Q.

__Which of the following is/are the objectives of

Accounting

I) Systematic recording of transactions

II) Ascertainment of results of above recorded transactions
III) Ascertainment of the financial position of the business
IV) Providing information to the users for rational decision-
making

A. I, III & IV
B. I, & III Only
C. II & IV Only
D. All I,II, III & IV
Purpose of accountancy

➢To keep a systematic record

➢To ascertain the results of operations

➢To ascertain financial position of business.

➢To facilitate rational decision making

➢To satisfy requirement of law and useful in many respects.

Q. According to the definition of accounting given by the
Committee on Terminology set up by the American Institute
of Certified Public Accountants, what are the three key
activities involved in accounting?

A. Recording, analyzing, and interpreting

B. Identifying, interpreting, and summarizing
C. Analyzing, recording, and summarizing
D. Recording, classifying, and summarizing
➢ In 1961, the Committee on Terminology, established by the
American Institute of Certified Public Accountants, came up
with a definition of accounting.

➢ It involves the artistic techniques of recording, categorising,

and Summarising financial transactions and events in a
meaningful way, using money as the common denominator,
and interpreting the outcomes of such procedures.
Q. The day-to-day business transactions in an accounting
year are first recorded in which of the following?

A. Ledger
B. Journal
C. Balance Sheet
D. Profit & Loss A/C
Following is a procedure taken for recording transactions:

➢ The day-to-day business transactions of an accounting year

along with opening balances, are first recorded in a journal.
➢ The transactions are then transferred periodically to the
concerned accounts in the ledger.
➢ The accounts are balanced at the end of the accounting year,
and a trial balance is prepared.
➢ Final accounts, like trading and P&L accounts, are prepared.
➢ The balance sheet is prepared finally, which gives the financial
position of a business at the end of a financial year.
Q. _________ is a task that involves the methodical and
meaningful documentation of financial information related
to commercial activities.

A. Bookkeeping
B. Cost Accounting
C. Managerial Accounting
D. Financial Planning
Accountancy Vs Bookkeeping
➢Book keeping is merely recording the business
transactions in books and ledgers .

➢Accountancy is wider concept: compilation of accounts in

such a way that one is in a position to understand state of
affairs of business.
➢ Bookkeeping is a task that involves the methodical and

meaningful documentation of financial information

related to commercial activities.

➢ This pertains to the operational procedures involved in

accounting and encompasses the record-keeping role.

➢ It is evident that book-keeping processes are determined

by the final outcome, which is the financial statements.

Q. Which of the following statements is true regarding
IND AS and AS?

A. IND AS are applicable only to listed companies

B. AS are applicable only to unlisted companies
C. Both IND AS and AS are applicable to all companies,
irrespective of whether they are listed or unlisted
D. None of the above
➢ IND AS stands for Indian Accounting Standards, which are a set
of accounting principles and guidelines that have been
formulated and adopted by the Institute of Chartered
Accountants of India (ICAI).
➢ These standards are based on the International Financial
Reporting Standards (IFRS) and are applicable to all companies
in India, including listed and unlisted companies.

➢ AS stands for Accounting Standards, which are a set of

accounting principles and guidelines that have been issued by
the Institute of Chartered Accountants of India (ICAI).
Q. Which of the following Accounting Standards is
related to Cash Flow Statement?

A. AS 2
B. AS 3
C. AS 4
D. AS 5
➢ AS 2 is related to Valuation of Inventories
➢ AS 3 is related to Cash Flow Statement
➢ AS 4 is related to Contingencies and Events Occurring
after the Balance Sheet Date

➢ AS 5 is related to Net Profit or Loss for the Period,

Prior Period Items and Changes in Accounting
Policies
Accounting Standards
Accounting Standards
Q. Which of the following authorities issued the
Accounting Standards for Corporate entities in India?

A. Central Government
B. RBI
C. SEBI
D. ICAI
➢ The accounting standard for non-corporate entities is issued by
the ICAI.

➢ For corporate entities the accounting standards are issued by The

Central Government of India.

➢ These standards provide a set of rules and procedures for the

measurement, recognition, presentation, and disclosure of
financial transactions in financial statements.
➢ The aim of accounting standards is to ensure consistency and
comparability in financial reporting and to enhance transparency
and credibility in the financial statements of organizations.
Q. Which of the following Ind AS is related
to Income Taxes?

A. IND AS 12
B. IND AS 16
C. IND AS 19
D. IND AS 23
➢ IND AS 12 is related to Income taxes

➢ IND AS 16 is related to Property, Plant and Equipment

➢ IND AS 19 is related to Employee Benefit.

➢ IND AS 23 is related to Borrowing cost

Q. Disclosures of accounting policies as per AS 1 means;

A. All significant accounting policies adopted in the preparation of

financial statement should be disclosed.
B. The disclosure of the significant accounting policies as such
should form a part of the financial statements.
C. Any changes in the accounting policies that has a material effect
in the current period or that which is reasonably expected to
have a material effect in later period should be disclosed.
D. All the above
Q. Which of the following is true with regards to Accounting
Standard 2;

A. The standard deals with the determination of the values at

which inventories are carried in the financial statements.
B. Weighted average cost or first in first out (FIFO) methods is
permitted in cases where goods are ordinarily interchangeable.
C. This standard is not applied to work in progress of service
providers & shares, debentures stock held in trade.
D. All the above
Q. The accounting treatment for property, Plant &
Equipment's (PPE) comes under________.

A. Accounting Standard 5
B. Accounting Standard 10
C. Accounting Standard 15
D. Accounting Standard 20
Q. Accounting Standard 25 deals with the accounting for interim
financial reporting of an enterprise. Which of the followings is/are
main components of an interim financial report?

A. Condensed balance sheet

B. Condensed statement of P&L
C. Condensed cash flow statement
D. All the above
Q. At the time of recognition, an item of PPE that qualifies
for recognition as an asset should be measured at its cost
which include followings;

A. Purchase cost including import duties & non-refundable

taxes
B. Directly attributable & necessary cost
C. Costs of dismantling & restoration
D. All the above
Q. _________ is a fundamental principle of accounting that
is based on the idea that the business or organization is
separate from its owners or stakeholders

A. Entity concept
B. Money Measurement concept
C. Accrual concept
D. Cost Concept
➢ The entity concept, also known as the entity assumption, is a
fundamental principle of accounting that is based on the idea
that the business or organization is separate from its owners or
stakeholders.
➢ According to this concept, a business or organization is
considered to be an independent entity that is distinct from its
owners, creditors, or customers.
➢ Under the entity concept, all financial transactions and events
that relate to the business or organization are recorded and
reported separately from the personal transactions and events
of the owners or stakeholders.
Q. The process of posting involves which of the following?

A. Transferring the entries from the journal to the ledger

B. Transferring entries from journal to trial balance
C. Transferring entries to the balance sheet
D. None of the above
There are several steps involved in the accounting process. They are:
➢ Analysis of transactions is the first step, which involves deciding
which account(s) should be debited and credited, with the
amount.
➢ The next step involves journalising, which is recording the result of
the analysis.
➢ Posting, which is the process of recording transactions in the ledger
accounts from journal entries, is the next step.
➢ At the end of the accounting period, judgement is required to
decide on the adjusting entries.
➢ The closing entries are also journalised as well as posted.

➢ The last step involves the financial statements to be prepared.

Q. Which of the following principles of accounting states that
there should be uniformity in the accounting processes and
policies?

A. Going Concern
B. Cost Concept
C. Entity Concept
D. Consistency Concept
➢ Several principles of accounting need to be followed while

preparing financial statements to make them comparable.

➢ One of these principles is the principle of consistency, which

states that there should be uniformity in the policies of

accounting from one period to another.

Concepts of Accountancy
➢ Cost Concepts

➢ Money Measure Concepts

➢ Realisation Concepts

➢ Business Entity Concepts

➢ Going Concern Concepts

Q. Which of the following principles of accounting assumes
that the entity remains in operation sufficiently long to carry
out its objects and plans?

A. Going Concern
B. Cost Concept
C. Entity Concept
D. Consistency Concept
➢ The rules and guidelines that companies must follow while

reporting financial data are called accounting principles. These

rules standardise the terms and methods, making it easier to

examine financial data.

➢ The principle of going concern assumes that the business will

continue to exist for an indefinite period, or sufficiently long to

carry out its objectives.

Q. Which accounting principle states that Capital contributed
by the owner is liability for business ?

A. Cost Concepts
B. Money Measure Concepts
C. Realisation Concepts
D. Business Entity Concepts
Business Entity Concept
• This concept separates the entity of proprietor from the business
transaction.
• Capital contributed by the owner is liability for business because
business is different from owner.
• Any money withdrawn by proprietor is drawings.
• All entries are kept from the point of view of business and not from
owner.
• An enterprise is economic unit separate from owner.
Q. Due to which concept, accounting does not record
non-financial transactions?

A. Going concern concept

B. Money measurement concept

C. Accrual concept

D. Cost concept
Money Measurement Concept
• Every transaction is measured in terms of
money. Viz production /sales/wages etc., all
converted to money.

• Health of a proprietor or manager is not taken

into the books although it may have a great
impact on the overall business.
Q. Amount withdrawn by proprietor in business should
be credited to____.

A. Proprietors account
B. Drawings account
C. Capital account
D. Asset account
Business Entity Concept
• Capital contributed by the owner is liability for business
because business is different from owner.

• Any money withdrawn by proprietor is drawings.

• An enterprise is economic unit separate from owner.

Q. Which accounting principle states that Every transaction
has double effect, one is debit and another one is credit?

A. Dual Aspect Concept

B. Business Entity Concept

C. Periodicity Assumption

D. Going Concern Concept

Double Entry System
• Every transaction has two aspects.

• A scientific system in which the business

transactions are recorded in book of account
in two accounts, one account is debited and
the other is credited.
Q. As per revenue recognition principle, sales revenues
should be recognized at the time when?

A. Order is taken for merchandise

B. Ownership of goods gets transferred from the seller to the

buyer

C. Cash is received

D. All of the above

Realization Concept
• This concept tells us when revenue is treated as
realised or earned.

• It is treated as realized on the date when property

in goods passes to buyer and he becomes legally
liable to pay.

• No future income is considered.

Q. Which accounting principle states that Capital contributed
by the owner is liability for business ?

A. Cost Concepts
B. Money Measure Concepts
C. Realisation Concepts
D. Business Entity Concepts
Q. Which accounting Convention states that All possible
loses to be taken into consideration and anticipated profits
to be ignored?

A. Convention of full disclosure

B. Convention of materiality
C. Convention of conservatism
D. Convention of consistency
Main Conventions of Accounting
➢ Convention of Full Disclosure

➢ Convention of Materiality

➢ Convention of Conservatism

➢ Convention of Consistency
Q. A ________ is a book or electronic register that contains a
complete record of all financial transactions of a company or
organization. It serves as the principal accounting record that
contains individual accounts for each asset, liability, equity,
revenue, and expense.

A. Journal
B. Ledger
C. Trail Balance
D. Trading Account
➢ A ledger is a book or electronic register that contains a
complete record of all financial transactions of a company
or organization.

➢ It serves as the principal accounting record that contains

individual accounts for each asset, liability, equity, revenue,
and expense.
The rule of “Debit what comes in and
Credit what goes out” applies to which of
the following accounts?

A.Personal Account
B.Nominal Account
C.Real Account
D.Artificial Personal Account
Types of Accounts
Real Accounts
The golden rule for real accounts

• Debit What Comes in

• Credit What Goes Out

Real Accounts
• The transaction below shows the interaction of two different real accounts: one is
‘furniture’ and the other is ‘cash’, both are assets of the company and hence
classified as real accounts.

• Purchased furniture for Rs 5,00,000 in cash

Accounts Involved Debit/Credit Rule Applied

Furniture A/C Debit Real A/C – Dr. what comes in

To Cash A/C Credit Real A/C – Cr. what goes out

Personal Accounts
The golden rule for personal accounts

❖Debit the receiver

❖Credit the giver

Personal Accounts
❖ The transaction below demonstrates the interaction between two
different personal accounts, one of which is XYZ limited company and
the other one is a bank.

❖ Paid XYZ Ltd Rs 1,00,000 by check

Accounts Involved Debit/Credit Rule Applied

XYZ Ltd A/C Debit Personal – Dr. the receiver

To Bank A/C Credit Personal – Cr. the giver

Nominal Accounts
The golden rule for Nominal Accounts

❖Debit all expenses

❖Credit all income

Nominal Accounts
Example
The following example shows a transaction where a nominal account
interacts with a real a/c.
Purchased good for 15,000 in cash

Accounts Involved Debit/Credit Rule Applied

Purchase A/C Debit Nominal A/C – Dr. all expenses & losses

To Cash A/C Credit Nominal A/C – Cr. All income & gain
Which of the following accounts will be debited if a
machinery is purchased and a cheque is issued for
the same?

A. Bank A/c
B. Cash A/c
C. Machinery A/c
D.Purchase A/c
Q. The accounts which record transactions related to tangible
things (like goods, cash) and intangible things (like goodwill,
patent) are called ________ accounts.

A. Real Account
B. Nominal Account
C. Personal Account
D. Company Account
Q. All assets of a firm, which are tangible or intangible,
fall under the category of ______.

A. Real Accounts
B. Nominal Accounts
C. Personal Accounts
D. Option A & c
The rule of “Debit what comes in and
Credit what goes out” applies to which of
the following accounts?

A.Personal Account
B.Nominal Account
C.Real Account
D.Artificial Personal Account
Types of Accounts
Real Accounts
The golden rule for real accounts

• Debit What Comes in

• Credit What Goes Out

Real Accounts
• The transaction below shows the interaction of two different real accounts: one is
‘furniture’ and the other is ‘cash’, both are assets of the company and hence
classified as real accounts.

• Purchased furniture for Rs 5,00,000 in cash

Accounts Involved Debit/Credit Rule Applied

Furniture A/C Debit Real A/C – Dr. what comes in

To Cash A/C Credit Real A/C – Cr. what goes out

Personal Accounts
The golden rule for personal accounts

❖Debit the receiver

❖Credit the giver

Personal Accounts
❖ The transaction below demonstrates the interaction between two
different personal accounts, one of which is XYZ limited company and
the other one is a bank.

❖ Paid XYZ Ltd Rs 1,00,000 by check

Accounts Involved Debit/Credit Rule Applied

XYZ Ltd A/C Debit Personal – Dr. the receiver

To Bank A/C Credit Personal – Cr. the giver

Nominal Accounts
The golden rule for Nominal Accounts

❖Debit all expenses

❖Credit all income

Nominal Accounts
Example
The following example shows a transaction where a nominal account
interacts with a real a/c.
Purchased good for 15,000 in cash

Accounts Involved Debit/Credit Rule Applied

Purchase A/C Debit Nominal A/C – Dr. all expenses & losses

To Cash A/C Credit Nominal A/C – Cr. All income & gain
Which of the following accounts will be debited if a
machinery is purchased and a cheque is issued for
the same?

A. Bank A/c
B. Cash A/c
C. Machinery A/c
D.Purchase A/c
_________ is similar to the cash account.

A. Single Column Cash Book

B. Double Column Cash Book
C. Triple Column Cash Book
D. Petty Cash Book
1.Simple cash book (single-column cash book): This cash book will only record

cash transactions, with the receipts on the left and the cash payments on the

right. Since a single-column cash book records only cash receipts and

payments, it is similar to a cash account. A cash account cannot show a credit

balance, and hence always shows a debit balance or a nil balance.

2.Two-column cash book: There is an additional column for discounts, which

will also record the discounts received and given in the same cash book.

3.Triple-column cash book: This cash book has three columns, cash, discount,

and bank.
Which of the following transactions will be included in a cash
book?

I: Cash sales of Rs. 10,000

II: Purchases of Rs. 50,000
III: Credit sales of Rs. 30,000

A. I & II
B. I & III
C. II & III
D. I, II & III
➢ A cash book is a record of transactions which involve cash
receipts and payments. A cash book records only cash
transactions, and all receipts are recorded on the debit side,
while the payments are on the credit side.
➢ The cash book records one aspect of the transaction only,
which is cash.
➢ Cash sales of Rs. 10,000 and purchases worth Rs. 50,000 will be
recorded in the cash book, however, credit sales will not be
recorded.

➢ If the sales are done on credit, they are recorded in the sales
journal or the sales daybook.
A debtor, Suresh, owed Rs. 5000 but became insolvent,
and he pays 50 paise for a rupee in full settlement. Which
of the following accounts will be debited?

A. Cash A/c
B. Bad Debt A/c
C. Suresh A/c
D. Both Cash & Bad Debt A/c
An entry which is made on both sides of the cash
book is known as the _______.

A. Contra Entry
B. Double Entry
C. Compound Entry
D.None of the above
➢ Contra entry is used to record transactions that have an impact on both
cash and bank balances. This entry has no impact on a company's
financial standing.
➢ A contra entry is entered in the cash and bank columns on both sides of a
triple-column cash book, and it is identified by the letter "C" in the ledger
folio column.

Contra entry involves the transfer of cash from:

1.One cash a/c to another
2.One bank a/c to another
3.One bank a/c to cash a/c

4.One cash a/c to bank a/c

The overdraft balance in the bank passbook is Rs. 15,000. A
cheque is issued of Rs. 5,000 by the firm but it has not been
presented for payment so far. Which of the following is the
balance as per cash book of the firm?

A. Rs. 10,000 Favourable Balance

B. Rs. 20,000 Overdraft Balance
C. Rs. 10,000 Overdraft Balance
D. Rs. 20,000 Favourable Balance
➢ The overdraft balance (or the debit balance) as per the bank
passbook is Rs. 15,000. The firm had issued a cheque, but not
presented it for payment. It means that the firm would have
an additional entry of Rs. 5000.

➢ The firm’s cash book would have an overdraft balance of Rs.

20,000.
BRS Rules
➢ Favourable balance in the cash book means positive balance.
Such balance is represented by debit balance of the cash book.

➢ A credit balance in cash book shows reduction in the cash

balance to the extent that the final cash balance is negative.

The cash book is debited when cash comes in and

credited when cash goes out.
BRS Rules
➢ If there is any indifferences prefer passbook
first.

➢ If question start from ‘balance as per cash book,

then it will be end with balance as per
passbook or vice-versa’.
A cheque that is returned by a bank and is marked NSF,
means ________.

A. lack of funds
B. inability to verify identity
C. overwriting of cheque
D. it is a damaged cheque
➢ There are several reasons why a bank might return a

cheque.

➢ NSF stands for non-sufficient funds, and it is a term

used to indicate that a cheque is returned due to

insufficient funds in the account on which it is drawn.

Which of the following is not one of the steps in the preparation of a
Bank Reconciliation statement?

A. Gathering bank records as well as business records.

B. Adjusting the bank statements & cash balances before comparing
the end balances.
C. Going over bank deposits and withdrawals and checking income &
expenses in the books.
D. All of the above are steps involved in the preparation of BRS.
The steps involved in the preparation of a BRS are:

1.Getting bank records & business records. Bank records are

obtained through online banking or a bank statement. The
business records are maintained in the company's ledger or books.
2.Going over bank deposits and withdrawals and checking income
& expenses in the books. Books of account will be matched against
the bank statements to make sure that every transaction is
properly accounted for. If there is an unmatched item, the reason
for the same will need to be found.
3.Adjusting the bank statements & cash balances before
comparing the end balances. Once the records are matched and
the adjustments are made, one will need to confirm that the end
balances are the same.
As per the passbook, the bank overdraft is Rs. 10,000. A cheque
was issued by the company for Rs. 5000, however, it was not
presented. What will be the balance as per the passbook?

A. Rs. 15,000 Overdraft Balance

B. Rs. 5,000 Overdraft Balance
C. Rs. 10,000 Overdraft Balance
D. Rs. 5,000 Favourable Balance
➢ An overdraft balance shows a debit balance in the

passbook. If a cheque is issued but not presented yet,

there will be no change in the passbook. Hence, there

will still be an overdraft balance of Rs. 10,000 in it.

➢ On the other hand, the cash book will have a credit

(overdraft) balance of Rs. 15,000.

Which of the following is an incorrect point of difference between a cash
book and a passbook?

A. A passbook is prepared by banks while a firm prepares a cash book.

B. The cheque issued to the creditor is recorded on the date of issue in the
passbook, while the same is recorded in the cash book when the
amount is paid.
C. A credit balance shows overdraft in the cash book, while a credit
balance in the passbook shows cash at the bank.
D. A debit balance in the cash books shows cash at the bank, while the
same in the passbook indicates overdraft.
There are a total of how many methods to
prepare a trial balance?

A.One
B.Two
C.Three
D.Five
1.Total Method (GROSS) – Each ledger account's debit and credit columns
are recorded using the Total Method to the Trial Balance. Every debit total
is entered on the trial balance's debit side, and every credit total is entered
on the trial balance's credit side. Given that this method uses double-entry
bookkeeping, the columns should be equal.
2.Balance Method (NET) – This approach makes use of the final debit/credit
balance for each ledger account in the trial balance. The Trial Balance (both
on the debit and credit sides) assists in verifying the accuracy of all
transactions after all accounts' balance figures have been published.
3.Compound Method – The totals for both sides of the accounts are listed
in distinct columns using this method, which is a combination of the
Balance & Total Methods. The balances are also listed beside this in their
independent columns. In the Trial Balance, credit balances are written in
the credit column and debit balances are put in the debit column.
Which of the following statements is incorrect in the context
of a trial balance?
A. It is a record of the final ledger balance of all accounts and
has a debit & credit column.
B. It helps in the preparation of the Balance Sheet and Profit
and Loss Account.
C. The primary goal of this statement is to verify the accuracy
of commercial transactions in a company's ledgers.
D. All the above statements are correct.
A trial balance is a report that lists all ledger account

balances, whether they are debit or credit, as of a

specific date.

Thus, a summary of all ledger accounts can be called

the trial balance.

If the debit balances of a trial balance equals its credit
balances, what does it indicate?

A. Errors
B. Arithmetic Accuracy
C. Understatement
D.Omissions
The primary goal of this statement is to verify the accuracy of

commercial transactions in a company's ledgers. If the debit

balances of this statement are equal to the credit balances, it is

indicative of arithmetic accuracy. It is important to keep in

mind, nevertheless, that even if a trial balance proves

arithmetic precision, it does not imply that the books of

accounts are error-free.

“After adding up the two sides (debit & credit) of each
ledger account, a list of all accounts are created on a sheet
with the debit and credit columns on the right-hand side.
The two columns are then separately added at the end.”

A. Balance Method
B. Net Trial Balance
C. Gross Trial Balance
D. Total-cum-balance trial balance
There are three different ways through which a firm
can prepare a trial balance:
1.Total Method (Gross Trial Balance):
2.Balance Method (Net Trial Balance):
3.Total-cum-balance trial balance (Combination)

The statement given in the question relates to the first

method, the total method (or Gross Trial Balance).
This method, however, is not followed in practice.
If there is a difference in the two columns of a trial
balance, a separate account is created to put in the
balance amount. What is the name of this account?

A. Error A/c
B. Balance A/c
C. Suspense A/c
D.Rectification A/c
➢ A new account called the Suspense Account is formed and the
discrepancy in amount is placed in this account if there is a
difference of some amount between the totals of the columns of
the Trial Balance.
➢ The trial balance's shorter side will have the suspense account with
the difference amount.
➢ For instance, the debit column has a total of Rs. 500 higher than
the total of the credit column. To make the columns of Trial
Balance equal, the sum of Rs 500 will be entered in the credit
column next to the Suspense Account.
Which of the following is an example of errors of
commission?
A. Inability to distinguish between capital and income
elements.
B. Posting of the wrong amount on the correct side
C. Transaction is in the subsidiary books but is not
posted to the ledger.
D.Omission of transactions from books of accounts.
Some examples of such errors are:

➢ Wrong amount recorded in correct subsidiary books

➢ Errors in totalling subsidiary books

➢ Errors in totalling ledger balances

➢ Posting the wrong amount on the correct side

➢ Posting of the correct amount, but on the wrong side

Types of Errors in Accounting
Errors that result from a lack of ability to distinguish
between productive and non-productive expenses are
what kind of errors?

A. Error of Commission
B. Error of Omission
C. Error of Principles
D.Compensating Errors
Errors of principles happen when entries are made that
go against the rules of accounting.
Some other examples include:
➢ Errors due to the inability to distinguish between
revenue and capital items
➢ Errors due to the inability to distinguish between
business expenses and personal expenses.
The owner of a business has wrongly debited the stationary
account for an amount of Rs. 5000, which was withdrawn for
personal use. Which account will be debited in the
rectification journal entry?

A. Cash A/c
B. Bank A/c
C. Drawing A/c
D. Stationary A/c
Suppose, old furniture sold to A for Rs 10,500 was passed
through the Sales Book. Which account will be credited in the
rectification entry?

A. Cash A/c
B. Bank A/c
C. A’s A/c
D. Old Furniture A/c
Rs 15,000 was paid as wages to a worker called ‘Ram
Singh'. However, the same was debited to his personal
account. Which account will be credited?

A. Salary A/c
B. Bank A/c
C. Ram’s A/c
D. Wage A/c
A firm made credit sales to Mohan, but the same was
posted on Govind’s account. The amount of sales was Rs.
9000. Which a/c will be credited and by which amount?

A. Mohan A/c, 9000

B. Govind A/c, 9000
C. Credit Sales A/c, 9000
D.Sales A/c, 9000
The rectification entry for the above question is:

Mohan’s A/c Dr 9000

Govind’s A/c 9000

Q. The errors occur when one wrong entry neutralises the
impact of another incorrect entry, is called?

A. Omission
B. Commission
C. Principle
D. Compensating error
Compensating errors:
Compensating errors occur when one wrong entry
neutralises the impact of another incorrect entry.

These entries cancel the other error that is recorded.

If there is a difference in the two columns of a trial
balance, a separate account is created to put in the
balance amount. What is the name of this account?

A. Error A/c
B. Balance A/c
C. Suspense A/c
D.Rectification A/c
➢ A new account called the Suspense Account is formed and the
discrepancy in amount is placed in this account if there is a
difference of some amount between the totals of the columns of
the Trial Balance.
➢ The trial balance's shorter side will have the suspense account with
the difference amount.
➢ For instance, the debit column has a total of Rs. 500 higher than
the total of the credit column. To make the columns of Trial
Balance equal, the sum of Rs 500 will be entered in the credit
column next to the Suspense Account.
Q. The errors occur when one wrong entry neutralises the
impact of another incorrect entry, is called?

A. Omission
B. Commission
C. Principle
D. Compensating error
Compensating errors:
Compensating errors occur when one wrong entry
neutralises the impact of another incorrect entry.

These entries cancel the other error that is recorded.

Q. On 1st April 2022, ABC ltd Purchased machinery for Rs. 1,00,000 and
spent Rs. 4000 on its carriage and Rs.8000 on its installation. Its useful
life is 10 years and its scrap value is Rs.12000. What is the depreciation
value every year in the straight line method?

A. Rs 7000
B. Rs 10,000
C. Rs 12,000
D. Rs 15,000
Q. Assets purchased by a company of Rs. 20,000 for every
rate of depreciation in 20%, what is the depreciation amount
in 2nd year by Written Down Value method?

A. 2250
B. 2260
C. 3200
D. 4000
Written Down Depreciation
As we know in the Written down value method, the annual
depreciation is previous year assets value x percentage of
depreciation

1st year depreciation = 20000 X 20/100

= 4000
2nd year assets value = 20000-4000 = 16000
2nd year depreciation = 16000 X 20/100
= 3200
Written Down Value (WDV)

This is a depreciation method in which the percentage

rate is applied to the residual balance, rather than to the
original cost.

The WDV method account diminishing balance method

assumes a constant depreciation rate per year.
Written Down Value (WDV) Method

This method is more relevant where the particular asset is expected to

give better performance in the initial periods of use as compared to the
later.

Thus, charge to the P&L account is higher in initial years as compared to

the later years of life of such asset.

Annual Depreciation = Previous year value * Percentage rate

Q. Calculate depreciation for the second year using
the Written Down Value Method:
Original Cost = 20,000
Rate of Depreciation = 10%

A. 2000
B. 1800
C. 1700
D. 1500
Solution
• Under the WDV method, the depreciation is calculated by
multiplying the rate of depreciation with the previous year’s
value of an asset.
• Hence, the depreciation for the first year is Rs. 2000.
• The value of this asset at the end of first year is Rs. 18,000

• The depreciation for the second year is, thus, Rs. 1800.
Company ABC Ltd, purchases a printer machine that can

manufacture 20,00,000 prints after which it will have to be

scrapped. The purchase cost of the machine is Rs 1,10,000 and

the scrap value is estimated at Rs 10,000. During the first year

of production, the machine produced 200,000 prints.

Calculate depreciation by using Units of Production Method

Units of Production Method =

(200,000/20,00,000) * ( 1,10,000 -10000)

= 0.1 * 100,000
= Rs 10000
Units of Production Depreciation Method
This method is a usage-based method. The depreciation
amount is not based on passage of time but actual use of
the asset.

In this method, the useful life is measured in term of

production output or number of unit which an asset is
capable of producing during its lifetime.
Units of Production Depreciation Method
The units-of-production depreciation method depreciates
assets based on the total number of hours used or the total
number of units to be produced by using the asset, over its
useful life.

Depreciation Expense = (Number of units produced / Life in

number of units) x (Cost – Salvage value)
Q. Under which of the following methods of depreciation, is the
depreciation based on the actual usage of an asset & not on the
passage of time?

A. Straight Line Method

B. Written Down Value Method
C. Units of Production method
D. Sum of years’ digit method
Solution
➢The method which uses usage rather than time to
calculate depreciation is called the Units of
Production Method.

➢The usage is measured using the output of

production.
Example;
Company ABC Ltd, purchases a pen production machine that can
manufacture 1,000,000 pens after which it will have to be scrapped.
The purchase cost of the machine is Rs 100,000 and the scrap value is
estimated at Rs 10,000. During the first year of production, the
machine produced 200,000 pens.
Calculate depreciation by using Units of Production Method

Depreciation Expense = (Number of units produced / Life in

number of units) x (Cost – Salvage value)
Example;
Units of Production Method = (200,000/1,000,000) * ( 100,000 -10000)
= 0.2 * 90,000
= Rs 18000

Depreciation Expense = (Number of units produced / Life in

number of units) x (Cost – Salvage value)
Q. Company X is a manufacturing company that specializes in
producing electronic devices. They recently acquired a new machine
for Rs. 200,000 to enhance their production capacity. The machine
has an estimated useful life of 5 years and an estimated total
production capacity of 100,000 units.
During the first year of operation, Company X produces 15,000 units
using the new machine. The estimated salvage value of the machine
at the end of its useful life is Rs. 20,000.

Using the units of production method, what is the depreciation

expense for the first year?
(1) 30,000 (2) 27,000
(3) 16,000 (4) 21,000
Solution (2)
Under the units of production method, depreciation depends on the usage of
an asset. The formula for calculating depreciation under this method is:
Depreciation amount

Actual production during a particular period

=
Total expected production during life of an asset
× Total depreciable amount
15,000
Depreciation amount= × (2,00,000 − 20,000)
1,00,000

Depreciation amount=27,000
Q. Calculate the amount of depreciation for the first year
using the sum-of-the-years digits method.

Equipment cost = Rs. 1,00,000

Estimated residual value = Rs. 20,000
Estimated life = 5 years

(1) 23,333
(2) 26,667
(3) 21,000
(4) 27,333
Solution (2)

𝟓 + 𝟒 + 𝟑 + 𝟐 + 𝟏 = 𝟏𝟓

𝟓 𝟏
Depreciation in the first year = = 𝒐𝒓 𝟑𝟑%
𝟏𝟓 𝟑

𝟏 𝟏
Depreciation = (1,00,000 – 20,000) × = 𝟖𝟎, 𝟎𝟎𝟎 × = 𝟐𝟔, 𝟔𝟔𝟕
𝟑 𝟑
Q. Which of the following are the most commonly used
instruments of credit?

A. Bill of Exchange
B. Promissory Notes
C. Both A & B
D. Only 1
➢In a business, credit transactions play a very important role.
For manufacturing goods, a manufacturer purchases raw
materials, the majority of which will be on credit. And the
credit is generally provided by obtaining a written document
called Instrument of Credit.

➢The most commonly used instruments of credit are Bill of

Exchange & Promissory Notes. Both instruments come under
the preview of the Negotiable Instruments Act 1881 so there
is no counterparty risk involved.
Promissory Notes
Q. Which of the following statements is/are incorrect
with regards to similarities in Bill of Exchange and
Promissory Note?

A. Both are an unconditional order to pay

B. In bill of exchange there are three parties but in
Promissory note there are only two parties are
involved
C. Bill of exchange is made by debtor & Promissory note
is made by creditor
D. In case of bill of exchange acceptance by debtor is
necessary but in Promissory note no acceptance is
required
• According to section 5 of the NI Act, a "bill of exchange" is
a written document with an unconditional order, signed
by the maker, directing a specific person to pay a specific
amount of money only to, or to the order of, a specific
person or to the bearer of the document.

• Promissory Notes are defined under section 4 of the

Negotiable Instrument Act 1881 as " an instrument in
writing containing an unconditional undertaking, signed
by the maker, to pay a certain sum of money only to, or to
the order of, a certain person, or to the bearer of the
instrument.
Q. There are how many parties involved in a Bill of
Exchange?

A. 2
B. 3
C. 4
D. 5
There are 3 parties are involved in a Bill of Exchange, these are;

Drawer is the person who draws the bill, while a drawee is the

one on whom the bill is drawn. On the other hand, a payee is

the person who will receive the money

Payee: A person who is going to receive money

Q. _________ is a written undertaking by the buyer to
make a payment on a specified date.

A. Bill of Exchange
B. Promissory Note
C. Cheque
D. Hundi
Promissory notes is a written undertaking by the buyer

to make a payment on a specified date. The debtor

(buyer) writes a PN guaranteeing the creditor (seller)

that they will pay a specific amount after a specific

amount of time.
Q. Which of the following statements is/are incorrect with
respect to Promissory Notes?

A. It is an instrument in writing
B. It contain an unconditional undertaking
C. Signed by maker to pay a certain sum of money
D. It is defined under section 5 of the Negotiable
Instrument Act 1881
Promissory notes are described as "an instrument in
writing containing an unconditional undertaking,
signed by the maker, to pay a certain sum of money
only to, or to the order of, a certain person, or to the
bearer of the instrument" in section 4 of the
Negotiable Instrument Act of 1881.
Q. Which of the following statements is/are incorrect with
regards to similarities in Bill of Exchange and Promissory Note?

A. Both are an unconditional order to pay

B. In bill of exchange there are three parties but in Promissory
note there are only two parties are involved
C. Bill of exchange is made by debtor & Promissory note is
made by creditor
D. In case of bill of exchange acceptance by debtor is necessary
but in Promissory note no acceptance is required
• According to section 5 of the NI Act, a "bill of exchange" is a
written document with an unconditional order, signed by the
maker, directing a specific person to pay a specific amount of
money only to, or to the order of, a specific person or to the
bearer of the document.

• Promissory Notes are defined under section 4 of the Negotiable

Instrument Act 1881 as " an instrument in writing containing an
unconditional undertaking, signed by the maker, to pay a
certain sum of money only to, or to the order of, a certain
person, or to the bearer of the instrument.
Q. When the drawee of the bill is unable or refuses to make
payment on the due date, the bill is said to be
___________.
A. Retirement of bill
B. Dishonour of Bill
C. Endorsement of Bill
D. Renewal of Bill
Q. Which of the following scenarios illustrates the concept of rebate
in the bill of exchange?
(1) X receives a bill from his supplier with a due date of 30 days.
He decides to pay the bill on the 25th day and receives a 5%
discount on the total amount.
(2) Y receives a bill from his supplier with a due date of 30 days.
He forgets about the bill and pays it 10 days after the due
date. He is charged an additional 10% penalty on the
outstanding amount.
(3) Z receives a bill from his supplier with a due date of 30 days.
He decides to pay the bill exactly on the due date and receives
a 2% discount on the total amount.
(4) A receives a bill from his supplier with a due date of 30 days.
He pays the bill on the 35th day and is charged a late payment
fee of 3% on the outstanding amount.
Solution (1)
When a bill is paid by the drawee before the due date, an
allowance is given to him called a 'rebate'. It serves as an
incentive for early payment.

In the given question, only X receives a bill and pays it

before the due date, receiving a 5% discount, which
accurately demonstrates the concept of a rebate. The
drawee is given an allowance for early payment.
Q. Mr. X, a business owner, receives a bill of exchange
from his supplier, Mr. A, for goods purchased. The bill has
a due date of 60 days. Mr. X needs immediate funds and
decides to transfer the ownership of the bill to Mr. Z, a
fellow business owner, in exchange for cash.

Which of the following concepts is applied here?

(1) Renewal of Bill

(2) Endorsement of Bill
(3) Dishonour of Bill
(4) Honouring of Bill
Solution (2)
In this scenario, Mr. X, as the holder of the bill of exchange,
endorses the bill by signing his name on the back, indicating
the transfer of ownership to Mr. Z. This action is known as
endorsement, which allows Mr. X to transfer the rights and
obligations of the bill to another person.
Q. An expenditure that occurs only current period is
known as________.

A. Capital Expenditure
B. Revenue Expenditure
C. Deferred Revenue Expenditure
D. Current Expenditure
A company spends revenue expenditure to maintain

the regular functioning of the system like salary, repair

of machines, tours, travel, etc. There are two types of

expenditure of an organization one is revenue and the

other is Capital.
Q. Obsolescence cost by a company calculated which of
the following account?

A. Capital Expenditure
B. Revenue Expenditure
C. Deferred Revenue Expenditure
D. Current Expenditure
Obsolescence cost is always calculated on the revenue

account. Because this type of expense is exhausted in

the accounting period.

Q. Consider the given statement about Revenue expenditure
1. Expenditures associated with revenue generation include all day-to-
day expenses needed to operate a business, such as sales salaries,
rent, office supplies, and utilities.
2. Administrative overhead, research, and development,t and
accounting frameworks are treated as types of revenue expenditure.

Which of the given statement is correct?

A. Only 1 is correct
B. Only 2 is correct
C. Both 1 and 2 are correct
D. Neither 1, not 2 is correct
Expenditure involves all day-to-day expenses needed

to operate a business, such as sales salaries, rent,

office supplies, and utilities is called revenue

expenditure. There are many examples of revenue

expenditures such as administrative overhead research

and development, accounting frameworks, etc.

Q. Which of the following considers Revenue expenditure?

1. Furniture of the book value of 20000 rs

2. Temporary was constructed costing 30000 rs These are necessary for the
construction of the new building and were demolished when the buildings
were ready.
3. Replacement of the old machine with a new machine.
4. Damages paid by a transport company to its passengers injured in an
accident.
Which of the given statement is correct?
A. Only 1 is correct
B. Only 2 is correct
C. ALL 1, 2, 3 & 4 are correct
D. None of the above
Furniture considers capital expenditure, and building

construction and repairment are considered as capital

expenditure, A purchase of a new machine is a capital

expenditure that will enhance the firm’s earning space, and

Since accidents and damages payments reduce the earning

size of a business, it is considered a revenue expenditure.

Q. The most appropriate difference between revenue and capital expenditure
is?
1. Revenue expenditure appears as assets in the balance sheet and some
portion in the income statement while Capital expenditure always
appears in the income statement
2. Revenue expenses are incurred for maintaining the day-to-day activities
of a business while Capital expenditure Expenditure incurred for acquiring
assets, to enhance the capacity of an existing asset resulting in increasing
its lifespan.
A. Only 1 is correct
B. Only 2 is correct
C. Both 1 and 2 are correct
D. Neither 1, not 2 is correct
Capital expenditure appears as assets in the balance sheet

and some portion in the income statement while revenue

expenditure always appears in the income statement,

hence statement 1 is opposite from real concept while

statement 2 is correct.
Q. Which of the following example of intangible Capital
expenditure?

A. Plant, plot, equipment

B. Furniture, fixtures new employee
C. Patent, license or trademark
D. Car, Electricity connection, etc
Tangible Capital expenditure is those which assets has

physical existence purchasing tangible assets like plant,

plot, equipment, furniture, and fixtures. The intangible

Capital assets which do not have physical existence

like – patents, licenses, or trademarks.

Q. Expenditures incurred to improve the assets, expenses
incurred to bring fixed assets to the working site, and
Carriage, freight, octroi duty, customs duty, clearing
charges, dock dues, and excise duty paid on machinery are
examples of?

A. Capital loss
B. Revenue expenditure
C. Deferred expenditure
D. Capital expenditure
Expenditures incurred to improve the assets, Carriage,

freight, octroi duty, customs duty, clearing charges,

dock dues, and excise duty paid on machinery are

examples of Capital expenditure because these assets

create infrastructure for a company.

Q. The Provisioning percentage of NPA(Non-performing

Assets) of a bank is an example of which of the following

expenditure?

A. Capital loss
B. Revenue expenditure
C. Deferred expenditure
D. Capital expenditure
A deferred expense is a cost that has already been incurred, and

it can not be adjusted in a single financial year. The provisioning

of Non-performing assets of a bank occurs for almost the 3 years

or more hence it can be treated as a deferred expenditure. To

provision banks divide their Non-performing assets into 3

categories a. Substandard, b. Doubtful and c. Loss assets and

accordingly a definite percentage fixed to incurred loss.

Q. Deferred revenue expenditure is fully compensated in
3 years but only 2 years passed the remaining loss is
shown in the Balance sheet under which heading?

A. Miscellaneous expenditure
B. Revenue expenditure
C. Deferred expenditure
D. Current liabilities
Deferred revenue expenditure is a large amount and it can not be

mentioned in the single-year account it is shown in the Balance

sheet of an organization after deduction from the profit and loss

account in a particular year. In the given statement the total loss

occurred full write-off within 3 years but one still remaining then

that must be shown in the Balance sheet.

Q. Revenue expenditure refers to the expenses incurred by
a company in its day-to-day operations to generate revenue.
These expenses are necessary for maintaining the normal
operations of the business and are typically recurring in
nature.
Which of the following is NOT classified as a revenue
expenditure?

(A) Salaries and wages paid to employees

(B) Purchase of raw materials for production
(C) Cost of relocating all of an entity's operations
(D) Installation cost of a machinery
Sol. (D)
Revenue expenditures are expenses incurred in the
normal course of business to generate revenue and are
typically recurring in nature. Capital expenditures are
typically associated with long-term investments and are
not expensed immediately but rather capitalized and
amortized over their useful life.
Out of given options, salaries and wages paid to
employees, purchase of raw materials for production,
and cost of relocating all of an entity's operations are
treated as revenue expenditure. Thus, installation cost
of a machinery is a capital expenditure.
Q. ABC Ltd. is a manufacturing company that produces and sells
electronic goods. They recently made some expenditures related to
their business operations. Determine whether each of the following
expenditures should be classified as capital expenditure (C) or
revenue expenditure (R):
1. Purchase of a new factory building to expand production capacity.
2. Repairs and maintenance expenses for the existing machinery in
the factory.
3. Acquisition of a patent for a new technology used in the
production process.
4. Purchase of raw materials to be used in the production of goods.
5. Payment of salaries and wages to factory workers.
6. Installation of new software to improve the efficiency of the
administrative department.
7. Advertising expenses for promoting the company's products.
(A) C, C, C, R, R, C, R (B) R, C, C, R, R, R, R
(C) C, R, C, R, R, C, R (D) R, R, C, C, R, C, R
Sol. (C)
1. Purchase of a new factory building to expand
production capacity - Capital expenditure (C) because
it is a long-term investment to increase the company's
production capabilities.
2. Repairs and maintenance expenses for the existing
machinery in the factory - Revenue expenditure (R)
because it is a routine expense to keep the machinery
in working condition.
3. Acquisition of a patent for a new technology used in
the production process - Capital expenditure (C) as it
is an investment in an intangible asset that provides
long-term benefits to the company.
4. Purchase of raw materials to be used in the production
of goods - Revenue expenditure (R) as it is a regular
expense directly related to the production of goods.
Q. An expense which is incurred while accounting
period, it will keep showing its benefits over the period
of two to three years?

A. Capital Expenditure
B. Revenue Expenditure
C. Deferred Revenue Expenditure
D. All, the above
Deferred Revenue Expenditure is an expense which is incurred
while accounting period and the result and benefits of this
expenditure are obtained over the multiple years in the future.

For example, revenue used for advertisement is deferred

revenue expenditure because it will keep showing its benefits
over the period of two to three years.
Q. Consider the following statement about vouchers, and
mark the correct one:

1. There are two types of vouchers, one which

evidences only debit or credit to an account.
2. The other, which contains both debit and credit to
different accounts.

A. Only 1
B. Only 2
C. Both are correct
D. Both are incorrect
➢Vouchers are used to make debit and credit transactions
on all accounts, whether they are made by customers or
the bank itself.
➢There are two different kinds of vouchers: one merely
provides a debit or credit to an account, while the other
includes both a debit and a credit to many accounts.
➢The latter type of voucher may be called a composite
voucher for convenience's sake.
Q. Which of the following entries are part of debit
vouchers?

A. Cheques issued by customers

B. Cheques or pay orders issued by banks
C. Withdrawal forms received from the savings bank
account holders
D. All the above
Vouchers are used to make debit and credit
transactions on all accounts, whether they are made
by customers or the bank itself.
The debit vouchers are, generally speaking, as follows
➢Forms for withdrawal received from owners of
savings bank accounts
➢Cheques or pay orders issued by the banks
➢Cheques issued by the customers
➢Drafts issued by other branches of the bank payable
at the branch
➢Dividend warrants issued by the bank customer and
payable by the branch in terms of an approved
arrangement
Q. Which of the following entries are part of credit
vouchers?

A. Pay-in-slips filled by the customers for deposit

B. Applications for issue of term deposits and demand
drafts
C. Challans for deposits into the accounts of Central or
State Government
D. All the above
The credit vouchers are, generally speaking, as follows:

➢Credit advice or a copy of the collection schedule received

from the other branch may be treated as a credit voucher
when making payments of collection instruments from other
branches of the bank.
➢Credit vouchers that the branch has created and that a bank
representative has authorised
➢Applications for the issuance of term deposits and demand
draughts Pay-in slips completed by customers for deposits

➢Challans for deposits into the State or Central Government's

accounts
Q. How many vouchers are mainly used in banking
operations?

A. One
B. Two
C. Three
D. Four
Cash and non-cash transactions both exist in banks.
Vouchers are used to make debit and credit
transactions on all accounts, whether they are made
by customers or the bank itself. There are two main
kinds of vouchers: one merely includes a debit or
credit to an account, and the other includes a debit
and a credit to many accounts.
Q. Consider the following statement about debit
vouchers and find out the wrong one;

1. Traveller's cheques issued by any branch of the bank

which are presented to the branch for payment
2. On payment of collection instruments from other
branches of the bank

A. Only 1
B. Only 2
C. Both are correct
D. Both are incorrect
The debit vouchers are, generally speaking, as
follows:
➢Forms for withdrawal received from owners of
savings bank accounts
➢Banks may issue checks or pay orders.
➢Cheques that customers have issued
➢Drafts from different bank branches that are
payable at the branch
➢Dividend warrants issued by a bank client and paid
by a branch in accordance with a valid agreement
Q. Consider the following statement about the credit voucher
and find out the right one;
1. Applications for issue of term deposits, demand drafts,
RTGS/NEFT, banker’s cheques, pay orders, gift cheques,
traveller’s cheques and other similar instruments.
2. Pay-in-slip filled by the customers (depositors as well as
borrowers) for deposit of amounts in their accounts.
A. Only 1
B. Only 2
C. Both are correct
D. Both are incorrect
The credit vouchers are, broadly the following;

➢Credit advice or a copy of the collection schedule

received from the other branch may be treated as a
credit voucher when making payments of collection
instruments from other branches of the bank.
➢Credit vouchers created by the branch on its own
printed stationery and approved by a bank
representative
➢Applications for the issuance of term deposits and
demand draughts Pay-in slips completed by
customers for deposits
➢Applications for the issuance of term deposits,
demand draughts, RTGS/NEFT, banker's checks, pay
orders, gift checks, traveller's checks.
Q. The accounts and balance sheet prepared under
Section 29 of the Banking Regulation Act along with the
auditor's report have to be published in newspapers
within a period of __________ months from the end of
the period to which the account and balance sheet relate

A. 1 Month
B. 2 Month
C. 3 Month
D. 6 Month
➢The accounts and balance sheet prepared under Section
29 of the Banking Regulation Act along with the auditor’s
report have to be published, as provided in Section 31
thereof with Rule 15 of the Banking Regulation
(Companies) Rules, 1949.
➢Accordingly, the publication has to be made in a
newspaper, which is in circulation at the place where the
banking company has its principal office, within a period of
six months from the end of the accounting period.
Q. Which of the following statements is correct with regards to the banking
company, submission of Balance sheet & profit and loss A/C reports?

A. Banking company has to submit 2 copies of its balance sheet and profit
and loss account to the RBI within 2 months from the end of the
accounting period
B. Banking company has to submit 3 copies of its balance sheet and profit
and loss account to the RBI within 3 months from the end of the
accounting period.
C. Banking company has to submit 5 copies of its balance sheet and profit
and loss account to the RBI within 5 months from the end of the
accounting period.
D. Banking company has to submit 6 copies of its balance sheet and profit
and loss account to the RBI within 6 months from the end of the
accounting period.
• The balance sheet and profit and loss account have to be
prepared in the forms set out in the 3rd Schedule of the
Banking Regulation Act 1949.

• The banking company has to submit 3 copies of its balance

sheet and profit and loss account to the RBI within 3 months
from the end of the accounting period. This may be extended
by the Reserve Bank of India by a further period not exceeding
three months.
Q. The balance sheet and profit and loss account of a
banking company has to be audited as stipulated under
which section of the Banking Regulation Act 1949?

A. Section 29
B. Section 30
C. Section 31
D. Section 35
➢The accounts and balance sheet of a banking company is

prepared under Section 29 of the Banking Regulation Act 1949.

➢The balance sheet and profit and loss account of a banking

company have to be audited as stipulated under Section 30 of

the Banking Regulation Act 1949. Accordingly, a person duly

qualified under any law for the time being to be an auditor of

companies is eligible to be the auditor of a banking company.

Q. RBI is empowered under ____________ Section of the BR
Act 1949, to order a special audit of the accounts of any
banking company.

A. Section 29 (B)
B. Section 30 (B)
C. Section 29 (1B)
D. Section 30 (1B)
➢RBI is empowered under Section 30 (1B) of the Banking
Regulation Act 1949, to order a special audit of the accounts of
any banking company. Such an order may be passed when RBI is
of the opinion that social audit is necessary in the public interest
or in the interest of the banking company or its depositors.
➢An order on special audit may relate to any transaction or class of
transactions or such period or periods as the RBI may specify in
the order. The expenses in relation to the special audit have to
bear by the banking company.
Q. Under which section of the Banking Regulation Act, a
banking company has to submit a return of its liquid assets?

A. Section 24 (3)
B. Section 29 (3)
C. Section 30 (3)
D. Section 31 (3)
• Every banking company in India has to submit a return of its
liquid assets under Section 24 (3) of the Banking Regulation
Act 1949.

• The return has to be submitted within twenty days from the

end of the month to which it relates.

• The return has to be in the form prescribed under Rule 13 A of

the Banking Regulation (Companies) Rules, 1949.

• The return should contain particulars of assets and demand

and time liabilities.
Q. Section 35 of the Banking Regulation Act 1949, deals

with which of the following;

A. Balance sheet

B. Profit and loss account

C. Bank audit

D. Bank Inspection
• The Reserve Bank of India is empowered under Section
35 of the Banking Regulation Act 1949 to conduct an
inspection of any banking company. The Central
Government may also direct the RBI to conduct
inspection of any bank and in that case the RBI is bound
to comply with such a direction.

• The inspecting officer is authorised to examine any

director or officer of a banking company on oath.
Q. The Central Government is of the opinion that if the affairs
of a banking company are being conducted to the detriment
of the interest of the depositors, the Government may:
1. Prohibit the banking company from receiving fresh
deposits
2. Direct the RBI to apply for winding up of the banking
company under section 38 of the BR Act.

A. Only statement 1 is correct

B. Only statement 2 is correct
C. Both are correct
D. Both are incorrect
The Central Government may also direct the RBI to conduct
inspection of any bank and in that case the RBI is bound to
comply with such a direction.
On consideration of the report, if the Central Government is of
the opinion that the affairs of a banking company are being
conducted to the detriment of the interest of the depositors,
the Government may;
➢ Prohibit the banking company from receiving fresh deposits
➢ Direct the RBI to apply for winding up of the banking
company under section 38 of the BR Act.
Q. Which of the following statements is/are incorrect with
regards to the board for financial supervision?

A. The Board for Financial Supervision is a committee established

under Regulation 4 of the RBI (Board for Financial Supervision)
Regulation, 1949.
B. These regulations were framed by the RBI under Section 58 of
the RBI Act, 1934.
C. The Governor of the RBI is the chairman of the board.
D.The board meets at least once a month.
• Board for Financial Supervision: The board for Financial
Supervision is a committee established under Regulation
4 of the RBI (Board for Financial Supervision) Regulation,
1994. These regulations were framed by the RBI under
Section 58 of the RBI Act, 1934. The Governor of the RBI
is the chairman of the board and deputy Governors of
the RBI, and one of the deputy Governors shall be
nominated by the Governor as the full-time vice
chairman. The board meets at least once a month.
• The board performs the functions and exercises the
powers of supervision and inspection under the RBI Act,
1934 and the BR Act, 1949, in relation to different sectors
of the financial system, including banking companies.
Q. The powers, functions and duties of the auditors of
banking companies is defined under which of the
following Sections of the Companies Act?

A. Section 222
B. Section 225
C. Section 227
D.Section 229
The powers, functions and duties of the auditors and the

liabilities to auditors of banking companies are defined

under Sections 227 of the Companies Act are applicable to

give certain additional information in his audit report such as

any matter, which the auditor considers necessary to bring to

the notice of the shareholders of the company.

Q. Which Chapter of the RBI Act 1934, deals with
penalty for violation of the Act?

A. Chapter II
B. Chapter III
C. Chapter IV
D.Chapter V
➢A banking company has to abide by the requirements of the RBI
Act and the BR Act and the subordinate legislation and failure to do
so invites penalties.

➢Chapter V of the RBI Act 1934, deals with the penalty for violation
of the Act. Banking companies have to make applications and
furnish return statements, etc under different provisions of the Act.

➢The making of any statement or report which present falsified data

intentionally or unintentionally is a punishable offense with
imprisonment for up to a period of three years as well as monetary
charges.
Which of the following is a part of the core banking component?

I. Core Bank Product Build

II. Core Bank Payments
III. Core Bank Account Administration

(1) Only I & II

(2) Only II & III
(3) I, II, & III
(4) Only I & III
Solution (3)
Core banking is a centralized system that links various branches
of a bank to facilitate real-time operations such as loan
management, withdrawals, deposits, and payments.

Core banking has the following components:

a. Core Bank Financial Institution Infrastructure
b. Core Bank Product Build
c. Core Bank Account Administration
d. Core Bank Payments
e. Core Bank Customer Management and Customer Overview
f. Core Bank Management Information
Majority of the banking transactions (like account creation,
financial transactions, enquires, and maintenance) are processed
online.

Which of the following is not a benefit of online processing?

(1) Flexibility
(2) Optimises transactions
(3) Caters to all types of institution requirements
(4) Ensures database is only available for a limited period of time
Solution (4)

Such online processing ensures several benefits:

a. Flexibility
b. Optimises transactions
c. Caters to all types of institution requirements
d. Ensures database is always available
e. No downtime for day-end or batch processing
f. Basic functions are separated into certain areas
According to Section 29 of the Companies Act, the
financial statements of banking companies should be
signed by the manager/principal officer of the
banking company along with at least _______ directors.

(1) 3
(2) 4
(3) 5
(4) 6
Solution (1)

According to Section 29 of the Companies Act:

(1) The financial statements of banking companies should be
signed by the manager/principal officer of the banking
company along with at least three directors (or by all
directors if the number is less than 3).
(2) The financial statements of foreign banking companies
are to be signed by the manager/agent of the principal
office in India.
Q. AS 7 addresses accounting for construction contracts, focusing on how to
recognize and measure revenue and costs for these contracts, which often extend
over several accounting periods. One kind of contract under AS 7 is a cost-plus
contract. Which statement most accurately describes a cost-plus contract?

1) The buyer agrees to pay the seller a fixed price for the project, regardless of the
actual costs incurred.
2) The contract price is determined based on the estimated costs of the project,
without considering any changes or variations.
3) The seller is entitled to recover the actual costs incurred, along with an agreed-
upon profit margin or fee.
4) The seller is only reimbursed for the direct costs incurred, without any
additional profit or fee.
Answer: (3)
In a cost-plus contract, the seller is reimbursed for the actual costs
incurred in the project, including direct costs and sometimes indirect
costs or overheads. Additionally, the seller is entitled to a profit
margin or fee, which is typically agreed upon in advance. This allows
the seller to recover their costs and earn a reasonable profit for their
services. This type of contract is commonly used in situations where
the scope of work or project requirements are uncertain, making it
difficult to determine a fixed price upfront. The cost-plus contract
provides flexibility by allowing for adjustments to the contract price
based on the actual costs incurred during the project.
Q. Amalgamation in accounting is the process of merging two or
more companies into one, aiming to consolidate resources, boost
efficiency, and create synergies. Which accounting standard
addresses the accounting for company amalgamation?

1) AS - 21
2) AS - 14
3) AS - 05
4) AS - 25
Answer: (2)

AS-14 refers to Accounting Standard 14, which is a standard issued by

the Institute of Chartered Accountants of India (ICAI) that deals with
accounting for amalgamations. It provides guidelines on the accounting
treatment and disclosure requirements for amalgamation of companies,
including mergers and acquisitions. AS-14 sets out the principles and
methods for recognizing and measuring assets, liabilities, and
shareholders' equity in the financial statements of the amalgamated
company. It also provides guidance on the treatment of goodwill,
reserves, and other intangible assets arising from the amalgamation.
ABC Corporation is a manufacturing company that uses the double-entry
system to record its financial transactions. The company bought raw
materials worth Rs. 50,000 on credit. The entry is: Raw Materials A/c Dr
50,000 To Accounts Payable A/c 50,000. How does this transaction affect
the accounting equation?

1) Decrease assets and decrease liabilities

2) Increase assets and increase liabilities
3) Increase assets and decrease liabilities
4) Decrease assets and increase liabilities
Answer: (2)

• In the double-entry system of accounting, every transaction affects at

least two accounts and follows the principle of duality.
• In this case, the purchase of raw materials increases the asset account
"Raw Materials A/C" by Rs. 50,000, representing the company's
increased inventory of raw materials.
• At the same time, the company incurs a liability for the amount owed to
the supplier, increasing the liability account "Accounts Payable A/C" by
Rs. 50,000.
As a result, this transaction increases both the assets and liabilities of
the company.
XYZ Ltd., a manufacturing company operating for 10 years, is
currently facing financial challenges but is working on a
turnaround plan and expects to continue operations. Which
accounting concept is XYZ Ltd. relying on?

1) Historical cost concept

2) Conservatism concept
3) Materiality concept
4) Going concern concept
Answer: (4)
• The going concern concept is an accounting principle that assumes
that a company will continue its operations and remain in business
for the foreseeable future.
It implies that the company will be able to meet its obligations,
continue generating profits, and realise its assets.
• The going concern concept is important because it allows companies
to present their financial statements in a manner that reflects the
long-term viability of the business.
• It helps provide relevant and reliable financial information to
stakeholders, such as investors, creditors, and employees, who rely on
the company's financial statements for decision-making purposes.
Q. ABC Company, a manufacturing firm, purchased a new machine for
Rs. 1,00,000, with a useful life of 10 years, and uses straight-line
depreciation. Which accounting principle is demonstrated in this
scenario?

1) Accrual Principle

2) Matching Principle

3) Money Measurement Principle

4) None of the above

Answer: (3)

The Money Measurement Principle states that only transactions and

events that can be expressed in monetary terms should be recorded
in the accounting system. In this case, the purchase of the machine for
Rs. 1,00,000 is a monetary transaction, and therefore, it is recorded in
the accounting books. Thus, the money measurement principle is
evident in the given case study. The Money Measurement Principle
ensures that only measurable and quantifiable financial transactions
are recorded, and it forms the basis for all accounting records. It
helps in maintaining consistency and accuracy in financial reporting.
Q. Double-entry bookkeeping records every transaction in at least
two accounts, ensuring balanced debits and credits and
maintaining the accounting equation (assets = liabilities + equity).
Which of the following is NOT an advantage of double-entry
bookkeeping?

1) Simplicity and ease of use

2) The balance sheet can be prepared at any point of time.
3) Fraud is easily detected.
4) Transparency in financial transactions
Answer: (1)
Error and Fraud Detection: The system allows for easy error detection, as
any discrepancy in the accounts will result in an imbalance in the
accounting equation (Assets = Liabilities + Equity).
Balance Sheet: The balance sheet can also be prepared at any specified
point in time, showing actual assets, liabilities, and capital.
Complete Record and Transparency: The system provides a comprehensive
record of all financial transactions, making it easier to track and analyze the
financial position of the business.
Simplicity and Ease of Use: This option is not a merit of double-entry
bookkeeping. The system is known for its accuracy and thoroughness, but it
may require training and expertise to use effectively.
Q. Identify an example of an extraordinary item in a company's
financial statement.

1) Salaries paid to regular employees.

2) Rental income from regular operations.
3) Gain from the sale of a subsidiary.
4) Interest earned from core business activities.
Answer: (3)

Extraordinary items are gains or losses that are unusual and infrequent in
nature and that are not expected to recur in the future. The sale of a
subsidiary is an example of an extraordinary item because it is not a normal
part of a company's business operations. Some other examples of
extraordinary items:
❖ Loss from a major natural disaster
❖ Gain or loss from a lawsuit
❖ Gain or loss from the sale of a major asset
❖ Restructuring costs
Q. In the imprest system of a petty cash book, which statement is
true?

1) The petty cash custodian replenishes the fund by submitting

expense reports and receiving the exact amount spent.
2) The petty cash fund is replenished at irregular intervals,
depending on the availability of cash.
3) The petty cash custodian is responsible for making all cash
disbursements.
4) All of the above statements are correct.
Answer: (4)

In the imprest system of a petty cash book, the petty cash fund is
initially set at a fixed amount, which is determined based on the
estimated expenses. The petty cash custodian is responsible for
making cash disbursements for small expenses. When the fund is
running low, the custodian replenishes it by submitting expense
reports and receiving the exact amount spent. This ensures that the
fund is always maintained at the fixed initial amount, allowing for
efficient control and tracking of petty cash expenses.
Q. Provide an example of an opening entry in accounting.

1) Recording a sale of goods on credit.

2) Bringing forward the balance of cash A/c from previous
accounting period in the books of a present accounting period
3) Adjusting accrued expenses at the end of the accounting period.
4) Recognizing depreciation expense on fixed assets.
Answer: (2)

Opening entries in accounting are made at the beginning of a new

accounting period to record the balances of various accounts. Bringing
forward the balance of a specific account from the previous accounting
period to the current accounting period is an example of an opening entry.
Bringing forward the balance of a specific account from the previous
accounting period to the current accounting period is an example of an
opening entry. It is a common practice to carry forward the ending balances
of various accounts, such as cash, accounts receivable, accounts payable,
and others, from one accounting period to another. This ensures that the
balances are carried forward correctly and serves as the starting point for
the current period's transactions.
Q. Which statement is correct?

1) The passbook shows a debit balance when the cash book shows
a debit balance.
2) The passbook shows a credit balance when the cash book
shows a credit balance.
3) The passbook shows a credit balance when the cash book
shows a debit balance.
4) None of the above
Answer: (3)

In accounting, the passbook is a statement provided by the bank to

the account holder that shows the transactions made in the bank
account. The passbook shows the actual balance in the bank account,
including all deposits, withdrawals, and interest earned or charged.
On the other hand, the cashbook is a book maintained by the account
holder to record all the transactions related to cash inflows and
outflows. It is a journal that records cash receipts and payments
made by the account holder. When the passbook shows a debit
balance, the cash book shows a Credit balance and vice versa.
Q. When an accountant marks certain entries as C in the cash book,
what does this indicate?

1) Carried forward entries

2) Contra entries
3) Cash entries
4) Credit entries
Answer: (2)

A contra entry in accounting refers to transactions that involve both

cash and bank accounts. It is recorded in the cash book to represent
deposits or withdrawals of cash from the bank or vice versa. The
purpose of using a contra entry is to indicate the movement of funds
between the cash and bank accounts, which ultimately does not affect
the overall financial position of the business. In a contra entry, the
amount is recorded on both the debit and credit sides of the cash
book simultaneously.
Q. The cost of an item of PPE should be recognized as an asset if it
is probable that future economic benefits associated with the item
will flow to the enterprise and ________.

1) the cost of the item can be measured reliably

2) if item is purchased from a reputable vendor.
3) if the item has a long expected useful life.
4) if the item is insured against any potential damages.
Answer: (1)

The cost of an item of PPE should be recognized as an asset if, and

only if: (a) it is probable that future economic benefits associated
with the item will flow to the enterprise and (b) the cost of the item
can be measured reliably. This is as per Accounting Standard AS-10
Property, Plant and Equipment.
Q. A company has the following balances in its assets and liabilities as of
31st March 2024: Cash in hand - Rs. 25,000, Furniture - Rs. 20,000, Bank
Loan - Rs. 50,000, Stock of Goods - Rs. 35,000, Debtors - Rs. 20,000,
Capital Account - Rs. 50,000. Which accounts will be credited in the
opening entry on 1st April 2024?

I. Cash in hand Account

II. Bank Loan Account
III. Stock of Goods Account
1) Only II
2) I, II & III
3) Only I & II
4) Only I
Answer: (1)

Solution: The opening entry for 1st April 2024 is:

Cash in hand A/c Dr 25,000
Furniture A/c Dr 20,000
Stock of Goods A/c Dr 35,000
Debtors A/c Dr 20,000
To Bank Loan A/c 50,000
To Capital A/c 50,000
Q. What is the impact when deposited cheques or discounted bills
are dishonored?

1) Increase in passbook balance

2) No impact on cashbook and passbook
3) Increase in cashbook balance
4) Decrease in passbook balance
Answer: (4)

If a firm's deposited cheque or discounted bill of exchange is not

honoured by the bank on the maturity date, the bank will debit the
customer's account accordingly. Since the firm is not immediately
aware of this transaction, there will be no entry in the firm's cash
book. The firm will only become aware of this when it receives a
statement from the bank. As a result, the balance as per the passbook
will be lower than the balance shown in the cash book.
Q. BRS is prepared to ensure that the balance shown in the cash
book matches the balance shown in the bank passbook. Which
situation would result in a higher balance in the passbook?

1) Cheques issued but not yet presented for payment

2) Direct payment by a customer into bank
3) Interest allowed by bank
4) All of the above
Answer: (4)

The following will lead to a higher balance as per the passbook as

compared to the cashbook: 1. Cheques deposited into the bank but
not recorded in cashbook 2. Cheques issued but not yet presented for
payment 3. Interest allowed in pass book only 4. Bills receivable
directly collected by bank 5. Direct payment by a customer into bank
but not recorded in cash book. 6. ‘Cheques issued’ returned on
technical grounds 7. A wrong credit given by bank in pass book.
Q. In reconciling a company's cash records with the bank statement,
which statement about the Bank Reconciliation Statement (BRS) is
true?

1) BRS is prepared by the company to identify any differences

between its records and the bank statement.
2) BRS is prepared by the bank to inform the company of any
discrepancies.
3) BRS is used to determine the interest earned on the company's
deposits.
4) BRS is only required for large corporations and is not necessary for
small businesses.
Answer: (1)

The Bank Reconciliation Statement (BRS) is a financial document

prepared by a company to reconcile its own cash records with the
bank statement. It helps identify any discrepancies, errors, or
omissions that may exist between the company's records and the
bank's records.
XYZ Company maintains its bank account with ABC Bank. At the end of the month, XYZ
Company prepares a bank reconciliation statement to match its records with the bank
statement. The reconciliation process reveals: a. Outstanding cheques issued by XYZ
Company totaling Rs. 10,000 have not been presented for payment. b. Bills receivable directly
collected by the bank amount to Rs. 5,000. c. The bank statement shows a service charge of
Rs. 500 deducted by the bank. What adjustments should be made in the bank reconciliation
statement based on this information?

1) Add Rs. 10,000 for outstanding cheques, deduct Rs. 5,000 for bills receivable directly
collected by bank, add Rs. 500 for the bank service charge.
2) Deduct Rs. 10,000 for outstanding cheques, add Rs. 5,000 for bills receivable directly
collected by bank, deduct Rs. 500 for the bank service charge.
3) Deduct Rs. 10,000 for outstanding cheques, deduct Rs. 5,000 for bills receivable directly
collected by bank, add Rs. 500 for the bank service charge.
4) Add Rs. 10,000 for outstanding cheques, add Rs. 5,000 for bills receivable directly
collected by bank, deduct Rs. 500 for the bank service charge.
Answer: (4)

The bank reconciliation statement is prepared to reconcile the differences

between the balance shown in the company's records and the balance shown
in the bank statement. In this case, the outstanding cheques issued by XYZ
Company need to be added to the company's records, as they have not yet been
presented for payment by the recipients. Bills receivable directly collected by
the bank amounting to Rs. 5,000 need to be added. The bank service charge
deducted by the bank needs to be deducted from the company's records.
Q. Sam's cash book shows a Debit balance of Rs. 15,000. Upon
receiving the bank statement, he sees that the bank has credited
Rs. 5,000 as interest on his savings account and deducted Rs. 200
as service charges. What is the balance according to the bank
statement?

1) 19800
2) 9800
3) 15200
4) 20200
Answer: (1)

Solution: Given data: Cash book balance (as per cash book) = Rs. 15,000
Interest credited by the bank = Rs. 5,000 Service charges deducted by the
bank = Rs. 200 Balance as per bank statement = Cash book balance +
Interest credited - Service charges Balance as per bank statement = Rs.
15,000 + Rs. 5,000 - Rs. 200 Balance as per bank statement = Rs. 19,800
Therefore, the balance as per the bank statement will be Rs. 19,800
(favourable).
Q. Rectification involves identifying errors, understanding their
impact on financial statements, and making necessary adjustments
to correct them. The goal is to ensure financial statements
accurately represent the entity's true financial position and results.
Record a rectification entry if credit purchases from XYZ Ltd were
never documented.

1) Debit: Cash A/c; Credit: Purchases A/c

2) Debit: XYZ A/c; Credit: Purchases A/c
3) Debit: XYZ A/c; Credit: Cash A/c
4) Debit: Purchases A/c; Credit: XYZ A/c
Answer: (4)

Since the original entry was not passed, it will be passed in the form
of a rectification entry:
Purchases A/c Dr
To XYZ A/c
Q. Record a correcting entry if cash sales of Rs. 16,000 were not
posted to the sales account.

1) Debit: Cash A/c; Credit: Sales A/c

2) Debit: Sales A/c; Credit: Suspense A/c
3) Debit: Commission A/c; Credit: Sales A/c
4) Debit: Suspense A/c; Credit: Sales A/c
Answer: (4)

Cash sales not posted to the sales account will be rectified using the
following journal entry:
Suspense A/c Dr 16,000
To Sales A/c 16,000
Q. If a company buys office supplies for Rs. 500, but the accountant
mistakenly records it as Rs. 50 in the office supplies account, this
error is an example of ________.

1) error of omission
2) error of commission
3) error of original entry
4) principle error
Answer: (2)

The error of commission occurs when an accountant makes a mistake in

recording a transaction. In this case, the accountant recorded the purchase of
office supplies as Rs. 50 instead of the correct amount of Rs. 500. This means
that the accountant entered the wrong value in the office supplies account. The
error of commission affects the accuracy of the financial records and may lead
to discrepancies in the trial balance. To rectify this error, the accountant needs
to correct the entry in the office supplies account by recording the correct
amount of Rs. 500. This will ensure that the trial balance is accurate and the
financial statements are prepared correctly.
Q. A correcting entry, also known as a rectification entry, is a journal
entry made to fix errors in accounting records. This entry is used when
inaccuracies are found in the original entries, which can impact the
accuracy of financial statements. Correcting entries ensure the books of
accounts reflect the correct financial position and results of the business.
Indicate the account and amount to be debited in a correcting entry if
ABC Company recorded a sales transaction of Rs. 5,000 as a credit sale to
XYZ Enterprises, but it was later found that the actual sale amount was
Rs. 50,000.

1) XYZ Enterprises A/c - Rs. 50,000

2) XYZ Enterprises A/c - Rs. 45,000
3) Sales A/c - Rs. 50,000
4) Sales A/c - Rs. 50,000
Answer: (2)

In the rectification entry, the account "XYZ Enterprises A/c" will be

debited with an amount of Rs. 45,000 (the rest of the amount) to
correct the error in recording the sales transaction. This entry will
reflect the correct sale amount of Rs. 50,000 in the books of accounts.
The rectification entry will be the same as the original entry, except
the amount will be different.
Q. Which accounts will be credited in these rectification entries? I. An
income of Rs. 500 was received as rent from Mr. Sharma but was
wrongly credited to his salary account. II. An amount of Rs. 6,000 from
Mr. X was mistakenly posted to the debit of his account.

1) Rent A/c; Mr X's A/c

2) Rent A/c; Suspense A/c
3) Sharma's Salary A/c; Mr X's A/c
4) Sharma's Salary A/c; Suspense A/c
Answer: (2)

Solution: Rectification entry in the first case:

Sharma's Salary A/c Dr. 500
To Rent A/c 500
Rectification entry in the second case:
Suspense A/c. Dr. 6000
To Mr X's A/c 6000
Q. Which of the following is NOT an example of a debit voucher?

1) Letters of authority signed by customers, containing standing

instructions.
2) Challans for deposits into accounts of Central Government or
State Government.
3) Term deposit receipts presented for payment, renewal or
premature closure.
4) All of the above are debit vouchers
Answer: (2)

Debit and credit vouchers are documents used in accounting to

record transactions involving the inflow or outflow of money. They
serve as evidence of financial transactions and are essential for
maintaining accurate and reliable accounting records. Challans for
deposits into accounts of the Central Government or State
Government is a credit voucher and not a debit one.
XYZ Company bought machinery for Rs. 1,00,000 with an
estimated useful life of 5 years and no residual value. The company
uses the straight-line method for depreciating its machinery. What
will be the annual depreciation expense for the machinery?

1) Rs. 25,000
2) Rs. 10,000
3) Rs. 20,000
4) Rs. 5,000
Answer: (3)

𝐶𝑜𝑠𝑡 𝑜𝑓 𝑀𝑎𝑐ℎ𝑖𝑛𝑒
Solution: 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑢𝑛𝑑𝑒𝑟 𝑆𝑡𝑟𝑎𝑖𝑔ℎ𝑡 𝐿𝑖𝑛𝑒 𝑀𝑒𝑡ℎ𝑜𝑑 = 𝑈𝑠𝑒𝑓𝑢𝑙 𝐿𝑖𝑓𝑒

1,00,000
𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑢𝑛𝑑𝑒𝑟 𝑆𝑡𝑟𝑎𝑖𝑔ℎ𝑡 𝐿𝑖𝑛𝑒 𝑀𝑒𝑡ℎ𝑜𝑑 = = 20,000
5
ABC Company purchased a new machine for Rs. 50,000. The
machine has an estimated useful life of 5 years and no
salvage value. Calculate the annual depreciation expense
using the straight-line method.

1) 8000
2) 5000
3) 7000
4) 10000
Answer: (4)

Solution:
𝐼𝑛 𝑡ℎ𝑒 𝑠𝑡𝑟𝑎𝑖𝑔ℎ𝑡 − 𝑙𝑖𝑛𝑒 𝑚𝑒𝑡ℎ𝑜𝑑 𝑜𝑓 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛:
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑎𝑠𝑠𝑒𝑡 − 𝑆𝑎𝑙𝑣𝑎𝑔𝑒 𝑉𝑎𝑙𝑢𝑒
𝐴𝑛𝑛𝑢𝑎𝑙 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 =
𝑈𝑠𝑒𝑓𝑢𝑙 𝑙𝑖𝑓𝑒
50,000 − 0 50,000
𝐴𝑛𝑛𝑢𝑎𝑙 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 = = = 10,000
5 5
A company bought a machine for Rs. 1,50,000 and
estimated its useful life to be 5 years with a residual value
of Rs. 20,000. Determine the depreciation expense for the
second year using the Straight-Line Method.

1) 30000
2) 27000
3) 26000
4) 34000
Answer: (3)

Solution:
The Straight Line Method is a depreciation method that allocates the cost
of an asset evenly over its useful life. Hence, the depreciation amount is
equal is all years.
The formula for calculating depreciation expense using the Straight Line
𝐶𝑜𝑠𝑡 − 𝑅𝑒𝑠𝑖𝑑𝑢𝑎𝑙 𝑉𝑎𝑙𝑢𝑒
Method is: .
𝐿𝑖𝑓𝑒 𝑜𝑓 𝑎𝑛 𝑎𝑠𝑠𝑒𝑡

Plugging the values:

1,50,000−20,000 1,30,000
Depreciation = = = 26,000
5 5
ABC Bank, a Scheduled Commercial Bank (SCB), has
implemented the Risk-Based Internal Audit (RBIA) system as
required by the RBI. This approach aims to:

1) Utilize RBIA for evaluating external communication channels

and their impact on risk management.
2) Allocate audit resources based on the historical performance
of branches and corporate levels.
3) Shift from transaction testing to identifying and prioritizing
risks for effective allocation of audit resources.
4) Focus primarily on historical transaction testing to ensure
accuracy in financial records.
Answer: (3)

RBIA is a risk-based approach to internal auditing. This

means that the audit plan is developed based on an
assessment of the risks faced by the organization. The
goal of RBIA is to ensure that the audit resources are
allocated in a way that maximizes the impact on risk
mitigation.
Who developed the International Financial Reporting
Standards (IFRS)?

1) International Accounting Standards Board (IASB)

2) Generally Accepted Accounting Principles (GAAP)
3) Financial Accounting Standards Board (FASB)
4) International Monetary Fund (IMF)
Answer: (1)

International Financial Reporting Standards (IFRS) are globally

recognized accounting standards established by the IFRS Foundation
and the International Accounting Standards Board (IASB). These
standards provide a uniform framework for presenting a company's
financial performance and position, ensuring that financial
statements are comprehensible and comparable on an international
scale.
According to RBI guidelines, what is the recommended procedure
for handling credit entries that have been outstanding for more
than five years in inter-branch accounts?

1) Seek approval from the account holder before taking any action
2) Combine them with the active accounts for simplified tracking
3) Transfer them to a separate Blocked Account and disclose under
'Other liabilities and provisions–Others'
4) Write them off immediately to avoid complications
Answer: (3)

Banks have been advised by RBI to segregate the credit entries

outstanding for more than five years in inter-branch accounts and
transfer them to a separate Blocked Account which should be
shown in the balance sheet under the head ‘Other liabilities and
provisions–Others’ (Schedule 5). While arriving at the net amount
of inter-branch transactions for inclusion in the balance sheet, the
aggregate amount of Blocked Account should be excluded and only
the amount representing the remaining credit entries should be
netted against debit entries. Banks have been advised that any
adjustment from the Blocked Account should be permitted only
with the authorisation of two officials, one of whom should be from
outside the branch concerned, preferably from the controlling/head
office if the amount exceeds a particular amount.
On 1st July 2021, ABC Ltd. bought a machine for Rs. 1,20,000 and incurred
Rs. 20,000 in installation expenses. The machine has an expected useful life
of 10 years and a salvage value of Rs. 20,000. The company's accounting
period ends on 31st December each year. What will be the depreciation
expense for the year ending 31st December 2022 using the written-down
value method at a rate of 12%?

1) Rs. 7865
2) Rs. 6700
3) Rs. 13,536
4) Rs. 7768
Answer: (3)

The amount on which depreciation will be charged = 1,20,000 + 20,000

– 20,000 = 1,40,000 - 20,000 = 1,20,000 Depreciation for the first year
(for six months) = 6% of 1,20,000 = 7,200 Depreciation for second year
= (1,20,000 – 7,200) × 12% = Rs. 13,536
The written-down value method (WDV) is a depreciation method where
depreciation is charged on the book value of the asset, which is the
original cost minus accumulated depreciation. A machine was purchased
for Rs. 80,000 with an estimated useful life of 5 years and a scrap value of
Rs. 7,000. The depreciation rate is 20%. What will be the book value of
the machine at the end of the second year using the written-down value
method?

1) 46720
2) 58400
3) 14600
4) 11680
Answer: (1)

Solution:
𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑓𝑖𝑟𝑠𝑡 𝑦𝑒𝑎𝑟 = 80,000 − 7000 × 20%
1
= 73,000 × = 14,600𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑠𝑒𝑐𝑜𝑛𝑑 𝑦𝑒𝑎𝑟
5
= 73,000 − 14,600 × 20%
= 11,680𝐵𝑜𝑜𝑘 𝑣𝑎𝑙𝑢𝑒 𝑎𝑡 𝑡ℎ𝑒 𝑒𝑛𝑑 𝑜𝑓 𝑠𝑒𝑐𝑜𝑛𝑑 𝑦𝑒𝑎𝑟 = 58,400 − 11,680
= 46,720
A company bought a machine for Rs. 2,00,000 with an estimated
production capacity of 50,000 units and a residual value of Rs.
20,000. The company produced 10,000 units this year using the
machine. Calculate the depreciation expense for the current year
using the units of production method.

1) Rs. 36,000
2) Rs. 4000
3) Rs. 40,000
4) Rs. 3600
Answer: (1)

Solution: The formula for depreciation under the units of production

𝐴𝑐𝑡𝑢𝑎𝑙 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟
method: ×
𝑇𝑜𝑡𝑎𝑙 𝑒𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑙𝑖𝑓𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑎𝑠𝑠𝑒𝑡

10,000
𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑏𝑙𝑒 𝐵𝑎𝑠𝑒 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 = × (2,00,000 −
50,000

20,000)𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 = 36,000
XYZ Bank, a well-established bank, has been enhancing its internal audit function in
line with RBI instructions. The bank ensures:
I. The Head of Internal Audit (HIA) can be any senior executive with relevant
experience, regardless of their access to records.
II. The HIA reports to the Chief Financial Officer (CFO) to streamline communication.
III. Reporting relationships are designed to avoid conflicts of interest and business
targets, with the HIA reporting directly to the Audit Committee of the Board (ACB),
MD & CEO, or Whole Time Director (WTD).
IV. The HIA does not need independent judgment as long as they control internal
audit resources. Select all that apply.

1) Only III
2) Only I & III
3) Only IV
4) Only I & II
Answer: (1)

The RBI instructions on internal audit function state that the HIA should
report directly to the ACB, MD & CEO, or WTD. This is to ensure that the
HIA has the necessary independence to carry out their duties effectively.
The HIA should also have unrestricted access to records, which is necessary
for them to conduct their audits effectively.
In the current accounting period, ABC Corporation has a batch of 100 units of
Product A purchased at Rs. 10 each. Due to market changes, the current
market price for Product A has dropped to Rs. 8 per unit. According to the
conservatism principle, how should ABC Corporation value their inventory?

1) Value the inventory at Rs. 1,000 (100 units × Rs. 10 per unit).
2) Value the inventory at Rs. 800 (100 units × Rs. 8 per unit).
3) Value the inventory at Rs. 1,000 but disclose the lower market value in the
footnotes.
4) None of the above
Answer: (2)

According to the principle of conservatism, assets should be valued at

the lower of cost or market value. This means that ABC Corporation
should value its inventory at Rs. 800, because that is the lower of its
cost (Rs. 1,000) and market value (Rs. 800).
In accounting, a journal entry is defined as:

1) A formal report that shows the financial position of a company at a

specific date.
2) A document used to request payment from a customer.
3) The first step in the accounting cycle where transactions are
recorded in chronological order.
4) A summary of financial transactions for a specific period of time.
Answer: (3)

A journal entry is the initial record of a financial transaction in

chronological order. It includes details like the accounts involved, the
amounts, and a brief description of the transaction. This information is
then used to create ledger entries and ultimately prepare financial
statements.
A company increased the valuation of its land by Rs. 100,000 in 2022
and recorded this increase in the Revaluation Reserve Account. In
2023, the value of the land decreased by Rs. 50,000. What accounting
steps should the company take to record this decrease?

1) The company should debit the amount of decline to the

Revaluation Reserve Account.
2) The company should do nothing
3) The company should credit the amount of decline to the Asset
Account.
4) The company should debit the amount of decline to the Profit and
Loss Account.
Answer: (1)

When there is a revaluation of assets, any increase in value is credited to

the Revaluation Reserve Account, and any decrease in value is debited to
the Revaluation Reserve Account. The Revaluation Reserve Account acts
as a separate reserve in the financial statements to reflect changes in the
value of assets over time. In this case, the land was revalued downward
in 2023, resulting in a decline in value of Rs. 50,000. To account for this
decline, the company should debit the amount of Rs. 50,000 to the
Revaluation Reserve Account to reflect the decrease in the value of the
land. This will reduce the balance in the Revaluation Reserve Account
and show the updated value of the land after the downward revaluation.
ABC Manufacturing Ltd. acquired a specialized machine intended to last up
to 15 years. However, given rapid technological changes, its expected
operational lifespan is only about 10 years. What depreciation method
should the financial controller use for this machine?

1) Consider the actual physical lifespan of the machine, which is 15 years.

2) Consider the expected practical lifespan of the machine, which is 10
years.
3) Ignore the lifespan altogether and use straight-line depreciation.
4) Consider both the actual and expected lifespans and take an average.
Answer: (2)

Solution: The financial controller of ABC Manufacturing should consider

the expected practical lifespan of the machine, which is 10 years, when
calculating depreciation.
Depreciation is the accounting process of spreading the cost of a tangible
asset over its useful life. The useful life of an asset is the period of time over
which the asset is expected to be used to generate economic benefits for the
company. In this case, the expected practical lifespan of the machine is 10
years, even though it has a physical lifespan of 15 years. This is because the
machine is expected to become obsolete in 10 years due to rapid
technological advancements. Therefore, the financial controller should use
a depreciation method that spreads the cost of the machine over 10 years.
ABC Corporation earned a net income of Rs. 5,00,000 for the
fiscal year ending March 31, 2022, with 1,00,000 common
shares issued and no preferred shares, and an equity share
market price of Rs. 40. How should the Earnings Per Share be
computed?

1) Rs. 8
2) Rs. 5
3) Rs. 10
4) None of the above
Answer: (2)

Solution:

Earnings per Share (EPS) is calculated using the

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 5,00,000
formula: = = 𝑅𝑠. 5
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑂𝑢𝑡𝑠tan𝑑𝑖𝑛𝑔 𝑆ℎ𝑎𝑟𝑒𝑠 1,00,000
According to the accounting principle of debiting incoming assets and
crediting outgoing assets, what is the proper journal entry for the
purchase of furniture paid with cash?

1) Neither of the two

2) Either of the above

3) Cash Account Debit, Furniture Account Credit

4) Furniture Account Debit, Cash Account Credit

Answer: (4)

The correct accounting entry for the purchase of furniture for cash is:
Furniture Account Debit, Cash Account Credit This is because the
purchase of furniture increases the company's assets (in this case,
furniture), and assets are debited. The payment of cash decreases the
company's assets (in this case, cash), and assets are credited.
Which scenarios do not require adjustments in the cashbook during
the preparation of a Bank Reconciliation Statement?

1) Interest Earned on Deposits

2) Bank Service Charges
3) Cheques Issued but not Presented for Payment
4) Deposit Errors by the Company
Answer: (3)

Solution: Cheques Issued but not Presented for Payment: A trader

immediately records the payment made by a cheque to a creditor or
for any expenses, on the cash book credit side (payments side). The
debit for the same, however, will appear in the passbook only when
the payee presents the cheque for payment to the bank. There is
usually a time lag between the date of issue of the cheque by the
drawer and presentation by the payee.
Complete the following statements related to accounting expenditures: I.
Typically, the amount recorded under capital expenditure is ____(a)____.
II. Capital expenditures are listed on the ____(b)____. III. Revenue
expenditures are generally ____(c)____.

1) (a): large (b): Balance Sheet (c): recurring

2) (a): small (b): Profit & Loss Appropriation A/c (c): recurring
3) (a): small (b): Profit & Loss A/c (c): recurring
4) (a): large (b): Balance Sheet (c): non-recurring
Answer: (1)

Solution: I. Under capital expenditure, the amount spent is usually large. Capital expenditure
refers to the expenses incurred by a company to acquire or improve its long-term assets, such as
property, plant, and equipment. These expenditures are typically significant in amount and are
aimed at enhancing the company's productive capacity or generating future benefits.
II. Capital expenditure is shown in the Balance Sheet. Capital expenditures are recorded on the
Balance Sheet as assets because they represent investments in long-term assets that provide
future economic benefits. The specific category in the Balance Sheet where capital expenditures
are typically reported depends on the nature of the asset. For example, property, plant, and
equipment are recorded as non-current assets.
III. Revenue expenditure is recurring in nature. Revenue expenditure refers to the expenses
incurred by a company in its day-to-day operations to generate revenue. These expenses are
necessary to maintain the company's ongoing operations and are typically incurred within a
short period. Revenue expenditures are recurring in nature as they are incurred regularly to
support the revenue-generating activities of the business.
Revenue expenditures are expenses that a company incurs during
regular operations to earn revenue, usually recurring. Identify an
expense that would not be classified as a revenue expenditure.

1) Cost of relocating all of an entity's operations

2) Purchase of raw materials for production
3) Installation cost of a machinery
4) Salaries and wages paid to employees
Answer: (3)

Solution: Revenue expenditures are expenses incurred in the normal course

of business to generate revenue and are typically recurring in nature.
Capital expenditures are typically associated with long-term investments
and are not expensed immediately but rather capitalized and amortized
over their useful life. Out of given options, salaries and wages paid to
employees, purchase of raw materials for production, and cost of relocating
all of an entity's operations are treated as revenue expenditure. Thus,
installation cost of a machinery is a capital expenditure.
Deferred revenue expenditure, or deferred charge, involves costs incurred
but not yet expensed on the income statement, instead recognized over a
period. How is deferred revenue expenditure treated in accounting?

1) Deferred revenue expenditure is recognized as a liability on the balance

sheet and then amortized over a period of time.
2) Deferred revenue expenditure is not recognized on the balance sheet or
income statement.
3) Deferred revenue expenditure is recognized as an expense on the
income statement immediately.
4) Deferred revenue expenditure is recognized as an asset on the balance
sheet and then amortized over a period of time.
Answer: (4)

Solution: Deferred revenue expenditure is a cost that has been incurred but
not yet recognized as an expense on the income statement. This type of
expenditure is typically recognized over a period of time, rather than all at
once. Deferred revenue expenditures are classified as assets on the balance
sheet. The amount of the expenditure is gradually recognized as an expense
on the income statement over the period of time when the company
expects to receive the benefits from the expenditure.
Statement (A): Buying a new machine is classified as a capital expenditure.
Reason (R): The new machine is expected to be utilized for multiple years.

1) Both (A) and (R) are correct but (R) does not provide a correct
explanation of (A).
2) (R) is correct but (A) is incorrect.
3) (A) is correct but (R) is incorrect.
4) Both (A) and (R) are correct and (R) provides a correct explanation of
(A).
Answer: (4)

Solution: The assertion is correct because the purchase of a new

machine is an asset that will be used for more than one year. Capital
expenditures are assets that are used for more than one year. They
are recorded on the balance sheet as assets, and they are depreciated
over their useful life. The reason is also correct because the purpose
of a machine is to produce goods or services over a period of time.
Machines are typically used for more than one year, and they are
considered to be capital assets. The reason also provides an
appropriate justification why the expense is treated as a capital
expenditure.
XYZ Corporation, a publicly traded company, is preparing its annual financial
statements. During the year, the company encountered a significant lawsuit related
to product liability. The result of the lawsuit is uncertain, but it might have a
substantial impact on the company's financial position. How should XYZ
Corporation apply the full disclosure principle in this scenario?

1) XYZ Corporation should only disclose information about the lawsuit if it results
in a loss for the company.
2) XYZ Corporation should only disclose information about the lawsuit if it is
resolved in favor of the plaintiff.
3) XYZ Corporation should disclose information about the lawsuit in the footnotes
to the financial statements, including the nature of the lawsuit, the potential
financial impact, and the current status of the case.
4) XYZ Corporation is not required to disclose any information about the lawsuit
until a final judgment is reached.
Answer: (3)
Solution: The convention of full disclosure requires companies to
disclose all material information that could affect the decisions of
investors and creditors. In this case, the lawsuit is a material event
that could have a significant impact on XYZ Corporation's financial
position. Therefore, the company should disclose information about
the lawsuit in the footnotes to the financial statements. The
disclosure should include the following information:
• The nature of the lawsuit, including the allegations against the
company.
• The potential financial impact of the lawsuit, including the
estimated amount of damages that could be awarded.
• The current status of the case, including the date of the next
hearing or trial.
What can cause differences between the balances in the
passbook and the cash book?

1) Incorrect totaling

2) Deposited cheques

3) Both 1 and 2

4) None of the above

Answer: (3)

Solution: Both deposited cheques and incorrect totaling can contribute to

variations between the passbook and cash book balances. Deposited cheques:
When you deposit a cheque, the bank will credit your account immediately, but
it may take a few days for the cheque to clear. This is because the bank needs to
verify that the cheque is valid and that the drawer's account has sufficient
funds. During this time, the passbook balance will be higher than the cash book
balance because the cash book balance only reflects the funds that are actually
available in your account. Incorrect totaling: If there is an error in totaling the
cash book, it will also cause a discrepancy between the passbook and cash
book balances. For example, if you accidentally record a deposit or withdrawal
twice, the cash book balance will be higher or lower than the passbook
balance, depending on whether you made an error in recording a deposit or
withdrawal.
Which statement is accurate regarding transactions in a bank?

1) Non-cash transactions may involve internal accounts of the

bank or accounts of bank customers.
2) Transfer transactions involve only the accounts of bank
customers.
3) Non-cash transactions involve internal accounts of the
bank exclusively.
4) All transactions in a bank are classified as cash
transactions.
Answer: (1)

Solution: Transactions in a bank are of two types: cash and non-cash. In the
latter case, also called ‘transfer transactions’, one or both of the accounts
concerned may be of the customers or the internal accounts of the bank.
For example, if ‘A’ deposits a cheque drawn in his favor by ‘B’, who is also a
customer of the branch, the accounts of the two customers will be affected.
On the other hand, if ‘A’ deposits a draft drawn on the branch, the ‘Draft,
account, an internal account of the bank, will be debited. Likewise, on
payment of interest on deposit accounts, the ‘Interest Account’ at the
branch will be debited and many personal accounts credited.
ABC Ltd., a manufacturing company that produces and sells electronic goods, recently
incurred several expenditures related to its business operations. Determine whether each
of the following expenditures should be classified as capital expenditure (C) or revenue
expenditure (R):
- Purchase of a new factory building to expand production capacity.
- Repairs and maintenance expenses for the existing machinery in the factory.
- Acquisition of a patent for new technology used in the production process.
- Purchase of raw materials to be used in the production of goods.
- Payment of salaries and wages to factory workers.
- Installation of new software to improve the efficiency of the administrative department.
- Advertising expenses for promoting the company's products.
1) R, R, C, C, R, C, R
2) R, C, C, R, R, R, R
3) C, R, C, R, R, C, R
4) C, C, C, R, R, C, R
Answer: (3)
• Purchase of a new factory building to expand production capacity - Capital expenditure (C)
because it is a long-term investment to increase the company's production capabilities.
• Repairs and maintenance expenses for the existing machinery in the factory - Revenue
expenditure (R) because it is a routine expense to keep the machinery in working condition.
• Acquisition of a patent for a new technology used in the production process - Capital
expenditure (C) as it is an investment in an intangible asset that provides long-term benefits
to the company.
• Purchase of raw materials to be used in the production of goods - Revenue expenditure (R) as
it is a regular expense directly related to the production of goods.
• Payment of salaries and wages to factory workers - Revenue expenditure (R) as it is a regular
expense for the company's ongoing operations.
• Installation of new software to improve the efficiency of the administrative department -
Capital expenditure (C) as it is an investment in improving the company's operations in the
long term.
• Advertising expenses for promoting the company's products - Revenue expenditure (R) as it
is an expense incurred for promoting current sales and generating revenue.
Which chapter of the Companies Act, 2013 covers the
appointment, removal, resignation, eligibility, qualification,
disqualification, remuneration, powers, duties, and auditing
standards of auditors?

1) Chapter X

2) Chapter XII

3) Chapter V

4) Chapter VII
Answer: (1)

Solution: Chapter X of the Companies Act, 2013 deals with the

appointment, removal, resignation, eligibility, qualification,
disqualification, remuneration, powers, duties, and auditing
standards of auditors.
ABC Company, a wholesale distributor, sells goods on credit to XYZ
Company. As part of the transaction, ABC Company issues a bill of
exchange to XYZ Company. The bill of exchange is drawn for Rs.
1,00,000 on March 1, 2022, with a one-month term from the date of
issuance. The due date of the bill is ______, and the maturity date is
calculated by adding ______ days as the grace period.

1) 1st April, four

2) 1st April, three

3) 1st April, two

4) 1st April, one

Answer: (2)

The due date of the bill is 1st April, and the date of maturity is
calculated after adding three days of the grace period. The due date
of a bill of exchange is the date on which the payment of the bill is
expected or required to be made. It represents the deadline for the
drawee (the party obligated to make the payment) to settle the bill.
The grace period refers to an additional period of time granted
beyond the due date during which the drawee can make the payment
without incurring any penalty or default. It is essentially a grace
period provided to the drawee as a courtesy or allowance for delays
or unforeseen circumstances.
XYZ Electronics, a well-known electronics manufacturer based in City A,
Country X, has been supplying electronic components to various retailers,
wholesalers, and manufacturers for many years. One of their regular
customers is ABC Retailers, a major retail chain with stores nationwide. In
their regular trade transactions, XYZ Electronics supplies electronic
components to ABC Retailers on credit, typically using a bill of exchange for
payment. What type of bill of exchange will XYZ issue?

1) Inland Bill of Exchange

2) Discount Bill
3) Rebate Bill of Exchange
4) Domestic Bill of Exchange
Answer: (1)

Solution: In the given scenario, XYZ Electronics issues an Inland Bill

of Exchange. This is because the bill of exchange is drawn and made
payable within the same country (Country X) where both parties
(XYZ Electronics and ABC Retailers) are located or reside. An Inland
Bill of Exchange is commonly used for trade transactions within a
country and represents a legally binding payment instrument for the
credit terms between the supplier (XYZ Electronics) and the buyer
(ABC Retailers).
XYZ Ltd., a manufacturing company, recently finished
developing a new product. During the project, they identified a
potential gain from selling some surplus equipment. According
to AS 4, how should XYZ Ltd. account for this contingent gain?

1) Do not recognize the gain at all.

2) Recognize the gain only if it is virtually certain to be realized.
3) Recognize the gain immediately in the financial statements.
4) None of the above
Answer: (2)

According to Accounting Standard (AS) 4, "Contingencies and

Events Occurring After the Balance Sheet Date," a contingent gain
should only be recognized if it is virtually certain. This means
that the gain is highly likely to be realized. If it is less than
virtually certain, it should not be recognized.
ABC Corporation recently purchased a specialized machine for a significant investment. The
company is considering using the straight-line method for depreciation but is aware of its
potential drawbacks. Which statement accurately describes the features of the straight-line
depreciation method?
I. The straight-line method provides a more accurate representation of an asset's decreasing
economic value compared to other methods.
II. The straight-line method may result in lower depreciation expenses in the early years of an
asset's life, possibly understating its true economic value.
III. The straight-line method is easier to apply and requires less record-keeping than other
methods.

1) Only I & II
2) Only III
3) Only I
4) Only II & III
Answer: (4)
Statement I is not accurate because the straight-line method does not
necessarily provide a more accurate representation of an asset's diminishing
economic value. In fact, the straight-line method may actually understate the
true economic value of an asset in the early years of its life. This is because the
asset is likely to be more productive in the early years, and therefore its
economic value is likely to decline more slowly.
Statement II is accurate. The straight-line method allocates a consistent
amount of depreciation expense each year, which may result in lower expenses
in the earlier years of an asset's life. This could potentially understate its true
economic value during that period. Statement III is accurate because the
straight-line method is a simple method that is easy to understand and apply. It
also requires less record-keeping than other depreciation methods, such as the
declining balance method.
A Suspense Account is used to temporarily record certain items like
amounts until their exact nature is determined and losses due to
fraud awaiting judgment. Where is the suspense account shown on
the balance sheet?

1) Reserves and Surplus

2) Other assets

3) Current Assets

4) None of the above

Answer: (2)

Suspense A/c is a temporary account used within the accounting

system to temporarily hold items or amounts that require further
clarification or investigation. The purpose of the suspense account is
to prevent any disruption in the accounting process while the nature
or outcome of the transactions or events is being determined. The
suspense A/c balance is shown under 'other assets' in the balance
sheet.
The Head of Internal Audit should be appointed for a reasonable
period, ideally for a minimum of ______ years, except in companies
where the internal audit function is specialized and managed by
career internal auditors.

1) one

2) three

3) four

4) five
Answer: (2)

• The Head of Internal Audit (HIA) must be a senior bank executive with

the capacity to make independent decisions.

• The Head of Internal Audit shall be appointed for a reasonable length of

time, ideally for a minimum of three years, with the exception of the

companies where the internal audit function is specialized and

supervised by career internal auditors.

ABC Electronics acquired a machine for Rs. 1,00,000 with an
anticipated salvage value of Rs. 10,000 after 5 years. Determine the
annual depreciation using the Straight-Line Method.

1) Rs. 2000

2) Rs. 17,000

3) Rs. 18,000

4) Rs. 20,000
Answer: (3)

𝐶𝑜𝑠𝑡 − 𝑆𝑎𝑙𝑣𝑎𝑔𝑒 𝑉𝑎𝑙𝑢𝑒 1,00,000 − 10,000

Solution: Depreciation = 𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝐿𝑖𝑓𝑒
= 5
=

90,000
5
= 18,000
The RBI requires that investment balances in the bank’s
records be reconciled with the balances in the Public Debt
Office’s records at _____ intervals.

1) yearly

2) quarterly

3) monthly

4) half-yearly
Answer: (2)

The RBI has mandated that investment balances as per the bank’s book
should be reconciled quarterly with the balances in the Public Debt
Office’s books. If the number of transactions warrants, such
reconciliation should be undertaken more frequently, say on a monthly
basis. This is to ensure that the records of the banks and the Public Debt
Office are in agreement and to prevent any discrepancies.
Which of the following statements is/are accurate concerning
revenue receipts/expenditure?

I. Revenue Expenditure is recurrent. II. Revenue Expenditure is

incurred to generate revenue in the current accounting period.

III. Capital Receipts are reflected in the Profit and Loss Statement.

1) Only I & II

2) Only I & III

3) Only II

4) Only I
Answer: (1)

Solution: Statement I is correct: Revenue expenditure is recurring in

nature, meaning that it is incurred on a regular basis, such as salaries,
rent, and utilities.
Statement II is also correct: Revenue expenditure is incurred to
generate revenue in the current accounting period. This means that
the expenditure is directly related to the revenue generated during
the same period.
Statement III is incorrect: Capital receipts are not routed through a
profit and loss statement. Instead, they are routed through a balance
sheet.
In foreign banks operating in India as branches, to whom does the Head of
Internal Audit (HIA) report?

1) The Chief Executive Officer of the bank

2) The internal audit function in the controlling office/head office
3) The Reserve Bank of India
4) The Board of Directors of the bank
Answer: (2)

The Head of Internal Audit (HIA) in foreign banks operating in India

as branches reports to the Internal Audit function in the controlling
office/head office. This is in accordance with the Reserve Bank of
India (RBI) guidelines for foreign banks operating in India. The RBI
guidelines are designed to ensure that the internal audit function in
foreign banks is independent and effective. The requirement for the
HIA to report to the Internal Audit function in the controlling
office/head office helps to ensure that the internal audit function is
not subject to undue influence from the local management of the
branch.
In accounting, how is a "suspense account" defined?

1) It is not placed in any particular category of accounts and is just a

temporary phenomenon.

2) It is a long-term liability account.

3) It is an account used exclusively for recording cash transactions.

4) It is a permanent account used for recording regular business

transactions.
Answer: (1)

Solution: A suspense account is a temporary holding account for

bookkeeping entries that will end up somewhere else once the final
and correct account is determined. It is not placed in any particular
category of accounts and is just a temporary phenomenon.
This method of depreciation is based on the assumption that the benefit
derived from an asset decreases as it ages. What depreciation method is being
described?

1) Written Down Value Method

2) Straight-line Method

3) Sum of Years' Production Method

4) Units of Production Method

Answer: (1)

The depreciation method that is based on the assumption that the

benefit accruing to business from assets keeps on falling as the asset
becomes old is the written-down value method. This method, also
known as the reducing balance method, calculates depreciation
expense as a percentage of the asset's net book value, which is the
asset's original cost minus accumulated depreciation. The written-
down value method is an accelerated depreciation method, which
means that it depreciates the asset more quickly in the early years of
its life. This is because the asset is expected to be more productive in
the early years of its life.
Credit sales to X amounting to Rs. 10,000 were mistakenly posted to his
account as Rs. 12,000. This error is classified as ______, and the _______ A/c is
debited in the rectification entry.

1) commission, X's

2) principle, X's

3) principle, Suspense

4) commission, Suspense
Answer: (4)

Solution: An error of commission occurs when an action is taken, but it is the wrong
action. In accounting, this often refers to mistakes made in recording financial
transactions. For example, if an accountant records a transaction in the wrong account
or applies the wrong amount, it would be considered an error of commission. This type
of error can lead to inaccuracies in financial statements. The correct should've been:
X's A/c 10,000
To Sales A/c 10,000
However, the entry that passed was of Rs. 12,000.
The rectification entry will be:
Suspense A/c 2000
To X's A/c 2000
When a trial balance does not tally, meaning the debit and credit columns
are unequal, we understand that:

1) At least one error has occurred in the accounting records.

2) The trial balance is only useful for small businesses.

3) There are no errors; the trial balance is correct.

4) There must be multiple errors in the accounting records.

Answer: (1)

Solution: If a trial balance does not tally, it indicates that there is at

least one error in the accounting records. The trial balance is a tool
used to identify discrepancies in the accounting records, and an
unequal total of debits and credits indicates that there is an issue that
needs to be investigated and corrected.
ABC Corporation, a manufacturing firm, is establishing a new production
facility. The project incurs various costs, including those for testing the
newly installed machinery and professional fees paid to consultants for
designing and overseeing the construction. How should ABC Corporation
classify the costs of testing and professional fees?

1) Revenue Expenditure

2) Capital Expenditure

3) Deferred Expenditure

4) Extraordinary Expenditure
Answer: (2)

Solution: Capital expenditure is the cost of acquiring or improving long-term assets,

such as property, plant, and equipment. These assets are expected to be used for more
than one accounting period and provide economic benefits to the company over time.
The costs of testing and professional fees incurred by ABC Corporation are necessary
to ensure that the new production facility is properly designed and constructed, and
that the newly installed machinery is functioning properly. These costs are also
expected to provide economic benefits to the company over time, as the new
production facility will allow the company to produce more goods and services more
efficiently. Therefore, the costs of testing and professional fees would be classified as
capital expenditure and would be capitalized on the company's balance sheet. This
means that the costs would be added to the cost of the new production facility and
would be depreciated over the expected useful life of the facility.
If a suspense account still does not balance after rectifying errors, it
indicates that:

1) The suspense account is not being used correctly.

2) The accounts are in perfect balance.

3) There are no errors in the accounts.

4) The original error has not been identified or corrected.

Answer: (4)

Solution: If a suspense account does not balance off even after

rectification of errors, it means that there is still at least one error in
the accounts that has not been identified or corrected. The suspense
account is used to balance the trial balance when errors are detected,
but it is only a temporary account. Once all of the errors have been
identified and corrected, the suspense account should balance off to
zero.
Which best describes a principal error in a trial balance?

1) A mistake in recording transactions that doesn't affect the fundamental

accounting principles.

2) An error arising from a violation of accounting principles, such as

recording revenue before it's earned.

3) A mathematical error in the trial balance calculation.

4) A clerical mistake that doesn't impact the financial statements.

Answer: (2)

Solution: A principle error in a trial balance is an error that occurs when an

accountant violates a fundamental accounting principle. This can happen
for a variety of reasons, such as a lack of understanding of accounting
principles, carelessness, or fraud. Some common examples of principle
errors include:

• Recording revenue before it's earned

• Recording expenses after they've been incurred
• Misclassifying assets, liabilities, or equity
_____ expenditure is non-recurring and is shown in ______.

1) Capital, P&L Account

2) Revenue, P&L Account

3) Revenue, Balance Sheet

4) Capital, Balance Sheet

Answer: (4)

Capital expenditure: Nature: Non-recurring in nature. This means it's

a one-time expense, not an ongoing cost incurred regularly.
Shown in: Balance Sheet. It increases the value of assets on the asset
side of the balance sheet.
Which of the following is a revenue expenditure?
1. Commissions paid to sales staff
2. Cost of acquiring new software for business operations
3. Legal and professional fees
4. Interest expenses on loans for operating activities
5. Salaries for office staff

1) 1, 4 and 5 only
2) 2 and 3 only
3) 1, 2 and 5 only
4) 3 and 5 only
Answer: (1)
• Revenue expenditures are short-term expenses used within the
current accounting period (usually one year) and are necessary for
the day-to-day operations of a business.
• Commissions paid to sales staff directly incentivize and drive sales,
contributing to current revenue generation.
• Interest expenses on loans used for operating activities are incurred
to finance ongoing business operations, making them revenue
expenditures.
• Salaries for office staff are essential for administrative and support
functions that keep the business running smoothly, even if they don't
directly generate revenue.
A bill of exchange is:

1) Contains an unconditional order

2) Signed by maker

3) Instrument in writing

4) All of the above

Answer: (4)

Bill of Exchange is defined as

• an instrument in writing
• signed by the maker
• containing an unconditional order
• to pay a certain sum of money and money only
• to a person, named in the instrument or, to his order to the bearer
• on a certain fixed future date or on demand (Section 5 of Negotiable
Instruments Act).