Model Question Paper

Subject Code: MC 0065

Subject Name: Financial Management and Accounting
Credits: 4 Marks: 140

Part A (One mark questions)

1. The object of Financial Accounting is not

a. To prepare future financial plans
b. To prepare and communicate final accounts
c. To record all transactions and interpret the financial data
d. To take into consideration the historical data

2. Identify financial transaction in the following list

a. Formulating a business policy
b. Discussion on discontinuation of production of a product
c. Receiving royalty for the minerals extracted
d. A wordy warfare between employees and management about wages

3. Accounting principles are classified into two categories :

a. Conventions
a. Concepts
b. Policies
c. Standards
a. (1) and (2)
b. (1) and (3)
c. (1) and (4)
d. (2) and (3)


4. A manufacturing company has produced 50000 units of a product during 2006. What
accounting concept is missing in the above statement?
a. Separate business unit
b. Accrual concept
c. Going concern concept
d. Money measurement concept
5. According to principle of expenses, revenue expenses are charged to __________.
a. Profit & loss a/c
b. Balance sheet
c. Cash flow statement
d. Fund flow statement
6. Trade discount is allowed to:
a. Promote sales
b. Encourage early payment
c. Encourage prompt payment
d. (b) and (c )

7. Capital is invested in the business. How does it impact the accounting equation?
a. There is a single effect of increase in capital on the liability side
b. There is a single effect of increase in cash on the asset side
c. Cash and capital does not appear unit is used
d. Capital appears as a liability and cash appears as assets to the business

8. What is a journal?

a. It is a book which contains all business transactions
b. It is a book of original entry
c. It is a book in which transactions & events that are not recorded in any of the
subsidiary books are recorded
d. It is a book where petty cash transactions are recorded

9. Asset - Liability - Proprietor's equity is equal to:

a. One
b. Zero
c. Source of funds
d. Application of funds



10. Since trial balance is a summarized ledger the total of all debits must tally with total of
all credits. In case if it does not tally, the difference is temporarily transferred to
_____________.

a. Reserve a/c
b. Contingency liability a/c
c. Suspense a/c
d. Miscellaneous a/c
11. If assets accounts and expenses accounts are shown on debit side of TB,
what accounts are shown an credit side of TB

a. Income accounts
b. Income & capital accounts
c. Liabilities and capital accounts
d. Liabilities, capital and income accounts

12. Balance sheet provides information on the
a. qualitative aspects of the firm
b financial position of an enterprise
c. Cash inflows and cash outflows of the firm
d. competition and future prospects

13. Acid test ratio is
a. current assets stock / current liabilities
b. current assets + stock / current liabilities
c. current assets / current liabilities
d. current liabilities stock / current assets

14. What is net working capital?
a. It represents the current assets of the firm
b. It represents the total of current asset and current liability of the firm
c. It represents the excess of current asset over current liability
d. It represents the cash inflow arising out of operations







15. The thumb rule of current ratio for a manufacturing industry is 2:1 . If the ratio is higher
than 2:1 what does it indicate ?

a. It indicates sound profitability position
b. It indicates sound solvency position
c. It indicates that the firm is highly geared
d. It indicates the firm's larger use of debt capital


16. What is gross working capital?

a. It refers to the firm's investment in current assets
b. It refers to the firm's investment in current assets & current liabilities
c. It refers to excess of current assets over current liabilities
d. It refers to working capital requirement of the firm for a given period

17. Provision for discount on debtors is a provision set aside on which type of discount?

a. Trade discount
b. Cash discount
c. Both cash and trade discount
d. Bills discount

18. There will be flow of funds if the transaction involve

a. Current assets and fixed assets
b. Current assets and capital
c. Current assets and fixed liabilities
d. Current assets and current liabilities

19. The preparation and presentation of cash flow statement is mandatory according to

a. AS - 3
b. AS - 8
c. AS - 11
d. AS 22

20. Income tax paid is a/an

a. Operating activity
b. Investing activity
c. Financing activity
d. Deferred credit






21. Depreciation, amortization of intangible assets, loss on sale of fixed assets, gains from
sale of fixed assets and adjustments that appear in

a. Cash generated from operating activities
b. Cash generated from investing activities
c. Operating profit before working capital changes
d. Net cash from operating activities

22. Fixed cost per unit remain

a. Fixed
b. Constant
c. Variable
d. None

23. Element of cost is

a. Materials
b. Labor
c. Expenses
d. All the three
24. When profit is 25% of cost, it is _____ % of sales

a. 30
b. 20
c. 25
d. 33 1/3


25. BEP indicates the point of
a. No profit
b. No loss
c. Both (a) and (b)
d. None

26. In marginal costing, managerial decisions are guided by

a. Contribution
b. Profit
c. Contribution margin
d. None





27. Budget is a statement of

a. quantitative
b. financial
c. none
d. both (a) and (b)


28. Period for which a budget is prepared and employed is known as

a. budget period
b. budget sheet
c. budget manual
d. budget figure


29. The budget that is set first and all other budgets are subordinate to it is

a. cash
b. master
c. sales
d. flexible


30. Standard costing is a system of

a. cost ascertainment
b. cost control
c. cost classification
d. none

31. Variance means

a. determination
b. deviation
c. dedication
d. deletion


32. Material price variance is the difference in price of

a. Predetermined and actual
b. Predetermined and budgeted
c. Predetermined and optional
d. both b and c






33. Standard costing can be used along with

a. marginal costing
b. absorption costing
c. job and process costing
d. all costing

34. State the type of error involved in the following transaction, If a sale of goods to
kannan for Rs 960 is entered as Rs 690 in the sales book

a. Error of omission
b. Error of principle
c. Error of commission
d. Compensating error

35. The principle of full disclosure means

a. Giving all business information to all parties
b. Giving all business information to a few parties
c. Giving part of business information to all parties
d. Giving relevant business information to relevant parties


36. Cash budget deals with cash

a. inflows
b. outflows
c. none
d. both (a) and (b)


37. Standard costing is a system of

a. management accounting
b. Financial accounting
c. Cost accounting
d. none


38. Who is concerned with long term solvency of the firm?

a. Employees
b. Customers
c. Creditors
d. Equity shareholders




39. Stock has turned over 4 times a year. This ratio is expressed as

a. Proportion
b. Percentage
c. Turnover rate
d. Comparitive analysis


40. What is cash ratio?

a. Cash ratio measures the liquidity position of the firm by comparing cash &
marketable securities with current liabilities
b. Cash ratio measures the liquidity position of the firm by comparing actual cash
flow from operations with current assets
c. Cash ratio measures the liquidity position of the firm by comparing actual cash
flow from operations with current liabilities
d. Cash ratio is also termed as liquid or acid test ratio


Part B (Two mark questions)
41. According to which concept, it makes no sense if the assets are expensed as 100
tonnes of raw material, 50 vehicles, 2 premises without expensing them in monetary
terms?
a. Going concern concept
b. Business entity concept
c. Accrual concept
d. Money measurement concept

42. Fill in the blanks on rules of debit and credit under traditional approach








a. Impersonal account, the receiver, expenses & losses
b. Liabilities account, the receiver, expenses & losses
c. Real account, the receiver, expenses & losses
d. Asset account, the receiver, expenses & losses




43. The steps to prepare a trial balance is given below. Some of the steps are jumbled.
Identify the correct or logical process of preparation of Trial Balance.

1. Prepare the ledger accounts
2. Group all those accounts showing debit / credit balance & show them on the left
hand side / right hand side of Trial Balance
3. Balance the ledger account at the end of the accounting period
4. Total the debits and credits & they must be equal, whatever be the method of
preparing the Trial Balance

a. 1, 2 , 3 , 4
b. 1, 2 , 4 , 3
c. 1, 3 , 2 , 4
d. 1, 3 , 4 , 2

44. Trial balance is a bridge between

a. Journal and ledger
b. Ledger and cash book
c. Ledger and Trading, P & L a/c , Balance sheet
d. Journal and Trading P & L a/c , Balance sheet


45. What is the difference between current ratio and quick ratio?

a. Current ratio excludes inventory and prepaid expenses
b. Quick ratio excludes inventory & prepaid expense
c. Quick ratio takes into consideration only cash and cash equivalents
d. Quick ratio takes into consideration only net working capital


46. Which one of the following transaction results in increase in working capital?

a. The company's excess cash balance was deposited in current account of State
Bank of India.
b. The company redeems preference shares of Rs 10,00,000 by issuing 12%
debentures of Rs. 10 lakhs
c. The company raises Rs. 50,000 in cash by issue of new shares
d. The company pays to its creditors a sum of Rs. 30,000 out of the cash balance


47.Depreciation, amortization of intangible assets, loss on sale of fixed assets, gains from
sale of fixed assets and adjustments that appear in

a. Cash generated from operating activities
b. Cash generated from investing activities
c. Operating profit before working capital changes
d. Net cash from operating activities


48. According to accounting standard 3 (revised) cash flow statement is sub-divided into 3
stages. These stages are jumbled. Select the right process.
1. Cash flow from operating activities
2. Cash flow from financing activities
3. Cash flow from investing activities

a. (1), (2), (3)
b. (1), (3) , (2)
c. (3), (2) , (1)
d. (3), (1) , (2)

49. The cost of production is 4,70,400 the factory cost is Rs 4,46,400 the admin
overheads are

a. 42,000
b. 43,000
c. 40,000
d. 24,000

50. Selling price is Rs 15,500, total cost is Rs 13,920, percentage of profit on
SP is

a. 10.0
b. 10.5
c. 10.2
d. 10.6

51. Marginal of safety may be improved by

a. Increasing sales
b. Increasing selling price
c. Lowering fixed cost
d. All


52. CVP analysis is most important for the determination of

a. Volume to break even
b. Variable revenue to equal fixed cost
c. Relation ship between revenue and cost
d. None

53. There is a difference between budget and

a. forecast
b. telecast
c. both (a) and (b)
d. none




54. Which of the following is usually a long-term budget
a. sales
b. cash
c. capital expenditure
d. fixed


55. The formula for labor rate variance

a. (SR - AR) AH
b. SR - AR
c. (AR) AH
d. (SR) AH


56. Material cost variance is Rs 550(A) and material price variance is Rs 150(F), material
usage variance is

a. 400(F)
b. 400(A)
c. 700(A)
d. 700(F)

57. Cash balance at close of April Rs 27,200 Receipts of may Rs 1,14,200 and payments
Rs 78,500 the closing balance of may is

a. 37,500
b. 35,700
c. 35,070
d. 53,700


58. Which of the following cites the example of having separation bank account of the
proprietor:

a. Going concern concept
b. Money measurement concept
c. Business entity concept
d. Accrual concept


59. How do you describe debit balance?

a. In any ledger account, If the debit side is greater than be credit side the different
is know as debit balance
b. In cash book the debit side total is known as debit balance


c. Debit side total of an account is known as debit balance
d. In any ledger account, If the debit side is lesser than the credit side the short fall
is known as debit balance



60. From the following find out fixed assets

1. Fixed asset turnover ratio = 2 times
2. Stock turnover ratio = 6 times
3. Inventories = 2,00,000

a. 12,00,000
b. 4,00,000
c. 8,00,000
d. 6,00,000


Part C (Four mark questions)

61. Some of accounting trial process is jumbled. Select the right choice which given the
proper accounting trial process.
1) Preparation of vouchers
2) Balancing the ledger accounts
3) Preparation of trial balance
4) Incorporating all adjustments
a, 1, 2, 3, 4
b. 1, 2, 4, 3
c. 2, 1, 3, 4
d. 2, 1, 4, 3


62. Match the following
1) Canara Bank is a a. Personal a/c
2) Loan a/c is a b. Real a/c
3) Nominal a/cs is c. Nominal a/c
4) Carriage on goods a/c d. Impersonal a/c

a. 1c, 2a, 3d, 4b
b. 1d, 2a, 3b, 4c
c. 1c, 2d, 3a, 4b
d. 1d, 2b, 3a, 4c



63. In a transaction where certain amount can withdrawn for personal use. Why drawings
account is debited?

a. Drawings is a personal a/c. According to the rules of personal a/c receiver is
debited and giver is credited.
b. During is a nominal a/c. According to the rules of nominal a/c, debit all expenses
and losses
c. Drawings account should be debited because drawings amount is always debited
d. None of the above

64. Trial balance shows the

a. result of operational performance of the firm
b.balances of each and every account to verify whether the sums of debit balance is
equal to the sum of credit balance.
c. cash inflows and outflows resulted during the accounting period
d. financial position of the firm.

65. State True or False:

1. Compensating error is also called off-setting error
2. Treating income as liabilities , providing in sufficient provision for bad and doubtful
debts are considered as error of principles
3. Sales invoice of Rs. 1,730 is entered as Rs. 1,370 in the sales book. This error is
identified as error of principle
4. Rectification entries are recorded in general journal
a. 1T, 2F, 3F, 4T
b. 1T, 2T, 3F, 4T
c. 1F, 2F, 3F, 4T
d. 1F, 2T, 3F, 4T


66. Give the proper order

1. Authorized capital
2. Subscribed capital
3. Issued capital
4. Paid up capital
5. Called up capital

a. 1, 3, 2, 4, 5
b. 1, 2, 3, 5, 4
c. 1, 3, 2, 5, 4
d. 1, 2, 3, 4, 5



67. Calculate the depreciation amount charged for the second year under written down
value method for P & M costing 7,50,000. The depreciation rate is 10%.

a. 75,000
b. 67,500
c. 65,700
d. 76,500

68.The steps involved in developing accounting equation has been jumbled. Select the
appropriate order.

1. Ascertain the variables (assets , liabilities or capital) of an equation affected by the
transaction
2. Show the effect on the appropriate side of an equation
3. Find out the effect of the transaction on the variables of the equation

a. 1, 2, 3
b. 1, 3, 2
c. 2, 3, 1
d. 2, 1, 3

69. Adilthya Birla Group Ltd, provides the following:
Opening stock Rs.75,000 ; closing stock Rs.1,00,000, credit sales Rs. 2,00,000; cash
sales Rs. 50,000; Gross profit 25% calculate inventory turnover ratio
a. 2.4 times
b. 2.41 times
c. 2.14 times
d. 2.04 times

70. The current assets of the firm is Rs. 3,60,000 and the current liabilities is at Rs.
1,50,000. The company sells its building having a book value of Rs. 50,000 for a sum of
Rs.70,000. Will this transaction result in increase /decrease / no change in working
capital?

a. This transaction will result in increase in cash balance. The working capital will
increase by Rs. 50,000.
b. This transaction will result in increase in cash balance . The working capital will
increase by Rs. 70,000
c. This transaction will result in decrease in cash balance
d. There will be no any change in working capital

71. From the following select the items that are added to operating profits before working
capital changes to arrive at cash generated from operations
1. Decrease in debtors


2. Decrease in outstanding expenses
3. Decrease in accrued income
4. Decrease in prepaid expenses
5. Decrease in creditors
6. Decrease in stock
7. Increase in creditors
8. Increase in outstanding expenses
9. Increase in debtors
10. Increase in stock

a. 2, 5, 9, 10
b. 1, 3, 4, 6, 7, 8
c. 1, 3, 4, 5, 10
d. 1, 3, 8, 5, 10

72.Opening stock of raw material is Rs 10,000 expenses on purchases is Rs 5000 closing
stock of raw materials is Rs 15,000 direct labor Rs 50,000 prime cost is Rs 1,00,000 the
value of purchases
a. 50,000
b. 15,000
c. 56,000
d. None

73. Cost of production is Rs 44,000 for 11,000 units, selling expenses is 40 parise per
unit, sales are Rs 54,000 for 9000 units, the profit is
a. 14,000
b. 14,200
c. 14,400
d. 14,800

74. FC is Rs 10,000, CPU is Rs 5 ,BEP in units are
a. 2,500
b. 2,200
c. 2000
d. 2100
e.
75. Closing balance of June is Rs 48,700, payments are Rs 69,000 receipts are Rs
1,17,700 the opening balance is

a. 47,800
b. 87,400
c. 78,400
d. 48,700





Answer Keys
Part - A Part - B Part - C
Q. No. Ans. Key Q. No. Ans. Key Q. No. Ans. Key Q. No. Ans. Key
1 A 21 C 41 D 61 B
2 C 22 C 42 C 62 A
3 A 23 D 43 C 63 A
4 D 24 B 44 C 64 B
5 A 25 C 45 B 65 B
6 A 26 C 46 C 66 C
7 D 27 D 47 C 67 B
8 B 28 A 48 B 68 B
9 B 29 C 49 D 69 C
10 C 30 B 50 C 70 B
11 D 31 B 51 D 71 B
12 B 32 A 52 C 72 A
13 A 33 D 53 A 73 C
14 C 34 C 54 C 74 C
15 B 35 D 55 A 75 D
16 A 36 D 56 C
17 B 37 C 57 B
18 D 38 C 58 C
19 A 39 C 59 C
20 A 40 C 60 D