Questions for reference State true or false. 1. Cash flow statement is based on accrual basis of accounting 2. Cash flow statement is useful for short-term financial analysis 3. Cash flow statement is a substitute of cash account. 4. Cash from operations and funds from operations means the same thing 5. Cash flows are classified under two main categories 6. Cash equivalents are short term, highly liquid investment that are readily convertible into cash. 7. Cash flows resulting from sale of fixed assets are classified as cash flows from investing activities. 1. Fill in the blanks 1. Cash comprises cash on hand and ----- deposits with banks 2. Cash flows are – and ---- of cash and cash equivalents 3. Cash payments to suppliers for goods and services are classified as cash flows from --- activities 1
Transcript
Questions for reference
State true or false.
1. Cash flow statement is based on accrual basis of accounting2. Cash flow statement is useful for short-term financial analysis3. Cash flow statement is a substitute of cash account.4. Cash from operations and funds from operations means the same thing5. Cash flows are classified under two main categories6. Cash equivalents are short term, highly liquid investment that are
readily convertible into cash.7. Cash flows resulting from sale of fixed assets are classified as cash flows
from investing activities.
1. Fill in the blanks
1. Cash comprises cash on hand and ----- deposits with banks2. Cash flows are – and ---- of cash and cash equivalents3. Cash payments to suppliers for goods and services are classified as cash
flows from --- activities4. Decrease in creditors is --- -- of cash.5. Income from investments is a cash flow from ---- activities
State true or false.
1. Statement of changes in financial position is same as the difference in opening and closing balance sheets
2. The term funds may be used to denote the net working capital of the firm
3. SCFP can be prepared on different basis
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4. As-3 provides for the preparation of funds flow statement5. Depreciation reduces tax liability and hence it is a source of fund6. A flow of fund arises when one of the accounts involved in a
transaction is a current account7. Conversion of debentures into equity shares appears in FFS.8. A decrease in current liability during the year results in increase in
working capital9. Funds from operations are equal to the net profit after tax for the
year10.Only non-cash expenses are added to net profit to find out funds
from operations11.Interim dividend and proposed dividend, both should be treated as
non-current items12.Listing agreement requires every listed company to prepare a cash
flow statement13.In cash flow statement different cash flows are classified as direct
and indirect cash flows.14.Payment of interest on loans is a cash flow from operating activities15.Corporate dividend tax is a cash flow from financing activity16.The term cash equivalents include short-term marketable
investments.17. SCFP shows those transactions which are not explicitly shown in
Balance sheet.
Break-Even Analysis
1. Contribution is the difference between the sales and the total cost of sales
2. At break-even point the company earn only marginal profit
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3. Contribution is also known as Gross Margin4. P/V ratio can be improved by increasing the selling price5. P/v ratio can be improved by reducing the fixed costs6. Margin of safety=Fixed expenses/P/Vratio7. Margin of safety can be improved by reducing the fixed cost8. Break-even analysis is fundamentally a static analysis.
Multiple choice questions.
1. The concept of conservatism takes into accounta. All future profits and all future lossesb. All future profits but leaves all future lossesc. All future losses but leaves all future profits2. According to the concept of conservatism the stock in trade is valued at a. Market priceb. Cost pricec. Market price or cost price whichever is higherd. Market price or cost price whichever is lower3. The concept of conservatism will have the effect of a. Over statement of assetsb. Understatement of assetsc. Understatement of liabilitiesd. Understatement of provisions for bad and doubtful debts4. According to the going concern a business is assumed as havinga. A limited lifeb. An indefinite lifec. A very long life.
5. According to which of the following concept even the proprietor of the business is treated as a creditor of the business
a. Money measurement concept
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b. Cost conceptc. Dual aspect concept d. Entity concept.
6. according to which of the following concepts for determining the net income from business, all costs which are applicable to revenue of the period should be charged against that revenue?
7According to money measurement concept which of the following will be recorded in the books of accounts?
a. Extra profits arising out of revaluation of assetsb. Commission payable to a salesmanc. Quality control datad. All of these
8. Non financial quantitative information is not recorded in accounts due to
a. Dual conceptb. Accrual conceptc. Measurement conceptd. Entity concept9. Realization concept impliesa. The receipt of the orderb. The delivery of the goodsc. The receipt of cash from the customer.
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Model questions
1. Which of the following are important factors in ensuring the integrity of accounting information?a. Institutional factors, such as standards for preparing informationb. Professional organizations.c. Competence, judgment, and ethical behaviour of individual
accountants.d. All of the above
2. Financial accounting information is characterized by all of the following except:a. It is historical in natureb. It results from inexact and approximate measuresc. It is factual so that it does not require judgment to prepared. It enhanced by management’s explanation.
3. Which of the following statements is not consistent with generally accepted accounting principles related to asset valuation?
a. Many assets are originally recorded in accounting records at their cost to the business entity.
b. Subtracting total liabilities from total assets indicates what the owners’ equity in the business is worth under current market conditions.
c. Accountants assume that assets such as office supplies, land and buildings will be used in business operations rather than sold at current market prices.
d. Accounts prefer to base the valuation of assets upon objective, verifiable evidence rather than upon appraisal or personal opinion.
4. What information would you find in a statement of cash flows that you would not be able to get from the other two primary financial statements?
a. Cash provided by or used in financing activities
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b. Cash balance at the end of the period c. Total liabilities due to creditors at the end of the periodd. Net income.
5. Which of the following is provided by a trial balance in which total debits equal total credits?
a. Proof that no transaction was completely omitted from the ledger during the posting process.
b. Proof that the correct debit or credit balance has been computed for each account.
c. Proof that the ledger is in balance.d. Proof that transactions have been correctly analyzed and
recorded in the proper accounts.
6. Which of the following accounts would never be reported in the income statement as an expense?
a. Depreciation expenseb. Income taxes expensec. Interest expensed. Dividends expense
7. The statement of cash flows is designed to assist users in assessing each of the following except
a. the ability of a company to remain solventb. the company’s profitabilityc. the major sources of cash receipts during the periodd. The reason why net cash flows from operating activities differ
from net income
8. Which of the following is not included in the statement of cash flows, or in a supplementary schedule accompanying the statement of cash flows?
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a. disclosure of the amount of cash invested in money market funds during the accounting period
b. A reconciliation of net income to net cash flows from operating activities
c. Disclosure of investing or financing activities that did not involve cash
d. The amount of cash and cash equivalents owned by the business at the end of the accounting period.
9. Which of the following business strategies is most likely to increase the net cash flows of a software developer in the short run but reduce them over a longer term?
a. Develop software that is more costly to create but easier to update and improve
b. Lower the price of existing c. Purchase the building in which the business operatesd. Reduce expenditure for the purpose of developing new products.
10.Using ABC to allocate manufacturing overhead can help managers to
a. identify what activities drive overhead costsb. set product pricesc. locate inefficiencies in the production processd. Do all of the above
11.Costing technique in which all costs, variable as well as fixed are charged to product operations or service, is called
a. historical costb. absorption costingc. marginal costingd. direct costing
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e. standard costing
12.Rent paid for a factory building is an example of
13.An amount of Rs. 100,000 for raw material is to be paid after 3 months. This is an example of
a. conversion costb. joint costc. programmed costd. future coste. none of the above
14.Costs that are not relevant for decision making and are not affected by increase or decrease in volume are
a. Out of pocket costb. Differential costc. Imputed costsd. Sunk costse. Marginal costs
15.A cost which has both a fixed and variable component is called a
a. step-fixed costb. step-variable cost
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c. semi-variable costd. curvilinear coste. discretionary cost
16.Manufacturing costs can be defined as
a. Prime cost + opening WIP+Closing WIPb. Prime cost + Labor cost + Factory overhead costc. Prime cost + Factory overhead cost + opening work in progress –
closing work in progressd. Prime cost + Factory overhead coste. Conversion cost + opening work in progress - closing work in
progress
17.A job cost sheet basically does not contain
a. direct labor costb. indirect material costc. indirect labor costd. selling and distribution overhead coste. Manufacturing overhead cost.
18.Which of the following can improve the margin of safety?
a. lowering the fixed costb. lowering the variable cost so as to improve marginal contributionc. increasing volume of sales, if there is availability capacityd. Both b and c above.e. All of a b and c above.
19.Break even sales isa. The sales required to earn a particular amount of profitb. The sales at which there is neither profit or loss
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c. The sales equal to amount of fixed expenses incurred by the company
d. The sales equal to amount of variable expenses incurred by the company
e. The total sales of the company.
20.The contribution per unit does not depend on
a. selling priceb. direct material costc. fixed costd. direct labore. direct expenses
21.Cost volume profit analysis is a key factor in many decisions including choice of product lines, pricing of products, marketing strategy and utilization of productive facilities. A calculation used in a CVP analysis is the break even point. Once the break even point has been reached operating income will increase by the
a. gross margin per unit for each additional unit soldb. contribution margin per unit for each additional unit soldc. fixed cost per unit for each additional unit soldd. variable cost per unit for each additional unit solde. Sales price per unit for each additional unit sold.
22.Margin of safety can be improved by
a. Increase of variable cost per unitb. Decease of sale price per unitc. Increase of fixed costd. Decrease of sales volumee. Decrease of variable cost per unit.
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23.The contribution per unit does not depend upon
a. direct material costb. direct labor costc. direct expensesd. fixed expensese. Manufacturing variable cost.
24.which of the following statements is true of CVP relationship
a. planning and forecasting of profits at various levels of activity can be done using CVP
b. CVP helps in developing fixed budgetsc. CVP helps in developing flexible budgetsd. Both a and b abovee. Both a and c above.
25.P ltd. has a current P/V ratio of 40%. The company is considering reduction in selling price by 10%. By what percentage should the sales revenue increase to maintain the existing level of profit?
a. 10.00%b. 15.00%c. 20.00%d. 25.00e. 33.33%
26.Which of the following relate to cost drivers?
a. Events within the activities that cause work are cost drivers.
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b. Cost drivers are used to forecast future costs and provide motivation to meet future cost and provide motivation to meet the future costs goals.
c. Cost drivers can not apply overhead to productd. Cost drivers can not apply overhead to servicese. Two cost pools can not use the same cost drivers.
27.To decrease the Break Even point one must
a. Increase the Fixed Costb. Decrease the Unit Contributionc. Decrease the Selling Priced. Increase Variable coste. Decrease Fixed cost
28.Capital expenditure is an expenditure which
a. Benefits the current accounting periodb. Will benefit the next accounting periodc. Result in acquisition of a permanent assetd. Results in the acquisition of a current assete. Results in the acquisition of current asset or permanent asset.
29.Computers taken on hire by a business for a period of twelve months should be classified as
a. Fixed assets.b. Current assetsc. Intangible assetsd. Deferred revenue expendituree. Not an asset.
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30.If a company has contingent liabilities they appear in
a. Balance sheetb. Directors’ reportc. Notes on account to balance sheetd. Chairman’s reporte. Notice to shareholders.
Financial Accounting –I
1. Profit and Loss account is prepared for a period of one year by following
a. Consistency conceptb. Conservatism conceptc. Time period conceptd. Cost concepte. None of the above.
2. Accounting does not record non-financial transaction because of
3. If a company has contingent liabilities they appear in the
a. Balance Sheetb. Directors reportc. Notes on account to balance sheet
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d. Chairman’s reporte. Notice to the shareholders.
4. The accounting Standard on Revenue Recognition deals with
a. Revenue obtained from execution of constructions contracts.b. Revenue from sale under hire purchase and lease agreementsc. Interest, royalties and dividends obtained from other concerns using
the resources of the enterprise. d. Revenues from government grants and subsidiese. Insurance premium relating to contracts received by insurance
companies
5. Trade discount allowed at the time of sale of goods is recorded in
a. Sales book
b. Cash book
c. Journald. Debtors ledgere. Petty cash book.
6. Bank Reconciliation statement is prepared a. To rectify the mistakes in the cash book,b. To rectify the mistakes in the bank statementc. To arrive at the bank balance d. To arrive at the cash balancee. To bring out the reasons for the difference between the balance as per
cash book and the balance as per bank statement.
7. When bill discounted with the bank is dishonored
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a. Acceptor’s account is debited in the books of drawerb. Bills receivable account is credited in the books of drawerc. Bank account is debited in the books of drawerd. Bills payable account is debited in the books of drawere. None of the above.
7. Which of the following are/is a current asset?
a. Sundry debtorsb. Stockc. Prepaid insuranced. Both a and b abovee. All of a b and c above
8. Capital expenditure is an expenditure which
a. Benefits the current accounting periodb. Will benefit the next accounting periodc. Results in the acquisition of a permanent assetd. Results in the acquisition of a current assete. Results in the acquisition of a current asset or permanent asset.
9. Cash Profit is
a. Gross profit – Net profitb. Net Profit-Non-trading profit-Depreciation and provisionsc. Gross profit –Non-trading profit+Depreciation and provisiond. Net Profit+Depreciation and provisionse. Gross profit –Operational expenses.
10.Which of the following is not deferred revenue expenditure?
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a. Expenses in connection with issue of equity shares.b. Preliminary expensesc. Preoperative expensesd. Heavy advertising expenses to introduce a new producte. Legal expenses incurred in defending a suit for breach of contract to
supply goods.
12.From the accounting point of view loss means
a. Increase in liabilityb. Decrease in assetc. Increase in assetd. Increase in owner’s equitye. Decrease in owner’s equity
11.Which of the following is an item of capital expenditure?
a. Annual fire insurance premiums on plant and equipmentb. Research ad development costs during the year.c. Interest on borrowed fund utilized for acquisition of office furniture.d. Sales tax paid in conjunction with the purchase of office equipmente. Monthly rent of machinery used in the business.
12.Which of the following is false?
a. Owners equity+Outsiders liability=Assetsb. Assets-Capital=Liabilityc. Assets+capital=Liabilities d. Both a and b abovee. None of the above
13.Which of the following is a non-monetary asset?
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a. Account receivableb. Account payablec. Demand bank depositsd. Net long-term receivable.e. Patents and trademarks
14.Discount on issue of shares is shown on
a. Assets side under miscellaneous expenditure
b. Assets side under current assets
c. Liabilities side under current liability
d. Liabilities side under reserves
f. None of the above.
15.Bonus shares can be issued out of
a. General reservesb. Investment allowance reservec. Share premium collected in cashd. General reserves and sharepreiume. All of the above
16.For redemption of debentures, sinking fund is created out of
a. Share capitalb. Debenture capitalc. Share premium reserve
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d. Current year profitse. Capital reserve
17.The premium payable on the redemption of debenture is
a. Written off from the share premium a/cb. Written off from the capital profitsc. Written off from the accumulated profits.d. Both a and ce. None of the above
18.Debentures can be issued
a. For cashb. For consideration other than cashc. As collateral securityd. In lieu of dividendse. All a b c above.
19.Which of the following items cannot be shown as reserves?
a. Capital reserveb. Share Premiumc. Sinking Fundd. Capital redemption reservee. None of the above
20.Which of the following intangible assets is considered an unidentifiable intangible assets/
a. Patent rightb. Trademarkc. Franchised. Goodwill
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e. Copyright
21.Working Capital is:
a. Current assets
b. Current liabilities
c. Current assets minus current liabilities
d. Margin of on loans
c. Portion of Share Capital used in operations.
22.The meaning of “fund”flow statement is
a. Cashb. Net working capitalc. Gross working capitald. Profite. Either a or b above.
23.Which of the following is not a use of funds?
a. Increase in cashb. Buy-back of sharesc. Decrease in working capitald. Increase indepreciatione. Decrease in bank borrowing.
24.Which of the following is a source of cash in a funds flow statement drawn on cash basis?
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a. Dividend paymentb. Increase in fixed assets.c. Increase in receivable d. Repayment of short-term banke. Depreciation.
25.Prepaid expenses are valued on the balance sheet ata. Replacement Costb. Current Costc. Cost to acquire the assetd. Cost to acquire less accumulated amortizatione. Cost less expired portion.
26.AS-2 on inventory valuation does not cover the inventories such as
a. Work-in-progress arising under service contractsb. Inventoies of forest productsc. Land or other property held for used. Both a and b abovee. Both a and c above
27.Loss on the issue of debentures is shown as a
a. Current assetb. Current liabilityc. Fictitious assetd. Fixed assete. None of the above
28.Which of the following methods involve creation of Sinking Fund in case of redemption of debentures?
a. Redemption in lump sumb. Drawings of lots
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c. Redemption by purchase in open marketd. By conversione. All of the above.
29.Which of the following appears in the profit &loss appropriation account?
a. Profit or loss on sale of assetb. Subsidy received from Central governmentc. Provision for taxationd. Interim dividende. Penalty paid under dispute.f.
Inventory—AS 2
1.The inventory costing method that is based on the assumption that cost should be charged against revenue in the order in which they were incurred is
a. FIFOb. LIFOc. Average costd. Perpetual inventory
1. The following units of a particular item were purchased and sold during the period
Beginning inventory – 40 units at Rs.20First purchase—50 units at Rs.21Second purchase -50 units at Rs.22First sale-110 units Third purchase – 50 units at Rs.23Second sale- 45 unitsWhat is the cost of the 35 units on hand at the end of the period as determined under perpetual inventory system by the LIFO costing method
a. Rs.715b. Rs.705
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c. Rs.700d. Rs.805
Ans: The LIFO method of costing is based on the assumption that costs should be charged against revenue in the reverse order in which costs were incurred.Thus the oldest costs are assigned to inventory. Thirty of 35 units would be assigned a unit cost of Rs.20 (since 10 of the beginning inventory units were sold on the first sale), and the remaining 5 units would be assigned a cost of Rs.23 for a total of Rs.715
2. The following units of a particular item were available for sale during the period:
Beginning inventory- 40 units at Rs.20First purchase -50 units at Rs.21Second purchase 50 units at Rs.22Third purchase- 50 units at Rs. 23
What is the unit cost of the 35 units on hand at the end the period as determined under the periodic inventory system by the FiFo costing method?
A.20 B.21C.22 D.23
Ans: d The FIFO method of costing is based on the assumption that costs should be charged against revenue in the order in which they were incurred(first in first out) The most recent costs are assigned to inventory. The 35 units would be assigned a unit cost of 23
3. If merchandise inventory is being valued at cost and the price level is stadily rising the method of costing that will yield the highest net income is
a. LIFOb. FIFO c. Averaged. Periodic
Ans: When the price level is steadily rising, the earlier unit costs are lower than recent unit costs. Under the FIFO method these earlier costs are matched against the revenue to yield the highest possible net income. The periodic inventory system is a system and not a method of costing.
4. If the inventory at the end of the year is understated by Rs.7500 the error will cause on
a. Understatement of cost of merchandise sold for the year by 7500
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b. Overstatement of gross profit for the year by 7500c. Overstatement of merchandise inventory for the year by 7500d. Understatement of net income for the year by 7500
Fixed assets
1.which of the following expenditures incurred in connection with acquiring machinery is a proper charge to the asset account?
a. Fieght b. Installation costc. Both a and bd. Netiher a and b
Ans: all amounts spent to get fixed asset in place and ready for use are proper charges to the asset account. In case of machinery acquired the freight and installation costs are both proper charges the machinery account
2. What is the amount of depreciation using the double declining balance method for the second year of use for equipment costing rs.9,000 with an estimated residual value of rs.600 and an estimated life of three years?
a. 6000b. 3000c. 2,000d. 400
The periodic charge for depreciation under the double declining balance method for the second year is determined by first computing the depreciation charge for the first year. The depreciation for the first year of 6,000 is computed by multiplying the cost the equipment, rs.9000 by 2/3 (the straight line method with rate of 1/3 multiplied by 2) the depreciation for the second year of 2,000 is then determined by multiplying the book value at the end of first year,3000 by 2/3. The third year depreciation is 400 which is determined by multiplying the book value at the end of the second year, rs.1,000 by 2/3 thus yielding 667.however, the equipment cannot be depreciated.
