Financial Accounting
1. ____ records credit sale of traded goods
a. Purchase daybook
b. Sales daybook
c. Cashbook
d. None of the above
2. Inflation, changes in interest ratio, and changes in economic conditions affect all forms and all
industries. These factors are part of?
a. International Risk
b. Project Risk
c. Industry Risk
d. Market Risk
3. A higher inventory ratio indicates ________.
a. Quick inventory turnover
b. Better inventory management
c. Both a and b are incorrect
d. Both a and b are correct
4. There is a company, XYZ incorporation, in case of which Sales revenue during the financial year
2019-20 as per the income statement is $500,000. During the current financial year, the
company’s cost of goods sold is $200,000; operating expense is $100,000, Interest expense is
$25,000, tax expense is $20,000, and the net profit is $155,000. Compute the EBIT of the company.
A. $200000
B. $355000
C. $175000
D. $225000
[Link] fixed cost of making a product is $1,50,000 and the variable cost per unit is 55. If its selling price is
95 per unit, determine break-even quantity?
a. 2350 units
b. 3750 units
c. 3650 units
d. 2850 units
[Link] replacement cost is below the net realizable value and minus the normal profit margin. Under 'lower
of the cost or market rule', if the replacement cost is below the net realizable value and minus the normal
profit margin, the inventory item should be reported at
a. original cost
b. replacement cost
c. net realizable value minus the profit margin
d. net realizable value
[Link] does a high net profit margin of any company demonstrate?
a. Company's effectiveness in converting its sales into profits
b. Company's effectiveness in controlling its expenses
c. 1 and 2
d. 1 or 2
Answer: The net profit margin, also known as net margin, indicates how much net income a company
makes with total sales achieved. A higher net profit margin means that a company is more efficient at
converting sales into actual profit.
[Link] the odd one out.
a. Office salaries
b. Interest on bonds
c. General administrative
d. Legal fees
Answer. Interest on bonds usually appears below EBIT as a separate line item on income statement. All
other options are G&A expenses which are displayed on the income statement below the cost of goods
sold
9. Earnings per share is calculated as:
a. Ratio of dividend amount divided by the total number of shares outstanding.
b. Ratio of net income to number of equity shares
c. Ratio of Net Income by Revenue
d. Ratio of share price by earnings per share
10. Silico & Co. purchased a machine costing $125,000 for its manufacturing operations and paid shipping
costs of $20,000. Merry spent an additional $10,000 testing and preparing the machine for use. What
amount should Merry record as the cost of the machine?
a. $155,000
b.$135,000
c.$145,000
d.$125,000
11. The following data were available from Vivo Co.’s records on December 31:
Finished goods inventory, 1/1 $120,000
Finished goods inventory, 12/31 110,000
Cost of goods manufactured 520,000
Loss on sale of plant equipment 50,000
The cost of goods sold for the year was
a.$5,20,000
b.$5,10,000
c.$5,30,000
d.$5,80,000
12. At December 30, LuluCo. had cash of $200,000, a current ratio of 1.5:1. On December 31, all cash was
used to reduce accounts payable. How did the cash payments affect the current ratio?
a. Increase
b. Decrease
c. Remains the same
d. Not Applicable
13. Which of the given assets is NOT intangible?
a. Brand name
b. Patent
c. Inventory
d. Goodwill
14. Fact Pattern: Milo Enterprises reported the following account information:
Accounts receivable $400,000 Inventory $800,000
Accounts payable 260,000 Land 500,000
Bonds payable, due in 10 years 600,000 Short-term prepaid 80,000
Cash 200,000expense
Interest payable, due in 3 months 20,000
The current ratio for Milo Enterprises is:
a. 2.14
b. 5.29
c. 1.68
d. 5.00
15. If a firm increases its cash balance by issuing additional shares of common stock, net working capital
a. Increases and the current ratio increases
b. Increases and the current ratio remain unchanged
c. Increases and the current ratio decreases
d. Remains unchanged and the current ratio remains unchanged
16. What is the effect of the error if an item of revenue expenditure has been incorrectly treated as Capital
expenditure?
Non-current assets Profit for the year
Overstated Understated
Understated Understated
Understated Overstated
Overstated Overstated
17. A premium on bonds payable arises when
[Link] bond is sold between interest payment dates
[Link] amount received from the issue of the bonds at issuance exceeds the face value of the bonds
c. The prevailing interest rate after the bond issuance falls below the nominal rate of the bonds
d. The semimanual bond interest becomes due
18. The following information pertains to Goldcoast Co. at December 31, Year 4:
Checkbook balance $12,000
Bank statement balance 16,000
Check drawn on Goldcoast’s account, payable to a vendor, dated and recorded 12/31/Yr 4 but
not mailed until 1/10/Yr 5 1,800
On Gold coast’s December 31, Year 4, balance sheet, what amount should be reported as cash?
a.$16,000
b.$12,000
c.13,800
d.14,200
19. Net working capital is the difference between
a. Current assets and current liabilities.
b. Total assets and total liabilities.
c. Shareholders’ investment and cash
d. Fixed assets and fixed liabilities.
20. A receivable classified as current on the statement of financial position is expected to be collected
within
a. The current operating cycle or 1 year, whichever is shorter.
b. The current operating cycle.
c. The current operating cycle or 1 year, whichever is longer
d. 1 year
21. Amarino Corporation had a beginning inventory of 20,000 units which were purchased in the prior
years as listed below:
September 8000 units @ $3.00
October 8000 units @ 4.10
November 4000 units @ 4.40
In the current year, Amarino purchases an additional 24,000 units( 14,000 units in May at @ $4.50 and
10,000 units in June at $ 3.75) and sells 38,000 units. Using the FIFO method, what is Amarino’s ending
inventory?
a. $22500
b. $24,000
c. $32,800
d. $15,000
Auditing And Accounting Test
1.A company issues bonds at 98, with a maturity value of$50,000. The entry the company uses to record
the original issue should include which of the following?
a. A debit to bond discount of$1,000
b. A credit to bonds payable of$49,000
c. A credit to bond premium of$1,000
d .A debit to bonds payable of $50,000
Answer. The issuance of the bond includes a debit to cash of $49,000 ($50,000 × .98), a debit to bond
discount of $1,000 ($50,000 – $49,000), and a credit to bonds payable of $50,000
2. The following costs were incurred by Griff Co., a manufacturer, during the current year:
Accounting and legal fees $ 25,000
Freight-in 175,000
Freight-out 160,000
Officers’ salaries 150,000
Insurance 85,000
Sales representatives’ salaries 215,000
What amount of these costs should be reported as general and administrative expenses?
a.$550,000
b.$635,000
c.$260,000
d.$810,000
Answer C is correct. General and administrative expenses are incurred for the direction of the entity as a
whole and are not related entirely to a specific function, e.g., selling or manufacturing. They include
accounting, legal, and other fees for professional services; officers’ salaries; insurance; wages of office
staff; miscellaneous supplies; utilities costs; and office occupancy costs. Thus, the general and
administrative expenses for Griff equaled $260,000 ($25,000 + $150,000 + $85,000).
[Link] a U.S. firm can buy £20,000 for $100,000, the rate of exchange for the pound is
a.$50
b.$20
c.$5
d.$20
An exchange rate of $5 to the pound is produced by dividing $100,000 by £20,000.
4. Which of the following is a false statement comparing management override and management
intervention?
a. Only management intervention is documented and disclosed
b. Management override differs from management intervention in terms of legitimacy
c. Neither management override nor management intervention is desirable for financial statement users
d. Management override and management intervention are departures from controls
Management override is management circumvention of an entity’s controls for an illegitimate purpose,
such as personal gain or profit manipulation. Management intervention departs from controls but is
necessary to cope with special circumstances that otherwise may not be appropriately recorded. Thus,
management intervention may increase the usefulness of financial statements to users.
5. Which of the following most completely describes how independence has been defined by the
accounting profession?
a. Performing an audit from the viewpoint of the public.
b. Avoiding the appearance of significant interests in the affairs of an audit client
c. Possessing the liability to act with integrity and objectivity
d. Accepting responsibility to act professionally and in accordance with a professional code of ethics
6. Risk relevant to financial reporting can arise due to which of the following circumstances?
a. Performance reviews of employees
b. Corrective actions implemented by management
c. Board of directors’ commitment to competence
d. Rapid growth in entity’s operations
7. A company considers investing $20 million in a foreign company whose local currency is under pressure.
The company suspects that the exchange rate may fluctuate soon. The exchange rate at the time of the
investment is 2.57 to $1.00. After the investment, the exchange rate changes to 3.15 to$1.00. What is the
change in the value of the company’s investment in U.S dollars?
a.22.6% increase
b.22.6% decrease
c. 18.4% increase
d. 18.4% decrease
8. The following information is available from Torch Corp’s records for the year ended December 31, Year
7:
Cash received from customers. $8,70,000
Rent received $10,000
Cash paid to suppliers and employees $510,000
Taxes paid $110,000
Csh dividend paid $30,000
Net cash flow provided by operations for year 7 was
a.$22,000
b.$260,000
c.$250,000
d.$230,000
9. When recognizing credit losses on accounts receivable, the entry to write-off of a specific account is?
a. Decrease both accounts receivable and net income
b. Decrease accounts receivable and increase the allowance for credit losses
c. Increase the allowance for credit losses and decrease net income.
d. Decrease both accounts receivable and the allowance for credit losses
10. If average stock is $20,000. Closing stock is $4,000 more than the value of opening stock. Closing stock
is $4,000 more than the value of opening stock. Closing stock will be:
a. $16,000
b. $18,000
c. $20,000
d. $22,000
11. X of Miami sends out goods costing $1,00,000 to Y of Florida. 3/5th of the goods were sold by consignee
for $70,000. Commission 2% on sales plus 10% of gross sales less a;; commission exceeds cost price. The
amount of commission will be:
a.$2833
b. $2900
c. $3000
d. $2181
12. Mr. H and his team members carefully watched the whole process of counting of finished wooden
doors by employees of Bottom Limited. This is an example of which audit procedure:
(a) External Confirmation.
(b) Observation.
(c) Inquiry.
(d) Inspection.
13. 2. The risk that the financial statements are materially misstated prior to audit is called-
(a) Risk of material misstatement
(b) detection risk
(c) audit risk
(d) significant risk
[Link] persons with responsibility for overseeing the strategic direction of the entity and obligations
related to the accountability of the entity are:
(a) management
(b) Those charged with governance
(c) audit committee
(d) board of directors
15. Events or conditions that indicate an incentive or pressure to commit fraud or provide an opportunity
to commit fraud are called as:
(a) Fraud risk factors
(b) misappropriation of assets
(c) Fraud opportunities
(d) eventual frauds
16. When a fraud was observed by the Auditor, what should be the course of action of the Auditor? (a)
The Auditor should report the fraud details to Federal Government.
(b) The Auditor shall report the fraud to the audit Committee or to the Board within the prescribed time.
(c) The Auditor shall disclose it in the Audit Report
(d) Both a & c above.
17. An auditor would most likely be concerned with controls that provide reasonable assurance about the:
a. Efficiency of management’s decision-making process
b. Entity’s ability to initiate authorize record process and report financial data
c. Appropriate prices the entity should charge for its products
d. Decision to make expenditures for certain advertising activities
18. An auditor should obtain an understanding of an entity’s information system, including
a. Process used to prepare significant accounting estimates
b. Procedures used to ensure the proper supervision of staff
c. Programs and controls intended to address the risks of fraud
d. Safeguards used to limit access to computer facilities
19. The auditor observes client employees while obtaining an understanding of internal control to
a. Prepare flow chart
b. Determine the extent of compliance with quality control standards.
c. Update information contained in the organization and procedure manuals.
d. Obtain knowledge of the design and implementation of relevant controls
20. In planning an audit, the auditor’s knowledge about the design of relevant internal control activities
should be used to
a. Identify the types of potential misstatements that could occur
b. Asses the operational efficiency of internal control
c. Determine whether controls have been circumvented by collusion
d. Document the assessed level of control risk.
English Comprehension & Simple Math
Upholding the Law
Hard cases, it is said, make bad law. The adage is widely considered true for the Supreme Court of India
which held in the height of the Emergency, in ADM Jabalpur v. Shivkant Shukla that detenus under the
Maintenance of Internal Security Act (MISA) could not approach the judiciary if their fundamental rights
were violated. Not only was the law laid down unconscionable, but it also smacked of a Court more
“executive-minded than the executive”, complicit in its own independence being shattered by an all-
powerful government. So deep has been the impact of this judgment that the Supreme Court’s current
activist avatar is widely viewed as having its genesis in a continuing need to atone. Expressions of such
atonement have created another Court made to measure — this time not to the measure of the
government but rather the aggrandised self-image of some of its judges.
Let us look back to the ADM Jabalpur case. As a court of law, the Supreme Court was called upon in the
case to balance the interest of public order in an Emergency with the right to life and personal liberty
guaranteed to every person. Nine High Courts called upon to perform the same function had found a
nuanced answer by which they had held that the right to life cannot be absolutely subservient to public
order merely because the government declared so — the legality of detentions could be judicially
reviewed, though the intention of the government would not be second-guessed by the Court. This was
a delicate balance. The Supreme Court however reversed this view and made the right to life and
personal liberty literally a bounty of the government. Given that the consequences of their error were
entirely to the government’s advantage, it was widely viewed as the death of an independent judiciary.
The excessively deferential, almost apologetic language used by the judges confirmed this impression.
Today, however, while public interest litigation has restored the independent image of the Supreme
Court, it has achieved this at the cost of quality, discipline and the constitutional role judges are
expected to perform. The Court monitors criminal trials, protects the environment, regulates political
advertising, lays down norms for sexual harassment in the workplace, sets guidelines for adoption,
supervises police reform among a range of other tasks of government. That all these tasks are crucial
but tardily undertaken by government can scarcely be questioned. But for an unelected and largely
unaccountable institution such as the Supreme Court to be at the forefront of matters relating to
governance is equally dangerous — the choice of issues it takes up is arbitrary, their remit is not legal,
their results often counterproductive, requiring a degree of technical competence and institutional
capacity in ensuring compliance that the Court simply does not possess. This sets an unhealthy
precedent for other courts and tribunals in the country, particularly the latter whose chairpersons are
usually retired Supreme Court Justices. To take a particularly egregious example, the National Green
Tribunal has banned diesel vehicles more than 10 years old in Delhi and if reports are to be believed, is
considering imposing a congestion charge for cars as well. That neither of these are judicial functions
and are being unjustly being usurped by a tribunal that has far exceeded its mandate, is evidence of the
chain reaction that the Supreme Court’s activist avatar has set off across the judicial spectrum.
Finally, the Court’s activism adds to a massive backlog of regular cases that makes the Indian justice
delivery mechanism, slow, unreliable and inefficient for the ordinary litigant. As on March 1, 2015, there
were over 61,000 cases pending in the Supreme Court alone. It might be worthwhile for the Court to set
its own house in order, concomitantly with telling other wings of government how to do so.
As we mark 40 years of the Emergency and the darkest period in the Supreme Court’s history, it might
be time to not single-mindedly harp on the significance of an independent judiciary. Judicial
independence, is and must remain a cherished virtue. However, it would be blinkered to not confront
newer challenges that damage the credibility of our independent judiciary today — unpardonable delays
and overweening judges taking on the mantle of national government by proxy. The Supreme Court 40
years on is a different institution — it must be cognizant of its history but not at the cost of being blind
to its present.
1. Which of the following is a suitable title for the passage?
A. An Atonement Gone Too Far
B. Sanctimony from a Ruined Pedestal
C. The ADM Jabalpur's Case: The Supreme Court's Darkest Hour
D. Overcompensating for Past Mistakes
2. The author says that the Supreme Court was “more executive-minded than the executive”
during the Emergency. Which of the following options captures the essence of what the writer
means by the phrase: 'more “executive-minded than the executive”'?
A. The Supreme Court abdicated its independence to an authoritarian government by
embracing its perspective.
B. The Supreme Court was more emphatic than the Government about exercising
executive power under the MISA.
C. The Supreme Court reflected the unconscionable actions taken by the government by
upholding its laws.
D. The Supreme Court wanted to curry favor with the government through its
deferential decisions during Emergency.
3. Which of the following cannot be reasonably inferred from the passage?
A. The Supreme Court was complicit in curbing judicial independence during the
Emergency.
B. Public interest litigations have, post-Emergency, led to the judiciary overreaching into
the realm of legislature.
C. The Indian Judiciary ought not indulge in general supervisory jurisdiction to correct
actions and policies of government.
D. The Indian judiciary must be equipped with technical competence and institutional
capacity to ensure compliance to orders passed in relation to public interest
litigations.
4. The word “egregious” in the passage is farthest in meaning to :
A. outrageous
B. flagitious
C. distinguished
D. arrant
5. Which of the following is the author least likely to agree with?
A. The rise in judicial activism is in danger making the Supreme Court diffuse and
ineffective, encroaching into the functions of government.
B. Where the Supreme Court is only moved for better governance and administration,
which does not involve the exercise of any proper judicial function, it should refrain
from acting.
C. Adoption, police reform and environment issues are the remit of the judiciary.
D. The Indian judicial system needs to focus on clearing the massive backlog of cases to
re-establish its credibility.
6. Arrange the given words in a logical and meaningful order.
1. Frog 2. Eagle 3. Grasshopper 4. Snake 5. Grass
(a) 3, 4, 2, 5, 1
(b) 1, 3, 5, 2, 4
(c) 5, 3, 1, 4, 2
(d) 5, 3, 4, 2, 1
7. Arrange the given words in a logical and meaningful order.
1. Country 2. Furniture 3. Forest 4. Wood 5. Tress
(a) 1, 3, 5, 4, 2
(b) 1, 4, 3, 2, 5
(c) 2, 4, 3, 1, 5
(d) 5, 2, 3, 1, 4
8. Arrange the given words in a logical and meaningful order.
1. Frosting 2. Batter 3. Pan 4. Demould 5. Bake [Link] Chip
(a) 6, 2, 5, 4, 3, 1
(b) 5, 3, 4, 6, 1, 2
(c) 2, 6, 3, 5, 4, 1
(d) 1, 2, 5, 4, 3, 6
9. What is 6/4 of 824
a.1236
b. 2136
c. 1326
d. 2613
10. EXPLORE : DISCOVER
A. read : skim
B. research : learn
C. write : print
D. think : relate
E. sleep : wake
Ans: One explores to discover; one researches to learn.
11. PETAL : FLOWER
A. salt : pepper
B. tire : bicycle
C. base : ball
D. sandals : shoes
E. puppy : dog
Ans : A petal is a part of a flower; a tire is a part of a bicycle.
12. A dozen eggs and 10 pounds of apples are currently at the same price. If the prices of a dozen eggs
rises by 10% and the price of apple rises by 2%. How much will it cost to buy a dozen eggs and 10 pounds
of apples.
a.2%
b.6%
c.10%
d.12%
13. In a class of 100 students, 50 students passed maths and 70 passed in English, 5 students failed in
both maths and english. How many students passed in both subjects?
a.50
b.40
c.35
d.25
14. What is 6% Equals to
a. 0.06
b. 0.6
c. 0.006
d. 0.0006
15. Priya had 16 Red Balls, 2 Green Balls, 9 Blue Balls, and 1 Multicolor Ball. If He Lost 9 Red Balls, 1 Green
Ball, and 3 Blue Balls. How Many Balls would be Left?
a. 15
b. 11
c. 28
d. 39
Answer: a, 15 balls.
16. A and B together can finish a work in 30 days. They worked for it for 20 days and then B left the
work. The remaining work was done by A alone in 20 days more. In how many days can A alone
finish the work?
(A) 48 days
(B) 50 days
(C) 54 days
(D) 60 days
17. Gautam travels 160 kms at 32 kmph and returns at 40 kmph. Then average speed is
(A) 72 kmph
(B) 71.11 kmph
(C) 36 kmph
(D) 35.55 kmph
18. A man has some hens and some cows. If the total number of heads of hens and cows together is
50 and the number of feet of hens and cows together is 142, then the number of cows is
(A) 21
(B) 25
(C) 27
(D) 29
19. The percent profit made when an article is sold for Rs. 78 is twice as much as when it is sold for
Rs. 69, the cost price of the article is?
(A) Rs. 60
(B) Rs. 51
(C) Rs. 55.50
(D) Rs. 70
20. If percentage of profit made, when an article is sold for Rs.78, is twice as when it is sold for
Rs.69, the cost price of the article is
(A) Rs. 49
(B) Rs. 51
(C) Rs. 57
(D) Rs. 60
