Professional Documents
Culture Documents
Fundamentals of Accounting
1. The accounting system provides the financial information needed to evaluate the
effectiveness of current and past operations.
(a) True
(b) False
2. …………… is concerned with the recording of financial transactions and analyzing the
effect of such transactions to assist in the development of business decisions
(a) Management accounting
(b) Financial accounting
(c) Business accounting
(d) None of these
3. The scope of …………. accounting is broader than that of cost accounting.
(a) management
(b) business
(c) Managerial
(d) None of these
4. Assets are equal to the liabilities plus equity, the sources of the assets.
(a) True
(b) False
5. A transaction can be classified as cash transaction and…………….
(a) debit transaction
(b) balance sheet
(c) credit transaction
(d) None of these
6. Financial accounting is a different representation of costs and financial performance that
includes a company’s assets and liabilities.
(a) True
(b) False
7. …………….means purchase and sale of goods or/and services.
(a) Assets
(b) Non- Trading items
(c) Trading items
(d) None of these
8. …………….assets are those assets which are acquired for long term use in the business
(a) Non-Current Assets
9. Cost of Sales is expenses that cannot be directly attributed to sales items, such as
purchases of stocks.
(a) True
(b) False
10. ……………..are those liabilities which the business owes to the outsiders for goods
purchased on credit.
(a) Non-External liabilities
11. Revenue refers to the inflow of money or other assets that result from the sale of goods or
services or from the use of money.
(a) True
(b) False
(b) expenditure
13. Which one of the following does not appear on the balance sheet of a manufacturing company?
a. Finished goods inventory
b. Work in process inventory
c. Cost of goods manufactured
d. Raw materials inventory
14. Current assets are not listed on the balance sheet in the order of when the account will be
converted to cash.
(a) True
(b) False
15. ………………..aims at finding out profit or losses of an accounting year as well as the assets and liabilities
position,
(a) Cost Accounting
16. A transaction means an activity; a business transaction means any activity which creates
some kind of legal relationship.
(a) Business transactions
(b) Classification of transactions
(c) Recording of transactions
(d) Summary of transactions
17. The Business Entity Assumption states that business is separate from the owners.
(a) True
(b) False
18. An accounting convention refers to common practices which are universally followed in
recording and presenting accounting information of the ……………..
(a) market entity
11. (a) 12. (b) 13. (c) 14. (b) 15. (b)
16. (a) 17. (a) 18. (c) 19. (b) 20. (c)
Chapter-2
(b) Researchers
(c)Investors,
(a)Fixed Assets
(b)Sales
(c)Purchases
(d)Stock.
(b)Net worth
(c)Shareholders' Funds
(a)PAT Capital
(b)DPS ÷ EPS
(b)Analysis of Profit
(c)Capital Budgeting
(a)Net Purchases
(b)Net Sales
(c)Total Purchases
(a)Increasing Turnover
(a)Current Profit
(b)Current Liabilities
(c)Fixed Assets
(a)Borrowing More
(b)Issue of Debentures
(d)Redemption of Debt
(a) True
(b) False
(a) True
(b) False
(d)All of these
(d)None of these
(c)Operating Budgets
(a) True
(b) False
11. (b) 12. (d) 13. (c) 14. (b) 15. (b)
16. (b) 17. (c) 18. (b) 19. (d) 20. (a)
Chapter-3
(b)Net worth
(c)Shareholders' Funds
3. Financial statement analysis is not a common technique that allows small business owners to
review their company operational performance.
(b) True
(b) False
6. Liquidity ratios are measures of the short-term ability of the company to pay its debts when
they come due and to meet unexpected needs for cash.
(a) True
(b) False
7. Ratio analysis is one of the techniques of financial analysis to evaluate the financial condition
and performance of a …………… concern.
(b) marketing
(c) business
(d) business management
8. Ratio analysis is a technique of …………… and thus, ignores qualitative factors, which may
be important in decision making
9. Operating margin captures how much a company makes or loses from its primary business per
dollar of sales.
(a) True
(b) False
10. Liquidity ratios provide information about a firm's ability to meet its …………….. obligations.
(a) cash
12. Gross profit is simply the difference between a company's sales of goods or services and how
much it must pay to provide those goods or services.
(a) True
(b) False
13. Financial leverage ratios provide an indication of the ………… solvency of the firm.
(a) middle-term
(b) short-term
(c) long-term
(a) 363
(b) 364
(c) 365
(d) 366
15. Fund flow analysis is accomplished by preparing a …………. for evaluating the uses of
funds and determining the sources of funds to finance those users.
17. The balance sheet is also known as the statement of financial condition or position.
(a) True
(b) False
18. The income statements are also called as the profit loss statements.
(a) True
(b) False
19. The real options analysis helps in evaluating the two options termed as call and put options.
20. The financial statement notes define each and every item in the balance sheet besides
describing cash flow statement and income statement in details.
(a) True
(b) False
11. (d) 12. (a) 13. (c) 14. (c) 15. (c)
16. (d) 17. (a) 18. (a) 19. (c) 20. (a)
Chapter-4
Asset Valuation
2. The FRS requires its carrying amount to be its current value as at the balance sheet date.
(a) True
(b) False
3. The straight line method calculates depreciation by spreading the cost evenly over the life of …………..
4. Intangible assets (resources) play a fundamental role in economies’ change, from traditional
scale-based manufacturing to new innovation-oriented activities.
(a) True
(b) False
5. The sum of all estimated future cash flows is not less than the carrying value of the asset.
(a) True
(b) False
(a) business
(b) market
7. The amount of fixed production overheads allocated to each unit of production is ……….. as a
consequence of low production or idle plant.
(a) increased
(c) decreased
(a) market
(b) industrial
(c) organization
(d) business
9. Valuation of assets is continually reviewed to reflect the fair market value as much as possible.
(a) True
(b) False
10. Depreciation is defined as an accounting methodology which allows an organization to spread the
cost of a …………. over the expected useful life of that asset.
11. The required variables for calculating depreciation are ……….. and the expected life of the fixed asset.
12. The cost of inventories should be assigned by using the first-in, first-out (FIFO).
(a) True
(b) False
13. The required variables for calculating depreciation are the cost and the expected life of the
……………...
(c) asset
14. Operating leases give the lessee the use of property without ownership.
(a) True
(b) False
15. Intangible assets (resources) play a fundamental role in economies’ change, from traditional
scale-based manufacturing to new innovation-oriented activities.
(a) True
(b) False
16. The current income statement will include an impairment ………… before tax from
continuing operations.
17. Past ratios that evaluated fixed assets and depreciation policy are distorted by
impairment……………….
(a) read-down
(b) up-down
(c) bottom-up
(d) white-down
18. The cost of inventories should comprise all costs of purchase, costs of conversion and other
costs incurred in bringing the inventories to their present location and condition.
(a) True
(b) False
19. The costs of conversion of inventories include costs directly related to the units of production,
such as …………...
(a) labor
20. The allocation of fixed production overheads for the purpose of their inclusion in the costs of
conversion is not based on the normal capacity of the production facilities.
(a) True
(b) False
Chapter-5
(b) False
(a)Maturity Value
(b)Issue Price
(c)Par Value
(d)Market Price
(a)Positive relationship
(b)Inverse relation
(c)No relationship
(d)Same relationship
(b)Yield to Maturity
(c)Coupon Rate
5. If the coupon rate and required rate of return are equal, the value of the bond is equal to
(c)Redemption Value
(a) True
(b) False
7. Zero Base Budgeting (ZBB) is not method of budgeting whereby all activities are revaluated
each time budget is formulated and every item of expenditure in the budget is fully justified.
(a) True
(b) False
9. Responsibility Accounting collects and reports planned and actual accounting information
about the ……………………. of responsibility centers.
(a) inputs
(b) outputs
10. When the manager is held responsible for both Costs (inputs) and Revenues (output) it is
called a ……………...
11. The performance of the managers is evaluated by comparing the costs incurred with the
……….
(c) short-term
(d) long-run
13. 3. No. of units of domestic currency required to buy one unit of a foreign currency is known as
(a)Indirect Route
(b)Cross-Rate
(c)Direct Route
(d)Spot Rate
15. Budgeting is a coordinated exercise and hence combines the ideas of different levels of management
in preparation of the same.
(a) True
(b) False
16. Budgeting is an effective means for planning and thus ensures sufficient availability of
………… and other resources.
17. A budget centre is not a group of activities or a section of the organization for which budget
can be developed.
(a) True
(b) False
18. Budgets like capital expenditure are generally prepared for a period from 1 year to 3 years.
(a) 1 year
(b) 2 year to 3 years
19. In program budgeting, programs are identified and goals are developed for the organization
for the particular program.
(a) True
(b) False
20. Cost involved in preparation and implementation of this system is very high.
(b) middle
Chapter-6
Management Applications
1. Managerial accounting information is generally prepared for
a. shareholders
b. creditors
c. managers
d. regulatory agencies
2. The concept of "Total Quality Management" is precisely to integrate the external and internal ideas of the
firm.
(a) True
(b) False
3. Managerial accounting information
a. relates to the entity as a whole and is highly aggregated
b. relates to sub-units of the entity and may be very detailed
c. is prepared only once a year
d. is constrained by the requirements of generally accepted accounting principles
4. Which of the following is not an internal user of management information?
a. Creditor
b. Department manager
c. Controller
d. Treasurer
5. Managerial accounting does not encompass
a. calculating product cost
b. calculating earnings per share
c. determining cost behavior
d. profit planning
6. Management accounting is applicable to
a. service entities
b. manufacturing entities
c. not-for-profit entities
d. all of these
7. Financial statements for external users can be described as
a. user-specific
b. general-purpose
c. special-purpose
d. management reports
8. Management accounting reports can be described as
a. general-purpose
b. macro-reports
c. special-purpose
d. classified financial statements
9. Which of the following is not a management function?
a. Demotivating
b. Planning
c. Controlling
d. Directing
(b) False
11. (b) 12. (b) 13. (a) 14. (c) 15. (b)
16. (b) 17. (d) 18. (a) 19. (c) 20. (a)
Chapter-7
a) Trends statements
b) Common-size statements
c) Financial ratios
d) None of these
5. The difference between total current assets and total current liabilities is:
a) Cash ratio
b) Inventory turnover
c) Current ratio
d) All of the these
7. Which ratios would you not use to assess the capital gearing of an enterprise?
a) Debt-to-equity ratio
b) Asset turnover
c) Interest cover ratio
d) None of these
8. Which two of the following are not long-term solvency ratios?
a) Asset turnover
b) P/E
c) Margin on sales
d) ROTA
a)
10. Which of the following statements is not true of diluted EPS?
a) Financial leverage.
b) Liquidity.
c) Profitability.
d) Reliability.
13. Funds Flow Statement is an analytical tool in the hands of financial manager.
(a) True
(b) False
14. Accrual accounting requires companies to record revenues and expenses when transactions
occur, not when cash is exchanged.
15. Free cash flow signals a company’s ability to pay debt, pay dividends, buy back stock and
facilitate the growth of business.
(a) True
(b) False
16. Investors tend to prefer companies that produce a net positive cash flow from operating
activities.
(a) True
(b) False
18. Funds flow statement is a test of effective use of working capital by the management during a
particular period.
19. Income Statement measures flow restricted to transitions that pertain to rendering of goods
and services to customers.
(a) True
(b) False
20. Fund Flow is not a statement prepared to indicate the increase in cash resources and the
utilization of such resources of a business during the accounting period.
(a) True
(b) False
Chapter-8
2. The financial year of a company will usually be the same as its not accounting reference
period.
(a) True
(b) False
3. ……………….. has been accounted for on accrual basis based on audited/unaudited royalty returns
received from the licensees.
(a) no royalty
(b) royalty
5. Balances in such foreign …………… at the yearend are converted at the prevailing exchange
rates.
(a) True
(b) False
7. Cost of sales consists of the salary cost of temporary staff and costs incurred on behalf of
clients,………………….
(a) principally advertising costs
8. ………………. is represented by turnover less cost of sales and consists of the total placement fees
of permanent candidates.
9. Foreign currency transactions are translated into the respective functional currency using the
exchange rates prevailing at the dates of the transactions.
(a) True
(b) False
10. Assets and …………… for each balance sheet presented are translated at the closing rate at
the date of that balance sheet.
(a) Income
(b) liabilities
(c) expenses
11. Gains and losses on the disposal of an entity include the carrying amount of goodwill
relating to the entity sold.
(a) True
(b) False
12. Amortization is charged to the income statement on a ……… basis over the estimated useful.
(a) curve-line
(b) straight-line
13. An impairment loss is not recognized for the amount by which the asset’s carrying amount
exceeds its recoverable amount.
(a) True
(b) False
14. Income tax expense represents the sum of the tax currently payable and deferred tax.
(a) True
(b) False
15. …………………. vesting conditions are included in assumptions about the number of
options that are expected to become exercisable.
(a) Business
(b) No-market
(c) market
16. Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other
short-term highly liquid investments with original maturities of ………. or less.
(a) market’s
(b) business’s
18. Income statements are not used to determine how much the company is earning each month.
(a) True
(b) False
19. Corporate annual reports generally begin with a statement from the CEO and the chairperson.
(a) True
(b) False
20. Annual reports might contain feature stories on particular projects that are not underway, or
profiles of employees or departments within the company.
(a) True
(b) False
Chapter-9
1. The standard cost of a product is:
2. What term is used to describe the level of efficiency achieved that appropriately trained,
motivated and resourced employees can achieve in the long-run?
a. Standard hours
b. Standard ex post
c. Standard performance
d. Standard ex ante
3. A standard that represents the most likely scenario can be referred to as the:
a. Basic standard
b. Average standard
c. Ideal standard
d. Attainable standard
a. Compare actual costs with standard costs at the actual level of output
b. Compare actual costs with those that were budgeted
c. Compare standard costs with actual costs at the standard level of activity
d. Compare actual outputs against budgeted outputs
5. When carrying out variance analysis, ideally we should:
8. An adverse material usage variance together with a favourable materials price variance could
suggest that:
a. We are using less materials than expected but in total we are paying more than we
should
b. We are paying less for our materials than expected but we are using more materials
c. We are paying higher prices for our materials than expected
d. We are paying the same for our materials but we are using more than expected
9. An adverse labour efficiency variance together with a favourable labour rate variance may
mean that:
a. Budgeted fixed expenditure less (actual hours * fixed overhead absorption rate)
b. Actual fixed overhead less (standard hours * actual production * fixed overhead
absorption rate)
c. Budgeted fixed expenditure less (standard hours * actual production * fixed
overhead expenditure variance)
d. Budgeted fixed expenditure less (actual hours * actual production * fixed overhead
absorption rate)
12. Planning is not the first tool for making the control effective.
(a) True
(b) False
13. A current standard is a standard which is established for use over a short period of time and is
related to current condition.
(a) True
(b) False
14. A basic standard may not be defined as a standard which is established for use for an
indefinite period which may a long period.
(a) True
(b) False
15. A price variance arises when the cost to purchase an item differs from its standard price.
(a) True
(b) False
16. Variance analysis can be defined as the process of computing the amount of, and isolating the
cause of variances between actual………….
19. The technique of using standard costs for the purposes of cost control is known as standard
costing.
(a) True
(b) False
20. ……… is established for a long period and is not adjusted to the preset conations.
(a). Ideal standard
Chapter-10
1. When the cost incurred on recruiting, training and developing the employees is considered for
determining the value of employees, it is called
A. the replacement cost approach
B. the historical cost approach
C. the opportunity cost approach
D. none of the above
4. The value of human resources is the function of the average salary of the employees and their
A. average employment tenure in the organization. This is the essence of the
B. aggregate payment model
C. five-dimensional model
D. causal, intervening and end-result model
E. unpurchased goodwill model
5. Fixing the value of an employee depending upon his productivity, promotability transferability
and retainability is the core of the
6. A standard cost which will be most useful for control purposes is one which:
(a) Contains no allowances for normal losses or other forms of wastage.
(b) Is set in advance of the control period and which then remains unchanged.
(c) Contains a reasonable degree of allowances for operating inefficiencies.
(d) Managers are expected to achieve at all times.
7. Direct material total variances can be analysed into:
(a) Efficiency and price variances.
(b) Price and productivity variances.
(c) Price and usage variances.
(d) Efficiency and usage variances.
8. XYZ Ltd uses standard costing.Variance analysis has revealed an adverse total direct material
variance
at the end of an operating period.Which of the following combinations of factors is the most
likely reason for the adverse variance?
(a) Price reductions and lower wastage.
(b) Price increases and greater wastage.
(c) Employing less skilled workers to lower labour costs.
(d) Over estimation of the material cost built into the standard cost.
9. Which of the following statements would be a valid explanation of a favourable direct labour
rate
variance?
(a) The standard cost overestimated a national wage agreement settlement for the production
operatives in the factory.
(b) The standard labour time per unit was overstated as it failed to incorporate production
efficiencies
made possible by new machinery.
(c) There was a cost saving as a result of a strike in the factory during the year.
(d) The standard cost did not take into account changes in the product specification which meant
that in practice, less time per unit was needed for assembly.
10. Which of the following is likely to be classified as a direct material cost of a motor car
wheel?
(a) The metal used to manufacture it.
(b) The metal used to manufacture one of the tools used in the car wheel factory.
(c) The cost of operating the raw material stores in the factory.
(d) The cost of the quality operation on the finished car wheels.
11. The first in, first out method of pricing raw material issues, exhibits which one of the
following
features?
(a) The issue price is recalculated each time new deliveries are made into stock.
(b) The issue price is always at the latest price.
(c) The goods are always issued strictly in the physical order in which they are received.
(d) The issue price is always at the earliest price.
12. Which of the following is not a method of pricing raw material issues from stock?
(a) Standard costing.
(b) Unit cost.
(c) Marginal cost.
(d) Continuous weighted average.
13. Which of the following is a direct labour cost?
(a) Supervisors’ salaries in the factory.
(b) Costs of the payroll accounting section.
(c) A bonus paid to the storeman.
(d) The wages of an operative paid on the basis of output achieved.
14. Production overheads are absorbed into production units by the use of an overhead
absorptionrate. Which one of the following best describes how the absorption rate is calculated?
(a) Total number of units produced divided by the total cost centre overheads.
(b) Total number of units produced multiplied by the unit overhead cost.
(c) Total cost centre overheads divided by the cost centre activity level.
(d) Total indirect costs for the business divided by the total number of units produced.
15. XYZ Ltd has a labour intensive assembly department. Which of the following methods of
absorbing overheads is likely to used for that department?
(a) Direct labour hours method.
(b) Direct labour cost method.
(c) Direct material cost method.
(d) A percentage of prime cost.
16. XYZ Ltd has the following data relating to its assembly plant in the year ended 31 December
2001:
£000
Direct material costs 500
Direct labour cost 250
Assembly plant indirect costs 100
In addition, the stores department has total costs of £30 000 and spends 50% of its time servicing
the assembly plant. There were 50 000 labour hours worked and 25 000 machine hours run in the
assembly plant in 2001.
The overhead cost per direct labour hour was:
(a) £2.
(b) £4.
(c) £2.3.
(d) £4.6.
17. If a company uses predetermined overhead recovery rates and at the end of a period finds that
there has been an under-recovery of overhead, which of the following best explains how the
underrecovery
has occurred?
(a) Actual overhead cost has exceeded the amount used as a basis for the establishment of the
predetermined rate.
(b) Actual overhead cost has been less than the amount used as a basis for the establishment of
the
predetermined rate.
(c) Actual activity levels were higher than planned due to an increase in demand.
(d) An expected price increase in the overhead costs which was built into the overhead recovery
rate did not take place.
18. If there has been an over recovery of overheads, at the end of the accounting period the
amount
concerned should be?
(a) Debited to the company profit and loss account.
(b) Credited to the company profit and loss account.
(c) Carried forward to the next accounting period as a cost saving.
(d) Used to reduce next period’s overhead recovery rate.
19. Which of the following is not an essential prerequisite to permit the successful use of
financial statements for ratio analysis?
(a) The accounts should use comparable accounting policies.
(b) The accounts should be drawn from similar types of organizations.
(c) The accounts should be available for several accounting periods.
(d) The accounts used should not include forecast financial information.
20. The current ratio is an indicator of which following characteristic of an organization?
(a) The current level of profitability.
(b) The future level of profitability.
(c) The investment potential.
(d) The liquidity in the short term.