Financial Accounting And Analysis - Question Bank

NMIMS GLOBAL ACCESS SCHOOL FOR CONTINUING EDUCATION

FINANCIAL ACCOUNTING ANALYSIS Question Bank Chp 1: Introduction to Financial Accounting

Multiple Choice Questions

1. An Organisation sold goods worth Rs 60000 on credit in June 2016 &the payment was received in September 2016. However, Rs 60000 was recorded as income from sales in June 2016. The following transaction implies which of the following: a. Cash basis of Accounting b. Matching Concept of Accounting c. Accrual Basis of Accounting d. None of the above 2. The Double Entry Aspect of Accounting signifies which of the following: a. Every transaction has a two-fold effect in the books of accounts, i.e, every transaction affects at least two accounts b. For every Debit entry there is an equal and opposite credit entry c. Total Assets and Total liability of an organization should always be equal d. All of the above 3. The entire business tenure of an organization should be divided into equal segments to study and analyse the results properly. This is referred to as the: a. Matching Principle b. Going Concern Concept c. Accounting period concept d. Principle of Consistency 4. The Conservatism concept of Accounting highlights the following a. Ignore all losses and record all gains b. The financial statements should report only those transactions which can be measured in terms of money c. A business is treated as a separate unit or entity from its owners, creditors, managers and stakeholders. d. Consider all prospective losses and ignore all prospective profits or gains 5. Accounting process provides appropriate information to various interested parties , who among the following are the interested parties?

a. b. c. d.

Owners Creditors Managers All of the above

Descriptive Questions

1. Define Accounting. “Financial Accounting is both Science and Art”. Explain 2. Cite some of the major objectives of Financial Accounting 3. What is GAAP. In light of it, write short notes on the following: a. Entity Concept b. Money Measurement Concept c. Historical Cost Concept d. Going Concern Concept

Chp 2: Accounting Process

Multiple Choice Questions 1. The Accounting process involves a number of steps. Identify the correct sequence of those steps a. Identification of financial transactions – preparation of vouchers – posting to the ledger – Recording entries in the books of original entry – preparation of Trial Balance and Financial Statements b. Identification of financial transactions – preparation of vouchers – Recording entries in the books of original entry – posting to the ledger – preparation of Trial Balance and Financial Statements c. Identification of financial transactions – Recording entries in the books of original entry – posting to the ledger –– preparation of vouchers – preparation of Trial Balance and Financial Statements d. Identification of financial transactions – Recording entries in the books of original entry – posting to the ledger – preparation of vouchers – preparation of Trial Balance and Financial Statements

2. ___________________ refers to the accounts related to assets and liabilities including capital accounts of owners a. Real Account

b. Nominal Account c. Personal Account d. Shareholders fund 3. Match the following i.

Personal Account

ii. iii.

Real Account Nominal Account

a. b. c. d.

a. Debit all losses & expenses, Credit all gains & incomes b. Debit the receiver, Credit the giver c. Debit what comes in, Credit what goes out

i – a, ii-b, iii-c i-b, ii-a, iii-c i-b, ii-c, iii-a i-c, ii-b, iii-a

4. The Accounting equation signifies which of the following: a. Outside Liabilities + Assets = Capital b. Assets = Outside Liabilities + Capital c. Capital = Total Assets + Total Liabilities d. None of the Above 5. What impact will the following transaction have on the Balance Sheet: “Cash payment made to creditors for Rs 75,000” a. On the assets side – Cash is reduced by Rs 75,000 On the liabilities side – creditors are reduced by Rs 75,000 b. On the assets side – Cash is reduced by Rs 75,000 On the liabilities side – creditors are increased by Rs 75,000 c. On the assets side – Bank is reduced by Rs 75,000 On the liabilities side – creditors are reduced by Rs 75,000 d. On the assets side – Cash is reduced by Rs 75,000 On the liabilities side – creditors remain unchanged 6. A journal signifies which of the following: a. Primary book of account b. Record of all business transactions c. Business transactions recorded in chronological order d. All of the above 7. Identify the correct Journal entry for the following transaction:

“Sale of goods to Shyam on Credit” a. Cash a/c ………Dr To Sales A/C b. Cash a/c ………Dr To Mohan A/C c. Mohan a/c ………Dr To Sales A/C d. Mohan a/c ………Dr To Finished Goods stock A/C 8. A business borrowed Rs 60,000 from its bank, and used the cash to buy a new computer. How is the accounting equation affected by these transactions? A B C D

ASSETS Unchanged Unchanged Increased Increased

LIABILITIES Decreased Decreased Increased Decreased

9. Robin introduces his car into the business. Which parts of the business accounting equation will change a. Assets and Capital b. Capital & liabilities c. Liabilities and assets d. Capital and profit 10. _________________ functions as a journal and a ledger with regard to cash and bank transactions respectively a. Bank book b. Clearance book c. Receipts & Payments A/C d. Cash book 11. In its usual form , a journal entry is divided by vertical lines into five coloumns in the following order: a. Date – Ledger folio- Particulars- Debit Amount – Credit Amount b. Date – Particulars - Ledger folio - Debit Amount – Credit Amount c. Date – Particulars - Journal folio - Debit Amount – Credit Amount d. Date – Particulars - Ledger folio - Credit Amount – Debit Amount 12. A debit entry in the Purchase A/C is matched by a credit entry in ITC Ltd. A/C. What do these entries record? a. Purchase of goods for cash from ITC Ltd.

b. Purchase return to ITC Ltd. c. Purchase of goods on credit From ITC Ltd. d. None of the above

Descriptive Questions 1. How are ledger accounts balanced? Explain clearly. 2. Explain the nature of use of the following books of original entry a. Purchase Book b. Sales Book c. Sales Return Book d. Purchase Return Book e. Journal Proper

Chp 3: Trial Balance to Final Accounts

Multiple Choice Questions

1. Why does a business prepare Trial Balance? a. To provide a list od all its assets & liabilities b. To calculate profit or loss c. To check the accuracy of its ledger entries d. To check its bank balance 2. The totals of a Trial Balance do not agree. What type of error causes this? a. A compensating error b. An error of casting c. An error of omission d. An error of principle 3. An error of principle would occur if a. Plant and machinery purchased was credited to fixed assets account b. Plant and machinery purchased was debited to purchases account c. Plant and machinery purchased was debited to equipment account d. Plant and machinery purchased was debited to the correct account but with the wrong amount 4. In a Trial Balance, which one of the following items would be correctly shown as a debit balance? a. Returns outwards b. Discount received

c. Returns Inward d. Bank overdraft 5. In a trail balance, which one of the following items would be correctly shown as a credit balance? a. Carriage inwards b. Carriage outwards c. Discount allowed d. Discount received 6. Which of the following is shown on the debit side of the trial balance? a. Discount received b. Capital c. Sales returns d. Bank overdraft 7. If R.Singh were to post Rs 1000 to the debit of S. ganguly’s Account instead of to the credit of S. Ganguly’s account, this would be known as an error of: a. Principle b. Commission c. Omission d. Compensation 8. Which one of the following is an error of principle? a. A gas bill credited to gas A/C and debited to bank A/C b. The purchase of a fixed asset credited to the asset A/C at cost and debited to the creditor’s A/C c. The purchase of a fixed asset debited to the purchases A/C at cost and credited to the creditor’s A/C d. The payment of wages debited and credited to the correct accounts, but using the wrong amount 9. Which of the following will cause a difference in a trial balance a. An invoice omitted from the sales book b. An invoice for Rs 415, entered in the sales book as Rs 451 c. An invoice for Rs 600 entered in the sales book , but not included in the monthly total d. A credit note entered to the sales book 10. After which error will a trial balance still balance a. Wages paid Rs 1500, was entered correctly in the bank account but debited to the wages account as Rs 2500 b. Rent receivable of Rs 200 was debited to the rent payable account c. Goods returned to supplier Rs 150 were entered in purchases returns book as Rs 105 d. The sales book was undercast by Rs 200

11. From the following list of balances ascertain the Trial Balance total as on 30.06.2015 LEDGER BALANCES Opening Stock Wages Sales Bank loan Coal and coke Purchases

AMOUNT (Rs) 18,000 10,000 1,20,000 4400 3,000 75,000

Repairs Carriage Income tax Debtors Leasehold premises Cash in hand

2,000 1500 1500 20,000 6,000 200

LEDGER BALANCES Plant & machinery Loose tools Lighting Creditors Capital Miscellaneous receipts Office salaries Office furniture Patents Goodwill Cash at bank Closing stock

AMOUNT (Rs) 7500 1800 2300 8000 40,000 600 2500 600 1000 15,000 5100 6000

a. 1,73,000 b. 1,78,200 c. 173,500 d. 169,500 12. Under a Financial statement, Profit and loss account reflects the financial performance of the organization while the balance sheet reflects the financial ________________ of the organization. a. Details b. Position c. Accuracy d. All of the above 13. When Cost of Goods Sold is deducted from Revenue/ Net Sales we get: a. Net Profit b. Earnings before Interest and Tax (EBIT) c. Gross profit d. Net Loss 14. In order to determine Gross profit, an adjustment is made for opening and closing stock in: a. Cash Basis b. Accrual Basis c. Either (a) or (b) d. None of the above 15. In a balance sheet, the ___________________ balances are reflected by assets a. Credit

b. Positive c. Expenditure d. Debit 16. As per the reverse order of the liquidity format of the balance sheet, which of the following comes under the heading of Fixed Assets? a. Tangible assets b. Intangible assets c. Capital Work-in-progress d. All of the above 17. Ascertain the Net Profit or Net Loss from the following information: a. 19,800 b. 21,000 c. 18,600 d. 18,800 PARTICULARS Net Sales Administrative expenses Income tax paid Cost of Goods Sold Distribution cost Operating expenses Profit on sale of old furniture Interest received Other expenses Interest paid

AMOUNT (Rs) 93,000 19,800 1000 38,000 3600 11,600 1200 2400 1500 1300

18. What is the effect of overvaluing closing stock on the current year’s profit? a. Decreases the gross profit and net profit b. Increases gross profit but decreases net profit c. Decreases gross profit but increases net profit d. Increases gross profit and net profit 19. Which of the following would appear in a trading account? a. Discount allowed b. Carriage outward c. Carriage inward d. Discount received 20. Which of the following should be classified as current liabilities? i. Sundry debtors ii. Sales tax payble

iii. iv.

Sundry creditors Investments a. (i) & (ii) b. (i) & (iv) c. (ii) & (iii) d. (iii) & (iv) 21. Gross profit is : a. Sales less purchases b. Net sales less Cost of Goods Sold c. Net profit less expenses d. Sales less purchase plus opening stock

Descriptive Questions 1. 2. 3. 4. 5. 6.

State the objectives of preparing a Trial Balance Illustrate the steps involved in preparing a Trial Balance Differentiate between operating expenses and administrative expenses Net profit or Net loss is also known as “Bottom line”. Why? Differentiate between direct and indirect expenses What is a Balance sheet? What are the importance and limitations of a Balance Sheet?

Chp 4: Accounting Standards (PART I & PART II)

Multiple Choice Questions

1. Accounting standards are mentioned in the __________________________ of The Chartered Accountants Act, 1949 a. Section 10 (C) b. Schedule II of Section 10 c. Section 3 d. Section 23 (A) 2. In India, Accounting standards are issued by the council of the ____________________ a. Institute of Chartered Accountants of India (ICAI) b. National Advisory Committee on Accounting Standards (NACAS) c. National Financial Reporting Authority d. Both (a) and (c) 3. _______________________ formulates Accounting Standards with a view to assist the council of the ICAI in evolving and establishing Accounting Standards in India

4.

5.

6.

7.

8.

a. Ministry of Corporate Affairs (MCA) b. Accounting Standards Board (ASB) c. Finance Secretory d. None of the Above AS 1 deals in ______________ and is mandatory to be followed by all enterprises a. Valuation of inventories b. Net profit/loss for the period c. Disclosure of financial statements d. Depreciation accounting Indian Accounting Standard 8 deals with the bases for __________________ in the statement of profit and loss of an organization a. Accounting for fixed assets b. Net profit/loss for the period c. Depreciation accounting d. Accounting policies, changes in accounting estimates and errors ________________ refers to an asset held with the intention of being used for the purpose of producing or providing goods or services and not held for sale in the normal course of business. a. Fixed asset b. Current asset c. Intangible asset d. None of the above What is the total number of Accounting Standards notified by the ministry of corporate affairs? a. 33 b. 37 c. 41 d. 45 Budgetary control is a. Planning in advance b. Action in advance c. Reaction in advance d. No action in advance

9. When a businessman introduces capital into his business, the transaction is debited in the cash book and credited to his capital account. Of which accounting concept is this an example? a. Business entity b. Going Concern c. Matching d. Prudence

10. Two values of closing stock are given, i.e., the cost is Rs 40,000 and the market value is Rs 45,000, the lower value (the cost) of Rs 40,000 will be chosen in favour of the market value of Rs 45,000 so that the profit will not be over stated. Which concept is being applied? a. Realization b. Historical cost c. Conservatism d. Consistency 11. The Schedule III of the Companies Act, 2013 provides general instructions for the preparation of _____________________ a. Financial Statements b. Balance Sheet only c. Profit and loss statement only d. Cash book

Descriptive Questions 1. What do you mean by Accounting Standards? Discuss the importance of following Accounting Standards. 2. Discuss the objectives of Accounting Standards. 3. What is AS 1? What are the main aspects of AS 1 4. What is meant by business segment and geographical segment as per AS 17

Chp 5: Corporate Accounting

Multiple Choice Questions

1. ______________________ is the balance in the statement of Profit and loss disclosing the allocations and appropriations such as dividend paid, bonus shares and transfer to/from reserves a. Surplus b. Reserves c. Transfer payments d. None of the above 2. Repairs to Building and machinery is categorized under which of the following heads? a. Non-current liabilities b. Current liabilities c. Miscellaneous expenditures

3.

4.

5.

6.

d. Contingent liabilities Debit balance of statement of Profit & Loss shall be reported as a negative figure under the head ________________. a. Reserve b. Capital gains and losses c. Surplus d. Both (a) and (c) ________________________ refers to the potential liabilities that occur due to an unforeseen or uncertain future event such as a court case or fire. a. Non – current liabilities b. Contingent liabilities c. Current liabilities d. Emergencies _________________________ amounts due to a business from its customers in exchange for goods and services delivered to them in the ordinary course of business a. Trade receivables b. Trade payables c. Prepaid expenses d. Customer liability Given below are the particulars for ABC Ltd.

PARTICULARS Long term loan Stock Share capital Bills payable Cash and cash equivalents Reserves and surplus Fixed assets Bills receivables

AMAOUNT 4,00,000 80,000 5,00,000 10,000 40,000 75,000 8,15,000 50,000

a. From the above information ascertain the Balance sheet total of Assets and liabilities: a. 9,75,000 b. 9,85,000 c. 9,25,000 d. 9,80,000 b. Based on the above information, if the creditors are paid their bills in full and half of the payments for bills receivables are received, ascertain the new balance sheet total: a. 10,00,000

b. 9,50,000 c. 9,85,000 d. 9,75,000 7. Calculate the amount of other current liabilities from the following information: PARTICULARS Total assets Share capital Long term loan Pre-paid income Bills payable Creditors Outstanding expenses Other current liabilities a. b. c. d.

AMAOUNT 11,00,000 7,00,000 1,50,000 10,000 90,000 60,000 40,000 ??

40,000 50,000 60,000 None of the above

Chp 6: Depreciation Accounting (AS-6)

Multiple Choice Questions

1. AS 6 deals with depreciation accounting and applies to all depreciable assets except: a. Assets used for administrative purposes b. Assets used for sales and service c. Wasting assets 2. Residual value is specifically: a. Scrap value b. The estimated value of a fixed asset at the end of its economic life c. The est5imated value of a fixed asset at the end of its physical life 3. Which of the following statements is correct in relation to AS 6? a. Only straight-line method can be adopted for calculation of depreciation b. Only reducing balance method can be adopted for calculation of depreciation c. No particular method has been specified for calculation of depreciation 4. The cost of a fixed asset should comprise of:

i. Its purchase price ii. Any attributable cost of bringing the asset to its working condition for intended use iii. Overhead of purchase department relating to purchase of asset a. (i) only b. (i) & (ii) only c. (i),(ii) & (iii) 5. Depreciation charges for a period are recorded a. Only in the Profit and Loss account b. Only in the Balance Sheet c. In the profit and loss account or as a part of the cost of another asset (such as inventory) 6. What is the purpose of charging depreciation in accounts? a. To allocate the cost less residual value of a fixed asset over the accounting periods expected to benefit from its use b. To ensure that funds are available for eventual replacement of the asset c. To comply with the Prudence concept

Chp 7: Cash Flow Statement

Multiple Choice Questions

1. Dividends received by financial enterprise is shown in the Cash flow statement under: a. Operating Activities b. Investing Activities c. Financing Activities 2. Dividends received by other than financial enterprise is shown in the Cash flow statement under: a. Operating Activities b. Investing Activities c. Financing Activities 3. Interest paid by other than financial enterprise is shown in the Cash flow statement under: a. Operating Activities b. Investing Activities c. Financing Activities

4. Interest received by other than financial enterprise is shown in the Cash flow statement under: a. Operating Activities b. Investing Activities c. Financing Activities 5. Which of the following items could appear in the company’s cash flow statement prepared under AS - 3? 1. Dividend received 2. Bonus issue of shares 3. Dividend paid 4. Surplus on revaluation of non-current asset 5. Loan repayment 6. Accumulated profit a. 1,3 & 5 b. 1,2,4 & 5 c. 2,4 & 6 d. 1,3 & 6 6. The cashier of a company has disappeared. There is no cash in the till and theft is suspected. The following information is available (all figures in rupees): Cash at the beginning of the period 1500; total sales during the period 3,00,000; Decrease in debtors during the period 11,000; receipts from debtors paid into the bank 1,92,000; expenses paid from cash received 10,000. How much has the cashier stolen during the period? a. 88,500 b. 99,500 c. 1,10,500 d. 1,20,500 7. A company increases the provision for doubtful debts. How does this affect the cash flow statement? OPTIONS A B C D

Items in the P/L a/c not involving movement of cash Not required Not required Required required

Items affecting the working capital Decrease Increase Decrease Increase

8. How should the revaluation of a fixed asset be treated in the cash flow statement a. It should be included in the cash flow from financing activities b. It should be included in the cash flow from investing activities c. It should be included in the cash flow from operating activities d. It should not be included in the cash flow statement

9. In the course of preparing a company’s cash flow statement, the following figures are to be included in the calculation of net cash flow form operating activities (all figures are in rupees): Depreciation charges 9,80,000; profit on sale of non-current assets 40,000; increase in inventories 1,30,000; decrease in receivables 1,00,000; increase in payables 80,000 What will be the effect of these items in the cash flow statement? a. Addition to operating profit 8,90,000 b. Subtraction from operating profit 8,90,000 c. Addition to operating profit 10,70,000 d. Addition to operating profit 9,90,000 10. A company purchased a motor vehicle for Rs 5,00,000. Settlement was made by a payment of Rs 4,40,000 and the part exchange of one of the company’s own vehicle for Rs 60,000. The vehicle given in part exchange had a written down value of Rs 1,40,000, but had a re-sale value of Rs 40,000. What amount should be shown in the cash flow statement for the acquisition of the vehicle? a. 4,40,000 b. 4,80,000 c. 5,00,000 d. 5,80,000

Chp 7: Cash Flow Statement

Descriptive Questions

1. Discuss the meaning an objectives of cash flow statement 2. Classify and explain the following items under the cash flow statement: a. Cash flow from operating activities b. Cash flow from investing activities c. Cash flow from financing activities 3. What are the steps involved in the preparation of a cash flow statement as per AS-3? 4. How are non-cash transactions treated in cash flow statement?

Chp 8: Financial Statement Analysis

Multiple Choice Questions

1. Quick Assets =? a. Current assets - prepaid expenses

2.

3.

4.

5.

6.

7.

8.

9.

b. Current assets – stock – prepaid expenses c. Current assets + stock – prepaid expenses d. Current assets – stock + prepaid expenses Ideal current ratio =? a. 0.75:1 b. 1:1 c. 2:1 d. 4:1 Quick liabilities =? a. Current liabilities – outstanding expenses b. Current liabilities – bank overdraft c. Current liabilities + bank overdraft d. Current liabilities + surplus Debt equity ratio =? a. Total debts/equity share capital b. Long term debts/shareholder’s fund c. Shareholder’s fund/long term debts d. None of the above Proprietary ratio =? a. Equity share capital/total assets b. (Equity share capital + preference share capital)/fixed assets c. Shareholder’s funds/total assets Solvency ratios measures the extent to which the firm has been financed by _______________. a. lenders b. current assets c. bank loan d. debtors ___________________ can be defined as the difference between net total sales and cost of goods sold a. Gross profit b. Gross loss c. Return on sales d. Both (A) and (B) State true or false: Ratios are not free from individual bias, because accounting is man made a. True b. False State true or false: Quick ratio of a company is 2:1. Cash collected from debtors will improve the quick ratio a. True

b. False 10. Current assets are those which are possessed by the business for more than a year a. True b. False

Chp 8: Financial Statement Analysis (Ratio Analysis)

Descriptive Questions

1. Explain the significance of current ratio. 2. Write short notes on the following: a. Quick ratio b. Total assets to debt ration c. Operating ratio d. Stock turnover ratio