Section 1: Basics of Financial Statements
What are financial statements primarily designed to provide?
- A) Qualitative information
- B) Quantitative and monetary information
- C) Historical predictions
- D) Personal judgments
- Answer: B
Which document is NOT part of financial statements as per the Companies Act?
- A) Balance Sheet
- B) Statement of Profit and Loss
- C) Notes to Accounts
- D) Memorandum of Association
- Answer: D
What is the main objective of financial statements?
- A) Assist in decision-making
- B) Record qualitative data
- C) Replace accounting standards
- D) Avoid statutory disclosures
- Answer: A
The assumption that a company will continue operating in the foreseeable future is called the:
- A) Realisation Postulate
- B) Money Measurement Concept
- C) Going Concern Assumption
- D) Matching Principle
- Answer: C
Which of the following is classified as a current asset?
- A) Goodwill
- B) Land
- C) Trade Receivables
- D) Patents
- Answer: C
Section 2: Balance Sheet
What does the term "non-current liabilities" include?
- A) Cash at bank
- B) Deferred tax liabilities
- C) Inventory
- D) Short-term borrowings
- Answer: B
Under what head is ‘Share Capital’ recorded in the balance sheet?
- A) Non-Current Assets
- B) Equity and Liabilities
- C) Current Liabilities
- D) Long-term Borrowings
- Answer: B
Which of the following is NOT considered a tangible asset?
- A) Machinery
- B) Vehicles
- C) Patents
- D) Land
- Answer: C
What is included in "Shareholders’ Funds"?
- A) Trade Payables
- B) Reserves and Surplus
- C) Loans
- D) Current Assets
- Answer: B
A company’s balance sheet must be prepared in:
- A) Horizontal format
- B) Vertical format
- C) Any chosen format
- D) Standard horizontal and vertical format
- Answer: B
Section 3: Profit and Loss Statement
What is reported in the Statement of Profit and Loss?
- A) Liabilities of a business
- B) Financial position of a business
- C) Revenue and expenses
- D) Cash flows
- Answer: C
Revenue from operations does NOT include:
- A) Sale of products
- B) Dividend income
- C) Sale of services
- D) Other operating revenues
- Answer: B
Under expenses in the profit and loss statement, what does "Finance Costs" represent?
- A) Employee salaries
- B) Interest on borrowings
- C) Depreciation
- D) Raw material cost
- Answer: B
What category does "Employee Benefits Expense" fall under?
- A) Revenue
- B) Cost of Materials Consumed
- C) Expenses
- D) Other Income
- Answer: C
Which item is NOT shown under "Other Income"?
- A) Interest income
- B) Depreciation
- C) Dividend income
- D) Gain on investment sale
- Answer: B
Section 4: Standards and Classifications
Financial statements should adhere to:
- A) International Standards only
- B) Accounting Standards and Companies Act
- C) Personal judgment alone
- D) Auditor’s discretion
- Answer: B
Which schedule of the Companies Act, 2013 is used for financial statement preparation?
- A) Schedule II
- B) Schedule III
- C) Schedule IV
- D) Schedule V
- Answer: B
What is the primary characteristic of a current liability?
- A) Settled within 12 months
- B) Long-term in nature
- C) Related to shareholder equity
- D) Related to tangible assets
- Answer: A
Which is NOT classified under “Reserves and Surplus”?
- A) Securities Premium
- B) Debenture Redemption Reserve
- C) Deferred Tax Asset
- D) General Reserve
- Answer: C
Proposed Dividend for the current year is shown as a:
- A) Non-current Liability
- B) Contingent Liability in Notes
- C) Current Liability
- D) Equity Item
- Answer: B
Section 5: Limitations and Uses
A major limitation of financial statements is that they:
- A) Reflect only historical costs
- B) Include quantitative and qualitative data
- C) Always represent current market values
- D) Do not follow accounting principles
- Answer: A
Who uses financial statements to assess creditworthiness?
- A) Shareholders
- B) Creditors and Lenders
- C) Customers
- D) Government
- Answer: B
What qualitative information is missing in financial statements?
- A) Revenue details
- B) Labour relations and work quality
- C) Profit/loss figures
- D) Asset classifications
- Answer: B
Which type of investor primarily relies on financial statements for investment decisions?
- A) Short-term investors
- B) Long-term investors
- C) Both A and B
- D) None of the above
- Answer: C
Stock exchanges use financial statements to:
- A) Adjust corporate taxes
- B) Gauge transparency and protect investor interests
- C) Evaluate loan applications
- D) Create accounting standards
- Answer: B
Section 6: Classification of Assets and Liabilities
What does "Deferred Tax Liability" represent?
- A) A current asset
- B) An advance tax paid
- C) A liability due to temporary differences in taxation
- D) A permanent difference in taxation
- Answer: C
Which of the following is considered a non-current asset?
- A) Trade Receivables
- B) Short-term Investments
- C) Land and Building
- D) Cash in hand
- Answer: C
What is classified under "Intangible Assets"?
- A) Goodwill
- B) Plant and Machinery
- C) Vehicles
- D) Loose tools
- Answer: A
Which of the following is NOT included under "Equity and Liabilities"?
- A) Shareholder’s Funds
- B) Non-current Liabilities
- C) Trade Receivables
- D) Current Liabilities
- Answer: C
Trade Payables expected to be settled after 12 months are categorized under:
- A) Current Liabilities
- B) Long-term Borrowings
- C) Non-current Liabilities
- D) Provisions
- Answer: C
What does "Shareholders’ Funds" exclude?
- A) Share Capital
- B) Reserves and Surplus
- C) Money received against share warrants
- D) Trade Payables
- Answer: D
How are inventories classified in the balance sheet?
- A) Current Assets
- B) Non-current Assets
- C) Equity
- D) Reserves
- Answer: A
Which asset has a useful life of less than 12 months but is classified as non-current?
- A) Intangible assets
- B) Fixed assets
- C) Inventory
- D) None of the above
- Answer: B
Sundry Debtors have been replaced by which term in the balance sheet?
- A) Trade Receivables
- B) Trade Payables
- C) Cash and Cash Equivalents
- D) Non-current Liabilities
- Answer: A
Preliminary expenses are classified under:
- A) Equity
- B) Non-current Liabilities
- C) Current Assets
- D) Other Non-current Assets
- Answer: D
Section 7: Accounting Practices and Standards
What does AS-3 deal with?
- A) Depreciation accounting
- B) Cash Flow Statements
- C) Segment Reporting
- D) Revenue Recognition
- Answer: B
According to Schedule III of the Companies Act, trade payables are classified as:
- A) Current Liabilities
- B) Non-current Liabilities
- C) Trade Receivables
- D) Shareholders’ Funds
- Answer: A
What is the "Matching Principle" in accounting?
- A) Recording revenue before expenses
- B) Matching revenue with related expenses during the same period
- C) Matching liabilities with assets
- D) Avoiding matching expenses
- Answer: B
Which financial document provides a snapshot of the company's financial position at a specific date?
- A) Profit and Loss Statement
- B) Cash Flow Statement
- C) Balance Sheet
- D) Auditor's Report
- Answer: C
Which accounting convention values inventory at the lower of cost or market price?
- A) Convention of Materiality
- B) Convention of Conservatism
- C) Convention of Disclosure
- D) Convention of Matching
- Answer: B
Section 8: Cash Flow and Reserves
Cash Flow Statements are prepared to analyze:
- A) Revenue and expenses
- B) Operating, investing, and financing activities
- C) Profit and loss
- D) Asset valuation
- Answer: B
What does "Securities Premium" represent?
- A) Discount on shares
- B) Amount received over nominal value of shares
- C) Loss on share sale
- D) Dividends distributed
- Answer: B
Which of the following is included in "Capital Reserve"?
- A) Dividend payouts
- B) Gains on revaluation of assets
- C) Trade Payables
- D) Provision for Taxation
- Answer: B
The reduction in the value of fixed assets over time is known as:
- A) Appreciation
- B) Depreciation
- C) Accumulation
- D) Consolidation
- Answer: B
What type of cash flow arises from the issuance of equity shares?
- A) Operating
- B) Financing
- C) Investing
- D) None of the above
- Answer: B
Section 9: Importance and Limitations
Financial statements do NOT include:
- A) Profit/Loss information
- B) Qualitative details
- C) Liabilities summary
- D) Revenue details
- Answer: B
A major limitation of financial statements is that they rely heavily on:
- A) Market-based data
- B) Personal judgment and estimates
- C) International data
- D) Future projections
- Answer: B
Which of the following is NOT a user of financial statements?
- A) Management
- B) Investors
- C) Customers
- D) Competitors
- Answer: D
What financial measure is crucial for stock exchanges?
- A) Company branding
- B) Shareholding transparency
- C) Management salaries
- D) Customer satisfaction
- Answer: B
Which financial document is referred to as an interim report?
- A) Statement of Profit and Loss
- B) Notes to Accounts
- C) Balance Sheet
- D) Directors’ Report
- Answer: A
Section 10: Components of Financial Statements
Which of the following is mandatory to disclose in Notes to Accounts?
- A) General market trends
- B) Accounting policies adopted
- C) Share prices
- D) Competitor data
- Answer: B
Which statement summarizes cash inflows and outflows over a period?
- A) Balance Sheet
- B) Statement of Profit and Loss
- C) Cash Flow Statement
- D) Auditor's Report
- Answer: C
The classification of liabilities into current and non-current is based on:
- A) Duration of less or more than 12 months
- B) Company policy
- C) Asset category
- D) Revenue generation
- Answer: A
Which of the following is NOT part of "Equity and Liabilities"?
- A) Share Capital
- B) Reserves and Surplus
- C) Fixed Assets
- D) Money received against share warrants
- Answer: C
In the financial statements, “Provision for Taxation” is categorized as:
- A) Current Liability
- B) Long-term Borrowing
- C) Shareholder Fund
- D) Non-current Liability
- Answer: A
Section 11: Formats and Presentations
As per Schedule III, the format for presenting financial statements is:
- A) Vertical
- B) Horizontal
- C) Either Vertical or Horizontal
- D) Varies with company type
- Answer: A
Revenue from operations in a finance company includes:
- A) Cost of goods sold
- B) Dividends received
- C) Interest and financial service income
- D) Raw material cost
- Answer: C
In the balance sheet, "Trade Receivables" are classified as:
- A) Current Asset
- B) Non-current Asset
- C) Current Liability
- D) Equity Item
- Answer: A
Which item is shown under “Other Current Assets”?
- A) Trade Payables
- B) Inventories
- C) Prepaid Expenses
- D) Goodwill
- Answer: C
The primary users of financial statements include all EXCEPT:
- A) Employees
- B) Tax authorities
- C) Competitors
- D) Investors
- Answer: C
Section 12: Shareholders' Funds
The rights and restrictions attached to each class of shares must be disclosed in:
- A) Notes to Accounts
- B) Cash Flow Statement
- C) Director’s Report
- D) Auditor’s Report
- Answer: A
Which reserve is specifically represented by earmarked investments?
- A) General Reserve
- B) Capital Reserve
- C) Fund
- D) Securities Premium Reserve
- Answer: C
Money received against share warrants is shown under:
- A) Current Liabilities
- B) Shareholders' Funds
- C) Non-current Liabilities
- D) Contingent Liabilities
- Answer: B
Forfeited shares are classified under:
- A) Shareholders’ Funds
- B) Current Liabilities
- C) Trade Receivables
- D) Non-current Liabilities
- Answer: A
Securities Premium Reserve is used for all EXCEPT:
- A) Issue of bonus shares
- B) Writing off preliminary expenses
- C) Payment of dividends
- D) Providing for premium on redemption of debentures
- Answer: C
Section 13: Provisions and Reserves
Proposed Dividend for the current year is classified as a:
- A) Long-term Liability
- B) Contingent Liability in Notes
- C) Current Liability
- D) Shareholder Fund
- Answer: B
What does a Debenture Redemption Reserve represent?
- A) Profit earned on debentures
- B) Reserve to secure redemption of debentures
- C) Current Liability
- D) Cash Reserve
- Answer: B
A reserve created from capital gains is called:
- A) Capital Reserve
- B) General Reserve
- C) Revaluation Reserve
- D) Revenue Reserve
- Answer: A
The balance of reserves is adjusted against:
- A) Depreciation
- B) Preliminary expenses
- C) Current liabilities
- D) Cash equivalents
- Answer: B
Debentures are typically classified as:
- A) Current Liability
- B) Long-term Borrowings
- C) Shareholder Fund
- D) Current Asset
- Answer: B
Section 14: Taxation and Other Items
Deferred Tax Assets are classified as:
- A) Non-current Assets
- B) Current Liabilities
- C) Non-current Liabilities
- D) Shareholders’ Funds
- Answer: A
Tax expenses in the Profit and Loss statement include:
- A) Only Deferred Tax
- B) Only Current Tax
- C) Both Current and Deferred Taxes
- D) None of the above
- Answer: C
Unclaimed dividends are recorded under:
- A) Provisions
- B) Other Current Liabilities
- C) Reserves
- D) Contingent Liabilities
- Answer: B
Calls-in-Arrears are disclosed as:
- A) Current Liabilities
- B) Deduction from Share Capital
- C) Provision
- D) Contingent Liability
- Answer: B
Which type of liability is created for expected losses?
- A) Provision
- B) Current Liability
- C) Contingent Liability
- D) Non-current Liability
- Answer: A
Section 15: Miscellaneous
The vertical presentation of financial statements is prescribed under:
- A) Schedule I
- B) Schedule III
- C) AS-3
- D) Schedule V
- Answer: B
Which of the following is a contingent liability?
- A) Trade Receivables
- B) Claims not acknowledged as debts
- C) Cash at Bank
- D) Goodwill
- Answer: B
Which is an example of a tangible fixed asset?
- A) Goodwill
- B) Patent
- C) Machinery
- D) Trademark
- Answer: C
Current assets are classified based on:
- A) Expected realization within 12 months
- B) Purchase date
- C) Historical cost
- D) Profitability
- Answer: A
Non-current investments are those held for:
- A) Immediate sale
- B) Long-term purposes
- C) Operating cycle
- D) Liquidation
- Answer: B
Section 16: Practical Applications
Which type of asset is capital work-in-progress?
- A) Current Asset
- B) Non-current Asset
- C) Intangible Asset
- D) Depreciating Asset
- Answer: B
What is NOT included in "Other Expenses" in Profit and Loss?
- A) Bank charges
- B) Depreciation
- C) Repairs and maintenance
- D) Administrative expenses
- Answer: B
What is the format of the Profit and Loss Statement?
- A) Horizontal
- B) Vertical
- C) Tabular
- D) Narrative
- Answer: B
Prepaid expenses are classified as:
- A) Non-current Liabilities
- B) Current Liabilities
- C) Other Current Assets
- D) Non-current Assets
- Answer: C
Which item reflects profit distributed to shareholders?
- A) Reserves
- B) Dividends
- C) Retained Earnings
- D) Depreciation
- Answer: B
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