1. Assertion (A): Internal Audit does not comprise a means by which the management of a business concern maintains internal Control.
Reason (R): Internal Audit is a continuous critical examination of accounts of a business concern by its employees.
2. Assertion (A): The Auditors Report is very significant it should be read very carefully, particularly any qualities notes that it may contain. The Manufacturing and other Companies (Auditors Report) Orders, 1975, as a1iended in September 1998, required the auditor’s to include a statement of certain matters in their report on the accounts of the company.
Reason (R): The auditor should make a specific observation and in case the report is qualified, then reason for such qualification should also be mentioned. In case the auditor is not able to give any answer against any particular point, he should also explain the reasons thereof.
3. Assertion (A): To-day managers with leadership qualities and skills are preferred to managers with expertise alone.
Reason (R): The major organizational changes now emphasize managing people and processes.
4. Assertion (A): Larger number of people report to one manager.
Reason (R): Organization has a tall structure.
5. Assertion (A): MBO is an effective way of planning and organizing.
Reason (R): Employees participate in setting objectives.
6. Assertion (A): Among efficiency-conscious enterprises, integrated office is becoming popular.
Reason (R): Greater flexibility, better workflow and lower operating cost are benefits of open office.
7. Assertion (A): Section 227 (1) of the Companies Act, 1956 has given an auditor of a limited company certain rights.
Reason (R): Section 227 (2) of the Companies Act, 1956 has given an auditor of a limited company certain duties to be performed in connection with his audit work.
8. Assertion (A): Audit requires application of professional judgment in a tremendously wide variety of situation and circumstances. An auditor broadly expresses his judgment of the fairness with which these statements present the state of affairs of a particular organization. Thus even the audited accounts may be incorrect, sometimes.
Reason (R): The very object of auditing is to find out the truth and fairness of the financial position of the concern and also to prevent and detect errors and frauds. Auditor will be liable for any incorrect information in the audited accounts.
9. Assertion (A): The dissolution of partnership may or may not include the dissolution of the firm, but the dissolution of the firm includes dissolution of partnership.
Reason (R): When the dissolution of partnership takes place, all business come to a close, but on the dissolution of the firm, the business may be carried on by a reconstituted firm.
10. Assertion (A): The provisions of double insurance are not applicable to life insurance.
Reason (R): Life insurance is not a contract of indemnity.
11. Match List -I with List -II and select the correct answer using the Code given below the lists:
List I List II
A. Leasehold property 1. Depreciation fund method
B. Mines, quarries, etc. 2. Annuity method
C. The interest lost on the acquisition of an asset 3. Fixed installment method
D. To provide for replacement of assets at the end 4. Deplection method
of its useful life
A B C D
(a) 2 1 4 3
(b) 3 4 1 2
(c) 3 4 2 1
(d) 4 3 1 2
12. Consider the following methods of inventory valuation:
1. Simple average
2. First in first out
3. Last in first out
4. Weighted average
Which of these methods do not match current cost with current revenues?
(a) 1 and 3
(c) 1, 2 and 4
(b) 1, 2 and 3
(d) 2, 3 and 4
13. The main purpose of depreciation accounting is to:
(a) charge the cost of asset
(b) allocate the cost of the asset over its estimated useful
(c) provide for replacement of the asset on the expiry of its useful life
(d) value the assets on the closing data of the year
14. Accounting is the process of matching:
(a) benefits and costs
(b) revenues and costs
(c) cash inflows and outflows
(d) potential and real performance
15. Match List- I with List- II and select the correct answer using the Code given below the lists:
A. Showing joint life policy at 1. Concept of surrender value consistency
B. Team spirit and dedication of 2. Concept of cost
employees are not recorded in the
books of accounts
C. Methods f depreciation and inventory 3. Concept of conservatism.
valuation should not be changed frequently
D. Fixed assets are recorded at cost less 4. Concept of money measurement
A B C D
(a) 3 4 1 2
(b) 3 4 2 1
(c) 4 3 1 2
(d) 4 3 2 1
16. Consider the following activities connected with the accounting information system:
1. Preparation of the table of accounting
2. Communication of accounting information
3. Preparation of accounting information report
4. Collection of accounting data
The correct sequence of these activities is:
(a) 4, 1, 3, 2
(b) 1, 4, 3, 2
(c) 4, 3, l, 2
(d) 1, 2, 4, 3
17. Materiality in accounting is decided:
(a) by the size of an item
(b) by the knowledge as to whether an individual item is having a significant influence on financial statement
(c) solely by the discretion of the accountant
(d) by the physical volume of the transaction
18. Consider the following fundamental assumptions:
2. Going concern
As per Accounting Standard-I, which of these assumptions are taken into consideration while preparing financial statements?
(a) 1 and 4
(b) 2 and 3
(c) 1, 2, 3 and 4
(d) 2, 3 and 4
19. A cooperative store having a turnover of Rs. 10 lakhs and profit of Rs. 50,000 purchased locks costing Rs. 300 for use in the shop. The accountant charged in the P & L A/c of current year, but tt5e auditor raised on objection saying that it should be capitalized. On which one of the following conventions could the accountant be defended?
20. If depreciation is calculated on the basis of the formula n (n + 1)/ 2 then which one of the following methods is adopted?
(a) Diminishing value method
(b) Annuity method
(c) Sum of years digits method
(d) Sinking fund method
21. Which one of the following statements is correct?
(a) Preliminary expenses are revenue expenses
(b) Cost of issuing shares and debentures and raising loans, such as legal expenses and underwriting commission are capital expenditure
(c) Interest on loan is a capital expenditure
(d) Cost of machinery purchased is revenue expenditure
22. Which one of the following is a capital expenditure?
(a) Compensation paid for breach of a contract of supply of goods
(b) Interest on borrowings during the period of construction of works
(c) Loss of stock by fire
(d) Loss due to embezzlement by the manager
23. A company issued 14% debentures of Rs. 10, 00,000 at a discount of 10%. The discount allowed will be treated in the account books as:
(a) Capital expenditure
(b) Revenue expenditure
(c) Deferred revenue expenditure
(d) Capital loss
24. A and B are partners in a firm sharing profits in the ratio of 3:2. They admit C as a new partner for 1/3 share in the profits of the firm. The new profit sharing ratio of A, B and C is:
25. A, B and C are partners sharing profits in the ratio of
6:3:1. They decided to dissolve the firm when their capitals were Rs. 8,000, Rs. 3,000 and Rs. (—) 1,000 respectively. Other liabilities and assets were—Bank overdraft Rs. 3,500; A’s advance to the firm Rs. 500; Sundry creditors Rs. 2,500; plant and machinery Rs. 7,500; stock in trade Rs. 2,500, sundry debtors Rs.
6,000 and cash Rs. 500. Plant and machinery realized at 20% less, stock in trade at 25% less and sundry debtors at 30% less than their respective book value. Expenses of dissolution amounted to Rs. 250. C became insolvent and his private estate yielded Rs. 100 only. What is the loss on realization?
(a) Rs. 4,125
(b) Rs. 4,150
(c) Rs. 4,175
(d) Rs. 4,225
26. A, B and C are the partners in a business firm sharing their profits in the ratio of 4:3: 2. A new partner D enters the firm. The new profit sharing ratio of A, B, C and D is 5:4: 2: 1. D contributes goodwill of Rs. 36,000. This goodwill is to be allocated among A, B and C. Which one of the following will be the correct allocation?
A B C
Rs. Rs Rs
(a) 16,000 12,000 8,000
(b) 12,000 8.000 16,000
(c) 12,000 NIL 24,000
(d) 24,000 NIL 12,000
27. The ending balance of owner’s equity is Rs. 21,100. During the year, the owner contributed Rs. 6,000 and withdrew Rs. 4,000. If the firm had Rs. 8,000 net income for the year, what was the owner’s equity at the beginning?
(a) Rs. 23,000
(b) Rs. 21,000
(c) Rs. 19,000
(d) Rs. 11,000
28. The ending balance of the accounts receivable account was Rs. 12,000. Services billed to customers for the period were Rs. 21,500 and collection on account from customers was Rs. 23,600. The beginning balance of account receivable was:
(a) Rs. 33,500
(b) Rs. 14,100
(c) Rs. 9,800
(d) Rs. 33,300
29. A, B and C are equal partners in a firm with capitals Rs. Rs. 16,800, Rs. 12,600 and Rs. 6,000 respectively. With bills payable Rs. 3,300; creditors Rs. 6,000; cash Rs. 600; debtors Rs. 10,800; stocks Rs. 11,400; furniture Rs. 2,400 and building Rs. 19,500 E is admitted to the firm and brings Rs. 9,000 as goodwill and Rs. 15,000 as capital. Half the goodwill is withdrawn by old partners, and stock and furniture is depreciated by 10%. A provision of 5% on debtors is created and value of building is taken at Rs. 27,000. The profit on revaluation will be:
(a) Rs. 5,500
(b) Rs. 5,580
(c) Rs. 5,400
(d) Rs. 5,680
30. A and B sharing profits in the ratio of 3 : 2 and having capitals of Rs. 30,000 and Rs. 15,000 respectively decided to dissolve the firm. After paying off all liabilities, cash realized from various assets is Rs. 15,000. This amount will be distributed between A and B as:
(a) Rs. 9,000 and Rs. 6,000 respectively
(b) Rs. 10,000 and Rs. 5,000 respectively
(c) Rs. 7,500 and Rs. 7,500 respectively
(d) Rs. 12,000 and Rs. 3,000 respectively
31. A had started business with 20,000 in the beginning of the year. During the year he borrowed Rs. 10,000 from B. He further introduced Rs. 20,000 in the business. He also gave Rs. 5,000 as loan to his son. Goods given away as charity by him was Rs. 2,000. Profit earned by him was Rs. 25,000. He also withdrew Rs. 3,000 from the business. His capital at the end of the year would:
(a) Rs. 50, 000
(b) Rs. 40, 000
(c) Rs. 62, 000
(d) Rs. 48, 000
32. Under the net worth method, the basis of ascertaining profit is the:
(a) difference between the liabilities on two dates
(b) difference between the gross assets on two dates
(c) difference between the capital assets on two dates
(d) increase in net worth before adjusting for drawings and additions to capital
33. Following are the extracts from the Trial Balance of a firm:
Particulars Dr. (Rs) Cr. (Rs)
Sundry debtors 50,000 -
Provision for doubtful debts - 5,000
Bad debts 3,000 -
(i) Additional Rs. 3,000.
(ii) Keep the provision for bad debts @ 10% on debtors
The net amount of bad debts the will appear in the
Profit and Loss Account will be:
(a) Rs. 8,000
(b) Rs. 7,500
(c) Rs. 5,700
(d) Rs. 4,500
34. Consider the following statements:
Notes forming part of accounts of companies invariably display significant Accounting Policies.
1. as per the requirement of SEBI guidelines for disclosure and investor protection
2. because it is a mandatory requirement under the Companies Act, 1956
3. as required by AS—I—disclosure of accounting policies, which is mandatory
4. as it is required under the listing agreement with the stock exchanges
Which of the above statements are correct?
(a) 1, 2 and 3
(b) 2 and 3
(c) 2, 3 and 4
(d) 1 and 4
35. In the Balance Sheet, under the subheading current liabilities and provisions disclosure of the name(s) of small-scale industries/undertakings is required if the company owes a sum:
(a) exceeding Rs. 1 lakh as outstanding for more than 6 months
(b) not exceeding Rs. 1 lakh as outstanding for more than 6 months
(c) exceeding Rs. 1 lakh as outstanding for more than 30 days
(d) exceeding Rs. 50,000 as outstanding for more than 2 months
36. A non-performing asset with a financial institution denotes an asset on which:
(a) regular dividend is not being received
(b) interest is on default for two quarters or more
(c) repayment of capital appears difficult
(d) there is no earning of profit
37. Some companies give cash flow statements in then annual reports as prescribed by:
(a) Part IV of Schedule Vito the Companies Act, 1956
(b) the listing agreement with the stock exchanges
(c) the SEBI regulations
(d) the Accounting Standard-3 on cash flow statements
38. Consider the following statements:
Redeemable preference shares of a company can be redeemed out of:
1. profits of the company which would otherwise be available for dividend
2. company’s share premium account
3. fresh issue of shares made for the purpose of redemption
Which of the above statements are correct?
(a) 1 and 2
(b) 1 and 3
(c) 2 and 3
(d) 1, 2 and 3
39. A company forfeited 100 shares of Rs. 10 each owing to the default in the payment of share call, money of Rs. 5 each. These shares were issued at Rs. 9 each, payable at Rs. 2 on application, Rs. 2 on allotment and the balance of Rs. 5 on call. The shares were then reissued to another shareholder at a price of Rs. 6 share.
The amount to be debited to forfeited share account on account of discount on reissue of shares would be:
(a) Rs. 100
(b) Rs. 300
(c) Rs. 400
(d) Rs. 500
40. The issue of bonus shares must be in accordance with the guidelines issued by the:
(a) Company Law Board
(b) Controller of capital issues
(c) Securitizes and Exchange Board of India
(d) Registrar of Companies
41. Financial indicators of four companies are as follows:
Company Current Debt-equity ratio Rate of return Fixed asset turnover
ratio on investment
A. 2.0:1 2.5:1 10 % 5
B. 2.5:1 3.0:1 25 % 4
C. 1.5:1 4.0:1 20 % 3
D. 1.0:1 3.5:1 15 % 2
In general, which of the above companies would fall in the highest risk class?
(a) A and B
(b) B and C
(c) C and D
(d) A and D
42. Consider the following ratios:
1. Acid test ratio
2. Capital turnover ratio
3. Bad debts to sales ratio
4. Inventory turnover ratio
Which of these ratios are more appropriate for testing the liquidity of a concern?
(a) 1 and 3
(b) 1 and 4
(c) 2 and 4
(d) 2 and 3
43. Consider the given data:
1. Proprietary ratio = 0.75
2. Current ratio =2:1
3. Proprietary fund = Rs. 60,000
4. Fixed assets = Rs. 50,000
The working capital will be computed by:
(a) Rs. 10,000
(b) Rs. 15,000
(c) Rs. 20,000
(d) Rs. 25,000
44. Consider the following Balance Sheet of ABC Company Limited as on March 31, 1999:
Liabilities Rs. Assets Rs.
Equity share 20,00.000 Fixed assets 60,00000
Preference 10,00,000 Less 20,00,000 40,00,000
share capital depreciation
General 5.00,000 Debtors 10,00,000
10 % 11,00,000 Stock 6,00,000
Creditors 7,00,000 Cash 1,00,000
Outstanding 3,00,000 Formation expenses 5,000
Profit & Loss 1,05,000
57,05,000 57, 05,000
The current ratio of ABC Company Limited is:
45. Consider the following statements:
A low inventory turnover may be the result of:
1. obsolescence of some of the stock
2. slow-moving inventory
3. frequent stock-outs
4. fast-moving inventory
Which of the above statement(s) is/are correct?
(a) l and 2
(b) 4 alone
(c) 2 alone
(d) 2 and 3
46. Match List-I with List-II and select the correct answer using the Code given below the Lists:
List- I List- II
A. Current assets ÷ Current liabilities 1. Performance of equity capital
B. Fixed assets ÷ Long-term funds 2. Short-term solvency
C. Debt ÷ Equity 3. Capital structure
D. Earnings after interest 4. Overall performance
and taxes ÷ Number of shares issued
5. Long-term solvency
A B C D
(a) 2 5 3 4
(b) 1 2 3 4
(c) 2 5 4 3
(d) 1 2 4 3
47. If the management of a Limited Company want to evaluate the general efficiency which one of the following additional information is required?
(a) Sales and earnings after income tax and interest
(b) Break-up of owned funds into share capital, reserves and surpluses, etc.
(c) Earnings before income tax and interest
(d) Operating expenses and sales
48. Owned funds would be:
(a) Rs. 25 lakhs
(b) Rs 8.50 lakhs
(c) Rs. 25.20 lakhs
(d) Rs. 27 lakhs
49. The margin of safety i.e. the cushion of protection for creditors is:
(a) 4.06: 1
(b) Rs. 4.60 lakhs
(c) 0.20: 1
(d) Rs. 22 lakhs
50. Consider the particulars given below:
Sales = Rs.60,000
Variable cost = Rs.25,000
Fixed cost = Rs. 30,000
Based on these data, the operating leverage shall be: