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Practice Paper
ACCOUNTING AND FINANCE
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Accounting and Finance: Practice Paper
1. Which of the following item is not included while preparing cost sheet?
a. Carriage Inward b. Sale commission
c. Cash Discount Paid d. Depreciation on Machinery
e. Property tax on Factory Building
2. Which of the following is true with respect to the different types of cost?
i. In a furniture manufacturing unit, teak wood is direct material, while items like the nails, fevicol can
be treated as indirect materials.
ii. In a furniture manufacturing unit, the cost of worker who directly expend his energy on the direct
material is considered as direct labor whereas the superior who is in charge of overseeing the work is
considered as indirect labor.
iii. In a furniture manufacturing unit, factory lighting, rent of the factory, rent of administrative building
are considered as overheads.
a. Only i b. Only i and ii.
c. Only i and iii d. Only ii and iii
e. All of the above I
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3. Depending upon the purpose to be achieved and requirements of a particular concern, costs is classified
into different categories. The different category and the examples are given below. The option which is
correct is
5. The books of Kanak Enterprise Ltd. showed the following data for the month of January 2014:
i. Meet sudden demands for funds, which may arise due to large payments and remittances.
ii. Meet the Cash Reserve Ratio.
iii. Fill the temporary gaps or mismatches that arise due to lending and deposition.
8. Which of the following statements is/are true with respect to call rates?
i. In the money market call rates are quoted on the annualized basis.
ii. The rate of interest on call money is calculated on daily basis.
iii. Low call rates indicate tightness of liquidity in the financial system.
iv. Call rate is influenced by forces of supply of and demand for funds.
a. Only ii b. Only iv
c. Both i and ii d. i, ii and iv
e. All i, ii, iii and iv
9. The correct option for these instruments will be
iii. It is an order to buy or sell securities at the best price obtainable at the time of entering the order.
13. Which of the following statements is/are true with respect to the credit function of the Indian financial
system?
i. It involves mobilizing of savings in a way to provide potential profit and low risk outlet.
ii. It ensures a smooth flow of funds from savings into investments in order to stabilize the economy.
iii. It ensures the transformation of savings to necessary credit for investment and spending purposes.
incurred?
a. Uncontrollable costs b. Normal costs
c. Joint costs d. Out-of-pocket costs
e. Incremental costs
16. Which of the following is the technique of costing in which all direct costs and manufacturing overheads
are considered as a part of cost of the product?
a. Direct costing b. Manufacturing and Production cost
c. Cost Center d. Absorption Costing
e. Cost Behavior
18. Which of the following items should not be deducted from the gross profit to arrive at the net profit for
calculation of Managerial Remuneration?
a. Any tax notified by the Central Government as being in the nature of a tax on excess or abnormal
profit
b. Any tax on business profits imposed for special reasons or in special circumstances and notified by
Central Government in this behalf.
c. Interest on unsecured loans and advances.
d. Any compensation, damages or payments made voluntarily.
e. Bad debt written-off or adjusted during the year.
19. The following data is extracted from the books of Sarovar Ltd. for the year ended March 31, 2013:
Particulars Rs.
Gross profit 75,000
Salaries and wages 22,000
Printing and stationery 3,000
Rent paid 12,000
Insurance 3,700
Carriage outward 2,500
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The Manager of the company is entitled to a commission of 6% on net profit after charging his
commission. The commission payable to the Manager for the year ended March 31, 2013 was
a. Rs.1,800 b. Rs.1,668
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c. Rs.2,366 d. Rs.1,908
e. Rs.1,574
20. The directors of a company have proposed a dividend of 18% of the paid-up capital. The percentage of
profits which will have to be compulsorily transferred to reserves is
a. 2.5% b. 5.0%
c. 7.5% d. 20.0%
e. 12.5%
21. Who among the following is an external user of ‘Financial Statements’?
a. Board of Directors b. Partners
c. Investors d. Managers
e. Officers
22. T-Bills are issued for a minimum of ______ days and a maximum of ______ days.
a. 14 and 28 b. 14 and 91
c. 14 and 182 d. 14 and 364
e. 14 and 365
Multiple Choice Questions
23. Which of the following statements are true with respect to Working Capital Turnover?
i. It is also known as working capital to sales ratio.
ii. Very high and very low turnover values indicate the symptoms of under-trading and over trading.
iii. Given the profit margins, sales and net fixed assets, the lower the turnover the higher will be the rate
of return on net operating capital employed.
iv. Higher the turnover, the better for the company.
a. Both (I) and (II) above b. Both (II) and (III) above
c. Both (II) and (IV) above d. (I), (II) and (IV) above
e. (II), (III) and (IV) above
24. Which of the following statements is not true with respect to factors affecting the composition of working
capital?
a. Purely trading organizations have finished goods inventory, accounts receivable and cash as current
assets and accounts payable as current liabilities.
b. The nature of major raw material used in manufacture of finished goods will greatly influence the
quantum of raw material inventory.
c. In capital goods manufacturing company, the demand of whose product is growing over time, the
tendency will be to have high inventory of raw materials and components.
d.
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Unlike Travel Agency firms, manufacturing and trading companies mainly has accounts receivable
and some amount of cash as current assets.
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e. Capital goods manufacturing and trading companies will have a high proportion of current assets in
the form of inventory of raw materials components and work-in-progress.
25. Which of the following will cause a decrease in the net operating cycle of a firm?
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a. Increase in the average collection period b. Increase in the average payment period
c. Increase in the finished goods storage period d. Increase in the raw materials storage period
e. Increase in the work-in-progress period.
26. Which of the following statements is true with respect to the mobilization of funds by a finance manager?
a. Analysis of variance between the targeted costs and actual costs incurred and reporting on the same.
b. Assessing the costs and benefits of a project under consideration
c. Interacting with banking agencies for procuring funds
d. Appraisal of investment proposals given by various departments
e. Deciding the optimum quantity of raw materials to be ordered for procurement.
27. Which of the following statements is/are true?
i. Effective rate of interest is always lower than the nominal interest rate. II.
ii. The effective rate of interest increases with increase in the frequency of compounding.
iii. The effective and nominal interest rates are equal if the frequency of compounding is one.
28. Mr. Joseph has taken a loan of Rs.10, 00,000 to be repaid in 60 equal monthly installments. The rate of
interest is 12% p.a. What is the monthly installment paid by Mr. Joseph?
a. Rs.15,531 b. Rs.16,237
c. Rs.18,721 d. Rs.20,985
e. Rs.22,244
29. Consider the following data regarding Rucha Ltd., for the year 2012-13:
Cost of goods sold : Rs.39, 00,000
Gross profit margin : 25%
Average receivables turnover ratio : 52 : 15
Quick assets : Rs.18, 00,000
The cash balance was
a. Rs.2,75,000 b. Rs.3,00,000
c. Rs.6,00,000 d. Rs.9,00,000
e. Rs.9,56,250
30. The cum-rights price per share is Rs.48 and the theoretical value of the right is Rs.4. The subscription price
at which the rights are issued is Rs.36 per share. The number of existing shares required for a rights share is
a. 1 b. I2
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c. 3 d. 4
e. 5
31. Which of the following is false with regard to the net present value (NPV) as an appraisal criterion for
projects?
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a. It gives more weight to the earlier cashflows than the later cashflows
b. NPVs of multiple projects can be added to give a combined NPV
c. It considers the cashflows over the entire life of the project
d. It represents the contribution of the project to the wealth of the lenders of the firm
e. It considers the time value of money
32. Other things remaining the same, which of the following will decrease the cost of trade credit?
i. Decrease in the rate of discount.
ii. Decrease in the credit period.
iii. Decrease in the discount period.
34. Which of the following accounting concepts is applicable to determine the profits or losses accrued?
a. Money measurement concept b. Materiality concept
c. Business entity concept d. Conservatism concept
e. Matching concept
35. Depreciation is allocated over the effective life of an asset according to
a. Conservatism concept b. Going concern concept
c. Matching concept d. Time period concept
e. Business entity concept.
36. The following are the external users of financial statements, except
a. Government agencies b. Lenders
c. Customers d. Investors
e. Board of Directors
37. Which of the following is not an objective of accounting?
a. Maintenance of records for business transactions
b. Ascertaining whether the business operations have been profitable or not
c.
d.
Depicting the financial position of the business.
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Providing information to the users of financial information
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e. Maintenance of the records of human resources of the company.
38. Which of the following is not a qualitative characteristic of financial statements?
a. Understandability b. Relevance
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c. Reliability d. Comparability
e. Periodicity
39. Which of the following is the correct order for arranging the liabilities in a balance sheet prepared
according to permanency order?
a. Capital, long-term liabilities, short-term liabilities and current liabilities
b. Long-term liabilities, short term liabilities, current liabilities and capital
c. Current liabilities, long-term liabilities, short term liabilities and capital
d. Current liabilities, short term liabilities, long-term liabilities and capital
e. Capital, short term liabilities, current liabilities and long-term liabilities.
40. Which of the following technique is part of the Time Series Analysis?
a. Trend statements b. Income statements
c. Cash Flow statements d. Common size statements
e. Cross-sectional statements
Accounting and Finance: Practice Paper
41. The following is the summarized P/L a/c of Sun Ltd for the year ending 31st March 2014:
Depreciation on all fixed asset is charged at 25% under the written down value method and will be charged
at the same rate and under the same method for the year 2014-15. If it is expected that gross profit will be
15% higher than the previous year while other expenses will increase by 2%, the expected net profit for the
year 2014-14 will be:
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returns were 1000. The creditors allowed a sum of Rs. 450 as cash discount. A bill for Rs. 1200 accepted
earlier by the company in favor of creditors was dishonored on 21st Dec 2014. The balance of creditors
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discount as on 31st Dec, 2014 was
a. 25,000 b. 23,000
c. 21,000 d. 35,000
e. 12,000
44. The balances of outstanding wages of a company as on 31st March 2013 and 31st March 2014 were Rs.
80,500 and 70,500 respectively. If the wages paid by the company during the year 2013-2014 was Rs.
3,50,00, then the total wages that should be in the trading a/c for the year ended 31st March 2014 was
a. 3,22,500 b. 3,16,000
c. 2,72,000 d. 2,65,000
e. 3,40,000
Multiple Choice Questions
45. A trader who does not keep a complete set of books of accounts furnished the following data as on 31st
March 2014:
Particulars Rs.
Total assets 8,90,000
Sundry creditors 1,00,000
Outstanding expenses 20,000
He had started his business on 1st July 2013. During the year he had further capital of Rs.60, 000 and made
drawings of Rs. 25,000 on the last day of every month. The opening capital was
a. Rs. 6,70,000 b. Rs. 7,80,000
c. Rs. 5,30,000 d. Rs. 9,35,000
e. Rs. 4,60,000
46. Consider the following data related to M/s Arya enterprise as on 31st March 2014:
Particulars Rs.
Total sales 1,00,000
Total purchases 55,000
Wages paid 2,500
Return inward 1,500
Return outward 1,000
Carriage inward
Carriage outward
2,500
2,000 I
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Gas, water and fuel 500
Raw materials destroyed by fire 1,000
Additional information:
Inventory as on 1st April 2013 :Rs. 1, 45,000
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48. Willson Ltd. has the practice of creating provision for doubtful debts @ 8% on debtors. The balance of
provision for doubtful debts on 1st April 2013 and 31st March 2014 was Rs. 52000 and Rs. 64000
respectively. During the year 2013-14, the amount collected from debtors was Rs. 60,50,000 Credit sales
during the year were:
a. 50,65,000 b. 67,00,000
c. 64,00,000 d. 62,00,000
e. 62,60,000
49. The following information pertains to Madhukar Ltd., for the year 2013-14:
Particulars 1st April 2013 (Rs.) 31st March 2014 (Rs.)
Inventory 1,20,000 1,15,000
Sundry debtors 80,000 1,05,000
Sundry creditors 50,000 47,000
Total credit sales made during the year were Rs. 11, 11,500. The cost of goods sold for the company is 75%
of the sales. Cash collected from the debtors during the year was
a. 10,86,000 b. 10,47,000
c. 11,10,000 d. 9,75,000
e. 8,10,000
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50. The reserves and surplus of a company at the beginning of the accounting year were Rs. 11,00,000. During
the year the company made profit and appropriated the same as follows:
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Particulars Rs.
Profit during the year 3,50,000
Less: Dividend distributed 60,000
Less: Transfer to general reserve 1,00,000
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52. The following balances were extracted from the books of account of Beta Ltd. for the year 2013-14:
Particulars Rs.
Opening Stock 18,500
Closing Stock 22,000
Purchases 82,000
Return Outward 9,000
If the gross profit for the year was Rs. 20,500, the total sales during the year were
a. 1,32,000 b. 1,17,000
c. 1,19,000 d. 90,000
e. 1,17,000
53. The balance sheet items of Riya Ld. as at 31st March 2014 have increased by the following amounts
compared with those at the end of the previous year:
Assets - 1, 56,000
Liabilities - 90,000
Share Capital - 60,000
The only change to retained earnings the year 2013-14 was relating to a dividend payment of Rs. 10,000.
The net income for the year 2013-14 amounted to
a. 18,000 b. I11,000
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c. 16,000 d. 7,000
e. 5,000
54. Bally Ltd. have provided the following information:
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Particulars Rs.
Stock as on 31st March 2014 70,000
Accounts payable as on 1st April 2013 40,000
Accounts payable as on 31st March 2014 50,000
Amount paid to creditors during the year 2013-14 1,50,000
Sales 2,50,000
It is noticed that goods worth 35,000 were destroyed due to fire. Against that the insurance company
accepted a claim of Rs. 21,000.
If the company sales the goods at cost plus 33 ½ %, the value of opening stock were
a. 12,000 b. 35,000
c. 1,20,000 d. 1,32,500
e. 80,000
55. Which of the following can be used to diagnose the strengths and weaknesses of a firm by assessing the
profitability and the financial soundness of the company?
a. Forecasting Tool b. Evaluation Tool
c. Analytical Tool d. Diagnostic Tool
e. None of the above
Accounting and Finance: Practice Paper
Particulars Rs.
Sales 5,00,000
Fixed expenses 2,00,000
Direct materials 1,50,000
Direct labor 40,000
Direct expenses 40,000
The margin of safety of the company is
a. 3,40,000 b. 60,000
c. 1,16,667 d. 2,50,000
e. 70,000
57. The following data is obtained from the records of the Puma Ltd.:
Particulars Rs.
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60. The total capital employed of Mars Ltd is Rs. 45, 00,000. The firm has D:E ratio 4:5. The ratio of owner’s
equity to fixed assets is 8:15. The amount of fixed assets in the company is
a. 38.875 lakhs b. 40.325 lakhs
c. 42.867 lakhs d. 44.658 lakhs
e. 46.875 lakhs
61. Harilal Ltd. furnished the following information:
Particulars Rs.
Cost of goods sold 19,00,000
Net Profit 5,60,000
Sales return 2,50,000
If the net profit margin of Harilal Ltd. was 25% then the gross profit margin was
a. 41.44% b. 42.90%
c. 43.46% d. 46.43%
e. 48.43%
62. Mohan Ltd. has 1, 00,000 equity shares of Rs. 10 each, fully paid. If it had a profit after tax of Rs.
12,00,000 in the current year and paid Rs. 5,00,000 by the way of equity dividends, the dividend payout
ratio will be
a.
c.
44.23
42.45
b.
d. I
43.09
41.67
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e. 40.25
63. The face value of a T-Bill is Rs.100. Mr. Ravi made a bid for 364-day T-bill yielding 6.00% p.a and
maturity after 182 days. The price paid by Mr. Ravi for this bill is
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a. 95.40 b. 96.30
c. 97.07 d. 98.90
e. 99.40
64. The following information is related to the operations of a firm:
Raw materials storage period 72 days
Average conversion period 18 days
Finished goods storage period 22 days
Average collection period 49 days
Average payment period 55 days
The operating cycle of the firm is:
a. 90 days b. 96 days
c. 100 days d. 106 days
e. 115 days
65. Rahul’s father gave him 10,000 per annum for the next 10 years which he will deposit 10,000 p.a for the
next 10 years, with a bank rate of interest of 12 % p.a. How much he will get at the end of the period?
a. 1,57,487 b. 1,64,587
c. 1,72,648 d. 1,75,487
e. 1,77,980
Accounting and Finance: Practice Paper
66. Which of the followings is true under US Generally Accepted Accounting Principles (GAAP)?
i. Consolidation of group company accounts is compulsory.
ii. Investment in own share is permitted.
iii. Cash flow statement is compulsory.
iv. Financial lease is to be capitalized.
69. The current ratio of a company is 2:1. Which of the following transactions would improve the ratio?
a. Purchase of a fixed asset on credit b. Redemption of preference shares
c. Sale of office furniture for cash at a loss d. Purchase of stock-in-trade for cash
e. Acceptance of bills of exchange drawn by creditors.
70. According to which of the qualitative characteristics of financial statements, the use of same accounting
principles from one period to another is required?
a. Relevance b. Reliability
c. Comparability d. Consistency
e. Matching
71. Revenue reserve represents
a. Accumulated retained earnings from the profits
b. Bad debts realized
c. Premium on issue of debentures
d. Gain out of revaluation of assets
e. Premium on issue of shares.
Multiple Choice Questions
86. Tax deducted at source on the payments made by a company appears in the Balance Sheet of the company
on the
a. Liabilities side under current liabilities b. Liabilities side under provisions
c. Assets side under current assets d. Assets side under loans and advances
e. Assets side under miscellaneous expenditure.
87. Which of the following is not a community owned asset used by a company?
a. Roads b. Railways
c. Infrastructural facilities d. Concession provided by the State
e. Plant and machinery
88. Costs are classified on the basis of their
a. Understandability b. Profitability
c. Feasibility d. Controllability
e. Opportunity
89. The following are the tools and techniques used by the management for decision-making except
a. Budgetary control b. Decision accounting
c. Management information systems d. Absorption costing
e. Revaluation accounting
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90. Information provided by the management accounting plays an important role. In this context, which of the
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following areas provides information about the enterprise’s financial and long run competitive
performance, market conditions, customer preferences and technological innovations?
a. Operational control b. Product costing
c. Strategic control d. Customer costing
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e. Management costing
91. The present book value of an asset of a company is Rs.2, 04,120. The company has charged depreciation at
the rate of 10% under straight-line method for the last 3 years. The original cost of the asset was
a. Rs.2,91,600 b. Rs.2,80,000
c. Rs.2,55,150 d. Rs.2,52,000
e. Rs.2,26,800
92. Mukesh Traders Ltd. has furnished the following details for the year ended 2013:
Owners’ equity Rs.10,00,000
Current debt to total debt 0.40
Total debt to owners’ equity 0.60
Fixed assets to total debt 0.8
Total assets turnover 2 times
Inventory turnover 8 times
The inventory to current assets ratio is
a. 0.357 b. 0.375
c. 0.537 d. 0.573
e. 0.753
Accounting and Finance: Practice Paper
93. Vaibhav Ltd. showed on accounting income of Rs.8, 00,000 for the year ended on March 31, 2007. In
computation of accounting income, the following data were considered:
97. If an investment of Rs 50,000 is made today, the amount received after 5 yrs will be Rs. 75,000. Which of
the following is the rate of return earned?
a. 21.39% b. 22.47%
c. 23.89% d. 24.58%
e. 25.65%.
98. Mrs. Samira buys a 10-year annuity deposit certificate for Rs.40, 000, on which she is entitled to receive
annuity of Rs.6, 245. The return to be realized is approximately
a. 9.59% b. 9.25%
c. 9.75% d. 9.03%
e. 9.80%
99. Mr. Nagarjuna Ltd. has given the following details:
1. Answer: (c)
Cash Discount Paid is not included while preparing cost sheet.
2. Answer: (e)
All the above sentences are true.
3. Answer: (e)
Controllable costs include expenses that are controllable by lower level of management such as direct labor
and direct material.
Uncontrollable costs includes those expenses that cannot be controlled such a rent of building and salaries.
Most of the fixed cost are uncontrollable.
Revenue costs includes those expenses that are made for maintaining an asset or running the business such as
depreciation and repairs and maintenance.
4. Answer : (d)
The following statements are true with respect to sunk cost.
It is a cost that has already been incurred so it is irrelevant in decision-making process.
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The salvage value of the asset is relevant not the depreciation.
It is not affected by increase or decrease in volume.
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5. Answer : (d)
Statement of Cost and Profit
Particulars Rs.
Opening Stock of Raw Materials 15000
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6. Answer : (e)
A company may pay dividends from:
7. Answer : (e)
8. Answer: (d )
High call rates indicate a tightness of liquidity in the financial system. Therefore statement iii is not
correct.
9. Answer :(e)
11. Answer:(a)
Money Market, Forex Market and Credit Market are regulated by RBI and Capital market is regulated
by SEBI.
12. Answer:(c)
A bought out deal, a car loan, housing finance and private placement all are the examples of negotiated
market.
13. Answer :(c)
The role of financial system can be broadly classified into the following:
Savings Function: Financial systems mobilize savings in a way to provide a potentially profitable and
low risk outlet.
Policy Function: Through the policy function, the government ensures a smooth flow of funds from
savings into investments in order to stabilize the economy.
Credit Function: Here, the financial system ensures the transformation of savings to necessary credit
for investment and spending purposes.
14. Answer:(b)
Differential costing can be applied in varied alternative approaches so the scope is wider whereas in
marginal costing the scope is comparatively lesser.
15. Answer :(d)
Out-of-pocket costs results in cash outflow as opposed to just amortization of costs already incurred.
16. Answer:(d) I
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Absorption Costing is the technique of costing in which all direct costs and manufacturing overheads
are considered as a part of cost of the product.
17. Answer:(a)
Whether or not to avail of term loans and to what extent is related with the borrowing policy of a firm;
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=800 X 1.20
= 960 cr.
Projected Net profit for the year 2014-15
Particulars Rs. (Cr.) Rs. (Cr.)
Gross Profit 1150
Less: Other Expenses 960
: Depreciation 37.50 997.50
Expected Net Profit 152.50
44. Answer: ( e)
Particulars Rs.
Wages paid during the year 3,50,00
st
Add: Outstanding wages as on 31 March 2014 70,500
st
Less: Outstanding wages as on 31 March 2013 4,20,500
st
Total wages to be shown in the trading a/c for the year ended 31 80,500
March 2014 3,40,000
= Rs. 9, 35,000
46. Answer : (d)
Dr. Trading a/c for the period ending 31st March 2014 Cr.
1,15,000 1,15,000
Multiple Choice – Answers and Explanations
= 1, 54,000 X 0.40
= 61, 600
So, Fixed Cost
= (Contribution – Profit)
= 61,600 – 23, 400
= 38,200
BEP sales
= Fixed Cost / P/V ratio
= 38,200/0.40
= 95,500
58. Answer: (d)
EVA
= NOPAT – (Avg. Capital Employed X WACC %)
= 15, 50,000 – (40, 00,000 X 14.50%)
= 9, 70,000
Accounting and Finance: Practice Paper
63. Answer: (c )
T-bill yield = ((F-P)/P) X 365/182
0.06 = ((100-P)/P) X 365/182
By solving this we get P= 97.08
Multiple Choice – Answers and Explanations
current assets of a business and improves the position of current ratio. The transactions in other
alternatives either decrease current ratio or do not affect the ratio and are incorrect answers.
70. Answer: (d)
According to consistency quality of the qualitative characteristics of financial statements, the use of
same accounting principles from one period to another is required
71. Answer: (a)
Revenue reserve represents accumulated retained earnings from the profits of normal business
operations. Bad debt realized, premium on issue of debentures, premium on issue of shares and
revaluation gains are capital reserve.
72. Answer: (d)
Current assets include cash and cash equivalents, inventories, debtors, cash at bank, and prepaid
expenses. Patents are fixed asset of the firm.
73. Answer : (a)
The duality concept states that every transaction two aspects one debit another credit.
74. Answer: (d)
Cash book is a special journal in which all cash transactions are recorded directly. The cash book
resembles a ledger with the debit and credit sides, and the balance represents the cash on hand and at
bank at the end of the accounting period. Hence it serves the purpose of ledger. Cash account and bank
account are not opened when a cash book is maintained. Purchases book, sales book, bills receivables
book and journal proper are the books of original entry and they do not serve the purpose of ledger.
Accounting and Finance: Practice Paper
75. Answer : (c )
Error of complete omission of recording of a transaction does not affect the trial balance.
76. Answer : (b)
The rule applicable to personal account is ‘debit the receiver and credit the giver’.
77. Answer : (c )
The Trial Balance shows both debit and credit balances of all real, personal and nominal accounts.
78. Answer : (b)
Payment of Rs.5, 000 to repaint the premises is an example of revenue expenditure.
79. Answer : (e)
Sales, interest on investment, rent received and dividends received are revenue items where as advance
received for supplies are not a revenue item.
80. Answer : (c )
Fixed assets cannot be easily converted into cash. They are acquired for using them in the conduct of
business operations. They are not for reselling to earn profit. Depreciation at specified rates to be
charged on most of the Fixed Assets. Their utility is not confined to one accounting period.
81. Answer : (e)
Cost of air conditioner is not included in cost of building. All others are included.
82. Answer : (c )
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Intangible assets are amortized like tangible fixed assets. If costs/benefit are more than one accounting
period, they should be systematically and rationally allocated to all accounting periods. Matching
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concept involves recognizing costs as expenses on the basis of direct association with assets. Thus
amortization of intangible assets is systematic allocation of costs over several periods in recognition of
matching concept. The other concepts do not recognize allocation of costs of fixed assets.
Conservatism concept is not meant to introduce a bias into financial reporting. It is a prudent reaction
to uncertainty to try to ensure that inherent risks in business are adequately considered. Going concern
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concept assumes that the business entity is assumed to be a going concern in the absence of evidence to
the contrary. Time Period concept requires accounting information to be reported at regular intervals to
foster comparability. Business entity concept explains that in accounting business is to be considered
as a separate entity from the owner.
83. Answer: (a)
According to Section 350 of the companies Act any tax notified as a tax on excess or abnormal profits
can be deducted from the profits for the calculation of managerial remuneration.
84. Answer: (e)
Contribution to provided fund is an item of profit and loss account and will not enter into
miscellaneous expenditure. Except that all the other items are example of miscellaneous expenditure.
85. Answer: (e)
The securities premium account should be shown under Reserves and Surplus as per schedule IV of the
Companies Act.
86. Answer: (a)
Tax deducted at source is the liability of the company towards the tax authority. It is also payable to
the tax authority within very short period. So, it is the item of current liabilities. It cannot be treated as
provisions or assets.
87. Answer: (e)
A company makes use of community owned assets such as roads, railways, other infrastructural
facilities and also concession provided by the State. Plant and machinery is not a community owned
assets.
Multiple Choice – Answers and Explanations