Finance /Accounting

1. The only feasible purpose of financial management is

a. Wealth Maximization
b. Sales Maximization
c. Profit Maximization
d. Assets maximization

2.Financial management process deals witha. Investments

b. Financing decisions
c. Both a and b
d. None of the above

3.In a variable growth model, the dividend is believed to grow at a constant pace forever after an initial
growth period.

a. True
b. False

4.For a bond YTM is always equal to coupon rate.

a. True
b. False

Answer Explanation Related Ques

8) Which ratio is considered as safe margin of solvency?

a. Liquid ratio
b. Quick ratio
c. Current ratio
d. None of the above
Answer Explanation Related Ques
9) The ideal level of current ratio is

a. 4:2
b. 2:1
c. Both a and b
d. None of the above
Answer Explanation Related Ques

10) Current ratio is stated as a crude ratio because

a. It measures only the quantity of current assets

b. It measures only the quality of current assets
c. Both a and b
d. Offerings dimension
Answer Explanation Related Ques

11) Liquid ratio is also known as

a) Quick ratio
b) Acid test ratio
c) Working capital ratio
d) Stock turnover ratio

a. A and B
b. A and C
c. B and C
d. C and D
Answer Explanation Related Ques

12) Stock is considered as a liquid asset as anytime it can be converted into cash immediately.

a. Yes
b. No

Answer Explanation Related Ques

13) The ideal level of liquid ratio is

a. 3:3
b. 4:4
c. 5:5
d. All of the above
Answer Explanation Related Ques

14) Debt-equity ratio is a sub-part of

a. Short-term solvency ratio

b. Long-term solvency ratio
c. Debtors turnover ratio
d. None of the above
Answer Explanation Related Ques

15) Which of the following are applications of funds?

a. Payment of dividend on share capital

b. Payment of tax
c. Increase in working capital
d. All of the above
Answer Explanation Related Ques

16) Which of the following are treated as long term investments?

a. Non-current investments
b. Trade Investments
c. Sinking fund investments
d. All of the above
Answer Explanation Related Ques

17) In case of other enterprises cash flow arising from interest paid should be classified as cash flow
from ________ while dividends and interest received should be stated as cash flow from _______.

a. Operating activities, financing activities

b. Financing activities, investing activities
c. Investing activities, operating activities
d. None of the above
Answer Explanation Related Ques

18) Issue of bonus shares and conversion of debentures into equity are shown as a footnote to the
Cash Flow Statement.

a. True
b. False

Answer Explanation Related Ques

19) When a fixed asset is bought as hire purchase, interest element is classified under ______ and
loan element is classified under________.

a. Operating activities, financing activities

b. Financing activities, investing activities
c. Investing activities, operating activities
d. None of the above
Answer Explanation Related Ques

20) ___________ is not suitable where selling price is determined on the basis of cost-plus method.

a. Absorption costing
b. Marginal costing
c. Both a and b
d. None of the above
Answer Explanation Related Ques

21) While making a pricing decision under Special price, if price is greater than marginal cost,

a. Acceptance and rejection depends on product type

b. Order should be rejected
c. Order should be accepted
d. None of the above
Answer Explanation Related Ques
 22) ABC Ltd manufactures a single product and sales for Rs 30 per unit. There is increased demand
of the product. The Direct Material is Rs 8, Direct labour (2 hours) is Rs 4 and Variable overheads is Rs
4. The labour force is working at full capacity and no extra time is available. Mr. X has approached
ABC Ltd with a request for manufacture special order at Rs 8,000. Also, 600 hours labour will be
required and cost of the order will be Rs 3000 for Direct Material. Variable overhead per hour will be
Rs 2. Should the order be accepted? Why?

a. Yes, Net Profit Rs 1,600

b. No, Net loss Rs 1,600
c. No, Net loss Rs 2,000
d. Yes Net Profit Rs 2,000

23) The few items of fixed costs which can be saved or eliminated by suspending the trading
activities are

a. Escapable fixed costs

b. Special fixed costs
c. Suspension fixed costs
d. None of the above
Answer Explanation Related Ques

24) While taking shut-down decisions, the amount of contribution should be compared with

a. Escapable fixed costs

b. Special costs
c. Net escapable fixed costs
d. None of the above
Answer Explanation Related Ques

25) A decision regarding temporary closure should be made on

a. Cost data
b. Economic factors
c. Social factors
d. All of the above
Answer Explanation Related Ques
26) When the temporary closure is warranted by the off-season, shut-down point is calculated as

a. Non-escapable expenses / Contribution per unit of raw materials

b. Avoidable expenses / Contribution per unit of raw materials
c. Special costs / Contribution per unit of raw materials
d. None of the above
Answer Explanation Related Ques

27) Given fixed expenses Rs 20,000 and variable expenses of 10,000 units and 15,000 units are Rs
30,000 and Rs 45,000 respectively. Determine Differential cost, Differential cost p.u.

a. Rs 15,000, Rs 3
b. Rs 10,000, Rs 1
c. Rs 50,000, Rs 2
d. None of the above
Answer Explanation Related Ques

28) Determine B.E.P in units and amount if Units produced if Rs 10,000, Fixed cost is Rs 40,000,
Selling price is Rs 50 per unit and Variable cost us Rs 30 per unit.

a. Rs 40 per unit, Rs 2,00,000

b. Rs 50 per unit, Rs 10,00,000
c. Rs 20 per unit, Rs 1,00,000
d. None of the above
Answer Explanation Related Ques

29) Estimate amount of profit if Sales is 10,000 units Fixed cost is Rs 50,000, Variable cost per unit is
Rs 12 and selling price per unit is Rs 20.

a. Rs 12,000
b. Rs 5,000
c. Rs 30,000
d. None of the above
Answer Explanation Related Ques
30) Calculate B.E.P capacity if Fixed cost is Rs 50,000, percentage of variable cost is 66 2/3% and
capacity is Rs 3,00,000.

a. 25%
b. 30%
c. 50%
d. None of the above
Answer Explanation Related Ques

31) When standard costs are used, the amount of detailed record keeping will normally

a. Reduce
b. Increase
c. Stay the same
d. None of the above
Answer Explanation Related Ques

32) Which of the following method is based on technique of cash flow statement?

a. Cash Accounting Period

b. Projected Balance Sheet Method
c. Project forecast method
d. None of the above
Answer Explanation Related Ques

33) As per Cash flow method, the amount of expected net operating cash profit during the fiscal is

a. Added to the opening balance of cash

b. Deducted from the opening balance of cash
c. Not included in cash budget
d. None of the above
Answer Explanation Related Ques

34) The formula to estimate Labour Mix variance is

a. Total standard labour cost of actual output - Total actual cost of actual output
b. (Standard rate per hour - Actual rate per hour) * Actual Hours
c. (Revised standard time - Actual time) * Standard rate
d. Abnormal idle hours * Standard hourly rate
Answer Explanation Related Ques

35) Idle hours are not deducted in

a. Labour efficiency variance

b. Labour rate variance
c. Both a and b
d. None of the above
Answer Explanation Related Ques

36) The formula to estimate overhead cost variances is

a. Actual output * Standard overhead rate + actual variable overhead

b. Actual output * Standard overhead rate per unit - actual overhead cost
c. Actual output * Standard overhead rate per unit * actual overhead cost
d. None of the above
Answer Explanation Related Ques

37) In a control report of Department X, it is mentioned as indirect materials are Rs 1,000, Indirect
labour Rs 900, Overtime Charges Rs 100, Depreciation on equipment Rs 500, Allocated factory
overhead (38% of factory space) Rs 4300, Allocated overhead of repair shop is Rs 1200. Determine
total costs treating department X as a responsibility center.

a. Rs 3200
b. Rs 2200
c. Rs 1200
d. None of the above
Answer Explanation Related Ques

38) In a company Department A recorded losses in the first half of the current year. The sale of
department is Rs 90,000 and uncontrollable costs are Rs 91,000, Advice the management whether its
operations should be continued or terminated.

a. Continued
b. Terminated
c. Insufficient information
d. None of the above
Answer Explanation Related Ques

39) _________ is a monthly profit and loss account, wherein the actual results of the concerned
month are compared with the budgeted figures of that month.

a. Master summary control report

b. Subsidiary summary control report
c. Interim summary control report
d. None of the above
Answer Explanation Related Ques

40) __________ conveys detailed summary pertaining to various activities of the organization.

a. Master summary control report

b. Subsidiary summary control report
c. Interim summary control report
d. None of the above

The definition ‘Management Accounting is the presentation of accounting information in such a way as to
assist management in the creation of policy and the day-to-day operation of an undertaking.’

a. Ango-American Council on Productivity

b. AICPA
c. Robert N. Anthony
d. All of the above
Answer Explanation Related Ques

2) Agency cost consists of

a. Binding
b. Monitoring
c. Opportunity and structure cost
d. All of the above
Answer Explanation Related Ques
3) Finance Function comprises

a. Safe custody of funds only

b. Expenditure of funds only
c. Procurement of finance only
d. Procurement & effective use of funds
Answer Explanation Related Ques

4) The objective of wealth maximization takes into account

a. Amount of returns expected

b. Timing of anticipated returns
c. Risk associated with uncertainty of returns
d. All of the above
Answer Explanation Related Ques

5) Financial management mainly focuses on

a. Efficient management of every business

b. Brand dimension
c. Arrangement of funds
d. All elements of acquiring and using means of financial resources for financial activities
Answer Explanation Related Ques

6) Liquid assets is determined by

a. Current assets – stock - Prepaid expenses

b. Current assets + stock + prepaid expenses
c. Current assets + Prepaid expenses
d. None of the above
Answer Explanation Related Ques

7) Which of the following is not included in current assets?

a. Debtors
b. Stock
c. Cash at bank
d. Cash in hand
Answer Explanation Related Ques

8) Higher the ratio, the more favorable it is, doesn’t stand true for

a. Operating ratio
b. Liquidity ratio
c. Net profit ratio
d. Stock turnover ratio
Answer Explanation Related Ques

9) The most precise test of liquidity is

a. Quick ratio
b. Current ratio
c. Absolute Liquid ratio
d. None of the above
Answer Explanation Related Ques

10) Quick ratio is 1.8:1, current ratio is 2.7:1 and current liabilities are Rs 60,000. Determine value of stoc

a. Rs 54,000
b. Rs 60,000
c. Rs 1,62,000
d. None of the above
Answer Explanation Related Ques

11) Collection of debtors

a. Decreases current ratio

b. Increases current ratio
c. Has no effect on current ratio
d. None of the above
Answer Explanation Related Ques
12) Provision of taxation is treated as

a. As a current liability
b. As an appropriation of profits
c. Either a or b
d. None of the above
Answer Explanation Related Ques

13) As per accounting standard AS3, provision for taxation should be treated as

a. As a current liability
b. As an appropriation of profits
c. Either a or b
d. None of the above
Answer Explanation Related Ques

14) Which of the following statement is true?

A) If the amount of good will increases during current year, the difference is treated as purchase of goodw
B) If the amount of good will decreases during current year, It will treated as written off.

a. Only A
b. Only B
c. Both A and B
d. None of the above
Answer Explanation Related Ques

15) The opening and closing balance of general reserves are Rs 10,000 and Rs 9,000, respectively. It is
stated in addition information that a loss of Rs 1000 has been written off in general reserves. In such a cas
decline in reserve and loss on investment will be adjusted in P&L account.

a. True
b. False

Answer Explanation Related Ques

16) Which of the following statements are false?

A) Old Furniture written off doesn’t affect cash flow.

B) Cash flow statement is a substitute for cash account.
C) Appropriation of retained earnings is not shown in Cash flow statement.
D) Net cash flow during a period can never be negative.

a. A, B, C
b. B, C, D
c. C, D, A
d. None of the above
Answer Explanation Related Ques

17) Which of the following is not a cash inflow?

a. Decrease in debtors
b. Issue of shares
c. Decrease in creditors
d. Sale of fixed assets
Answer Explanation Related Ques

18) Which of the following is not a cash outflow?

a. Increase in Prepaid expenses

b. Increase in debtors
c. Increase in stock
d. Increase in creditors
Answer Explanation Related Ques

19) While preparing Marginal cost and Contribution Statement, if any factor of production is key factor th
________ should be expressed in terms of per unit of Key factor.

a. Profit
b. Sales
c. Contribution
d. None of the above
Answer Explanation Related Ques

20) Which of the following principles should be followed while making a decision to drop a product/line?

a. Product yielding lowest contribution should be given top priority in production programme
b. A product line should be dropped, if it yields positive contribution
c. If any factor is key factor, the product/line should be dropped, which gives maximum contribution per unit of key
factor
d. None of the above
Answer Explanation Related Ques

21) Rahul has an amount of Rs 3,00,000 which is invested in a business. He desires 15% return on his fun
It is known from the past cost data analysis that fixed costs are Rs 1,50,000 per annum and variable costs
operation are 60% of sales. Determine sales volume to get 15% return. Also tell shut down point of the
business, if he would spend Rs 50,000 even if business has to be closed.

a. Rs 2,50,000 and Rs 4,00,000

b. Rs 2,50,000 and Rs 4,87,500
c. Rs 4,87,500 and Rs 2,50,000
d. Rs 4,00,000 and Rs 2,00,000
Answer Explanation Related Ques

22) A facility, the installed capacity of which is 1,00,000 units, has budgeted 70% level of activity as
Materials Rs 1,05,000, Wages Rs 1,40,000 Variable overheads Rs 70,000 and Fixed overheads Rs 20,000.
Production is now proposed at 80,000 units. Determine Marginal cost p.u., Differential cost, and Differentia
cost p.u.

a. Rs 2, Rs 20,000, Rs 4.5
b. Rs 4.5, Rs 45,000, Rs 4.5
c. Rs 5, Rs 50,000, Rs 5
d. None of the above
Answer Explanation Related Ques

23) As per Cash flow method Increase in current liabilities and decrease in current assets are

a. Deducted from opening balance of cash

b. Added to opening balance of cash
c. Not included in cash budget
d. None of the above
Answer Explanation Related Ques

24) In cash flow method for preparing cash budget, payment of dividends and prepaid payments are

a. Deducted from opening balance of cash

b. Added to opening balance of cash
c. Not included in cash budget
d. None of the above
Answer Explanation Related Ques

25) Cash budget deals with historical data whereas Cash Flow Statement deals with future data.

a. True
b. False

Answer Explanation Related Ques

26) Variable overhead variance is represented by expenditure variance only.

a. True
b. False

Answer Explanation Related Ques

27) If the actual output is more than the budgeted output, volume variance is

a. Favorable
b. Non-favorable
c. No impact
d. None of the above
Answer Explanation Related Ques
28) The capacity variance arises when

a. There are more working hours than the budgeted working hours
b. There are less working hours than the budgeted working hours
c. Both a and b
d. None of the above
Answer Explanation Related Ques

29) Analysis of overhead variances can be done by

a. Two variance method

b. Three variance method
c. Four variance method
d. All of the above
Answer Explanation Related Ques

30) Given budgeted output, number of working days, fixed overheads and variable overheads are 15,000
units, 25, Rs 30,000 and Rs 45,000 respectively. The actual output, number of working days, fixed overhea
and variable overheads are 16,000 units, 27, Rs 30,500 and Rs 47,000, respectively. The increase in capaci
is 5%. Determine variable overhead expenditure variance and fixed overhead variance, respectively.

a. Rs 1,500 and Rs 1,000 favorable

b. Rs 1,500 and Rs 1,000 unfavorable
c. Rs 1,000 and Rs 1,500 unfavorable
d. Rs 1,000 and Rs 1,500 favorable
Answer Explanation Related Ques

31) ABC Ltd is operating a system of standard costing with closing of books done every quarter. The
budgeted overheads are Rs 2,55,000. Also, the overhead rate was pre-decided @ Rs 5.1 per labour hours a
during a quarter actually used 52,000 labour hours, instead of 51,000 hours. The actual overheads resulted
a rate of Rs 4.9 per labour hours. What is volume variance?

a. Rs 5,100 favorable
b. Rs 5,200 favorable
c. Rs 5,100 unfavorable
d. Rs 5,200 unfavorable
Answer Explanation Related Ques
32) Sales margin variance due to volume can be classified into _____parts.

a. 3
b. 2
c. 4
d. 5
Answer Explanation Related Ques

33) The formula to estimate the sales margin variance due to sales mixture is

a. Standard profit - Revised standard profit

b. Revised standard profit - Budgeted profit
c. Standard profit + Revised standard profit
d. Revised standard profit + Budgeted profit
Answer Explanation Related Ques

34) Sales margin variance due to sales quantities is measured as

a. Standard profit - Revised standard profit

b. Revised standard profit - Budgeted profit
c. Standard profit + Revised standard profit
d. Revised standard profit + Budgeted profit
Answer Explanation Related Ques

35) When actual price is higher or lower than the standard price, then it is

a. Sales price variance

b. Sales volume variance
c. Sales mix variance
d. Sales quantity variance
Answer Explanation Related Ques

36) The corrective actions after the analysis of variances has to be taken by

a. Cost accountant
b. Management
c. Both a and b
d. None of the above
Answer Explanation Related Ques

37) The type of standard that is best suited for cost control objective is

a. Normal standard
b. Basic standard
c. Expected standard
d. Ideal standard
Answer Explanation Related Ques

38) Volume variance arises when

a. There is rise in overhead rate per hour

b. There is decline in overhead rate per hour
c. There is decrease or increase in actual output compared to the budgeted output
d. None of the above
Answer Explanation Related Ques

39) There are three departments A, B and C in a company, The sales of A, B and C are Rs 3,52,000, Rs
2,88,000 and Rs 1,60,000, respectively. The variable costs of A, B and C are Rs 2,40,000, Rs 1,76,000 and R
1,44,000 respectively. The direct fixed costs of A, B and C are Rs 28,000, Rs 22,400 and Rs 12,800. Rank th
different departments on basis of relative profitability.

a. A- Rank 3, B- Rank 1 and C- Rank 2

b. A- Rank 2, B- Rank 1 and C- Rank 3
c. A- Rank 3, B- Rank 2 and C- Rank 1
d. Insufficient data
Answer Explanation Related Ques

40) Which of the following is a kind of information report?

a. Trend reports
b. Analytical report
c. Activity reports
d. All of the above
Answer Explanation Related Ques

41) ___________ are just income statements, wherein the results of one particular year are compared wit
the findings of past several years.

a. Subsidiary trend reports

b. Analytical report
c. Activity reports
d. Master trend report
Answer Explanation Related Ques

42) Analytical reports are based on the ______ comparison of results.

a. Horizontal
b. Vertical
c. Symmetrical
d. None of the above
Answer Explanation Related Ques

43) A balance sheet is a form of

a. Dynamic financial reports

b. Static financial reports
c. Activity reports
d. None of the above
Answer Explanation Related Ques

44) Financial control report comes under

a. Dynamic financial reports

b. Static financial reports
c. Extensive Activity report
d. None of the above