Result Oriented SSC & Bank Exam Preparation Tips: UNIT 1 UGC NET COMMERCE PAPER III

UNIT 1 COMMERCE PAPER III

TOPICS TO BE COV ERED

Accounting and Finance

Accounting standards in India, Inflation Accounting, Human Resource Accounting, Responsibility Accounting, Social Accounting.

Money and Capital market, Working of stock exchanges in India, NSE, OTCEI, NASDAQ, Derivatives and Options.
Regulatory Authorities : SEBI, Rating Agencies; New Instruments; GDRs, ADRs.
Venture Capital Funds, Mergers and Acquisitions, Mutual Funds, Lease Financing, Factoring, Measurement of risk and returns securities and portfolios.
Computer Application in Accounting and Finance.

UNIT 1 ACCOUNTING AND FINANCE

1. The convergence of the Indian Accounting Standards with IFRS began in —

a. Aug-09

b. Dec-11

c. Apr-10

d. Apr-11

Ans. d

2. The global key professional accounting body is —

a. The International Accounting Standards Committee

b. The Institute of Chartered Accountants of India

c. The Financial Accounting Standards Board

d. The International Accounting Standards Board

Ans. a

3. The original cost at which an asset or liability is acquired is known as —

a. amortization

b. historical cost

c. replacement cost

d. carrying cost

Ans.

4. The International Accounting Standards Committee was set up in —

a. 2009

b. 1982

c. 1976

d. 1967

Ans. d

5. The process of converting foreign-subsidiary financial statements into the home currency is known as —

a. consolidation

b. translation

c. transmission

d. reconstruction

Ans. b

6. The accounting process in which the financial statements of a parent company and its subsidiaries are added together to yield a unified set of financial statements is called —

a. amalgamation

b. translation

c. amortization

d. consolidation

Ans. d

7. A price on goods and services sold by one member of a corporate family to another, such as from a parent to its subsidiary in a foreign country, is known as —

a. export price

b. arm’s length price

c. transfer price

d. import price

Ans. c

8. Triple bottom line accounting is also called —

a. management accounting

b. full cost accounting

c. incremental costing

d. historical accounting

Ans. b

9. Which of the following is not a tax haven?

a. Bermuda Islands

b. England

c. Cayman Islands

d. Mauritius

Ans. b

10. Accounting in India is governed by the —

a. Reserve Bank of India

b. Income Tax Department

c. Company Law Board

d. Institute of Chartered Accountants of India

Ans. b

11. Securities premium will be shown in Balance Sheet under the head of ____

a) Reserves & Surplus

b) Miscellaneous exp.

c) Loans & advances

d) None

Ans (a)

12. Which of the following provide frame work and accounting policies so that the financial statements of different enterprises become comparable.

a) Business Standards

b) Accounting Standards

c) Market Standards

d) None

Ans (b)

13. Which of the following factor is not considered while selecting accounting policies?

a) Prudence

b) Substance over form

c) Accountancy

d) Materiality

Ans (c)

14. On 31-3-09 the balance of the cash book is Rs. 7074 (credit) and balance as per bank statement is Rs. 3159 (debit). On scrutiny it was found that the difference was due to cheque issued but not yet presented for payment. The bank balance as on 31-3-09 will be shown in bank statement as ____

a) as bank overdraft Rs. 3159

b) as cash at bank Rs. 7074

c) as bank overdraft Rs. 7074

d) as cash at bank Rs. 3159

Ans (a)

15. Reserve price is considered in ____

a) sale by sample

b) sale by description

c) sale by auction

d) all of the above

Ans (c)

16. An unpaid seller’s right of storage of goods in transit can be excised only the buyer is insolvent

a) true

b) partly true

c) false

d) none

Ans (a)

17. A agrees to sell B smuggled goods for Rs. 1000 per unit. The agreement is void due to

a) uncertainty

b) illegality

c) impossibility

d) immortality

Ans (b)

18. Counter offer is a ____

a) change in the original offer

b) rejection of original offer

c) same as original offer

d) not a offer at all

Ans (a)

19. Offer can be withdrawn when

a) before the acceptance of offers against the oferror

b) after the acceptance of offers against the oferror

c) at any time

d) cannot be withdrawn

Ans (a)

20. Future goods are the subject matter of

a) sale

b) agreement to sale

c) neither sale or agreement to sale

d) both sale & agreement to sale

Ans (b)

21. As per the Matching concept, Revenue – ? = Profit
a) Expenses
b) Liabilities
c) Losses
d) Assets
Answer (a)

22. Sales – Gross Profit = ________
a) Cost of goods sold
b) Net sales
c) Gross Sales
d) Liabilities
Answer (a)

23. Which one of the following methods of Inventory Valuation matches current cost with Current Revenues?
a) Last in first out
b) First in First Out
c) Simple Average
d) Weighted Average
Answer (a)

24. The periodic total of the purchase returns book is posted to the __ side of the Purchase Returns A/c.
a) Credit
b) Debit
c) Both
d) None
Answer (a)

25. If the company has already received the premium on issue of shares and the shares are forfeited, then _______
a) Share premium A/c will be credited
b) Share premium A/c will be debited
c) Share premium A/c will have no effect
d) None of these
Answer (c)

26. When shares are issued to promoters for the services offered by them ____ A/c is debited.
a) Preliminary Expenses
b) Goodwill
c) Asset
d) Share capital
Answer (b)

27. A & B are the partners in a firm; C is admitted as a partner with guarantee of profit 10,000. Profit for the year 2009-10 is Rs.1,20,000. A, B & C share profits and losses in the ratio of 3:2:1. Share of C in the profit is:
a) 10,000
b) 20,000
c) 30,000
d) 40,000
Answer (b)

28. Where in a partnership firm the partners are entitled to interest on their capitals, such interest is payable ______
a) Only out of partners’ capitals
b) Only out of cash brought in by a new partner towards goodwill
c) Only out of profits of the firm
d) None
Answer (c)

29. The shares of a company can be issued at:
a) Par
b) Premium
c) Discount
d) All
Answer (d)

30. Immediately after purchasing a truck of Rs.50,000. Rs.1000 was spent for painting the truck for the purpose of advertisement of a product. Rs.1000 spent for painting is ____
a) Capital Expenditure
b) Revenue Expenditure
c) Differed Revenue Expenditure
d) None
Answer (b)

31. Which method of depreciation is approved as per the income tax rules?
a) Sinking fund method
b) Written Down Value Method
c) Annuity Method
d) None of the above
Answer (b)

32. Capital A/c is a _______ A/c.
a) Personal
b) Real
c) Nominal
d) None
Answer (a)

33. Cash A/c is a ________ A/c.
a) Personal
b) Real
c) Nominal
d) None
Answer (b)

34. Which is not only a subsidiary book, but also a principal book?
a) Cash book
b) Sales book
c) Purchase book
d) Bills receivable book
Answer (a)

35. The principle “Debit the receiver and credit the giver” is related to_____
a) Personal a/c
b) Real a/c
c) Nominal a/c
d) None
Answer (a)

36. If shares are forfeited, Share Capital a/c is debited with ________
a) Called up face value
b) Face value
c) Paid up face value
d) none of these
Answer (a)

37. Wages paid for erection of machinery is debited to _____
a) Machinery A/c
b) Wages A/c
c) Cash A/c
d) None of these
Answer (a)

38. Share Premium A/c appears in the Balance Sheet under the heading.
a) Current liabilities
b) Reserves & Surplus
c) Miscellaneous expenditure
d) None of the above
Answer (b)

39. The goods or cash taken by the proprietor for his personal use will be debited to _____
a) Expenditure a/c
b) Debtors a/c
c) Drawings a/c
d) None of these
Answer (c)

40. Interest on drawings is a ___ to the business
a) Expenditure
b) Gain
c) Liability
d) Loss
Answer (b)

41.If a product required a great deal of electricity to produce, and crude oil prices increased, which of the following costs most likely increased?

a. Direct materials.

b. Direct labor.

c. Prime costs.

d. Conversion costs.

Ans. d

42. According to the Sarbanes-Oxley Act of 2002, a chief executive officer or chief financial officer who

misrepresents the company's finances may be penalized by being:

a. Fined, but not imprisoned.

b. Imprisoned, but not fined.

c. Removed from the corporate office and fined.

d. Fined and imprisoned.

Ans. d

43. Which of the following items is one of the eight components of COSO's enterprise risk management

framework?

a. Operations.

b. Reporting.

c. Monitoring.

d. Compliance.

Ans. c

44. Which of the following statements is correct regarding the difference between the absorption costing and variable costing methods?

a. When production equals sales, absorption costing income is greater than variable costing income.

b. When production equals sales, absorption costing income is less than variable costing income.

c. When production is greater than sales, absorption costing income is greater than variable costing income.

d. When production is less than sales, absorption costing income is greater than variable costing income.

Ans. c

45. A static budget contains which of the following amounts?

a. Actual costs for actual output.

b. Actual costs for budgeted output.

c. Budgeted costs for actual output.

d. Budgeted costs for budgeted output.

Ans. d

46. Which of the following types of budgets is the last budget to be produced during the budgeting process?

a. Cash.

b. Capital.

c. Cost of goods sold.

d. Marketing.

Ans. a

47. The discount rate is determined in advance for which of the following capital budgeting techniques?

a. Payback.

b. Accounting rate of return.

c. Net present value.

d. Internal rate of return.

Ans. c

48. Which of the following phrases defines the internal rate of return on a project?

a. The number of years it takes to recover the investment.

b. The discount rate at which the net present value of the project equals zero.

c. The discount rate at which the net present value of the project equals one.

d. The weighted-average cost of capital used to finance the project.

Ans. b

49. A company uses its company-wide cost of capital to evaluate new capital investments. What is the

implication of this policy when the company has multiple operating divisions, each having unique risk

attributes and capital costs?

a. High-risk divisions will over-invest in new projects and low risk divisions will under-invest in new projects.

b. High-risk divisions will under-invest in high-risk projects.

c. Low-risk divisions will over-invest in low-risk projects.

d. Low-risk divisions will over-invest in new projects and high risk divisions will under-invest in new

projects.

Ans. a

50. Which of the following inventory management techniques focuses on a set of procedures to determine inventory levels for demand-dependent inventory types such as work-in-process and raw materials?

a. Materials requirements planning.

b. Cycle counting.

c. Safety stock re order point.

d. Economic order quantity.

Ans. a

51. Which of the following systems assists with non routine decisions, serves strategic levels of the

organization, and helps answer questions regarding what a company's competitors are doing, as well as

identifies new acquisitions that would protect the company from cyclical business swings?

a. Executive support system.

b. Decision support system.

c. Transaction processing system.

d. Management information system.

Ans. a

52. Review of the audit log is an example of which of the following types of security control?

a. Governance.

b. Detective.

c. Preventive.

d. Corrective.

Ans. b

53. Which of the following statements presents an example of a general control for a computerized system?

a. Limiting entry of sales transactions to only valid credit customers.

b. Creating hash totals from Social Security numbers for the weekly payroll.

c. Restricting entry of accounts payable transactions to only authorized users.

d. Restricting access to the computer center by use of biometric devices

. Ans. d

54. Which of the following control activities should be taken to reduce the risk of incorrect processing in a newly installed computerized accounting system?

a. Segregation of duties.

b. Ensure proper authorization of transactions.

c. Adequately safeguard assets.

d. Independently verify the transactions.

Ans. d

55. ______ is a measure of what the firm would have earned if it didn't have any obligations to creditors or tax authorities.
A. Net Sales
B. Operating Income
C. Net Income
D. Non-operating Income
E. Earnings Before Interest and Taxes

Ans. E

55. A client would like to implement a management information system that integrates all functional areas within an organization to allow information exchange and collaboration among all parties involved in business operations. Which of the following systems is most effective for this application?

a. A decision support system.

b. An executive support system.

c. An office automation system.

d. An enterprise resource planning system.

Ans. d

56. How does inflation distort reported income?

a. Wages are not reflective of current labor rates.

b. Sales are not reflective of current product prices.

c. Depreciation is not reflective of current fixed-asset replacement costs.

d. Interest expense is not reflective of current borrowing rates.

Ans. c

57. In a large public corporation, evaluating internal control procedures should be the responsibility of:

a. Accounting management staff who report to the CFO.

b. Internal audit staff who report to the board of directors.

c. Operations management staff who report to the chief operations officer.

d. Security management staff who report to the chief facilities officer.

Ans. b

58. A company has several long-term floating-rate bonds outstanding. The company's cash flows have

stabilized, and the company is considering hedging interest rate risk. Which of the following derivative

instruments is recommended for this purpose?

a. Structured short-term note.

b. Forward contract on a commodity.

c. Futures contract on a stock.

d. Swap agreement.

Ans. d

59. 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

Ans D

60. Under Accrual basis of Accounting, transactions are recognized and recorded

A. When they occur

B. Only when Cash or its equivalent is received or paid

C. Both (i) and (ii)

D. None of the above

Ans A

61. An amount which is expected to be settled in the normal operating cycle should be classified as

A. Non current Liability

B. Contingent Liability

C. Current Liability

D. None of the above

Ans C

(62) The need for keeping a record of income and expenditure is a clear and systematic

manner has given rise to the subject of:

(a) Book keeping

(b) Accounting cycle

(d) None of these

Ans a

(63) If proper books of accounts are not kept in a business the amount of profit:

(a) Can be ascertained

(b) Cannot be ascertained

(d) None of these

Ans b

(64) The stage under which transactions are recorded chronologically in the books of

accounts is called:

(a) Summarizing

(b) Classifying

(d) None of these

Ans c

(65) Book-keeping is mainly concerned with:

(a) Recording of a financial data relating to business transactions

(b) Designing the systems in recording, classifying, summarizing the recorded data

(d) None of these

Ans a

(66) The term expenses and expenditure are:

(a) Same in nature

(b) Different in nature

(d) None of these

Ans a

(67) When goods are given away as charity or free samples, the purchases account should

be:

(a) Debited

(b) Credited

(d) None of these

Ans b

(68) The sale of a business asset on credit is recorded in:

(a) Sales journal

(b) General journal

(d) None of these

Ans b

(69) The discount account is a:

(a) Personal account

(b) Real account

(d) Asset account

(e) None of these

Ans c

(70) The payment side of the cash book is under cost by Rs. 200 when overdraft as per

bank statement is the starting point:

(a) Rs 200 will be deducted

(b) Rs 200 will be added

(d) Rs 400 will be deducted

Ans b

(71) All the direct expenses are charged to:

(a) Balance sheet

(b) Profit and Loss account

(d) None of these

Ans c

(72) Those liabilities which arise only on the happening of some event, are called:

(a) Current liabilities

(b) Contingent liabilities

(d) Fixed liabilities

Ans b

(73) Marshalling of balance sheet means:

(a) The ordering of its assets and liabilities

(b) The totaling of its assets and liabilities

(d) None of these

Ans a

(74) Commission received in advance is to be considered as:

(a) Outstanding expense

(b) Accrued income

(d) Unearned income

Ans d

(75) The provision for discount on creditors is often not provided in keeping with the

principle of:

(a) Materiality

(b) Consistency

(d) Realization

Ans c

(76) Which one of the following is not considered the permanent part of the accounting

record:

(a) Journal

(b) Trial Balance

(d) Final accounts

Ans b

(77) A working paper which is prepared by the accountant for his own convenience is

called:

(a) Work sheet

(b) Cash flows statement

(d) Final accounts

Ans a

(78) Any expenditure incurred to increase the profit earning capacity of the concern is a:

(a) Revenue expenditure

(b) Capital expenditure

(d) Capital expenditure

Ans a

(79) Depreciation on fixed assets is an example of:

(a) Revenue expenditure

(b) Capital expenditure

(d) None of these

Ansb

(80) The capital receipts are shown in the balance sheet on the:

(a) Liability

(b) Asset side

(d) None of these

Ans a

(81) Error due to wrong allocation as expenditure between capital and revenue is

regarded as:

(a) Error of omission

(b) Error of principle

(d) Error of commission

Ans b

(82) The purchase of machinery on account would

(a) Increase an asset and decrease another asset

(b) Increase an asset and decrease liability

(d) Decrease an asset and increase liability

Ans c

(83) In general, the accounts in the income statement are known as:

(a) Real account

(b) Contra asset

(d) Unrecorded revenue account

Ans c

84) In general terms, financial assets appear in the balance sheet at:

(a) Face value

(b) Current cash value

(d) Estimated future sales value

Ans a

(85) A limited Co. sold marketable securities cost Rs. 80,000 for Rs. 92,000 cash.

In Co.’s income statement and statement of cash flows respectively, this will

appear as:

(a) A Rs. 12,000 gain and Rs. 92,000 cash receive

(b) A Rs. 92,000 gain and Rs. 8,000 cash receive

(d) A Rs. 92,000 sales and Rs. 92,000 cash receive

Ans a

(86) Which of the following is least important as a measure of short term liquidity?

(a) Debtor ratio

(b) Current ratio

(d) Quick ratio

Ans c

(87) Apex Ltd. Net income was Rs. 4,00,000 in 2003 and Rs. 1,60,000,in 2004.

What percentage increase in net income must achieve in 2005 to off set the

decline in profits in 2004?

(a) 60%

(b) 150%

(d) 70%

Ans b

(88) Which of the following does not describe accounting?

(a) Language of Business

(b) Is an end rather than a mean to an end

(d) Used by business government, nonprofit organizations and individuals.

Ans b

(89) External uses of financial accounting information include all of the following

except:

(a) Investors

(b) Labour unions

(d) General public

Ans c

(90) A fixed budget is:

(a) A budget for single level of activity

(b) A budget which ignored inflation

(d) An overhead cost budget

Ans a

(91) Heavy expenditure on advertisement of a new product is a:

(a) Capital expenditure

(b) Revenue expenditure

(d) None of these

Ans c

(92) Subscriptions received in advance is:

(a) An income

(b) An asset

(d) A loss

Ans c

(93) At the time of admission of a new partner, goodwill raised should be written off

in:

(a) New profit sharing ratio

(b) Old profit sharing ratio

(d) Gaining ratio

Ans b

(94) A and B are partners in the ratio of 2:1. They admit C for ¼ shares who

contributes Rs. 3000 for his share of goodwill. The total value of the goodwill of the

firm is:

(a) Rs. 3,000

(b) Rs. 9,000

(d) Rs. 15,000

Ans c

(95) Sales to Mustafa of Rs. 10,000 not recorded in the books would affect:

(a) Sales account

(b) Mustafa account

(d) None of these

Ans c

(96) Depreciation is a process of:

(a) Valuation

(b) Allocation

(d) None of these

Ans b

(97) Loss on sale of an asset should be written off against:

(a) Share premium account

(b) Sales account

(d) None of these ( P & L A/C Dr and Fixed Asset Cr )

Ans d

(98) Income and expenditure account reveals

(a) Cash in hand

(b) Surplus or deficiency

(d) None of these

Ans b

(99) Which of the following is true regarding the work sheet.

(a) It is the form, which an accountant uses for his own aid and convenience.

(b) It assists in the orderly preparation of the adjustments and financial statements at

the end of the account period.

(d) Only a & b are true

Ans d

(100) The post closing trial balance will:

(a) Contain only income statement accounts

(b) Contain only balance sheet accounts

(d) Be prepared before closing entries are posted to the ledger

Ans b

(101) The cost of goods and services used up in the process of obtaining revenue are

called:

(a) Net income

(b) Revenue

(d) Liabilities

Ans a

(102) Which of the following best describes the nature of an asset?

(a) Something with a ready market value

(b) An economic resource, which will provide some

future benefits, owned by a business.

(d) None of these

Ans b

(103) A balance sheet is prepared to find out financial position of a

firm:

(a) For a specified period

(b) On a particular date

(d) None of these

Ans b

(104) The preparation of work sheet:

(a) Constitutes creation of a formal financial statement

(b) Eliminates the need for entering adjusting entries in the journal

closing entries

(d) None of these

Ans d

(105) Assets would be overstated if necessary adjusting entry was

omitted for:

(a) Expired Insurance

(b) Accrued Salaries

(d) None of these

Ans b

(106) The book value of the depreciable asset is best defined as:

(a) The un-depreciated cost of the asset

(b) The price that the asset would fetch if offered for sale

(d) None of these

Ans a

(107) Which of the following is not an intangible asset?

(a) A patent

(b) A trademark

(d) None of these

Ans c

(108) A company has current ratio of 2 to 1 at the end of year 1.

Which one of the following transactions will increase this ratio?

(a) Sales of bonds payable at a discount

(b) Declaration of a 20% cash dividend

(d) None of these

Ans a

(109) If sales increase by 10% from year 1 to 2 and cost of goods

sold increases only 6%, the gross profit on sales will increase by:

(a) 4%

(b) 10%

(d) None of these

Ans a

(120) Which of the following is not an acceptable inventory method?

(a) Lower of cost or market

(b) Sales value

(d) None of these

Ans b

(121) which of the following amounts appears in both the income

statement and balance sheet?

(a) Net Income

(b) Accumulated depreciation

(d) None of these

Ans a

(122) Both the accounts for depreciation expense and accumulated

depreciation:

(a) Are closed at the end of the period

(b) Appear in the Adjusted Trial Balance Columns of the worksheet

(d) None of these

Ans c

(123) When a partnership is liquidated:

(a) Any cash distribution to partners is allocated according to the

profit and loss sharing ratio.

(b) Cash is distributed to each partner according to his or her

capital account balance before the sale of partnership assets.

divided among the partners according to their relative

account balances.

(d) None of these

Ans c

(124) In projecting the future profitability of a trading company,

investors will be least concerned with changes in:

(a) The gross profit rate

(b) The quick ratio

(d) None of these

Ans b

(125) Revenue is most commonly recognized at the time when:

(a) Cash is collected

(b) The order is received from customers

(d) None of these

Ans c

(126) Which of the following list of accounts is used to compute the

cost of goods sold?

(a) Purchases, inventory, and sales returns.

(b) Gross profit, purchase returns and carriage inward.

(d) none of these

Ans c

(127) which of the following is ascertained by drawing up an income

and expenditure account?

(a) Cash in hand

(b) Surplus or Deficiency

(b) Capital Fund

(d) none of these

Ans b

(128) On April 1, Harish & Company received and paid a Rs.700 bill

for the advertising done in March. In addition to this bill the

company paid Rs. 6,100 during April for expenses incurred in that

month. Harish & Company paid Rs.3,600 as salary to employees

for work done in April. Based on these facts, total expenses for the

month of April were:

(a) Rs.6,100

(b) Rs.6,800

(d) None of these

(Bill of march Rs 6100 + Salary exp Rs 3600= Rs 9700 )

Ans d

(129) Which of the following categories of accounts are closed at the

end of an accounting period?

(a) Temporary accounts

(b) Permanent accounts

(d) None of these

Ans a

(130) A retail store had current assets of Rs.72,000 and a current

ratio of 2 to 1. The amount of working capital must have been:

(a) Rs.144,000

(b) Rs.108,000

(d) None of these

Ans b

(131) Bond holders would be most interested in which of the

following?

(a) Quick ratio

(b) Inventory turnover

(d) None of these

Ans c

132. Identify the item that is likely to serve as source document:

a. Trial balance

b. Income statement

c. Balance sheet

d. Invoice from supplier

Ans d

133. Identify which of the normal balances (in parentheses) assigned to the

following accounts is incorrect:

a. Office supplies (Debit)

b. Cash (Debit)

c. Wages payable (Credit)

d. Fee earned (Debit)

Ans d

134. The formula (Cost less salvage value/Total capacity in units x units extracted)

refers to which depreciation method:

a. Straight line

b. Units of production

c. Declining balance

d. Depletion

Ans b

135. While passing adjusting entries for what type of transactions expenses are

debited and assets are credited:

a. Accrued revenue

b. Accrued expenses

c. Unearned Revenue

d. Prepaid Revenue

Ans d

136. Of the following statements, which one is untrue for the corporate form of

organization:

a. It is a separate legal entity

b. It has a limited life

c. Income that is distributed to owners is usually taxed twice

d. Ownership rights can be easily transferred

Ans b

137 For each transaction, double-entry accounting requires which of the

following:

a. Debits to asset accounts must create credits to liability or equity accounts

b. A debit to a liability account must create a credit to an asset accounts

c. Total debits must equal total credits

d. None of these

Ans a

138. When costs are rising, which method reports higher net income:

a. LIFO

b. FIFO

c. Average

d. The most recent purchase price

Ans b

139. A transaction caused Rs. 20,000 decrease in both total assets and total

liabilities. This transaction could have been:

a. Purchase of an asset for Rs. 20.000 cash

b. Asset costing Rs. 20,000 destroyed by fire

c. Repayment of Rs. 20,000 bank loan

d. Collection of Rs. 20,000account receivable

Ans c

140. What percentage of profit a bank has to transfer to statutory reserve until it

inflates to paid-up capital of the bank:

a. 5%

b. 10%

c. 20%

d. 25%

Ans a

141. Identify the correct answer with regards to depreciation expense:

a. Is an application of the matching principle?

b. Is a closing entry?

c. Usually includes an offsetting credit either to cash or accounts payable.

d. Is not an adjusting entry?

Ans a

142. Comparison of a company’s financial condition and performance across time

is a:

a. Ratio analysis

b. Horizontal analysis

c. Vertical analysis

d. None of these

Ans c

143. Income and expenditure account in a non trading institution records

transaction of:

a. Revenue nature only

b. Capital nature only

c. Both (a) & (b)

d. Income of revenue nature and expenditure of revenue and capital nature

Ans a

144. At the time of admission of a new partner, goodwill raised should be written

off in:

a. New profit sharing ratio

b. Old profit sharing ratio

c. Sacrificing ratio

d. Gaining ratio

Ans b

145. A and B are partners in the ratio of 2:1. They admit C for ¼ shares who

contribute Rs. 3000 for his share of goodwill. Total value of the goodwill of the

firm is:

a. Rs. 3000

b. Rs. 9000

c. Rs. 12000

d. 15000

Ans c

146. Second hand machinery worth Rs. 10, 000 was purchased, repairing of the

machinery cost Rs. 1,000. The machinery was installed by own workers. Wage

for this being Rs. 200, the machinery account should be debited for:

a. Rs. 10,000

b. Rs. 11,000

c. Rs. 11,200

d. None of these

Ans c

147. If net sales Rs. 100,000 cost of goods sold Rs. 55,000, administrative expenses

Rs. 5300, selling expenses Rs. 4375, Interest expense Rs. 500, the operating profit

is:

a. Rs.35325 (operating profit does not inclue interest income/expense and Taxes))

b. Rs.45000

c. Rs.39700

d. Rs.34825

Ans a

148. Which of the ratio best reflects a company’s ability to meet immediate

interest payment?

a. Debit ratio

b. Equity ratio

c. Times interest earned

d. None of these

Ans c

149. Identify which items are subtracted from the list amount and not recorded

when computing purchase price:

a. Freight in

b. Trade discount

c. Purchase discount

d. Purchase return

Ans b

150. Bonus payable only on the maturity of the policy is termed as:

a. Cash bonus

b. Reversionary bonus

c. Interim bonus

d. Bonus is reduction of premium

Ans d

151. Rebate on bill discounted (unearned discount) is:

a. An expense

b. An income

c. A liability

d. An asset

Ans c

152. Proceeds from a company's sale of stock to the public are included in ________.
A. par value
B. additional paid-in capital
C. retained earnings
D. A and B
E. A, B, and C

Ans d

153. Which of the financial statements recognizes only transactions in which cash changes hands?
A. Balance Sheet
B. Income Statement
C. Statement of Cash Flows
D. A and B
E. A, B, and C

Ans c

154. Suppose that Chicken Express, Inc. has a ROA of 7% and pays a 6% coupon on its debt. Chicken Express has a capital structure that is 70% equity and 30% debt. Relative to a firm that is 100% equity-financed, Chicken Express's Net Profit will be ________ and its ROE will be ________.
A. lower, lower
B. higher, higher
C. higher, lower
D. lower, higher
E. It is impossible to predict.

Ans d

155. The P/E ratio that is based on a firm's financial statements and reported in the newspaper stock listings is different from the P/E ratio derived from the dividend discount model (DDM) because
A. the DDM uses a different price in the numerator.
B. the DDM uses different earnings measures in the denominator.
C. the prices reported are not accurate.
D. the people who construct the ratio from financial statements have inside information.
E. They are not different - this is a "trick" question.

Ans b

156. Economic value added (EVA) is also known as
A. excess capacity.
B. excess income.
C. value of assets.
D. accounting value added.
E. residual income

Ans e

157. Which of the following are issues when dealing with the financial statements of international firms?
I) Many countries allow firms to set aside larger contingency reserves than the amounts allowed for U.S. firms.
II) Many firms outside the U.S. use accelerated depreciation methods for reporting purposes, whereas most U.S. firms use straight-line depreciation for reporting purposes.
III) Intangibles such as goodwill may be amortized over different periods or may be expensed rather than capitalized.
IV) There is no way to reconcile the financial statements of non-U.S. firms to GAAP.
A. I and II
B. II and IV
C. I, II, and III
D. I, III, and IV
E. I, II, III, and IV

Ans c

158. To create a common size income statement ____________ all items on the income statement by ____________.
A. multiply; net income
B. multiply; total revenue
C. divide; net income
D. divide; total revenue
E. multiply; COGS

Ans d

159. To create a common size balance sheet ____________ all items on the balance sheet by ____________.
A. multiply; owners equity
B. multiply; total assets
C. divide; owners equity
D. divide; total assets
E. multiply; debt

Ans d

160. Common size financial statements make it easier to compare firms ____________.
A. of different sizes
B. in different industries
C. with different degree of leverage
D. that use different inventory valuation methods (FIFO vs. LIFO)
E. none of the above

Ans a

161. Common size income statements make it easier to compare firms ____________.

a. that use different inventory valuation methods (FIFO vs. LIFO)
b. in different industries
c. with different degree of leverage
d. of different sizes
e. none of the above

Ans d

162. Common size balance sheets make it easier to compare firms ____________.
A. with different degree of leverage
B. of different sizes
C. in different industries
D. that use different inventory valuation methods (FIFO vs. LIFO)
E. none of the above

Ans b

163. If a firm has "goodwill" recorded on its balance sheet it must have ____________.
A. donated to charity
B. participated in a benefit for a charitable cause
C. participated in a company-wide fund raising drive for a charity
D. acquired another firm
E. none of the above

Ans d

164. Which of the following statements concerning acquisitions are correct?

I. Being acquired by another firm is an effective method of replacing senior management.

II. The net present value of an acquisition should have no bearing on whether or not the acquisition occurs.

III. Acquisitions are often relatively complex from an accounting and tax point of view.

IV. The value of a strategic fit is easy to estimate using discounted cash flow analysis.

a. I and III only

b. II and IV only

c. I and IV only

d. I, III, and IV only

e. I, II, III, and IV

Ans.d

165. Which of the following activities are commonly associated with takeovers?

I. the acquisition of assets

II. proxy contests

III. management buyouts

IV. leveraged buyouts

a. I and III only

b. II and IV only

c. I, III, and IV only

d. I, II, and IV only

e. I, II, III, and IV

Ans.c

166 . A proposed acquisition may create synergy by:

I. increasing the market power of the combined firm.

II. improving the distribution network of the acquiring firm.

III. providing the combined firm with a strategic advantage.

IV. reducing the utilization of the acquiring firm's assets.

a. I and III only

b. II and III only

c. I and IV only

d. I, II, and III only

e. I, II, III, and IV

Ans.

167. Which of the following represent potential tax gains from an acquisition?

I. a reduction in the level of debt

II. an increase in surplus funds

III. the use of net operating losses

IV. an increased use of leverage

a. I and IV only

b. II and III only

c. III and IV only

d. I and III only

e. II, III, and IV only

Ans. a

168. Which of the following represent potential gains from an acquisition?

I. the replacement of ineffective managers

II. lower costs per unit produced

III. an increase in firm size so that diseconomies of scale are realized

IV. spreading of overhead costs

a. II and III only

b. I and IV only

c. I, II, and IV only

d. I, III, and IV only

e. I, II, III, and IV

Ans. d

169. Which of the following are reasons why a firm may want to divest itself of some of its assets?

I. to raise cash

II. to get rid of unprofitable operations

III. to get rid of some assets received in an acquisition

IV. to cash in on some profitable operations

a. I and II only

b. I, II, and III only

c. I, III, and IV only

d. II, III, and IV only

e. I, II, III, and IV

Ans. c

170. Match List-I with List-II and select the

correct answer :

List – I List – II

(i) Measurement of income (a) Accrues to the equity of owners

(ii) Recognition of expense (b) Recognition of revenue

(iii) Basis of realization (c) Matching revenue with expenses

(iv) Identification of revenue (d) Accounting period

Codes :

(i) (ii) (iii) (iv)

(A) (a) (b) (c) (d)

(B) (b) (a) (c) (d)

(D) (c) (d) (b) (a)

Ans. d

171. Match List – I with List – II and select the correct answer using the codes given below the lists :

List – I List – II

(a) Goodwill of a company (i) Current liability

(b) Overdraft (ii) Fixed Assets

(d) Premium on Issue of Shares (iv) Fictitious

Assets

Codes :

(a) (b) (c) (d)

(a) (ii) (i) (iv) (iii)

(b) (i) (ii) (iv) (iii)

(d) (ii) (i) (iii) (iv)

Ans. a

172. Consider the following items :

(i) Debentures

(ii) Prepaid rent

(iii) Interest accrued

(iv) Bank overdraft

Which of them are current liabilities ?

(A) (i), (ii), (iii) and (iv)

(B) (iv)

(D) (i), (ii) and (iii)

Ans. b

173. (A) Assertion : Premium received on issue of shares is credited to share premium account but not to Profit and Loss account.

(R) Reasoning : Since share premium is not a trading profit, it is not distributed to shareholders.

(A) Both (A) and (R) are true but (R) is not correct explanation to (A).

(B) (A) is false but (R) is correct.

(D) (A) is correct but (R) is false.

Ans. c

174. (A) Assertion : Premium received on ssue of shares is credited to share premium account but not to Profit and Loss account.

(R) Reasoning : Since share premium is not a trading profit, it is not distributed to shareholders.

(A) Both (A) and (R) are true but (R) is not correct explanation to (A).

(B) (A) is false but (R) is correct.

(D) (A) is correct but (R) is false.

Ans. c

175. Consider the following :

(i) Basic defensive and interval ratio

(ii) Current ratio

(iii) Superquick ratio

(iv) Quick ratio

Arrange these ratios in sequence to reflect the liquidity in descending order.

(A) (ii), (iv), (iii) and (i)

(B) (i), (ii), (iv) and (iii)

(D) (iii), (iv), (i) and (ii)

Ans. a

176. Match the following with most suitable option :

(a) Modigiliani- Millern Approach (i) Commercial papers

(b) Net Operating Income Approach (ii) Working Capital Management

(d) Factoring (iv) Arbitrage

Codes :

(a) (b) (c) (d)

(A) (iv) (iii) (i) (ii)

(B) (iii) (iv) (i) (ii)

(D) (iii) (ii) (iv) (i)

Ans. b

177. Read the following events :

(i) Allowing convertibility of rupee

at the market rate in the current

account

(ii) Nationalisation of general

insurance business

(iii) Establishment of IDBI

(iv) Nationalisation of life insurance

business

(v) Capital adequacy norms for

commercial banks

Arrange the events in the ascending

order of their occurrence :

(A) (iv), (iii), (ii), (i), (v)

(B) (v), (iv), (iii), (ii), (i)

(D) (i), (v), (ii), (iv), (iii)

Ans. a

178. Match List I with List II and select the correct answer using the codes given below the lists

LIST I LIST II

( Names of accounting ratios) ( Nature of accounting ratios )

A. Capital gearing ratio 1. Revenue statement ratio

B. Stock Velocity ratio 2. Coverage ratio

C. Debtors Velocity ratio 3. Market Price ratio

D. Dividend Yield ratio 4. Balance Sheet ratio

5. Balance Sheet and Revenue Statement combined ratio

Codes:

A B C D

A. 4 1 5 3

B. 5 4 2 1

C. 1 5 4 2

D. 3 2 5 1

Ans. D

179. Match List I with List II and select the correct answer using the codes given below the lists

LIST I LIST II

A. Balance of debenture redemption fund account 1. Realisation account

B. Balance of sinking fund account for the replace-

ment of an asset 2. Fund Flow statement

C. On dissolution of a firm the provisions made for doubtful

Debts appearing in balance sheet 3. General Reserve

D. Financial consequences of business operation 4. Asset Account

Codes:

A B C D

A. 1 2 3 4

B. 3 4 1 2

C. 1 2 4 3

D. 3 4 2 1

Ans. A

180. Match List I with List II and select the correct answer using the codes given below the lists

LIST I LIST II

A. Loss on realization 1. Debit partner’s Capital A/c

B. Profit on realization 2. Credit realization A/c

C. Assets sold 3. Credit Partner’s Capital A/c

D. Creditors paid 4. Debit realization A/c

Codes:

A B C D

A. 1 3 2 4

B. 3 1 2 4

C. 3 1 4 2

D. 1 3 4 2

Ans. C

181. Match List – I with List – II and select the correct answer using the codes given below the lists :

List – I List – II

(a) Goodwill of a company (i) Current liability

(b) Overdraft (ii) Fixed Assets

(d) Premium on Issue of Shares (iv) Fictitious

Assets

Codes :

(a) (b) (c) (d)

(a) (ii) (i) (iv) (iii)

(b) (i) (ii) (iv) (iii)

(d) (ii) (i) (iii) (iv)

Ans. a

182. Identify the true statement of the

following :

(i) Balance Sheet is always prepared from the point of view of the business but not from that of the owners.

(ii) The financial relationship of the business to its owners is shown in the Balance Sheet.

(iii) Balance Sheet is always related to a period of time.

Codes :

(a) (i) and (ii)

(b) (ii) and (iii)

(d) (i), (ii) and (iii)

Ans. a

183. Match List – I with List – II and select the correct answer using the codes given below the lists :

LIST I LIST II

A. Heavy amount of premium on 1. Capital expenditure

Redemption of preference shares

B. Excess of sale proceeds of fixed assets 2. Deferred revenue expenditure

Over their original cost

C. Cost of installation of an old machine 3. Capital gain

D. Freight paid on purchase of raw 4. Revenue expenditure

Material

Codes:

A B C D

A 2 3 4 1

B 3 2 4 1

C 2 3 1 4

D 3 2 1 4

Ans. A

184. (A) Assertion : Premium received on

issue of shares is credited to

share premium account but not to

Profit and Loss account.

(R) Reasoning : Since share premium

is not a trading profit, it is not

distributed to shareholders.

(A) Both (A) and (R) are true but (R)

is not correct explanation to (A).

(B) (A) is false but (R) is correct.

is correct explanation of (A).

(D) (A) is correct but (R) is false.

Ans. C

185. Match the following with most suitable

option :

(a) Modigiliani-Miller Approach (i) Commercial papers

(b) Net Operating Income Approach (ii) Working Capital Management

Instrument (iii) Capital Structure

(d) Factoring (iv) Arbitrage

Codes :

(a) (b) (c) (d)

(A) (iv) (iii) (i) (ii)

(B) (iii) (iv) (i) (ii)

(D) (iii) (ii) (iv) (i)

Ans. B

186. Read the following events :

(i) Allowing convertibility of rupee

at the market rate in the current

account

(ii) Nationalisation of general

insurance business

(iii) Establishment of IDBI

(iv) Nationalisation of life insurance

business

(v) Capital adequacy norms for

commercial banks

Arrange the events in the ascending

order of their occurrence :

(A) (iv), (iii), (ii), (i), (v)

(B) (v), (iv), (iii), (ii), (i)

(D) (i), (v), (ii), (iv), (iii)

Ans. A

187. The provisions of General Reserve in

Banking Companies are made keeping

in view the provisions of

(A) Indian Companies Act, 1956

(B) Banking Companies Act, 1949

(D) Statutory Auditor

Ans. B

188. Which among the following is not true

with regard to merchant banker ?

(i) It can accept deposits.

(ii) It can advance loans.

(iii) It can do other banking activities.

(iv) It can be manager to a public

issue.

(A) (i), (ii) and (iii)

(B) (ii), (iii) and (iv)

(D) (ii) and (iv)

Ans. A

189. Balance of Payments can be made

favourable if

(A) Exports are increased

(B) Imports are increased

(D) (A) and (C)

Ans. D

190. Which one is not an objective of IMF ?

(A) To promote international

monetary co-operation

(B) To ensure balanced international

trade

according to peace-time

requirement

(D) To ensure exchange rate stability

Ans. C

191. Read the following events :

(i) Allowing convertibility of rupee

at the market rate in the current

account

(ii) Nationalisation of general

insurance business

(iii) Establishment of IDBI

(iv) Nationalisation of life insurance

business

(v) Capital adequacy norms for

commercial banks

Arrange the events in the ascending

order of their occurrence :

(A) (iv), (iii), (ii), (i), (v)

(B) (v), (iv), (iii), (ii), (i)

(D) (i), (v), (ii), (iv), (iii)

Ans. A

192. Which one is not an important

objective of Financial Management ?

(A) Profit Maximisation

(B) Wealth Maximisation

(D) Maximisation of social benefits

Ans. D

193. Which one refers to cash inflow under

payback period method ?

(A) Cash flow before depreciation

and taxes

(B) Cash flow after depreciation and

taxes

before taxes

(D) Cash flow before depreciation

and after taxes

Ans. B

194. Consider the following items :

(i) Debentures

(ii) Prepaid rent

(iii) Interest accrued

(iv) Bank overdraft

Which of them are current liabilities ?

(A) (i), (ii), (iii) and (iv)

(B) (iv)

(D) (i), (ii) and (iii

Ans. B

195. Match List-I with List-II and select the

correct answer :

List – I List – II

(i) Measurement of income (a) Accrues to the equity of owners

(ii) Recognition of expense (b) Recognition of revenue

(iii) Basis of realization (c) Matching revenue with expenses

(iv) Identification of revenue (d) Accounting period

Codes :

(i) (ii) (iii) (iv)

(A) (a) (b) (c) (d)

(B) (b) (a) (c) (d)

(D) (c) (d) (b) (a)

Ans. D

196. If an employer transfers second hand motor car to the employee, the perquisite is valued at -

(a) Actual cost less depreciation @ 30% for every completed year under straight line method

(b) Actual cost less depreciation @ 20% for every completed year under WDV method

(d)Actual cost less depreciation @ 20% for every completed year under SLM method.

Ans. (b)

197. When the management and/or a small group of investors take over a firm and the shares of the firm are delisted and no longer publicly available, this action is known as a:

a. consolidation.

b. vertical acquisition.

c. proxy contest.

d. going-private transaction.

e. None of the above.

Ans. c

198. Broad Money has to be sensitized

through :

(A) CRR

(B) SLR

(D) All of the above

Ans. D

199. In India, which of the following is prepared on the guidelines of AS-3 (Accounting Standard – 3) ?

(A) Balance Sheet of a Company

(B) Funds Flow Statement

(D) Consolidated Financial Statement

Ans. c

200. Match List – I with List – II and select the correct answer using the codes given below the lists :

List – I List – II

(a) Goodwill of a company (i) Current liability

(b) Overdraft (ii) Fixed Assets

(d) Premium on Issue of Shares (iv) Fictitious

Assets

Codes :

(a) (b) (c) (d)

(a) (ii) (i) (iv) (iii)

(b) (i) (ii) (iv) (iii)

(d) (ii) (i) (iii) (iv)

Ans. a

201. Arrange the following in the order of their inception :

(i) WTO

(ii) World Bank

(iii) SAFTA

(iv) ADB

Code :

(A) (ii) (iv) (i) (iii)

(B) (iii) (i) (iv) (ii)

(D) (i) (iv) (iii) (ii)

Ans. a

202. Match the following :

List - I List - II

(a) Capital Market (i) IRDA

(b) Monetary Policy (ii) SEBI

(d) Insurance (iv) TRAI

Code :

(a) (b) (c) (d)

(A) (ii) (iii) (i) (iv)

(B) (ii) (iii) (iv) (i)

(D) (ii) (i) (iv) (iii)

Ans. a

203. Match the following :

List - I List - II

(Name of the Bank) (Year of Establishment)

(a) SBI (i) 1990

(b) SIDBI (ii) 1955

(d) EXIM BANK (iv) 1982

Code :

(a) (b) (c) (d)

(A) (ii) (i) (iii) (iv)

(B) (i) (ii) (iv) (iii)

(D) (ii) (i) (iv) (iii)

Ans. d

204. Match the following two lists of

statements.

List – I List – II

I. Rate at which RBI gives loans to

Commercial Banks by discounting bills 1. Bank rate

II. Rate at which RBI borrows from

Commercial Banks 2. Repo rate

3. Prime lending rate

Codes :

I II

(A) 3 1

(B) 2 1

(D) 3 2

Ans. c

205. Which one of the following is not matched ?

List – I List – II

(a) Interest is a deductible expense (i) Cost of debt capital

(b) Realised yield approach (ii) Cost of equity capital

(d) Dividend capitalization approach (iv) Cost of preference share capital

Codes :

(A) (a) and (i)

(B) (b) and (ii)

(D) (d) and (iv)

Ans. d

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