Questions and Answers of Corporate Accounting

What does the going concern mean?A. A business is profitableB. A business will continue to operate for the foreseeable futureC. The assets of a business exceed its liabilities
Payment to acquire plant and machinery and patents areA. Operating activitiesB. Investing activitiesC. Financing activities
A very large company has prepared financial statements without including very small items of furniture in its fixed assets. What accounting concept has the company applied?A. PrudenceB. ConsistencyC.
Cash equivalents are heldA. For investment purposesB. For the purpose of meeting short-term cash commitmentsC. For other purposes
Two companies buy identical computer equipment. The large company writes it off immediately, but the smaller company treats it as a fixed asset. Which accounting concept are the companies applying?A.
Standard Costs Method or the Retail Method is used as a Activities that result in changes in the size and composition of the owners’ capital and borrowing of the enterprise areA. Investing
Which is an example of the prudence concept?A. Only items with a monetary value are included in accountingB. Accrued expenses are charged to profit and loss accountC. Profit is not over-stated
An investment normally qualifies as a cash equivalent only when it has a short maturity of, say,A. Six months or lessB. Four months or lessC. Three months or less
Which of the following statements explain prudence concept most closely ?A. All legislation and accounting standards have been complied withB. Understatement of assets or gains and overstatements of
Examples of cash flows arising from investing activities are:1. Cash received for sale of plant and machinery.2. Cash proceeds from issuing of shares.3. Cash received from disposal of shares of other
Which of the following statements is / are correct?(1) In order to achieve comparability it may sometimes be necessary to override the prudence concept.(2) Substance over form is an accounting
Examples of cash flows arising from financing activities are :1. Cash repayments of amount borrowed on long-term basis.2. Cash advances and loans made to third parties by a non- financial
A company purchases a machinery on hire purchase over four years but does not own the machinery until the final payment has been made. At the end of year 1, the company shows the machinery in its
Which method of cash flow reporting starts with net profit for calculating cash flow from operating activities?A. Direct methodB. Indirect methodC. NeitherD. Both
Which of the following is correct ?A. Inventories are assets held for use in the construction of the building, e.g., air conditionersB. Inventories are assets held for sale in the ordinary course of
Interest and dividend received from short-term investments included in cash and cash equivalents should be considered asA. Cash flow from investing activitiesB. Cash flow from financing activitiesC.
Net realisable value isA. The estimated selling price plus cost of completion minus selling expensesB. The estimated selling price less cost of competitionC. The estimated selling price in the
Dividend paid will be treated as cash flow fromA. Operating activities in case of a financial enterpriseB. Financing activities in case of a financial enterprise onlyC. Financing activities in case
The purchase price, transport and handling cost, tax and import duties are all examples ofA. Cost of purchaseB. Cost of conversionC. Cost of purchase, cost of conversion and other costs
Interest on overdue payment and interest on overdraft should be treated as cash flow fromA. Financing activitiesB. Operating activitiesC. Investing activities
The cost of inventories should compriseA. Cost of purchase, cost of conversion and other cost like interestB. Cost of purchase, cost of conversion and other cost like post manufacturing storage
Generally cash flows arising from taxes on income should be classified as cash flows fromA. Operating activitiesB. Investing activitiesC. Financing activities
Standard Costs Method or the Retail Method is used as a tool of measurement of cost. Retail Method isA. Sale price plus mark upB. Sale price less gross marginC. None of the above
Which of the following statement is true?A. The cash flows arising from acquisitions and from disposals of subsidiaries or other business units should be presented after netting off and classified as
Reasons for inventories being sold for less than their cost could be:(i) Damage to the inventories and obsolescence(ii) General fall in the market price of the goods(iii) Fall in the production cost
The acquisition of an enterprise by issue of shares willA. Be shown in the cash flow statement under investing activitiesB. Not be shown in the cash flow statementC. Be shown in the cash flow
Amar restores and sells second hand motorcycles. At 31st December, 2006, he had one motorcycle in inventory. Details of this were: Model: Bajaj Boxer Details :This item cost ₹ 10,000 and in
Amar also holds an inventory of parts, which he values on the periodic weighted average basis. During the year 2006 his purchases of parts was:At 31st September, 2006 he had 300 units in inventory.
Cash flows arising from transactions in a foreign currency should be recordedA. In an enterprise’s reporting currency at the rate on the date of closing the books of accountB. In an enterprise’s
Unrealised gains and losses arising from changes in foreign exchange ratesA. Are treated as cash flows from operating activitiesB. Are not treated as cash flowC. Are treated as cash flows from
Following the physical stock taking, the value of total stock is ₹ 1,22,357. The auditors find the following additional information :(i) 370 units of stock which cost ₹ 0.40 per unit have been
Which of the following statement is correct?A. Cash equivalents are short-term, highly liquid investments that are readily convertible into cash but the amount is not knownB. Cash equivalents are
X has closing stock which cost ₹ 38,750. This includes some damaged items which cost ₹ 3,660. It will cost X ₹ 450 to repair these. He will be able to sell them for ₹ 1,500 after the repairs
Events occurring after balance sheet date are events, favourable or unfavourable, which occur between the Balance Sheet date and the date on which the financial statements:A. Are approved by the
On 31 March, 2007, inventory code AXN-205 had 1,000 items in inventory. The original cost of this inventory was ₹ 4,600. Alternative valuations were obtained at 31 March, 2007 for this inventory
Which of the following dates marks the end of the period covered by AS--4?A. On 2nd May, 2013 the draft financial statements are ready for issue to accounts committeeB. On 9th May, 2013, accounts
On 31 March, 2007, stock consists of 1,500 units of a raw material purchased @ ₹ 8 each, but the unit price of the item has fallen to ₹ 7. The price reduction is apprehended to be permanent. The
T.M. Ltd. made a major acquisition after the date of Balance Sheet but before the approval of the financial statements by the Board of Directors. The company should:A. Adjust the financial
According to AS-2 Inventories, which of the following costs should be included in valuing the inventories of a manufacturing company ?(i) Freight and insurance(ii) Carriage outwards(iii) Depreciation
During the year to 31 December, 2006 Amar bought goods for resale at a cost of ₹ 7,55,500. His inventory at 1 January 2006 was valued at ₹ 1,57,400. He did not count his inventory at 31 December,
R Ltd., a pharmaceutical company, has been sued by its competitor for patent violation. For this law suit, the company made a provision of ₹ 10,00,000 in its financial statements at 31st March,
X Ltd. sold its subsidiary, S Ltd. to Y Ltd. on 1st July, 2012 for ~ 200 crores. In addition, X Ltd. will get ₹ 10 crores if the subsidiary (S Ltd.) can earn a targeted profit of ₹ 20 crores for
K Ltd absorbs production overheads into inventory on the basis of units of production. 5,000 identical units were produced during the year ended 31 March, 2008. The normal level of activity is 8,000
Karim is an antiques dealer. His inventory includes a clock which cost ₹ 15,800. Karim expects to spend ₹ 700 on repairing the clock which will mean that he will be able to sell it for ₹
Which of the following events after the balance sheet date would normally qualify as adjusting events according to AS--4 (Events after Balance Sheet date) ?1. The insolvency of a customer with a
Which of the following events occurring after the balance sheet date are classified as adjusting events according to AS--4 (Events after balance sheet date) ?1. The sale of inventories valued at cost
Which of the following material events after the balance sheet date and before the financial statements are approved by the directors should be adjusted for in those financial statements ?1. A
The draft financial statements of X Ltd. are under consideration. The accounting treatment of the following material events after the balance sheet date needs to be determined.1. The insolvency of a
H Ltd.’s one of the major client has gone into liquidation after the balance sheet date but before the approval of the financial statements by the Board of Directors. The amount due was very large
Profit on sale of old furniture:A. Is an ordinary activityB. Is an extraordinary activityC. Is a prior period item
Extraordinary itemsA. Are both material and expected to occur frequently or regularlyB. Are not material and expected not to occur frequently or regularlyC. Are both material and expected not to
Errors include:1. Mathematical mistakes2. Mistakes in applying accounting policies3. Changes in provisions for bad and doubtful debts4. Misinterpretation of facts, or oversight.Which of the following
Revision of salary with retrospective effect is aA. Change in policyB. Change in accounting estimateC. Prior period item
Change in accounting policiesA. Should only make the change in the coming periodB. Should only make the change in the current periodC. Should make the change in the periods reported
Change in the method of depreciation will be treated asA. Change in the accounting policyB. Change in the accounting estimateC. None of the above
Revision of estimated useful life of a fixed assetA. Is a change in accounting policyB. Is a change in an accounting estimateC. None of the above
The effect of a change in an accounting estimate should be included in the determination of net profits or losses of theA. Current period onlyB. Previous periods onlyC. Current period as well as
Accounting estimates are made for1. Change in accounting policy2. Provision for bad and doubtful debts3. Inventory obsolescenceA. All three aboveB. All except 1C. All except 2
AS----6 deals with depreciation accounting and applies to all depreciable assets, except :A. Assets used for administrative purposesB. Assets used for sales and serviceC. Wasting assets
Depreciable assets are assets whichA. Have unlimited useful life, e.g., landB. Have a limited useful life, e.g., furnitureC. Are expected to be used not for more than one year
Residual value is specificallyA. Scrap valueB. The estimated value of a fixed asset at the end of its economic lifeC. The estimated value of a fixed asset at the end of its physical life
The useful life of an asset is:A. Its service lifeB. Its physical lifeC. None of the above
Which of the following statement is not correct?A. Depreciation will vary directly with the useful life of the assetB. The higher the residual value, the lower will be the depreciation chargeC. The
Repairs and maintenance costs are :A. Normally capitalisedB. Expensed in the profit and loss account as incurredC. Recorded as deferred expenses
Which of the following statement is correct in relation to AS----6?A. Only straight line method can be adopted for calculation of depreciationB. Only reducing balance method can be adopted for
Which of the following statement is correct in relation to AS----6?A. The change in the method of depreciation should be treated as a change in estimateB. The change in the method to depreciation
The cost of a fixed asset should comprise:(i) Its purchase price(ii) Any attributable cost of bringing the asset to its working condition for intended use(iii) Overhead of purchase department
Depreciation charges for a period are recordedA. Only in the Profit and Loss AccountB. Only in the Balance SheetC. In the Profit and Loss Account or as part of the Cost of another asset (such as
Cost-plus contract is a contract in which price isA. Agreed upon in advanceB. Not agreed upon in advanceC. Agreed upon in advance but subject to change in future
Contract revenue should compriseA. All cash flowsB. Initial revenue agreed plus variations, claims and incentive payments and proceeds from sale of scrapC. Initial revenue agreed, plus variations,
Incidental income, such as from the sale of scrap income, should be shown asA. Contract revenueB. Deduction from costC. Other income in the profit and loss account
A foreseeable loss on the entire contract should beA. recognised at the end of the contractB. recognised immediatelyC. spread over the remaining period of the contract
When is a sale recognised ?A. When cash is collected from customerB. When certain conditions have been satisfiedC. Whenever the seller decides to recognise it
RevenueA. Includes government grants and other subsidiesB. Includes sales tax and VATC. Is the gross inflow of cash receivables or other consideration arising in the course of the ordinary activities
Trade discounts and volume rebate shouldA. Be recognised as revenueB. Be ignoredC. Be subtracted from cost
Normal credit risk derived from salesA. Is a reason to defer revenue recognitionB. Is not a reason to defer revenue recognitionC. Is disclosed in the directors’ report
If the installation is an important part of the sales;A. Revenue recognition take place when goods are delivered at the siteB. Recognition of revenue will take place at the end of the accounting
Revenue from rendering of services should be recognised by referring the stage of completionA. At the end of the calendar yearB. At the balance sheet dateC. None of the above
Once a credit sale has been recognised as revenue any risk of non-payment is treated asA. A reduction in revenueB. A finance chargeC. A bad or doubtful debt expenses
Interest revenue should be recognised on aA. Cash basisB. Time proportion basis taking into account the rate applicableC. Time proportion basis taking into account the amount outstanding and the rate
Royalties revenue should be recognisedA. On an accrual basis in accordance with the terms of the relevant agreementB. On a cash basisC. On an actual basis
Dividends from investments in shares should be recognisedA. On a cash basisB. When the shareholders’ right to receive payment is establishedC. On an accrual basis
AS----10: ‘Accounting for Fixed Assets’ deal with accounting for the following items :A. Forest, plantations and solar energyB. LivestockC. Equipments used for plantations
Regularly used spare parts are usuallyA. Treated as expense on purchaseB. Carried as inventory and treated as an expense on consumptionC. Treated as a fixed asset and depreciated accordingly
Standby equipment and servicing equipments areA. IgnoredB. Accounted for as current assetsC. Accounted for as fixed assets
Modvat credit isA. Added with the cost of the fixed assetB. Deducted from the cost of the fixed asset without any conditionC. Deducted from the cost of the fixed asset if certain conditions are
The expenditure incurred on test runs is usuallyA. Capitalised as a direct element of the construction costB. Capitalised as an indirect element of the construction costC. Treated as revenue
The expenditure incurred between the date of a project is ready to commence commercial production and the date of actual commercial production will beA. CapitalisedB. IgnoredC. Charged to Profit and
Individually-insignificant items, such as moulds, tools and dies may beA. Expensed on purchaseB. Aggregated as one assetC. Ignored
Components of cost are(i) Purchase price(ii) General office overheads(iii) Any costs directly attributable to bringing the asset to its working condition for its intended useA. All the aboveB. All
When a fixed asset is acquired in exchange for another asset, the cost of the asset acquired should be recordedA. At replacement costB. At fair valueC. At the net book value of the asset given up only
Subsequent expenditures related to an item of fixed asset should be added to its book valueA. Only if it is recommended by the auditorsB. Only if it is recommended by the Board of DirectorsC. Only if
Monetary items areA. Cash onlyB. Cash and cash equivalentC. Money held and assets and liabilities to be received or paid in fixed or determinable amounts of money
Forward rate isA. The determinable exchange rate for exchange of two currencies at a specified future dateB. The specified exchange rate for exchange of two currencies at a specified future dateC.
Foreign currency is a currencyA. Other than the functional currencyB. Other than the reporting currency of an enterpriseC. Neither of the above
A foreign currency transaction should be recorded in the reporting currency, using the exchange rate between the reporting currency and the foreign currencyA. At the date of settlementB. At the last
Foreign currency monetary items should be reported usingA. The average rate for the yearB. The closing rate on the Balance Sheet dateC. The rate on the date of transaction
Non-monetary items should be reported usingA. The average rate for the yearB. The closing rate on the Balance Sheet dateC. The rate on the date of transaction
What is Capital Adequacy Ratio? How is it calculated?
State the guidelines for identification of Non-performing Assets (NPA).

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