.Cost of capital comprises of the following component(s):
(A) The risk less cost of the particular type of financing

(B) The business risk premium
(C) The financial risk premium
23.Cost of capital is expressed in terms of
(A) percentage
(B) fraction
(C) whole number
(D) any of the above
24.In the Net Present Value (NPV) method, an investment project is accepted, if the present value of cash inflows are
the present value of cash outflow.
(A) less than

(B) greater than
(C) equal to
25.If Internal Rate of Return (IRR) technique for capital budgeting evaluation, investment should be accepted only
when cost of capital is the calculated IRR.
(A) less than

(B) greater than
(C) equal to
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26.If the actual profitability is the projected cost of capital, then the financial performance may said to be
satisfactory.
(A) more than

(B) less than
(C) equal to
27.The cost of equity share or debt is called –
(A) Related cost of capital

(B) Easy to calculate cost of capital
(C) Specific cost of capital
(D) Burden on the shareholder
28.In which of the following method cost of equity capital is computed by dividing the dividend by market price per
share or net proceeds per share?
(A) Price Earning Method

(B) Adjusted Price Method
(C) Adjusted Dividend Method
(D) Dividend Yield Method
29.In weighted average cost of capital, a company can affect its capital cost through –
1. Policy of capital structure

2. Policy of dividends
3. Policy of investment
Select the correct answer from the options given below:
(A) 1 only
(B) 2 & 3
(C) 1 & 3
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(D) All 1, 2 & 3
30.……….. is the rate of return associated with the best investment opportunity for the firm and its shareholders that
will be forgone if the projects presently under consideration by the firm were accepted.
(A) Explicit Cost

(B) Future Cost
(C) Implicit Cost
(D) Specific Cost
31.Cost of capital is equal to required return rate on equity in case if investors are only –
(A) Valuation Manager

(B) Common Stockholders
(C) Asset Seller
(D) Equity Dealer
32.Which of the following model/method makes use of beta (5) in calculation of cost of equity?
(A) Risk Adjusted Discount Model

(B) Capital Assets Pricing Method
(C) MM Model
(D) Price Earning Method
33. Marginal cost –
(A) is the weighted average cost of new finance raised by the company.
(B) is the additional cost of capital when the company goes for further raising of finance.
(C) is the cost of raising an additional rupee of capital.
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34.Bond risk premium is added in to bond yield to calculate –
(A) Cost of option

(B) Cost of common stock
(C) Cost of preferred stock
(D) Cost of working capital
35.The cost of equity share or debt is called specific cost of capital. When specific costs are combined, then we arrive
at –
(A) Maximum rate of return

(B) Internal rate of return
(C) Overall cost of capital
(D) Accounting rate of return
36.Statement I:
Where earnings, dividends and equity share price all grow at the same rate, the cost of equity capital may be computed
by dividend growth method.
Statement II:
When risk free rate is added to the market rate of return risk premium for the stock is arrived.
(A) Statement I is false but Statement II is true

(B) Both Statement I and Statement II are false
(C) Statement II is false but Statement I is true
(D) Both Statement I and Statement II are true
37.Interest rates, tax rates and market risk premium are factors which –
(A) Industry cannot control

(B) Industry can control
(C) Firm must control
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(D) Firm cannot control
38. Assertion (A): Cost of share capital would be based upon the expected rate of earnings of a company.
Reason (R):Each investor expects a certain amount of earnings, whether distributed or not from the company in whose
shares he invests.
(A) A is true but R is false

(B) A is false but R is true
(C) A and R both are true but R is not correct explanation of A
(D) A and R both are true and R is correct explanation of A
39. If we deduct ‘risk free return’ from ‘market return’ and multiply it with ‘beta factor’ and again add ‘risk free
return’, the resultant figure will be –
(A) Nil
(B) Risk premium
(C) Cost of equity
(D) WACC of the firm
40. For each component of capital, a required rate of return is considered as:
(A) Component cost

(B) Evaluating cost
(C) Asset cost
(D) Asset depreciation value
41. …….. is the rate that the firm pays to procure financing.
(A) Average Cost of Capital

(B) Combine Cost
(C) Economic Cost
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(D) Explicit Cost
42. Which of the following method of cost of equity is similar to the dividend price approach?
(A) Discounted cash flow (DCF) method

(B) Capital asset pricing model
(C) Price earning method
(D) After tax equity method
43. Preferred dividend is divided by preferred stock price multiply by (1 – floatation cost) is used to calculate –
(A) Transaction cost of preferred stock

(B) Financing of preferred stock
(C) Weighted cost of capital
(D) Component cost of preferred stock
44. Statement I:
Cost of retained earnings is the opportunity : cost of dividends foregone by shareholders.
Statement II:
The opportunity cost of reserve & surplus may be considered as their cost, which is equivalent to the income that would
otherwise earn by placing these funds in alternative investment.
Select the correct answer from the options, given below:
(A) Statement I is false but Statement II is true

(B) Both Statement I and Statement II are false
(C) Statement II is false but Statement I is true
(D) Both Statement I and Statement II are true
45. In weighted average cost of capital, rising in interest rate leads to –
(A) Increase in cost of debt

(B) Increase the capital structure
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(C) Decrease in cost of debt
(D) Decrease the capital structure
46. ………… is the cost which has already been incurred for financing a particular project
(A) Future Cost

(B) Historical Cost
(C) Implicit Cost
(D) Opportunity Cost
47. In weighted average cost of capital, capital components are funds that are usually offered by:
(A) Stock market

(B) Investors
(C) Capitalist
(D) Exchange index
48. Overall cost of capital is called as –
(A) Composite cost of capital

(B) Combined cost of capital
(D) Neither (A) nor (B)
49. Premium which is considered as difference of expected return on common stock and current yield on Treasury
bonds is called –
(A) Past risk premium

(B) Expected premium
(C) Current risk premium
(D) Beta premium
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50. Which of the following figure is irrelevant while calculating cost of redeemable preference shares?
(A) Floatation cost

(B) Discount
(C) EPS
(D) Net proceeds
51. Select which of the following statement is correct?
(I) Capital budget decision largely depends on the cost of capital of each source.
(II) Capital structure is the mix or proportion of the different kinds of short term securities.
(III) Cost of capital helps to evaluate the financial performance of the firm.
(IV) As per MM approach, the cost of equity (Ke) is equal to capitalization rate of pure equity stream minus a
premium for business risk.
(A) (I) and (II)

(B) (I), (III) and (IV)
(C) (D) and (III)
(D) (I) and (III)
52. An interest rate which is paid by firm as soon as it issues debt is classified as pre-tax–
(A) Term structure

(B) Market premium
(C) Risk premium
(D) Cost of debt
53. Which of the following is controllable factor affecting the cost of capital of the firm?
(A) Dividend policy

(B) Level of interest rates
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(C) Tax rates
54. Which of the following is uncontrollable factor affecting the cost of capital of the firm?
(A) Investment Policy

(B) Capital Structure Policy
(C) Debt service charges
55. Type of cost which is used to raise common equity by reinvesting internal earnings is classified as………
(A) Cost of common equity

(B) Cost of mortgage
(C) Cost of stocks
(D) Cost of reserve assets
56. Which of the following is correct formula to calculate cost of irredeemable preference shares?
(A) Preference dividend ÷ Net proceeds

(B) Preference dividend × (1 -t)
(C) [Preference dividend × (1 -t)] ÷ Net proceeds
(D) [Preference dividend -n Net proceeds] × (1-t)
57. Which of the following factor affects the determination of cost of capital of the firm?
(A) General economic conditions

(B) Market conditions
(C) Operating and financing decisions
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58. Cost of equity which is raised by reinvesting earnings internally must be higher than the –
(A) Cost of initial offering

(B) Cost of new common equity
(C) Cost of preferred equity
(D) Cost of floatation
59. During planning period, marginal cost to raise a new debt is classified as –
(A) Debt cost

(B) Borrowing cost
(C) Relevant cost
(D) Embedded cost
60. After tax cost of debentures not redeemable during the life time of the company is –
(A) [Interest -5- Net proceeds] × (1 -t)

(B) Interest × (1 -t) ÷ Net proceeds
(C) Interest × (1 +t) ÷ Net proceeds
(D) [Interest ÷ Net proceeds] × (1 +t)

61. Risk free rate is subtracted from expected market return is considered as:
(A) Country risk

(B) Diversifiable risk
(C) Equity risk premium
(D) Market risk premium
62. A firm’s overall cost of capital:
(A) varies inversely with its cost of debt.

(B) is unaffected by changes in the tax rate.
(C) is another term for the firm’s internal rate of return.
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(D) is the required return on the total assets of a firm.
63. Key sources of value (earning an excess return) for a company can be attributed primarily to
(A) competitive advantage and access to capital

(B) quality management and industry attractiveness
(C) access to capital and quality management
(D) industry attractiveness and competitive advantage
64. The weighted average cost of capital (K0) results from a weighted average of the firm’s debt and equity capital
costs. At a debt ratio of zero, the fin a is 100% equity financed. As debt is substituted for equity and as the debt
ratio increases, the –
(A) K0 declines because the after-tax debt cost is less than the equity cost (Kd < Ke).
(B) K0 increases because the after-tax debt cost is less than the equity cost (Kd<Ke).
(C) K0 do not show any change and tend to remain same.
65. The overall (weighted average) cost of capital is composed of a weighted average of
(A) the cost of common equity and the cost of debt

(B) the cost of common equity and the cost of preferred stock
(C) the cost of preferred stock and the cost of debt
(D) the cost of common equity, the cost of preferred stock, and the cost of debt
66. While calculating the WACC, cost of each component of the capital is weighted –
(A) In the ratio of 1:2:3:4

(B) by the relative proportion of that type of funds in the capital structure.
(C) by the relative proportion of that type of funds to total assets in the company
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(D) Both (A) and (C)
67. Which of the following formula you will use while calculating value of the firm?
(A) NOPAT ÷ K
(B) NOPAT × K0
(C) NOPAT ÷K0(1-t)
68. For which of the following costs is it generally necessary to apply a tax adjustment to a yield measure?
(A) Cost of debt

(B) Cost of preferred stock
(C) Cost of common equity
(D) Cost of retained earnings
69. The cost of preference share capital is calculated –
(A) by dividing the fixed dividend per share by the price per preference share and then adding risk premium.
(B) by dividing the fixed dividend per share by the price per preference share and then adding growth rate.
(C) by dividing the fixed dividend per share by the price per preference share.
(D) by dividing the fixed dividend per share by the book value per preference share.
70. Statement I: Cost of equity capital is the rate of return which equates the present value of expected dividends with
the market share price.
Statement II: Dividend Yield Method cannot be used to calculate cost of equity of units suffering losses.
Select correct answer from the options given below:
(A) Both Statements are false.

(B) Statement I is true but Statement II is false.
(C) Statement II is true but Statement I is false.
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(D) Both Statements are true.
71. Which of the following is not a recognized approach for determining the cost of equity?
(A) Dividend discount model approach

(B) Before-tax cost of preferred stock plus risk premium approach
(C) Capital-asset pricing model approach
(D) Before-tax cost of debt plus risk premium approach
72. While calculating WACC on market value basis which of the following is not considered –
(A) After tax cost of debt

(B) Reserve and surplus
(C) Weight of each fund in capital structure
(D) Cost of term loan
73. CAPM describes the between risk and return for securities.
(A) Linear relationship

(B) Hypothetical relationship
(C) No relationship
(D) Diagonal relationship
74. Janardan is attempting to determine his company’s weighted-average cost of capital. His first step was to determine
the required rates of return for his company’s long-term debt, preferred stock, and common stock. He then
adjusted these required rates of return by multiplying each return by one minus the company’s marginal tax rate.
Janardan is planning on using these three adjusted required return figures as his component costs of capital. How
is Janardan doing so far?
(A) All three of Janardan’s component cost figures are correct.

(B) All three component cost figures are wrong.
(C) Only the required return (yield) on preferred stock and debt should have been adjusted for taxes.
(D) Only the required return (yield) on debt should have been adjusted for taxes.
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75. Which of the following may be defined as the cost of raising an additional rupee of capital?
(A) Average cost of capital

(B) Cost of retained earnings
(C) Marginal cost of capital
(D) Marginal cost of reserve & surplus
76. The non-diversifiable risk is attributable to factors that affect –
(A) Particular business

(B) All businesses
(C) Particular project
(D) Not to all businesses
77. How the economic value added (EVA) is calculated?
(A) It is the difference between the market value of the firm and the book value of equity.
(B) It is the firm’s net operating profit after tax (NOPAT) less cost of capital.
(C) It is the net income of the firm less cost that equals the weighted average cost of capital multiplied by the book
value of liabilities and equities.
(D) None of the above is correct.
78. Assertion (A): The marginal weights represent the proportion of funds the firm intends to employ.
Reason (R): The problem of choosing between the book value weights and the market value weights does not arise in
the case of marginal cost of capital computation.
(A) A is true but R is false

(B) A is false but R is true
(C) A and R both are true but R is not correct explanation of A
(D) A and R both are true and R is correct explanation of A
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79. Which of the following is example of non-diversifiable risk?
(W) Interest Rate Changes

(X) Inflation
(Y) Political Changes
(A) (W) & (Y)
(B) (W) & (X)
(C) (X) & (Y)
80. The cost of equity capital is all of the following EXCEPT:
(A) the minimum rate that a firm should earn on the equity-financed part of an investment.
(B) a return on the equity-financed portion of an investment that, at worst, leaves the market price of the stock
unchanged.
(C) by far the most difficult component cost to estimate.
(D) generally lower than the before-tax cost of debt.
81. Which of the following risk can be eliminated by an investor?
(A) Diversifiable risk

(B) Non-diversifiable risk
82. Required rate of return = ?
(A) Risk free rate + Risk premium

(B) Risk free rate – Risk premium
(C) Risk free rate + Risk premium (1 -1)
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(D) Risk free rate – Risk premium (1 +1)
83. In calculating the proportional amount of equity financing employed by a firm, we should use:
(A) The common stock equity account on the firm’s balance sheet.
(B) The sum of common stock and preferred stock on the balance sheet.
(C) The book value of the firm.
(D) The current market price per share of common stock times the number of shares outstanding.
84. The New York based financial advisory postulated a concept of economic value added.
(A) Shawn Stewart & Co.
(B) Stem Stewart & Co.
(C) Stem Shawn & Co.
(D) S.S.&Co.
85. In calculating the costs of the individual components of a firm’s financing, the corporate tax rate is important to
which of the following component cost?
(A) Common stock
(B) Debt
(C) Preferred stock
86. The rate of return on its existing assets that a firm must earn to maintain the current value of the firm’s stock is
called the:
(A) Return on equity
(B) Internal rate of return
(C) Weighted average cost of capital
(D) Current yield
87. Economic value added measures –
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(A) the excess earning over P/E ratio

(B) the excess returns over cost of capital.
(C) the excess returns over existing EPS
(D) the excess earning over ROE
88. Which one of the following is a correct statement regarding a firm’s weighted average cost of capital (WACC)?
(A) The WACC can be used as the required return for all new projects with similar risk to that of the
existing firm.
(B) An increase in the market risk premium will tend to decrease a firm’s WACC.
(C) A reduction in the risk level of a firm will tend to increase the firm’s WACC.
(D) The WACC will decrease when the tax rate decreases for all firms that utilize debt financing.
89. If a company’s EVA is negative –
(A) it is destroying shareholders wealth even though it may be reporting positive and growing EPS or
return on capital employed
(B) it is destroying the overall cost of capital of the firm
(C) it is increasing the overall cost of capital of the firm causing low NPV
(D) it is increasing the overall cost of capital of the firm which can be adjusted by risk premium
90. The term ‘EVA’ is used for:
(A) Extra Value Analysis

(B) Economic Value Added
(C) Expected Value Analysis
(D) Engineering Value Analysis
91. Market values are often used in computing the weighted average cost of capital because –
(A) This is the simplest way to do the calculation.

(B) This is consistent with the goal of maximizing shareholder value.
(C) This is required by the Securities & Exchange Board of India.
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(D) This is a very common mistake.
92. …………. enhance the market value of shares and therefore equity capital is not free of cost.
(A) Face value

(B) Dividends
(C) Redemption value
(D) Book value
93. Consider statements given below:
1. A debt-equity ratio of 2:1 indicates that for every 1 unit of equity, the company can raise 2 units of debt. The cost of
floating a debt is greater than the cost of floating an equity issue.
State True or False:
(A) 1-True, 2-True

(B) 1-False, 2-True
(C) 1-False, 2-False
(D) 1-True, 2-False
94. Which one of the following represents the best estimate for a firm’s pre-tax
cost of debt?
(A) twice the rate of return currently offered on risk-free securities

(B) the firm’s historical cost of capital
(C) the current yield-to-maturity on the firm’s existing debt
(D) the current coupon on the firm’s existing debt
95. EVA = ?
(A) PAT – (Capital Employed × WACC)

(B) NOPAT -(Capital Employed × Ke)
(C) NOPAT-(Capital Employed × WACC)
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(D) NOPAT – (Total Assets × Ke × Kd)
96. An increase in market value of preferred stock will the cost of preferred stock.
(A) increase
(B) not affect
(C) either increase or decrease
(D) decrease
97. Which of the following is advantage of EVA?
(A) The use of EVA is a substitute for detailed analysis of business drivers.
(B) EVA improves the overall cost of capital.
(C) In some cases, company pay bonuses to the employees on the basis of EVA generated. Thus, it promotes
the employees for working hard for generating higher revenue.
(D) EVA improves the skill of financial analyst.
98. Capital structure weights are based on the:
(A) market value of a firm’s equity and the face value of its debt.
(B) initial issue values of a firm’s debt and equity.
(C) firm’s dividend and bond yields.
(D) market values of a firm’s debt and equity.
99. The average of a firm’s cost of equity and after tax cost of debt that is weighted based on the firm’s capital structure
is called the –
(A) Reward to risk ratio

(B) Weighted capital gains rate
(C) Structured cost of capital
(D) Weighted average cost of capital
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100. Which of the following action can be taken to improve EVA?
(A) Improve Asset Turnover Ratios

(B) Change the capital structure by substituting lower cost debt for higher cost equity
101. Sam Toys is considering developing and distributing a new board game for children. The project is similar in
risk to the firm’s current operations. The firm maintains a debt-equity ratio of 0.40 and retains all profits to fund
the firm’s rapid growth. How should the firm determine its cost of equity?
(A) by adding the market risk premium to the after tax cost of debt
(B) by multiplying the market risk premium by (1 – 0.40)
(C) by using the dividend growth model
(D) by using the capital asset pricing model
102. Market value added is the difference between –
(A) EPS and Price Earning per share

(B) Cost of capital and economic value added
(C) The Company’s adjusted value for inflation and book value of various assets
(D) The Company’s market and book value of shares.
103. All else constant, which one of the following will increase a firm’s cost of equity if the firm computes that cost
using the security market line approach? Assume the firm currently pays an annual dividend of ₹1 a share and has
a beta of 1.2.
(A) a reduction in the dividend amount

(B) an increase in the dividend amount
(C) a reduction in the market rate of return
(D) a reduction in the risk-free rate
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104. ………. represents the economic profits generated by a business above and beyond the minimum return required
by all providers of capital.
(A) Shareholder Value Added (SVA)

(B) Economist Value Added (EVA)
(C) Market Makers Value Added (MM VA)
(D) Debt holders Value Added (DVA)
105. A firm’s overall cost of equity is:
(A) is generally less that the firm’s WACC given a leveraged firm.
(B) unaffected by changes in the market risk premium.
(C) highly dependent upon the growth rate and risk level of the firm.
(D) generally less than the firm’s after tax cost of debt.
106. The common stock of a company must provide a higher expected return than the debt of the same company
because –
(A) There is less demand for stock than for bonds.

(B) There is greater demand for stock than for bonds.
(C) There is more systematic risk involved for the common stock.
(D) There is a market premium required for bonds.
107. The after tax cost of debt generally increases when:
I. A firm’s bond rating increases.
H. Market rate of interest increases.
III. Tax rates decrease.

IV. Bond prices rise.
(A) I & III only

(B) II & III only
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(C) I, II & III only
(D) II, III & IV only
108. Rank in ascending order (ie. 1 = lowest, while 3 = highest) the likely after-tax component costs of a Company’s
long-term financing.
(A) 1 = bonds; 2 = common stock; 3 = preferred stock.

(B) 1 = bonds; 2 = preferred stock; 3 = common stock.
(C) 1 = common stock; 2 = preferred stock; 3 = bonds.
(D) 1 = preferred stock; 2 = common stock; 3 = bonds.
109. The cost of preferred stock is computed the same as the:
(A) Pre-tax cost of debt

(B) Return on an annuity
(C) After tax cost of debt
(D) Return on a perpetuity
110. The pre-tax cost of debt:
(A) is based on the current yield to maturity of the firm’s outstanding bonds.
(B) is equal to the coupon rate on the latest bonds issued by a firm.
(C) is equivalent to the average current yield on all of a firm’s outstanding bonds.
(D) is based on the original yield to maturity on the latest bonds issued by a firm.
111. The cost of preferred stock:
(A) is equal to the dividend yield.

(B) is equal to the yield to maturity.
(C) is highly dependent on the dividend growth rate.
(D) is independent of the stock’s price.
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112. ………. describes the relationship between non diversifiable and return for securities.
(A) Risk Reward Model

(B) CAPM Model
(C) MM Model
(D) Stewart Model
113. The after tax cost of debt:
(A) varies inversely to changes in market interest rates.

(B) will generally exceed the cost of equity if the relevant tax rate is zero.
(C) is unaffected by changes in the market rate of interest.
(D) has a greater effect on a firm’s cost of capital when the debt-equity ratio increases.
114. Weighted average cost of capital for a firm may be dependent upon the firm’s:
1. Rate of growth
2. Debt-equity ratio
3. Preferred dividend payment
4. Retention ratio
(A) 1 & 3 only

(B) 2 & 4 only
(C) 1, 2 & 4 only (D) 1,2,3 & 4
115. By observing the financial market, we can observe that –
(A) Normally cost equity is more than cost of debt

(B) Normally cost of debt is more than cost of equity
(C) If beta factor is more than 1 then security is less risky than market
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116. Which one of the following statements is correct for a firm that uses debt in its capital structure?
(A) The WACC should decrease as the firm’s debt-equity ratio increases.
(B) When computing the WACC, the weight assigned to the preferred stock is based on the coupon rate multiplied
by the par value of the preferred.
(C) The firm’s WACC will decrease as the corporate tax rate decreases.
(D) The weight of the common stock used in the computation of the WACC is based on the number of shares
outstanding multiplied by the book value per share.
117. As per Net Income approach if capitalization rate increases, market value of firm –
(A) Decreases
(B) Increases
(C) Remains constant
(D) Without data it is not possible to tell what will happen
118. Which of the following formula is correct to calculate the value of levered firm as per MM Model? .
(A) Value of unlevered firm – (Value of debt × Tax Rate)

(B) Value of unlevered firm × Value of debt × Tax Rate
(C) Value of unlevered firm + (Value of debt × Tax Rate)
(D) Value of unlevered firm ÷ (Value of debt ÷ Tax Rate)
119. P/E Ratio is –
(A) Profitability ratio

(B) Turnover ratio
(C) Market test ratio
(D) Liquid ratio
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120. Market price = ?
(A) P/E Ratio × EPS

(B) EPS/Ke
(C) D1/Ke
121. R Ltd. has disbursed a dividend of 75 on each equity share of 25. The market price of share is 200. Corporate
tax rate is 40. Its cost of equity is –
(A) 30.0%
(B) 37.5%
(C) 35.7%
(D) 33.5%
122. 112. F Ltd. issued 1,00,000 equity share of ₹ 100 each at a premium of ₹ 20 each. Company has incurred issue
expenses of ₹ 50,000. Corporate tax rate is 40%. The equity shareholders expects the rate of dividend to 18% p.a.
Cost of equity = ?
(A) 15.60%
(B) 15.65%
(C) 15.06%
(D) 16.50%
123. Lava Inc.’s ₹ 100 par value preferred stock just paid its ₹ 10 per share annual dividend. The preferred stock has
a current market price of ₹ 96 a share. The firm’s marginal tax rate is 40 percent, and the firm plans to maintain its
current capital structure relationship into the future. The component cost of preferred stock to Lava Inc. would
be closest to –
(A) 6.52 percent

(B) 6.25 percent
(C) 10.24 percent
(D) 10.42 percent
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124. A financial consultant has gathered following facts for HPLC Ltd. Systematic risk of the firm is 1.1425. 182
days treasury bill yield is 6%. Expected yield on market portfolio is 13%. GDP growth rate is 996. Sensex is 39,118.
What is the cost of equity?
(A) 13.96%
(B) 14.00%
(C) 14.52%
(D) 18.91%
125. Equity dividend expected at the end of year is 20 per share whereas anticipated dividend growth rate is 5%.
Corporate tax is 30%. Market price per share is 200. What is cost of equity?
(A) 10.5%
(B) 15%
(C) 12.9%
(D) 14%
126. Dividend per share is 15 and sell it for 120 and floatation cost is 3, then component cost of preferred stock will
be – ………………
(A) 12.82 times

(B) 0.l282tirnes
(C) 0.1282
(D) 12.82
127. If future return on common stock is 19% and rate on T-bill is 11% then current market risk premium will be:
(A) 30%
(B) 8%
(C) 0.8
128. Stock selling price is 65, expected dividend is 20 and cost of common stock is 42% then expected growth rate
will be –
(A) 11.23%
(B) 0.01123
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(C) 11.23 times

(D) 11.23
129. Dividend per share is 18 and sell it for 122 and floatation cost is 4, then component cost of preferred stock will
be:
a. 15.25%
b. 1525 times
c. 0.01525
d. 15.52%
130. Stock selling price is 45, an expected dividend is 10 per share and an expected growth rate is 8%, then cost of
common stock would be:
(A) 3.02
(B) 32%
(C) 30.22%
(D) 32.30%
131. Interest rate is 12% and tax savings (1-0.40) then after-tax component cost of debt will be –
a. 0.072
b. 7.2 times
c. 17.14
d. 14times
132. Cost of common stock is 14% and bond risk premium is 9% then bond yield will be –
(A) 0.0156
(B) 0.05
(C) 0.23
(D) 0.6428
133. Cost of common stock is 16% and bond yield is 9% then bond risk premium would be-
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(A) 0.07
(B) 7.0
(C) 0.0178
(D) 0.25
134. Which of the following is not true about Capital Budgeting?
a. Capital Budgeting decisions have an influence on the future stability of an organisation
b. Capital Budgeting decisions include investments to expand the business
c. Capital Budgeting decisions are of an irreversible nature
d. Sunk cost is a part of Capital Budgeting
135. Why is evaluating Capital Budgeting decisions based on cash flows?
a. Cash is more important for an organisation than profits
b. Cash flows are much easier to calculate compared to profits
136. is a project whose cash flows are not affected by the acceptance or rejection of other projects.
a. Risk-free project
b. Low-cost project
c. Independent project
137. Which of the following would be the result of including flotation costs in the analysis of a project?
a. It will increase the initial outflow of cash for the project
b. It will increase the rate of return for the project
c. It will increase the Net Present Value (NPV) of the project
d. It will have zero effect on the current value of the project
138. What should be the criteria of selection when choosing among mutually exclusive projects?
a. Selecting a project with a lower cost of capital
b. Selecting a project with the quickest payback
c. Selecting a project with the longest payback
d. Selecting a project with the highest net present value
139. Which of the following is true for a project with a shorter payback period?
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a. The project will have more Net Present Value
b. The project will have less Net Present Value
c. The project carries a greater amount of risk
d. The project carries a lesser amount of risk
140. Which of the following is the term that describes the amount of time taken for a capital budgeting project to
recover its initial investment?
a. Investment period
b. Redemption period
c. Payback period
d. Maturity period
141. Which of the following can be a criterion for the acceptance of a project?
a. The Profitability Index should be greater than unity
b. The Internal Rate of Return should be greater than the cost of capital
c. The Net Present Value should be greater than zero
d. All of the above
142. Which of the following is true for a project with a shorter payback period?
a. The project will have a lesser risk
b. The project will have less Net Present Value
c. The project will have more Net Present Value
d. The project will have a greater risk
143. Capital Budgeting decisions are evaluated using the and is used for this purpose.
a. Weighted average, cost of capital

b. Weighted average, component cost
c. Unweighted average, cost of capital

144. What is the main difference between accounting profit and economic profit?
a. Economic profit is based on cash flows, while accounting profit is based on specific rules for accountancy
b. Accounting profit includes the last accounting period, while economic profit includes the entire life of a
firm’s existence
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c. Accounting profit has a small charge for debt, but economic profit has a small charge for the providers of
capital
d. All of the above

145. Which of the following is a disadvantage of using the payback period?
a. It does not take into account the cost of capital and timing of return
b. When compared to the accounting rate of return method, it is more difficult to calculate and understand
c. It does not take the initial investment into account
d. All of the above

146. What is the main reason behind the specific required rates of return for different projects?
a. It does not take into account the cost of capital and timing of return
b. If a firm is divided then the units will also have a separate rate of return
c. Both a and b are correct

147. Which of the following decisions require the use of a decision-tree approach?
a. It is used for projects with independent cash flows

b. It is used for making a decision to either accept or reject a proposal
c. It is used for sequential decisions

148. Which of the following is true for an investment proposal with the most significant relative risk?
a. It will have the lowest opportunity loss

b. It will have the highest expected net present value
c. It will have the highest standard deviation of the net present value
d. It will have the highest coefficient of variation of the net present value
149. Which of the following would be the best example of a capital budgeting decision?
a. Purchasing new machinery to replace an existing one

b. Transferring money to your creditor’s account
c. Payment of electricity bill for your factory
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150. Which of the following decisions affects the size of assets, the profitability and competitiveness of a firm?
a. Dividend decision
b. Working capital decision
c. Capital Budgeting decision
151. Which of the following is not incorporated within the capital budgeting decision for a company?
a. The rate of cash discount

b. Time value of money
c. The required rate of return

152. Which of the following principles is not considered within capital budgeting for a company?
a. Post-tax principle
b. Accrual principle
c. Cash flows principle

153. Which of the following is not true for Capital Budgeting for a business?
a. The timing of cash flows is relevant

b. The existing investment within a project is not considered as the sunk cost
c. The cost of capital is equal to the minimum required rate of return
d. The capital budgeting is only related to the asset replacement decisions

154. Capital budgeting is the process –
(A) which help to make master budget of the organization.
(B) By which the firm decides how much capital to invest in business
(C) by which the firm decides which long-term investments to make.
(D) undertaken to analyze how make available various finance to the business.
155. The values of the future net incomes discounted by the cost of capital are called –
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(A) Average capital cost

(B) Discounted capital cost
(C) Net capital cost
(D) Net present values
156. The decision to accept or reject a capital budgeting project depends on –
(A) an analysis of the cash flows generated by the project

(B) cost of capital that are invested in business/project.
157. The Internal Rate of Return (IRR) criterion for project acceptance, under theoretically infinite funds is:
Accept all projects which have –
(A) IRR equal to the cost of capital

(B) IRR greater than the cost of capital
(C) IRR less than the cost of capital
158. …………… is a project whose cash flows are not affected by the accept/reject decision for other projects.
(A) Mutually exclusive project

(B) Independent project
(C) Low cost project
(D) Risk free project
159. Where capital availability is unlimited and the projects are not mutually exclusive, for the same cost of capital,
following criterion is used?
(A) Net present value

(B) Internal Rate of Return
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(C) Profitability Index
(D) Any of the above
160. ………………. is the discount rate which should be used in capital budgeting.
(A) Cost of capital (Ko)

(B) Risk free rate (Rf)
(C) Risk premium (Rm)
(D) Beta rate (β)
161. Which of the following represents the amount of time that it takes for a capital budgeting project to recover its
initial cost?
(A) Maturity period

(B) Payback period
(C) Redemption period
(D) Investment period

162. Incorporating flotation costs into the analysis of a project will:
(A) have no effect on the present value of the project.

(B) increase the NPV of the project.
(C) increase the project’s rate of return.
(D) increase the initial cash outflow of the project.
163. A project is accepted when:
(A) Net present value is greater than zero

(B) Internal Rate of Return will be greater than cost of capital
(C) Profitability index will be greater than unity
164. When choosing among mutually exclusive projects, the project with –
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(A) Longest payback is preferred

(B) Higher NPV get selected
(C) Quickest payback is preferred
(D) Lower cost of capital will be selected
165. With limited finance and a number of project proposals at hand, select that package of projects which has:
(A) The maximum net present value

(B) Internal rate of return is greater than cost of capital
(C) Profitability index is greater than unity

166. Statement I: In case of capital rationing, a company is compelled to invest in projects having shortest payback
period.
Statement II: The shorter the payback period, the less risky is the project. Therefore, it can be considered as an indicator
of risk.
(A) Statement I is true but Statement II is false.

(B) Statement II is true but Statement I: is false.
(C) Both Statement I and Statement II are false.
(D) Both Statement I and Statement II are true.
167. A Profitability Index (PI) of 0.92 for a project means that
(A) the project’s costs (cash outlay) are ? (is) less than the present value of the project’s benefits.
(B) the project’s NPV is greater than zero.
(C) the project’s NPV is greater than 1.
(D) the project returns 92 cents in present value for each rupee invested.
168. The shorter the payback period –
(A) the more risky is the project.
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(B) the less risky is the project.

(C) less will the NPV of the project.
(D) more will the NPV of the project
169. Which of the following statements is incorrect regarding a normal project?
(A) If the NPV of a project is greater than 0, then its PI will exceed 1.
(B) If the IRR of a project is 8%, its NPV, using a discount rate, K0, greater than 8%, will be less than 0.
(C) If the Plot a project equals 0, then the project’s initial cash outflow equals the PV of its cash
flows.
(D) If the IRR of a project is greater than the discount rate, K0, then its PI will be greater than 1.
170. Ranking projects according to their ability to repay quickly may be useful to firms:
(A) when experiencing liquidity constraints.

(B) when careful control over cash is required.
(C) to indicate the prospective investors specifying when their funds are likely to be repaid.
171. Capital budgeting decisions are analyzed with help of weighted average and for this purpose –
(A) Component cost is used I

(B) Common stock value is used
(C) Cost of capital is used
(D) Asset valuation is used
172. What is the difference between economic profit and accounting profit?
(A) Economic profit includes a charge for all providers of capital while accounting profit includes
only a charge for debt.
(B) Economic profit covers the profit over the life of the firm, while accounting profit only covers the most
recent accounting period.
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(C) Accounting profit is based on current accepted accounting rules while economic profit is based on cash
flows.
(D) All of the above are correct.
173. The term Leverage in general refers to a ……………
(A) Relationship between fixed cost and profit.

(B) Relationship between sales and fixed cost.
(C) Relationship between two interrelated variables.
(D) Relationship between two unrelated variables.
174. In financial analysis Leverage represents the influence of one over some other related
(A) Non-financial variable; financial variable

(B) Financial variable; financial variable
(C) Financial variable; non-financial variable
(D) Variable relating to revenue; financial variable
175. Which of the following is not commonly used measures of leverage in financial analysis?
(A) Operating Leverage

(B) Financial Leverage
(C) Combined Leverage
(D) Matrix Leverage
176. ………….. is the ratio of net operating income before fixed charges to net operating income after fixed charges.
(A) Financial Leverage

(B) Operating Leverage
(C) Operation Leverage
(D) Fiscal Leverage
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177. Operating leverage indicates the tendency of operating probts (EBIT) to vary disproportionately with –
(A) Probt
(B) Fixed cost
(C) Sales
(D) EPS
178. Degree of_____is the ratio of the percentage increase in earning per share (EPS) to
the percentage increase in earnings before interest and taxes (EBIT).
(A) Operating Leverage

(B) Combined Leverage
(C) Working Capital Leverage
(D) Financial Leverage
179. There is no operating leverage if there is no …………
(A) Probt
(B) Sales
(C) Fixed cost
(D) EPS
180. EBIT is usually the same thing as: …………
(A) Funds provided by operations

(B) Earnings before taxes
(C) Net income
(D) Operating probt
181. In the context of operating leverage break-even analysis, if selling price per unit rises and all other variables
remain constant, the operating break-even point in units will:
(A) Fall
194
(B) Rise
(C) Stay the same
(D) Still be indeterminate until interest and preferred dividends paid are known
182. A firm’s degree of total leverage (DTL) is equal to its degree of operating leverage its degree of financial leverage
(DFL).
(A) Plus
(B) Minus
(C) Divided by
(D) Multiplied by
183. If operating leverage is 4, this means that –
(A) 4% change in sales will cause 1% change in EBIT.

(B) 1% change in sales will cause 4% change in EBIT.
(C) 1% change in sales will cause 4% change in EPS.
(D) 4% change in sales will cause 1% change in EPS.
184. Degree of total leverage can applied in measuring change in –
(A) EBIT to a percentage change in sales

(B) EPS to a percentage change in EBIT
(C) EPS to a percentage change in sales
(D) Sales to a percentage change in EBIT
185. If the fixed costs are high, the operating leverage will also be –
(A) Low
(B) High
(C) Zero
(D) Negative
195
186. Measure of business risk is –
(A) Operating leverage

(B) Financial leverage
(C) Combines leverage
(D) Working capital leverage

187. The presence of fixed costs in the total cost structure of a firm results into –
(A) Financial Leverage

(B) Operating Leverage
(C) Super Leverage
(D) Progressive leverage
188. A high operating leverage indicates –
(A) Highly favourable situation as it consists of low fixed costs.

(B) Highly risky situation as it consists of large interest costs.
(C) Highly favourable situation as it consists of higher EPS.
(D) Highly risky situation as it consists of large fixed costs.
189. Operating leverage depends on –
I. Contribution
II. Interest cost
III. Fixed cost
IV. Volume of sales
V. EPS
VI. Profit after tax (PAT)
(A) I, IV, III

(B) II, V,VI
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(C) I, III, V
(D) VI, I, III
190. High operating leverage shows –
(A) Higher burden of fixed cost and high EBIT.

(B) Low burden of fixed cost and high EBIT.
(C) Higher burden of fixed cost and low EBIT.
(D) Low burden of fixed cost and low EBIT.
191. Operating leverage is directly to business risk.
(A) Proportional
(B) Not proportional
(C) Unrelated
(D) Not related
192. A firm has a DFL of 5.5. What does this tell us about the firm?
(A) If sales rise by 5.5%, then EBIT will rise by 1%.

(B) If EBIT rises by 5.5%, then EPS will rise by 1%.
(C) If EBIT rises by 1 %, then EPS will rise by 5.5%.
(D) If sales rise by 1 %, then EBIT will rise by 5.5%.
193. More operating leverage leads to –
(A) Less financial risk

(B) More financial risk
(C) More business risk
(D) Less business risk
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194. Higher operating leverage is related to the use of additional
(A) Fixed costs

(B) Variable costs
(C) Debt financing
(D) Common equity financing
195. Financial leverage indicates –
(A) The tendency of profit before tax (PBT) to vary disproportionately with sales.
(B) The tendency of sales to vary disproportionately with fixed cost.

(C) The tendency of profit after tax (PAT) to vary disproportionately with fixed cost.
(D) The tendency of profit before tax (PBT) to vary disproportionately with operating profit
(EBIT).
196. Lower financial leverage is related to the use of additional
(A) Fixed costs

(B) Variable costs
(C) Debt financing
(D) Common equity financing
197. The operating leverage indicates the impact of changes in sales on –
(A) Operating income

(B) Operating cost
(C) Operating profit after tax
(D) Operating sales
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CHAPTER FOURTEEN
Project Management: Project Planning, Project Life Cycle, Gantt Charts, PERT and
CPM.
1. According to the Project Management Institute (PMI), project management is defined as “the application of
knowledge, _____, _____, and techniques to project activities to meet the project requirements”.
a. skills, analysis
b. tools, analysis
c. analysis, theories
d. skills, tools
2. As a project manager, Tyler is so happy that all expected project deliverable have been accomplished by his
project team. What is the next step for his project to proceed in order to verify the project scope by his project
client?
a. Ask his client to pay for the completed project deliverables.
b. Award all of his project team members for such a great accomplishment.
c. Offer a party for his project team and client to celebrate the success of the project.
d. Ask his client to conduct an inspection on all of the completed project deliverables.
3. What is the first step in project planning?
a. Establish the objectives and scope.
b. Determine the budget.
c. Select the team organizational model.
d. Determine project constraints.
4. While assessing your project processes, you have identified some uncontrolled process variations. Which of the
following would be the appropriate chart you may use for this purpose?
a. Pareto diagram
b. PERT chart
c. Control chart
d. HR personnel chart
5. Once the project is approved and moves into the planning stage, what happens in the next phase of the project
life cycle?
a. Agreements for risk sharing need to be concluded.
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b. The total risk on the project typically reduces as activities are performed without loss.
c. Risks must be weighed against the potential benefit of the project’s success in order to decide if the project
should be chosen.
d. Risks are identified with each major group of activities.
6. Risk must be considered in the _____ phase and weighed against the potential benefit of the project’s success
in order to decide if the project should be chosen.
a. Completion
b. Closeout
c. Execution
d. Planning
e. Initiation
7. Due to the rapid expansion of your company, your boss decides to establish a project management office
(PMO) within the company and asks you to take the lead. According to the PMBOK guide, to be the ideal
PMO you can do which of the following?
a. Speed up a specific ongoing project.
b. Find opportunities for collaborative project management.
c. Reassign the resources that have been assigned to ongoing projects.
d. Reduce the assigned resources to existing projects.
8. Why does the creation of processes for developing teams, establishing priorities, and distributing work and
tasks require different sets of skills?
a. Because resources on the project management team may view it as permanent
b. Because resources on the project management team may view it as temporary
c. Because resources on the project team are not aware of the technical aspects of the initiative
d. Because members of the project management team are not aware of the knowledge and skills of the other
people working on the project
9. According to Bruce Tuckman’s five stages of team development, project team members compete for control
at which stage?
a. Forming
b. Storming
c. Norming
d. Performing
10. The project management office (PMO) handles all of the following functions EXCEPT:
a. Maintaining the organization’s project management policies and procedures.
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b. Supervising the project managers.
c. Assigning project managers from other departments but not procuring contract project
managers.
d. Monitoring project performance. e. providing functional support to projects like project scheduling and
project cost analysis
11. Under which of the following conditions would teams be more effective than individuals?
a. When speed is important
b. When the activities involved in solving the problem are very detailed
c. When the actual document needs to be written
d. When innovation is required
12. Which of the following is the process of understanding the knowledge, skills, and abilities needed to manage a
task and then matching the team members with the right skills to do that work?
a. Benchmarking
b. Expediting
c. Procurement
d. Delegation
e. Solicitation
13. Which of the following defines what tasks the project resources are expected to accomplish and, just as
importantly, what is not part of the project team’s responsibilities?
a. Punch list
b. Check sheet
c. Project logic diagram
d. Checklist
e. Scope document
14. After Marta obtained her PMP certificate, her boss assigned her to be in charge of a long-term project, which
a recently resigned project manager, Todd, had been working on for three years. When Marta looks at historical
information that Todd achieved for this project, which of the following is deemed most critical for Marta to
manage her project team?
a. Project contract
b. Detailed activity lists and WBS dictionary
c. Legal documents
d. Project lessons
15. There is _______ correlation between project complexity and project risk.
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a. an unknown
b. a positive
c. no
d. a negative
16. As a new project manager, Karen was worried about a statement from her client: “your project deliverable is in
low quality with low grade”. According to PMBOK, how can you help Karen distinguish the differences
between “quality” and “grade”?
a. Quality and grade represent the same thing.
b. Low quality can never be a problem, but low grade is.
c. Low quality represents a true problem, but low grade might not be the case.
d. Low quality with high grade is always desirable to your client. e. High quality always represents high grade.
17. Complete the following statement. As a project manager, Darrell is excited that he is assigned to be in charge
of the most important project this year. After being chartered for the project, he analyzes the information in
the project charter and the stakeholder register to:
a. decide how to draft a scope statement.
b. start to define and develop the stakeholder needs and requirements.
c. prepare for the template to monitor project progress.
d. estimate the entire project budget.
18. After Ling finished drafting a new project charter, she sent a copy of the charter to all key project parties
including the project sponsor, senior management and key stakeholders, and scheduled a kick-off meeting with
them. What will be the most important goal for Ling to complete the project charter?
a. Make a professional-looking project charter to impress the key project parties.
b. Get confirmation from the key parties that they have read the charter.
c. Invite the key parties for a nice lunch to establish a friendly relationship.
d. Gather promises from the key project players.
e. Obtain officially signed project charters from the key parties.
19. During the _________ of a project, the project manager focuses on developing the project infrastructure
needed to execute the project and developing clarity around the project charter and scope.
a. Completion
b. start-up
c. execution
d. evaluation
e. selection
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20. A project budget estimate that is developed with the least amount of knowledge is known as which of the
following?
a. Rough order of magnitude (ROM) estimate
b. Scope of work estimate
c. Conceptual estimate
d. Line estimate
21. What is the first step in developing a risk management plan?
a. Analyze the risks.
b. Estimate the likelihood of the risks occurring.
c. Identify potential project risks.
d. Develop a risk mitigation plan.
22. According to the PMBOK guide, which of the following statements is right in terms of using reserve analysis
to determine a project budget?
a. Reserve analysis always plans contingency reserves for unexpected project scope and project
costs, which are part of your project budget.
b. Reserves should not be included in the project budget.
c. If you only have limited resources, you may completely ignore reserve analysis when you try to determine
your project budget.
d. Planning contingency reserves for a project is not practical.
23. Complete the following statement. As the project progresses into the execution phase:
a. risks need to be checked off on activities that have been performed.
b. the total risk on the project typically increases.
c. risks are identified with each major group of activities
d. a risk response plan can be used to identify increasing levels of detailed risk analysis.
24. Which of the following statements about achieving a common understanding of the project purpose is true?
a. A common understanding means building a consensus and disagreement regarding a project’s purpose is
often fatal to project execution.
b. Developing a common understanding involves defining project success, determining potential

barriers to success, establishing milestones, and identifying decision-makers.
c. The methods and processes employed to develop a common understanding depend on the duration of
the project.
d. Irrespective of the complexity of the project, developing a common understanding usually involves
informal discussions that last a few hours.
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25. Which of the following is typically a written document that defines what work will be accomplished by the
end of the project?
a. Scope of work (SOW)
b. Project logic diagram
c. Milestone schedule
d. Ballpark estimate
26. What is considered to be the most useful skill for a project manager who works in a matrix environment in
order to achieve project goals?
a. Leadership skill
b. Influencing
c. Conflict management skill
d. Time management
27. Marco is an investor, and Jon is a project team member. Both have intensive technical background for the
project that you are managing. However, recently they have disagreed on the next step to take for the project.
They both decide to defer to whoever has the authority to make this decision. Who has the authority to decide
which direction should be taken for the project?
a. Project manager
b. Stakeholders
c. The project team
d. Investors
28. As a project manager, while Kathy was trying to categorize all potential risks for her new construction project
M based on levels of probability and impact on the project, she identified a potential risk, regarding a schedule
conflict with another project to obtain critical equipment for a short time period. Overall, because this risk is
probable and might impact her project M, Kathy wants to record this risk; however, she is confused about
where she should document this type of risk. According to the PMBOK guide, where should Kathy document
this risk?
a. Watch list
b. Risk management plan
c. Project management plan
d. WBS
29. Which of the following is a quality management system that gives titles to specialists and requires a cost-benefit
analysis?
a. Lean accounting
b. Business process re-engineering
c. Kaizen
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d. Six Sigma
30. Which one of the following is the last step of project closings?
a. The client has accepted the product.
b. Archives are complete.
c. The client appreciates your product.
d. Lessons learned are documented.
31. As a project manager of Project Cool at the company, Samira is responsible for monitoring and controlling
two project management processes: process A and process B. She recently noticed a high priority risk X has
been imposed on her project process A in Project Cool. While she tried to control the risk X, she also noticed
that a new potential risk Y will be added to process B. Which of the following best explains this situation?
a. If risk Y happens, then it is all Samira’s fault, because she did not do a good job of carefully monitoring
the risks for Project Cool.
b. This is common in practice. Risk Y is a secondary risk caused by Risk X.
c. The potential risk might happen, but Samira can ignore risk Y, as risk X takes higher priority.
d. Samira is not experienced enough for handling risk management, so her boss will probably fire her.
32. Complete the following statement. In a weak matrix environment, the project manager, Eric, has to constantly
make an effort to influence his project team and stakeholders to ensure project success. This is because:
a. Eric has a lot of authority.
b. Eric has no or little authority.
c. Eric is controlled by his functional managers.
d. There are no functional managers.
33. Jack is in charge of a project team. Due to an unexpected project change, some issues with the project have
come up. Two key team members, Samantha and Felix, are arguing their solutions to the project problems.
They cannot convince each other, and their conflict is creating a negative impact on the project’s progress. As
a PMP, which of the following would be the best advice for Jack to manage this conflict?
a. Confront the problem early, and invite both Samantha and Felix to private meetings.
b. Force Felix to give up and to support Samantha.
c. Suggest that Samantha concede to Felix.
d. Let Felix and Samantha exercise their concerns through conflict resolution.
34. Ahmed is actively initiating a project, so he plans to invite all relevant internal and external stakeholders
including sponsors, customers, project teams, etc. for a kick-off meeting. To ensure all of them are covered in
the stakeholder register, which document is the most helpful for Ahmed to look at?
a. Project team activities
b. Scope statement
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c. Project charter
d. Work packages
35. Which of the following is a personal characteristic that reflects the truthfulness of an individual that can be
checked against observable facts?
a. Objective credibility
b. Attribution of benevolence
c. Non-manipulative trust
d. High cost of lying
36. When a project manager starts to plan a new project budget, the cost of which project management process
group is expected to be lowest?
a. Initiating
b. Executing
c. Monitoring and controlling
d. Closing
37. As a project manager, John was finally relieved because a major project led by him was just announced a success.
According to the PMBOK, which of the following has likely happened in order to consider John’s project a
success?
a. John’s project has met all of the stakeholders’ expectations.
b. The phase completion of John’s project has been approved.
c. John’s client has paid off the project.
d. John’s boss is happy.
38. Slack time in PERT Analysis
a. Can never be greater than zero
b. Is always zero for critical activities
c. Can never be less than zero
d. Is minimum for critical events
39. A PERT network has 9 activities on its critical path. The standard deviation of each activity on the critical path
is 3. The standard deviation of the critical path is
a. 3
b. 9
c. 81
d. 27
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40. Which one of the following does have some limitations when applied to detailed engineering design work
during early stages of a project?
a. CPM
b. PERT
c. Dummy activity
d. Estimate
41. The excess of minimum available time over activity duration is called
a. Total float
b. Free float
c. Independent float
42. Which of the following is an important factor that can affect the accuracy and efficacy of estimates
a. Project size
b. Planning process
c. Project complexity
d. Degree of structural uncertainty
43. What describes the data and control to be processed
a. Planning process
b. Software scope
c. External hardware
d. Project complexity
44. A number of independent investigators have developed a team-oriented approach to requirements gathering
that can be applied to establish the scope of a project called
a. JAD
b. CLASS
c. FAST
d. None of the mentioned
45. CLSS stands for
a. conveyor line sorting system
b. conveyor line sorting software
c. conveyor line sorting speed
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d. conveyor line sorting specification
46. The project planner examines the statement of scope and extracts all important software functions which is
known as
a. Association
b. Decomposition
c. Planning process
d. All of the mentioned
47. The environment that supports the software project is called
a. CLSS
b. SEE
c. FAST
d. CBSE
48. Which of the following is not an option to achieve reliable cost and effort estimate?
a. Base estimates on similar projects that have already been completed
b. Use one or more empirical models for software cost and effort estimation
c. Use relatively simple decomposition techniques to generate project cost and effort estimates
d. The ability to translate the size estimate into human effort, calendar time, and dollars
49. What can be used to complement decomposition techniques and offer a potentially valuable estimation
approach in their own right?
a. Automated estimation tools
b. Empirical estimation models
c. Decomposition techniques
d. Both Automated estimation tools and Empirical estimation models
50. Which of the following is not achieved by an automated estimation tools?
a. Predicting staffing levels
b. Predicting software cost
c. Predicting software schedules
d. Predicting clients demands
51. Software project estimation can never be an exact science, but a combination of good historical data and
systematic techniques can improve estimation accuracy.
a. True
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b. False
52. The PERT in project management means program evaluation and _____ technique.
a. Resource
b. Reconciliation
c. Reconsideration
d. review
53. “Risk” is usually _______ as the project progresses.
a. Increased
b. Reduced
c. remained same
d. become negligible
54. Assembling project team and assigning their responsibilities are done during which phase of a project
management?
a. Initiation
b. Planning
c. Execution
d. Closure
55. The basic nature of a project is a/an _____ one.
a. Permanent
b. Temporary
c. (A) or (B)
d. Both (A) and (B)
56. A process that involves continuously improving and detailing a plan as more detail become available is termed
as
a. project analysis
b. project enhancing
c. progressive deliberation
d. progressive elaboration
57. A program is usually a group of
a. Plans
b. people and work
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c. related projects
d. unrelated projects
58. Which from the following statement(s) is/are NOT true?
I. Projects have defined objectives
II. Programs have a larger scope than projects
III. The projects and programs in a portfolio must be directly related
a. I only
b. II only
c. III only
d. II and III only
59. Projects management is divided in _____ process groups.
a. 5
b. 7
c. 9
d. 11
60. A project is basically a _____activity.
a. Temporary
b. Permanent
c. Continue
d. Global
61. Which of the following statement is NOT true about a project?
a. It is temporary
b. It has an end date
c. It contains no risk
d. It is unique and brings change
62. Which of the following is NOT considered as a project?
a. building another room
b. maintenance of the building
c. Switching to new business process
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d. Renovating the conference room
63. A graphical chart that shows project tasks against time is known as
a. Milestone
b. Goal
c. PERT char
d. Gantt chart
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CHAPTER FIFTEEN
Government Accounting: General Principles and Comparison with Commercial

Accounting; Government Accounting Standards issued by Government Accounting
Standards Advisory Board, Role of Comptroller and Auditor General of India and
Public Accounts Committee.
For this topic, Please refer to detailed notes on the following:
Indian Government Accounting Standards (IGAS)
Indian Government Accounting Standards (IGASs) formulated by GASAB are for cash system of accounting and
become mandatory from the effective date after their notification by Ministry of Finance, Govt. of India.
IGAS Notified by Government of India
Guarantees given by Governments: Disclosure Requirements (IGAS1)
[Notified by the Govt. of India]
Accounting and Classification of Grants-in-aid (IGAS2)
Loans and Advances made by Governments (IGAS 3)
IGAS approved by GASAB and under consideration of Government of India
Government Investments In Equity (IGAS 9)
[Under consideration of the Govt. of India for notification]
Foreign Currency transactions and loss or gain by Exchange Rate variations (IGAS 7)
Public Debt and Other Liabilities of Governments: Disclosure Requirements (IGAS 10)
IGFRS approved by GASAB and under consideration of Government of India
IGFRS 1 : Presentation of Financial Statements
IGFRS 2: Property, Plant & Equipment
IGFRS 3: Revenue from Government Exchange Transactions
IGFRS 4: Inventories
IGFRS 5: Contingent Liabilities (other than guarantees) and Contingent Assets: Disclosure Requirements
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CHAPTER SIXTEEN
Goods and Services Tax Act &Rules: Chargeability of GST, Scope of Supply (Section
7 of CGST Act, 2017 read with Schedule I, II and III), Classification of Goods and
Services under GST, Time, Value and Place of Supply of Goods and Services, Input
Tax Credit (Eligibility, Blocked Credits, Method of Reversal of Credits, Recovery of
Input Tax Credit), Exports, Imports and Refunds under GST, Anti-profiteering,
Audit under GST.
1. What is CGST?
a. Centre Goods and Service Tax
b. Capital Goods and Service Tax
c. Capacity Goods and Service Tax
d. Central Goods and Service Tax
2. The government has recently launched GST regime, effective from July 1, 2017. What is GST?
a. Gods and Services Tax (GST)
b. Goods and Services Total (GST)
c. Goods and Services Tax (GST)
d. None of these
3. In India, the GST Council has come out with a four-rate structure. They are?
a. 5%, 12%, 18% and 24%
b. 5%, 12%, 18% and 26%
c. 5%, 12%, 18% and 28%
d. 5%, 12%, 16% and 28%
4. France has implemented GST in which year?
a. 1966
b. 1956
c. 1954
d. 1964
5. In GST only three type of taxes will be charged in whole country. What are they?
a. CGST, EGST & LGST
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b. CGST, SGST & IGST
c. CGST, SGST & KGST
d. RGST, SGST & IGST
6. India has chosen ____________ model of dual-GST?
a. Canadian
b. Cuba
c. Belize
d. Nicaragua
7. The main objective of GST is to ______________ excessive taxation.
a. Exempt
b. Exclude
c. Eliminate
d. None
8. Which of the following good will not be covered under the GST bill?
a. Cooking gas
b. Liquor
c. Petrol
d. All of the above
9. Who is the head of the GST council?
a. Shashi Kant Das
b. Amit Mitra
c. Nirmala Sitharaman
d. Hasmukh Adhia
10. What is SGST?
a. State Goods and Service Tax
b. S Goods and Service Tax
c. South Goods and Service Tax
11. The concept of Goods and Services Tax (GST) is originated in………..
a. Canada
b. USA
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c. Britain
d. Germany
12. Which constitutional amendment is done to pass the GST bill?
a. 101st
b. 120th
c. 122nd
d. 115th
13. What kind of Tax is GST?
a. Direct Tax
b. Indirect Tax
c. Depends on the type of goods and services
14. Which Article of the Constitution as amended by 101st Constitutional Amendment Act, 2016 defines the
Goods and Services tax (GST) as a tax on supply of goods or services or both?
a. Article 366 (12A)
b. Article 366 (1A)
c. Article 356 (12A)
d. Article 356 (1A)
15. What is IGST?
a. Integrated Goods and Service Tax
b. Indian Goods and Service Tax
c. Initial Goods and Service Tax
d. None
16. Which of the following central taxes has been subsumed in the ambit of GST?
a. Central Excise duty;
b. Service Tax;
c. CVD on import;
d. All of the above.
17. Which of the following taxes have been subsumed under GST ? (1) Central Excise Duty (2) Service Tax (3)
VAT (4) Luxury Tax Select the correct answer from the options given below
a. (1) & (2) etc.
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b. (3), (1) & (2)
c. All of the above
18. GST is a comprehensive tax regime covering .
a. Good
b. Services
c. Both goods and services
d. Goods, services and imports
19. Goods and Services Tax is a tax levied on goods and services imposed at each point of
a. Demand
b. Cash sale
c. Supply
d. Manufacturing
20. The CGST Act, 2017 extends to
a. Whole of India excluding the State of Jammu & Kashmir
b. Whole of India
c. Whole of India excluding the State of Jammu & Kashmir and Union territories
d. Whole of India excluding the State of Jammu & Kashmir but including Union territories
21. P Ltd. has a contract with X Ltd. to provide book keeping services to Q Ltd. Q Ltd. is a subsidiary of P Ltd.
The liability to discharge consideration for such book keeping service is of P Ltd. As per the CGST Act, 2017,
who will be the recipient of the above service?
a. P Ltd.
b. Q Ltd.
c. XL
d. Both (a) and (b)
22. The definition of goods under section 2(52) of the CGST Act does not include-
a. Gras
b. Money and securities
c. Actionable claims
d. Growing crops
23. is not included in the term “Goods” under GST Law:
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a. Movable Property
b. Actionable Claim
c. Securities
d. Growing Crops
24. Lease or letting out of the building including a commercial, industrial or residential complex forbusiness or
commerce, either wholly or partly shall be treated as .
a. Supply of goods
b. Supply of services
c. Neither as a supply of goods nor a supply of services
d. Either as a supply of goods or a supply of services
25. Lease, tenancy, easement, licence to occupy land shall be considered as .
A. Supply of goods
B. Supply of services
C. Neither as a supply of goods nor a supply of services
D. Either as a supply of goods or a supply of services.
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CHAPTER SEVENTEEN
Customs Law : Classification under Customs, Types of Duties (Basic customs duty,
IGST replacement of CVD and Special CVD, Protective duties, Safeguard duty,
Countervailing duty on subsidized articles, Anti dumping duty), Valuation under
Customs of Imported Goods and Export Goods, Deemed export, Duty drawback.
1. Customs Act, 1962 extends to
a. Whole of India excluding Jammu & Kashmir
b. Whole of India
c. Whole of India excluding Jammu & Kashmir and Union Territories
d. Whole of India excluding Jammu & Kashmir and Special Economic Zones
2. As per Section 2(1) of the Customs Act, 1962,____means any authority competent to pass any order or
decision under this Act, but does not include the Board, Commissioner (Appeals), or Appellate Tribunal.
a. Adjudicating Authority
b. Proper Authority
c. Proper Officer
d. Custom Authority
3. As per Section 2(2) of the Customs Act, 1962, “assessment” includes
(I) Provisional assessment
(II) Self-assessment
(III) Reassessment
(IV) Any assessment in which the duty assessed is NIL.
a. (I) & (II)
b. (I), (II) & (IV)
c. (I), (II) & (III)
d. All (I) to (IV)
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4. The Customs Act, 1962, not only regulates the levy and collection of duties but also, serves equally important
purposes like
(a) Regulation of imports & exports.
(b) Protection of domestic industry
(c) Prevention of smuggling
(d) Conservation & augmentation of foreign exchange
a. All (a) to (d)
b. All except (a)
c. All except (b)
d. All except (c)
5. It is Section 12 of the Customs Act, 1962 that provides duties of customs to be levied at such rates as may be
specified under the____or other applicable Acts on goods imported into or exported from India.
a. Customs Tariff Act, 1962
b. Customs Tariff Act, 1975
c. Customs Rates & Tariff Act, 1975
d. Customs Rate Act, 1962
6. Under the Customs Act, 1962, the rulemaking power is delegated to
a. Central Board of Indirect Taxes and Customs (CBIC)
b. Central Government
c. Respective State Governments
d. Partly to the Central Government and partly to the respective State Governments
7. Under the Customs Act, 1962, the regulations making power is delegated to
a. Central Board of Indirect Taxes and Customs (CBIC)
b. Respective State Governments
c. Partly to the Central Government and partly to the respective State Governments
d. Central Government
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8. For which of the following Rules can be made by the Central Government u/s 156 of the Customs Act, 1962?
a. Transaction Value
b. Form of Bill of Entry
c. Import & export manifest
d. Conditions for transshipment & removal of good without payment of duty
9. As per Section 2(3) of the Customs Act, 1962, “baggage” includes
(P) unaccompanied baggage
(Q) motor vehicles
a. (Q) only
b. Both (P) & (Q)
c. (P) but not (Q)
10. As per Section 2(4) of the Customs Act, 1962, “bill of entry” means a bill of entry referred to in ______
a. Section 45
b. Section 46
c. Section 47
d. Section 48
11. As per Section 2(5) of the Customs Act, 1962, “bill of export” means a bill of export referred to in _____
a. Section 53
b. Section 52
c. Section 51
d. Section 50
12. Board” means the Central Board of Indirect Taxes and Customs constituted under the____
a. Central Boards Indirect Taxes Act, 1963
b. Central Boards of Revenue Act, 1963
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c. Central Boards Indirect Taxes & Customs Act, 1963
d. Central Boards of Taxation Act, 1963
13. “Coastal goods” means
a. Goods, other than imported goods, transported in a vessel from one port in India to another.
b. Any goods including imported goods, transported in a vessel from one port in India to another.
c. Goods, other than imported goods, transported in a vessel from one port in India to a place outside India.
d. Any goods including imported goods, transported in a vessel from one port in India to a place outside
India.
14. As per Section 2(7A) of the Customs Act, 1962, Commissioner (Appeals) means a person appointed to be a
Commissioner of Customs (Appeals) under subsection (1) of
a. Section 3
b. Section 4
c. Section 5
d. Section 7
15. “ Customs Area” means
a. Area of a Customs Station
b. Area of a warehouse
c. Any area in which imported goods or export goods are ordinarily kept before clearance by Customs
Authorities
d. All of the above
16. “Customs Station” means
a. Any customs port
b. Any customs airport
c. Any international courier terminal
d. All of the above
17. Which of the following is not included within the definition of “Customs Station” as defined in the Customs
Act, 1962?
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a. Land customs station
b. International courier terminal
c. Foreign post office
d. Are where goods are kept after custom clearance
18. “Dutiable Goods” means
a. All imported goods.
b. Any goods which are chargeable to duty and on which duty has been paid.
c. Any goods which are chargeable to duty and on which duty has not been paid.
d. Any goods which are chargeable to duty and on which proper amount duty has been paid.
19. “Entry” in relation to goods means an entry made in____and includes the entry made under the regulations
made under section 84
a. the case of goods imported or to be exported by post, the entry referred to in section 82
b. a bill of entry, shipping bill, or bill of export
c. bill of entry, import report, or bill of export
d. import report, bill of export, bill of entry & import manifest
20. As per Section 2( 17) of the Customs Act, 1962, “examination”, in relation to any goods, includes
a. Measurement
b. weigh-ment
c. measurement and weigh-ment
d. measurement or weigh-ment
21. “Export goods” means
a. any goods which are to be taken out of India
b. any goods which are to be taken out of India to a place outside India
c. which exporter desires to take outside India
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22. Foreign going vessel or aircraft means any vessel or aircraft for the time being engaged in the carriage
of_____between any port or airport in India and any port or airport outside India.
a. Goods
b. Passengers
c. Goods or passengers
23. Which of the following is included within the definition of “foreign going vessel or aircraft” as defined in
Section 2(21) of the Customs Act, 1962?
a. Any naval vessel of any foreign government taking part in any naval exercises
b. Any vessel engaged in fishing or any other operations in territorial waters of India
c. Both (A) and (B)
d. Neither (A) nor (B)
24. As per Section 2(22) of the Customs Act, 1962, “goods” includes
a. Vessels, aircraft and vehicles
b. Currency & negotiable instruments
c. Stores, baggage
d. Any of the above
25. Imported goods means
a. Any goods brought into India from a place outside India.
b. Any goods brought into India from a place outside India and include goods that have been cleared for
home consumption.
c. Any goods brought into India from a place outside India but do not include goods that have
been cleared for home consumption.
d. None of the above is correct.
26. Which of the following can be treated as Adjudicating Authority under the Customs Act, 1962?
(i) Board [Central Board of Indirect Taxes & Customs (CBIC)]
(ii) Commissioner (Appeals)
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(iii) Appellate Tribunal
(iv) Authority competent to pass any order or decision under the Act.
a. (i), (ii) & (iii)
b. (i), (ii), (iii) & (iv)
c. (ii) & (iv)
d. (iv)
a. All imported goods are dutiable goods.
b. Market price, in relation to any goods, means the retail price of the goods in the ordinary course of trade
in India.
c. All dutiable goods are imported goods.
d. All of the above
28. Which of the following is included within the definition of “foreign going vessel or aircraft” as defined in
Section 2(21) of the Customs Act, 1962?
a. Any naval vessel of any foreign government taking part in any naval exercises.
b. Any vessel engaged in fishing or any other operations outside the territorial waters of India.
c. Any vessel or aircraft proceeding to a place outside India for any purpose whatsoever.
d. All of the above
29. Prohibited goods mean any goods
a. the import or export of which is subject to any prohibition under the Act
b. the import or export of which is subject to any prohibition any other law for the time being in force
c. any such goods in respect of which the conditions subject to which the goods are permitted to be imported
or exported have not been complied with
d. All of the above
30. Proper officer
a. in relation to any functions to be performed under the Act, means the officer of customs who is assigned
those functions by the Board
b. includes Principal Commissioner of Customs
c. includes Commissioner of Customs
d. All of the above
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31. As per Section 2(37) of the Customs Act, 1962, “Shipping bill” means a shipping bill referred to in_____
a. Section 56
b. Section 50
c. Section 62
d. Section 60
32. As per Section 2(38) of the Customs Act, 1962, “Stores”
a. Means goods for use in a vessel or aircraft
b. Includes fuel and spare parts and other articles of equipment, whether or not for immediate fitting
c. Both (A) and (B)
d. (A) but not (B)
33. Smuggling, in relation to any goods, means any act or omission which will render such goods liable to
confiscation under_____or ______
a. Section 111; Section 113
b. Section 110; Section 111
c. Section 113; Section 114
d. Section 111; Section 115
34. A warehouse
a. is a designated area where goods are allowed to be stored after landing, without the
payment of duty.
b. is a designated area where goods are allowed to be stored after payment of the proper amount of
duty.
c. is a designated area where goods are allowed to be stored after landing, without the payment of
duty and in certain cases after payment of the proper amount of duty.
d. is a designated area where imported goods are kept if the importer is unable to pay the proper
amount of duty.
35. The general basic rate of basic customs duty is
a. 5%
b. 10%
c. 15%
d. 7.5%
36. Basic Custom Duty could be levied at
a. Standard Rate
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b. Preferential Rate
c. Both (A) and (B)
d. Either (A) or (B)
37. The onus is on the______ to substantiate with the supporting evidence that the goods are chargeable with a
preferential rate of duty.
a. Person (owner)
b. Government
c. Custom Officials
d. (B)or(C)
38. Countervailing Duty (CVD) is subsumed under
a. GST
b. Excise
c. Income Tax
d. Local Duties
39. Which of the following statement is/are correct?
a. The goods imported into India, are now subject to IGST and not CVD or SAD. The goods
imported into India, are now subject to IGST and not CVD or SAD.
b. Petroleum is outside the scope of GST, and hence CVD and SAD are applicable to them.
c. IGST is now payable on Assessable Value + Basic Customs Duty.
d. All of the above
40. Classification
a. Enables categorizing the goods into groups/subgroups, in order to apply a different rate of duty on goods
following within the same group.
b. Enables the proper officer to recover the duties of custom.
c. Enables categorizing the goods into groups/subgroups, in order to apply a single rate of duty on
each group/subgroup.
d. Is based on the concept of MAT.
41. Schedule II of the Customs Tariff Act, 1975 specifies
a. Rate applicable to imported goods
b. Preferential rate of duty
c. Rate applicable for export of goods
d. List out the goods which are exempt from import or export duty as the case may be.
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42. There are ______ Interpretation Rules under the Customs Tariff Act, 1975.
a. Four
b. Eight
c. Six
d. Three
43. Rule 2(a) of the Interpretation Rules under the Customs Tariff Act, 1975 states that
a. Goods shall be classified under the heading which is closest to the specific description.
b. Any reference in a heading to an article shall be deemed to include a reference to that

article in an unfinished stage too, as long as in the present stage, the incomplete article
exhibits the essential character of that article incomplete/ finished form.
c. Goods that cannot be classified in accordance with Rule 1 shall be classified under the heading
which includes goods that are the most “akin or similar”.
d. Any reference in a heading to a material or substance, shall be deemed to include a reference to

the mixtures and combinations of that material/substance with other materials/substances.
44. Which of the following example is best suitable to the “Specific Identification Rule” of the Interpretation
Rules under the Customs Tariff Act, 1975?
a. Car without tires or without seats would be still construed as Cars, but not Cars without engines.
b. Natural rubber would include its mixture with synthetic or other forms of rubber.
c. If one imports ‘Liquor Gift Sets’ that have both, liquor and glasses, it should be classified under the
heading, ‘Liquor’.
d. Mint Tea is not separately classified, but the classification should be tea as the product is closest
to the one under the heading “tea”, mint is only a flavor.
45. If composite goods cannot be classified as per Rule 3(a) of the Interpretation Rules, then, shall be classified on
the basis of material/substance. This rule is known as
a. Latter the Better Principle
b. Most Suitable Rule
c. Essential Character Rule
d. Akin Principle
46. Rule 2(b) of the Interpretation Rules states that any reference in a heading to a material or substance shall be
deemed to include a reference to the mixtures and combinations of that material/substance with other
materials/substances. You are required to state which of the following example of this rule
a. Natural rubber would include its mixture with synthetic or other forms of rubber
b. Scooter without tires is classified as Scooter.
c. Mint Tea is not separately classified, but the classification should be tea as the product is closest
to the one under the heading “tea”, mint is only a flavor.
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d. All of the above
47. ______ states that the goods which cannot be classified in accordance with Rule 1,2 or 3, shall be classified
under the heading which includes goods that are the most similar.
a. Residual Rule
b. Akin Rule
c. Standard Rule
d. Subheading Rule
48. Which of the following is covered under Rule 3 of the Interpretation Rules?
a. Specific Identification Rule
b. Essential Character Rule
c. Latter the Better Rule
d. All of the above
49. Valuation for Customs Duty begins with
a. Determination of Import Value
b. Determination of Transaction Value
c. Determination of Invoice Value
d. Interrogation of Importer.
50. Custom value fixed as per Section 14 is the value that would be used for calculating the customs duty payable.
This is also called
a. Standard Value
b. Assessable Value
c. Nominal Value
d. Any of the above
51. Mr. Ramsay imported some goods from the USA for US$ 1,00,000. Advise him of the exchange applicable for
converting foreign currency value into Indian currency?
a. Rate of exchange in force as notified by RBI and approved by CBIC as on the date when the bill of entry
is presented is considered for imports.
b. Rate of exchange notified by the Government of India from time to time is relevant.
c. Rate of exchange in force as notified by CBIC as on the date when the bill of entry is presented
is considered for imports.
d. Telegraphic transfer rate as notified by RBI as on the date when the bill of entry is presented is considered
for imports
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e. Which of the following factor(s) is/ are essential to determine assessable Value in case of import and export
under the Customs Act, 1962?
52. Which of the following factor(s) is/ are essential to determine assessable Value in case of import and export
under the Customs Act, 1962?
(1) Price at which such or like goods are ordinarily sold or offered for sale.
(2) Discount given by the exporter when goods are imported into India.
(3) Fact that Seller and Buyer are not be related to each other.
(4) Exchange rate prescribed by the RBI when the bill of entry is presented.
a. (2) & (1)
b. (4) & (2)
c. (3) & (1)
d. (4), (1) & (3)
53. In the case of exports
a. Rate of exchange in force as notified by CBIC as on the date on which is shipping bill is submitted to the
Proper Officer makes the clearance order is relevant.
b. Rate of exchange in force as notified by RBI as on the date on which bill of export is submitted to the
Proper Officer is relevant.
c. Rate of exchange in force as notified by CBIC as on the date on which bill of export is submitted to the
Proper Officer is relevant.
d. Rate of exchange in force as notified by CBIC as on the date on which the Proper Officer makes
the clearance order is relevant.
54. Value of Imported Goods shall be the Transaction Value adjusted in accordance with provisions of
a. Rule 8 of Customs Valuation Rules
b. Rule 10 of Customs Valuation Rules
c. Rule 6 of Customs Valuation Rules
d. Rule 12 of Customs Valuation Rules
55. CIF Value means
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a. Price paid/payable for delivery at the time and place of importation, which essentially implies
that the price up to a port in India when goods are imported.
b. Price paid / payable for delivery at the time and place of exportation, which essentially implies that the price
up to a port in India when goods are exported
c. Both (A) and (B)
56. CIF Value = _____
a. FOB Value Cost of Transport + Insurance
b. FOB Value + Cost of Transport Insurance
c. FOB Value Cost of Transport Insurance
d. FOB Value + Cost of Transport +Insurance
57. FOB Value = ?
a. CIF Value Cost of Transport Insurance
b. CIF Value + Cost of Transport + Insurance
c. CIF Value Cost of Transport + Insurance
d. CIF Value + Cost of Transport Insurance
58. In the case of export if the transaction value is not acceptable then value as per Export Valuation Rules has to
be taken. Determine the proper sequence of such values.
1. Value arrived by Residual Method
2. Value of Similar Goods
3. Value of Identical Goods
a. 3, 2, 1
b. 1,2,3
c. 2, 1, 3
d. 3, 1, 2
59. If more than one transaction value of identical goods is found then which of the following shall be used to
determine the value of imported goods?
a. Value which importer agrees to apply with the permission of Proper Officer.
b. Highest of such value.
c. Value which Proper Officer deems fit.
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d. Lowest such value
60. Computed Value =?
a. Cost of production + Reasonable profit + Post importation transport charges
b. Cost of production + Charges for design or brand + Reasonable profit
c. Cost of production + Charges for design or brand + Actual profit earned by the importer on resale in the
domestic market
d. Cost of production + Charges for design or brand + Reasonable profit + Actual profit earned by the
importer on resale in domestic market Marketing charges
61. Safeguard duty is a duty paid on___
a. Import of goods into India
b. Export of goods out of India
c. (A)or(B)
d. (A) and (B)
62. Safeguard duty is levied on goods imported into India
a. When such goods are imported from countries listed as noncooperative countries.
b. When Central Government introduces an ordinance in the Parliament and goods are imported from
countries listed as noncooperative countries.
c. To protect the domestic industries in India from goods imported in mass quantities from China and other
countries listed as non-cooperative countries and later appropriate Act is passed by the Central
Government with two-third majority in the Parliament.
d. When such goods are already manufactured in India, but the cost is higher as compared to import
prices. It is levied to ensure that the Indian manufacturers don’t suffer owing to the import of
cheaper goods from outside and therefore aims to create a level playing field for the Indian
manufacturers and importers, thereby with the intent of safeguarding the National interest.
63. Antidumping duty
a. prevents the predatory pricing measures/discriminatory pricing, that could be unfair for the local
goods and markets
b. is levied on goods imported into India, when such goods are already manufactured in India, but the costs
are higher as compared to import prices.
c. Both (A) and (B)
64. Central Government may, by special order, exempt from duty, any goods, on which duty is leviable only under
exceptional circumstances. Further, no duty is to be collected, if the amount of duty leviable is less than or equal
to_______
a. US $ 100
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b. INR 100
c. INR 1,000
d. US $ 1,000
65. As per Section 4 of the Customs Act, 1962, who may appoint persons as officers of customs?
a. Board
c. Board with prior approval of the Central Government
d. Board with prior approval of the respective State Governments
66. As per Section 6 of the Customs Act, 1962, to whom the Central Government may, by notification in the
Official Gazette, entrust either conditionally or unconditionally any functions of the Board or any officer of
customs under the Act.
a. to any officer of the Central
b. to any officer the State Government
c. to any officer of a local authority
d. any of the above
67. Which of the following is the charging section of the Customs Act, 1962 for levy of customs duty?
a. Section 12
b. Section 13
c. Section 11
d. Section 10
68. The Import Manifest or Import Report is required to be delivered under
a. Section 29
b. Section 30
c. Section 31
d. Section 35
69. In case of a vessel or the aircraft, Import Manifest is required to be delivered
a. within twelve hours after its arrival in the customs station
b. prior to the arrival of the vessel or the aircraft, as the case may be
c. within twelve hours after its arrival in the customs water
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70. In case of vehicle Import Report is required to be delivered:
a. within twelve hours after its arrival in the customs water
b. within twelve hours after its arrival in the customs station
c. within twelve hours after proper officer pass appropriate order
d. within twenty-four hours after its arrival in the customs station.
71. Custom ports or airports are appointed by the
a. Central Government
b. Board [CBIC]
c. Respective State Governments with prior approval of Central Government
72. Entry Inward granted by the Customs
a. acts as permission for unloading the goods.
b. is the date that is construed as the relevant date for the arrival of goods in India.
c. Both (A) and (B)
d. Only (A) but not (B)
73. The Custodian
a. would be responsible for keeping a proper records of unloaded goods.
b. is responsible to ensure that the goods don’t leave the customs area without proper authorization from the
Customs Officer
c. is appointed by the Principal Commissioner of Customs or Commissioner of Customs
d. all of the above
74. Assessed duty is paid to vide
a. TR6 Challan
b. TR5 Challan
c. TR6A Challan
d. TR5A Challan
75. Demurrage charges are levied by the port authorities if goods are not cleared within____of unloading.
a. 3 days
b. 5 days.
c. 7 days
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d. 10 days
76. Export General Manifest (EGM) is generally filed on the basis of?
a. Bill of Entry
b. Bill of Lading
c. Airway Bill
d. Either (B) or (C)
77. As per provisions of Chapter VII of the Customs Act, 1962, in____, the goods remain in the same vessel and
consequently reach the port of clearance.
a. Transit
b. Transshipment
c. Transport
d. Traveling
78. As per provisions of Chapter VLH of the Customs Act, 1962, in_____, the vessel after reaching an intermediate
port, transfers the goods to another vessel and the second vessel into which the goods are transferred (loaded)
from the first vessel, carries the goods to the destination port.
a. Transit
b. Transshipment
c. Traveling
d. Transport
79. As per Section 53 of the Customs Act, 1962, subject to the provisions of section 11, where any goods imported
in a conveyance and mentioned in the arrival manifest or import manifest or the import report, as for transit in
the same conveyance to any place outside India or to any customs station, the Proper Officer may allow the
goods and the conveyance to transit_____ subject to such conditions, as may be prescribed.
a. without payment of duty
b. after payment of duty
c. without filing bill of transit
d. after filing a bill of transit
80. Which of the following section of the Customs Act, 1962 deals with transshipment of goods without payment
of duty?
a. Section 53
b. Section 54
c. Section 55
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d. Section 56
81. In transshipment
a. Goods are transferred to a different vessel at the intermediate port.
b. Bill of Transhipment/declaration is also required to be submitted.
c. A different vessel reaches the destination port
d. All of the above
82. In transit
a. Goods remain in the same vessel at the intermediate port.
b. Import manifest is not required to be submitted for entry.
c. Double duty bond would also be required.
d. All of the above
83. Which of the following types of goods can be warehoused?
a. Only dutiable goods
b. All types of imported goods whether dutiable or not
c. Only goods to be exported
d. Only prohibited goods
84. Section 57 of the Customs Act, 1962 provides that the_____may, subject to such conditions as may be
prescribed, license a public warehouse wherein dutiable goods may be deposited.
a. Principal Commissioner of Customs or Commissioner of Customs
c. Central Government or Commissioner of Customs
d. Commissioner (Appeal) or Commissioner of Customs
85. As per Section 58B(4) of the Customs Act, 1962, where the license issued u/s 57 or 58 or 58A is canceled, the
goods warehoused shall, within_____from the date on which order of such cancellation is served on the licensee
or within such extended period as the proper officer may allow, be removed from such warehouse to another
warehouse or be cleared for home consumption or export
a. Seven days
b. Ten days
c. Thirty days
d. One month
86. The importer of any goods in respect of which a bill of entry for warehousing has been presented u/s 46 and
assessed to duty u/s 17 or 18 shall execute a bond in a sum equal to
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a. thrice the amount of the duty assessed on such goods
b. twice the amount of the duty assessed on such goods
c. thrice the amount of assessable value of such goods
d. twice the amount of assessable value of such goods
87. In the case of capital goods intended for use in any 100% EOU, such goods can be stored up to a period of_____
a. 1 year
b. Till the clearance of such goods from the warehouse
c. 3 years
d. Till the expiry of 1 year from the date of order u / s 60( 1) permitting removal of goods from customs
station for deposit in a warehouse
88. In the case of goods other than capital goods intended for use in any 100% EOU, such goods can be stored up
to a period of_____
a. Till the clearance of such goods from the warehouse
b. Till the consumption of such goods from warehouse
c. Till the clearance or consumption of such goods from the warehouse
d. 3 years
89. In the case of any goods not intended for use in any 100% EOU, such goods can be stored up to a period of
______
a. 2 years
b. 1 year
c. 6 months
d. 3 months
90. What is the maximum rate of the drawback of duty as per Section 74 of the Customs Act, 1962?
a. 90%
b. 80%
c. 95%
d. 98%
91. The owner of any warehoused goods may, after warehousing the same
(a) inspect the goods
(b) sale the goods
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(c) deal with their containers to prevent loss/deterioration/damage to the goods
(d) consume the goods
(e) sort the goods
(f) show the goods for sale.
a. (a), (c), (e) & (f)
b. (a), (b), (d) & (f)
c. (a), (b), (c), (e) & (f)
d. (a), (e) & (f)
92. As per Section 74 of the Customs Act, 1962, duty drawback is allowed
a. On re-export of duty paid goods
b. On material used in the manufacture of exported goods.
c. Only respect of notified goods.
d. As per All Industry Rate.
93. As per Section 75 of the Customs Act, 1962, duty drawback is allowed
a. Only respect of notified goods.
b. As per All Industry Rate.
c. If minimum value addition is achieved
d. All of the above
94. Which of the following is an eligible condition for availing drawback u/s 74?
a. The goods must be capable of being easily identified.
b. The goods must be exported within 2 years from the date of payment of duty.
c. There is no requirement of value addition.
d. All of the above
95. If goods are used for less than 3 months then how much percentage of import duty can be paid as a drawback
as per the rate notified by the Central Government u/s 74(2)?
a. 98%
b. 95%
c. 90%
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d. 88%
96. If goods are used for more than 3 months but for less than 6 months then how much percentage of import duty
can be paid as a drawback as per the rate notified by the Central Government u/s 74(2)?
a. 95%
b. 85%
c. 80%
d. 75%
97. If goods are used for more than 18 months then how much percentage of import duty can be paid as a drawback
as per the rate notified by the Central Government u/s 74(2)?
a. 60%
b. 50%
c. 10%
d. Nil
98. Which of the following goods are not eligible for drawback? if reexported after use.
(I) Wearing apparel
(II) Tea chests
(III) Exposed cinematograph film
(IV) Unexposed photographic film
a. (I)
b. (I), (II)
c. (I), (II), (III)
d. (I), (II), (III) & (IV)
99. Where any drawback payable to a claimant under section 74 or section 75 is not paid within a period of one
month from the date of filing a claim for payment of such drawback, there shall be paid to that claimant in
addition to the amount of drawback, interest at the rate of
a. 12%
b. 15%
c. 10%
d. 6%
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100. Where any drawback has been paid to the claimant erroneously or it becomes otherwise recoverable under
the Act or the rules made thereunder, the claimant shall, within a period of 2 months from the date of
demand, pay in addition to the said amount of drawback, interest at the rate of
a. 15%
b. 12%
c. 10%
d. 8%
101. No drawback shall be allowed
a. In respect of any goods the market price of which is less than the amount of drawback due thereon
b. Where the drawback due in respect of any goods is less than ₹ 50
c. Both (A) and (B)
102. Where any duty has not been levied or not paid or short-lived or short paid or erroneously refunded, or any
interest payable has not been paid, part-paid or erroneously refunded, for any reason other than the reasons
of collusion or any wilful misstatement or suppression of facts, the proper officer shall, within_____from
the relevant date, serve notice on the person chargeable with the duty or interest which has not been so levied
or paid or which has been short levied or short paid or to whom the refund has erroneously been made,
requiring him to show cause why he should not pay the amount specified in the notice.
a. 1 year
b. 2 years
c. 3 years
d. 6 months
103. Section 28(1) of the Customs Act, 1962 provides that the proper officer shall not serve such show cause
notice, where the amount involved is less than ______
a. 10
b. 100
c. 1,000
d. 10,000
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CHAPTER EIGHTEEN
Companies Act, 2013 with special emphasis on provisions relating to Declaration

and Payment of Dividend (Chapter VIII and Schedule II) Accounts of Companies
(Chapter IX, Schedule III and Schedule VII), Audit and Auditors (Chapter X),
Government Companies (Chapter XXIII).
1. As per Section 52 companies Act,2013, the balance in the security premium account cannot be utilized for
a. Payment of dividend
b. Writing off discount on issue of share
c. Issue of fully paid-up bonus share
d. Capital losses
2. As per format of balance sheet prescribed as per Schedule 3 of the companies Act,2013 those drafts
which have passed are shown under the head_____
a. Cash and cash equivalents
b. Movable assets
c. Short term advance
d. Balance with banks
3. Which of the following does not the form of the part of the important information to be incorporated in the
memorandum of Association as specified in the companies Act,2013?
a. The name of the company and the state in which it is situated
b. The objects for which the company is proposed to be incorporated.
c. The rules, regulations and bye-laws for the internal management of the company.
d. The liability of the members of the company , whether limited or unlimited.
4. _______ is the combining of two or more companies into one organization.
a. Diversification
b. Acquisition
c. Merger
d. Amalgamation
5. Global depository receipt is mentioned in which of the following sections of the Companies Act,2013?
a. Section 38
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b. Section 39
c. Section 41
d. Section 42
6. As per section ___ of the companies Act, a certain class of the companies are required to appoint an internal
auditor for conducting internal audit.
a. 138
b. 228
c. 356
d. 192
7. ________________means a company having the liability of its members limited by the memorandum to the
amount, if any, unpaid on the shares respectively held by them.
a. Company limited by guarantee
b. Company limited by shares
c. Both (a) and (b)
d. None of these
8. Company Liquidator, in so far as it relates to the winding up of a company, means a person appointed by—
a. The Tribunal in case of winding up by the Tribunal
b. The company or creditors in case of voluntary winding up,
c. Both (a) and (b)
d. None of these
9. The minimum number of members that required while you are registering a public company is___
a. 2
b. 6
c. 7
d. 5
10. The minimum number of members that required while you are registering a private company is___
a. 5
b. 7
c. 4
d. 2
11. where the company to be formed is to be One Person Company that is to say, a _
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a. Public Company
b. Private company
c. Both (a) and (b)
12. The memorandum of a company is dealt under ?
a. section 12
b. section 15
c. section 6
d. section 4
13. A company may adopt all or any of the regulations contained in the model articles applicable to such a
company.
a. True
b. False
c. Partly True
d. Partly False
14. All monies payable by any member to the company under the memorandum or articles shall be a debt due
from him to_______
a. Member
b. The company
c. Both (a) and (b)
15. The company shall furnish to the Registrar verification of its registered office within a period of ________ of
its incorporation in such manner as may be prescribed.
a. 60 days
b. 45 days
c. 30 days
d. 15 days
16. Section 203 of the Companies Act 2013 deals with___?
a. Managing director,
b. Company secretary
c. Chief Financial Officer
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d. All of the above
a. Unpaid Dividend Account
b. Declaration of dividend
c. Remuneration of auditors
d. Auditors to attend general meeting
18. What is the punishment for the company If any of the provisions of sections 139 to 146 is contravened?
a. Fine of Rs. 25000 up to 3 lakh rupees.
b. Fine of Rs. 20000 up to 2 lakh rupees.
c. Fine of Rs. 25000 up to 5 lakh rupees.
d. Fine of Rs. 10000 up to 5 lakh rupees.
19. What is the punishment for an individual or director of a company If any of the provisions of sections 139 to
146 is contravened?
a. Imprisonment for a term which may extend to six months and Fine up to Rs. 50000 rupees.
b. Imprisonment for a term which may extend to one year and Fine up to Rs. 50000 rupees.
c. Imprisonment for a term which may extend to two months and Fine up to Rs. 50000 rupees.
d. Imprisonment for a term which may extend to six months and Fine up to Rs. one lakh rupees.
a. Rehabilitation and insolvency fund
b. Declaration of dividend
c. Remuneration of auditors
d. Modes of winding up
21. When did The Companies act 2013, come into force?
a. 01 April 2013
b. 01 March 2014
c. 01 May 2013
d. 30th August 2013
22. Which section of The Companies act 2013 deals with the Effect of registration?
a. Section 12 of The Companies act 2013
b. Section 9 of The Companies act 2013
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c. Section 14 of The Companies act 2013
d. Section 20 of The Companies act 2013
23. Which section of The Companies act 2013 deals with Rectification of the name of the company_ ?
24. Section 25 of The Companies act 2013 deals with_______?
a. Alteration of memorandum
b. Document containing offer of securities for sale to be deemed prospectus.
c. Advertisement of prospectus
d. Service of documents
25. Authentication of documents, proceedings and contracts, is provided in section____ of The Companies act
2013
26. Section 29 of The Companies act 2013 provides _?
a. Public offer of securities to be in dematerialized form
b. Alteration of articles
c. Registered office of the company
d. Red herring prospectus
27. Which section of The Companies act 2013 deals with Company to accept unpaid share capital, although not
called up?
a. Registered office of the company
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b. Formation of company
c. Service of documents
d. Articles
29. Which section of The Companies act 2013 deals with the Prohibition on acceptance of deposits from public?
a. Incorporation of company
b. Execution of bills of exchange
c. Effect of memorandum and articles
d. Shelf prospectus
31. Which of the following section in the Companies Act, 2013 mentions about Red herring prospectus
a. 18 of the Companies Act, 2013
b. 25 of the Companies Act, 2013
c. 21 of the Companies Act, 2013
d. 32 of the Companies Act, 2013
32. Which of the following section in the Companies Act, 2013 mentions about Option to adopt principle of
proportional representation for appointment of directors
33. Which of the following section in the Companies Act, 2013 mentions about Contract of employment with
managing or whole-time directors
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34. Which of the following section in the Companies Act, 2013 mentions about Appointment of key managerial
personnel
35. Which of the following section in the Companies Act, 2013 mentions about Penalty for furnishing false
statement, mutilation, destruction of documents ?
36. If XYZ is the holding company of P&R Ltd. then, which of the following statement is not true in this regard.
a. XYZ Ltd. controls the composition of Board of P&R
b. XYZ Ltd. holds more than 50% of the nominal value of the equity shares
c. Both (a) & (b)
37. Which of the following is not a stage of the development of company?
a. Promotion
b. Production
c. Incorporation
d. Commencement of Business
38. which of the following company/companies are registered by the Companies Act, 2013?
a. Government Company
b. Private Company
c. Public Company
d. All of the above
39. A public company must have at least————- directors whereas a private company must have at least ——
————-directors.
a. 3;2
b. 2;3
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c. 2;5
d. 8;10
40. A subsidiary of a government company is also treated as a
a. Government Company
b. Public Company
c. Private Company
d. All of the above
41. The_____________ of a government company is appointed or reappointed by the Comptroller and Auditor
General of India.
a. Auditor
b. Company Secretary
c. Both (a) and (b)
42. Which of the following company is incorporated in a country outside India?
a. Private Company
b. Foreign Companies
c. Government Company
43. Which of the following statement is false?
a. No legal formality is required to form a company.
b. The shareholders of a company have limited liability.
c. A company can own property in its own name.
d. A company is managed by the elected representatives of shareholders.
44. A is one who performs the preliminary duties necessary to bring a company into being and float it.
a. Auditor
b. Promoter
c. Director
d. Financer
45. The registered office clause of memorandum of association contains
a. The name of the state in which the registered office of the company is to be situated.
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b. The name of the city/town only and not that of the state.
c. The name of registrar of companies
d. The complete postal address.
46. “One who undertakes to form a company with reference to a given object and set it going and who takes the
necessary steps to accomplish that purpose
a. Promoter
b. Directors
c. C.E.O.
d. Board of Directors
47. Which of the following are the functions of a promoter?
a. Decides name of a company
b. Nomination of directors
c. Settles the details of memorandum and articles
d. All of these
48. A is neither an agent, nor a trustee of a company.
a. Directors
b. Company Secretary
c. Employees
d. Promoters
49. Company is managed by
a. Shareholders
b. Board of Directors
c. Karta
d. Both(a)&(b)
50. H.U.F. consists of which type of members
a. Both (b) & (c)
b. Heterogeneous
c. Homogeneous
51. Partnership is governed by Partnership Act
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a. 1956
b. 1948
c. 1932
d. 1982
52. which is not a case of lifting of corporate veil
a. Connors Bros. v. Connors
b. Jones v. Lipren
c. Pearce v. Brookes
d. CIT v. Meenakshi Mills Ltd.
53. Word Corporation’ is———— than company
a. Narrow
b. Wider
c. (a) or (b)
d. All of the above
54. Which of the following statements is not true?
a. A company is an artificial person created by law.
b. A company can do every act like a natural person except the acts which are purely of personal nature.
c. A company can be held liable for violation of the statutory provisions of the Companies Act.
d. A company can be imprisoned for violation of such provision which attract penalty by way
of imprisonment only.
55. Which of the following is not the characteristic of a public company?
a. It has a separate legal entity.
b. It has a perpetual succession.
c. It has a common seal and separate property.
d. Its shares are non transferable.
56. A and B were the only members of a company who died in a road accident. In this case,the company comes to
end on the death of A and B.
a. True
b. False
c. Partly True
d. Partly False
249
57. A company being a legal person is also a citizen under the Constitution of India
a. True
b. False
c. Partly True
d. Partly False
58. A statutory company or corporation is one which is incorporated
a. By an Act of Parliament
b. By an Act of State Legislature
c. Under the Companies Act, 2013
d. By either (a) or (b)
59. In case of a company limited by guarantee, the liability of the members can be enforced
a. At any time when the company so decides
b. Only at the time of winding up of the company
c. Only by an order of court
d. Only by an order of Registrar of Companies
60. A Government Company is one in which 51% or more of the paid up share capital is held by
a. Central Government alone
b. State Government alone
c. Central and State Government jointly
d. Any of the above
61. The Object clause of Memorandum of Association must be divided into two Sub Clauses, namely (i) main
objects clause, and (ii) object in furtherance of main object clause.
a. True
b. False
c. Partly True
d. Partly False
62. which of the following statements is correct?
a. In limited companies, the liability of members holding fully paid-up shares is nil.
b. In companies limited by guarantee, the liability of members is limited to the amount which they have
agreed to pay.
c. Both (a) and (b) are correct.
250
d. None of these is correct.
63. For which of the following companies it is not obligatory to have Articles of Association?
a. Public Companies Limited by Shares
b. Public Companies Limited by Guarantee
c. Private Limited Companies
d. Unlimited Companies
64. Which of the following statements is correct ?
a. The memorandum and articles’ are binding on the members in their relation to the company.
b. The memorandum and articles are binding on the company in their relation to the members
c. None of these is true
d. Both of these are true
65. Company’s memorandum and articles are public documents.
a. True
b. False
c. Partly True
d. Partly False
66. In case ‘memorandum and ‘articles’ are inconsistent, then which shall prevail over the others?
a. Memorandum of Association
b. Articles of Association
c. The one approved by Registrar
d. None of these
67. A public company having a share capital can start its business on obtaining
a. Certificate of incorporation and approval of Company Law Board.
b. Certificate to commence business and approval of Company Law Board.
c. ‘Certificate of Incorporation
d. Approval of High Court.
68. Company has ————–succession.
a. Longer
b. Continued
c. Perpetual
251
d. Limited
69. If company do not follow the principle of separate legal entity——————can be done.
a. Lifting of corporate veil
b. Principle of equity
c. Principle of natural justice
d. All of above
70. Total managerial remuneration in a public company cannot be ———of net profit.
a. 10%
b. 11%
c. 18%
d. 11.5%
71. Audit of Government Company is done by C & AG. This statement is:
a. True
b. False
c. Partly True
d. Partly False
72. Any Corporate Body/Association of Firm can be appointed as director of the company. This statement is:
a. True
b. False
c. Partly True
d. Partly False
73. Which one of the following is not a main clause of memorandum of association?
a. Name clause
b. Capital clause
c. Object clause
d. Profit clause
74. ————–is to be executed on a non judicial stamp paper.
a. Share warrant
b. Power of attorney
c. Incorporation certificate
252
75. The word company is derived from ————word Com Panis”.
a. French
b. Latin
c. German
d. Indian
76. Which of the following are the characteristics of a company?
a. Corporate Personality
b. Limited Liability
c. Perpetual Succession
d. All of the above
77. The company has a capacity to sue and be——–
a. Incorporated
b. Sued
c. Both (a) and (b)
78. A company may be an
a. Incorporated company
b. Unincorporated company
c. Both (a) and (b)
79. A word corporation is derived from latin term “corpus” which means:-
a. Body
b. Legal Person
c. Artificial Person
80. The liability of the member of the company is limited to the extent of the of the shares held by them.
a. Unpaid value
b. Paid value
c. Nominal value
253
d. All of the above
a. Partners are the agents of the firm but member of company are not its agents
b. Partner cannot contract with his firm but a member of a company can
c. Both (a) and (b)
d. None of these is correct
82. In public company, the members of the company is not less than .
a. Two
b. Seven
c. Ten
d. Twenty
83. In Private Company, member of the company is not less than
a. Seven
b. Ten
c. Two
d. Eight
84. A company is a __________on the other hand a club is a___________
a. Trading association, non trading association.
b. Non trading association, trading association.
c. Trading association, trading association.
d. None of these.
85. Which of the following are not the advantages of incorporation?
a. Separate property
b. Unlimited liability
c. Capacity to sue
d. Flexibility & autonomy
86. Which of the following are not the disadvantage of incorporation?
a. Formalities and expenses
b. Corporate disclosure
c. Limited liability
254
d. Both (a) and (b)
87. Which of the following are kinds of companies?
a. Private companies
b. Producer companies
c. Both (a) and (b)
88. Government company comes under section
a. 2(46)
b. 2(44)
c. 2(43)
d. 2(45)
89. Foreign company must issue prospectus
a. True
b. Partly true
c. False
d. None of these
90. Company’s memorandum & articles are public documents
a. True
b. False
c. Partly True
d. Partly False
91. For incorporation or registration
a. MOA must be subscribed
b. AOA must be subscribed
c. Only MOA
d. Both (a)&(b)
92. MOA contains of company
a. Constitutions
b. Regulations
c. Declaration
255
d. None of these
93. MOA has clauses
a. 9
b. 7
c. 6
d. 10
94. AOA is also called as of the company
a. Regulations
b. Bye Laws
c. Provisions
d. Both (a) or (b)
95. Tables I includes articles of
a. Unlimited company having share capital
b. Company limited by guarantee
c. Company limited by shares
d. Public company
96. which amongst the following documents is not required to be filed by a foreign company with the Registrar?
a. Address of the registered office of the company
b. Address of the principles place of business in India
c. Declaration of Solvency
d. Articles of Association
97. Lifting of corporate veil is permitted
a. By statue
b. Voluntary
c. Any time
d. None of these
98. which one of the following is NOT an essential feature of a company?
a. Perpetual Succession
b. Unlimited Liability
c. Separate Property
256
d. Transferability of shares
99. which one of the following statement is not true regarding a company?
a. The shares of a company can be transferred
b. lt is very simple and easy to form a company
c. It is a separate legal entity
d. It has independence to form its policies
100. Which one of the following is NOT a disadvantage of a company?
a. It does not have a capacity to sue
b. It has more social responsibility
c. Greater tax burden
d. More disclosures
101. Which of the following statement is NOT true regarding a private company?
a. It cannot invite public to subscribe to shares or debentures
b. Restricts the right to transfer its share
c. At least five members are required to form a company
d. It should have at least two directors
257
CHAPTER NINETEEN
Corporate Governance: Overview, Issues and Concepts, Corporate

Governance Practices/Codes in India, Corporate Governance in state-owned
business MOU system.
1. Which of the following committees is related to the investor protection?
a. Bhagwati committee
b. N. K. Mitra committee
c. J. R. Verma committee
d. L. C. Gupta committee
2. Which of the following is not a correct statement with regard to corporate Governance in India?
a. Every company must appoint as individual or firm as auditor
b. The independent directors must attend at least three meetings a year.
c. One or more women directors are recommend for certain classes of companies.
d. The maximum number of permissible directors cannot exceed 15 a public limited company.
3. Corporations are controlled and directed by which one the following?
a. Corporate ethics
b. Corporate codes
c. Corporate governance
d. Corporate mechanism
4. _____ is a tool for corporate governance.
a. Training
b. Recruitment
c. Communication
d. Consulting
5. Which of the following is not one the under lining constable of the corporate governance combined code of
practice.
a. Openness
b. Accountability
258
c. Integrity
d. Acceptability
6. The framework for establishing good corporate governance and accountability was originally set up by the
a. nestle committee
b. Rowntree committee
c. Thornton committee
d. Cadbury committee
7. corporate governance is a form of
a. external regulation
b. self regulation
c. government control
d. charitable action
8. Which of the following is/are feature of corporate governance
a. Non-universality
b. Accountability
c. Ambiguity
9. Corporate governance is a ____ approach
a. Top-down
b. Bottom-up
c. Hybrid
d. Scientific
10. Under the ____, both internal and external corporate governance mechanism intended to induce managerial
actions that maximize profit and shareholder value
a. Shareholder theory
b. Agency theory
c. Stakeholder theory
d. Corporate governance theory
11. N. R. Narayan Murthy committee is related to:
a. HR issues of public sector banks
259
b. Growth of IT sector in India
c. Improving corporate governance practices
d. On improvement of customer services in banks
12. The Narayan Murthy committee submitted its report on 2003 and it's recommendations were
a. Whistle-blower protection
b. Audit Committee
c. Related party transaction
d. All of the above
13. The corporate governance structure of a company reflects the individual companies
a. Cultural & economic system
b. Legal & business system
c. Social & regulatory system
d. All of the above
14. Which one among the following is not correct J. J. Irani Committee recommendation on company law (2005)
:
a. 2/5 of the board of a listed company should comprise of independent directors
b. Introduce the concept of one person company (OPC)
c. Allow Corporation’s to allow their affairs
d. Disclose proper and accurate compilation of financial information of a corporation.
15. Which one are not the responsibilities of CEO
a. monitoring community and Public Relations
b. managing tax and regulatory obligations
c. budgeting
d. making financial accounts
16. Section 173 of Companies Act___ deals with meetings of the board
a. 2013
b. 2015
c. 2011
d. 2009
17. Which among the following is the role of board of directors
260
a. manage inventory
b. understanding human behavior
c. budgeting
d. Overseas strategy implementation and performance
18. Which one is not the corporate board committee
a. audit committee
b. compliance committee
c. stakeholder’s relationship committee
d. legislative committee
19. OPC stands for
a. One person company
b. One Public Company
c. Only Public Company
d. One Private Company
20. Persons who take the procedural steps to set up a company and who make business preparations for the
company are known as
a. Directors
b. Shareholders
c. Registrars
d. promoters
21. Which of the following is not one the under lining constable of the corporate governance
22. combined code of prac
23. Which one of the following is not a right of shareholder?
a. to receive a dividend declared by the company
b. to attend and vote a meeting
c. to receive the company's account
d. to manage company affair
24. Decisions passed by shareholders are known as
a. Resolutions
b. Provisions
261
c. Articles
d. Memorandums
25. The simplest form of business ownership is a
a. Proprietorship
b. Partnership
c. Corporation
d. Cooperative
26. Which of the following best defines the term stakeholders
a. Anyone which shares in a company
b. Anyone with an interest in an organization
c. Anyone who owns a business
27. What should organisation seek to do with stakeholders who have high interest and high power
a. Do nothing
b. Invest minimal efforts
c. Invest maximum efforts
d. Keep informed
28. The primary stakeholders are
a. Customers
b. Suppliers
c. Shareholders
d. Creditors
29. When was SEBI constituted?
a. April 1988
b. March 1982
c. July 1992
d. December 1974
30. Risk management includes all of the following processes except:
a. Risk quantification
b. Risk identification
262
c. Risk response development
d. Risk response control
31. What is risk
a. Negative consequence that could occur
b. Negative consequences that will occur
c. Negative consequences that must occur
d. Negative consequences that shall occur
32. Internal controls are grouped into the following categories
a. Efficient operations, financial analysis and compliance
b. Effective operations, financial reporting and compliance
c. Production and operations, financial reporting and management reporting
d. Efficient operations, financial analysis, and management reporting
33. Kingfisher Airlines was established in
a. 2003
b. 2010
c. 2008
d. 2002
34. Punjab National Bank was incorporated bank in the year_______ in Lahore, undivided India
a. 1982
b. 1880
c. 1895
d. 1870
35. RPG Ricoh Ltd was incorporated on
a. 31st December 1975
b. 5th June 1982
c. 19th March 1880
d. 22nd October 1993
36. PNB scam was done by
a. Nirav Modi
b. Vijay Malya
263
c. Satyam
d. Harshad Mehta
37. Chanda Kochhar took over as ICICI bank chief in
a. 2009
b. 2005
c. 2003
d. 2010
38. By the late ____________ Infosys Technologies Limited (Infosys) has clearly emerged one of the best managed
companies in India.
a. 1920s
b. 1990s
c. 1950s
d. 1975s
39. Corporate governance is a system of rules, policies, and practices that dictate how –
a. Company’s Board of directors manage
b. oversee the operations
c. oversee the operations
d. All of the above
40. Fiduciary relationship can be best understood as –
a. Distrust
b. Unreal
c. Unreliable
41. Weak corporate governance display-
a. Noncooperation with auditors
b. Bad executive compensation packages
c. Poorly structured boards making it difficult for shareholders to oust ineffective

incumbents.
42. Typical fiduciary relationships exist between –
a. attorneys and clients,
b. executors and legatees or heirs,
264
c. guardians and wards,
43. Bad corporate governance can cast doubt on a company's –
a. reliability,
b. integrity,
c. transparency which can impact its financial health.
d. All of the above
44. For many shareholders, it is not enough for a company to merely be profitable; it also needs to demonstrate
good corporate citizenship through-
a. environmental awareness,
b. unethical behavior
c. unsound corporate governance practices
d. All of the above
45. The board of directors must ensure that the company's corporate governance policies incorporate –
a. the corporate strategy,
b. risk management,
c. ethical business practices.
d. All of the above
46. One of the largest liabilities a corporation has is to its –
a. Shareholders
b. Customers
c. Investors
47. The purpose of corporate governance is to help build –
a. an environment of trust and transparency
b. financial stability and business integrity
c. Support for stronger growth and more inclusive societies.
d. All of the above
48. According to the Brundtland Commission report Sustainable development is –
a. the one that satisfies the needs of the present without jeopardizing the ability of future
generations to meet their needs.
265
b. The preservation of the green belts
c. The one that does not think of the future but only of the present at stake.
49. For the long-term corporate sustainability goal, the sustainable development concept is built on top of three
important “pillars” that must be fulfilled by companies:
a. economic development,
b. social equity,
c. environmental protection
d. All of the above
50. The “corporate citizen” concept refers to a type of company that intends to put at the same level as its own
interest –
a. the interest of society
b. the interest of others
c. the interest of MNCs
51. Companies can benefit from –
a. Philanthropy
b. CSR programs
c. Volunteer efforts
d. All of the above
52. Following are the examples of bad goverance
a. Siemens
b. Volkswagen
c. WorldCom.
d. All of the above
266
CHAPTER TWENTY
Topic Wise Costing Formulas
ABSORPTION COSTING:
Opening Stock
Add: Purchases
Less: Closing Stock
Direct Material Consumed
Add: Direct Labour
Add: Direct Expenses
Prime Cost
Add: Factory Overheads
Gross Factory Cost
Add: Opening WIP
Less: Closing WIP
Net Factory Cost
Add: Administration Expenses
Cost Of Production
Add: Opening FG
Less: Closing FG
Cost Of Goods Sold
Add: Selling and Distribution Expenses
Cost Of Sales
Add/Less: Profit/Loss
Sales
MARGINAL COSTING:
267
Sales
Less: Variable Cost
Contribution
Less: Fixed Cost
Profit
Contribution = Sales – variable Cost = fixed cost + profit
Profit Volume Ratio = Contribution/sales (or)
Change in contribution/change in sales
Break Even Point = Fixed Cost/Contribution (or)
Fixed Cost/PV Ratio (or)
Fixed Cost/ Contribution at 1% Capacity
Contribution = Sales * PV Ratio
Margin of Safety = Actual Sale – Break even sales (or)
Profit/Contribution per unit (or) Profit/PV Ratio
Sale Value at Desired Profit = Fixed Cost + Desired Profit
PV Ratio
Variable Cost Ratio = Change in total cost
Change in total Sales
Variable Cost per unit = Change in total cost
Change in output
Contribution per unit = Change in Profit
Change in output
Net profit = MOS * PV Ratio
CONTRACT COSTING:
Profit of Incomplete contract:-
268
1) When % of completion is less than or equal to 25% then full Notional profit is transferred to reserve.
2) When % of completion is above 25% but less than 50% following amount should be credited to profit &
loss a/c =
1/3 * Notional Profit * {Cash received / Work certified}
3) When % of completion is more than or equal to 50% then the amount transferred to profit is =
2/3 * Notional Profit * {Cash received / Work certified}
4) When the contract is almost complete the amount credited to profit & loss a/c is
a) Estimated total profit * {Work certified / Contract price}
b) Estimated total profit * {Cash received / Contract price}
c) Estimated total profit * {Cost of work done / Estimated total profit}
d) Estimated total profit*{Cost of work done*Cash received/Estimated total cost * Work

certified}
STANDARD COSTING:
Material Cost Variance: (Std Qty for AO * SP) - (AQ * AP)Material Price Variance: AQ consumed (SP – AP)
Material Usage Variance: SP (Std Qty for AO – AQ)
Labour Cost Variance: SH for AO – (AH * AR) Labour Rate Variance: AH (SR-AR)
Labour Efficiency Variance: SR(SR for AO – AH)
Variable OH Cost Variance: (AO * SRR/Unit) – Actual OH Variable OH Expenditure Variance: (AH * SRR/Hr) –
Actual OH Variable OH Efficiency Variance: SRR/hr (SH – AH)
SRR/Unit = Budgeted OH/Budgeted Output
SRR/Hr = Budgeted OH/Budgeted Hours
Fixed OH Cost Variance: (AO * SRR/Unit) – Actual OH Fixed OH Expenditure Variance : Budgeted OH – Actual OH
Fixed OH Volume Variance: SRR/Unit(BO – AO)
Fixed OH Calendar Variance: SRR/day(Budgeted working days – actual working days) Fixed OH Capacity Variance:
SRR/Hr(BH - AH)
Fixed OH Efficiency Variance: SRR/Hr(SH - AH)
Sales Variance : (BQ * SSP) – (AQ * ASP) Sales price Variance: AQS(SSP - ASP)
Sales Volume Variance: SSP(BQ - AQ)
Efficiency Ratio = Standard Hours for AO
269
Actual Hours
Activity Ratio= Output in Standard Hours
Budgeted Output in Standard hours
Calendar Ratio = Actual working days
No. of working days in budgeted period
MATERIAL COSTING:
EOQ (Economic Order Quantity - Wilson‟s Formula) = √2AO/C Where:
A = Annual usage units
O = Ordering cost per unit
C = Annual carrying cost of one unit i.e. Carrying cast % * Carrying cost of unit
Reorder level = Maximum usage * Maximum lead time
(Or) Minimum level + (Average usage * Average Lead time)
Minimum level = Reorder level – (Average usage * Average lead time)
Maximum level = Reorder level + Reorder quantity – (Minimum usage * Minimum lead time)
Average level = Minimum level +Maximum level
Danger level (or) safety stock level
=Minimum usage * Minimum lead time (preferred)
Average Stock Level = Min Level + Max Level
LABOUR COSTING:
Time Wage = Hours worked * Rate/Hour
Piece Wages = Units produced * Rate/Piece
Rate/piece = Rate per hour /time taken for one piece
270
Taylor’s differential piece rate system:
No minimum rate is guaranteed. The standard output is determined on the basis of time and motion studies. Those attaining
or exceeding the standard get a higher piece rate and those not attaining it get a lower rate.
The lower rate is based on 83% of the day wage rate. This rate is applicable to those who don‟t attain the standard. The higher
rate is based on 125% of the day rate. The efficiency of the worker can be determined either by comparing standard time and
actual time taken or by comparing actual output and standard output. Hence, this method penalizes the slow worker and
rewards the efficient one. This principle is based on the fact that slow production
increases the cost of production.
271
PRIMARY SOURCES OF INFORMATION
PRIMARY SOURCES FROM WHERE DATA HAS BEEN TAKEN ARE
icmai.in
dacc.edu.in
byjus.com
scholarsclasses.com
sortingtax.com
mcqquestions.in
mcqmate.com
studocu.com
scholarexpress.com
learncram.com
thegkeducation.com
livemcqs.com
gstguntur.com
testbook.com
thelegalinfo.com
costaudit.org
272
Thanks, and our best wishes for your

success!
Please feel free to contact us in case you need
any assistance.
CMA NAVNEET KUMAR CMA MANISH KANDPAL CMA JEEWAN CHANDRA

JAIN
FCMA, MBA, LL.B., M.COM., PGDTL., FCMA, B. COM, PGDM, DFA, FCMA, M. Com, DISSA, DFA,
PGDFM, PGDIM, AIIISLA, LIII , Dip Qualified Independent Director. Qualified Independent Director
ISAC, DFA
Insolvency Professional
+91 98101 75020 +91 98733 19834 +91 99990 41666
navneetic@yahoo.com cmamanish.mm@gmail.com jeewanck@gmail.com
273

13 Exam Guide - MCQs - A.D. Cost Recruitment Under ICoAS-2022 V.1

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Exam Guide with MCQs for the

preparation of A.D. Cost recruitment under

CMA NAVNEET KUMAR CMA MANISH KANDPAL CMA JEEWAN CHANDRA

SUCCESS IS BEST WHEN IT’S SHARED - HOWARD SCHULTZ

Generally Accepted Cost Accounting Principles (GACAP), Cost Accounting

Methods of Costing: Single Output Costing, Job Costing, Batch Costing,

Emerging concepts in Cost and Management Accounting: Life Cycle costing,

Government Accounting: General Principles and Comparison with

Customs Law : Classification under Customs, Types of Duties (Basic customs

Companies Act, 2013 with special emphasis on provisions relating to

Corporate Governance: Overview, Issues and Concepts, Corporate Governance

20 Topic Wise Costing Formulas 267

Indian Audit & Accounts Service

Indian Cost Accounts Service

Indian Civil Accounts Service

Indian Defence Accounts Service

Indian Postal & Telecom Finance Service

Indian Railway Accounts Service

INDIA COST ACCOUNTS SERVICE

• Only Accounting Service having professional Cost/Chartered Accountants.

• 31 participating offices of various Ministries/Departments such as Economic Affairs, Revenue, Commerce,

ü Test Conducted by UPSC

ü Group “A” Gazetted

SCHME OF THE TEST:

ü The test is normally of two hours duration

ü It normally carries a maximum of 100 marks

ü The medium of the question paper is in English only.

ü There is a penalty for wrong answers.

ü If no answer is marked for a question, there is no penalty for that question.

A Repository of Expertise in Cost And Management Accounting Matters in the

Prime Professional Agency in Dealing with Matters Relating to Costing And

To Render Professional Assistance to Different Ministries And Government

Cost Benefit Analysis of Non-Profit Schemes.

To Serve as an Independent Agency of the Central Govt.

List of Participating Offices

• Department of Economic Affairs

• Department of Heavy Industries

• Ministry of Corporate Affairs

• Directorate General of Trade Remedies

• Office of Jute Commissioner, Kolkata

• Minitry of Food Processing Industries

• Department of Food & Public

1. Example of a production overhead would be:

d) All of the above

3. To control costs, it is essential to keep control on

c) Indirect materials and tools cost.

d) All of the above

4. cost that is easily traceable to a cost object is known as:

5. Which of the following best describes a fixed cost? A cost which:

a) Represents a fixed proportion of total costs

b) Remains at the same level up to a particular level of output

c) Has a direct relationship with output.

d) Remains constant irrespective of the level of activity.

a) Indirect departmental cost

b) Direct product cost

c) Direct departmental cost

d) Service department cost.

8. Which of the following costs is treated as indirect labour?

d) All of the above

9. Which definition best describes indirect costs?

c) Indirect costs are always fixed.

d) Indirect costs are always manufacturing overhead costs.

c) Value of buildings and equipment