### Accounting and Finance for Bankers - 3 (JAIIB)

 Description: Accounting & Finance for Bankers - 3 Number of Questions: 120 Created by: Priya Bakshi Tags: Capital and Revenue Expenditure Depreciation and Its Accounting Ratio Analysis Definition, Scope and Accounting Standards Calculation of Interest and Annuities Capital Budgeting Preparation of Final Accounts Trial Balance, Rectification of Errors and Adjusting and Closing Entries Principles of Bookkeeping and Accountancy Business Mathematics and Finance JAIIB Sample Papers Business Mathematics Finance Accounts Banking

ATMs are capable of

1. accepting cash/cheque

2. disbursing cash

3. making inter-bank transfer

4. All of the above

Explanation:

Correct Answer: All of the above

Compilation of related data records maintained in some pre-arranged order is known as

1. database

2. data file

3. data mart

4. data group

Explanation:

A multiple user computer system is beneficial because

1. it connects several computers through LAN or WAN

2. more than one person can share the work of data feeding simultaneously

3. each user can handle particular segment of a transaction

4. All of the above

Explanation:

Correct Answer: All of the above

Core bank component includes

(i) financial institution infrastructure
(ii) product build
(iii) customers management and customers overview
(v) payments
(vi) management information

1. (i), (ii), (iii) and (iv)

2. (ii), (iii), (iv) and (v)

3. (iii), (iv), (v) and (vi)

4. All of the above

Explanation:

Correct Answer: All of the above

The concept of automated banking through Automated Teller machines (ATMs) is the result of

1. computersiation

2. technological innovation

3. Both (1) and (2)

4. None of the above

Explanation:

Correct Answer: Both (1) and (2)

________ is a compilation of related data records maintained in some pre-arranged order.

1. Data

2. Record

3. Data file

4. System

Explanation:

________ are mostly used in scientific and mechanical fields and they provide data in a continuous form.

1. Analog computers

2. Digital computers

3. Both (1) and (2)

4. None of the above

Explanation:

The purpose of accounting is to provide information used in

1. planning

2. decision making

3. organizing

4. controlling

Explanation:

Sundry debtors on 31st March, 2006 are Rs. 55,200. Further bad debts are Rs. 200. Provision for doubtful debts is to be made on debtors at the rate of 5% and also, provision of discount is to be made on debtors at the rate of 2%. The amount of provision of doubtful debts will be

1. Rs. 1,045

2. Rs. 2,750

3. Rs. 1,100

4. Rs. 2,760

Explanation:

Out of debtors Rs. 55,200, Rs. 200 are bad debts and provision is to be created on balance of Rs. 55,000 at the rate of 5%, i.e. Rs. 2,750.

From the following details, find out the amount to be debited to Profit and Loss Account as provision for bad & doubtful debts during 2012-13:

Debtors Rs. 30,000 as on 31.03.2013; Bad debt during the year Rs. 1,500; Provision for bad debts as on 01.04.2012 Rs. 2,000; Provision for doubtful debts to be kept at 5% of total debtors.

1. Rs. 1,500

2. Rs. 1,000

3. Rs. 3,000

4. Rs. 2,000

Explanation:

There are bad debts of Rs. 1,500 which are to be added by new provision of Rs. 1,500 (30,000 x 5%). Then old provision of Rs. 2,000 is subtracted. Thus, 1,500 + 1,500 - 2,000 = Rs. 1,000.

Rs. Rs.
Goodwill 70,000 Debtors 35,000
Plant and Machinery 60,000 Furniture 10,000
Investments 25,000 Bills payable 10,000
Outstanding Expenses 5,000 Bills receivable 9,000
Closing Stock 25,000 Cash 6,000
Creditors 45,000 Drawings 12,000
Net Profit 22,000 Capital 1,55,000
Bank overdraft 15,000

Balance sheet total will be

1. Rs. 2,40,000

2. Rs. 2,50,000

3. Rs. 2,30,000

4. None of these

Explanation:

Assets = Goodwill + Plant + Investments + Stock + Debtors + Furniture + B/R + Cash, i.e. Rs. 2,40,000. The same are liabilities which are (Capital + N.P. - Drawings) + o/s expenses + creditors + bank overdraft + B/P

At the end of the year 2008-09, the ledger of a firm shows the following balances in their balance sheet:

Capital 2,00,000
Profit for the year 1,50,000
Provision for tax 75,000
Liabilities 1,00,000
Sundry assets 4,65,000

The total balance sheet would be

1. Rs. 4,65,000

2. Rs. 5,25,000

3. Rs. 5,65,000

4. Rs. 5,10,000

Explanation:

Assets = Advance tax + sundry assets, i.e. Rs. 5,25,000. The same are the liabilities which include Capital + Profit + Provision + Liabilities.

The following details relate to a trading concern for the year 2010:

Opening stock Rs. 4,000. Purchases and sales during the year Rs. 36,000 and Rs. 35,000, respectively. Profit on sales is 20%. 50% of the closing stock was found to be obsolete and estimated to fetch only 50% of cost. The value for the closing stock at the end of the year will be

1. Rs. 9,000

2. Rs. 12,000

3. Rs. 6,000

4. Rs. 10,500

Explanation:

Opening stock Rs. 4,000 + Purchase Rs. 36,000 - Cost of goods sold Rs. 28,000 (35,000 - 20%)
Thus, stock left Rs. 12,000, out of which 50% stock is obsolete and valued at 50%, i.e. Rs. 3,000.
This stock along with other goods of Rs. 6,000 will amount to Rs. 9,000.

Somnath Enterprises wishes to earn a 20% profit margin on selling price. How much should they charge on cost to achieve the required margin?

1. 50%

2. 33%

3. 25%

4. 20%

Explanation:

Profit is 20% of sales, i.e. if sales Rs. 20, profit will be Rs. 20 and thus, cost will be Rs. 80.
Thus, profit on cost will be 20/80 x 100, i.e. 25%.

Mr. Rishi sells goods at 20% above cost. His sales were Rs. 10,20,000 during the year. However, he sold damaged goods for Rs. 20,000 costing Rs. 30,000. This sale is included in Rs. 10,20,000. The amount of gross profit is

1. Rs. 1,90,000

2. Rs. 2,50,000

3. Rs. 1,56,667

4. Rs. 2,00,000

Explanation:

Correct Answer: Out of total sales, normal goods sold are Rs. 10,00,000 where the profit is 20% of cost and thus, 1/6 of sales, i.e. Rs. 1,66,667 but there is loss in damage goods of Rs. 10,000. Thus, net profit = Rs. 1,56,667.

Sensitivity analysis for NPV determination identifies

1. areas of concern in an investment opportunity

2. those factors which are sensitive to the profitability of the investment opportunity

4. All of the above

Explanation:

Correct Answer: All of the above

Which of the following is/are the advantage(s) of NPV and IRR methods?

1. They give exact results.

2. They take into account time value of money.

3. They focus on cash flows rather than on accounting profits.

4. Both (2) and (3)

Explanation:

Correct Answer: Both (2) and (3)

Internal rate of return is the rate of __________ in NPV equation at which the present value of cash flows of a project equals its initial outlay.

1. cash flow

2. investment

3. discount

4. years

Explanation:

Time value of money means

1. a sum of money received today has more value than the same amount of money to be received in future because the money received today can be invested today to get some more earning

2. since there is risk involved in future, an individual would always like to receive money today than to wait for future and be under risk

3. the money received today can be used for any consumption which one may not be able to do because of future inflation and price rise

4. All of the above

Explanation:

Correct Answer: All of the above

A project requires an initial investment of Rs. 20,000 with annual cashflow of Rs. 4,000. Compute the pay-back period.

1. 5 years

2. 9 years

3. 10 years

4. 16 years

Explanation:

Pay-back period = 20,000/4,000, i.e. 5 years.

A bond of face value Rs. 5,000 carries a coupon interest rate of 12%. It is quoted in the market at Rs. 4,500. What is the current yield of the bond?

1. 12%

2. 10%

3. 13.3%

4. 14.2%

Explanation:

Interest earned is Rs. 600 (5000 x 12%). Thus, current yield = 600/4500 x 100 = 13.3%

Debit balance as per cash book is Rs. 3,000. Cheque issued but not presented for payment Rs. 500, interest collected by bank Rs. 400 and deposit by a customer directly into his bank Rs. 250. Bank reconciliation statement will show balance of ____ as per passbook.

1. Rs. 4,150

2. Rs. 4,000

3. Rs. 4,500

4. None of the above

Explanation:

Balance is required as per passbook. Thus, all of the above transactions have to be added because bank has credited interest, collected money from customer and has not debited the cheque issued yet.

3,000 + 500 + 400 + 250 = Rs. 4,150

Purchase of Rs. 1,870 by cheques has been wrongly posted in the cashbook as Rs. 1,780. This has the effect of

1. increasing the bank balance and undervaluation of stock consumed by Rs. 90.

2. decreasing the bank balance and stock consumed by Rs. 90

3. increasing the bank balance and stock consumed by Rs. 180

4. decreasing the bank balance and stock consumed by Rs. 180

Explanation:

Since purchase account is underdebited and bank account is undercredited, so (1) is the correct answer.

Bank reconciliation statement as on 30.6.2006

Particulars Debit Credit
Balance as per cash book 22,575
Cheque deposited but not yet realized 50,000
Cheque issued but not yet paid 30,000
Bank charges charged by the bank 1,000
Balance as per pass book 1,575
52,575 52,575

The balance to be shown in the balance sheet is

1. Overdraft Rs. 21,575

2. Deposit Rs. 22,575

3. Deposit Rs. 21,575

4. Overdraft Rs. 1,575

Explanation:

The cash book should show the actual balance which should be taken as 22,575 - 1,000 for bank charges not adjusted in the cash book earlier.

When the interest and dividend are credited by the bank, the amount is recorded in the bank column of cash book

1. after the entry is posted in the pass book

2. when the cheque is dishonoured

3. when the bank charges are levied by the bank

4. when the interest or dividend is allowed or collected by the bank

Explanation:

Correct Answer: after the entry is posted in the pass book

Providing a _________ is the bank's way of keeping the customers informed of the entries made in their accounts.

1. bank pass book

2. bank statement

3. cheque book

4. Either (1) or (2)

Explanation:

Correct Answer: Either (1) or (2)

The money deposited with bank is _______ to bank account while money withdrawn from the bank is _______ to bank account.

1. debited, credited

2. credited, debited

3. debited, debited

4. credited, credited

Explanation:

A bank account is a personal account and the account-holders record their transaction with the bank in a similar manner as they do with any other person.

1. True

2. False, because bank account is a real account.

3. False, because account holders record their transaction with the bank in a similar manner as a nominal account.

4. Both (2) and (3)

Explanation:

If you start with cash book favourable balance in Bank Reconciliation Statement, which item will be added?

1. Cheque deposited but not credited by the bank

2. Cheque omitted to be deposited in the bank

3. Any amount directly collected by the bank on behalf of customer but not recorded in cash book

4. Overcast debit side of cash book

Explanation:

Correct Answer: Any amount directly collected by bank on behalf of customer but not recorded in cash book

Credit balance as per cash book means

1. surplus cash

2. bank overdraft

3. term deposits with bank

4. None of these

Explanation:

An amount of Rs. 6,000 is credited twice in the bank column of cash book. Taking credit balances as per pass book as the starting point, what adjustment needs to be done to arrive at the balance as per cash book?

1. Add Rs. 12,000 to the balance as per pass book.

2. Add Rs. 8,000 to the balance as per cash book.

3. Deduct Rs. 6,000 from the balance as per pass book.

4. Add Rs. 4,000 to the balance as per pass book.

Explanation:

Since cash book has subtracted Rs. 6,000 extra, so deduct 6,000 from the balance as per pass book.

The ideal quick ratio is

1. 1 : 2

2. 1 : 1

3. 5 : 1

4. None of the above

Explanation:

_________ is the indicator of long term solvency position of an enterprise.

1. Acid Test Ratio

2. Quick Ratio

3. Current Ratio

4. Debt Equity Ratio

Explanation:

Long term solvency is measured by Debt Equity Ratio.

________ ratio is also known fixed charges cover for interest as well as principal amount.

1. Debt service coverage

2. Capital gearing

3. Market test

4. Earning per share

Explanation:

________ is the ratio of total current assets to total current liabilities.

1. Current Ratio

2. Liquid Ratio

3. Debt Equity Ratio

4. Proprietary Ratio

Explanation:

A ________ ratio is an indicator of overtrading of total assets, and a ________ ratio reveals idle capacity.

1. low, low

2. low, high

3. high, low

4. high, high

Explanation:

Return on Shareholder’s Funds =

1. $\frac{Net\ Profit\ after\ interest\ and\ Tax}{Shareholder's\ Funds} + 100$

2. $\frac{Net\ Profit\ after\ interest\ and\ Tax}{Shareholder's\ Funds} - 100$

3. $\frac{Net\ Profit\ after\ interest\ and\ Tax}{Shareholder's\ Funds} \times 100$

4. $\frac{Net\ Profit\ after\ interest\ and\ Tax}{Shareholder's\ Funds} \div 100$

Explanation:

Correct Answer: $\frac{Net\ Profit\ after\ interest\ and\ Tax}{Shareholder's\ Funds} \times 100$

_______ ratio is also known as overall profitability ratio or return on capital employed.

1. Profitability

2. Return on Investment

3. Return on Shareholder’s Funds

4. Return on Assets

Explanation:

__________ give some yardstick to measure the profit in relative terms with reference to sales, assets or capital employed.

1. Profitability ratios

2. Turnover ratios

3. Financial ratios

4. Market test ratios

Explanation:

_________ is/are interested in the operational efficiency, earning capacities and financial health of the business.

1. Management

2. Shareholders

3. Investors

4. Creditors

Explanation:

Ratio analysis focuses on

1. liability

2. profitability

3. solvency

4. All of the above

Explanation:

Correct Answer: All of the above

A purchase of Rs. 6800 has been made by the firm but the amount has been posted to creditor’s account for Rs. 6000. For rectification, the journal entry would be

1. debit creditor and credit purchase account with Rs. 800

2. debit purchase account and credit suspense account with Rs. 800

3. debit suspense account and credit creditor’s account with Rs. 800

4. debit creditor’s account and credit suspense account with Rs. 800

Explanation:

Since creditor's account is undercredited by Rs. 800, so debit suspense account and credit creditor’s account with Rs. 800.

Which among the following statements is not correct?

1. In India, the accounting standards are issued by Accounting Standards Board under ICAI.

2. Compliance with accounting standards is the duty of Auditor.

3. Single entry system is a scientific method of accounting.

4. Accounting standard 6 relates to depreciation accounting.

Explanation:

Correct Answer: Single entry system is a scientific method of accounting.

Interest accrued but not due means

1. interest not paid as company defaulted in payment of interest

2. interest not paid as the due date did not arrive

3. interest paid and received by the debenture holders

4. All of the above

Explanation:

Correct Answer: Interest not paid as the due date did not arrive

Dividend paid before the end of the financial year is known as

1. interim dividend

2. unclaimed dividend

3. proposed dividend

4. None of the above

Explanation:

Srei Ltd. issued Rs.1,25,000 equity shares of Rs. 10 each. The amount payable on these shares is as follows:

– 2 on appIication
– 3 on allotment
– 2 onfirstcalI
– Balance in final call

Suman, who has Rs. 5,000 shares, paid full value of shares with the allotment money. The amount to be debited to the bank account at the time of receipt of first call money will be

1. Rs. 2,50,000

2. Rs. 2,35,000

3. Rs. 2,45,000

4. Rs. 2,40,000

Explanation:

The first call will be received for 1,20,000 shares @ Rs. 2, i.e. Rs. 2,40,000.

The premium on issue of shares must be treated as

1. cost of capital

2. capital receipt

3. revenue receipt

4. capital expense

Explanation:

Subscribed capital refers to the part of the issued capital that has actually been subscribed by the public and subsequently allotted to them by the directors of the company and is

1. fully paid-up

2. partly paid-up

3. Either (1) or (2)

4. None of the above

Explanation:

Correct Answer: Either (1) or (2)

________ is stated in the Memorandum of Association as the share capital of the company.

1. Called-up capital

2. Paid-up capital

3. Authorized capital

4. Subscribed capital

Explanation:

Capital Reserve comes under

1. part of uncalled capital

2. reserve and surplus

3. accumulated profits

4. reserve capital

Explanation:

1. Shareholder Fund

2. Non-Current Liabilities

3. Current Liabilities

4. None of the above

Explanation:

The amount of calls in arrears is reduced from ___________ to arrive at __________.

1. issued capital: called-up capital

2. called-up capital: issued capital

3. paid-up capital; called-up capital

4. called-up capital; paid-up capital

Explanation:

Correct Answer: called-up capital; paid-up capital

There must be at least __________ gap between two calls.

1. one month

2. two month

3. three month

4. four month

Explanation:

The law limits the commission payable on the issue of debentures to

1. 2%

2. 2½%

3. 3%

4. 5%

Explanation:

Which of the following errors is an error of omission?

1. Purchase of Rs. 2,000 has been recorded in the Sales Return Book.

2. Repairs to machinery have been debited to Machinery Accounts.

3. The total of purchase journal has not been posted to the Purchase Account.

4. Legal charges paid to Mr. Lawyer have been debited to his account.

Explanation:

Correct Answer: The total of purchase journal has not been posted to the Purchase Account. When an entry is not posted, it is error of omission.

While checking the accounts of ABC, the following discrepancies were noticed, even though the Trial Balance was made to balance by putting the difference to Suspense Account.

(i) Sales day book for the month of June 2012 was found overcast by Rs. 7,000.
(ii) A credit purchase of Rs. 3,000 was omitted to be recorded in the days book.
(iii) Rs. 4,300 received from A credited to A's account as Rs. 3,400.
(iv) Purchase of Office Equipment worth Rs. 5,000 included in trading purchases.

From the above details, what would have been the difference in Trial Balance which was made to balance by opening Suspense Account?

1. Debit side short by Rs. 9,100

2. Credit side short by Rs. 9,100

3. Debit side more by Rs. 7,900

4. Credit side more by Rs. 6,100

Explanation:

(i)   Sales credited more by Rs. 7,000
(ii)  No suspense account
(iii) A's account under credited by Rs. 900
(iv) No suspense account.

Thus, credit side is more by Rs. 6,100.

Which of the following errors is an error of principle?

1. Total sales figure was taken as Rs. 19,373 instead of Rs. 19,733.

2. A discount of Rs. 30 avowed to Mr. A was not recorded in the discount allowed account.

3. Legal charges for acquisition of building for Rs. 500 were entered in the Legal Expenses Account.

4. Rs. 1,000 received from Mr. X was posted to the credit of Mr. M.

Explanation:

Correct Answer: When a revenue item is shown as capital item and vice versa, it is error of principle.

Balances of accounts are transferred to

1. Trial Balance

3. Profit and Loss Account

4. Balance Sheet

Explanation:

The trial balance of M/s Ram & Co. shows closing stock of Rs. 30,000. It will be recorded in

2. Profit and Loss Account

3. Balance Sheet

4. Both (1) and (3)

Explanation:

Correct Answer: Since it is appearing in trial balance, so it will be shown in Balance Sheet.

Which of the following is not a process in the preparation of a trial balance?

1. Recording

2. Summarizing

3. Classifying

4. Interpretation

Explanation:

Correct Answer: Interpretation is analysis after final accounts are prepared.

Which of the following will lead to understatement of net profit?

1. Amortization of fictitious assets

2. Treating capital expenditure as revenue expenditure

3. Treating revenue expenditure as capital expenditure

4. Creation of general reserve

Explanation:

Correct Answer: Treating capital expenditure as revenue expenditure will lead to more expenditures and thus, profits would be understated.

Capital expenditure is an expenditure which

1. benefits the current accounting period

2. will benefit the next accounting period

3. will benefit the current as well as future accounting periods

4. results in the acquisition of a current asset

Explanation:

Capital expenditure results in benefit in more than one accounting period.

Legal expenses incurred in defending a suit for breach of contract to supply goods come under

1. revenue expenditure

2. capital expenditure

3. deferred revenue expenditure

4. None of the above

Explanation:

Ram and Shyam were friends and in need of funds. On 1.1.2006, Ram drew a bill for Rs. 2,00,000 for six months on Shyam. On 4.1.2006, Ram got the bill discounted at 10% p.a. and remitted 40% of the proceeds to Shyam. The cheque sent to Shyam is for

1. Rs. 80,000

2. Rs. 72,000

3. Rs. 76,000

4. Rs. 70,000

Explanation:

Total discount of bill is 2,00,000 x 6/12 x 10/100 = Rs. 10,000.
40% of discount will be Rs. 4,000.
Thus, out of 40% amount due, i.e. Rs. 80,000, Rs. 4,000 will be subtracted.

Raja’s acceptance to Dinesh for Rs. 8,000 renewed @ 18% per annum for 3 months on the condition that Rs. 2,000 are paid in cash immediately. The amount of interest will be

1. Rs. 360

2. Rs. 450

3. Rs. 90

4. Rs. 270

Explanation:

The interest will be charged on balance of Rs. 6,000 to be paid later.
Interest = 6000 x 18/100 x 3/12 = Rs. 270

A has discounted a 3 month’s bill @ 10% p.a. from bank and has been given a credit of Rs. 11,700 but the bill was dishonoured and a notary charge of 50 was paid by bank. The amount by which A’s account will be debited by bank is

1. 13,050

2. 11,050

3. 12,050

4. 12,250

Explanation:

Let the actual amount of bill be Rs. x.
Discount @ 10% p.a. for 3 months will be x/40 and net amount realised will be x - x/40 = 39/40.
Now, 39/40 of x = 11,700
Thus, the amount of bill is Rs. 12,000, but on maturity being dishonoured, it will be debited along with charges of Rs. 50. Thus, the correct answer will be Rs. 12,050.

Dishonour of cheque is recorded in

1. double/triple column cash book

2. sales book

3. purchases book

4. bills receivable book

Explanation:

Receipt and dishonour of cheque should be recorded in cash book.

Bills receivable account is a

1. nominal account

2. personal account

3. real account

4. None of the above

Explanation:

B/R is a real account.

The Acceptor of Bills of Exchange is the

1. debtor

2. creditor

3. seller

4. None of the above

Explanation:

Drawee means a person who

1. makes the order

2. accepts the bill

3. takes the payment on due date

4. is the creditor

Explanation:

Correct Answer: drawee accepts the bill

Which of these is not an essential feature of a bill of exchange?

1. Unconditional

2. In writing

3. Certainty of amount

4. Amount to be paid in foreign currency

Explanation:

All others are essential features.

When bill discounted with the bank is dishonoured,

1. acceptor’s account is debited in the books of drawer

2. bills receivable account is credited in the books of drawer

3. bank account is debited in the books of drawer

4. bills payable account is debited in the books of drawer

Explanation:

Correct Answer: acceptor’s account is debited in the books of drawer

A had a capital of Rs. 75,000. He also had goods amounting to Rs. 15,000 which he had purchased on credit and the payment had not been made. The value of the total assets of the business is

1. Rs. 90,000

2. Rs. 60,000

3. Rs. 75,000

4. Cannot be calculated

Explanation:

Assets = Liabilities + capital, i.e. 75,000 + 15,000 = Rs. 90,000

Given:

Initial capital

Assets at the end

Liabilities at the end| Rs. 50,000

Rs. 65,000

Rs. 6,000|

Calculate the capital at the end.

1. Rs. 65,000

2. Rs. 1,15,000

3. Rs. 59,000

4. Rs. 9,000

Explanation:

Capital = Assets - Liabilities, i.e. 65,000 - 6,000 = Rs. 59,000

The amount spent in order to produce and sell the goods and services which produce the revenue is called

1. Revenue

2. Expense

3. Assets

4. Investment

Explanation:

Depreciating fixed assets over their useful life is an example of which of the following concepts/conventions?

1. Money Measurement Concept

2. Going Concern Concept

3. Cost Concept

4. Matching Concept

Explanation:

X Ltd. purchased goods for Rs. 5 Iakh and sold 9/10th of the value of goods for Rs. 6 Iakh. Net expenses during the year were Rs. 25,000. The company reported its net profit as Rs. 75,000. Which of the following concepts is violated by the company?

1. Conservatism Concept

2. Realization

3. Matching

4. Accrual

Explanation:

The company has sold 9/10th of goods, i.e. costing 5,00,000 x 9/10 = Rs. 4,50,000 plus expenses Rs. 25,000. Thus, cost of sales is Rs. 4,75,000. S.P = Rs. 6,00,000. Profit = Rs. 1,25,000.
According to matching concept, profit should be calculated by comparing the current expenditures with current revenues.

The underlying accounting principle(s) necessitating amortization of intangible asset(s) is/are

1. Cost Concept

2. Realization Concept

3. Matching Concept

4. Both (1) and (3)

Explanation:

The basic concept(s) related to Profit and Loss Account is/are

1. Realization Concept

2. Matching Concept

3. Cost Concept

4. Both (1) and (2)

Explanation:

Correct Answer: Both (1) and (2)

Personal Account shows the credit balance of

1. cash in hand

2. the amount payable

3. income

4. the amount receivable

Explanation:

Correct Answer: The amount payable should show the credit balance.

Personal accounts can take the form of

1. natural person accounts like proprietor’s account, suppliers account, receivers account (like Mohan’s a/c, Shashi’s A/c, Naresh’s a/c), etc.

2. artificial persons’ and body of persons’ accounts like limited company’s account, bank account, insurance company’s account any governments account, etc.

3. representative personal accounts like salaries outstanding accounts, unexpired insurance account, interest received in advance account, etc.

4. All of the above

Explanation:

Correct Answer: All of the above

1. Real Account

2. Nominal Account

3. Personal Account

4. None of the above

Explanation:

Journal Entries which pertain to outstanding entries, prepaid entries and depreciation entries are called

2. Rectification Entries

3. Transfer Entries

4. Closing Entries

Explanation:

Which of these is not a special purpose journal?

1. Cash journal

2. Purchase journal

3. Debtors journal

4. Sales journal

Explanation:

Cheques received but deposited on the next day are recorded in

1. cash column of cash book

2. bank column of cash book

3. Both (1) and (2)

4. None of the above

Explanation:

Correct Answer: cash column of cash book

Which of these transactions will not be recorded in cash book?

2. Cash paid to creditors

3. Salary remained outstanding

4. Cash deposited with bank

Explanation:

Correct Answer: Salary remained outstanding, so no cash is paid and no entry will be passed in cash book.

Which of the following is a liability of a firm?

1. Debit balance of analytical Petty Cash Book

2. Credit balance of Bank Pass book

3. Debit balance of Bank column of Cash Book

4. Credit balance of Bank column of Cash Book

Explanation:

Correct Answer: Credit balance of Bank column of Cash Book means overdraft and thus, a liability.

The forward rate (60 days) for the rupee is 47.80/$and the spot rate for it is 48.20/$. The forward premium on it will be

1. 10.58%

2. 4.97%

3. 9.58%

4. 5.97%

Explanation:

0.4/47.80 x 100 x 12/2 = 4.97%

The forward rate (60 days) for the rupee is 49.05/$, whereas the spot rate for it is 48.20/$. The forward discount on Indian rupee will be

1. 10.58%

2. 4.97%

3. 9.58%

4. 5.97%

Explanation:

Discount = 49.05 - 48.20 = 0.85
Thus, 0.85/49.05 x 100 x 12/2 = 10.58%

A _______ is a price quotation to deliver the currency in future.

1. direct quote

2. indirect quote

3. cross rate

4. forward rate

Explanation:

The ask-bid spread depends upon the breadth and depth of the market for that currency and the volatility of the currency.

1. True

2. False

3. Partly true

4. Partly false

Explanation:

Exchange rate is the value of currency for the purpose of conversion to other currency.

1. True

2. False

3. Partly true

4. Partly false

Explanation:

The statement is true.

A/An ____ price is the rate at which the client/market is prepared to buy a specific currency pair in the forex trading market.

1. bid

4. None of the above

Explanation:

Forex management

1. is part of management science

2. refers to generation of forex

3. pertains to use forex

4. All of the above

Explanation:

Correct Answer: All of the above

The objective of _________ is to ensure that approximate recognition criteria and measurement bases are applied to provision contingent liabilities and sufficient information is disclosed in the notes to the financial statements to enable users to understand their nature, timing and amount.

1. AS 27

2. AS 28

3. AS 29

4. AS 30

Explanation:

____________ is presented by a parent (holding company) to provide financial information about the economic activities of the group as a single economic activity.

1. Profit and Loss Account

2. Consolidated Financial Statement

3. Working Capital

4. Fund-Flow Statement

Explanation:

Consolidated Financial Statements are prepared.

An entity under AS 10 should disclose the information relating to

1. the gross and net book values of fixed assets at beginning and end of an accounting period showing additions, disposals, acquisitions and other movements

2. expenditure incurred on account of fixed assets in the course of construction or acquisition

3. revalued amounts substituted for historical costs of fixed assets with the method applied in computing the revalued amount in the financial statements

4. All of the above

Explanation:

Correct Answer: revalued amounts substituted for historical costs of fixed assets with the method applied in computing the revalued amount in the financial statements

As per AS 2, the cost of inventories should comprise

1. Costs of Purchase

2. Costs of Conversion

3. Both (1) and (2)

4. None of the above

Explanation:

Correct Answer: Both (1) and (2)

Accounting standards standardize diverse accounting policies with a view to

1. eliminate the non-comparability of financial statements and thereby improving the reliability of statements

2. provide a set of standard accounting policies, norms and disclosure requirements

3. Both (1) and (2)

4. None of the above

Explanation:

Correct Answer: Both (1) and (2)

Which of the following is/are the advantage(s) of Accounting Standards?

1. To eliminate or reduce variation in accounting treatments

2. To facilitate comparison of financial statements of different companies

4. All of the above

Explanation:

Correct Answer: To eliminate or reduce variation in accounting treatments

Accounting standards are issued by

1. Central Government

2. State Government

3. Institute of Chartered Accountants of India

4. Reserve Bank of India

Explanation:

Correct Answer: Institute of Chartered Accountants of India

GASB stands for

1. Governmental Accounting Standards Board

2. General Accounting Standards Board

3. Geographic Accounting Standards Board

Explanation:

Correct Answer: Governmental Accounting Standards Board

A school is planning to purchase a bus worth Rs. 5,00,000 after 4 years. They have planned to make savings right from this year. Calculate the yearly savings they are required to make to purchase the bus, if the return on investment is 12%. (Take annuity table value up to 3 places.)

1. Rs. 1,03,210

2. Rs. 1,04,624

3. Rs. 1,20,000

4. Rs. 1,21,630

Explanation:

The value of annuity of Re. 1 every year @12% for 4 years is 4.779. Thus, 5,00,000/4.779 = Rs. 1,04,624

By calculating the present value of an ordinary annuity,

1. one may come to know today’s value of a series of future payments

2. one may come to know the present value of the coupon payments that he will be receiving in future

3. Both (1) and (2)

4. None of the above

Explanation:

Correct Answer: Both (1) and (2)

__________ can be defined as a sequence of periodic payments (or receipts) regularly over a specified period of time.

1. Simple

2. Compound

3. Sinking fund

4. Annuity

Explanation:

Correct Answer: Annuity is a sequence of periodic payments.

Rahul invested Rs. 70,000 in a bank at the rate of 6.5% p.a simple interest rate. He received Rs. 85,925 after the end of term. Find out the period for which sum was invested by Rahul.

1. 6.5 years

2. 2.5 years

3. 3.5 years

4. 4.5 years

Explanation:

Time = Interest x 100
Principal x Rate
Thus, 15925 x 100
70,000 x 6.5
i.e. 3.5 years

Schedule 17 enclosed to the bank balance sheet relates to

1. contingent liabilities

2. provisions and contingencies

3. disclosures as notes to accounts

4. details of maturity pattern of assets and liabilities

Explanation:

Correct Answer: disclosures as notes to accounts

________ is/are related to inter-bank transactions.

1. Money at call and short notice

3. Bills receivable for collection

4. Acceptance endorsements and other obligations

Explanation:

Correct Answer: Money at call and short notice

Form B of the third schedule gives the format of a

1. Profit and Loss Account

2. Balance Sheet

3. Cost Sheet

4. Statement of Affairs

Explanation:

Correct Answer: Profit and Loss Account

Every banking company incorporated in India is required to transfer at least ________of its profit to the reserve fund.

1. 10%

2. 15%

3. 25%

4. 30%

Explanation:

Every banking company incorporated in India is required to transfer at least 25%of its profit to the reserve fund.

A cheque of Rs. 6,000 is received from Mr. Sam (our tenant) on account of rent. The correct entry is

1.
Cash A/c Dr 6,000
To Rent a/c 6,000
2.
Bank A/c Dr 6,000
To Sam's A/c 6,000
3.
Bank A/c Dr 6,000
To Rent A/c 6,000
4. None of these

Explanation:

Since rent is received by cheque, we would debit bank. Rent is an income, and income is credited.

A B/R, received from Mr. A is endorsed in favour of Mr. B for Rs. 3,000. The correct entry is

1.
A's A/c Dr 3000
To B's A/c 3000
2.
B/R A/c Dr 3000
To B's A/c 3000
3.
B's A/c Dr 3000
To B/R A/c 3000
4. None of these

Explanation:

B would be debited, as he has received the bill. B/R would be credited, as that bill has gone out.

An old furniture is sold for Rs. 5,000 to Mr. Adarsh in cash. The correct entry is

1.
To Furniture A/c 5,000
2.
Cash A/c Dr 5,000
To Furniture A/c 5,000
3.
Bank A/c Dr 5,000
To Furniture A/c 5,000
4. None of these

Explanation:

Cash has come in on sale of furniture, so it has to be debited. Furniture has gone out, so it has to be credited.

A cheque received from a debtor, Rahul, is of Rs. 9,800 in full settlement of Rs. 10,000. The correct entry is

1.
Rahul's A/c Dr 10,000
To Cash A/c 9,800
To Discount A/c 200
2.
Cash A/c Dr 10,000
To Rahul's A/c 10,000
3.
Bank A/c Dr 9800
Discount A/c 200
To Rahul's A/c 10,000
4. None of the above

Explanation:

Cheque is received, so we would debit bank. Discount allowed (10,000 - 9,800 = 200) is debited, since it is a loss. Rahul has paid by cheque, so he would be credited.

A sum of Rs. 25,000 is deposited in State Bank of India. The correct entry is

1.
State Bank of India's A/c Dr 25,000
To Cash A/c 25,000
2.
Cash A/c Dr 25,000
To State Bank of India's A/c 25,000
3.
Vijaya Bank's A/c Dr 25,000
To Cash A/c 25,000
4. None of these

Explanation:

Since cash has gone out, we have to credit it. State Bank of India is debited because we have deposited cash in it, so it has become our debtor.

Depreciation charged on machinery is Rs. 40,000. The correct entry is

1.
Machinery A/c Dr 40,000
To Depreciation A/c 40,000
2.
Depreciation A/c Dr 40,000
To Machinery A/c 40,000
3.
Cash A/c Dr 40,000
To Machinery A/c 40,000
4. None of the above

Explanation:

Depreciation is a loss and so it would be debited. Machinery is credited, since it is a decrease in asset, and it is considered that it goes out from business.

C is a new partner in a firm consisting of partners A and B. He adds Rs. 150,000 as his 1/4th share in profits. The capitals of other partners are to be adjusted on the basis of C's contribution and profit share. Find the amount to be added by A and B, if their initial capital amounts were Rs. 180,000 and Rs. 200,000, respectively.

1. Rs. 25,000 and Rs. 45,000

2. Rs. 45,000 and Rs. 25,000

3. Rs. 20,000 and Nil

4. Rs. 70,000 and Rs. 50,000

Explanation:

C's capital = Rs. 1,50,000
Thus, the capital of new firm = 1,50,000 x 4/1 = Rs. 6,00,000 divided in a new ratio in which A and B will contribute 6,00,000 - 1,50,000, i.e. Rs. 4,50,000 equally. Thus, they will contribute another Rs. 45,000 and Rs. 25,000, respectively.

The net profits of a business are Rs. 1,50,000, Rs. 1,75,000 and Rs. 2,75,000 in the last 3 years. These include an investment income @ 20% p.a. of Rs. 20,000 every year, but exclude the annual insurance premium payable Rs. 10,000. Goodwill is to be valued at 1½ year purchase of average profits of 3 years. Calculate the value of goodwill.

1. Rs. 2,85,000

2. Rs. 3,15,000

3. Rs. 2,55,000

4. Rs. 3,45,000

Explanation:

The average profits after deduction of interest and insurance premium are Rs. 1,70,000.
Thus, goodwill = 1½ x 1,70,000 = 2,55,000

X, Y and Z are partners sharing in the ratio 4 : 3 : 3. X retires and the new profit ratio is 3 : 7. Goodwill of the firm is valued at Rs. 20,000. What will be the journal entry?

1. Debit Z and credit X's capital by Rs. 20,000.

2. Debit Z and credit X's capital by Rs. 8,000.

3. Debit Z and credit Y's capital by Rs. 20,000.

4. Debit Z and credit Y's capital by Rs. 8,000.

Explanation:

Y's gain = 3/10 - 3/10, i.e.nil
Z's gain = 7/10 - 3/1 = 4/10
The gaining partner is Z only and he will be debited with 20,000 x 4/10.

The debit balance of profit and loss account should be

1. debited to old and new partners in the profit sharing ratio

2. debited to new partner only

3. credited to old partners in old profit sharing ratio

4. debited to old partners in the old profit sharing ratio