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CLASSIFICATION OF EXPENSES,
RECEIPTS, PROFITS (CAPITAL/REVENUE)
1. Match List-I (Items of Expenditure and Receipt) with List-Il (Nature of Expenditure and Receipt) and select the correct answer using the codes given below the lists
List—I List—II
A. Premium paid for Leasehold Property 1. Revenue expenditure
B. Insurance Premium paid for risks against 2. Capital Receipts
accidental losses of properties (Fixed assets)
C. Amount realized from the sale of securities 3. Deferred revenue expenditure
(investments) purchased earlier
D. Huge sales promotion expenses 4. Capital expenditure
Codes:
A B C D
(a) 4 2 1 3
(b) 3 2 1 4
(c) 4 1 2 3
(d) 3 1 2 4
Ans. (c)
2. The cash price of a machine is Rs. 1, 20,000 and its hire purchase price is
Rs. 1, 50,000 to be paid in five equal yearly installments. If a company purchases the machine on hire purchase basis, the amount of capital expenditure will be:
(a) Rs. 1, 20,000
(b) Rs. 1, 35,000
(c) Rs. 1, 50,000
(d) Rs. 1, 60,000
Ans. (a)
3. Match List-I (Items of Expenditure and Receipt) with List-II (Nature of Expenditure and Receipt) and select the correct answer using the codes given below the lists
List—I List—II
A. Compensation paid to retrenched workers of the 1. Capital Expenditure
factory for the loss of service
B. Legal expenses incurred in connection with the 2. Capital Receipt
purchase of a plot of land
C. Compensation received from the Govt. for the 3. Revenue expenditure
compulsory removal of a business premises to
another place
D. Sale proceeds of merchandise (goods) 4. Revenue Receipt
Codes:
A B C D
(a) 1 3 4 2
(b) 1 3 2 4
(c) 3 1 4 2
(d) 3 1 2 4
Ans. (d)
4. Which one of the following is a capital expenditure?
(a) Compensation paid to Directors on termination of their services
(b) Expenditure incurred in connection with the renewal of a Trade Mark
(c) Gratuities paid to employees on their retirement
(d) Royalty paid in installments for the purchase of rights to manufacture and sell patient medicines
Ans. (b)
5. Which of the following methods is/are followed for the purpose of ‘piecemeal distribution’ in the case of dissolution of a partnership firm?
1. Proportionate capital method
2. Maximum Possible Loss Method
3. Reconstruction and Distribution Method
Select the correct answer using the codes given below:
(a) 3 alone
(b) 1 and 3
(c) 2 and 3
(d) 1 and 2
Ans. (d)
6. Consider the following parties:
1. Secured creditors
2. Unsecured creditors
3. Partners who granted loans
4. Partners who contributed capia1s in excess as compared to the profit sharing ratio
The correct sequence in which payments are to be made to these parties in the event of the dissolution of a partnership firm is:
(a) 2, 1, 3, 4
(b) 1, 2, 4, 3
(c) 1 2, 3, 4
(d) 2, 1, 4, 3
Ans. (c)
7. Match List-I (Provision of Partnership Act) with List-II (Matters with which the provisions are related) and select the correct answer wing the codes given below the lists:
List—I List—II
A. Interest must be allowed @ 6% p.a. 1. Drawings of partners
B. No interest shall be allowed 2. Net loss of the firm for an accounting year
C. No interest shall be charged 3. Capitals contributed by the partners
D. Must be shared equally by all the 4. Loan given by a partner to the firm
partners unless otherwise agreed
Codes:
A B C D
(a) 1 3 2 4
(b) 4 3 2 1
(c) 3 2 4 1
(d) 4 3 1 2
Ans. (
8. The following information pertains to a cultural club
Stock of tinned provisions (As on 1.4.94): Rs. 25,000
Purchased during the year: Rs. 1, 50,000
Stock of tinned provisions
(As on 3l-3-95): Rs. 50,000
Sale of tinned provisions
(During the year): Rs. 1, 50,000
The amounts to be debited and credited respectively to the income and Expenditure Account would be:
(a) Rs. 1, 75,000 and Rs. 1, 50,000
(b) Rs. 1, 25,000 and Rs. 1, 75,000
(c) Rs. 1, 25,000 and Rs. 1, 50,000
(d) Rs. 1, 75,000 and Rs. 1, 25,000
Ans. (c)
9. A cricket club has 50 members and each member pays Rs. 20 as monthly subscription 5 members paid advance subscription for the financial year, 1994—95 and 10 members failed to pay subscription for the year 1993—94. The amount to be credited as subscription to Income and Expenditure Account would be:
(a) Rs. 12,000
(b) Rs. 10,800
(c) Rs. 9,600
(d) Rs. 8,000
Ans. (a)
10. The following information is provided by a cultural club:
Stock of sports goods Rs. 20,000
Purchase of sports goods Rs. 80,000
during the accounting period
Sports goods sold as scrap Rs. 500
Closing balance Rs. 30,000
The amount to be charged to income and expenditure A/c as sports goods consumed will be-:
(a) Rs. 69,500
(b) Rs. 70,000
(c) Rs. 70,500
(d) Rs. 80,000
Ans. (b)
11. A trader maintains his books of accounts on Single Entry basis. His books of accounts show that his total purchases during the year were Rs. 90,000 of which he returned goods worth Rs. 10,000. His credit sales were Rs. 50,000 and cash sales were Rs. 80,000. Of the total sales goods returned were Rs. 80,000. Closing stock is Rs. 12,000. He sells his goods at cost plus 33 1/3 %. His opening stock is:
(a) Rs. 12,000
(b) Rs. 10,000
(c) Rs. 8,000
(d) Rs. 7,000
Ans. (d)
12. A firm which keeps its books of accounts on Single Entry System has opening balance and closing balance of Bills Receivable as R. 9,000 and Rs. 11,000 respectively. Bills collected during the financial period amount to Rs. 20,000. Bills Receivable Received during the financial 4eriod amount to:
(a) Rs. 22,000
(b) Rs. 18,000
(c) Rs. 12,000
(d) Rs. 11,000
Ans. (a)
13. Which preparing accounts from incomplete records, the amount of credit sales is determined by:
(a) preparing total creditors account
(b) preparing total debtors account
(c) ascertaining the balance in trading account other than closing stock
(d) ascertaining the balance in debtors account and cash books
Ans. (b)
14. A business entity has an opening balance of Rs. 5,000 as provision for bad and doubtful debts. Total sales
amounts to Rs. 6, 00,000 and out of which Rs. 1, 00,000 worth of sales is for cash.
A provision of 1% is to be made oh outstanding debtors. The amount to be debited to profit and loss account for current year’s provision on debtors will be:
(a) Rs. 6,000
(b) Rs. 5,000
(c) Rs. 1,000
(d) Rs. Nil
Ans. (b)
15. Match List-I (Items) with List-II (Heads in Balance Sheet) and select the correct answer using the codes given below the Lists:
List—I List-II
A. Loss on issue of debentures 1. Reserves and surpluses
B. Unclaimed dividend 2. Miscellaneous Expenditure
C. Prepaid rent 3. Current liabilities
D. Profit prior to incorporation 4. Current Assets
Codes:
A B C D
(a) 3 2 1 4
(b) 3 2 4 1
(c) 2 3 4 1
(d) 2 3 1 4
Ans. (c)
16. Match List-I (Items) With List-II (Headings) and select the correct answer using the codes given below the Lists:
List-I List-II
A. Interim Dividend 1. Miscellaneous Expenses
B. Share Premium 2. Current liabilities
C. Unclaimed Dividend 3. Reserves and surpluses
D. Discount on Issue of shares 4. Profit and Loss Appropriation Account
Codes:
A B C D
(a) 3 4 1 2
(b) 4 3 1 2
(c) 3 4 2 1
(d) 4 3 2 1
Ans. (d)
17. The minimum share application money is:
(a) Rs. 5 per share
(b) 5% of the nominal value of shares
(c) 10% of the nominal value of shares
(d) 20% of the nominal value of shares
Ans. (b)
18. When shares are forfeited, Capital Account is debited by:
(a) forfeited account
(b) called up amount on shares
(c) paid up amount on shares
(d) amount of Capital Reserve
Ans. (b)
19. After the redemption of debentures, the balance of Debenture Sinking Fund is transferred to:
(a) Debenture Account
(b) General Reserve
(c) Profit and Loss Account
(d) Capital Reserve Account
Ans. (b)
20. Right shares are the shares:
(a) issued to the directors of the company
(b) first offered to the debenture holders
(c) first offered to the existing shareholders
(d) issued by a newly formed company
Ans. (c)
21. Debentures can be redeemed by
(a) purchase of own debentures in the open market
(b) converting them into a new class of debentures
(c) converting them into shares
(d) any of the methods mentioned in (a) (b) and (c
Ans. (d)
22. A company wishes to redeem its preference shares amounting to Rs. 1, 00,000 at a premium of 5% and for this purpose issue 5,000 equity shares of Rs. 10 each at a premium of 5%. The company also has a balance of Rs. 1, 00,000 as General Reserves and Rs. 50,000 in P/L A/c. The amount to be transferred to Capital Redemption Reserve Account for the purpose of redemption is:
(a) Rs. 47,500
(b) Rs. 50,000
(c) Rs. 52,500
(d) Rs. 1, 05,000
Ans. (b)
23. Bonus shares can be issued by a company:
(a) out of the reserves created by revaluation of fixed assets
(b) out of share premium not collected in cash
(c) without any provision for it in the Articles of Association of the company
(d) out of free reserves built out of genuine profits
Ans. (d)
24. The Balance Sheet of a limited company as on 3 1-12-1992 as under:
Liabilities Rs. Assets Rs.
Share Capital: Sundry 1, 16,000
Assets
5,000 equity shares of 50,000
Rs. 10 each
2,000 equity shares of 16,000
Rs. 10 each Rs. 8 per
share paid up General Reserve 50,000
Total 1, 16,000 Total 1, 16,000
The company decided to capitalize the necessary part of the General Reserve by issuing:
1. a bonus share per share on the partly paid up shares in order to make them fully paid and 2. fully paid bonus shares at a premium of 5% per share amongst the existing shareholders to be distributed in the ratio of one share for every five shares held.
The amount to be transferred from the general reserve
account is:
(a) Rs. 14,700
(b) Rs. 15,000
(c) Rs. 18,000
(d) Rs. 21,000
Ans. (a)
25. The Stock invest is used for the payment of:
(a) Allotment Money
(b) Calls in Arrears
(c) Application Money
(d) Allotment Money, Application Money and Calls in Arrears
Ans. (c)
26. In a public limited company, there cannot be:
(a) equity shares without voting rights
(b) bonus shares where current profit are low
(c) Preference share with voting rights when dividends are not paid
(d) equity shares with high premium
Ans. (a)
27. A private limited company earned a net profit of Rs. 2,00,000 after tax during a certain financial period. Provision for Rs. 20,000 capital employed during the same period is Rs. 10,00,000. Return on capital employed is:
(a) 10%
(b) 20%
(c) 38%
(d) 42%
Ans. (b)
28. If profit is one-fourth of selling price, the share of profit to cost will be:
(a) 1/3
(b) 1/4
(c) 1/5
(d) 1/6
Ans. (a)
29. Match List-I with List-II and select the correct answer using the codes given below the lists:
List—I List—II
A. ABC Analysis 1. Capital Structure
B. Fund Flow Analysis 2. Inventory Control
C. ROI 3. Working Capital Management
D. MM Theory 4. Overall profitability
Codes:
A B C D
(a) 2 3 4 1
(b) 1 2 4 3
(c) 4 3 1 2
(d) 1 3 2 4
Ans. (a)
30. Match List-I (Objective of Analysis) with List-II (Ratios to be computed) and select the correct answer using the codes given below the lists:
List—I List—II
A. Trading on Equity 1. Earning per share
B. Efficiency of Inventory Control 2. Liquidity Ratio
C. Overall Efficiency 3. Capital Gearing
D. Immediate Solvency 4. Stock Turnover Ratio
Codes:
A B C D
(a) 2 1 4 3
(b) 3 4 1 2
(c) 3 1 4 2
(d) 2 4 1 3
Ans. (b)
31. A particular firm provided the following data for 1994:
Current Ratio 2.5: 1
Liquid Ratio 1.5: 1
Net working capital Rs. 3, 00,000
Current Assets and Current Liabilities of this firm are respectively:
(a) Rs. 3,00,000 and Rs. 1,50,000
(b) Rs. 5,00,000 and Rs. 2,00,000
(c) Rs. 5,00,000 and Rs. 1,00,000
(d) Rs. 3,00,000 and Rs. 1,00,000
Ans. (b)
32. Match List-I with List-II and select the correct answer using the codes given below the lists:
List-I List-II
A. Leverage Ratio 1. Liquidity Position
B. Acid Test 2. Efficiency of assets management
C. Turnover Ratio 3. Management of working capital
D. Current Ratio 4. Debt and Equity relationship
Codes:
A B C D
(a) 4 1 3 2
(b) 2 4 1 3
(c) 2 3 1 4
(d) 4 1 2 3
Ans. (d)
33. Match List-I with List-II and select the correct answer using the codes below:
List-I List-II
A. Debt service coverage Ratio 1. Solvency Ratio
B. Turnover of Receivables 2. Structural Ratio
C. Proprietary Ratio 3. Activity Ratio
D. Capital Turnover Ratio 4. Efficiency of Credit and Collection Policy
Codes:
A B C D
(a) 1 4 3 2
(b) 4 1 3 2
(c) 1 4 2 3
(d) 4 1 2 3
Ans. (c)
34. Which one of the following ratios is most important for judging the long term solvency of firm?
(a) Debt Equity Ratio
(b) Stock Turnover Ratio
(c) Return on Investments
(d) Fixed Assets Turnover ratio
Ans. (a)
35. Given that opening stock : Rs. 12,000
Purchases : Rs. 90,000
Return outward : Rs. 4,000
and that the-closing stock is Rs. 2,000 less than the opening stock, the stock turnover ratio is:
(a) 5 times
(b) 7 times
(c) 8 times
(d) 10 times
Ans. (c)
36. EBIT/Total Assets Ratio is:
(a) Liquidity Ratio
(b) Profitability Ratio
(c) Solvency Ratio
(d) Turnover Ratio
Ans. (b)
37. The dividend declared by a Ltd. Co. is Rs. 2 per share of face value of Rs. 10 and the average market value is Rs. 25/-. The yield is:
(a) 5%
(b) 8%
(c) 10%
(d) 12.5%
Ans. (b)
38. After taking into consideration the non-cash charges of Rs. 30,000 the operating loss of a company is Rs. 20,000. The fund generated from operations is:
(a) Rs. 50,000
(b) Rs. 30,000
(c) Rs. 20,000
(d) Rs. 10,000
Ans. (d)
39. If balance sheets on two different. dates show machinery account at Rs. 1,85,600 and Rs. 1,73,800 respectively and the machinery had depreciated by Rs. 30,000 and one piece of machinery of book value of Rs. 5,000 had been sold in the beginning of the year for Rs. 3,100 then the application of fund is:
(a) Rs. 6,800
(b) Rs. 11,800
(c) Rs. 14,900
(d) Rs. 23,200
Ans. (d)
40. Messers XXX Ltd., provides the following information:
Net profit before income tax : Rs. 40,000
Depreciation charged during the year : Rs. 10,000
Goodwill written off during the year : Rs. 10,000
Income tax for the year : Rs. 20,000
(a) Rs. 60,000
(b) Rs. 50,000
(c) Rs. 40,000
(d) Rs. 20,000
Ans. (a)
41. The primary objective of audit is to:
(a) Verify and value assets as per Company’s Act
(b) Verify liabilities and report to Registrar of companies
(c) Verify and report on the State of affairs of the business
(d) appoint auditors
Ans. (c)
42. Balance Sheet audit is useful if the concern:
(a) is weak in internal check
(b) has no internal check
(c) is a small one
(d) is a big one
Ans. (d)
43. Audit Note book is a:
(a) personal note book of an auditor
(b) record of work performed by an auditor
(c) record of important points and enquiries which are auditor has to refer to his client
(d) record of mistakes and errors detected during the course of audit of accounts books
Ans. (d)
44. Consider the following statements:
In order to plan and prepare his audit programme, an auditor must obtain information relating to:
1. Client’s history and business
2. Purpose and nature of engagement
3. Time schedule for the completion of audit
Of these statements:
(a) 1, 2 and 3 are correct
(b) 1 and 3 are correct
(c) 2 and 3 are correct
(d) 3 alone is correct
Ans. (c)
45. When the auditor examines and tests the client’s accounting and other control systems to see whether or not they constitute a reliable base for the preparation of accounts, then it is known as:
(a) Balance Sheet audit
(b) System audit
(c) Continuous audit
(d) Internal audit
Ans. (d)
46. By observing, testing and assessing, an auditor examines the system of:
(a) Internal audit
(b) Internal control
(c) Continuous audit
(d) Statutory audit
Ans. (b)
47. Which one of the following statements regarding the Internal check system is correct?
Its purpose is to
(a) have an accurate record of all the business transactions
(b) know th accounting method followed in the business
(c) plan for future audit works
(d) ascertain the profit, earning capacity of the business
Ans. (a)
48. An auditor of a partnership firm is appointed as per
(a) statute
(b) government orders
(c) agreement
(d) convention
Ans. (c)
49. A company auditor may be removed in the meeting of the:
(a) Board of Directors when the Managing Director is also present
(b) Board of Directors
(c) Majority Share holders
(d) General Body of shareholder
Ans. (d)
50. According to Sec. 224 of the Companies Act, 1956, a company auditor may be appointed by any of the three appointing authorities. The correct sequence of the order in which they can exercise their power to appoint a company auditor in the life of a company other than a government company is:
(a) Board of Directors, Central Government, Shareholders
(b) Central Government, Shareholders, Board of Directors
(c) Shareholders, Board of Directors, Central Government
(d) Board of Directors, Shareholders, Central Government
Ans. (d)
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