Basic Accounting Questions and Answers

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Basic Accounting Questions and Answers

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Basic Accounting Questions for Practice

1. “Business unit is separate and distinct from the person who supply capital” is based on:
(A) Money measurement concept
(B) Going concern concept
(C) Accounting entity concept
(D) Dual aspect concept

2. Mr. A purchased it machinery costing Rs 1,00,000 on 15th November 2013. Transportation and installation charges were incurred amounting Rs 10,000 and Rs 4,000 respectively. Dismantling charges of the old machine was Rs 10,000. Market value of the new machine was estimated at Rs 1,20.000 on 1st March 2021. While preparing final accounts, A values the machinery at Rs 110,000 in his books. Which of the following concepts was violated by A?
(A) Cost concept
(B) Matching concept
(C) Realisation concept
(D) Periodicity concept

3. A company wishes to cam 20% profit margin on selling price _________ is the profit mark-up on cost, which will achieve the required profit margin.
(A) 33%
(B) 25%
(C) 20%
(D) None of the above

4. Debit note is associated with:
(A) Purchase return
(B) Sales return
(C) Purchases
(D) Sales

5. When shares are forfeited the share capital account is debited by:
(A) Calls in arear
(B) Nominal value ul such shares
(C) Paid-up amount
(D) Called-up amount

6. Accounting Standards in India are issued by:
(A) Central Government
(B) Reserve Bank of India
(C) Institute of Chartered Accountants of India

7. The basic rule of “debit the receiver and credit the giver” applies to:
(A) Real account
(B) Personal account
(C) Nominal account
(D) None of the above

8. Balance sheet shows financial position of a concern:
(A) For the year ended
(B) As on a particular date
(C) For a given period
(D) All of the above

9. Fixed assets of a business is Rs 1,00,000; Current assets are Rs 20,000; Capital and bong term liabilities are Rs 50,000, then Current liabilities will be:
(A) Rs 70,000
(B) Rs 50,000
(C) Rs 30,000
(D) Rs 20,000

10. Preliminary expenses are an example of:
(A) Revenue expenditure
(B) Deferred revenue expenditure
(C) Capital expenditure
(D) All of the above

11. Closing stock of a trading concern is equal to:
(A) Opening stock + Purchases — Sales
(B) Sales + Opening stock — Purchases
(C) Sales — Opening stock + Purchases
(D) Opening stock + Purchases -Cost of goods sold

12. Provision for bad and doubtful debt is created on:
(A) Sundry debtors
(B) Sundry debtors plus bad debts
(C) Sundry debtors las doubtful debts
(D) Sundry debtors less bad debts

13. The study of relationship of various items in the financial statements of one accounting period is called:
(A) Horizontal Analysis
(B) Vertical Analysis
(C) Trend Analysis
(D) Comparative Analysis

14. Ratios calculated to measure the efficiency with which the resources of a firm have been employed are called:
(A) Liquidity ratios
(B) Profitability ratios
(C) Turnover ratios
(D) Solvency ratios

15. If the working capital of a company is Rs 90,000 and its current ratio is 2.5, what is the value of its current asset?
(A) Rs 1,50,000
(B) Rs 60,000
(C) Rs 225,000
(D) Rs 120,000

16. The capital structure of a company consists of Rs 1,00,000 Equity shares; Rs 50,000 10% Redeemable preference shares; and Rs 30,000 8% debentures. What is its Capital Gearing ratio?
(A) 1.66
(B) 1.33
(C) 2.00
(D) 1.25

17. In provision method of depreciation, the asset always appears at:
(A) Market price
(B) Cost price
(C) Written Down Value
(D) None of the above

18. Which of the following is shown in Profit and Loss Appropriation amount?
(A) Provision for income tax
(B) Provision for depreciation
(C) Provision for doubt debt
(D) Contribution to General reserve

19. Written Down Value is calculated as:
(A) Book Value — Depreciation
(B) Original Cost – Scrap value
(C) Book Value + Depreciation
(D) None of the above

20. The revenue is generally considered as realised at the time of:
(A) Receipt of order
(B) Receipt of cash
(C) Sale
(D) Agreement to sell

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21. Which of the following is considered to be the appropriate objective of Financial Management?
(A) Profit Maximisation
(B) Wealth Maximisation
(C) Sales Maximisation
(D) Asset Maximisation

22. Financial management is mainly concerned with:
(A) Financial planning and forecasting
(B) Acquisition and investment of funds
(C) Maintaining profitability and liquidity
(D) All of the above

23. The discount rate that equates the present value of cash inflows with initial investment associated with a project is called:
(A) Internal rate of return
(B) Real rate of discount
(C) Average rate of return
(D) Nominal rate of discount

24. _____________ measures present value of returns per rupee invested.
(A) Net present value
(B) Terminal value
(C) Profitability index
(D) Return on investment

25. The choice of investment proposals under financial constraints of capital expenditure budget is called:
(A) Capital rationing
(B) Capital budgeting
(C) Capital gearing
(D) Capital expenditure control

26. The risk to the firm of being unable to cover fixed operating cost is called:
(A) Financial risk
(B) Interest rate risk
(C) Business risk
(D) Systematic risk

27. The EBIT level at which EPS is the same for two alternative financial plans is referred to as:
(A) Break-even point
(B) Indifference point
(C) Financial Break-even point
(D) None of the above

28. Average rate of return is calculated from:
(A) Annual cash flows
(B) Annual Profits
(C) Annual sales
(D) None of the above

29. In which method of capital budgeting cash inflows are discounted at the cost of capital?
(A) Internal rate of return
(B) Average rate of return
(C) Net present value
(D) None of the above

30. Financial leverage is calculated by:
(C) Contribution /EBIT

31. “Packing order theory” is associated with:
(A) Dividend decision
(B) Investment decision
(C) Working capital decision
(D) Financing decision

32. Arbitrage process is the operational justification of which of the following theories?
(A) Net Income theory
(B) Net Operating Income theory
(C) Modigliani and Miller theory
(D) Walter’s theory

33. EBIT – EPS analysis is associated with:
(A) Designing Capital structure
(B) Dividend policy
(C) Capital Budgeting
(D) None of the above

34. If the Fixed cost of a firm is Rs 90.000 and Contribution is Rs 1,00,000, its Operating Leverage will be:
(A) 9
(B) 0.90
(C) 10
(D) 0.10

35. Which of the following is costlier source of capital?
(A) Debenture
(B) Preference Shares
(C) Retained Earnings
(D) Equity Shares

36. Walter’ s Dividend Model is based on the relationship between rate of return and __________.
(A) Earnings per share
(B) Rate of growth
(C) Equity capital
(D) Cost of capital

37. Scrip dividend means:
(A) Cash Dividend
(B) Dividend paid other than cash
(C) Arrears of dividend
(D) None of the above

38. Which is the correct formula for the computation of NOPAT?
(A) PBIT(1 + T)
(B) PBIT – (INT + T)
(C) PAT – INT(1 – T)
(D) PAT + INT(1 – T)

39. Which of the following is the component of capital market?
(A) Commercial bill market
(B) Treasury bill market
(C) Government securities market
(D) Short term loan market

40. The introduction of Liquidity adjustment facility in India was on the basis of the recommendations of:
(A) Chore committee
(B) Jilani committee
(C) Kannan committee
(D) Narsimham committee

41. Shares issued by companies which have the ability to surpass the GDP of the country are known as:
(A) Asset plays
(B) Stalwarts
(C) Blue chip
(D) Turnaround

42. In mortgage guarantee, __________ means the classification of a borrower account as NPA.
(A) Trigger event
(B) Grooming
(C) Filter event
(D) Churning

43. The term Availing bank’ is related with:
(A) Discounting
(B) Factoring
(C) Forfeiting
(D) Hire purchase

44. The equity assessment process commences at the request of:
(A) Issuer
(B) Investor
(C) Government
(D) Court

45. Refactoring charges have to be paid in the case of:
(A) Collection factoring
(B) Full-service factoring
(C) With recourse factoring
(D) Without recourse factoring

46. Certificate of Deposit are issued as Usance Promissory Notes with maturity ranging from:
(A) 7 days
(B) 14 days
(C) 45 days
(D) 365 days

47. Liquidity adjustment facility is a tool which allows banks to borrow money through:
(A) Arbitrage
(B) Marginal standing facility
(C) Margin trading
(D) Repurchase agreement

48. A fund that combines the features of open-ended and close-ended schemes is:
(A) Interval fund
(B) Growth fund
(C) Dual fund
(D) Balanced fund

49. Which of the following is not a part of systematic risk?
(A) Market risk
(B) Business risk
(C) interest rate risk
(D) inflationary risk

50. Which of the following is beyond the control of monetary policy authorities?
(A) Action lag
(B) implementation lag
(C) Impact lag
(D) Recognition lag

51. ____________ refers to increase in the number oi items that a licensed industry can produce within the licensed range of products.
(A) Full line forcing
(B) Broad banding
(C) Vertical restraints
(D) Forward linkage

52. Under economic environmental analysis ____________ explains the relation between tax rate and tax revenue.
(A) S curve
(B) Paasche’s index
(C) Lorenz curve
(D) Latter curve

53. If the economy is already close to full employment, any substantial close of government investment will tend to displace private investment plans. This is called ________ of public investment.
(A) Country risk impact
(B) Multiplier effect
(C) Crowding out effect
(D) Veiled quality deterioration

54. A profitable business or government organisation with regular cash flow because of the sustained demand or popularity:
(A) Blue chip
(B) Cash cow
(C) Gilt edged
(D) Stag

55. Basel norms are regulatory stipulations meant for:
(A) Money market
(B) Capital market
(C) Banks
(D) Insurance companies

56. Providing permission to use technical know how by parent organisation to another individual is known as:
(A) Agency
(B) Marketing
(C) Dealership
(D) Franchising

57. Factoring means __________.
(A) Financing against bills receivables
(B) Financing invoices without recourse only
(C) Purchasing and administering the receivables of a concern
(D) Collecting the receivables and remitting to the seller

58. The standard rate of interest at which RBI is prepared to buy/rediscount bills of exchange or other commercial paper from banks is:
(A) Repo rate
(B) Bank rate
(C) Call rate
(D) Reverse repo rate

59. Growth Fund is a mutual fund that:
(A) Assures growth in income
(B) Invests in fixed income securities
(C) Assures fixed return
(D) Invests primarily in equities

60. Which of the following forms part of social environment?
(A) Money supply in the society
(B) Consumer protection
(C) Constitution of the country
(D) Composition of family

61. Factors that affect consumer purchasing power and spending patterns make up the _____________ environment.
(A) Demographic
(B) Economic
(C) Natural
(D) Technological

62. In the implementation stage of a project, ____________ provide start up finance.
(A) Leasing
(B) Merchant banking
(C) Investment companies
(D) Venture capital

63. _____________ is a continuous and constant involvement in the operations of the venture capital company by the venture capital institution.
(A) Hands off nurturing
(B) Hands on nurturing
(C) Hands holding nurturing
(D) Aftercare

64. SEBI was established in the year:
(A) 1988
(B) 1939
(C) 1991
(D) 1992

65. _____________ refers to measures taken by RBI to control and regulate money supply.
(A) Credit policy
(B) Financial policy
(C) Monetary policy
(D) Fiscal policy

66. Open market operations are mainly used as:
(A) A device which assists Government borrowing
(B) A measure to counteract extreme trends in business
(C) A measure to influence the balance of payments position
(D) A monetary measure to regulate quantity of money in circulation