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Practice Paper
ACCOUNTING AND FINANCE
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Accounting and Finance: Practice Paper

MULTIPLE CHOICE QUESTIONS

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

i. Controllable Costs a. Depreciation, repairs and maintenance.


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ii. Uncontrollable Costs b. Direct material and direct labor.


iii. Revenue Costs c. Rent of a building and managerial salaries.
a. i-a, ii-b, iii-c b. i-a, ii-c, iii-b
c. i-c, ii-a, iii-b d. i-b, ii-b, iii-c
e. i-b, ii-c, iii-a
4. Which of the following is true with respect to Sunk Costs?
i. It is a cost that has already been incurred so it is relevant in decision-making process.
ii. It is a cost that has already been incurred so it is irrelevant in decision-making process.
iii. The salvage value of the asset is relevant not the depreciation.
iv. It is affected by increase or decrease in volume.
v. It is not affected by increase or decrease in volume.
a. Only iii and iv b. Only i and iv
c. Only iii and v d. Only ii, iii and v
e. Only i, iii and iv
Multiple Choice Questions

5. The books of Kanak Enterprise Ltd. showed the following data for the month of January 2014:

Direct Labor Cost Rs. 38500 (180 % of factory overhead)


Cost of goods sold Rs. 110000

The inventory accounts are as follows:


Particulars 1st January 31st January

Raw materials Rs. 15000 Rs. 15900


Work-in progress Rs. 13500 Rs. 18500
Finished goods Rs. 19000 Rs. 20500

Other relevant information:


Selling expenses Rs. 4200
General and administrative expenses Rs. 5100
Sales for the month Rs. 210000

The profit earned during the month of January will be


a. Rs. 92800 b. Rs. 93600
c. Rs. 95400 d. I Rs. 96300
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e. Rs. 98200
6. A company may pay dividends from which of the following sources?
i. Profits of the current year.
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ii. Profits of the previous year.


iii. Money provided by the Central or State Government for the payment in pursuance of a guarantee
given by government concerned.
a. Only i b. Only i and iii
c. Only i and ii d. Only ii and iii
e. All i, ii and iii
7. Call money is borrowed from the market to meet various requirements of commercial bill markets and
banks. Bank borrows in call money market for which of the following reason?

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.

a. Only i b. Only ii and iii


c. Only i and ii d. Only i and iii
e. All i, ii and iii
Accounting and Finance: Practice Paper

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

i. Yankee a. Sterling denominated foreign bond raised in UK domestic securities market.


ii. Samurai b. Privately placed bond issued in the Japanese market.
iii. Bulldog c. US dollar denominated issued by foreign borrower in the US market.
iv. Shibosai d. Issued by non-Japanese borrower in the domestic Japanese market.

a. i-a, ii-b, iii-c, iv-d b. i-c, ii-d, iii-b, iv-a


c. i-c, ii-a, iii-d, iv-b d. i-d, ii-b, iii-c, iv-a
e. i-c, ii-d, iii-a, iv-b
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10. Which of the following statements is/are false with respect to Stop Loss Price Order?
i. It is an order that allows the price to be specified while entering the order into the system.
ii. It allows the trading member to place an order that gets activated only when the market price of the
relevant security reaches a threshold limit.
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iii. It is an order to buy or sell securities at the best price obtainable at the time of entering the order.

a. Only (i) above. b. Only (iii) above.


c. Both (i) and (iii) above. d. Both (ii) and (iii) above.
e. All (i), (ii) and (iii) above.
11. Which of the following markets is/are not regulated by RBI?
i. Money Market ii. Capital Market
iii. Forex Market iv. Credit Market

a. Only ii above b. Only iii above


c. Both i and iv above d. Both ii and iii above
e. Both ii and iv above.
12. Which of the following transactions is an example of transactions in an open market?
a. A bought out deal b. A car loan
c. Public issue of securities d. Housing finance
e. Private placement
Multiple Choice Questions

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.

a. Only (I) above b. Only (II) above


c. Only (III) above d. Both (I) and (II) above
e. All (I), (II) and (III) above.
14. Which of the following is false with respect to marginal costing and differential cost analysis in decision
making process?
a. The differential costing is used for short-term, medium term and long-term decision making whereas
marginal costing is mainly used for short-term and medium term decision making.
b. In differential costing the scope is lesser whereas marginal costing can be applied in varied alternative
approaches so the scope is wider.
c. The analytical tools used in differential costing are incremental/decremental cost, incremental
revenue and incremental/decremental profit whereas in marginal costing uses analytical tools such as
P/V ratio, Break-even point, and CVP analysis.
d. Differential Costing technique does not ascertain the exact differential cost and sometimes it is used
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in conjunction with costs and opportunity cost whereas in marginal costing exact marginal cost can be
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calculated by adding variable overheads to prime cost.
e. Differential costing can only be a part of accounting system whereas marginal costing system can be
included into accounting system.
15. Which of the following costs results in cash outflow as opposed to just amortization of costs already
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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

17. Which of the following is not a relevant factor in cash management?


a. Availing of term loans to the maximum possible limit
b. Branch wise collection of receivables
c. Prompt billing and mailing the same to the customers
d. Prompt depositing of the cheques received from customers in the bank
e. Centralized purchases and payments to the suppliers.
Accounting and Finance: Practice Paper

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.

a. Only (I) above b. Only (II) above


c. Both (I) and (II) above d. Both (I) and (III) above
e. Both (II) and (III) above.
Accounting and Finance: Practice Paper

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.

a. Only (I) above b. Only (II) above


c. Only (III) above d. Both (I) and (II) above
e. Both (I) and (III) above
33. Which of the following items does not appear under the head ‘Reserves and Surplus’ in the balance sheet?
a. General reserve b. Sinking fund
c. Proposed dividend d. Securities premium
e. Capital redemption reserve
Multiple Choice Questions

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:

Particulars Rs. (In Cr.)


Gross profit 1000
Depreciation 50
Other expenses 800
Net profit 200

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:

a. 114 cr. b. 152.50 cr.


c. 96 cr. d. 90cr
e. 100 cr.
42. The balance in the creditors a/c of Rex Ltd as on Dec 1, 2014 was 40000. During the month a sum of Rs.
20,500 was paid to the creditors and goods purchased on credit from them amounted to 24,700. Purchase

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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. Rs. 50,200 b. Rs. 60,400


c. Rs. 43,950 d. Rs. 60,900
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e. Rs. 50, 700


43. A trader purchased goods worth Rs. 70,000 and paid Rs. 2000 as carriage for bringing them to his
premises. He sold the goods for 95,000 and incurred Rs. 3000 as free-delivery expenses. He also incurred
Rs. 11,000 towards business expenditure. The gross profit of the trader will be

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
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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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Inventory as on 31st March 2014 :Rs. 22,000


Outstanding wages as on 1st April 2013 :Rs. 270
Outstanding wages as on 31st March 2014 :Rs. 300
The stock as on 1st April 2013 was under valued by 3500 while stock as on 31st March 2014 was over
valued by Rs. 5000. Gross profit will be
a. 31,400 b. 44,940
c. 33,790 d. 38,970
e. 36,530
47. Consider the following information of Ram ltd. for the year 2013-2014:
Particulars Rs.
Opening balance of provision for debtors a/c 66000
Bad debts during the year 50000
Closing balance of sundry debtors 895000
Estimated provision for doubtful debts 5%
The amount of P/L a/c to make the estimated provision is
a. 28500 b. 20300
c. 28750 d. 31800
e. 40032
Accounting and Finance: Practice Paper

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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Balance in the P/L a/c 1,90,000


The reserves and surplus at the end of the year would be
a. 10,00,000 b. 12,00,000
c. 13,90,000 d. 10,50,000
e. 12,25,000
51. On 14th June 2014, a fire occurred in the warehouse of Shyam Ltd. and the entire stock was destroyed. The
value of the stock salvage was Rs. 5000. The following transaction took place between 1st April 2014 and
14th June 2014:
Particulars Rs.
Purchases 1,45,000
Sales 3,50,000
Wages 65,000
Opening Stock 1,20,000
Gross Profit 50,000
The value of stock lost by fire
a. Rs. 1,00,000 b. Rs. 92000
c. Rs. 25,000 d. Rs. 1,41,000
e. Rs. 40,000
Multiple Choice Questions

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

56. Manohar Ltd. has furnished the following data:

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 First year (Rs.) Second Year (Rs.)


Sales 1,38,000 1,54,000
Profit 17,000 23,400
The break – even sales of the company in (Rs.) is
a.
c.
95,500
97,100
b.
d. I 94,900
96,700
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e. 98,900
58. MESI Ltd. has funded the following information for the year ended Dec 31st 2014:

Particulars Rs.
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Net Operating profit after tax 15,50,000


Avg. Capital employed 40,00,000
Weighted avg. cost of capital (%) 14.50%
The EVA is
a. 7,90,000 b. 8,70,000
c. 9,30,000 d. 9,70,000
e. 10,20,000
59. The following information is pertaining to Alpha Ltd.:

Current ratio 3.00


Acid test ratio 1.80
Current liabilities Rs. 15.50 lakhs

The value of Inventory is


a. 12.80 lakhs b. 15.90 lakhs
c. 17.80 lakhs d. 18.60 lakhs
e. 19.80 lakhs
Multiple Choice Questions

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.
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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.

a. Only (i) above. b. Only (ii) above


c. Both (i) and (ii) above d. (i), (ii) and (iii) above
e. All (i), (ii), (iii) and (iv) above
67. As per AS-16 on borrowing cost, a qualifying asset is
a. An asset which is necessary for substantial production of a material in which a company deals with.
b. An asset that takes a substantial period of time to get ready for its intended use or sale.
c. An asset which is qualified by an Engineer as fit for operation/running.
d. An asset which costs atleast 7% of the net worth of a company.
e. An asset on which a mention is made by the Auditors in their qualified report.
68. In which of the following areas the accounting policies do not tend to be uniform among enterprises?
i. Methods of depreciation. ii.
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Valuation of inventories.
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iii. Treatment of goodwill iv. Treatment of contingent liabilities.
a. Only (i). b. Only (ii) above
c. Both (i) and (iii) above d. (i), (ii) and (iv) above
e. All (i), (ii), (iii) and (iv) above.
IC

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

72. Which of the following is not a current asset?


a. Inventories b. Debtors
c. Cash at Bank d. Patents
e. Prepaid expenses
73. The concept which states that every transaction has two aspects is known as
a. Duality concept b. Matching concept
c. Realization concept d. Consistency concept
e. Conservatism concept
74. Which of the following subsidiary books serves the purpose of ledger, in addition to the recording of
accounting transactions?
a. Purchases book b. Sales book
c. Bills receivable book d. Cash book
e. Journal proper
75. Which of the following errors is not disclosed by the Trial Balance?
a. Error in casting of subsidiary books
b. Error in balancing the account
c. I
Error of complete omission of recording of a transaction
FA
d. Error in carry forward of total from one page to another
e. Error in preparation of debtor’s schedule.
76. The rule applicable to personal account is
IC

a. Debit what comes in and credit what goes out


b. Debit the receiver and credit the giver
c. Debit all expenses and losses and credit all incomes and gains
d. Debit the giver and credit the receiver
e. Debit what goes out and credit what comes in
77. The trial balance shows
a. Both debit and credit balances of real and nominal accounts
b. Both debit and credit balances of personal and nominal accounts
c. Both debit and credit balances of real, nominal and personal accounts
d. Both debit and credit balances of Personal accounts only
e. Both debit and credit balances of Real accounts only.
78. Payment of Rs.5,000 to repaint the premises is an example of
a. Capital expenditure b. Revenue expenditure
c. Capital receipt d. Revenue receipt
e. Deferred expenditure.
Accounting and Finance: Practice Paper

79. Revenue for the current period does not include


a. Sales b. Interest on investment
c. Rent received d. Dividend received
e. Advance received for supplies
80. Which of the following is false about Fixed Assets?
a. They are acquired for using them in the conduct of business operations
b. They are not meant for resale to earn profit
c. They can be easily converted into cash
d. Depreciation at specified rates is to be charged on the Fixed Assets
e. Their utility is not confined to one accounting period.
81. Which of the following is not included in the cost of a building?
a. Permanent fixtures in the building b. Municipal fee for plan approval
c. Stamp fee d. Architect fee
e. Cost of air conditioner
82. Amortization of unidentified intangible assets is in recognition of
a. Conservatism concept b. IGoing concern concept
FA
c. Matching concept d. Time period concept
e. Business entity concept
83. Which of the following deductions from profits are permitted under Section 350 of the Companies Act, for
the calculation of managerial remuneration?
IC

a. Any tax notified as a tax on excess or abnormal profits


b. The remuneration payable to the managing agents
c. Loss on sale of undertaking
d. Development rebate reserve
e. Any compensation, damages or payments made voluntarily
84. Which of the following will not come under the head ‘Miscellaneous Expenditure’ in the balance sheet of a
company?
a. Preliminary expenses
b. Interest paid out of capital during construction
c. Discount allowed on issue of shares and debentures
d. Development expenditure not adjusted
e. Contribution to provident fund
85. The Securities Premium Account should be shown under the head
a. Share capital b. Miscellaneous expenditure
c. Current liabilities d. Current assets
e. Reserves and surplus
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
I
90. Information provided by the management accounting plays an important role. In this context, which of the
FA
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
IC

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:

Gain on Revaluation of Asset


Rs.3,50,000
(Cr. to Profit & Loss account)

Depreciation deducted for accounting purpose inexcess of


Rs. 50,000
depreciation deducted for income tax purpose
35%
Income Tax Rate

The provision for income tax was


a. Rs.2,80,000 b. Rs.2,62,500
c. Rs.2,97,500 d. Rs.1,75,000
e. Rs.1,57,500
94. Sriram Ltd. manufactures a single product. The estimated cost data and other information relating to the
product are as follows:
Sale price per unit – Rs.92
Total variable production cost per unit – Rs.51 I
FA
Sales commission (on sales) – 5%
Fixed costs:
Production overheads – Rs.4, 85,500
Administrative and selling overheads – Rs.3, 08,300
IC

Effective income tax rate – 40%


The number of units to be sold by the company
a. 24,500 b. 23,842
c. 23,402 d. 22,948
e. 21,808
95. Mr. Amrit has taken a home loan for Rs.20,00,000 to be repaid in 60 equal monthly installments at the end
of every month. If the loan carries an interest rate of 10% p.a. compounded quarterly, calculate the amount
of each installment?
a. Rs.40,150 b. Rs.42,408
c. Rs.44,465 d. Rs.46,618
e. Rs.47,763
96. Mrs. Anjali has taken a loan of Rs.25, 00,000 to be repaid in 120 equal monthly installments. The rate of
interest is 12% p.a. What is the monthly installment paid by Mr. Joseph?
a. Rs.35,868 b. Rs.36,237
c. Rs.38,721 d. Rs.40,985
e. Rs.42,244
Multiple Choice Questions

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:

P/V ratio 50%


Margin of safety 30% on sales
Sales 20,00,000
The net profit of the company is:
a. Rs. 200000 b. Rs. 250000
c. Rs. 300000 d. I
Rs. 350000
FA
e. Rs. 400000
100. Total sales of the company isRs. 8, 00,000 and profit is Rs. 58000. If contribution to sales ratio is 30%,
then fixed cost
a. Rs. 122200 b. Rs. 135300
IC

c. Rs. 147000 d. Rs. 177000


e. Rs. 182000
Accounting and Finance: Practice Paper

MULTIPLE CHOICE – ANSWERS AND EXPLANATIONS

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.

I
The salvage value of the asset is relevant not the depreciation.
It is not affected by increase or decrease in volume.
FA
5. Answer : (d)
Statement of Cost and Profit
Particulars Rs.
Opening Stock of Raw Materials 15000
IC

Add: Purchase of raw materials 51911


66911
Less: Closing stock of raw materials 15900
Materials Consumed 51011
Direct labor cost 38500
Prime cost 89511
Factory overheads (100/165 X Rs. 25000) 21389
110900
Add: work in progress 13500
124400
Less: Work in progress 18500
Work cost 105900
Add: General and administration expenses 5100
Cost of goods manufactured 111000
Add: opening stock of finished goods 19000
130000
Less: closing stock of finished goods 20500
Cost of goods sold 109500
Add: selling expenses 4200
Cost of Sales 113700
Profit 96300
Sales 210000
Multiple Choice – Answers and Explanations

Calculation of Purchase of Raw


Material
Particulars Rs.
Cost of goods sold 110000
Add: closing stock of finished goods 20500
130500
Less: beginning stock of finished goods 19000
Cost of production 111000
Note:
Less: general and administrative expenses 5100
Work cost 105900
Add: closing work in progress 18500
124400
Less: opening work in progress 13500
110900
Less: Factory overheads 21389
Prime cost 89511
Less: direct labor 38500
Materials consumed I 51011
FA
Add: closing stock of raw materials 15900
Less: beginning stock of raw material 66911
Purchase of raw material 15000
51911
IC

6. Answer : (e)
A company may pay dividends from:

Profits of the current year.


Profits of the previous year.
Money provided by the Central or State Government for the payment in pursuance of a guarantee
given by government concerned.

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)

10. Answer :(c)


An order that allows the price to be specified while entering the order into the system is said to be
Limit Price Order while an order to buy or sell securities at the best price obtainable at the time of
entering the order is Market Price Order.
Accounting and Finance: Practice Paper

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
FA
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;
IC

it is not related with cash management.


18. Answer : (d)
Any compensation, damages or payments made voluntarily shall not be deducted from the gross profit,
except this all the other above mentioned items should be deducted from the gross profit to arrive at the
net profit to calculate managerial remuneration.
19. Answer :(a)
Dr. Profit and loss A/C of Sarovar Ltd. for the year ended March 31, 2007 Cr.
Particulars Rs. Particulars Rs.
To Salaries and wages 22,000 By Gross profit 75,000
To Printing and stationery 3,000
To Rent 12,000
To Insurance 3,700
To Carriage outward 2,500
To Manager’s commission 1,800
To Net Profit 30,000
75,000 75,000
Profit before charging Manager’s commission = Rs. 31,800
Manager’s Commission =
Multiple Choice – Answers and Explanations

20. Answer : (c)


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 reserve is 7.5%.
21. Answer: (c)
Board of Directors, Partners, Managers and Officers are internal users. An investor is an external user
of financial statements.
22. Answer : (d)
T-Bills are issued for a minimum of 14 days and a maximum of 364 days.
23. Answer : (c)
The following statements are true with respect to Working Capital Turnover:
I. It is reciprocal of 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 higher the turnover the higher will be the
rate of return on net operating capital employed.
IV. Higher the turnover, the better for the company.
24. Answer: (d)
Travel agency firms will have mainly accounts receivable and some amount of cash as current assets
unlike manufacturing and trading companies.
25. Answer: ( b) I
FA
Increase in the average collection period, increase in the finished goods storage period, increase in the
raw materials storage period and increase in the work-in process period, all result in increasing the
operating cycle of the firm. Only increase in the average payment period decreases the net operating
cycle of the firm.
26. Answer : (c)
IC

(a) Is a part of the ‘control’ function of the finance manager.


(b) Involves partly the ‘deployment’ function. Alternative
(d) is a part of the deployment of funds’ function. Alternative
(e) Is also related with the ‘deployment of funds’ function. Alternative
(c) Is related to the ‘mobilization of funds’ function.
27. Answer: (e)
Effective interest rate is always higher than the nominal interest rate. The effective rate of interest
increases with increase in the frequency of compounding. Both the effective rate of interest and the
nominal rate of interest are equal if the frequency of compounding is one.
28. Answer : (e)
10, 00,000 = A X PVIFA(0.12/12, 60)
A = 10, 00,000 /44.955
= 22,244.
Accounting and Finance: Practice Paper

29. Answer : (b)


Cost of goods sold = Rs. 39, 00,000.
Gross profit margin is given to be 25%. In other words gross profit is 25% of sales.
Let Sales be x. Therefore,
Cost of goods sold + 0.25 x = x
39, 00,000 + 0.25x = x
Hence x (i.e. Sales) = Rs. 52, 00,000.
Average receivables turnover ratio is given to be 52:15
i.e.
Net credit sales/Average accounts receivables = 52 /15 (assume that the entire sales are on a credit
basis)
52, 00,000 /Average accounts receivables = 52 /15
Therefore, Debtors (or average account receivables) = Rs. 15, 00,000.
Cash and Bank = Quick assets – debtors = 18, 00,000 – 15, 00,000 = Rs.3, 00,000.
30. Answer : (b)
The theoretical value of a right = Po-S/ (N+1)
Where Po is the cum-rights price, S is the subscription and N is the number of shares required for a
rights share.
Hence, 4 = 48-36/ (N+1)
I
FA
By solving, N=2.
31. Answer : (d)
NPV gives more weight to earlier cash flows than later cash flows (a). NPVs are additive in nature (b).
NPV considers the entire life of the project (c). NPV represents the contribution of the project to the
wealth of the equity shareholder. Hence (d) is false. It considers the time value of money (e).
IC

32. Answer : (e)


Increase in the credit period will have a greater cost of trade credit.
33. Answer : (c)
Proposed dividend does not come under the head ‘reserves and surplus’. It comes under current
liabilities. Remaining all other options come under reserves and surplus.
34. Answer : (e)
In order to determine the profits or losses accrued in an accounting period, the expenses are related to
the goods or services sold during the period. This is in recognition of matching concept.
35. Answer : (c)
According to matching concept, if fixed assets are used to generate income, the cost of these assets (in
the form of depreciation) is allocated over the effective life of the asset.
36. Answer : (e)
The following are the external users of financial statements.
Government agencies
Lenders
Customers
Investors
Board of directors is not the external users of financial statements.
Multiple Choice – Answers and Explanations

37. Answer : (e)


Maintenance of records of human resources of the company is not an objective of accounting.
38. Answer : (e)
Periodicity is not a qualitative characteristic of financial statements.
39. Answer : (a)
According to permanency order of balance sheet the order of the liabilities are shown as capital, long-
term liabilities, short-term liabilities and current liabilities. In the order of permanency, permanent
assets are shown first and those of less permanent are shown next.
40. Answer : (a)
Trend statements are part of Time series analysis. Remaining all other options are not part of Time
series analysis.
41. Answer : (b)
After increase in GP@ 15%, the new GP will be
= 1000 cr. + (1000+15%_
= 1150 cr.
WDV for fixed asset at the beginning of 2013-14
= 50 X 100/25
= 200 cr.
WDV for fixed asset at the beginning of 2014-15
I
FA
= (200-50) = 150
So, depreciation for the year 2014-15 @ 25% on WDV of fixed assets
= 150 X 25%
= 37.50 cr.
Other expenses increase by 20%
IC

=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

42. Answer: (c)


Dr. Creditors A/c Cr.
Particulars Rs Particulars Rs
To cash 20,500 By balance b/d 40,000
To purchase return 1000 By Purchase 24,700
To discount received 450 By bills payable 1,200
To balance c/d 43,950
65,900 65,900
By balance b/d 43,950
Accounting and Finance: Practice Paper

43. Answer: (b)


Gross profit = (Sales – Purchases – Carriage Inward)
= (95000 – 70000 – 2000)
= Rs. 23,000

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

45. Answer : (d)


Liabilities Rs. Assets Rs.
Capital (balancing fig.) 7,70,000 Total assets 8,90,000
Creditors
Outstanding expenses
1,00,000
20,000 I
FA
8,90,000 8,90,000
Opening capital = Closing capital + Drawing – Addition capital
= 7, 70,000 + (25000 X 9) – 60,000
IC

= Rs. 9, 35,000
46. Answer : (d)
Dr. Trading a/c for the period ending 31st March 2014 Cr.

Particulars Rs. Rs. Particulars Rs. Rs.


To opening stock 14,500 By sales 1,00,000
Add: under valuation of opening 3,500 18,000 Less: return inward 1,500
stock By closing stock 98,500
55,000 22,000
To purchase Less: over valuation
1,000 5,000
Less: inventory lost of closing inventory 17,000
Less: Return outward 1,000
53,000
To wages 2,500
Add: Outstanding wages as on 31st 300
March 20114
Less: Outstanding wages as on 1st 2,530
April 2007 270
2,500
To carriage inward
500
To gas, water and fuel
38,970
To Gross Profit

1,15,000 1,15,000
Multiple Choice – Answers and Explanations

47. Answer: (c)


Particulars Rs.
Bad debts 50000
Add: Closing provision (5% on 895000) 44750
94750
Less: Opening provision 66000
Amount to be debited P/L a/c 28750

48. Answer: (d)


Dr. Sundry Debtors A/c Cr.
Date Particulars Rs. Date Particulars Rs.
01.04.13 To opening balance 6,50,000 2013-14 By cash 60,50,000
(52000/0.08) 31.03.14 By closing 8,00,000
2013-14 To credit sales (Bal. 62,00,000 balance
fig.) (64000/0.08)
68,50,000 68,50,500

49. Answer : (a)


I
FA
Particulars Rs.
Opening balance of Sundry Debtors 80,000
Add: Credit sales 11,11,500
11,91,500
IC

Less: closing balance of sundry debtors 1,05,000


Cash collected from debtors 10,86,500
50. Answer: ( c)
Particulars Rs.
Reserve and Surplus (Opening balance) 11,00,000
Add: Transfer to general reserve 1,00,000
Balance in P/L A/c 1,90,000
Reserves and Surplus 13,90,000
51. Answer: (c )
Dr. Trading A/c in the books of Shyam Ltd. for the period of April 01, 2014 to June 14, 2014 Cr.
Particulars Rs. Particulars Rs.
To Opening stock 1,20,000 By Sales 3,50,000
To Purchases 1,45,000 By Stock lost by fire (bal. fig.) 25,000
To Wages 65,000 By Closing stock 5,000
To Gross Profit 50,000
3,80,000 3,80,000
Accounting and Finance: Practice Paper

52. Answer: (d)


Dr. Trading A/c in the books of Beta Ltd. for the period ending 2013-14 Cr.

Particulars Rs. Particulars Rs.


To Opening stock 18,500 By Sales 30,000
To Purchases 82,000 By Closing stock 22,000
Less: Return 9,000 73,000
To Gross Profit 50,000
1,12,000 1,12,000

53. Answer : (c)

Particulars Rs. Rs.


Asset increased by 1,56,000
Add: Dividend paid during the year 10,000
1,66,000
Less: Liabilities increased by 90,000
Share Capital increased by I
60,000 1,50,000
FA
Net income for the year 16,000
54. Answer : (d)
IC

Dr. Accounts Payable A/c Cr.


Particulars Rs. Particulars Rs.
To Cash 1,50,000 By Balance b/d 40,000
To Balance c/d 50,000 By Opening Stock (Bal.fig.) 1,60,000
2,00,000 2,00,000

Dr. Trading A/c Cr.


Particulars Rs. Particulars Rs.
To Balance b/d (bal. fig.) 1,32,500 By Sales 2,50,000
To Purchases 1,60,000 By goods lost 35,000
To Gross Profit 62,500 By balance c/d 70,000
3,55,000 3,55,000
Margin on cost 33 1/3 %
So, margin on sales = 33.33/133.33 = 25%
So, Gross Profit = 25% on Sales
= 25% 2, 50,000 = 62,500
Multiple Choice – Answers and Explanations

55. Answer : (d)


Diagnostic Tool can be used to diagnose the strengths and weaknesses of a firm by assessing the
profitability and the financial soundness of the company.
56. Answer : (c)
Margin of Safety is = Profit / P/v ratio
P/v ratio = Contribution/ Sales
= 300000/500000
= 0.60
Contribution = (Sales – Fixed Cost)
= (5, 00,000 – 2, 00,000)
= 3, 00,000
Profit = Sales – Fixed Cost – Variable Cost
= 5, 00,000 – 2, 00,000 – (1, 50,000 + 40,000 + 40,000)
= 70,000
So, MOS = 70000/ 0.60
= 1, 16,667
57. Answer: (a)
P/V ratio = Change in Profit/ Change in Sales I
FA
= (23,400 – 17,000) / (1, 54,000 – 1, 38,000)
= 0.40
Contribution (Second year)
= Sales X P/V ratio
IC

= 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

59. Answer: (d)


Current Ratio = CA/CL
= CA/15.50
So, CA= 46.50
Acid Test Ratio = (CA- Inventory) / CL
1.80 = (46.50- I) / 15.50
Inventory = 18.60 lakhs.
60. Answer : (e)
D/E = 4/5
Or, Equity = (5/9 X 45, 00,000)
= 25, 00,000
Equity/F.A = 8/15
25, 00,000/F.A = 8/15
So, F.A = 46.875 lakhs.
61. Answer: (e)
Net Profit Margin = (Net Profit/ Net Sales) X 100
I
FA
25% = (5, 60,000/Net Sales) X 100
Net Sales = 22, 40,000
Gross Profit
= (Net Sales – Cost of goods sold)
IC

= 22, 40,000 – 12, 00,000


= 10, 40,000
So, Gross profit margin = (Gross Profit/Net Sales) X 100
10, 40,000/22, 40,000 X 100
= 46.43%

62. Answer: (d)


Dividend payout ratio = DPS/EPS
DPS=500000/100000 = 5
EPS = 1200000/100000 = 12
S0, Dividend payout ratio = 5/12 X 100
= 41.67

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

64. Answer : (d)


Operating cycle = (RM storage period + Avg. Conversion period + FG storage period + Avg.
Collection period – Avg. payment period)
= 72+18+22+49-55
=106 days
65. Answer: (d)
Annuity of Rs. 10,000 p.a @ 12% for 10 years
= 10,000 FVIFA (12%, 10)
= 1, 75,487.
66. Answer : (e)
All the statements are true.
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.
67. Answer : (b)
As per AS-16 on borrowing cost a Qualifying Asset is an asset that takes a substantial period of time to
get ready for its intended use or sale.
68. Answer: ( e) I
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Methods of depreciation, valuation of inventories, treatment of Goodwill and treatment of contingent
liabilities differ from enterprise to enterprise.
69. Answer: ( c)
Selling office furniture which is a fixed asset for cash whether at a profit or loss will increase the
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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

88. Answer: (d)


Costs are not classified on the basis of understability, profitability, feasibility and opportunity. Costs
are classified on the basis of controllability as controllable and uncontrollable costs.
89. Answer: (d)
Absorption costing is not a tool and technique used to supply the information required by the
management. There are number of tools and techniques used to supply the information required by the
management like analysis of financial statements, budgetary control, standard costing, marginal
costing, decision accounting, revaluation accounting and management information systems.
90. Answer: (c )
Management accounting provides information about the enterprise’s financial and long run
competitive performance, market conditions, customer preferences and technological innovations.
91. Answer: (a )
The depreciated value of the asset Rs.2, 04,120
Depreciation rate – 10%
Depreciation charged under straight line method for 3 years
Cost of asset before depreciation = Rs.2, 04,120 / [1−(3 X 10%)]
Rs.2, 04,120
 / 0.7 = Rs.2, 91,600.
The cost of the asset before depreciation = Rs.2, 91,600.
92. Answer: (a)
Total debt to owners’ equity = 0.6
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Therefore, Total debt
= 0.6 x Owners’ equity = 0.6 x 10, 00,000 = Rs.6, 00,000
Current debt to Total debt
 = 0.40
= Current debt = 0.4 x Total debt = 0.4 x 6, 00,000 = Rs.2, 40,000.
Fixed assets to Total debt = 0.8
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= Fixed assets = 0.8 x Total debt =0.8 x 6, 00,000 = Rs.4, 80,000.


Total assets = Total liabilities= Owners’ equity + Total debt = Rs.10, 00,000 + 6, 00,000
= Rs. 16, 00,000
Current assets = Total assets – Fixed assets = 16, 00,000 – 4, 80,000 = Rs.11, 20,000.
Assets turnover = Sales /Assets = 2
Sales 2 x Assets = 2 x 16, 00,000 = Rs.32, 00,000
Inventory turnover = Sales/ Inventory 8
Inventory = Sales/8 = 32, 00,000/8 = Rs. 40, 00,000
Inventory to current assets ratio = 4, 00,000/11, 20,000 = 0.357

93. Answer : (d)


Rs.
Accounting income 8,00,000
Add: Depreciation deducted for accounting purpose in excess
50,000
of depreciation deducted for income tax purpose
Less: Gain on Revaluation of Asset 3,50,000
Taxable income 5,00,000
Provision of income tax = 35% of Rs.5, 00,000 = Rs.1, 75,000
Accounting and Finance: Practice Paper

94. Answer : (e)


Break-even point = Fixed cost /Salesprice per unit − (Variable cost+SalesCommission) per unit
= (Rs. 4, 85,500+ Rs. 3.08, 300)/ (Rs. 92 – (Rs. 51 + 5% on Rs. 92) = 21808 units

95. Answer : (b)


Effective interest rate = (1+ (0.10/4)) 4 - 1 = 10.38%
1/12
Effective monthly rate = (1 + 0.1038) – 1 = 0.00826
Therefore monthly installment = 20, 00,000/ (PVIFA (0.826%, 60) =Rs.42, 408
96. Answer: (a)
25, 00,000 = A X PVIFA ( 0.12/12,120)
A = Rs. 35,868
97. Answer: (d)
FV = PV (1+r) n
75,000 = 50000 (1+r)5
r = 24.58%

98. Answer: (d)


6245 = 40,000/PVIFA(r%,10)
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r = 9.03%

99. Answer: (c)


Margin of safety = 30% on sales
MOS = 6, 00,000
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Margin of safety = Net profit / P/V ratio


Net profit = Rs. 3, 00,000
100. Answer: (e)
Sales= 800000
Contribution to sales = 30%
Contribution = 30% of 800000 = 2, 40,000
Contribution = FC + Profit
240000= Fixed cost + 58000
Fixed Cost = 182000
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