Indian School of Business

Financial Accounting in Decision Making 2023-2024

Midterm exam – Hyderabad campus

Instructions

1 There should be 7 different numbered pages in the exam booklet (excluding Instructions
Sheet). Check your copy and request for a new exam booklet if you do not have all the
pages.
2 Most questions pertain to the financial statements for Hindustan UnileverLimited for the
year ended March 31, 2022 (FY2022, hererafter). An extract of report is provided with this
exam. There are 8 pages in that document. Check your copy and request for a new copy if
you do not have all the pages.
3 There are 40 questions in exam. Each question carries 1 points. There is no negative
marking. Your grade will be based on the number of correct answers you provide. The
maximum score for the exam is 40 points.
4 Mark answers to the multiple choice questions in the separate bubble sheet provided which
would be scored by an OMR Scanner. Use pencil to mark answers in OMR.
5 Choose the best answer by marking one item on the answer form. If you mark two items
your answer will be incorrect. Marks made on the exam itself will not be counted.
6 Any scratch work on the exam will NOT be graded — only the OMR shaded bubbles
count.
7 You are allowed to use a calculator. Laptops are not allowed.
8 This exam is a closed book exam. However, you are allowed ONE A4 paper as Cheat
Sheet for the exam with notes allowed on BOTH sides, which can be hand written or
printed. The cheat sheet will not be returned. So if you want to save it for your future use,
make a copy of it before getting it to the exam.
9 The exam is completely self-explanatory. The academic associates or faculty will not
answer any questions during the exam.
10 Since the exam in printed single-sided, use the blank side for any rough work. No
additional blank sheets for rough work will be provided.
12 You have three hours for the exam.
13 You must observe the honor code at all times.
14 Notes about specific exam details:
• INR = Indian Rupee
• All INR numbers in the exam are in Crores Rupees consistent with the presentation in
the financial statements.
• All questions relate to the FY 2022, unless otherwise stated
• The terms “Current year” and “Most recent fiscal year” refer to FY2022
• For questions and ratios that involve “Sales,” use Revenue from operations.
• For questions that involve PP&E use “Property plant & equipment”
• For questions and ratios that involve “COGS,” use the following: COGS = Cost of
materials consumed + Purchases of stock-in-trade + Changes in inventories of finishe
goods, stock-in-trade and work-in-progress + 50% × Employee benefits expense
+ 25% × Depreciation and amortisation expense
• Answers below are rounded
Part I: Basic “warm up” questions

1) Which of the following describes the impact on the balance sheet when cash is
received from the collection of an account receivable?
A. Total Assets will not change.
B. Total Assets will increase.
C. Stockholders' equity will increase.
D. Total Liabilities will decrease.

2) Which of the following is an example of revenue or expense to be recognized in the

current period's income statement?
A. Cash received from a client for which the service is provided in a later period.
B. Inventory purchased from suppliers that are yet to be sold.
C. Wages to employees who worked during the period.
D. Cash collected from an account receivable.

3) On January 1st, 2014, Gloucester Inc. paid $4,500 for an advertising campaign.
$3,000 of this amount related to TV ads shown on TV during 2014, and the remaining
$1,500 relates to ads that will only be shown in 2015. Gloucester recorded the full
amount paid as an asset (prepaid advertising) on Jan 1, 2014. However, the company
assumes that this asset is equally consumed over 3 years, recording one-third expense
in 2014. As a result, for fiscal year 2014, Net Income is (overstated, understated,
correct) and if wrong by how much:
A. Net Income is correct.
B. Net Income is overstated by $1500
C. Net Income is understated by $1500
D. Net Income is understated by $3000

4) On January 1, 2020, the Accumulated Depreciation—Machinery account of Astros

Company showed a balance of $370,000. At the end of 2020, it showed a balance of
$395,000 on the balance sheet. During 2020, one of the machines which cost
$125,000 was sold for $60,500 cash. This resulted in a loss of $4,000. Assuming that
no other assets were disposed of during the year, how much was depreciation expense
for 2020?
A. 60,500
B. 25,000
C. 85,500
D. 145,000

5) Chess Top uses the periodic inventory system. For the current month, the beginning
inventory consisted of 200 units that cost $65 each. During the month, the company
made two purchases: first, i) 300 units at $68 each, and then ii) 150 units at $70 each.
Chess Top also sold 500 units during the month. Using the periodic FIFO method,
what is the amount of cost of goods sold for the month?
A. 33,400
B. 36,600
C. 43,400
D. 54,500

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 6) Postaplus buys a delivery truck on January 1, 2016, at a cost of AED 150,000.
Estimated residual value is AED 10,000 and the estimated useful life is 7 years. The
company uses straight-line depreciation. On January 1, 2017, Postaplus’ management
revises the total estimated life to be 5 years, with estimated residual value of zero.
What is the depreciation expense for 2019?
A. 32,500
B. 20,000
C. 13,000
D. 33,500

Part II: Questions based on Hindustan Unilever Report

7) Please refer to the Hindustan Unilever report. Which of the following is the most
plausible date of the audit report for the fiscal year ended March 31, 2022?
A. March 31, 2022
B. April 1, 2022
C. April 27, 2022
D. July 1, 2022

8) As of 31 March, 2021, what proportion of its total assets does Hindustan Unilever
expect to convert into cash within one year?
A. 21%
B. 22%
C. 78%
D. 79%

9) Please refer to the Hindustan Unilever report. What is the amount of total liabilities as
of 31 March 2022?
A. ₹ 10,150
B. ₹ 11,280
C. ₹ 21,430
D. Total liabilities is not reported on the balance sheet

10) What proportion of its total liabilities does Hindustan Unilever expect to pay by the
start of fiscal 2024?
A. 100%
B. 16%
C. 47%
D. 53%

11) Please refer to the Hindustan Unilever report.What is the amount of Retained earnings
at end of FY2022?
A. ₹ 235
B. ₹ 8,271
C. ₹ 48,826
D. ₹ 49,087

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 12) By what percentage did current lease liabilities change during the year?
A. 13.68%
B. 1.01%
C. 1.37%
D. 8.63%

13) Which of the following factors did NOT contribute to the improvement in Profit
before tax from continuing operations in the current fiscal year for Hindustan
Unilever?
A. Revenue from operations improved
B. Finance costs improved
C. Changes in inventories improved
D. None of the above

Part III: Sales and accounts receivable

NOTE: for Part III of the examination, use only the CURRENT trade receivables in
your calculations.
14) Which of the following is the best summary of revenue recognition at Hindustan
Unilever?
A. For major customers with dependable sales record, revenue is recognized
when the customer places an order
B. Revenue is recognized when goods are delivered to customers
C. Revenue is recognized after the established product-return period expires
D. Revenue is recognized when the company receives cash from customers

15) What amount does Hindustan Unilever expect to collect from its customers?
A. ₹ 2,133
B. ₹ 2,236
C. ₹ 2,339
D. None of the above

16) What is the amount of the Allowance for expected credit losses at 31 March 2022?
A. ₹ 8
B. ₹ 103
C. ₹ 111
D. None of the above

17) What is the amount of trade receivables the company wrote off during the year?
A. ₹ 0
B. ₹ 8
C. ₹ 103
D. None of the above

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 18) For the year ended 31 March 2021, what is the amount bad debt expense?
A. ₹ 36
B. ₹ 78
C. ₹ 111
D. None of the above

19) Which of the followings statements is TRUE ?

A. The company has underestimated its allowance for bad debts in the FY 2021.
B. The amount receivable from customers is secured by guarantee from
customer’s bank
C. As on 31 March 2022, the company expects that 4.4% of its ending balance of
accounts receivables is likely to remain uncollected
D. None of the above

20) What is the largest product segment for this company?

A. Home care
B. Beauty & Personal Care
C. Foods & Refreshment
D. Other

21) What was the year-on-year growth rate for the Home Care segment sales?
A. 118.7%
B. 1.87%
C. 18.7%
D. It is not possible to determine with the information provided

Part IV: Inventory

22) How much is the Inventory as a percentage of total assets?

A. 3.9%
B. 5.8%
C. 14.4%
D. 26.4%

23) What is the largest category of inventory for this company as of March 31, 2021?
A. Raw materials
B. Packing materials
C. Work in progress
D. Finished goods

24) Which of the following is the best approximation of Cost of goods sold?
A. ₹ 25,735
B. ₹ 27,280
C. ₹ 29,371
D. There is not enough information to approximate Cost of goods sold

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 25) For this question, assume that Cost of goods sold for the fiscal year ended March 31,
2021, is ₹ 25,000. What is the gross profit margin that year?
A. 46.8%
B. 47.3%
C. 53.2%
D. None of the above

26) Which of the following statements related to Inventories is NOT true?

A. Finished goods inventory includes cost of direct materials and direct labour.
B. Work in progress inventory includes cost of direct materials and direct labour.
C. Both Finished goods inventory and Work in progress include variable and
fixed overhead costs.
D. Finished goods inventory includes variable and fixed overhead costs but work
in progress does not.

Part V: Fixed assets

27) The balance sheet reports Property, plant and equipment of ₹ 6,169. Which of the
following is not included in that amount?
A. Right-of-use leased assets
B. Freehold land
C. Accumulated depreciation
D. None of the above

28) As Property, plant and equipment is used during the year, it is reflected:
A. As a loss on disposal of PPE on the income statement
B. As depreciation expense on the income statement
C. As a use of cash on the statement of cash flows
D. On the balance sheet because PPE is a long-term asset and as such, is not used up

29) Property, plant and equipment which are not ready for intended use as on the date of
the balance sheet is disclosed in which account?
A. Prepaid expenses
B. Work-in-progress
C. Capital work-in-progress
D. None of the above because PPE is recorded on the balance sheet only when it is
ready for intended use

30) What is the value of Plant and equipment, gross?

A. ₹ 8,402
B. ₹ 5,473
C. ₹ 2,793
D. ₹ 5,101

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 31) What was the cost of additions to Property, plant and equipment during the year?
A. ₹ 528
B. ₹ 652
C. ₹ 633
D. ₹ 734

32) Which of the following is a good approximation of the net book value of Furniture
and fixtures disposed of during the year?
A. ₹ 1
B. ₹ 2
C. ₹ 4
D. None of the above

33) What amount of depreciation expense was recorded on buildings during the year?
A. ₹ 652
B. ₹ 86
C. ₹ 80
D. None of the above

34) Which of the following is the best measure of PPE turnover?

A. 8.502
B. 8.538
C. 8.543
D. 8.580

Part VI: Statement of Cash flows

35) The statement of cash flows adds back Depreciation and amortisation expense of ₹
1,106 to arrive at Net cash flow generated from operating activities of ₹ 9,048. If
instead, the company had recorded depreciation and amortisation expense of ₹ 1,206
(100 more expense), what would have been reported as Net cash flow generated from
operating activities?
A. ₹ 9,048
B. ₹ 9,148
C. ₹ 8,948
D. None of the above

36) In the statement of cash flows – operating cash flows section, Dividend income is
subtracted from Profit before tax from continuing operations because -
A. It is a non-cash income
B. It is included with the financing activities section because dividends relate to
financing
C. It is a non-operating income
D. None of the above

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37) The statement of cash flows – operating cash flows section, includes ₹ (97) related to
the sale of property, plant and equipment. From this we can conclude which of the
following?
A. PP&E disposals during the year generated ₹ 97 cash
B. PP&E disposals during the year had a net book (carrying) value of ₹ 97
C. Disposal (sale) proceeds were ₹ 97 less than the net book (carrying) value of the
PP&E sold
D. Disposal (sale) proceeds were ₹ 97 more than the net book (carrying) value of the
PP&E sold

38) Looking at the pattern of cash flows which is the most appropriate conclusion about
the company?
A. This is a profitable company with limited growth opportunities
B. This is a profitable company with strong growth opportunities
C. This is a company dependent on external financing
D. This is a company whose operating cash flows are barely able to meet its investing
and financing needs

39) In the statement of cash flows, “Bad debts / assets written off, net of provisions” are
added back to net income in FY 2021. Extend your in-class discussions to indicate
why this is added back.

A. These are non-cash gains

B. These are non-cash expenses
C. Customers paid this amount to the company in cash
D. The company paid this amount to customers in cash

40) In the statement of cash flows, increase in inventory of 758 is reduced from profit
before taxes because -
A. This is the amount of cash paid by the company to suppliers
B. This is the amount of cash company needs to pay to its suppliers
C. This is an expense that was not recorded earlier
D. This is an adjustement needed to convert accruals based net income to cash flow
from operations