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1 When money is given on loan, a fee is charged by the lender, which is called:
A. commission
B. fee
C. interest
D. discount
C When money is given on loan, a fee is charged by the lender, which is called, interest.
2 Simple rate of interest or flat rate of interest is the amount of interest which is paid every year as
a _____ of the
amount borrowed:
A. fixed percentage
B. varying percentage
C. fluctuating percentage
D. percentage as per discretion of the lender
A Simple rate of interest or flat rate of interest is the amount of interest which is paid every year as
a fixed percentage of the amount borrowed
3 Simple interest is calculated as:
A. principal x rate
B. product x rate x time
C. principal x rate x time
D. principal x time
C Simple interest is calculated as principal x rate x time
4 Loan is obtained by X for purchase of a car for Rs.1.50 lac at 12% interest rate over two years.
What is the amount of total simple interest?
A. 42000
B. 36000
C. 30000
D. 24000
B Amount of interest = (1.50 lac x 12 x 2) / 100 = 36000
5 Loan is obtained by X for purchase of a car for Rs.1.50 lac at 12% interest rate over two years.
What is the amount of total amount to be paid at simple rate of interest?
A. 186000
B. 172000
C. 160000
D. 150000
A Principal + interest = 150000 + 36000 [(1.50 lac x 12 x 2) / 100 = 36000] = 186000
6 Loan is obtained by X for purchase of a car for Rs.1.50 lac at 12% interest rate over two years.
What is the amount of weekly payment at simple rate of interest?
A. 3398.12
B. 3458.19
C. 3576.92
D. 3697.02
C Total amount payable 150000 + 36000 [(1.50 lac x 12 x 2) / 100 = 36000] = 186000 / 52 = 3576.92
7 Compound interest is paid on which of the following:
A. principal amount
B. interest amount
C. principal amount and interest already accrued
D. principal amount and interest to accrue
C Compound interest is calculated on the principal amount and interest already accrued till date of
compounding of interest. The period of compounding may differ.
8 If interest is to be compounded annually, which of the following will be used:
A. P (1+r)n
B. P (1+r/2)n x 2
C. P (1+r /4)n x 4
D. P (1+r /12)n x 12
A For annual compounding the formula P (1+r)n is used. For half-yearly compounding r is divided
by 2 and n is multiplied by 2. For quarterly compounding r is divided by 4 and n is multiplied by 4.
For monthly compounding r is divided by 12 and n is multiplied by 12.
9 If interest is to be compounded half-yearly, which of the following will be used:
A. P (1+r)n
B. P (1+r/2)n x 2
C. P (1+r /4)n x 4
D. P (1+r /12)n x 12
B For annual compounding the formula P (1+r)n is used. For half-yearly compounding r is divided
by 2 and n is multiplied by 2. For quarterly compounding r is divided by 4 and n is multiplied by 4.
For monthly compounding r is divided by 12 and n is multiplied by 12.
10 If interest is to be compounded quarterly, which of the following will be used:
A. P (1+r)n
B. P (1+r/2)n x 2
C. P (1+r /4)n x 4
D. P (1+r /12)n x 12
C For annual compounding the formula P (1+r)n is used. For half-yearly compounding r is
divided by 2 and n is multiplied by 2. For quarterly compounding r is divided by 4 and n is
multiplied by 4. For monthly compounding r is divided by 12 and n is multiplied by 12.
11 If interest is to be compounded monthly, which of the following will be used:
A. P (1+r)n
B. P (1+r/2)n x 2
C. P (1+r /4)n x 4
D. P (1+r /12)n x 12
D For annual compounding the formula P (1+r)n is used. For half-yearly compounding r is divided
by 2 and n is multiplied by 2. For quarterly compounding r is divided by 4 and n is multiplied by 4.
For monthly compounding r is divided by 12 and n is multiplied by 12.
12 X invested Rs.100000 in a bank FDR at 6% p.a. for one year. If interest is compounded on halfyearly basis, the amount payable shall be?
A. 106000
B. 106090
C. 106130
D. 106160
B P (1+r/2)n x 2 = 100000 x 1.03 x 1.03 = 106090
13 X invested Rs.100000 in a bank FDR at 6% p.a. for one year. If interest is compounded on
quarterly basis, the amount payable shall be?
A. 100600
B. 106090
C. 106130
D. 106160
C P (1+r/4)n x 4 = 100000 x 1.015 x 1.015 x 1.015 x 1.015 = 106130
14 The compound interest equation P = Ae rt is applicable in case of :
A. continuous compounding
B. daily compounding
C. weekly compounding
D. fortnightly compounding
A In continuous compounding (where n approaches infinity), the compound interest equation takes
the P = Ae rt form.
15 In a compound interest equation P = Ae rt e, the exponential number is approximately:
A. 2.82776
B. 2.71728
C. 2.77221
D. 2.82179
B In a compound interest equation P = Ae rt e, the exponential number is approximately 2.71728.
16 The rule of 72 determines the no. of years during which an amount ____ at a given rate of
interest:
A. becomes double
B. becomes half
C. remains same
D. becomes triple
A The amount becomes double, at a given interest rate.
17 An investor want to invest Rs.20000 to get double amount at 8% rate of interest. For how many
years, he should invest the money?
A. 10
B. 9
C. 8
D. 6
B 72 / rate of interest = 72 / 8 = 9
18 An investor want to invest Rs.30000 to get double amount at the end of 6 years. He should invest
the funds at ___ rate of interest.
A. 6%
B. 8%
C. 10%
D. 12%
D 72 / period = 72 / 6 = 12%
19 X deposited Rs.10000 in a post-office scheme at 8% with quarterly compounding, for 2 years.
What is the total amount payable?
A. 11412.34
B. 11716.59
C. 11926.56
D. 12111.23
B P (1+r/4) n x 4 = 10000 x 1.02 x 1.02 x 1.02 x 1.02 x 1.02 x 1.02 x 1.02 x 1.02 = 11716.59
20 Which of the following formulae can be used for calculation of equated monthly instalment
(EMI)?
A. P x r [ (1+r)n x (1+r)n -1]
B. P x r [ (1+r)n / (1+r)n +1]
C. P x r [ (1+r)n / (1+r)n -1]
D. P x r [ (1+r)n / (1+r)n ]
C To calculate EMI, the formulae P x r [ (1+r)n / (1+r)n -1] is used. In this formulae, P is the
amount of loan, r is the rate of interest per instalment period (if interest is 12% pa, r=0.01), n is no.
of instalment in the tenure.
21 X borrowed Rs.10000 from the bank at 12% p.a. for one year, payable on equated monthly
instalment basis. What is the amount of EMI?
A. 888.50
B. 877.50
C. 880.30
D. 878.20
A 10000 x 0.01 [(1.01)12 / (1.01)12 -1] = 888.50
22 Z raised a house loan of Rs.10 lac at 12% rate of interest repayable in 10 years. Calculate the
EMI?
A. 10654.17
B. 10799.21
C. 10987.11
D. 11281.34
C 1000000 x 0.01 [(1.01)120 / (1.01)120 -1] = 1000 x (3.300387 / 0.300387 = 10.98711) = 10987.11
23 Which of the following statement is not correct regarding interest rates:
A. fixed interest remains fixed throughout the period of the loan
B. floating interest is required to be re-set periodically throughout the period of the loan
C. total amount of interest is lower if interest rate is simple when compared to compound rate
D. total amount of interest is lower if interest rate is compounded, when compared to simple rate
D Total amount of interest is higher when calculated with compounding effect. It is lower when
calculated without compounding effect.
24 The floating rate of interest (a) increases (b) decreases (c) remains constant:
A. a and b are correct
B. a and c are correct
C. b and c are correct
D. all are correct
A The floating rate is market related, due to which it can increase or decrease. It will not remain
constant.
25 Repayment of house loan instalment for a pre-determined period on EMI basis is an example of:
A. single cash flow
B. annuity
C. perpetuity
D. any of these
A. 65386
B. 65610
C. 65780
D. 65920
B Depreciated value = C (1- r)n = 100000 (0.9)4 = 100000 x 0.6561 = 65610.
39 XYZ purchased machinery of Rs.100000. Rate of depreciation is 10%. What is average rate of
depreciation?
A. 12.251%
B. 12.965%
C. 13.756%
D. 13.981%
C Depreciated value = C (1- r)n = 100000 (0.9)4 = 100000 x 0.6561 = 65610. Depreciation = 100000 65610 = 34390 Average depreciation = (34390 / 100000) / (100 / 4) = 13.756%
40 X wants to borrow Rs.25000 immediately and another Rs.20000 after a period of 2 years at 10%
interest. He wants to pay it in monthly instalments for 5 years. Calculate the amount of monthly
payment?
A. Rs.879.38
B. Rs.897.54
C. Rs.882.31
D. Rs.863.78
A We shall use the formula A {r / [ 1- {1 / (1+r) n ]} where R is the amount per payment period, n =
no. of
periods, r = rate per period . Rate of interest being p.a. and calculation to be made monthly, the
ROI =
0.10/12 and no. of time period = 5 x 12 = 15. Before calculation, we shall convert the future value
Rs.24000 to present value = 24000 / 1 / (1+0.10/12) 24 = 16388.19.
Hence total amount = 16388.19 + 25000 = 41388.19
EMI = 41388.19 x (0.10/12) / ([ 1- {1 / (1+0.10/12) 60 }] = Rs.879.38
41 A person wants to receive Rs.1250 every quarter for 5 years at 12% p.a. rate of interest. How
much he should invest now.
A. Rs.18969.85
B. Rs.18956.58
C. Rs.18596.85
D. Rs.18695.85
C We will use the formula A ([ 1- {1 / (1+r) n }] / r) where R is the amount per payment period, n =
no. of
periods, r=rate per period . Rate of interest being p.a. and calculation to be made quarterly, the
ROI = 12/4 = 3% and no. of time period = 5 x 4 = 20
= 1250 ([ 1- {1 / (1+0.03) 20 }] / 0.03) = 18596.85
42 X borrowed an amount of Rs.50000 for 8 years at 18% rate of interest. What shall be the
monthly payment.
A. Rs.986.11
B. Rs.968.16
C. Rs.968.11
D. Rs.986.16
D We use the formula A {r / [ 1- {1 / (1+r) n ]} where R is the amount per payment period, n = no. of
periods, r = rate per period . Rate of interest being p.a. and calculation to be made quarterly, the
A It is basically the future value of an annuity and the following formula is used A [ { (1+r) n -1} / r]
to make the calculation.
49 A firm need Rs.170000 to replace its machinery at the end of 5 years. At 12% rate of interest,
how much it should contribute every month?
A. Rs.2051.65
B. Rs.2101.51
C. Rs.2081.56
D. Rs.2057.64
C The calculation shall be made by using the formula A [ { (1+r) n -1} / r]
170000 = A [ { (1+0.01)60 -1} / 0.01] = Rs.2081.56
50 For carrying out his studies, a student borrows Rs.3 lac from a bank at concessional rate of 5%
p.a. for 4 years of his professional course. What is the total amount payable by him at the end of 4th
year.
A. Rs.1284039.65
B. Rs.1286031.75
C. Rs.1290006.84
D. Rs.1293037.50
D The calculation shall be made by using the formula FV = A [ { (1+r) n -1} / r]
FV = 300000 [ { (1+0.05)4 -1} / 0.05] = Rs.1293037.50
51 X wants to send his daughter to a management school after 5 years and will be needing one time
payment of charges amounting to Rs.7 lac. At 12%, how much he should invest annually?
A. Rs.111105.21
B. Rs.110186.81
C. Rs.109672.22
D. Rs.109486.89
B The calculation shall be made by using the formula A = FV [ r/ (1+r)n -1]
= 700000 [ 0.12 / (1+0.12)5 -1] = Rs.110186.81
52 X opened a recurring account with a bank to deposit Rs.16000 by the end of each year at 10%
interest rate. How much
he would get at the end of 3rd year?
A. Rs.59260
B. Rs.56920
C. Rs.52690
D. Rs.52960
D Calculation can be made by using the formula = A [ { (1+r) n -1} / r]
16000 [ { (1+0.10) 3 -1} / 0.10] = Rs.52960
53 Z borrowed Rs.65600 for 2 years at 5% p.a., to be returned in 2 equal annual instalments. What
will be the amount of instalment?
A. Rs.35280
B. Rs.35320
C. Rs.35690
D. Rs.35820
A It can be calculated by using the formula = P x r [ (1+r)n / (1+r)n -1]
65600 x 0.05 [ (1+0.05)2 / (1+0.05)2 -1] = Rs.35280
54 X obtained a loan of Rs.92820 at 10%, which he is to pay in 4 equal annual instalment. Calculate
the amount of instalment?
A. Rs.28283
B. Rs.29282
C. Rs.29476
D. Rs.29822
B It can be calculated by using the formula = P x r [ (1+r)n / (1+r)n -1]
92820 x 0.10 [ (1+0.10)4 / (1+0.10)4 -1] = Rs.29282
55 The compound interest on a sum for 2 years is Rs.153 and simple interest is Rs.225 for 3 years.
What is rate of interest and the principal amount?
A. 4%, Rs.1875
B. 3%, Rs.1875
C. 4%, Rs.2075
D. 3%, Rs.2075
A Simple interest for 2 years = Rs.150 and compound Rs.153. The difference of Rs.3 represents
interest on Rs.75 (gap of Rs.225-150). Hence RoI = 3/75x100 = 4%. The principal = (225 x 100) / (4 x
3) = Rs.1875
56 X purchased a house and the payment terms are (a) Rs.10 lac immediately and balance Rs.7.50
lac after 2 years. The rate of interest is 6% p.a. and to be compounded semi-annually. What is the
cash value of the house.
A. Rs.1696395
B. Rs.1669760
C. Rs.1666365
D. Rs.1663635
C Rs.7.50 lac discounted at 6% on half-yearly basis by using the formula = FV / (1+r)n
= 750000 / (1+0.03)4 = 750000 / (1+r)n = Rs.666365 Total cash value = Rs.10 lac + Rs.666365 =
Rs.1666365
57 X had to pay certain amount to Z and had two options (a) to make payment of lump sum
amount of Rs.120000 immediately or (b) to pay Rs.150000 in 5 years at 5% p.a. rate of interest
(half-yearly compounding). Which option is more beneficial for X.
A. He should opt for (a) being lower amount
B. He should opt for (b) being lower at Rs.117179
C. He should opt for (b) being lower at Rs.119197
D. He should opt for (b) being lower at Rs.117971
B The present value Rs.150000 = FV / (1+r)n = 150000 / (1+0.025)10 = Rs.117179
58 The possibility of loss on account of default by a borrower in repayment of his obligation on
time, is called:
A. credit risk
B. market risk
C. default risk
D. operational risk
A Credit risk is the risk on account of possible default in repayment by the borrowers.
59 For measurement of credit risk, which of the following is not a correct approach, as adopted in
India for Basel 2 framework:
A. standardized approach
B. internal rating-based foundation approach
A. assets which are contracted for steady income and are held till maturity like loans
B. liabilities that are contracted to support the assets to be held till maturity like deposits
C. investments that are contracted for steady income and are held till maturity
D. investment under available for sale category and held for trading category
D Banking book represents assets and liabilities that are contracted for earning a steady income
and these are held till maturity. Examples are loans and deposits.
84 Which of the following is referred to as CORE CAPITAL:
A. capital fund of a bank
B. Tier 1 capital fund
C. Tier 2 capital fund
D. Tier 3 capital fund
B Tier 1 capital fund is called the core capital as it provides permanent support to the risk of loss
arising from banking operations to a bank.
85 If a bank is having exposure in Central and State Govt. guaranteed loans, the risk weight will be
as under:
A. Central Govt. guaranteed nil and State Govt. guaranteed 20%
B. Central Govt. guaranteed 5% and State Govt. guaranteed 20%
C. Central Govt. guaranteed 10% and State Govt. guaranteed 50%
D. Central Govt. guaranteed nil and State Govt. guaranteed 100%
A It is nil for Central Govt. guaranteed claims and 20% of State Govt. guaranteed claims.
86 Risk weight percentage does not match in which of the following:
A. Claims on RBI - zero
B. Claims on DICGC - zero
C. Claims on ECGC - zero
D. Claims on CGTMSE - zero
C Claims on ECGC has 20% risk weightage.
87 A loan given by Bank Z is guaranteed by a foreign govt. Which of the following does match in
connection with risk weightage, if the foreign govt. is rated by S & P Ratings:
A. 20% if rated AAA
B. 25% if rated A
C. 150% if rated below B
D. 150% if it is unrated
C AAA rated carries zero, A rated 20% and unrated 100%.
88 Claims on which of the following financial institutions operating abroad do not carry a risk
weight of 20%:
A. Bank for International Settlements
B. World Bank group institutions
C. European Central Bank
D. Asian Development Bank
C Except European Central Bank, the claims on all others, carry a risk weight of 20%.
89 A term loan of Rs.10 cr has been given by Bank Z to a company rated by an RBI approved
rating agency. What is the risk weight for this term loan for CAR purpose (which one matches):
A. AAA rating - 10%
B. AA rating - 30%
C. A rating - 60%
C. Rs.1087.45
D. Rs.1011.25
A The cash flow for different years will be discounted at 7% and present value calculated as under:
1st year= (80 x 1 / 1.07 = 74.77) + 2nd year = (80 x 1 / (1.07 x 1.07)= 69.88) + 3rd year = (1080 x 1 /
(1.07 x 1.07 x 1.07) = 881.60) = 1026.25 (in the 3rd year both the coupon of Rs.80 and face value of
Rs.1000 will be received, while in the 1st and 2nd year only the coupon of Rs.80 will be received).
110 A bond has been issued with a face value of Rs.20000 at 12% coupon for 3 years. The required
rate of return is 10 %. What is the value of the bond?
A. Rs.20689.70
B. Rs.20988.80
C. Rs.20898.30
D. Rs.20918.40
B The cash flow will be discounted at 10% for 3 years, separately for coupon for 3 years and face
value
receivable at the end of 3rd year. The present value factor (PVIFA) for regular cash flow for 3 years
of
Rs.2400 at 10% is 2.487 and present value factor (PVIF) for 3 years for single flow of Rs.20000 is
0.751. Value = (2400 x 2.487) + (20000 x 0.751) = 5968.80 + 15020 = 20988.80.
111 A bond has been issued with a face value of Rs.1000 at 10% coupon for 3 years. The required
rate of return is 8 %. What is the value of the bond if the coupon amount is payable on half-yearly
basis?
A. Rs.1025.47
B. Rs.1035.32
C. Rs.1042.84
D. Rs.1052.37
D The cash flow will be discounted at 8 for 3 years, separately for coupon for 6 half years and face
value receivable at the end of 3rd year. The present value factor (PVIFA) for regular cash flow for 6
half years of Rs.50 at 4 % (being half of 8%) is 5.24124 and present value factor (PVIF) for 3 years
for single flow of Rs.1000 is 0.79031. Value = (50 x 5.24124) + (1000 x 0.79031) = 262.62 + 790.31 =
Rs.1052.37
112 The rate of return earned on a bond when purchased at its current price when coupon interest
is received is called:
A. rate of return
B. current yield of the bond
C. yield to maturity
D. any of the above
B The rate of return earned on a bond when purchased at its current price when coupon interest is
received is called current yield of the bond.
113 Current yield of a bond can be calculated as under:
A. current interest / current market price
B. coupon interest / face value
C. coupon interest / current market price
D. current interest / face value
C Current yield of a bond can be calculated as coupon interest / current market price.
114 A 10% bond with face value of Rs.1000 is purchased at Rs.900. What is the current yield?
A. 11.11%
B. 10.00%
C. 9.09%
D. 8.71%
A 100 / 900 = 11.11%
115 A 10% bond with face value of Rs.1000 is purchased at Rs.1100. What is the current yield?
A. 11.11%
B. 10.00%
C. 9.09%
D. 8.71%
C 100 / 1100 = 9.09%
116 The rate of return earned by an investor who purchases the bond and holds it till its matures is
called:
A. rate of return
B. current yield of the bond
C. yield to maturity
D. any of the above
C The rate of return earned by an investor who purchases the bond and holds it till its matures is
called yield to maturity.
117 A 10%, 6 years bond, with face value of Rs.1000 has been purchased by Z for Rs.900. What is
his yield till maturity.
A. 12.50%
B. 12.20%
C. 11.80%
D. 11.60%
A If cost of capital i.e. kd, is the yield to maturity then 900 = 100 (PVIFA kd%, 9 years) + 10000
(PVIF kd, 9 years). More than one values have to be tried.
1st calculation at PVIFA 6 years at 12% factor = 4.11141 and PVIF 6 years at 12% factor = 0.50663.
The
value = (100 x 4.11141 = 411.14) + (1000 x 0.50663 = 506.63) = 917.77 (value more than the current
market price)
1st calculation at PVIFA 6 years at 15 % factor = 3.78448 and PVIF 6 years at 12% factor =
0.43233. The
value = (100 x 3.78448 = 378.45) + (1000 x 0.43233 = 432.33) = 810.78 (value less than the current
market
price).
YTM = 12% + (15%-12%) x [(917.77 - 900) / (917.77 - 810.78)]
YTM = 12% + (3%) x [17.77 / 106.99]
YTM = 12% + (3%) x 0.166
YTM = 12% + 0.498 = 12.498 say 12.50%
118 When the required rate of return is equal to the coupon rate, the value of the bond is:
A. less than face value
B. more than face value
C. equal to face value
D. maturity value
C Theory - When the required rate of return is equal to the coupon rate, the value of the bond is
equal to face value or par value
119 When the required rate of return is more than the coupon rate, the value of the bond is :
series of coupon
payments and the principal payment is discounted at the new rate for the entire no. of years to
maturity.
125 For a given maturity, the change in bond price will be ____ with the decrease in the YTM of the
bond than the change in bond price with an equal increase in the YTM of the bond.
A. smaller
B. greater
C. equal
D. none of the above
B Theory - For a given maturity, the change in bond price will be greater with the decrease in the
YTM of the bond than the change in bond price with an equal increase in the YTM of the bond.
Which means that for equal sized increase and decreases in the YTM, the price movement are not
symmetrical.
126 For any given change in YTM, the %age price changes, in case of bonds of a high coupon rate,
will be ___ than in case of bonds of a low coupon rate, other things remaining the same.
A. smaller
B. greater
C. equal
D. none of the above
A Theory - For any given change in YTM, the %age price changes, in case of bonds of a high
coupon rate, will be smaller than in case of bonds of a low coupon rate, other things remaining the
same.
127 A change in the YTM affects the price of the bonds with a ____ YTM more than it does the
price of bonds with a ____ YTM.
A. lower, higher
B. higher, lower
C. lower, lower
D. higher, higher
B Theory - A change in the YTM affects the price of the bonds with a higher YTM more than it does
the price of bonds with a lower YTM.
128 X purchased two bonds Bond-1 and Bond-2 with face value of Rs.1000 each and coupon of 8%
and maturity of 4 years and 6 years respectively. If YTM is increased by 1%, the % change in price
of Bond-1 would be:
A. 3.04%
B. 3.12%
C. 3.17%
D. 3.24%
D At 8% YTM, the market price of 4 year Bond-1 is Rs.1000. If YTM is increased by 1% its price
will be = 80 PVIFA (9%, 4) + 1000 (9%, 4 years) = 80 x 3.2397) + 1000 x 0.7084 = 259.17 + 708.40 =
967.57. So % change = 32.43/1000 = 3.24%
129 X purchased two bonds Bond-1 and Bond-2 with face value of Rs.1000 each and coupon of 8%
and maturity of 4 years and 6 years respectively. If YTM is increased by 1%, the % change in price
of Bond-2 would be:
A. 4.48%
B. 4.37%
C. 4.27%
D. 4.14%
A At 8% YTM, the market price of 6 year Bond-2 is Rs.1000. If YTM is increased by 1% its price
will be = 80 PVIFA (9%, 6) + 1000 (9%, 6 years) = 80 x 4.4859) + 1000 x 0.5963 = 358.87 + 596.30 =
955.17. So % change = 44.83/1000 = 4.48%
130 X purchased a Bond with face value of Rs.1000 and coupon of 8% and maturity of 6 years. If
YTM is increased by 1%, the change in price of Bond-2 would be:
A. Rs.44.83 increase
B. Rs.44.83 decrease
C. Rs.48.33 increase
D. Rs.48.33 decrease
B At 8% YTM, the market price of 6 year Bond is Rs.1000. If YTM is increased by 1% its price will
be = 80 PVIFA (9%, 6) + 1000 (9%, 6 years) = 80 x 4.4859) + 1000 x 0.5963 = 358.87 + 596.30 =
955.17. So change in price = Rs.44.83
131 X purchased a bond with face value of Rs.1000 and coupon of 8% and maturity of 4 years. If
YTM is increased by 1%, the change in price of Bond-1 would be:
A. Rs.42.83 increase
B. Rs.42.83 decrease
C. Rs.32.43 increase
D. Rs.32.43 decrease
D At 8% YTM, the market price of 4 year Bond is Rs.1000. If YTM is increased by 1% its price will
be = 80 PVIFA (9%, 4) + 1000 (9%, 4 years) = 80 x 3.2397) + 1000 x 0.7084 = 259.17 + 708.40 =
967.57. So change = Rs.32.43.
132 X purchased a bond with face value of Rs.1000 and coupon of 8% and maturity of 4 years. If
YTM is reduced by 2%, the change in price of Bond would be:
A. Rs.61.81
B. Rs.62.11
C. Rs.69.18
D. Rs.79.81
C At 8% YTM, the market price of 4 year Bond is Rs.1000. If YTM is reduced by 1% its price will
be = 80 PVIFA (6%, 4) + 1000 (6%, 4 years) = 80 x 3.4651) + 1000 x 0.7921 = 277.08 + 792.10 =
1069.18. So change = Rs.69.18.
133 The duration of a bond can be calculated by:
A. ( summation pv x T) x (summation pv)
B. ( summation pv x T) / (summation pv)
C. (summation pv x T) x (summation fv)
D. ( summation pv x T) / (summation fv)
B The duration of a bond can be calculated by using the formulae (summation pv x T) / (summation
pv)
134 Z invested in 10% 3 year bond of face value of Rs.1000 each. The expected market rate is 12%.
What is the duration of the bond.
A. 2.73 years
B. 2.93 years
C. 2.63 years
D. 2.83 years
A ( summation pv x T) / (summation pv) = 2597.67 /951.99 = 2.73 years.
( summation pv x T) = Present value of all cash flows in three years x weightage in years = 2597.67
(summation pv) = Present value of all cash flows in three years = 951.99
135 Z invested in 12.5% 5 year bond of face value of Rs.100 each. The expected market rate is 15%.
What is the duration of the bond.
A. 3 yr 4 months
B. 3 yr 6 month
C. 3 yr 9 month
D. 4 years
D 375.11 /94.11
136 Which of the following is not correct regarding duration?
A. duration is less than the term to maturity
B. In case of zero coupon bonds, the duration = term to maturity
C. duration and YTM are positively correlated
D. none of the above
C duration and YTM are inversely correlated. Other options are correct
137 Which of the following is correct regarding duration?
A. Duration of perpetual bond = 1 +r / r
B. longer the term of a coupon paying bond to maturity, the greater the difference between its term to
maturity
and duration
C. larger the coupon rate, smaller the duration of the bond
D. all the above
D All the above statements are correct.
138 An increase in the frequency of coupon payments ____ the duration and a decrease in
frequency of coupons ____ it.
A. decreases, increases
B. decreases, decreases
C. increases, increases
D. increases, decreases
A Theory - An increase in the frequency of coupon payments decreases the duration and a decrease
in
frequency of coupons increase it.
139 Duration of bond ____ , as the bond approaches maturity.
A. increases
B. remains same
C. decreases
D. none of the above
C Theory - Duration of bond declines, as the bond approaches maturity.
140 The sensitivity of the bond price to changes in the interest rate is called:
A. duration of the bond
B. bond volatility
C. yield to maturity of the bond
D. intrinsic value of the bond
B The sensitivity of the bond price to changes in the interest rate is called bond volatility.
141 Interest rate elasticity (IE) is calculated as:
A. %age change in the price for bond / %age change in yield to maturity for bond
B. %age change in yield to maturity for bond / %age change in the price for bond in period t
C. %age change in the price for bond in period t / %age change in yield to maturity for bond
D. actual change in the price for bond in period t / actual change in yield to maturity for bond
C Interest rate elasticity (IE) is calculated as %age change in the price for bond in period t / %age
change in yield to maturity for bond.
142 D x YTM/1 + YTM gives: (D means duration and YTM means yield to maturity)
A. duration of the bond
B. bond price elasticity
C. yield to maturity of the bond
D. interest rate elasticity
D Interest rate elasticity can be calculated as D x YTM/1 + YTM where D means duration.
143 Z purchased 8%, 3 years bonds of Rs.10 lac, with annual interest payment and face value
payable on maturity. The YTM is assumed at 6%. Calculate the duration.
A. 2.69%
B. 2.79%
C. 2.87%
D. 2.99%
B Explanation: ( summation pv x T) / (summation pv) = 2938181 /1053441 = 2.79 years.
( summation pv x T) = Present value of all cash flows in three years x weightage in years = 2938181
(summation pv) = Present value of all cash flows in three years = 1053441
144 Z purchased 8%, 5 years bonds of Rs.10 lac, with annual interest payment and face value
payable on maturity. The YTM is assumed at 6%. Calculate the modified duration if duration is
2.79%.
A. 2.63%
B. 2.73%
C. 2.83%
D. 2.93%
A Modified duration = Duration / (1 + yield) = 2.79 / 1.06 = 2.63%
145 Z purchased 8%, 5 years bonds of Rs.10 lac, with annual interest payment and face value
payable on maturity. The YTM is assumed at 6%,. Calculate percentage change in the price of the
bond when the decrease in YTM is 100 basis points from 6% to 5% and the duration is 2.79% and
modified duration is 2.63%.
A. 2.63%
B. 2.73%
C. 2.83%
D. 2.93%
A Percentage change can be calculated as = -MD x change in the rate
-2.63 x 0.01= 0.0263 = 2.63%
146 12% , 4 year bonds of Rs.100 each were purchased by X for Rs.100. Calculate the YTM for X.
A. 12.30%
B. 12.00%
C. 11.90%
D. 11.80%
B Since the purchase price and face value of the bond is equal i.e. Rs.100, the YTM will be equal to
the coupon rate.
147 12% , 4 year bonds of Rs.100 each were purchased by X for Rs.100. If the market interest rate
increase by 1% what will be market price?
A. Rs.101.49
B. Rs.102.14
C. Rs.102.69
D. Rs.103.09
D 12 x PVIFA (11%, 4) + 100 x (13%, 4 years) = 12 x (3.10245) + 100 x (0.65873) = 37.22 + 65.87 =
Rs.103.09
148 The present value of a cash flow to be received in future, can be calculated as:
A. C / (1+r)n - 1
B. C / (1+r)n
C. C x (1+r)n
D. C / (1+r)n-1
B The future value of a cash flow can be calculated by using the formulae C / (1+r)n, where C is the
cash flow, r is rate of discount and n the no. of time intervals.
149 For comparing the future cash flows of different times in future:
A. these are converted into present values
B. these are increased by adding the interest
C. these are taken at their accounting value
D. any of the above can be used.
A When the cash flows relating to different time intervals are to be compared, these are converted
to present value by discounting at the given discount rate.
150 Z is to receive Rs.60000 from bank at the end of 3 years, being the maturity value of a term
deposit. How much he is depositing now, if the interest rate is 10%?
A. Rs.44097
B. Rs.45079
C. Rs.47075
D. Rs.49059
B C / (1+r)n = 60000 / (1+0.10)3 = 60000 / 1.331 = 45079
151 The cash flow expected from a project is Rs.700, Rs.1000 and Rs.1200 in the 1st, 2nd and 3rd
year. The discounting factor at 10% rate of interest is 1.10, 1.21 and 1.331. What is the total present
value of these cash flows?
A. Rs.2634.32
B. Rs.2463.88
C. Rs.2364.38
D. Rs.2261.72
C C / (1+r)n = 1st year - 700 / (1+0.10)1 = 700 / 1.1 = 636.36 + 2nd year (1000 / (1+0.10)2 = 1000 /
1.21 =)
826.44 + 3rd year (1200 / (1+0.10)3 = 1200 / 1.331 = ) 901.58 Total = Rs.2364.38
152 For project appraisal, which of the following pairs, are discounting techniques?
A. net present value & internal rate of return
B. net present value & accounting rate of return
C. pay back period & accounting rate of return
D. pay back period & internal rate of return
A Net present value & internal rate of return are the discounting techniques for project or
investment
appraisal. Payback period and accounting rate of return are non-discounting techniques.
153 Under net present value method of project appraisal,
A. the future cash flow is compared with the initial investment made in the project
B. the net present value is compared with the initial investment made in the project
C. the present value is compared with the initial investment made in the project
D. the present value is compared with the absolute value of future cash flows
C Under net present value method of project appraisal, the present value is compared with the
initial
investment made in the project. The difference between two, is the net present value which can be
positive or negative or zero.
154 The net present value of an investment at a given discount rate can be:
A. positive
B. negative
C. zero
D. any of these
D The net present value of an investment at a given discount rate can be positive, negative or zero.
155 The net present value of an investment can be calculated by using the formula:
A. summation *C1 / (1+r)1 + C2 / (1+r)2 + C n / (1+r)n + +1
B. summation *C1 / (1+r)1 + C2 / (1+r)2 + C n / (1+r)n + -1
C. *C1 / (1+r)1 x C2 / (1+r)2 x C n / (1+r)n + -1
D. summation *C1 / (1+r)1 - C2 / (1+r)2 - C n / (1+r)n + -1
B Net present value = summation *C1 / (1+r)1 + C2 / (1+r)2 + C n / (1+r)n + -1. Here 1 stands
for initial investment.
156 If the net present value of an investment or project is negative, it means:
A. the project cannot be taken up, as it would reduce the wealth of the shareholder
B. the project can be taken up, as it would increase the wealth of the shareholder
C. the project can neither be taken up nor it can be left, as it could prove to be remunerative
D. none of the above
A If the net present value of an investment or project is negative, it means that the project cannot be
taken up, as it would reduce the wealth of the shareholder
157 If the net present value of an investment or project is positive, it means:
A. the project cannot be taken up, as it would reduce the wealth of the shareholder
B. the project can be taken up, as it would increase the wealth of the shareholder
C. the project can neither be taken up nor it can be left, as it could prove to be remunerative
D. none of the above
B If the net present value of an investment or project is positive, it means, the project can be taken
up, as it would increase the wealth of the shareholder.
158 If the net present value of an investment or project is zero, it means:
A. the project cannot be taken up
B. the project can be taken up
C. the project can neither be taken up nor it can be left
D. none of the above
B If the net present value of an investment or project is zero, it means, that the project can be taken
up.
159 The net present value from project A is + Rs.505 and from project B, it is (-) Rs.505.
A. project A cannot be taken up for investment but project B can be
B. project B cannot be taken up for investment but project A can be
C. none of the projects can be taken up for investment
D. any of the projects can be taken up for investment
B The project with positive net present value can be taken up as that adds to the wealth of
shareholders. Project with negative net present value reduces the wealth of shareholders.
160 An investor invested Rs.7.50 lac in a project that gives profit of Rs.2 lac in the 1st year, Rs.2.60
lac in the 2nd year and Rs.4.50 lac in the 3rd year. At 10% discount rate, what is the present value
of the cash inflows?
A. Rs.7.15 lac
B. Rs.7.25 lac
C. Rs.7.35 lac
D. Rs.7.45 lac
C The present value of cash inflow will be Rs.1.82 lac for 1st year, Rs.2.15 lac for 2nd year and
Rs.3.38 lac for 3rd year, total being Rs.7.35 lac.
161 An investor invested Rs.7.50 lac in a project that gives profit of Rs.2 lac in the 1st year, Rs.2.60
lac in the 2nd year and Rs.4.50 lac in the 3rd year. At 10% discount rate, what is the net present
value of the project?
A. Rs.0.45 lac positive
B. Rs.0.45 lac negative
C. Rs.0.15 lac positive
D. Rs.0.15 lac negative
D The present value of cash inflow will be Rs.1.82 lac for 1st year, Rs.2.15 lac for 2nd year and
Rs.3.38 lac for 3rd year, total being Rs.7.35 lac. Hence Rs.7.35 less Rs.7.50 lac = 0.15 lac
162 Internal rate of return can be calculated as:
A. 0= summation *C1 / (1+r)1 + C2 / (1+r)2 + C n / (1+r)n + +1
B. 0= summation *C1 / (1+r)1 + C2 / (1+r)2 + C n / (1+r)n + -1
C. 0 = summation*C1 / (1+r)1 x C2 / (1+r)2 x C n / (1+r)n + -1
D. 0= summation *C1 / (1+r)1 - C2 / (1+r)2 - C n / (1+r)n + -1
B 0= summation *C1 / (1+r)1 + C2 / (1+r)2 + C n / (1+r)n + -1 where 0 is IRR, C1 means cash
inflow of 1st year and so on, and r is discount rate.
163 Which of the following meets the definition requirement of Internal Rate of Return?
A. cost of capital of a project
B. discount rate at which net present value is zero
C. discount rate at which net present value must be positive
D. discount rate at which net present value must be negative
B The discount rate at which net present value is zero, is called internal rate of return.
164 The net present value of a project is Rs.1.20 lac at 10% discount rate and (-) Rs.0.20 at 11%
discount rate. The internal rate of return of the project is:
A. 10.50%
B. 11.71%
C. 11.00%
D. 12.00%
B Low discount rate + [difference between 2 discount rates x (NPV at lower discount / absolute
difference between 2 NPVs) = 10% + [2 x (1.20 / 1.40)] = 11.71%
165 Z made an investment of Rs.18000 and he expects a return of Rs.3000 per annum for 12 years.
What is the present value of the cash flow at 10% discount rate?
A. Rs.20244
B. Rs.20364
C. Rs.20442
D. Rs.20544
C The calculation can be made by using Annuity formula i.e. PV = C [(1+r)n -1] / [r(1+r)n] =
Rs.20442
166 Z made an investment of Rs.18000 and he expects a return of Rs.3000 per annum for 12 years.
What is the net present value of the cash flow at 10% discount rate?
A. Rs.2244
B. Rs.2364
C. Rs.2442
D. Rs.2544
C The calculation can be made by using Annuity formula i.e. PV = C [(1+r)n -1] / [r(1+r)n] =
Rs.20442 - 18000 = Rs.2442
167 Z made an investment of Rs.18000 and he expects a return of Rs.3000 per annum for 12 years.
What is the present value of the cash flow at 15% discount rate?
A. Rs.16263
B. Rs.16675
C. Rs.16968
D. Rs.17214
A The calculation can be made by using Annuity formula i.e. PV = C [(1+r)n -1] / [r(1+r)n] =
Rs.16263
168 Z made an investment of Rs.18000 and he expects a return of Rs.3000 per annum for 12 years.
What is the net present value of the cash flow at 15% discount rate?
A. -1737
B. -1637
C. +1737
D. +1637
A The calculation can be made by using Annuity formula i.e. PV = C [(1+r)n -1] / [r(1+r)n] =
Rs.16263 NPV = 16263 - 18000 = -1737
169 A company invests Rs.2 lac on a new machine to be used for job work. It will be depreciated at
20% on SLM basis. The expected earning is Rs.1.60 lac per annum for 5 years. The firm will have
to incur 40% as operating expenses and shall pay 10% tax. Calculate the cash flow per annum.
A. Rs.43200
B. Rs.48200
C. Rs.50400
D. Rs.51900
C Revenue - (operating expenses + depreciation + tax) = 160000 - (64000 + 40000 + 5600) =
Rs.50400
170 A company invests Rs.2 lac on a new machine to be used for job work. It will be depreciated at
20% on SLM basis. The expected earning is Rs.1.60 lac per annum for 5 years. The firm will have
to incur 40% as operating expenses and shall pay 10% tax. Calculate the present value of the cash
flow by discounting it at 10%.
A. Rs.191056
B. Rs.192252
C. Rs.193086
D. Rs.193151
A Cash inflow = Revenue - (operating expenses + depreciation + tax) = 160000 - (64000 + 40000 +
5600) = Rs.50400
PV = C [(1+r)n -1] / [r(1+r)n] = 50400 [(1+0.1)n -1] / [0.1(1+0.1)5] = Rs.191056
171 A company invests Rs.2 lac on a new machine to be used for job work. It will be depreciated at
20% on SLM basis. The expected earning is Rs.1.60 lac per annum for 5 years. The firm will have
to incur 40% as operating expenses and shall pay 10% tax. Calculate the net present value of the
cash flow by discounting it at 10%.
A. Rs.8944 negative
B. Rs.8944 positive
C. Rs.9348 negative
D. Rs.9348 positive
A Cash inflow = Revenue - (operating expenses + depreciation + tax) = 160000 - (64000 + 40000 +
5600) = Rs.50400
PV = C [(1+r)n -1] / [r(1+r)n] = 50400 [(1+0.1)n -1] / [0.1(1+0.1)5] = Rs.191056
NPV = 191056 - 200000 = - Rs.8944
172 Original cost of a machinery is Rs.2 lac and its salvage value Rs.40000 after its use by the firm
for 5 years. The amount of depreciation shall be:
A. Rs.40000
B. Rs.36000
C. Rs.32000
D. none of the above
C (Original cost - salvage value) / no. of years = Rs.200000 - 40000 = 160000 / 5 = Rs.32000
173 Original cost of a machinery is Rs.2 lac and its salvage value Rs.40000 after its use by the firm
for 5 years. The depreciated value at the end of 4th shall be:
A. Rs.72000
B. Rs.70000
C. Rs.68000
D. Rs.66000
A Annual Depreciation = (Original cost - salvage value) / no. of years = Rs.200000 - 40000 =
160000 / 5 =
Rs.32000 Total depreciation for 4 years = 32000 x 4 = 128000. Hence the depreciated value = 2 lac
128000 = Rs.72000.
174 A firm purchased a machinery for Rs.2 lac. It is to be depreciated by 20% at written down
value method. What will be the amount of depreciation for 3rd year?
A. Rs.40000
B. Rs.32000
C. Rs.25200
D. Rs.21600
C 1st year = 200000 x 20% = 40000 2nd year = 160000 x 20% = 32000 3rd year = 128000 x 20% =
25200
175 A firm purchased a machinery for Rs.2 lac. It is to be depreciated by 20% at written down
value method. What will be the depreciated value at the end of 3rd year?
A. Rs.112200
B. Rs.102800
C. Rs.102100
D. Rs.101200
B 1st year = 200000 x 20% = 40000 2nd year = 160000 x 20% = 32000 3rd year = 128000 x 20% =
25200
Total depreciation = 40000 + 32000 + 25200 = 97200. Depreciated value = Rs.2 lac - 97200 =
Rs.102800
176 A firm purchased a machinery for Rs.2 lac. It is to be depreciated by 20% at written down
value method. It sold the machinery for Rs.1 lac at the end of 3rd year. What will be the profit or
loss on the sale?
A. Rs.3300 profit
B. Rs.3300 loss
C. Rs.2800 profit
D. Rs.2800 loss
D 1st year = 200000 x 20% = 40000 2nd year = 160000 x 20% = 32000 3rd year = 128000 x 20% =
25200
Total depreciation = 40000 + 32000 + 25200 = 97200. Depreciated value = Rs.2 lac - 97200 =
Rs.102800. Loss = 102800 - 100000 = Rs.2800
177 A computing machine costs Rs.10000. The life of the machinery is 3 years. What is the amount
of depreciation in the 2nd year as per double declining balance method ?
A. 1667
B. 3333
C. 6667
D. none of the above
B Rate of depreciation under SLM = 100 / 3 = 33.33%. So rate of depreciation under double
declining method = 33.33 x 2 = 66.67%. 1st year depreciation = 10000 x 66.67 % = 6667. WDV =
10000 - 6667 = 3333. 2nd year depreciation as per double declining balance method = 3333 x
66.67% = 2222. But the depreciation under SLM for 2nd year is Rs.3333. Hence higher of two is to
be taken. Hence for 2nd year, the depreciation = 3333
178 Under double declining method of depreciation, if the amount of depreciation in any year is less
than the amount of depreciation calculated as per SLM:
A. the amount calculated as per SLM to be taken
B. the amount calculated as per double declining balance method to be taken
C. the lower of the two amounts to be taken
D. none of the above
A If the amount of depreciation calculated as per double declining method of depreciation in any
year, is less than the amount of depreciation calculated as per SLM, the amount calculated as per
SLM to be taken.
179 Where the equipment may be required to be replaced earlier than its useful life (as in case of
computers), which of the following methods of depreciation, is more suitable?
A. double declining balance method
B. accelerated depreciation method
C. WDV method
D. SLM method
B Where the equipment may be required to be replaced earlier than its useful life (as in case of
computers), accelerated depreciation method is more suitable.
180 Which method of depreciation provides greater tax shielding effect than the SLM method of
depreciation?
A. double declining balance method
B. accelerated depreciation method
C. WDV method
D. sum of the years digits
B The accelerated depreciation method provides greater tax shielding effect than the SLM method
of
depreciation. The method is popular for writing off the equipment which may be replaced before
the end of its useful life, as in case of computers.
181 Where an asset assumes higher depreciation and greater tax benefit in the early years of life of
the asset, which of the following methods of depreciation is more suitable?
A. double declining balance method
B. accelerated depreciation method
C. WDV method
D. sum of the years digits
D Sum of the years digits method is used where an asset assumes higher depreciation and greater
tax benefit in the early years of life of the asset.
182 An asset (say a computer) has a life of 5 years. What will be depreciation %age in the 2nd year,
on the basis of sum of years digits method.
A. 20.25%
B. 25.57%
C. 26.67%
D. 29.61%
C 5 + 4 + 3 + 2 + 1 = 15 Hence in the 2nd year it will be 4/15 = 26.67%
183 A computer is purchased for Rs.50000 and its salvage value is assumed as Rs.2000. What will be
amount of
depreciation in the 2nd year, on the basis of sum of years digits method.
A. Rs.12802
B. Rs.12076
C. Rs.11985
D. Rs.11845
A Rate of depreciation = 5 + 4 + 3 + 2 + 1 = 15 Hence in the 2nd year it will be 4/15 = 26.67%.
Amount of
depreciation = (50000 - 2000) x 26.67% = 12802
184 A computer is purchased for Rs.50000 and its salvage value is assumed as Rs.2000. What will be
depreciated value at the end of 2nd year, on the basis of sum of years digits method.
A. Rs.37918
B. Rs.37198
C. Rs.38146
D. Rs.38262
B Rate of depreciation = 5 + 4 + 3 + 2 + 1 = 15 Hence in the 2nd year it will be 4/15 = 26.67%.
Amount of
depreciation = (50000 - 2000) x 26.67% = 12802. Depreciation value = 50000 - 12802 = Rs.37198
185 A computer is purchased for Rs.50000 and its salvage value is assumed as Rs.2000. What will be
amount of profit or loss, if the computer is sold for Rs.35000 at the end of 2nd year. The calculation
is to be made on the basis of sum of years digits method.
A. Rs.2846 profit
B. Rs.2846 loss
C. Rs.2198 profit
D. Rs.2198 loss
D Rate of depreciation = 5 + 4 + 3 + 2 + 1 = 15 Hence in the 2nd year it will be 4/15 = 26.67%.
Amount of
depreciation = (50000 - 2000) x 26.67% = 12802. Depreciation value = 50000 - 12802 = Rs.37198.
Loss =
37198 - 35000 = 2198
186 The home currency price of one unit of foreign currency is called:
A. selling rate
B. buying rate
C. direct rate
D. indirect rate
C The home currency price of one unit of foreign currency is called direct rate, where the home
currency unit is variable and foreign currency unit is fixed. Example 1 USD = Rs.46.10
187 1 US D = Rs.45.90 is an example of:
A. selling rate
B. buying rate
C. direct rate
D. indirect rate
C In a direct rate, the home currency unit is variable and foreign currency unit is fixed. Example 1
USD = Rs.46.10
188 The foreign currency price of one unit of Home currency is called:
A. selling rate
B. buying rate
C. direct rate
D. indirect rate
D The foreign currency price of one unit of home currency is called indirect rate, where the home
currency unit is fixed and foreign currency unit is variable. Example Rs.100 = USD 2.13
189 When direct rate of a foreign currency is not available, the rate calculated through a common
currency, is called :
A. floating rate
B. cross rate
C. fixed rate
D. direct rate
B It is called cross rate.
190 USD is available in Delhi at 1 USD = 46.10. USD rate in London is 1 USD = 0.75 Euro. What
will be the Euro / Re rate?
A. Rs.61.47
B. Rs.64.17
C. Rs.35.48
D. Rs.34.58
A 1 Euro = 46.10 / 0.75 = Rs.61.47
191 An exporter has submitted an export bill of 10000. The inter-bank foreign currency rates for
spot delivery are 1USD = Rs.45.32. In London the rate is = USD 1.832. How much amount in
Indian Rupees will be paid to the exporter.
A. Rs.836202.80
B. Rs.834026.30
C. Rs.830262.40
D. Rs.832026.70
C Cross rate = 45.32 x 1.832 = 83.02624. Total amount 83.02624 x 10000 = Rs.830262.40
192 The chain rule method is used in case of which of the following types of rates?
A. floating rate
B. cross rate
C. fixed rate
D. direct rate
B The chain rule method is used in case of cross rate. If a customer submits an export bill in and
no direct rate is available for , the calculation will be made through a common currency, say USD.
193 The term value date means:
A. the date on which the bill or currency is actually purchased
B. the date on which the exchange of currencies actually takes place.
C. the date on which the bill or currency is actually sold
D. none of the above
B The date on which the exchange of currencies actually takes place, is called value date.
194 When the exchange of currencies takes place on date of deal, which of the following type of
exchange rate will be applicable?
A. cash or ready rate
B. TOM rate
C. spot rate
D. forward rate
A When the exchange of currencies takes place on date of deal, cash or ready exchange rate will be
applicable.
195 When the exchange of currencies takes place on next working day (T+1) i.e. tomorrow, which of
the following type of exchange rate will be applicable?
A. cash or ready rate
B. TOM rate
C. spot rate
D. forward rate
B When the exchange of currencies takes place on next working day (T+1) i.e. tomorrow, TOM
exchange rate will be applicable.
196 When the exchange of currencies takes place on 2nd working day (T+2), which of the following
type of exchange rate will be applicable?
A. cash or ready rate
B. TOM rate
C. spot rate
D. forward rate
C When the exchange of currencies takes place on 2nd working day (T+2), the spot exchange rate
will be applicable.
197 When the exchange of currencies takes place after the spot date, which of the following type of
exchange rate will be applicable?
A. cash or ready rate
B. TOM rate
C. spot rate
D. forward rate
D When the exchange of currencies takes place after the spot date, the Forward exchange rate will
be
applicable.
198 A currency is said to be at a premium, when:
A. future rate is lower and spot rate is higher
B. future rate is higher and spot rate is lower
C. future rate and spot rate are same
D. none of the above
B A currency is said to be at a premium, when future rate is higher and spot rate is lower.
199 To calculate a forward rate in case of direct quote, if there is premium:
A. the premium is added to purchase rate and deducted from selling rate
B. the premium is deducted from purchase rate and added to selling rate
C. the premium is added to purchase rate and selling rate
D. the premium is deducted from purchase rate and selling rate
C To calculate a forward rate in case of direct quote the premium is added to purchase rate and
selling rate.
200 To calculate a forward rate in case of direct quote, if there is discount:
A. the discount is added to purchase rate and deducted from selling rate
B. the discount is deducted from purchase rate and added to selling rate
C. the discount is added to purchase rate and selling rate
D. the discount is deducted from purchase rate and selling rate
D To calculate a forward rate, in case of direct quote, the discount is deducted from the purchase
rate and selling rate.
201 Spot Euro = USD 1.3200 / 10. One month forward 40-35, 2 month forward 75-70, 3 month
forward 105-100. 2 month USD can be purchased at:
A. Euro 1 = USD 1.3235
B. Euro 1 = USD 1.3175
C. Euro 1 = USD 1.3160
D. Euro 1 = USD 1.3240
B Euro is at a discount and US D is at a premium. Hence Euro = 1.3210 - 0.0035 = 1.3175
202 Spot Euro = USD 1.3200 / 10. One month forward 40-35, 2 month forward 75-70, 3 month
forward 105-100. 1 month Euro can be sold at:
A. Euro 1 = USD 1.3160
B. Euro 1 = USD 1.3165
C. Euro 1 = USD 1.3175
D. Euro 1 = USD 1.3240
A Euro is at a discount and US D is at a premium. Euro = 1.3200 - 0.0040 = 1.3160
203 The forward rate has ___ components namely ___:
A. two components, sale and purchase
B. two components, spot rate and forward points
C. three components, spot rate, premium and discount
D. three components, spot rate, forward points, forward load
B The forward rate has two components namely, spot rate and forward points.
204 The spot rate is Euro 1 = USD 1.3200 and 2 month forward Euro 1 = USD 1.3325. The forward
points are equal to: A. 125
B. 250
C. 320
D. 325
A The spot rate is Euro 1 = USD 1.3200 and 2 month forward Euro 1 = USD 1.3325. The forward
points are equal to 125 i.e. difference between spot rate and forward rate.
205 Which of the following is not a factor that contributes to determine the forward points for
calculation of forward rate?
A. demand and supply position for the settlement date
B. market expectation about the future developments
C. interest rate differential between two countries
D. none of the above
D All these are the factors that contribute to determine the forward points for calculation of
forward rate.
206 _______ is an operation, through which a person can make risk free profits by undertaking
offsetting transactions (say borrow foreign currency in one market and lend in other market).
A. swap
B. arbitrage
C. forward
D. spot
B Arbitrage is an operation, through which a person can make risk free profits by undertaking
offsetting transactions (say borrow foreign currency in one market and lend in other market)
simultaneously.
207 The forward points can be calculated as:
A. (spot rate x interest rate differential / forward period) / (100 x no. of days in the year)
B. (spot rate / interest rate differential x forward period) / (100 x no. of days in the year)
C. (spot rate x interest rate differential x forward period) / (100 x no. of days in the year)
D. (spot rate x interest rate differential x forward period) x (100 x no. of days in the year)
C Forward points = (spot rate x interest rate differential x forward period) / (100 x no. of days in
the year).
208 Forward differential is known as:
A. swap rate
B. arbitrage rate
C. forward rate
D. spot rate
A Forward differential is also known as Swap Rate.
209 If spot exchange rate = 2.0000, interest rate differential = 4% p.a., forward period = 60 days,
calculate the forward points by taking an year = 360 days.
A. 0.011111
B. 0.012222
C. 0.013333
D. 0.014444
C (spot rate x interest rate differential x forward period) / (100 x no. of days in the year).
(2.0000 x 4 x 60) / (100 x 360) = 0.013333
210 Interest differential can be calculated as:
A. (100 x no. of days in the year x forward points) / (spot rate x forward period)
transactions, the property and tools they own, the debts they owe and debts other owe them.
216 Which of the following types of accounting system is associated with the preparation and
presentation of accounting and controlling information, in a form that assists the management, in
the formulation of policies and in decision making, on the various matters connected with
operations of the business enterprise.
A. stewardship accounting
B. financial accounting
C. social responsibility accounting
D. management accounting.
D The explanation given in the question above, relates to management accounting.
217 The managements of businesses are held responsible for what the business contributes to the
social well-being and progress, under an accounting system called:
A. stewardship accounting
B. human resources accounting
C. social responsibility accounting
D. management accounting.
C Under social responsibility accounting, the managements of businesses are held responsible for
what the business contributes to the social well-being and progress.
218 The accounting system that involves accounting for investment in people and replacement costs
as well as the accounting for the economic values of people to an organisation, is called:
A. inflation accounting
B. human resources accounting
C. social responsibility accounting
D. management accounting.
B Under human resources accounting, the accounting system involves accounting for investment in
people and replacement costs as well as the accounting for the economic values of people to an
organisation.
219 ____ accounting is concerned with the adjustment in the value of assets and of profits, in the
light of changes in the price level.
A. inflation accounting
B. human resources accounting
C. social responsibility accounting
D. management accounting.
A The inflation accounting is concerned with the adjustment in the value of assets and of profits, in
the light of changes in the price level.
220 The machinery is recorded in the books of a firm at the price paid to the supplier + the
expenses of bringing and installing the machinery. This is due to application of:
A. money measurement concept
B. cost concept
C. business entity concept
D. realization concept
B Every business transaction is recorded in the books of account at cost price. These costs are
required to put the machinery in working order.
221 The monetary value assigned to various assets is derived from:
A. money measurement concept
B. cost concept
C. business entity concept
D. realization concept
B The cost concept says that an asset is worth the price paid for or the cost incurred to acquire it.
Hence it should be recorded accordingly.
222 When the promoter of a business withdraws certain goods from the business for his personal
use, his drawing account is debited. This is done due to application of :
A. going concern concept
B. cost concept
C. business entity concept
D. realization concept
C The business and promoter are two different entities. Money put in by the promoter in business,
is liability of the business. Similarly, assets drawn from business by the promoter will be debited to
his account.
223 The profit made by a firm is a liability for the business and loss made by a firm is an asset. This
is due to application of:
A. going concern concept
B. cost concept
C. business entity concept
D. realization concept
C The profit is the amount that the promoter is entitled to withdraw from the business due to which
it is
liability of the business. Loss is the amount that is recoverable by the business from the promoter
due to which it becomes asset for the business.
224 Which of the following transaction is not covered by the application of going concern concept:
A. future income not to be taken into account
B. fixed assets are valued at their cost and not the market value
C. current assets are valued at market price or cost, whichever is less
D. provisions are created to meet any future liability
A No future income is taken into account due to application of realization concept and not due to
the going concern concept.
225 The accounting concepts used in preparation of accounts are:
A. methods for presentation of financial statements
B. broad assumption for preparation of accounts
C. basic rules for preparation the accounts
D. all the above
B These are broad assumptions that are taken into account for preparation of accounts by the
business firms.
226 In a business firm, the assets = capital + liability. It is due to :
A. going concern concept
B. money measurement concept
C. matching concept
D. dual aspect concept
D In the dual concept every transaction has double effect i.e. debit and credit. When capital was
brought in or some liability was contracted, it must have given rise to some asset.
227 A business firm has to make all adjustments for prepaid expenses and outstanding expenses due
to application of:
A. going concern concept
B. accounting period concept
C. matching concept
D. dual aspect concept
C As per matching concept, the income of a particular period is required to be matched with the
expenses of the same period.
228 In the balance sheet of a firm, the notes relating to those facts are included, that do not find a
place in the accounting statements. This is due to:
A. convention of materiality
B. convention of conservatism
C. convention of accounting of full disclosure
D. convention of consistency
C The concept of full disclosure suggests that all material facts affecting a business should be
disclosed.
229 Many small transactions are not recorded separately in the accounts of a firm. These are
included in the miscellaneous items for recording purposes. This is done because of use of :
A. convention of materiality
B. convention of conservatism
C. convention of account of full disclosure
D. convention of consistency
A As per convention of materiality, all material information should be recorded. It depends upon
the nature of business and circumstances as to what is material and what is not. Recording of small
transactions separately involves huge cost due to which these are grouped together. These do not
have significant bearing on the business.
230 Which among the following account concepts is observed at the recording stage (and not the
reporting stage) of the transactions:
A. matching concepts
B. business entity concept
C. materiality concept
D. matching concept
B Business entity concept relates to the recording stage while all others relate to the reporting stage.
231 If a firm has been following the straight line method of depreciation, it should continue to
follow the same rather than changing to the written down value method. This is due to:
A. convention of materiality
B. convention of conservatism
C. convention of account of full disclosure
D. convention of consistency
D Convention of consistency suggests that accounting practices should be followed continuously so
that fair picture of financial position of the business is reflected.
232 The ____ concept makes a distinction between the receipt of cash and right to receive it or
payment of cash and obligation to pay cash:
A. realization system
B. cash concept
C. accrual concept
D. consistency concept
C The accrual concept recognizes that in actual business operations, the receipt or payment of cash
may not coincide, but for fair accounting, if there is right to receive or obligation to pay, it should be
recorded. In cash concept the accounting is done on the basis of actual receipt of cash.
233 Which of the following accounting concept is observed at the reporting stage of accounting and
not at the recording stage:
A. business entity concept
B. cost concept
C. consistency concept
D. historical record concept
C Consistency concept is used at the reporting stage while the others are used at the recording
stage.
234 Which of the following concept forbids the inclusion of unrealized gains but advocates the
provision for possible losses:
A. consistency concept
B. conservatism concept
C. business entity concept
D. historic record concept
B The conservatism concept insist that unrealized gains should not be taken into account but
possible losses should be provided for to show fair picture of the business.
235 The ____ concept refers to the expectation that the organisation will have indefinite life due to
which it has bearing on the valuation of assets:
A. consistency concept
B. business entity concept
C. going concern concept
D. historic record concept
C In the going concern concept, the expectation is that organisation will run indefinitely due to
which the valuation of assets will be on the basis of their cost price.
236 The accounting period of a firm closes on Mar 31 every year. Neither it did pay the rent of
Rs.30000 relating to the last month of the year and nor accounted for in the books. It violated which
of the following:
A. cost concept
B. matching concept
C. accounting period concept
D. dual aspect concept
B In the matching concept, all the costs and revenues relating to a particular period are to be
accounted for.
237 The books of business should be closed and reopened after regular time period as per:
A. consistency concept
B. business entity concept
C. going concern concept
D. accounting period concept
D Accounting period concept suggest that though the business is going concern but after a short
period, of say, one year, the position of business should be ascertained.
238 In the balance sheet of a firm, the amount of stocks has been taken as Rs.50000 which is not the
cost price but the expected price at which it may be sold. It is violation of:
A. consistency concept
B. conservatism concept
C. going concern concept
D. historic record concept
B The conservatism concept suggests that the unrealized gains should not be recorded. Here the sale
price includes the unrealized profits which should not be shown as profit.
239 A firm supplied goods to another firm worth Rs.5000 but the payment has not been received as
on the date of annual closing of accounting:
A. the amount of Rs.5000 should not be taken in sale
B. the amount of Rs.5000 should be taken as part of stock
C. the amount should be recorded as sale and taken to profit and loss account
D. the amount should be shown as consignment stock
C As per accrual system of accounting, if the right to recover has accrued, it should be taken into
profit and loss account. Here actual sale has taken place and should be recorded as sale only.
240 In India, the accounting standards are formulated by:
A. Registrar of Companies
B. Accounting Standards Board of ICAI
C. Securities & Exchange Board of India
D. all the above
B In India, the accounting standards are formulated by Accounting Standards Board of ICAI
which was
constituted in April 1977.
241 Where a firm or company does not follow a mandatory accounting standard, the auditors of
that firm or company:
A. have to prepare the fresh accounts on the basis of accounting standard
B. have to qualify their audit report
C. cannot undertaking auditing assignment
D. have to seek permission of Accounting Standard Board of ICAI.
B Where a firm or company does not follow a mandatory accounting standard, the auditors of that
firm or company, have to qualify their audit report, failing which they will be guilty of professional
misconduct.
242 Where a company does not follow an accounting standard, it has to disclose the following
information:
A. the deviation from the accounting standards
B. the reasons for such a deviation
C. the financial effects, if any, arising out of such deviation
D. all the above
D Where a company does not follow an accounting standard, it has to disclose all the above
information.
243 Which of the following accounting standard, relates to valuation of inventories:
A. AS-2
B. AS-5
C. AS-9
D. AS-11
A AS2 relates to valuation of inventories.
services for construction of factory building, are a real account (asset account).
262 Debit what comes in and credit the giver are the rules to debit and credit in respect of:
A. real account, nominal account
B. real account, personal account
C. nominal account, personal account
D. personal account, real account
B Debit what comes in is the rule applicable for real account and credit the giver is the rules to
credit a
personal account.
263 Debit all expenses and credit what goes out, are the rules, for debit and credit to:
A. nominal account, personal account
B. real account, nominal account
C. nominal account, real account
D. personal account, nominal account
C Debit all expenses is the rule applicable to a nominal account and credit what goes out, is the
rules, for credit to real account.
264 Firm sold old machinery to XYZ, for cash. This transaction involves:
A. one real account and other personal account
B. both the real accounts
C. both the personal accounts
D. one real account and other nominal account
B Old machinery and cash, both are real accounts.
265 A firm made profits and the owners did not withdraw these profits to full extent. The retained
amount of prof its will be shown as:
A. part of assets
B. part of current liabilities
C. part of capital of the owners
D. part of the reserves
D Retained profits become part of the reserves and not of capital. These are liabilities of the firm
towards the promoters of the firm.
266 The accounting concepts are part of which of the following:
A. format of presentation of accounting books
B. format for preparation of final accounts
C. broad assumptions
D. particular set of guidelines
C The accounting concepts are broad assumptions.
267 Cash book keeps records of :
A. all business transactions
B. all cash receipts and cash payments
C. all cash and non-cash transactions
D. only trading related cash receipts and payments.
B Cash book keeps records of all cash receipts and cash payments, irrespective whether these are
on revenue account or capital account.
268 Which of the following is correct in the context of cash book:
A. all receipts are recorded on the credit side and payments on the debit side.
B. all receipts are recorded on the debit side and payments on the credit side.
C. all receipts and payments are recorded on the credit side
D. all receipts and payments are recorded on the debit side
B In a cash book, all receipts are recorded on the debit side and payments on the credit side.
269 Cash book maintained by a firm is a:
A. book of original entry only
B. ledger account only
C. both the book of original entry and ledger account
D. neither book of original entry nor ledger account
C Cash book maintained by a firm is both, the book of original entry and ledger account.
270 From the journal, the amount payable to or receivable from a particular person can be
calculated by adding all the entries, which is a difficult task. This is made easy by which of the
following books:
A. ledger
B. cash book
C. journal itself
D. any of the above
A The ledger provides details of individual accounts wherein amount payable to or receivable from
a
particular person is automatically available.
271 Which of the following is correct sequence of book keeping or record keeping:
A. classifying, recording, summarizing
B. recording, classifying, summarizing
C. summarizing, recording, classifying
D. summarizing, classifying, recording,
B The correct sequence is recording, classifying, summarizing.
272 Preparing of trial balance and final accounts, with a view to ascertain profits from the business,
is called:
A. recording
B. classifying
C. summarizing
D. none of the above
C Summarizing means to prepare trial balance and final accounts, with a view to ascertain profits
from the business.
273 The process of recording transactions in the book of original entry is called:
A. recording
B. journalizing
C. posting
D. summarizing
B The process of recording transactions is called journalizing.
274 The process of recording transaction in the ledger is called:
A. recording
B. journalizing
C. posting
D. summarizing
C The process of recording transaction in the ledger is called posting.
275 Which of the following is a book of analytical records?
A. cash book
B. journal
C. ledger
D. none of the above
C Ledger is a book of analytical records.
276 Which of the following is a book of chronological record?
A. cash book
B. journal
C. ledger
D. none of the above
B Journal is the book of chronological record.
277 The process of equalizing the two sides of an account by putting the difference on the side
where the amount is short, is called:
A. balancing
B. journalizing
C. posting
D. summarizing
A The process of equalizing the two sides of an account by putting the difference on the side where
the
amount is short, is called balancing.
278 In the process of balancing, if the debit side of an account is more than the credit side, the
difference is put on:
A. debit side
B. credit side
C. either credit or debit side
D. neither side.
B In the process of balancing, if the debit side of an account is more than the credit side, the
difference is put on credit side.
279 The debit balance of an account is represented by (a) liability (b) expenses (c) asset (d) income:
A. b and c
B. b and d
C. a and c
D. a and b
A The debit balance of an account is represented by expenses or assets
280 The credit balance of an account is represented by (a) liability (b) expenses (c) asset (d) income:
A. b and c
B. b and d
C. a and c
D. a and d
D The debit balance of an account is represented by liability or income.
281 If balance is in debit in a personal account it represents:
A. creditors
B. debtors
C. liabilities
D. expenses
B If balance is debit in a personal account it represents debtors.
282 If balance is credit in a nominal account, it represents:
A. debtor
B. creditor
C. income
D. expenses
C The credit balance in a nominal account, is income
283 If balance is debit in a nominal account, it represents:
A. debtor
B. creditor
C. income
D. expenses
D The debit balance in a nominal account, is expense.
284 If balance in a real account is credit, it represents:
A. liability
B. assets
C. income
D. none of the above
D There cannot be a credit balance in a real account. A real account is an asset and cannot carry
credit
balance. It always has debit balance.
285 Which among the following is a personal account?
A. cash
B. bank overdraft
C. wages paid
D. machinery
B Bank overdraft is an account with a bank. Hence a personal account.
286 Which of the following is a personal account?
A. salary paid
B. rent receivable
C. vehicle
D. wage paid
B Rent receivable is a personal account under representative personal account category.
287 Which of the following is not a real account?
A. cash
B. machinery
C. land
D. bank term loan
D Bank term loan is a personal account while all other, a real account.
288 Which of the following is a nominal account?
A. rent payable
B. salary receivable
C. commission outstanding
D. none of the above
D All the accounts are personal accounts.
289 Which of the following is not a valuation account or a contra account?
A. provision for depreciation
B. provision for doubtful debts
C. stock reserve account
C. b and d
D. a and d
C A credit entry to a nominal account means some income has been received or some gain has been
made.
296 The art of recording business transactions with a view to have a permanent record of them and
of showing their effect on wealth, is called:
A. accounting
B. book-keeping
C. analysis of accounts
D. management accounting
B Book-keeping refers to recording the business transactions with the objective of having
permanent record of the transactions and their effect on wealth.
297 Which of the following is not part of accounting cycle:
A. analyzing
B. recording
C. classifying
D. summarizing
A Analyzing is an activity which is used after the accounting cycle is complete. The other are options
part of the accounting cycle.
298 Which of the following is not correct regarding the cash book of a firm:
A. it is a book of secondary entry
B. it keeps record of all cash transactions
C. it is divided into two sides likes a ledger
D. the cash book is ledger account also
A Cash book is a book of original entry because all the cash transactions are originally recorded.
Other
features are correct.
299 The process of equalizing the two sides of an account by putting the difference on the side
where the amount is short, is called:
A. squaring
B. balancing
C. posting
D. summarizing
B Balancing refers to equalizing the two sides of an account by putting the difference on the side
where the amount is short, so as the make the total of transactions on both the sides of the account
equal.
300 Which of the following statement does match:
A. debit balance in the accounts is either an asset or an expense
B. balance in the personal accounts is either a liability or an asset
C. nominal account represents asset or liability
D. real account normally represents the asset
C Balance in the nominal account represent either an expense or income. Nominal accounts relate
to trading, manufacturing or profit and loss account
301 Accounts are classified into following categories:
A. two categories namely personal accounts and impersonal accounts
B. three categories namely personal accounts, notional accounts and real accounts
C. bank column
D. none of the above
D In a three columnar cash book, all the above i.e. cash column, discount column, bank column are
shown.
322 When bank column is recorded in the 3 columnar cash book, the bank account is:
A. nominal account
B. personal account
C. real account
D. both real and personal account
B When bank column is recorded in the 3 columnar cash book, the bank account is a personal
account.
323 In a 3 columnar cash book, if a transaction involves both the cash and bank account (a) it is
entered on both the sides
(b) one entry is made in cash column (c) another opposite entry is made in the bank column (d) it is
called contra entry.
A. a to d all correct
B. a to c only correct
C. b to d only correct
D. c and d only correct
A All the above statements given in the question are correct.
324 In a 3 columnar cash book, if a transaction involves cash and bank account and the cash
account is to be debited:
A. only debit entry will be made to cash account
B. debit entry will be made to cash account as well as bank account
C. credit entry will be made to cash account as well as bank account
D. credit entry will be made to bank account and debit entry to cash account
D In a 3 columnar cash book, if a transaction involves cash and bank account and the cash account
is to be debited, credit entry will be made to bank account and debit entry to cash account.
325 In a 3 columnar cash book, if a transaction involves cash and bank account and the bank
account is to be debited:
A. only debit entry will be made to cash account
B. debit entry will be made to cash account as well as bank account
C. credit entry will be made to cash account and debit entry to bank account
D. credit entry will be made to bank account and debit entry to cash account
C In a 3 columnar cash book, if a transaction involves cash and bank account and the bank account
is to be debited, credit entry will be made to bank account and debit entry to bank account.
326 A petty cash book is a :
A. book of original entry
B. subsidiary book
C. primary book
D. any of the above
B A petty cash book is a subsidiary book in which small payments are recorded.
327 Where the chief cashier disburses some cash to the junior cashier and after a fixed period, the
chief cashier makes up the amount spent by the junior cashier, it is called:
A. imprest system
B. cash advance system
C. suspense accounting
D. any of the above
A It is called imprest system. Under this system, the chief cashier disburses some cash to the junior
cashier and after a fixed period, the chief cashier makes up the amount spent by the junior cashier.
328 Which of the following statement is not correct?
A. in the purchase book only credit purchase of goods is recorded
B. in the sales book, only the credit sale of goods is recorded
C. in the sales books and purchase book all the entries whether purchase or sale on cash and credit is
recorded.
D. none of the above
C In the purchase book only credit purchase of goods is recorded and in the sales book, only the
credit sale of goods is recorded. Cash sales or purchases are recorded in the cash book.
329 A compound journal entry means:
A. journal entry involving a debit and a credit
B. journal entry involving interconnected transactions
C. journal entry involving more than one entry
D. none of the above
B A compound journal entry means a journal entry involving interconnected transactions i.e. more
than one entry on the debit side and or more than one entry on the credit side.
330 Where no special book exists for a transaction, it is recorded by way of:
A. direct posting
B. cash book
C. journalizing
D. any of the above
C Where no special book exists for a transaction, it is recorded by way of journalizing.
331 Entries relating to goods are made in (a) sales account (b) purchase account (c) sales returns
account (d) purchase returns account (e) stock account?
A. a to e all
B. a to d only
C. a to c only
D. b to d only
A Entries relating to goods are made in (a) sales account (b) purchase account (c) sales returns
account (d) purchase returns account (e) stock account.
332 The cash books are (a) simple cash book (b) double columnar cash book (c) three columnar
cash book
A. a and b only
B. b and c only
C. a and c only
D. a to c all
D The cash books are (a) simple cash book (b) double columnar cash book (c) three columnar cash
book.
333 If Z, the proprietorship firm brings cash, it is to be credited to:
A. bank account
B. cash account
C. capital account
D. drawing account
C If Z, the proprietorship firm brings cash, it is to be credited to his capital account.
334 Salary is paid to X, a clerk in the firm. The amount shall be credited to:
A. account of X
B. salary account
C. bank account
D. none of the above
D Salary is paid to X, a clerk in the firm. The amount shall be credited to cash account.
335 Goods were sold by ABC firm to another firm, but the other firm has returned the same. The
amount shall be credited to:
A. sales account
B. sales returns account
C. account of other firm
D. purchase account
C The amount will be debited to sales returns account and credited to account of other firm.
336 A firm returned the goods it purchased to the seller firm. The amount shall be credited to:
A. seller firm account
B. buyer firm account
C. purchase account
D. purchase returns account
D Amount shall be credited to purchase returns account and debited to seller firm account..
337 A firm wants to write off a bad debt. It shall:
A. debit the amount to bad debt provision account and credit to concerned debtor account
B. credit the amount to bad debt provision account and debit to concerned debtor account
C. debit the amount to profit and loss account and credit to concerned debtor account
D. credit the amount to profit and loss account and debit to concerned debtor account
A A firm wants to write off a bad debt. It shall debit the amount to bad debt provision account and
credit to concerned debtor account.
338 A firm has taken loan from one Mr. Sushil, who is also partner in the firm. The amount will be
credited to:
A. cash account
B. loan account of Sushil
C. partner capital account
D. none of the above
B The amount will be debited to cash account and credited to loan account of Sushil.
339 Goods are purchased in cash by XYZ firm from ABC firm. Which of the following two accounts
are involved in this transaction in the books of XYZ Firm?
A. cash account and ABC firm account
B. Goods account and ABC firm account
C. goods account and cash account
D. cash account and XYZ firm account
C Goods and cash account, are two accounts, that are involved in the transaction.
340 Goods are purchased in cash by XYZ firm from ABC firm. In this case,
A. goods account is a real account and cash account is a personal account
B. goods account is a personal account and cash account is real account
C. both the accounts are personal accounts
D. both the accounts are real accounts
D Goods and cash account are real accounts.
341 The left side entry in an account means:
A. debit to an account
B. credit to an account
C. decrease in balance in an account
D. increase in balance in an account
A The left side entry in account means debit to an account.
342 The right side entry in an account means:
A. debit to an account
B. credit to an account
C. decrease in balance in an account
D. increase in balance in an account
B The right side entry in account means credit to an account.
343 The nominal accounts are transferred to ___ at year end:
A. balance sheet
B. funds flow
C. profit and loss account
D. any of the above
C The nominal accounts are transferred to profit and loss account, at year end.
344 The balances in the real or personal accounts are:
A. transferred to balance sheet
B. transferred to profit and loss account
C. carried over to next year
D. closed at the year end
C The balances in the real or personal accounts are carried over to next year.
345 If there is an overdraft, the bank column of the cash book shows ____:
A. credit balance
B. debit balance
C. debit or credit balance
D. neither debit nor credit balance
A If there is overdraft, the bank column of the cash book shows a credit balance.
346 If a petty cash book has multiple columns, it is called:
A. imprest cash book
B. petty cash book
C. columnar cash book
D. none of the above
C If a petty cash book has multiple columns, it is called columnar cash book.
347 Which of the following statement is not true:
A. journal is a book of secondary entry
B. bank account is a personal account
C. cash book is a ledger account also
D. credit sales are not recorded in the cash book
A Journal is a book of original entry and not of secondary entry.
348 Which of the following statement is true:
A. if closing balance appears on the credit side of an account, it is said to have debit balance
B. cash account can show a debit balance or a credit balance
C. the important business transactions are directly debited to ledger
D. cash as well as credit sales are recorded in sales book
A Cash account can show only debit balance, business transactions are routed through the journal
and in the sales book only credit sales are recorded.
349 For which of the following reasons, the bank reconciliation is not required.
A. cheque issued but not presented for payment
361 The cash book of the firm has been showing a credit balance of Rs.22300. It is observed that an
amount of Rs.120 has been debited by bank. Further, a cheque of Rs.3000 deposited in the bank has
not been credited so far. What is the balance as per pass book?
A. 25280
B. 25420
C. 19280
D. 19420
B The overdraft balance is given as per cash book. To match it with the pass book, the amount of
cheque deposited and not credited and amount debited by the bank is to be added in the balance.
362 The balance in the current account of the firm at bank is Rs.56219. It is observed that bank has
credited a dividend amount of Rs.320. Out of total cheques of Rs.12000 issued by the firm, cheques
of Rs.9000 have been paid. What is the balance in the cash book.
A. 68219
B. 52899
C. 55219
D. 65899
B The balance in the pass book is to be matched with the balance in the cash book. The amount of
cheques issued and the amount of direct credit by the bank will be deducted.
363 It is observed by the firm that the bank has debited Rs.200 as service charges and an amount
not related to the firm Rs.2000, has been credited by the bank. Firm had issued a cheque of Rs.3000
which has been debited to the account of partner. The balance in the overdraft account at bank is
Rs.34500. What will be balance in the cash book.
A. 32900
B. 33300
C. 39300
D. 30900
C To match the balance with cash book, the amount of charges will be deducted, the amount
credited by bank incorrectly, will be added and the amount of cheque debited to account of partner
shall be added.
364 A cheque of Rs.3300 was deposited with the bank by the firm which has been collected by the
bank and credited to account of another party. A cheque of Rs.1200 issued by the firm has been
debited by the bank to account of another party. The balance as per cash book is Rs.12000
overdraft. What is the balance as per pass book.
A. 14100
B. 15300
C. 9900
D. 8700
A When balance as per cash book is overdraft, to reach the pass book balance, the amount of
cheque
deposited but credited to account shall be deducted and amount of cheque issued but not debited to
the account of the party shall be added.
365 Which of the following entries appears first in the books of the firm and then in the books of
the bank?
A. bank debited charges
B. party issued a cheque
C. bank credited interest
D. bank paid amount on the basis of standing instruction.
B Two entries appear in the books of the firm first i.e. party issued cheque or party deposited
cheque. Other items appears first in the books of the bank.
373 If a customer of the firm directly deposits an amount with the bank:
A. it is recorded on credit side of the cash book
B. it is recorded on credit side of the pass book
C. it is recorded on debit side of the pass book
D. it is recorded on the credit side of cash book and pass book.
B If a customer directly deposits an amount with the bank, it is recorded on debit side of the cash
book and on credit side of the pass book.
374 If a cheque is issued and not presented at bank, its amount is :
A. deducted in the bank reconciliation statement, when it is started as overdraft in cash book.
B. added in the bank reconciliation statement, when it is started as overdraft in cash book.
C. added in the bank reconciliation statement, when it is started as positive balance in pass book.
D. added in the bank reconciliation statement, when it is started as overdraft in pass book.
A If a cheque is issued and not presented at bank, its amount is, deducted in the bank reconciliation
statement, when it is started as overdraft in cash book.
375 If a cheque is deposited in the bank and its amount is not credited, the amount is:
A. added in the bank reconciliation statement, when it is started as overdraft in pass book.
B. deducted in the bank reconciliation statement, when it is started as overdraft in pass book.
C. deducted in the bank reconciliation statement, when it is started as overdraft in cash book.
D. added in the bank reconciliation statement, when it is started as positive balance in pass book.
B If a cheque is deposited in the bank and its amount is not credited, the amount is, deducted in the
bank reconciliation statement, when it is started as overdraft in pass book.
376 If a cheque is issued and not presented at bank, its amount is:
A. added in the bank reconciliation statement, when it is started as overdraft in cash book.
B. added in the bank reconciliation statement, when it is started as positive balance in cash book.
C. added in the bank reconciliation statement, when it is started as positive balance in pass book.
D. none of the above
B If a cheque is issued and not presented at bank, its amount is, added in the bank reconciliation
statement, when it is started as positive balance in cash book..
377 When an entry is passed on the withdrawal side of the pass book, the bank balance:
A. declines
B. increases
C. remains same
D. none of the above
A When an entry is passed on the withdrawal side of the pass book, the bank balance declines.
378 The debit balance represents:
A. overdraft in the cash book and positive balance in the pass book
B. positive balance in the pass book and overdraft balance in the cash book
C. overdraft in the pass book and positive balance in the cash book
D. overdraft in the pass book and overdraft in the cash book
C The debit balance represents overdraft in the pass book and positive balance in the cash book.
379 The credit balance represents:
A. overdraft in the cash book and positive balance in the pass book
B. positive balance in the pass book and overdraft balance in the cash book
C. overdraft in the pass book and positive balance in the cash book
D. overdraft in the pass book and overdraft in the cash book
B The credit balance represents overdraft in the cash book and positive balance in the pass book.
380 Which of the following have to prepare bank reconciliation statement?
A. a business firm maintaining bank account
B. the bank which has opened the account
C. the debtors and the creditors
B. error of commission
C. error of principle
D. compensating error
B Such error is called an error of commission.
388 One mistake has nullified the wrong effect of another mistake. It is called:
A. error of omission
B. error of commission
C. error of principle
D. compensating error
D When one error happens in such a way that it nullifies the wrong effect of another mistake, it is
called a
compensating error.
389 The wages paid for installation of machinery by a firm have been debited to the wages account
instead of the
machinery account. This is:
A. error of omission
B. error of commission
C. error of principle
D. compensating error
C This is error of principle because the basic accounting principle has not been observed. An entry
relating to asset or liability has been recorded for the nominal account.
390 Which of the following error will affect not the trial balance:
A. an amount of Rs.900 has been posted in a wrong account
B. an amount of Rs.900 has been posted on the wrong side of an account
C. Total of debit side of the account not done correctly
D. posting of wrong amount in the account.
A When posting of an amount is made to a wrong account, it will not affect overall balance in the
accounts.
Page 74 of 165
391 If there is a one side error, it can be corrected:
A. by deleting the entry
B. through a journal entry
C. by simply correcting the posting
D. in any of the above manner
C If there is one side error, it can be corrected by simply correcting the posting i.e. by deleting the
wrong
posting and making fresh posting with correct entry:
392 A firm has paid rent of Rs.900 but posted it as Rs.9000. How does this error be rectified:
A. through a journal entry by debiting the rent account for Rs.8100
B. through a journal entry by debiting the rent account and crediting the cash account
C. by correcting the posting from Rs.9000 to Rs.900
D. in any of the above manner
C This is a one side error. It will be corrected by correcting the posting.
393 The firm had paid salary of Rs.2000 to a staff member but his personal account has been
debited. What type of error it is.
A. error of omission
B. error of commission
C. error of principle
D. compensating error
C This is an error that involves nominal account (expense) and personal account (liability). Hence it
is an error of principle.
394 The firm had paid salary of Rs.5000 to a staff member but his personal account has been
debited. Pass the journal entry for rectification of this entry.
A. debit salary account and credit cash account
B. debit cash account and credit staff member account
C. debit salary account and credit staff member account
D. debit salary account and credit cash account
C The personal account that has been debited has to be credited and the salary account which was
not
debited has to be debited.
395 If there is an error that is detected after preparation of the trial balance, it can be removed in
the following manner:
A. by cutting the entry
B. by journal entry to debit the relevant account
C. through a temporary account called SUSPENSE account
D. in any of the above manner
C Where the error is detected after the preparation of the trial balance it can be removed by
temporarily
transferring it to a new account called SUSPENSE account.
396 The total of credit side of the trial balance is Rs.1 lac. It is observed that the amount in account
of a buyer (debtor) has been taken as Rs.10000 instead of Rs.1000. What is the actual balance of
the credit side.
A. Rs.1 lac
B. Rs.109000
C. Rs.101000
D. Rs.91000
A There will be no change. The debtors have a debit balance due to which it will affect the debit side
of the trial balance. Hence the credit side total will remain unchanged.
397 The firm has been able to recover amount from a debtor which was written off. The amount is
credited to personal account of the debtor. How the error shall be removed.
A. by crediting the amount to sundry debtor account
B. by crediting the amount to cash account
C. by debiting the debtor account and crediting the profit and loss account
D. by debiting the debtor account and crediting the provisions account
C As the amount has been credited to the personal account, it will have to be reversed and the profit
and loss account, would be credited.
398 Which of the following statement is not correct:
A. in preparation of gross trial balance, ledger account balances are extracted
B. fixed deposit with the bank will be shown on the debit side of trial balance
C. purchases are shown on the debit side of trial balance
D. sales are shown on the credit side of the trial balance
A In preparation of gross trial balance, ledger account balances are not extracted. Rather these are
taken on a gross basis.
A. compensation
B. principle
C. commission
D. omission
C Posting wrong amount on wrong side of an account is an error of commission.
407 Total rent amount is undercast by Rs.300 and total of printing and stationery account is
overcast by Rs.300. This is an error of:
A. compensation
B. principle
C. commission
D. omission
A In error of compensation, the effect of one error is negated by another error.
408 One side error can be rectified by:
A. passing a journal entry
B. correcting the posting
C. deleting the entry
D. any of the above
B One side error can be rectified by correcting the posting. No journal entry is required to be
passed as it affects only one account.
409 An amount of Rs.1000 paid as rent has been posted as Rs.10000. The rectification of the error
can be done by:
A. rent account will be credited for Rs.9000
B. entry of Rs.10000 will be deleted and another entry will be posted as Rs.1000
C. no modification will be required as it affects only one account
D. none of the above
A The rent account will be credited for Rs.9000 being the difference between Rs.10000 and Rs.1000,
as excess
amount has been debited to the account.
410 Goods purchased from Ramesh for Rs.3000 were recorded in the sales book by debiting
account of Ramesh. The rectification entry shall be:
A. debit sales and credit purchase account
B. debit purchase account and credit sales account
C. debit purchase and sales account for Rs.3000 each and credit Ramesh for Rs.6000
D. debit purchase and sales account for Rs.3000 in all and credit Ramesh for Rs.3000
C The journal entry would be debit purchase and sales account for Rs.3000 each and credit Ramesh
for
Rs.6000. Sales account was wrongly credited and purchase account was not debited. Hence, these
two
accounts would be debited. Account of Ramesh will start showing correct balance of Rs.3000 credit.
411 The firm paid salary to one of its employees and debited his personal account. What is the
rectification entry?
A. debit cash and credit salaries account
B. debit salary account and credit cash account
C. debit salary account and credit employee account
D. debit cash account and credit employee account
C The error will be removed by debiting salary account and crediting the employee account. Salary
should have been debited to salary account and not to the personal account of employee.
412 After preparation of trial balance, if there is difference:
A. the difference is kept as it is
B. the difference is temporarily transferred to an account called suspense account
418 Which of the following statement is not correct, in the context of trial balance?
A. wrong balancing of an account, affects the trial balance
B. trial balance takes care of arithmetic accuracy
C. trial balance can be prepared at the end of accounting year only
D. if debit and credit side of trial balance does not tally, there will be need to open a suspense account
C Trial balance can be prepared any time and not necessarily, at the end of accounting year.
419 Which of the following statement is a correct statement, in the context of trial balance?
A. purchases are shown on the credit side of the trial balance
B. bank account is shown on the credit side of the trial balance
C. trial balance is prepared after preparing the final account
D. security deposited by a firm, is shown on the debit side of the trial balance
D Purchases are shown on debit side, bank account on debit side and final accounts are prepared
after trial balance.
420 Which of the following does not match in the context of trial balance?
A. when gross trial balance is prepared, the net balance of each account is taken - correct
B. debit balance of a ledger account is shown on credit side of the trial balance - incorrect
C. overdraft is shown on credit side of trial balance - correct
D. ledger balances are carried to trial balance - correct
A In gross trial balance, the total of debit and credit side is taken to the trial balance, instead of net
balance in the account.
421 A statement or list showing debit and credit balances of various ledger accounts is called:
A. trial balance
B. final account
C. suspense account
D. any of the above
A The trial balance means a statement or list showing debit and credit balances of various ledger
accounts.
422 Balances in the liability accounts are recorded on ___ side and balance in asset accounts are
recorded on ___ side of the trial balance:
A. credit, debit
B. debit, credit
C. debit, debit
D. credit, credit
A The balances in the liability accounts are recorded on credit side and balance in asset accounts
are recorded on debit side of the trial balance because, liabilities have credit balance and assets
have debit balance.
423 If the credit side of the trial balance is cast short, the difference is placed on:
A. debit side of the suspense account
B. credit side of the suspense account
C. debit side of the trial balance
D. any of the above
B If the credit side of the trial balance is cast short, the difference is placed on credit side of the
suspense account.
424 Which of the following is a correct statement?
A. while recording a transaction if the book keeping principles are not followed, it is an error of omission
B. trial balances can disclose error of principle
C. if trial balances agree, this means, there is no error
D. incorrect totaling of subsidiary books, affects the agreement of trial balances
D If principles of book keeping are not followed, it is error of principle. Trial balance do not
disclose the error of principle and if trial balances agree, still there can be errors.
C. debit the related expenses outstanding account and credit the related expenses account
D. no journal entry is required as the expenses have been pre-paid and will be used in the next financial
year.
B When expenses have been paid in advance, the pre-paid expenses account shall be debited and
the related expenses account shall be credit.
452 Firm-B was to pay wages amounting to Rs.180000 to its workers. But it could not pay wages for
the last two months of the financial year. What journal entry will be required, if the per month
wages are same.
A. debit the wages payable account and credit the wages account for Rs.180000
B. debit the wages account and credit expenses payable account for Rs.30000
C. debit the wages account and credit expenses payable account for Rs.180000
D. debit the wages payable account and credit the wages account for Rs.30000
B For 2 months, the amount of wages will be Rs.30000 at Rs.15000 per month. Wages account will
be debited and expenses payable account shall be credited for this amount.
453 Firm-X was to receive some commission during the year which it could not. What journal entry
shall be passed for this adjustment:
A. debit the commission account and credit commission due but not received.
B. debit the account of related customer and credit commission income
C. debit the income due but not received account and credit the commission account
D. no entry will be required since the income has not been received and there is uncertainty
C Where the income is due and not received, the income due and not received account shall be
debited and the related income account shall be credited.
454 Firm - B received certain misc. income in advance that was not due. What journal entry shall
be required to be passed. A. debit related income account (misc. income) and credit income received in
advance account.
B. debit the income received in advance account and credit the related income account
C. debit the related income account and credit the profit and loss account
D. debit the profit and loss account and credit the party from whom that amount has been received.
A Where income is received in advance, the related income account shall be debited and the income
received in advance account shall be credited.
523 The unsold stocks with the consignee are valued in the books of the consignor, at which of the
following:
A. cost price or market price whichever is lower
B. cost price + expenses incurred by the consignor and consignee
C. cost price + expenses incurred by the consignor
D. cost price + expenses incurred by the consignee
B The valuation will take into account the cost price as well the expenses incurred by the consignee
and the consignor.
524 When does the del credere commission paid to the consignee in the case of consignment (which
of the following is not correct):
A. the goods are sold at credit, at the risk of consignor
B. the goods are sold at credit, at the risk of consignee
C. all losses shall go to the consignee
D. all collection charges and discounts are to the account of consignee
B The goods are sold on credit by the consignee for which he is liable. Since he is taking extra risk,
he earns additional commission, which is called del credere commission.
525 When does the consignee allow normal commission and not del credere commission:
A. losses due to bad debts are borne by the consignor
B. losses due to bad debts are borne by the consignee
C. losses due to bad debts are borne by both of them on pro-rata basis
D. none of the explanation is correct
A When normal commission is paid, the risk is that of the consignor for losses due to bad debt etc.
When del credere commission is paid, the risk is that of the consignee.
526 In the consignment sale if there is some accidental loss or unnecessary loss, it is:
A. transferred to profit and loss account
B. it is spread over the entire cost of the particular consignment
C. it is transferred to the consignee
D. it is shared between the consignee and consignor.
A If there is abnormal loss due to some accident etc. it is ascertained and transferred to profit and
loss
account.
527 Which of the following journal entry is not correctly matched in the books of the consignor:
A. for goods sent on consignment - debit consignment and credit goods sent on consignment
B. for adjusting the loading - debit goods sent on consignment and credit consignment account
C. for expenses incurred by the consignor - debit the consignee account and credit bank account
D. none of the above
C For expenses incurred by the consignor - debit the consignment account and credit bank account.
Other journal entries are correct.
528 When the goods are sent on consignment, which account is debited:
A. consignment account
B. consignee account
C. sales account
D. none of the above, as it is not a sale
A Consignment account is debited, when goods are sent on consignment.
529 What is the relationship between the consignor and the consignee?
A. seller and buyer
B. agent and principal
C. debtor and creditor
D. none of the above
D The relationship is of principal and agent, where the consignor is principal and consignee, is the
agent.
530 In the context of consignment sale, the loss which is unavoidable and natural, is called:
A. natural loss
B. normal loss
C. unavoidable loss
D. abnormal loss
B Normal loss is the loss which is unavoidable as well as natural.
531 If the loss is due to fire or theft or pilferage etc. such loss is called:
A. natural loss
B. normal loss
C. unavoidable loss
D. abnormal loss
D Abnormal loss means a loss due to fire, theft, pilferage etc.
532 If some abnormal loss takes place, it is transferred to ___, after making adjustment of recovery
or insurance claim etc.
A. consignment account
B. profit and loss account
C. consignee account
D. capital account of the consignor.
B If some abnormal loss takes place, it is transferred to profit and loss account, after making
adjustment of
recovery or insurance claim etc.
533 Calculation of Del Credere commission is made on the basis of:
A. total amount of sales
B. only credit sales
C. only cash sales
D. it has no relationship with the amount sale. It is a fixed amount
A Del Credere commission is paid on the basis of total amount of sales.
534 Which of the following journal entry in consignment account, is not correct, when passed in the
books of consignor?
A. for expenses incurred by the consignor - consignment account debit and bank account credit
B. for sale of goods by consignee - consignee account debit and consignment account credit
C. for goods taken over by consignee - consignee account and credit consignment account
D. none of the above
D All the above journal entries are correct.
535 Which of the following is not a feature of a joint venture:
A. it is an agreement for a specific purpose
B. the agreement gets terminated when the venture is completed
C. it is regular partnership
D. none of the above
C It is a partnership for a short period. But many features of partnership are missing.
536 Which of the following is a not correct statement:
A. In a joint venture the association is of a short term nature
B. the persons participating in a joint venture are called partners
C. the co-venturers contribute capital to the business
D. all the above
B The persons participating in a joint venture are called co-venturers.
537 The expenses incurred by co-venturers are debited to:
A. their personal account
B. joint venture account
C. bank account
D. cash account
B The expenses incurred by the co-venturers are debited to the joint venture account.
538 Which of the following statement is correct:
A. the co-venturers always share the profits in equal proportion
B. the co-venturers have to share the expenses incurred on the joint venture
C. the joint venture continues even after the specific task is accomplished
D. none of the above
B The co-venturers share the profit, in the ratio fixed by them and the venture comes to an end
when the specific task is finished. Expenses are shared by them.
539 Which of the following statement is not correct:
A. the co-venturers are agents and principal of each other
B. the co-venturers have unlimited liability
C. the joint venture cannot be a trading concern
D. all the above
D Co-venturers are not agents and principal, they have liability as per the contract and they can be
D. a, c and d only
A The lease can be finance or capital lease, operating lease, service lease and leveraged lease.
455 A firm has fixed assets of Rs.3 lac on which it provides depreciation at 10%. The auditors want
that the depreciation should be 15%. Firm agrees to make the adjustment. What journal entry shall
be passed:
A. debit the depreciation account and credit the fixed assets account for Rs.45000
B. debit the depreciation account and credit the fixed assets account for Rs.15000
C. debit the fixed asset account and credit the depreciation account for Rs.15000
D. no book entry is required to be passed as the depreciation is a non-cash expenditure
B The difference amount of depreciation at 5% i.e. Rs.15000 will be debited to depreciation account
and
credited to fixed asset account.
456 In order to reduce its profits, Firm B has provided depreciation on fixed assets at 20% instead
of usual 15% average. The amount of fixed assets is Rs.5 lac. What adjustment entry shall be
required to make the position correct.
A. debit depreciation account and credit fixed assets account for Rs.25000
B. debit the fixed assets account and directly credit the profit and loss account for Rs.25000
C. debit the fixed assets account and credit the depreciation account for Rs.25000
D. Depreciation being a non-cash expenditure, no adjustment entry shall be required.
C Depreciation is an expenditure and if it has been provided excess, it also requires adjustment. By
debiting fixed asset account, the depreciation account shall be credited for the amount of difference.
457 Partner-B of the ABC firm has taken certain goods for his personal use from the available
stocks with the firm. What adjustment shall be required:
A. Since goods have been taken by the partner, no adjustment shall be required.
B. debit goods accounts and credit capital account of the partner
C. debit drawings account and credit the purchase account
D. debit the capital account and credit the sales account
C When the goods have been taken by the partner for his personal use, his drawing account will be
debited and the purchase or goods account shall be credited.
458 What journal entry is required to be made to make provision for book-debts?
A. debit book-debits and credit provision
B. debit the expenses provision on book debts and credit provision on book debt account
C. debit provisions and credit book debt account
D. debit the expenses provision on book debts and credit the concerned book debt account
B When provision is required to be made on book debt, the expenses provision on book debt
account is to be debited and the provision on book debt account is to be credited.
459 Firm B has book debts of Rs.3 lac. Due to recession conditions, some of its book debts are likely
to be become difficult of recovery. It wants to make provision at 2%. What journal entry will be
passed.
A. debit the expenses provision on book debts and credit provision on book debt account
B. debit the provision on book debts and credit book debt account concerned
C. debit the expenses provision on book debts and credit related book debt account
D. debit the provision account and credit the expenses provision on book debt account
A The expenses provision on book debt account shall be debited for Rs.6000 and the amount shall
be credited to provision on book debt account which will be used for write off the book debt if any
in future.
460 Firm B had made provision on book debts at 5%, which was found to be excessive by the
auditors in the light of improved economic conditions. He suggests that a provision of 4% is
adequate. Presently, the amount of book debts is Rs.10 lac. What journal entry will be required.
A. debit the provision on book debt account and credit the expenses provision account for Rs.40000.
B. debit the provision on book debt account and credit the expenses provision account for Rs.10000.
C. debit the expenses provision on book debt account and credit the provision account for Rs.10000.
D. debit the expenses provision on book debt account and credit the provision account for Rs.40000.
B The excess provision will have to be reversed by debiting the provision on book debt account and
crediting the expenses provision on book debt account.
461 Firm-B wants to write off balance of a debtor amounting to Rs.10000. What journal entry shall
be passed.
A. debit the expenses provision on book debt and credit the related book debt account for Rs.10000
B. debit the related book debt account and credit the expenses provision on book debt account for
Rs.10000
C. debit the related book debt account and credit the provision on book debt account for Rs.10000
D. debit the provision on book debt account and credit the related book debt account for Rs.10000.
D To write off the account, the provision on book debt account shall be debited and the related book
debt
account shall be credited.
462 For transfer of closing of stocks of goods from trading account, what journal entry shall be
required?
A. debit trading account and credit the balance sheet stock
B. debit closing stock account and credit trading account
C. debit trading account and credit the stock account
D. debit the stock account and credit the profit and loss account
B For transferring the closing stock from the trading account, the closing stock will be debited and
the trading account shall be credited.
463 When the provision for outstanding expenses is made, which of the following is not correct,
regarding its effect:
A. the profit declines
B. the liability in the balance sheet declines
C. the profits declines and liability increases
D. the balance sheet and profit loss account are affected
B When outstanding expenses are provided, the profits come down to that extent and in the balance
sheet expenses payable appear as a liability.
464 When income accrued but not received is accounted for, which of the following effects does not
take place:
A. profits of the firm increase
B. the liabilities in the balance sheet increase
C. the profits increase and assets also increase
D. the profit and loss account and balance sheet both are affected
B When the accrued income is accounted for, it increases profit on the one hand and the accrued
income appears as an asset in the balance sheet.
465 If interest on capital of the partners has not been paid, what adjustment entry shall be
required.
A. debit the capital account and credit the interest on capital account
B. debit interest on capital account and credit the capital account
C. debit the interest account and credit the expenses payable account
D. no adjustment entry shall be required as it is internal matter for the firm
B To pay interest, the interest on capital account shall be debited and the capital account shall be
credited.
466 Which of the following accounting standard is applicable for inventory valuation?
A. AS-1
B. AS-2
C. AS-9
D. AS-12
B Accounting Standard AS-2 is applicable for inventory valuation.
467 Inventory has various components such as (a) raw material components (b) stock in process (c)
finished goods (d) capital work in progress.
A. a to c only
B. b to d only
C. a, c and d only
D. a to d all
A Inventory components include raw material, stock in process and finished goods. Capital working
in
progress is part of fixed assets and not of inventory.
468 Which of the following is included in the historical cost of the inventory (a) cost of purchase (b)
cost of conversion (c) other cost incurred in normal course of business in bringing the inventory to
it present location and condition.
A. a only
B. a and b only
C. a and c only
D. a to c all
D All these costs are part of historical cost of the inventory.
469 The stock in hand, at the time of valuation, are the stocks relating to latest consignment, in case
of:
A. first in first out method
B. last in first out method
C. average cost method
D. adjusting selling price method
A The stocks in hand, consist of stocks of latest consignment as the consumed stocks relate to earlier
consignments. Hence the valuation is based on price of latest consignments.
470 The stock in hand, at the time of valuation, are the stocks relating to earlier consignment, in
case of:
A. first in first out method
B. last in first out method
C. average cost method
D. adjusting selling price method
B The stocks in hand, consist of stocks of earlier consignment as the consumed stock relate to latest
consignment. Hence the valuation is based on price of earlier consignments.
471 In which of the following, the valuation of inventory is done on the basis of latest price:
A. first in first out method
B. last in first out method
C. average cost method
D. adjusting selling price method
A It is due to the reason, that the early consignment stock is consumed and stock relating to latest
consignment is in hand.
472 A firm purchased inventory in five lots at the rate of Rs.10, Rs.12, Rs.14, Rs.16 and Rs.18.
Under average cost method, the valuation of stock in hand will be:
A. at Rs.10
B. at Rs.18
C. at Rs.14
D. at Rs.12
C The valuation will be done on the average cost which is Rs.14 = (10 + 12 + 14 + 16 + 18) / 5.
473 In the month of Mar 2010, a firm had opening stock of inventory 1000 units at Rs.8 per unit. It
purchased 1200 units on Mar 2 at Rs.10, 200 units on Mar 4 at Rs.11 and 400 units on Mar 6 at
Rs.12. It consumed 600 units on Mar 3, 800 units on Mar 5 and 800 units on Mar 7. What is the
value of stocks that has been purchased ?
A. Rs.15000
B. Rs.19000
C. Rs.20000
D. Rs.27000
B Value as on Mar 01 : 1000 x 8 = 8000 + 12000 (1200 x 10) - 4800 (600 x 8) + 2200 (200 x11) - 7200
(400 x 8 + 400 x 10) + 4800 (400 x 12) - 8000 (800 x 10) = 7000
474 In the month of Mar 2010, a firm had opening stock of inventory 1000 units at Rs.8 per unit. It
purchased 1200 units on Mar 2 at Rs.10, 200 units on Mar 4 at Rs.11 and 400 units on Mar 6 at
Rs.12. It consumed 600 units on Mar 3, 800 units on Mar 5 and 800 units on Mar 7. What has been
the value of stock consumed as per first in first out method ?
A. 15000
B. 19000
C. 20000
D. 27000
C Value as on Mar 01 : 1000 x 8 = 8000 + 12000 (1200 x 10) - 4800 (600 x 8) + 2200 (200 x11) - 7200
(400 x 8 + 400 x 10) + 4800 (400 x 12) - 8000 (800 x 10) = 7000. Total consumption = 4800 + 7200 +
8000 = 20000
475 In the month of Mar 2010, a firm had opening stock of inventory 1000 units at Rs.8 per unit. It
purchased 1200 units on Mar 2 at Rs.10, 200 units on Mar 4 at Rs.11 and 400 units on Mar 6 at
Rs.12. It consumed 600 units on Mar 3, 800 units on Mar 5 and 800 units on Mar 7. What is the
value of the closing stocks as on Mar 31 under first in first out method.
A. 5000
B. 6000
C. 7000
D. 9000
C Value as on Mar 01 : 1000 x 8 = 8000 + 12000 (1200 x 10) - 4800 (600 x 8) + 2200 (200 x11) - 7200
(400 x 8 + 400 x 10) + 4800 (400 x 12) - 8000 (800 x 10) = 7000
476 In the month of Mar 2010, a firm had opening stock of inventory 1000 units at Rs.8 per unit. It
purchased 1200 units on Mar 2 at Rs.10, 200 units on Mar 4 at Rs.11 and 400 units on Mar 6 at
Rs.12. It consumed 600 units on Mar 3, 800 units on Mar 5 and 800 units on Mar 7. What is the
value of stock consumed as per last in first out method ?
A. 22200
B. 20400
C. 19300
D. 18600
A Value as on Mar 01 : 1000 x 8 = 8000 + 12000 (1200 x 10) - 6000 (600 x 10) + 2200 (200 x11) - 8200
(200 x 11 + 600 x 10) + 4800 (400 x 12) - 8000 (400 x 12 = 400 x 8) = 4800. Total consumption = 6000
+ 8200 +
8000 = 22200
477 In the month of Mar 2010, a firm had opening stock of inventory 1000 units at Rs.8 per unit. It
purchased 1200 units
on Mar 2 at Rs.10, 200 units on Mar 4 at Rs.11 and 400 units on Mar 6 at Rs.12. It consumed 600
units on Mar 3, 800 units on Mar 5 and 800 units on Mar 7. What is the valuation of the stocks as
on Mar 31 under last in first out method.
A. 5600
B. 5200
C. 5000
D. 4800
D Value as on Mar 01 : 1000 x 8 = 8000 + 12000 (1200 x 10) - 6000 (600 x 10) + 2200 (200 x11) - 8200
(200 x 11 + 600 x 10) + 4800 (400 x 12) - 8000 (400 x 12 = 400 x 8) = 4800
478 In retail trade or in such business where the inventory comprises such items, the cost of which
is not readily
ascertainable, which of the following method of inventory valuation is more suitable?
A. first in first out
B. base cost
C. last in first out
D. adjusting selling price
D Adjusting selling price method is more appropriate in retail trade or in such business where the
inventory comprises such items, the cost of which is not readily ascertainable.
479 The value of inventory is ascertained in the following ways (a) periodic inventory (b) perpetual
inventory (c) periodiccum- perpetual inventory.
A. a and b only
B. a and c only
C. b and c only
D. a to c all
A The value of inventory is ascertainable in two ways i.e. (a) periodic inventory (b) perpetual
inventory.
480 When value of stock is ascertained by physically counting the stock at the end of the year or as
on the accounting
date, this is called:
A. periodic inventory
B. perpetual inventory
C. continuous inventory
D. any of the above
A In periodic inventory method, the value of stock is ascertained by physically counting the stock at
the end of the year or as on the accounting date.
481 Under which of the following methods of inventory taking, the stock register is maintained
which gives the inventory balances at any time?
A. periodic inventory
B. perpetual inventory
C. continuous inventory
D. any of the above
B Under perpetual inventory methods of inventory taking, the stock register is maintained which
gives the nventory balances at any time
482 If the prices of material are increasing during a given year, the first in first out method will
result in costing of material
consumed at:
A. highest material cost
B. lowest material cost
C. highest initially and lower later on
D. any of the above
B If the prices of material are increasing within a given year, the first in first out method will result
in costing of material consumed at lowest material cost, as the cheaper material received first will
be used first.
483 If the prices of material are increasing within a given year, the last in first out method will
result in costing of material consumed at:
A. highest material cost
B. lowest material cost
C. highest initially and lower later on
D. any of the above
A If the prices of material are increasing within a given year, the last in first out method will result
in costing of material consumed at highest material cost as cost material received later on is
consumed first.
484 If the prices of material are decreasing within a given year, the first in first out method will
result in costing of material consumed at:
A. highest material cost
B. lowest material cost
C. highest initially and lower later on
D. any of the above
A If the prices of material are declining within a given year, the first in first out method will result
in costing of material consumed at highest material cost, as the high cost material will be used first.
485 If the prices of material are decreasing within a given year, the last in first out method will
result in costing of material consumed at:
A. highest material cost
B. lowest material cost
C. highest initially and lower later on
D. any of the above
B If the prices of material are declining within a given year, the last in first out method will result in
costing of material consumed at lowest material cost, as the low cost material will be used first.
486 If the prices of material are decreasing within a given year, the last in first out method will
result :
A. lower profits
B. higher profits
C. no effect on actual profits
D. none of the above
B If the prices of material are decreasing within a given year, the last in first out method will result
in higher profits as the material used will be at a lower cost.
487 If the prices of material are decreasing within a given year, the first in first out method will
result :
A. lower profits
B. higher profits
C. no effect on actual profits
D. none of the above
A If the prices of material are decreasing within a given year, the first in first out method will result
in lower profits as the material used will be at a highest cost.
488 Which of the following statement is correct in the context of FIFO and LIFO methods of
inventory valuation?
A. in a case of increasing prices of material, the profits will be higher under FIFO
B. in a case of increasing prices of material, the profits will be higher under LIFO
C. in a case of increasing prices of material, the profits will be lower under FIFO and higher under LIFO
D. none of the above, as it will not have any impact
A In a case of increasing prices of material, the profits will be higher under FIFO, as the material
consumed will have lower cost and material in hand will have higher price.
489 Which of the following statement is correct in the context of FIFO and LIFO methods of
inventory valuation?
A. in a case of declining prices of material, the profits will be higher under FIFO
B. in a case of declining prices of material, the profits will be higher under LIFO
C. in a case of decreasing prices of material, the profits will be lower under LIFO and higher under FIFO
D. none of the above, as it will not have any impact
B In a case of decreasing prices of material, the profits will be higher under LIFO, as the material
consumed will have lower cost and material in hand will have higher price.
490 As per requirement of Schedule VI of Companies Act, the inventories are classified as (a) stores
and spares (b) loose tools (c) stock in trade (d) work in progress.
A. a, b and d only
B. b, c and d only
C. a to d all
D. a, c and d only
C The inventories are classified in all the above 4 categories.
491 The test of objectivity and verifiability is taken care of, if the stock valuation is made at:
A. current replacement price
B. historical cost
C. net realisable value
D. any of these
B The test of objectivity and verifiability is taken care of, if the stock valuation is made at historical
cost.
492 When the value of inventory is ascertained from books of stock, it is called:
A. periodic inventory
B. first in first out inventory
C. perpetual inventory
D. last in first out inventory
C When the value of inventory is ascertained from books of stock, it is called perpetual inventory.
493 Accounting Standard AS-2 recommends which of the following inventory valuation method?
A. weighted averages only
B. last in first out
C. latest purchase price
D. first in first out or weighted average
D Accounting Standard AS-2 recommends first in first out or weighted average inventory valuation
method.
494 The valuation of inventory is ___ as it depends upon the accounting policies followed by the
firm / accountant.
A. objective
B. subjective
C. biased
D. perfect
B The valuation of inventory is subjective because it depends upon the accounting policies followed
by the firm / accountant.
495 The historical cost concept in inventory valuation are reduced to net realisable value due to
which of the following accounting convention?
A. realisation
B. accounting period
C. consistency
D. conservatism
D It is due to conservatism convention.
496 If the method of valuation of inventory is changed frequently, it will violate, which of the
following convention of accounting:
A. realisation
B. accounting period
C. consistency
D. conservatism
C The convention of consistency requires that the accounting practices once adopted should be
followed consistently.
497 Which of the following is not an example of deferred revenue expenditure:
A. large expenditure on advertisement
B. expenditure for issue of raising loan
C. expenses relating to formation of a company
D. purchase of fixed assets
D All these expenses at option (a) to (c) are in the nature of deferred revenue expenditure. Item (d)
is a capital expenditure.
498 The receipts of a business that do not arise in normal course of business. Rather these are of
unusual nature. These are called:
A. revenue receipts
B. capital receipts
C. deferred receipts
D. none of the above
B Such receipts are called capital receipts. These include amount of capital issue, debenture, term
loan raised etc.
499 Which of the following is not part of revenue receipts:
A. interest on bank term deposit
B. commission on sales
C. capital contributed by the partner
D. none of the above
C Capital contributed by the partner is a capital receipt. Others are revenue receipts.
500 Which of the following is not a capital receipt:
A. share capital
B. share premium
C. trade creditor
D. debenture
C Trade creditors is a revenue receipt. It is available on a recurring basis.
B. nominal account
C. personal account
D. it is not an account at all. It is only a statement
B Consignment account is a nominal account maintained in the books of the consignor.
547 Which of the following is the most popular lease?
A. leveraged lease
B. operating lease
C. service lease
D. finance lease
D Finance lease or capital lease, is the most popular lease.
548 In which of the following lease, the entire economic life of the asset is agreed to be transferred
for use by the lessee?
A. leveraged lease
B. operating lease
C. service lease
D. finance lease
D In the finance lease, the entire economic life of the asset is agreed to be transferred for use by the
lessee,though the ownership remains with the lessor.
549 In a finance lease, the lessor recovers the cost of asset and interest thereon during the ___:
A. base period
B. secondary period
C. primary period
D. primary + secondary period
C During the primary period, the lessor recovers the cost of asset and interest thereon in a finance
lease.
550 In case of lease of assets like telephones, vehicles, computers etc., which of the following lease is
used:
A. leveraged lease
B. operating lease
C. service lease
D. finance lease
B Operating lease is used in case of lease of assets like telephones, vehicles, computers etc.
551 The period of operating lease may range from:
A. one year to 7 years
B. one year to 5 years
C. one day to 3 years
D. one month to 3 years
C The period of operating lease may range from one day to 3 years.
552 In which of the following type of lease, there are 3 parties (lessor, lessee, financier):
A. leveraged lease
B. operating lease
C. service lease
D. finance lease
A In a leverage lease, there are 3 parties namely lessor, lessee, financier.
553 The leasing companies make use of borrowed funds to finance their leasing activities. Such
lease is called:
A. leveraged lease
B. operating lease
C. service lease
D. finance lease
A The leasing companies make use of borrowed funds to finance their leasing activities. Such lease
is called
leveraged lease.
554 The lease which covers the cost of maintenance and servicing the asset for a short period, is
called:
A. leveraged lease
B. operating lease
C. service lease
D. finance lease
C The lease which covers the cost of maintenance and servicing the asset for a short period, is called
service lease.
555 The annual lease rent includes (a) finance income (b) annual charges (c) lease charges.
A. a and b only
B. b and c only
C. a and c only
D. a to c all
A The annual lease rent includes finance income and annual charges.
556 In a lease transaction, the total finance income is calculated as under:
A. total annual lease rent for all years - residual value of leased assets - fair value of the leased asset at the
time
of beginning of the lease term
B. total annual lease rent for all years + residual value of leased assets - fair value of the leased asset at
the time
of beginning of the lease term
C. total annual lease rent for all years - residual value of leased assets + fair value of the leased asset at
the time
of beginning of the lease term
D. total annual lease rent for all years - residual value of leased assets - fair value of the leased asset at the
time
of beginning of the lease term
B It is calculated as, total annual lease rent for all years + residual value of leased assets - fair value
of the leased asset at the time of beginning of the lease term
557 The total finance income for a 4 year lease period is Rs.60000. What will be amount for the 3rd
year, by using sum of digits method.
A. Rs.24000
B. Rs.18000
C. Rs.12000
D. Rs.6000
C 1+2+3+4 = 10. For 3rd year, the years are 3 and years left only 2. Hence 2/10 x 60000 = Rs.12000.
558 When annual rent is paid by the lessee, what journal entry is passed in his books?
A. debit the lessor, credit the bank
B. debit the bank, credit the lessee
C. debit the lease rent, credit the bank
D. debit the bank, credit the lease rent
C The journal entry shall be debit the lease rent and credit the bank.
559 A lease is classified as ___ lease, if it does not earn for the lessor the recovery of his capital
outlay plus a return on the funds invested during the lease term:
A. leveraged lease
B. operating lease
C. service lease
D. finance lease
B A lease is classified as operating lease, if it does not earn for the lessor the recovery of his capital
outlay plus a return on the funds invested during the lease term
560 The buyer purchases capital assets and makes payment in instalments and not in lump sum, in
case of (a) hire purchase (b) instalment sale (c) lease
A. a to c all
B. a and b only
C. b and c only
D. a and c only
B The buyer purchases capital assets and makes payment in instalments and not in lump sum, in
case of hire purchase and instalment sale.
561 Which of the following is not correct in the context of hire purchase:
A. the buyer takes possession of the assets and uses them as owner
B. the price is not fully paid when the asset is being used.
C. the buyer is called hirer and the seller is called hire purchase seller
D. the hire purchase agreement can be in writing or oral.
D The hire purchase agreement can be in writing only.
562 The elements of hire purchase are (a) cash price (b) interest for delayed payments (c) rent for
use of the assets without making full payment.
A. a to c all
B. a and b only
C. a and c only
D. b and c only
B The elements of hire purchase are cash price and interest for delayed payments.
563 Down payment in a hire purchase agreement means:
A. the last payment made for the purchase of the asset
B. the first payment made for the purchase of the asset
C. a part of the payment made in the beginning at the time of purchase of the asset
D. any of the above
C Down payment in a hire purchase agreement means a part of the payment made in the beginning
at the time of purchase of the asset.
564 Lease of machinery or air conditioners can be covered under which of the following?
A. leveraged lease
B. service lease
C. operating lease
D. any of the above
B Lease of machinery or air conditioners can be covered under service lease.
565 In a hire purchase system, the ownership is transferred to the buyer at the time of:
A. first instalment
B. half the amount of payment
C. last instalment
D. any of the above, according to agreement
C In a hire purchase system, the ownership is transferred to the buyer at the time of last instalment.
566 Which of the following books are maintained by the non-trading organisations
A. cash book & journal
B. general ledger
C. register for membership, donation, property
D. all the above
D The non-trading organisations like educational institutions, hospitals, clubs etc. maintain books
such as cash book, general ledger, journal, register for membership, donation, property etc.
567 Final accounts of non-trading organisation consist of (a) receipt and payment account (b)
income and expenditure account (c) balance sheet (d) trading account.
A. a and b only
B. a to c only
C. b to d only
D. a to d all
B Final accounts of non-trading organisation consist of receipt and payment account, income and
expenditure account and balance sheet.
568 The receipt and payment account of non-trading organisation records :
A. cash receipts and cash payments only
B. all cash and non-cash receipts and payments
C. all capital and revenue transactions
D. all the above
A The receipt and payment account of non-trading organisation records cash receipts and cash
payments which may be on capital account or on revenue account.
569 Which of the following features of an income and expenditure account of a non-trading
organisation is not correct?
A. it is like a profit and loss account
B. it records the transactions of income and expenses relating to a particular period
C. it also records the transactions of capital receipt and payments relating to a particular period.
D. none of the above
C The capital receipts and capital payments are carried over to the balance sheet. These are not
recorded in the income and expenditure accounts.
570 The donations received by non-trading organisations are recorded :
A. on liability side of the balance sheet
B. as receipts in the income and expenditure account
C. as receipts in the income and expenditure account if received as routine revenue items and as liability
if
received for a specific purpose
D. as receipts in the income and expenditure account if received for specific purpose and as liability if
received as
routine revenue items.
C The donations received by non-trading organisations are recorded as receipts in the income and
expenditure account if received as routine revenue items and as liability if received for a specific
purpose
571 Which of the following are treated as liability in the balance sheet instead of receipt in the
income and expenditure account, by a non-trading organisation?
A. entrance fees by members
B. life membership fees
C. legacies
A. loss
B. profit
C. capital fund
D. any of the above
C The difference between assets and liabilities of a non-trading organisation, in the opening
balances or closing balances is recorded as capital fund
578 Which of the following explanation given to the term does not match in the context of accounts
of non-trading organisations?
A. amount paid to a person who is not employee - honorarium
B. amount received by way of a gift - donation
C. amount given as per will of the deceased person - legacy
D. some lump sum amount paid by the member instead of periodical payments - membership fee
D The lump sum amount paid by the member instead of periodical payments is called life
membership fee.
579 The income and expenditure account of a non-trading organisation is prepared on the basis of
which of the following accounting system?
A. realisation or cash system
B. mercantile system
C. hybrid system
D. accrual cum realisation system
B The income and expenditure account of a non-trading organisation is prepared on the basis of
mercantile accounting system according to which the income or expenditure relating to a particular
year only, is taken as income or expenditure.
580 A credit balance in the income and expenditure account of a non-trading organisation means:
A. excess of income over expenditure
B. excess of expenditure over income
C. excess of cash receipt over cash payment
D. excess of cash payment or cash receipts
A A credit balance in the income and expenditure account of a non-trading organisation means
excess of income over expenses. On the other hand, the debit balance means excess of expenditure
over income. It has no relationship with receipt and payment.
581 Which of the following items will not appear in the balance sheet of an educational institute?
A. donation received
B. sale of old computers
C. loss on sale of old lab equipment
D. none of the above
C The loss on sale of old lab equipment is the loss that will appear in the receipt and payment
account while others will appear in balance sheet.
582 In case of a club, the subscriptions receivable at the beginning and end of the year, are Rs.15000
and Rs.18000. The amount of subscriptions as per income and expenditure account is Rs.90000. The
amount relating to subscriptions, shown in receipt and payment account, should be:
A. 87000
B. 90000
C. 93000
D. 108000
A The amount is calculated as 90000 - (18000 - 15000) = 87000
amount of Rs.4000 is the increase in profit as the amount of depreciation has declined.
595 Firm A purchased certain machinery for Rs. 2 lac on July 01, 2006. The rate of depreciation is
10%. What will be total amount of depreciation at WDV till Dec 31, 2008. The firm closes its books
as on 31st December.
A. 46100
B. 56100
C. 66100
D. insufficient information
A 1st year depreciation for 6 months = 10000. 2nd year 19000 and 3rd year Rs.17100. Total
depreciation = 46100
596 Which out of the following methods of depreciation is recognized for Income Tax purpose and
by the Companies Act
A. Straight Line Method
B. Written Down Value method
C. Sum of digits method
D. machine hour rate method
B WDV method is recognized for income tax purpose and also by the Companies Act.
597 The written down value of zero can never be there in which of the following methods of
deprecation:
A. Straight Line Method
B. Written Down Value method
C. Sum of digits method
D. sinking fund method
B Since the amount of depreciation is calculated on the depreciated value, the WDV can never be
zero in WDV method.
598 In the sinking fund method of depreciation, which of the following journal entries is made to
provide the depreciation:
A. debit depreciation and credit fixed asset account
B. debit depreciation and credit bank account
C. debit depreciation and credit sinking fund account
D. no journal entry is required. Investment is directly made
C The sinking fund is credited to the debit of depreciation. To make investment, the sinking fund is
debited and bank account is credited.
599 When provision for depreciation account is created, which of the following is not correct?
A. depreciation account goes to the debit of profit and loss account
B. the value of fixed asset is shown at the original cost in the balance sheet
C. in the journal entry, the depreciation account is debited and fixed asset account is credited
D. the provision for depreciation appears in the balance sheet as deduction from value of the fixed assets.
C In the journal entry, the depreciation account is debited and provision for depreciation account is
credited
600 Which of the following methods of depreciation does not match to its explanation:
A. fixed percentage on original cost - straight line method
B. fixed instalment - written down value method
C. fixed percentage on the diminishing value - written down value method
D. creating fund for replacement - sinking fund method
B Fixed instalment depreciation is the straight line method.
601 Original cost of an equipment is Rs.1.60 lac and useful life of 5 years. If the scrap value is
Rs.10000, what is the amount of depreciation for 3 years, under SLM?
A. 100000
B. 90000
C. 70000
D. 60000
B Depreciation = (1.60 - 0.10) = 1.50 / 5 = 0.30 x 3 = 0.90 lac
602 Original cost of an equipment is Rs.1.60 lac and useful life of 5 years. If the scrap value is
Rs.10000, what is the written down value at the end of 3rd year under SLM?
A. 100000
B. 90000
C. 70000
D. 60000
C Depreciation = (1.60 - 0.10) = 1.50 / 5 = 0.30 x 3 = 0.90 lac Depreciated value = 1.60 -.090 = 0.70
lac
603 Original cost of an equipment is Rs.1.60 lac and useful life of 5 years. If the scrap value is
Rs.10000, and machinery is sold at the end of 3rd year for Rs.75000, what is the gain or loss on sale,
under SLM?.
A. Rs.10000 profit
B. Rs.10000 loss
C. Rs.5000 loss
D. Rs.5000 profit
D Depreciation = (1.60 - 0.10) = 1.50 / 5 = 0.30 x 3 = 0.90 lac Depreciated value = 1.60 -.090 = 0.70
lac. Profit or loss = 0.75 - 0.70 = 0.05 lac.
604 Original cost of an equipment is Rs.2.00 lac and depreciation rate is 20% If machinery is sold at
the end of 3rd year for Rs.1 lac, what is the gain or loss on sale, under WDV method?.
A. 2000 profit
B. 2000 loss
C. 6000 profit
D. 6000 loss
B Book value at end of 3rd year = (1st year) 2.00 - 0.40 (20% of Rs.2.00 lac) = 1.60 (2nd year 1.60 0.32 (1.60 x 20%) = 1.28 (3rd year 1.28 - 0.26 (1.28 x 20%) = 1.02 Loss = 1.02 - 1.00 = 0.02 lac.
605 What journal entry will be passed at the end of 1st year if the sinking fund method of
depreciation is used, to make investment of funds in securities?
A. debit depreciation credit sinking fund
B. debit sinking fund and credit depreciation account
C. debit sinking fund investment and credit bank account
D. debit bank account and credit sinking fund investment
C For making investment of funds transferred from depreciation account to sinking fund, the
journal entry at the time of investment shall be debit sinking fund investment and credit bank
account.
606 In the year of replacement of fixed asset, under the sinking fund method of depreciation, what
journal entry is passed for sale of investment?
A. debit sinking fund investment account, credit sinking fund account
B. debit bank account, credit sinking fund investment account
B. Rs.2 lac
C. Rs.2.30 lac
D. unascertainable
A The profit is calculated by comparing the opening and closing balance of net worth. Hence the
profit = 2.30 lac - 2.00 = 0.30 lac
613 The capital of a business was Rs.2 lac in the beginning of the year and it increased to Rs.2.30 lac
at the end of the year. During the year, there were drawings of Rs.40000. What is amount of profit
during the year under net worth method in single entry accounting system.
A. 30000
B. 70000
C. 2.30 lac
D. unascertainable.
B The profit is calculated by comparing the opening and closing balance of net worth + the amount
of
drawings. Hence the profit = 2.30 lac - 2.00 = 0.30 + 0.40 = 0.70 lac
614 The capital of a business was Rs.2 lac in the beginning of the year and it increased to Rs.2.30 lac
at the end of the year.
During the year, there were drawings of Rs.40000 and capital introduction was Rs.20000. What is
amount of profit
during the year under net worth method in single entry accounting system.
A. 30000
B. 50000
C. 70000
D. cannot be calculated
B The profit is calculated by comparing the opening and closing balance of net worth + the amount
of
drawings - amount of capital introduced. Hence the profit = 2.30 lac - 2.00 = 0.30 + 0.40 = 0.70 lac 0.20 = 0.50 lac
615 In single entry accounting system under conversion method, which of the following is a correct
statement?
A. trial balance has to be prepared.
B. to prepare trial balance, double entry method is required to be used for certain transactions
C. the final accounts can be prepared in the usual way after the trial balance
D. all the above
D All these statements are correct statements.
616 Under a single entry system, the statement of affairs is a statement:
A. that gives details of all receipts and payments in cash
B. that gives details of assets and liabilities as on a particular date
C. that gives income and expenditure details for a particular period
D. that gives income and expenditure, assets and liabilities and receipt and payment position.
B The statement of affairs is a statement that gives details of assets and liabilities as on a particular
date. It is like the balance sheet of the firm.
617 Which of the following groups of ratio does match:
A. liquidity ratios - current ratio, debt equity ratio
B. solvency ratios - debt equity ratio, debtor turnover ratio
C. activity ratios - debtor velocity ratio, stock turnover ratio
D. profitability ratios - return on capital employed ratio, return on net worth ratio
C Debt equity ratio is not part of liquidity ratios, it is a solvency ratio. Debtor turnover ratio is an
activity ratio. Debt service coverage ratio is part of solvency ratios.
618 Which of the following is correct in regard to liquidity ratios:
A. objective of liquidity ratios is to check long term solvency of the firm
B. current ratio examines the liquidity position in a one year period
C. quick ratio examines the liquidity position of 9-10 months
D. net working capital indicates the availability of funds for repayment of term loan
B Liquidity ratios are used to examine the liquidity position. For very short term liquidity position,
quick ratio is used. Net working capital indicates, the position of availability of margin for working
capital.
619 The formula for which of the following ratios is correct:
A. current ratio = current assets / current liabilities
B. quick ratio = quick assets / quick liabilities
C. net working capital = current liabilities + current assets
D. none of the above
A Quick ratio is calculated as quick assets / current liabilities and net working capital is calculated
as current assets less current liabilities or long term sources less long term uses.
620 To calculate quick assets, which of the following is not reduced from current assets:
A. stocks
B. inventories
C. pre-paid expenses
D. trade debtors
D Trade debtors are part of quick assets but other assets in the question are not quick assets
although these are current assets.
621 A firm has stocks of 10, debtors 12, trade creditors of 7, cash 1, bank overdraft 4, prepaid
expenses 2 and expenses outstanding 2. Which of the following is not correct:
A. quick assets = 12
B. current assets = 25
C. current liabilities = 13
D. quick ratio = 1:1
A Quick assets should be 13. (25 - 12).
622 The details of assets and liabilities of a firm are as under: stocks 15, debtors 16 (including those
outstanding more than 6 months 3), term loan 24 (including instalment payable within 12 months
6), bank overdraft 8, cash in hand 4, prepaid expenses 4, outstanding expenses 5 and provisions 2.
(which of the following is not correct)
A. current assets = 36 and current liabilities = 22
B. current ratio = 1.72:1
C. quick ratio = 0.81
D. net working capital = 15
A Current liabilities will be 21 (6+8+5+2) for current ratio purpose and current assets 36
(15+13+4+4). Amount of TL instalment will be added to current liabilities and amount of old book
debts will not be included in current assets. Quick assets are 17 (36 - 15 - 4)
623 Current ratio of a firm was 1.33:1 in the previous year which continues to be same. But the
quick ratio has changed from 0.69:1 to 0.97:1. The change will be on account of:
A. %age of stocks in total current assets increased
637 Sales of a firm are 6000 and its debtors 300. Debtor velocity of the firm in the previous year was
0.8 months. Which of the following statements is not correct:
A. debtor turnover ratio is 20 times
B. debtor velocity ratio is 0.6 months
C. debt collection has improved over the previous year
D. debt collection has shown deterioration over the previous year
D Debtor velocity ratio in the previous year was 0.8 months which has come down to 0.6 month,
which means improvement in debt collection.
638 The return on equity or return on net worth is calculated as:
A. net profit / net worth
B. net profit / long term sources
C. net profit / tangible net worth
D. gross profit / net worth
C Ratio is calculated with reference to tangible net worth.
639 A firm has net profits of 40 and its capital and reserves are 210. If it has goodwill of 10, what is
return on net worth.
A. 25%
B. 20%
C. 18.5%
D. 17.5%
B To calculate the ratio the tangible net worth will be 200 (200-10). Calculation will be as 40 / 200 x
100 = 20%
640 Return on capital employed (ROCE) is calculated as:
A. net profit / net worth
B. net profit / tangible net worth
C. net profit / long term sources
D. net profit / (tangible net worth + long term loans)
D ROCE is calculated as net profit / (tangible net worth + long term loans
641 A firm has net profits of 40. It capital and reserves are 150 and long term loans 260. If the firm
has goodwill of 10, what is the return on capital employed.
A. 10%
B. 12%
C. 20%
D. 40%
A Ratio is calculated as net profit / (tangible net worth +long term liabilities). Hence 40 / 400 = 10%.
(Tangible net worth = 150-10 = 140)
642 The traditional classification of ratios include:
A. profit and loss account ratios
B. balance sheet ratios
C. profit and loss cum balance sheet ratios
D. all the above
D The traditional classification of ratios consists of profit and loss account ratios, balance sheet
ratios and profit and loss account cum balance sheet ratios.
643 The functional classification of ratios include (a) profitability ratios (b) turnover or activity
ratios (c) financial or solvency ratios
A. a and b only
B. b and c only
C. a to c all
D. a and c only
C The functional classification of ratios include profitability ratios, turnover or activity ratios and
financial or solvency ratios.
644 The short-term solvency ratios include:
A. current ratio
B. quick ratio
C. acid test ratio
D. all the above
D Short term solvency ratios include current ratio and quick ratio. Quick ratio is also called acid
test ratios.
645 The return on investment is calculated as:
A. net profit before interest and tax / (tangible net worth + long term liabilities)
B. net profit after interest and tax / (tangible net worth + long term liabilities)
C. net profit before interest and tax / (tangible net worth + outside liabilities)
D. net profit before interest and tax / (net worth + long term liabilities)
A The return on investment is calculated as net profit before interest and tax / (tangible net worth +
long term liabilities).
646 The net profit before tax of a firm is 200. The interest amount is 20. The tangible net worth is
300 and long term liabilities of 400. The return on investment shall be:
A. 29.5%
B. 29.5%
C. 31.4%
D. 32.8%
C The ratio is calculated as net profit before interest and tax / (tangible net worth + long term
liabilities). (200 + 20) / (300 + 400) = 220 / 700 = 31.4%
647 The earning per share can be calculated with the help of following?
A. net profit after tax and preference dividend / no. of total shares
B. net profit after tax and preference dividend / no. of equity shares
C. net profit after tax / no. of total shares
D. net profit before tax / no. of total shares
B The ratio can be calculated as net profit after tax and preference dividend / no. of equity shares.
648 A company has 2 lac shares and its net profit after tax is Rs.10 lac. The earning per share is:
A. Rs.20
B. Rs.10
C. Rs.5
D. Rs.2
C Calculation shall be made as net profit after tax and preference dividend / no. of equity shares.
Hence 10 lac / 2 lac = Rs.5 per share
649 A company has 2 lac shares including 40000 preference shares and its net profit after tax is
Rs.10 lac and preference dividend is Rs.1 lac. The earning per share is
A. Rs.8.10
B. Rs.7.05
C. Rs.5.63
D. Rs.4.98
C Calculation shall be made as net profit after tax and preference dividend / no. of equity shares.
Hence (10 - 1 lac ) / (2 00000 - 40000) = 900000 / 160000 = Rs.5.63
650 Price earning ratio can be calculated as:
A. total no. of equity share / earning per share.
B. market price of equity share / total no. of equity shares.
C. market price of equity share / earning per share.
D. Total no. of shares / earning per share.
C PER is calculated as market price of equity share / earning per share.
651 A company has 2 lac shares and its net profit after tax is Rs.10 lac. The current market price of
the share is Rs.60. The
price earning ratio is:
A. 12
B. 11
C. 10
D. 9
A Earning per share = 10 lac / 2 lac = Rs.5 per share. The PER = market price of equity share /
earning per share. Hence 60 / 5 = 12.
652 The debt equity ratio can be calculated as:
A. external equities / internal equities
B. long term liabilities / net worth - intangible assets
C. long term liabilities / tangible net worth
D. any of the above
D DE Ratio can be calculated in any of the above manner. External equities means long term
liabilities and internal equities means the tangible net worth.
653 Fixed charges cover can be calculated as:
A. income after interest and tax / interest charges
B. income before interest and tax / interest charges
C. income before interest / interest charges
D. income before tax / interest charges
B Fixed charges cover can be calculated as income before interest and tax / interest charges.
654 Dividend yield ratio is calculated as:
A. market price per share / dividend per share
B. dividend per share / market price per share
C. Earning per share / market price per share
D. Total dividend / market price per share
B Dividend yield ratio can be calculated as dividend per share / market price per share.
655 In which of the following cases, how the current ratio will move (which one is wrong):
A. payment of creditors - decline
B. purchase of machinery - no change
C. recovery of debtors - no change
D. issue of new shares - no change
A If creditors are paid, the current liabilities will decline. This will increase the current ratio.
656 Which of the following statement is not correct regarding balance sheet equations?
A. assets are equal to liabilities
B. liabilities are claims of owners and outsiders, on the business
C. transactions are recorded in the books of business from the point of view of business
670 When the goodwill is not brought by the new partner in cash, it is raised and written off
immediately, what journal entry is passed for writing off:
A. debit old partner capital account, credit bank account
B. debit cash or bank account, credit goodwill account
C. debit goodwill account, credit old partners capital account
D. debit all partners account, credit goodwill account
D When the goodwill is not brought by the new partner in cash, it is raised and written off
immediately, the journal entry passed for writing of is, debit all partners account, credit goodwill
account
671 A firm has three partners X, Y and Z with sharing ratio of 5:4:3. On retirement of Z, the
goodwill is calculated at Rs.120000. Which of the following journal entry will be correct to pay
goodwill to Z.
A. debit goodwill account, credit Z account Rs.120000
B. debit goodwill account, credit Z account Rs.30000
C. debit goodwill account, credit X, Y, Z account for Rs.50000, 40000, 30000
D. none of the above
B To pay goodwill to outgoing partner, goodwill account will be debited and capital account of
outgoing partner shall be credited.
672 Firm A has three partners A, B and C with a sharing ratio of 4:3:2. Partners C wants to retire.
His share is taken up by A and B in the ratio of 3:2. What will be new sharing ratio of partners A
and B.
A. 4:3
B. 3:2
C. 26:19
D. 27:18
C A gets 3/5 of Share of C i.e. 2/9 x 3/5 = 6/45. His total share i.e. existing + additional shall be 4/9 +
6/45 =26/45. The remaining 19/45 (1 - 26/45) shall be taken up by B
673 Firm A has three partners A, B and C with a sharing ratio of 4:3:2. Partners C wants to retire.
His share is taken up by A and B in the ratio of 3:2. What will be gain ratio between A and B
A. 3:2
B. 4:3
C. 4:2
D. 26:19
A The gain ratio is already given in the question i.e. 3:2 and need not be calculated again.
674 Firm XY with X and Y as partners (sharing ratio 5:3) decides to allow Z to join as new partner
with 1/8 share. What will be the new sharing ratio amongst X, Y and Z
A. 34:23:8
B. 35:21:8
C. 36:20:8
D. information is not adequate to make the calculation
B Z will get 5/8 out of remaining share of 7/8 (1/8 is given to Z). Hence his share = 5/8 x 7/8 = 35/64.
Y gets 3/8 share out of remaining 7/8. His share = 3/8 x 7/8 = 21 / 64. Share of Z is 8/64 (1/8 x 8/8).
675 Firm XY with X and Y as partners (sharing ratio 5:3) decide to allow Z to join as new partner.
He obtains 1/8 from X and 1/8 from Y. What is new sharing ratio;
A. 1:1:1
B. 2:1:1
C. 3:2:1
D. 5:4:3
B Remaining share of X = 5/8 - 1/8 = 4/8. Remaining share of Y = 3/8 - 1/ 8 = 2/8. Share of Z = 1/8 +
1/8 = 2/8. Hence new ratio is 4:2:2 or 2:1:1
676 Firm XY with X and Y as partners (sharing ratio 5:3) decide to allow Z to join as new partner.
He obtains 1/8 from X and 1/8 from Y. What is sacrifice ratio of X and Y.
A. 2:1
B. 1:1
C. 1:2
D. insufficient information
B No fresh calculation is required. The sacrifice 1/8 : 1/8 is already given. Hence the ratio is 1:1.
677 Which of the following feature does not exist in case of a partnership?
A. it is agreement between 2 or more persons
B. the agreement can be in writing only
C. the agreement is for sharing profits from business
D. the business can be conducted by one or more partners on behalf of all partners
B The agreement can be oral agreement or in writing in the form of partnership deed.
678 Which of the following statement is correct regarding a partnership and a company?
A. a partnership and a company are separate legal entities
B. the no. of partners is limited while the no. of shareholders can be unlimited
C. the partners are liable to any extent while the shareholder is liable to the extent of unpaid value of the
shares
owned by him
D. the partners and the shareholders are agents of each other.
C Partnership is not a separate legal entity. The no. of shareholders is limited to 50 in case of a
private
company, though there is no ceiling in case of a public company. The shareholders are not agent of
each other although the partners are agents.
679 A firm creates goodwill in which of the following situations (a) change in profit sharing ratio (b)
admission of a new
partner (c) retirement, expulsion or death of a partner (d) sale of business.
A. a, c and d only
B. b, c and d only
C. a, b and c only
D. a to d all
D The goodwill is created in all the above situations.
680 In which of the following methods of creation of goodwill, the goodwill is created taking into
account the difference between the actual profits and normal expected profit in the trade.
A. average profit method
B. super profit method
C. capitalization of profits method
D. all the above
B In the super profit method, the goodwill is calculated on the basis of super profits calculated as
the
difference between the actual profits and normal expected profit in the trade.
681 When a new partner makes payment of goodwill privately, to the existing partners, the journal
entry would be:
A. debit cash account and credit bank account
A. a and d correct
B. b and c correct
C. c and a correct
D. a to d all correct
C If on admission of a new partner, the value of existing assets on revaluation, increases it is a profit
and it goes to account of existing partners and not the incoming partner.
709 As per provisions of Section 2 of Bankers Book Evidence Act, the banker book does not include,
which of the following?
A. ledgers
B. day book or cash book
C. account book and any other book used in the ordinary business of a bank
D. none of the above
D All the above are books within the meaning of Bankers Book Evidence Act.
710 Slip system of posting, in the context of banking transaction means which of the following?
A. when pay in slip is first entered in book of original entry
B. when posting of ledgers is done on the basis of pay in slips or withdrawal slip rather than from book of
original
entry
C. when posting of ledgers is done after positing in the original entry
D. any of the above
B Slip system of posting, in the context of banking transaction means, when posting of ledgers is
done on the basis of pay in slips or withdrawal slip rather than from book of original entry.
711 Banks generally maintain the following types of books (a) principal books of account (b)
subsidiary books (c) statistical records
A. a and b only
B. b and c only
C. a and c only
D. a to c all
D Banks generally maintain principal books of account, subsidiary books and statistical records.
712 The liabilities in the bank balance are recorded in 5 different schedules in Form A. The correct
order of these schedules is:
A. capital, reserves, borrowing, deposits, other liabilities and provisions
B. capital, reserves, deposits, borrowing, other liabilities and provisions
C. capital, reserves, deposits, other liabilities and provisions, borrowing
D. capital, reserves, other liabilities and provisions, borrowing, deposits
B The correct order is Schedule 1-capital, 2-reserves and surplus, 3-deposits, 4-borrowing, 5-other
liabilities and provisions.
713 The assets are recorded in 6 different schedules (6 to 11) in the balance sheet of a bank. The
correct order of these schedules is:
A. cash & balances with RBI, balances with other banks, investments, advances, fixed assets, other assets
B. cash & balances with RBI, balances with other banks, advances, investments, fixed assets, other assets
C. advances, cash & balances with RBI, balances with other banks, investments, fixed assets, other assets
D. cash & balances with RBI, balances with other banks, fixed assets, investments, advances, other assets
A The correct order is Schedule 6- cash & balances with RBI, 7- balances with other banks, 8investments, 9- advances, 10-fixed assets, 11-other assets.
714 Schedule 12 to Form A, the balance sheet of a Banking Company, as per Banking Regulation
Act, relates to which of
the following:
A. investments made by the bank
B. total income
C. other liabilities and provisions
D. none of the above
D It relates to contingent liabilities.
715 The capital in Schedule 1, in the balance sheet of a bank is shown in the following order:
A. paid up capital, issued capital, subscribed capital, called up capital
B. paid up capital, subscribed capital, issued capital, called up capital
C. paid up capital, subscribed capital, called up capital, issued capital,
D. paid up capital, issued capital, subscribed capital, called up capital less calls unpaid plus forfeited
shares
D The capital is shown as paid up capital, issued capital, subscribed capital, called up capital less
calls unpaid plus forfeited shares. The no. of shares and amount of each is also given.
716 In Schedule 11 of Bank Balance, which of the following is not included?
A. inter-office adjustments
B. interest accrued
C. tax paid in advance or TDS
D. none of the above
D All the above are included in addition to stationery and stamps in hand, non-banking assets and
others in Schedule 11 (Other assets).
717 Which of the following will not be taken in Schedule 12 (Contingent Liabilities) in the balance
sheet of a bank?
A. claims against the bank acknowledged as debts
B. liability for party paid investment
C. guarantees given on behalf of customers
D. none of the above
D All the above are taken, in addition to the liability on account of outstanding forward exchange
contracts, acceptances and endorsements and other obligations, and other items.
718 The balance of profit, will be shown in the balance sheet of a bank, as part of which of the
following reserves?
A. statutory or capital reserves
B. share premium reserve
C. revenue or other reserve
D. none of the above
D It will be shown as balance of profit under Reserves and Surplus in Schedule 2.
719 Deposits in Schedule 3 of Bank balance sheet are classified as:
A. demand deposits and time deposits
B. demand deposits, saving bank deposits and term deposits
C. demand deposits, term deposits and other deposits
D. current deposit, saving deposits, term deposits and other deposits
B The deposits are classified as demand deposits, saving bank deposits and term deposits.
720 The other liabilities in the balance sheet of a bank in Schedule 5 are classified as (a) bills
payable (b) inter office adjustment (c) interest accrued (d) others including provisions
A. a to c only
B. a, c and d only
C. a to d all
D. b to d all
C All the above are taken into account.
721 If a bank has to make provision for bad debts, it can do so:
691 If there is loss on revaluation of assets and liability, the journal entry will be:
A. debit capital account of old partners, credit revaluation account
B. debit capital account of all partners, credit revaluation account
C. debit revaluation account, credit capital account of old partner
D. no journal entry is required.
A If there is loss on revaluation of assets and liability, the journal entry will be debit capital account
of old partners, credit revaluation account.
692 X, Y and Z are 3 partners with sharing ratio of 7:5:4. In this connection, which of the following
is correct?
A. if X retires, the new sharing ratio between Y and Z shall be 4:5
B. if X retires, the new sharing ratio between Y and Z shall be 7:4
C. if X retires, the new sharing ratio between Y and Z shall be 5:4
D. inadequate information to make calculation
C If the outgoing partner does not gives his share in a particular ratio to the existing partners, the
new sharing ratio of remaining partners shall be equal to their old sharing ratio.
693 If joint life policy is taken by partners, what journal entry shall be made to make payment of
insurance premium:
A. debit cash, credit insurance premium account
B. debit insurance premium account, credit cash or bank account
C. debit insurance premium account, credit profit and loss account
D. debit profit and loss account, credit bank account
B The payment shall be made by debiting the insurance premium account and crediting the cash
account. Later on, the profit and loss account shall be debited and insurance premium account shall
be credited.
694 If joint life policy is taken by partners, what journal entry shall be made on receipt of amount
of insurance policy:
A. debit bank account, credit capital account of partners
B. debit bank account, credit insurance company
C. debit insurance company, credit bank account
D. debit insurance company, credit capital account of partners
A When amount is received, the bank account shall be debited at the time of deposit of amount
received from insurance company with the bank and the capital account of partners shall be
credited.
695 When a prominent persons lends his name to a firm so that the firm enjoys his goodwill, such
person is called:
A. sleeping partner
B. nominal partner
C. regular partner
D. an outsider, not a partner
B He is called a nominal partner or quasi partner.
Page 136 of 165
696 If a person has made investment in a partnership (without involving himself in day to day
work) while the other
partners agree to work, he is known as:
A. sleeping partner
B. nominal partner
C. quasi partner
D. an outsider, not a partner
A He is called sleeping partner. Nominal or quasi partner is the person, who simply lends his name
and is not a
partner.
697 What is the liability of a sleeping partner or a quasi partners?
A. they are equally liable among themselves
B. they are fully liable to outsiders, jointly as well as severally
C. sleeping partner is equally liable to outsiders but quasi partner is not liable to outsiders
D. quasi partner is equally liable to outsiders but sleeping partner is not liable to outsiders
B quasi partner is equally liable to outsiders but sleeping partner is not liable to outsiders
698 Which of the following statement does not match?
A. partnership is a separate legal entity - false
B. if partnership deed does not mention the method of maintaining capital accounts, the fixed capital
method
shall be followed - false
C. there should be maximum 10 partners for banking business as per provisions of Indian Partnership Act
- True
D. If a firm is following fixed capital method and salary is paid to a partner, it will be credited to his
current
account - True
C The provisions are in Companies Act Section 11 and not in Indian Partnership Act.
699 Which of the following statement is correct?
A. If a partnership firm is silent on certain issues, the relevant provisions of Indian Partnership Act will
prevail
B. drawings made by partners are entered into profit and loss appropriation account
C. all existing firms must have goodwill account
D. the share which a new partner gets, is called his sacrifice ratio
A Drawings are not entered into profit and loss account. It is not compulsory to have goodwill
account. The share which a new partners gets, is called share of incoming partner, which is a
sacrifice of old partners.
700 The final accounts of banking companies are to be prepared as per provisions of:
A. Companies Act
B. Banking Regulation Act
C. RBI Act
D. All the above
B The final accounts of banking companies are to be prepared as per provisions of Banking
Regulation Act.
701 Wef Mar 31, 1992, the balance sheet of a banking company is to be prepared as per:
A. Form A of Companies Act
B. Form B of Companies Act
C. Form A of 3rd schedule to Banking Regulation Act
D. Form B of 3rd schedule to Banking Regulation Act
C Balance sheet of a banking company is to be prepared as per revised Form A of 3rd Schedule of
Banking Regulation Act, as per RBI directions.
702 Wef Mar 31, 1992, the profit and loss account of a banking company is to be prepared as per:
A. Form A of Companies Act
B. Form B of Companies Act
C. Form A of Banking Regulation Act
D. Form B of Banking Regulation Act
D Profit and loss account of a banking company is to be prepared as per revised Form B of Banking
Regulation Act, as per RBI directions.
703 Banks prepare audited balance sheet and profit and loss account as on Mar 31st every year, as
per:
A. directions of Govt. of India
B. regulations of Reserve Bank of India
C. provisions of RBI Act
D. all the above
A Banks prepare audited balance sheet and profit and loss account as on Mar 31st every year, as
per
directions of Govt. of India
704 Accounts of banks should be audited by a person duly qualified under any law, to be auditors of
the company, as per provisions of ____ and with approval of ____:
A. Banking Regulation Act Section 29, RBI
B. Banking Regulation Act Section 30, RBI
C. Banking Regulation Act Section 30, Central Govt.
D. Banking Regulation Act Section 29, Central Govt.
B Accounts of banks should be audited by a person duly qualified under any law, to be auditors of
the
company, as per provisions of Banking Regulation Act Section 30 and with approval of RBI.
705 Which of the following provision is correct regarding final accounts of a banking company?
A. 3 copies of the final accounts are to be submitted by banks to RBI
B. period of submission of copies of final accounts to RBI is 3 months
C. RBI can extend the period by 3 months
D. all the above
D All the above statements are correct.
706 Under Rule 15 of Banking (Regulating (Company) Rules 1949 banks are to publish their final
accounts and auditor report in a news paper within ___ months from the period to which these
relate?
A. one month
B. 3 months
C. 6 months
D. 9 months
C These reports are to be published within 6 months from the period to which these relate.
707 Which of the following is not a debit voucher for a bank branch?
A. cheque issued by the customer for payment from his account
B. cheque deposited by the customer for credit to his account
C. demand draft issued by one branch for payment at another branch
D. none of the above
B Cheque deposited by the customer for credit to his account if drawn on another bank, is not a
debit voucher for the collecting bank branch.
708 Which of the following can be treated as a credit voucher for a bank branch?
A. application for issue of a demand draft
B. pay in slip used by the customer for deposit of cheque in his account
C. credit vouchers prepared by the branch on its printed stationery.
D. all the above
D. unlimited
C The liability of member of a company it limited to the unpaid amount of the face value of shares
held by the member.
750 Based on the incorporation, the companies can be classified as under (which one is not correct):
A. chartered company
B. statutory company
C. registered company
D. holding company
D A company is classified as subsidiary or holding company on the basis of ownership.
751 Which of the following classification is wrong on the basis of ownership?
A. private company,
B. public company,
C. govt. company
D. foreign company
D The classification foreign company is based on the incorporation and not on the basis of
ownership.
752 The company that is created by a special Act of the Parliament is called:
A. chartered company
B. statutory company
C. registered company
D. holding company
B Statutory companies like State Bank of India are created by a special Statute (Act) passed by the
Parliament.
753 Companies like Reliance Industries Ltd, TATA Consultancy Services Limited, WIPRO Ltd are
examples of:
A. chartered company
B. statutory company
C. registered company
D. holding company
C Registered companies means the companies incorporated under Companies Act 1956.
754 A company having a place of business in India but not having its incorporation in India is
called:
A. private company,
B. public company,
C. govt. company
D. foreign company
D Foreign company is a company, having place of business in India but incorporated outside India.
755 A company is a govt. company where:
A. at least 51% of its total net worth is with the govt.
B. major portion of its shares is held by govt.
C. govt. is managing that company
D. none of the above
D A company is a govt. company if at least 51% of its paid up capital is held by Govt. (Central or
State, any).
756 If members of a company undertake to pay up to a certain fixed amount, in case of liquidation
of a company, which is no relationship with the no. of shares held by them, such company is called:
A. company limited by shares
B. company limited by guarantee
C. company with unlimited liability
781 Computerized accounting is (a) high speed (b) accurate (c) low cost (d) error free
A. a, b and c only
B. b, c and d only
C. a, c and d only
D. a to d all
A There can be errors like error of principle, or error of commission etc. in computerized
accounting.
782 Computerised accounting software can be (a) single user (b) multi-user
A. only a
B. only b
C. a and b both
D. none of the above
C Computerised accounting software can be (a) single user (b) multi-user
783 Computerised accounting software can be (a) customized (b) tailor made.
A. a and b both
B. only a
C. only b
D. none of the above
A Computerised accounting software can be (a) customized (b) tailor made.
784 Which of the following statement is not correct?
A. computer is an electronic information processing device
B. computer receives inputs and processes it with the help of program
C. the results given by the computer are called output
D. none of the above
D All the statements are correct.
785 Computerised accounting means which of the following?
A. making accounting entries in a computer
B. performing various accounting functions on a computer
C. getting output from the computer
D. all the above
B Computerised accounting means performing various accounting functions on a computer.
786 Banks have adopted computerised accounting and for this purpose they prefer to make use of:
A. core business solution environment
B. centralized banking solution environment
C. stand alone networking
D. all the above
B Banks have adopted computerised accounting and for this purpose they prefer to make use of
centralized
banking solution environment.
787 While selecting a password, which of the following should be avoided:
A. own name or family name
B. personal information like date of birth, telephone number
C. commonly used words
D. all the above
D While selecting a password, all the above type of words should be avoided.
788 Which of the following is not correct regarding end of the day (EOD) operation in a bank:
A. it has to be done for bank as a whole
B. it has to be done at the branch level
C. the objective is to find out whether there is some pending transaction requiring authorisation
D. after EOD, operations can be done under special authorisation
D After EOD, no operations except account enquiries, can be done.
789 Which of the following is a not correct statement regarding beginning of the day (BOD)
operation?
A. it has to be done at the branch level
B. it is mandatory to start the transactions for a particular day
C. it is to be done at least 2 hours before beginning the operations of the day
D. after BOD, the users are given access to the full module so that they can do the transactions
C BOD is to be done just before beginning the operations of the day.
790 Computerised accounting faces which of the following types of difficulties?
A. data stored in computer not visible
B. trail of events is difficult to establish
C. accounting data can be manipulated to generate various other reports
D. all the above
D All the above are the challenges or difficulties, faced by computerised accounting.
791 The health condition of the proprietor of the firm or the effect of dispute with Labour Union is
not recorded in the account books of a firm due to application of:
A. money measurement concept
B. going concern concept
C. business entity concept
D. realization concept
A In accounting, only those items are to be recorded that can be expressed in terms of money. The
items shown above are not expressed in terms money although these have monetary effects.
792 The promoters or shareholders of a business require the accountant to report to them the
changes in the wealth and financial position for the short term period on a regular basis. It is
application of the concept of:
A. going concern concept
B. accounting period concept
C. matching concept
D. dual aspect concept
B In the accounting period concept, the running time of business is divided in different parts to
know the wealth and financial position from time to time or a regular basis.
793 Which of the following concepts states that the transactions should be recorded in the books of
account as and when
they take place:
A. consistency concept
B. conservatism concept
C. going concern concept
D. historic record concept
D In the historic record concept, the transactions are recorded in the chronological manner i.e.
date-wise
Page 150 of 165
794 Which of the following is not correct statement in connection with the ledger and the journal.
A. transactions are first recorded in the ledger
B. journal is a book of chronological record
C. journal is more reliable
D. the ledger is book of analytical record
A Transactions are first recorded in the journal and then posted to the ledger. Other options are
correct.
795 Which of the following accounts is not a nominal account:
A. wages paid
B. rent paid
C. discount payable
D. commission received
C Discount payable is a representative personal account. Other accounts are nominal expense or
nominal income account.
796 A debit to a nominal account, signifies which of the following:
A. there is purchase of some asset
B. there is some expense
C. there is some payment to a creditor
D. there is some profit to the business
B In a nominal account, the debit is made on account of some expense or on account of loss in the
business.
797 Which of the following entries appear first in the books of the firm i.e. in cash book:
A. interest debited to overdraft account
B. bank debited certain charges
C. firm issued the cheque
D. dishonour of the cheque by bank
C There are two entries that normally arise first in the books of the firm i.e. cheque deposited or
cash
deposited and cheque issued. Other entries shown in the question arise first at the bank.
798 The bank statement has been showing a balance of Rs.31200 overdraft. It is observed that a
cheque issued by the firm for Rs.2000 has been dishonoured by bank and charges of Rs.20 have
been recovered. What will be balance in the cash book.
A. 33180 debit
B. 33180 credit
C. 29180 debit
D. 29180 credit
B Balance as per pass book is Rs.31200. To adjust it with cash book, the amount of cheque issued
will be added and the amount of bank charges shall be reduced.
Page 151 of 165
799 The goods have been returned by the customer of the firm.
A. sales account shall be credited
B. account of the customer should be credited
C. account of the customer should be debited
D. purchase account should be debited
B The account of the customer shall be credited for return of goods and sale returns account shall
be debited.
800 Which of the following is not a correct statement:
A. the left side of a ledger account is called debit entry
B. the right side of a ledger account is called credit entry
C. nominal accounts are transferred to balance sheet at the end of the financial year
D. petty cash book is generally maintained on imprest system
C Nominal accounts are transferred to profit and loss account at the end of the year.
801 A mistake has been committed in the balancing of the ledger account. What type of error it is:
A. error of omission
B. error of commission
C. error of principle
D. compensating error
B This is an error at the time of balancing of ledger which falls in the category of error of
commission.
802 The total of salary account has been under-cast and the total of carriage account has been
overcast for a similar amount. This is a:
A. error of omission
B. error of commission
C. error of principle
D. compensating error
D When one error happens in such a way that it nullifies the wrong effect of another mistake, it is
called a compensating error.
803 The total of debit side of the trial balance is Rs.2 lac. It is observed that wages amounting to
Rs.5400 have been recorded in the wages account as Rs.4500. What should be actual balance.
A. Rs.199100
B. Rs.205400
C. Rs.204500
D. Rs.200900
D The amount of wages is recorded at a lower amount due to which the total of debit side of trial
will be
short. So the difference amount has to be added to the trial balance amount.
804 Which of the following is not an example of capital expenditure?
A. amount is usually large
B. it is recurring in nature
C. it is shown in the balance sheet
D. none of the above
B It is not recurring in nature i.e. it is not done again and again for the same purpose.
805 Sale of goods, commission earned etc. are the receipts, that fall in ___ category:
A. revenue receipts
B. capital receipts
C. deferred receipts
D. none of the above
A These are revenue receipts which are available on a recurring basis. These broadly relate to profit
and loss account.
806 The liability on a usance bill of exchange is that of (which one is not correct):
A. the drawer before it is accepted
B. the payee
C. the drawee, after acceptance
D. after acceptance primary liability of the drawee and secondary liability of the drawer
B The payee is not liable on the bill of exchange. After acceptance, the primary liability is of the
drawee and Seconda ry liability is of the drawer.
807 A bill of exchange of Rs.10000 has been drawn by Z on Y. It is discounted by Z. What journal
entry will be made by Z in
his books:
A. debit - cash account, credit - bills discounted account
B. debit - bank account, credit - bills receivable account
C. debit - bank and discount account, credit - bills receivable account
D. debit - bills receivable account, credit - bank account
C On discount, the cash or bank account would be debited. For discounting charges, the discount
account would be debited and bills receivable account will be credited for the entire amount of the
bill.
808 Between the consignor and consignee, which of the following type of relationship is established:
A. buyer and seller
B. debtor and creditor
C. principal and agent
D. bailee and bailor
C The consignee is agent and the consignor is the principal.
809 The additional commission that is given to the consignee for selling the goods on credit basis is
called:
A. super commission
B. special commission
C. del credere commission
D. it is part of normal commission
C Such additional commission is called del credere commission.
Page 153 of 165
810 In the consignment sale, when the consignor prepares the proforma invoice at a higher price
than the cost price, the excess amount over the cost price is called:
A. loading
B. premium
C. proforma invoice
D. none of the above
A It is called loading. It is the excess amount over the cost price.
811 In the books of consignor, when the expenses are incurred and commission is payable to
consignee, what journal entry is passed:
A. debit consignment stock account and credit bank account
B. debit consignment account and credit consignee account
C. debit consignee account and credit consignment account
D. debit bank account and credit consignment stock account
B the consignment account will be debited and consignee account will be credited.
812 A debit balance in a joint venture means:
A. there is some amount due from one of the co-venturer
B. there is some loan due to a co-venturer
C. there is loss
D. there is profit
C When there is debit balance in a joint venture, it indicates loss.
813 When the co-venturers initially contribute capital and deposit in the bank account, what is the
journal entry:
A. debit co-venturers account and credit cash account
B. debit cash account and credit bank account
C. debit joint bank account and credit co-venturer account
D. debit co-venturer account and debit the joint bank account
C When the co-venturers initially contribute capital and deposit it in the bank account, the journal
entry is debit joint bank account and credit co-venturer account.
814 Which of the following is not a reason for charging depreciation on a fixed asset:
A. wear and tear due to actual use
B. accident to the asset
C. mere passage of time
D. none of the above
D All these are the reasons for charging depreciation on a fixed asset. In addition, it can be
accidents or obsolescence i.e. a new invention.
815 In case of a new machinery, which of the following is not included in the original cost:
A. invoice price of the machinery
B. taxes
C. carriage cost + installation cost
D. none of the above
D In case of new machinery, all these are included.
816 A business does not take into account, the future income. Similarly the goods sold on approval
are not included in the sales but these are taken at cost only. This is because of application of:
A. going concern concept
B. money measurement concept
C. business entity concept
D. realization concept
D The concept explains that the revenue is to be treated as realized when property in the goods
passes to the buyer and he becomes liable to pay.
817 Which of the following is not covered by the application of convention of conservatism:
A. creation of provision for bad debts
B. if there are a large no. of small items, these are shown as a misc. group
C. taking value of stock at market price or cost price whichever is lower
D. showing the joint life policy at surrender value on asset side rather than the paid up amount
B This is part of convention of materiality and not of conservatism. Other items are part of
conservatism.
818 Loss on sale of a fixed assets would be reflecting:
A. debit balance in the profit and loss account
B. credit balance in the real account
C. credit balance in the personal account
D. debit balance in the real account
B Normally the real accounts have debit balance. But if there is loss on sale of fixed assets, it will
show credit balance in the real account.
819 The identification of the type of account in which of the following transaction is not correct:
A. salary paid to the staff - cash account and salary account
B. purchase of goods from Firm A - Goods account and Firm A account
C. sale of old machinery in cash to Firm B - machinery account and Firm B account
D. depreciation charged on a fixed asset - Depreciation and fixed asset account
C Sale of old machinery in cash to Firm B involves cash due to which the account should be cash
account instead of Firm B account. When a transaction is in cash, the cash account is affected.
820 A truck was purchased for Rs.8 lac with expected life of 8 years. At the end of 5th year it was
sold for Rs.312000. What is the profit or loss on sale of this vehicle.
A. profit Rs.10000
B. loss Rs.10000
C. profit Rs.12000
D. loss Rs.10000
C Book value at end of 5th year 800000 - 500000 (depreciation of 5 years at Rs.1 lac per annum) =
300000. Profit = 312000 - 3 lac = 12000
821 State which of the following does not match:
A. bank reconciliation statement is an account - False
B. bank reconciliation statement is not prepared by the bank - False
C. normally the bank reconciliation statement is prepared at the end of the month - True
D. if receipt side of the cash book is overcast, it increases the bank balance in the cash book - true
B Bank reconciliation statement is prepared by the firm only and not by the bank. Other statements
are
correctly given
822 A cheque of Rs.540 deposited with the bank was entered twice in the cash book. Bank paid a
subscription of Rs.200. The balance in the pass book is Rs.23400. What will be the balance as per
cash book?
A. 23200
B. 23600
C. 24140
D. 23740
C To reach the balance as per cash book from the pass book, the amount of cheque deposited and
entered twice (one entry of cheque only shall be responded by the bank and other entry has to be
reversed by the party in its books) will have to be added. Amount of direct debit in the form of
subscription also has to be added.
823 When an entry is partly omitted, it is classified as:
A. error of omission
B. error of commission
C. error of principle
D. compensating error
A When an entry is completely or partly omitted, it is classified as error of omission.
824 Firm A had purchased goods from Firm B for Rs.500 but it recorded it in the sales ledger. The
rectification will be as under:
A. sales account debit, Firm B account credit for Rs.500
B. debit purchase account and credit Firm B account Rs.1000
C. debit sales Rs.500 and debit purchases Rs.500 and credit Rs.1000 to Firm B
D. debit sales Rs.1000 and credit purchases Rs.500 and Rs.500 to Firm B
C The sales account has been wrongly credited but purchase account has not been debited. Account
of Firm B has been wrongly debited instead of crediting it.
825 Which of the following statement does not match:
A. wrong balancing of accounts does not affect the trial balance
B. trial balance ensures the arithmetic accuracy
C. debit balance of a ledger account is shown in the debit side of the trial balance.
D. closing stock does not appear in the trial balance
A Wrong balancing of accounts affects the trial balance. Closing stock does not appear in the trial
balance.
826 The expenditure, the benefit of which is not consumed in just one year and is available for a no.
of years is called:
A. recurring expenditure
B. deferred revenue expenditure
C. revenue expenditure
D. capital expenditure
D Such expenditure is called capital expenditure. Its benefit is available for a no. of year. Example
expenditure on purchase of fixed asset.
827 Where the drawer of a bill fails to make the payment for full amount and makes request to the
drawer to accept part amount and for the balance amount and interest, may draw another bill, it is
called:
A. honouring of bill
B. dishonouring of the bill
account.
845 Which of the following is not the correct classification of receipts and expenses:
A. legal expenses incurred on public issue - revenue expenditure
B. purchase of machinery - capital expenditure
C. payment of wages - revenue expenditure
D. expenditure on removing the old building for constructing the new building on that place - capital
expenditure
A The legal expenses incurred on public issue are capital expenditure and not revenue expenditure.
846 To transfer to opening stock to the trading account, what journal entry shall be required:
A. debit the stock account and credit the trading account
B. debit the trading account and credit the opening stock account
C. debit the trading account and credit the stock account
D. no adjustment shall be required, as the opening stock is automatically taken as part of the trading
account
B To transfer the opening stock to the trading account, the journal entry shall be required in which
the trading account shall be debited and opening stock account shall be credited.
847 Firm-A got its fixed asset insured on Jan 01, 2009 for one year by paying insurance premium of
Rs.24000. It closed its financial year as on Mar 31, 2009. What adjustment entry is required to be
passed.
A. debit the pre-paid expenses account and credit the insurance expenses account for Rs.24000
B. debit the insurance expenses account and credit the pre-paid expenses account for Rs.18000
C. debit the insurance expenses account and credit the pre-paid expenses account for Rs.24000
D. debit the pre-paid expenses account and credit the insurance expenses account for Rs.18000
D Insurance for 3 months (Rs.6000) will be used up to 31.3.2009. The balance amount of Rs.18000
will be used for 9 months in the coming year. Hence by debiting the pre-paid expenses for Rs.18000,
the insurance expenses account shall be credited.
848 When a firm changes the method of charging depreciation from written down value to straight
line method or vice versa, which of the following accounting conventions is violated:
A. realization
B. consistency
C. materiality
D. conservatism
B The convention of consistency requires that the accounting policies should not be changed and
should be continued once they are adopted in a particular manner.
849 The balance as per cash book of the firm is Rs.40000 overdraft. It is observed that the firm had
issued two cheques of Rs.3000 each and only one of these has been encashed. The bank also credited
Rs.1000 as dividend received through ECS-Credit. The balance as per pass book should be:
A. 36000
B. 38000
C. 42000
D. 44000
A When balance is overdraft in cash book, the amount of cheque issued and not paid by bank and
the amount directly credited by the bank is to deducted from the opening balance. Hence 40000 30000 - 1000 = 36000
850 The debit side of Trial balance of the firm shows a balance of Rs.185500. The amount of
depreciation amounting to Rs.2500 has not been provided in the books. The debit balance in the
trial balance should be if the amount is provided:
A. Rs.183000
B. Rs.185500
C. Rs.188000
D. Rs.190500
B When the depreciation will be provided, the debit balance in depreciation account will increase
and the debit balance in fixed asset account will decline. The net change will be zero. Hence there
will be no change in the debit total of the trial balance.
851 A firm had purchased machinery of Rs.2 lac with expected life of 6 years. The scrap value is
Rs.20000. The machinery is sold at the end of 4th year, for Rs.85000. What is the profit or loss, on
sale of machinery.
A. Rs.15000 profit
B. Rs.5000 profit
C. Rs.10000 loss
D. Rs.15000 loss
B The book value of machinery at the end of 4th year shall be Rs.80000. (2 lac - depreciation at
Rs.30000 x 4 years). When it is sold for Rs.85000, the firm shall make profit of Rs.5000.
852 A firm has total book debts of Rs.2 lac. It has to keep provision of 3% on these book debts
which it already has. It writes off a debtor of Rs.4000. What will be amount of additional provision
to be provided after the write off to
maintain 3% balance in the provision account:
A. 4680
B. 4280
C. 4000
D. 3880
D Amount of provision is Rs.6000 (2 lac x 3%). It uses Rs.4000 out of this and left with a provision
of Rs.2000 only. The balance amount of debtors after write off, shall be Rs.196000 (2 lac - 4000) on
which provision at 3% shall be Rs.5880. Hence the additional provision shall be Rs.3880 (5880 2000).
853 Wages paid for installation of machinery Rs.300 have been paid to the debit of wages account.
What type of error has taken place and what journal entry will be passed to remove the error.
A. error of commission, debit machinery account and credit wages account
B. compensating error, debit machinery account and credit wages account
C. error of principle, debit machinery account and credit wages account
D. clerical error, debit wages account and credit machinery account
C It is an error of principle where a nominal account has been debited instead of debiting a real
account. The error can be rectified by debiting the machinery account and crediting the wages
account.
854 Which of the following classification of capital and revenue expenditure is not correct:
A. purchase of machinery - capital expenditure
B. freight paid on bringing the machine for installation - revenue expenditure
C. expenses relating to removal of stocks from old site to new site - revenue expenditure
D. payment of labour welfare expenses - revenue expenditure
B Freight paid for bringing the machine for installation is a capital expenditure and will be debited
to the machinery account.
855 The preference shares, the amount of which is returned by the company as per pre-fixed terms
are called:
861 When a premium is received by the company it is credited to ___ and shown on ___ side of the
balance sheet:
A. reserves and surplus account, liability
B. capital account, liability
C. bank account, asset
D. provision account, liability
A The amount of premium received is shown as part of reserves and surplus in the liability side of
the balance sheet.
862 When the company decided to issue shares at a discount, these should be issued within ___
months after permission from ____:
A. 2 months, shareholders
B. 2 months, company law board
C. 2 months, registrar of companies
D. 1 month, shareholder resolution
B The issue at a discount should be completed within 2 months from date of permission of
Company Law Board or the time extended by Company Law Board.
863 The capitalization of profits can be made by a company through which of the following (which
is more appropriate answer):
A. by making partly paid up shares fully paid up
B. by issuing new shares called bonus shares
C. by issuing shares at a discount
D. (a) and (b) both
D The capitalization of profits can be both by making partly paid up shares fully paid up or by
issuing bonus shares.
864 If the forfeited shares are to be reissued at a discount, which of the following statement is
correct:
A. the discount can be maximum 10% of the face value
B. the amount of re-issued price cannot be lower than the amount in arrears.
C. the amount of re-issued price can be lower than the amount in arrears
D. the company cannot re-issue the shares at a discount as it is to the detriment of existing shareholders
which
have been allotted shares at par.
B The amount at which the forfeited shares can be issued cannot be lower than the amount in
arrears. In other words the maximum discount can be to the extent of amount already received.
865 If a company is to re-issue partly paid share with face value of Rs.100, what journal entry of the
following is not
correct, if the first and final call is Rs.30 per share and the discount is 10%.
A. Debit share capital Rs.100
B. Credit 1st and final call Rs.30
C. Credit discount on issue of share account Rs.10
D. Credit Forfeited shares account Rs.70
D Forfeited shares account will be credited for Rs.60 (100 - 30-10). Rs.10 is the 10% discount for the
calculation given in the bracket.
866 The debit or credit in which of the following transactions is not correct in the context of joint
ventures:
A. for cash sales - joint venture account is credited