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Civil Services (Pre) Exam, 2008 : Commerce (Solved)

CIVIL SERVICES (Pre.) EXAM., 2008Commerce : Solved Paper(Held on 18-5-2008)

1. In case of any default made in complying with the provisions relating to the postal ballot, the officer on default will be punishable with which one of the following fines ?
(A) Rs. twenty thousand in respect of each such default
(B) Rs. fifty thousand in respect of each such default
(C) Rs. one lakh in respect of each such default
(D) Rs. two lakh in respect of each such default

2. A listed company opting for buyback of shares under the Companies Act, 1956 has to submit return, after completion of such buy-back within which one of the following periods ?
(A) 6 months of such completion to the Registrar of Companies only
(B) 45 days of such completion to the SEBI only
(C) 30 days of such completion to the Registrar of Companies and SEBI
(D) 30 days of such completion to the SEBI only

3. Which one of the following is correct in respect of the doctrine of indoor management and the rule of constructive notice ?
(A) The former operates to protect the outsider against the company and the latter protects the company against the outsider
(B) The former operates to protect the company against the outsider and the latter protects the outsider against the company
(C) Both protect the company against the outsider
(D) Both protect the outsider against the company

4. What is Director Identification Number (DIN) ?
(A) An identification number which the individual company allots to the intending director
(B) A number which the Central Government allots to any individual intending to be appointed as director or to any existing director of a company
(C) A number which the SEBI allots to any individual intending to be appointed as director or to any existing director of a company
(D) A number which the Central Government allots to retired directors so as to build data base

5. Small shareholders' director is to be appointed by which of the following companies ?
(A) Public companies having Rs. 5 crores or more of paid up capital and minimum of 1000 small shareholders
(B) Public companies having Rs. 10 crores or more of paid up capital and a minimum of 1000 small shareholders
(C) Public companies having Rs. 1 crore or more of paid up capital and a minimum of 100 small shareholders
(D) Public companies having Rs. 5 crores or more of paid up capital and a minimum of 100 small shareholders

6. When does a body corporate become capable forthwith of exercising all the functions of a company ?
(A) On finalizing Memorandum of Association
(B) On obtaining certificate of commencement of business
(C) On obtaining certificate of incorporation
(D) On having convened its first Annual General Meeting



7. For how many years the books of accounts of a company have to be preserved in good order ?
(A) For a period of not less than eight years immediately preceding the current year
(B) For a period of not less than five years immediately preceding the current year
(C) For a period of not less than six years immediately preceding the current years
(D) For a period of not less than four years immediately preceding the current year

8. Which one of the following is not one of the elements of the 7S McKinsey Model for analyzing and improving organizational effectiveness ?
(A) Strategy
(B) Structure
(C) Shared Values
(D) Standard

9. Consider the following statements—
1. Aggregate planning implies operational planning concerned with determining a firm's production requirements and manufacturing capacity.
2. Behaviour modification is a concept of motivation totally independent of rewards for the employees.
Which of the statements given above is/are correct ?
(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) Neither 1 nor 2

10. What is the correct sequence of the following steps in a strategic planning process ?
1. Inputs
2. Evaluation of alternatives
3. Execution
4. SWOT analysis
Select the correct answer using the code given below—
(A) 1 - 4 - 2 - 3
(B) 4 - 1 - 2 - 3
(C) 1 - 2 - 3 - 4
(D) 4 - 1 - 3 - 2

11. Consider the following statements—
1. Managerial grid is an organizational concept that brings together teams of individuals from specialized jobs and departments for achieving specific results in
defined periods of time.
2. The matrix management model is based on a matrix of values between 0 and 9 for two primary variables.
Which of the statements given above is/are correct ?
(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) Neither 1 nor 2

12. A limited company makes a net profit of Rs. 2,00,000 after writing off preliminary expenses amounting to Rs. 20,000 and providing for depreciation on assets amounting to Rs. 40,000 and gain of Rs. 10,000 on sale of a piece of machinery. What are the funds from operation ?
(A) Rs. 2,00,000
(B) Rs. 2,40,000
(C) Rs. 2,50,000
(D) Rs. 2,60,000

13. Consider the following items that are disclosed in a statement of cash flows—
1. Cash flow from operating activities.
2. Cash flow from financing activities.
3. Closing cash and cash equivalents.
4. Cash from investing activities What is the correct chronological order of their disclosure of the above cash flows ?
(A) 2 - 3 - 1 - 4
(B) 1 - 4 - 2 - 3
(C) 2 - 4 - 1 - 3
(D) 1 - 3 - 2 - 4

14. Consider the following statements—
A cash flow statement is generally prepared for
1. Ascertaining the net cash flows between two accounting periods.
2. Understanding the trends of cash flows between two accounting periods.
3. Short term cash planning of the business.
Which of the statements given above are correct ?
(A) 1 and 2 only
(B) 2 and 3 only
(C) 1 and 3 only
(D) 1, 2 and 3

15. Which of the following represents corporate sustainable reporting ?
(A) Publishing annual financial statement only
(B) Publishing annual financial statements and social accounts
(C) Publishing social and environmental accounts annually
(D) Publishing annual financial statements incorporating economic, social and environmental performances

16. Sometimes an auditor is called upon to review the operations of an enterprise for evaluating their cost-effectiveness. What is this kind of audit generally known as ?
(A) Cost Audit
(B) Operations Audit
(C) Tax Audit
(D) Independent Financial Audit

17. Match List-I with List-II and select the correct answer using the code given below the Lists—
List-I (Assets and Liabilities)
(a) Current assets
(b) Fixed assets
(c) Deferred revenue expenditure
(d) Current liabilities
List II (Accepted Principles of Valuation)
1. To be valued at cost less depreciation
2. To be valued at cost or market price whichever is lower
3. To be valued at the maximum figure which might be incurred
4. To be written off within a reasonable period of time
Codes :
(a) (b) (c) (d)
(A) 2 1 4 3
(B) 3 4 1 2
(C) 2 4 1 3
(D) 3 1 4 2

18. Match List-I with List-II and select the correct answer using the code given below the Lists—
List I (Type of Audit)
(a) Statutory Audit
(b) Management Audit
(c) Cost Audit
(d) Financial Audit
List II (Explanation)
1. Judge the correctness of the financial statements and establish their reliability
2. Appraisal of performance of executives
3. Examination of past records
4. Verification of cost records
Codes :
(a) (b) (c) (d)
(A) 3 4 2 1
(B) 1 2 4 3
(C) 3 2 4 1
(D) 1 4 2 3

19. Match List-I with List-II and select the correct answer using the code given below the Lists—
List-I (Technique of Auditing)
(a) Vouching
(b) Verification
(c) Investigation
(d) Valuation
List-II (Explanation)
1. It is an enquiry into the value, ownership and title of assets
2. It is testing of the exact value of an asset on the basis of its utility
3. It is the verification of authority and authenticity of transactions as recorded in the books of accounts
4. It is an examination of accounts and records of a business concern with some special purpose
Codes :
(a) (b) (c) (d)
(A) 3 2 4 1
(B) 4 1 3 2
(C) 3 1 4 2
(D) 4 2 3 1

20. Consider the following statements—
Internal check relates to
1. arrangement of duties of employees.
2. distribution of work in such a way that work of one employee is checked by other employee.
3. review of operations.
Which of the statements given above is/are correct ?
(A) 1 and 2 only
(B) 2 and 3 only
(C) 3 only
(D) 1, 2 and 3

21. Consider the following categories of documentary evidence from the point of view of the degree of their reliability.
1. Documentary evidence originating from and held by the entity.
2. Documentary evidence originating from third parties and held by the entity.
3. Documentary evidence originating from and held by the third party.
4. Documentary evidence originating from entity and held by the third party.
Which one of the following is the correct order (high to low) of their degree of reliability ?
(A) 4 - 1 - 3 - 2
(B) 3 - 2 - 4 - 1
(C) 4 - 2 - 3 - 1
(D) 3 - 1 - 4 - 2

22. Which one of the following is not included in the internal check as regards purchases ?
(A) Assessment of requirements
(B) Placing orders
(C) Despatch of goods
(D) Recording and making payments

23. Consider the following statements—
1. It is mandatory for all business enterprises to conduct audit of accounts.
2. Audit Note Book is a tool in the conduct of audit.
3. Internal check system is an inbuilt mechanism within an organization to check frauds and errors.
Which of the statements given above is/are correct ?
(A) 1 only
(B) 2 and 3 only
(C) 3 only
(D) 1, 2 and 3

24. Match List-I with List-II and select the correct answer using the code given below the Lists—
List-I (Type of Books)
(a) Minutes Book
(b) Subsidiary Ledger
(c) Stores Ledger
(d) Log Book
List-II (Content)
1. Records of issue of packing materials
2. Records of running hours of machine
3. Records of decisions at a meeting
4. Records entry of receipt from debtors
Codes :
(a) (b) (c) (d)
(A) 3 2 1 4
(B) 1 4 3 2
(C) 3 4 1 2
(D) 1 2 3 4

25. What is the method in which an amount equal to the amount written off as depreciation is invested in outside securities in order to facilitate replacement of an asset at the expiry of its life period, called ?
(A) Annuity Method
(B) Sinking Fund Method
(C) Replacement Method
(D) Depletion Method

26. What is Capital Redemption Reserve Account available for ?
(A) Redemption of redeemable preference shares
(B) Redemption of redeemable debentures
(C) Reorganization of share capital
(D) Issue of fully paid bonus shares

27. Match List-I with List-II and select the correct answer using the code given below the Lists—
List I (Item)
(a) Earnings per share
(b) Cash flow statement
(c) Inventory valuation
(d) Disclosure of accounting policies
List-II (Accounting Standard)
1. AS-3
2. AS-20
3. AS-1
4. AS-2
Codes :
(a) (b) (c) (d)
(A) 3 1 4 2
(B) 2 4 1 3
(C) 3 4 1 2
(D) 2 1 4 3

28. Government grants related to income as per the Accounting Standard (AS)-12 should be—
(A) Presented as a credit in the statement of Profit and Loss
(B) Presented as a deferred income on the asset side of the balance sheet
(C) Presented as a capital grant on the liability side of balance sheet
(D) Presented both in the Profit and Loss statement and in the balance sheet

29. What is the renewal fees paid for a patent right ?
(A) Capital expenditure
(B) Revenue expenditure
(C) Deferred revenue expenditure
(D) Development expenditure

30. According to the Accounting Standard (AS)-2, the inventory is to be valued at which one of the following ?
(A) Actual cost or sales value, whichever is lower
(B) Historical cost
(C) Net realizable value
(D) Historical cost or net realizable value, whichever is lower

31. Match List-I with List-II and select the correct answer using the code given below the Lists—
List-I (Nature of Expenditures/Receipts)
(a) Capital receipts
(b) Capital expenditure
(c) Revenue expenditure
(d) Revenue receipt
List II (Example)
1. Sale of fixed assets
2. Improvement of fixed assets
3. Income received as interest
4. Interest on loan for business
Codes :
(a) (b) (c) (d)
(A) 1 2 4 3
(B) 3 4 2 1
(C) 1 4 2 3
(D) 3 2 4 1

32. Which of the following is affected by treatment of an accrued item in accounting ?
(A) Profit and Loss A/c only
(B) Profit and Loss Appropriation A/c
(C) Balance Sheet only
(D) Profit and Loss A/c and Balance Sheet

33. Income and expenses for the year 2006 are—
Fee Received in Cash — Rs.24,000
Accrued Fee — Rs.6,000
Rent for Chamber Paid — Rs.6,000
Outstanding Rent — Rs.2,000
Salary Paid to Staff — Rs.6,000
Miscellaneous Expenses Paid — Rs.200
Salary paid in advance to staff included in the above : Rs. 1,000.
What is the income under accrual basis ?
(A) Rs. 11,800
(B) Rs. 13,200
(C) Rs. 16,800
(D) Rs. 30,000

34.
If Opening Stock — Rs.15,000
Purchases — Rs.37,500
Direct Expenses — Rs.1,500
Closing Stock — Rs.7,500
Operating Expenses — Rs.3,000
Sales are Rs. 60,000 during the year, what is the net profit ?
(A) Rs. 12,000
(B) Rs. 10,500
(C) Rs. 7,500
(D) Rs. 3,000

35. On 1.4.2007, a firm's capital was Rs. 2,00,000, Assets Rs. 2,40,000 and Liabilities Rs. 40,000. It sold goods costing Rs. 10,000 for Rs. 12,000. What will be the position of accounting equation after this transaction has been recorded in accounts ?
Assets = Capital + Liabilities
(A) 2,42,000 = 2,02,000 + 40,000
(B) 2,52,000 = 2,12,000 + 40,000
(C) 2,30,000 = 2,00,000 + 30,000
(D) 2,22,000 = 1,82,000 + 40,000

36. Which one of the following statements about preparation of financial statements of a limited liability company is correct ?
(A) Financial statements should
be prepared according to the cash basis of accounting only
(B) Financial statements should be prepared according to the accrual basis of accounting only
(C) Financial statements should be prepared according to either the cash basis or accrual basis of accounting
(D) Financial statements should be prepared according to both the accrual and cash basis of accounting

37. Expenses need to be recorded in the period in which the associated revenues are recognised. This is to be ensured as per which one of the following accounting principles ?
(A) Revenue recognition
(B) Cost benefit
(C) Matching
(D) Periodicity

38. How is profit prior to incorporation treated as ?
(A) Revenue reserve
(B) Secret reserve
(C) Capital reserve
(D) General reserve

39. Which one of the following has replaced the Budla system in India ?
(A) Rolling settlement
(B) Trading in equity derivatives
(C) Depository system
(D) Online trading

40. Which one of the following is not correct ?
(A) Mutual Fund ensures its participants a professional management of portfolio selection
(B) Mutual Fund schemes can be open-ended and/or closeended
(C) Balanced Mutual Fund aims at earning current income and capital appreciation
(D) Mutual Fund is an investment company and a merchant banker

41. Which one of the following statements is not correct ?
(A) Business firms combine to avoid wasteful competition
(B) Business combination is possible only among joint stock companies
(C) Business firms may combine to take advantage of patent rights of individual firms
(D) During economic depression, small firms are absorbed by financially sound large firms

42. What is the theory of social responsibility that focuses on how companies respond to issues, rather than trying to determine their ultimate social responsibility, called ?
(A) Corporate social performance
(B) Corporate social responsiveness
(C) Stewardship principle
(D) Enlightened self-interest

43. What is a systematic evaluation of a company's activities in a given area of social interest such as environmental protection, workplace safety or community
involvement, called ?
(A) Social responsibility
(B) Social accounting
(C) Social audit
(D) Social forecasting

44. What is cross rate ?
(A) A rate of exchange derived from central bank
(B) A rate of exchange between two currencies, other than those that form a market's principal rates
(C) A rate of exchange derived from the quotations for buying currencies
(D) A rate of exchange quoted by a dealer in foreign exchange for selling currencies

45. Which one of the following statements is not correct ?
(A) Working capital is made available by the banks to the export sector at subsidized rates of interest
(B) Market Development Fund provides the necessary financial assistance for market promotion
(C) Export Houses/Star Trading houses are granted additional license against exports made during the preceding year
(D) Export profits enjoy a variety of tax concessions in India

46. Which one of the following statements is correct in respect of Duty Drawback Scheme ?
(A) Relieving export goods of duties paid for components used for manufacturing the export goods
(B) Providing cash incentives to exporters to compensate the duty paid by them in foreign countries
(C) Compensating importers to the extent of import duty paid by them for importing life-saving drugs
(D) Providing a facility for withdrawing the duty paid by exporters if their exports are rejected in foreign countries

47. In foreign trade, what is the price quoted by a supplier which includes all charges incurred up to door delivery of goods to the buyer, called ?
(A) Loco price
(B) C.I.F. price
(C) Franco price
(D) Landed price

48. Consider the following statements—
1. Letter of credit cannot be opened by mail.
2. Contracts of export of goods and services against payment to be secured partly or fully beyond 90 days are treated as deferred payment exports.
Which of the statements given above is/are correct ?
(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) Neither 1 nor 2

49. Under which principle, all the rights of an insured are transferred to insurance company after making payment of claim ?
(A) Subrogation
(B) Utmost good faith
(C) Contribution
(D) Average clause

50. In a marine insurance, when must the insurable interest exist ?
(A) At the time of making contract
(B) At the time of loss of subject matter
(C) Both at the time of making contract and at the time of loss of subject matter
(D) At the time of termination of the policy

51. What is/are the consequence(s) of non-registration of partnership firm ?
1. It cannot sue any of its partners.
2. Partners of an unregistered firm can file suits against each other.
3. Partners can sue the firm to enforce their claims.
Select the correct answer using the code given below—
(A) 1
(B) 2
(C) 3
(D) None of the above

52. Consider the following statements—
In the absence of an agreement, a partner of a firm has the right to
1. claim remuneration for taking part in the management.
2. take part in the conduct and management of business.
3. share the profits of the firm equally with other partners.
4. pledge partnership property as a security for his own private debts.
Which of the statements given above is/are correct ?
(A) 1 and 4
(B) 2 and 3
(C) 1 only
(D) 4 only

53. Match List-I with List-II and select the correct answer using the code given below the Lists—
List-I (Type of Company)
(a) Statutory company
(b) Registered company
(c) Company limited by shares
(d) Company limited by guarantee
List-II (Feature)
1. Member's liability is limited to the face value of shares
2. Regulated by the provisions of the Companies Act
3. Generally formed for promotion of culture, art, science, religion etc.
4. Formed under Special Act
Codes :
(a) (b) (c) (d)
(A) 4 1 2 3
(B) 3 2 1 4
(C) 3 1 2 4
(D) 4 2 1 3

54. Consider the following statements in respect of the “Duty Free Import Authorization Scheme”.
1. The scheme offers the facility to import the required inputs before exports.
2. The scheme allows the transfer of scrip once the export obligation is complete.
Which of the statements given above is/are correct ?
(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) Neither 1 nor 2

55. Under which one of the following is the term ‘Dominant Undertaking’ defined ?
(A) MRTP Act
(B) FEMA
(C) Companies Act
(D) SEBI

Directions—(Q. 56–60) Each of the next five items consists of two statements, one labelled as the ‘Assertion’ (A) and the other as ‘Reason’ (R). You are to examine these two statements carefully and select the answers to these items using the codes given below—
Codes :
(A) Both (A) and (R) are individually true and (R) is the correct explanation of (A).
(B) Both (A) and (R) are individually true but (R) is not the correct explanation of (A).
(C) (A) is true but (R) is false.
(D) (A) is false but (R) is true.

56. Assertion (A)—A company is accountable to the society since it makes use of community-owned assets and other infrastructural facilities and enjoys concessions provided by State from taxpayers' money.
Reason (R)—The best way of social responsibility reporting is to prepare a value-added statement which shows the income earned by all the stake-holders.

57. Assertion (A)—Income tax paid is not shown on the debit side of the sole proprietor's Profit and Loss account.
Reason (R)—It is an appropriation of profit and thus goes to Profit and Loss Appropriation Account.

58. Assertion (A)—The scope of audit of accounts of a limited company may be restricted by the Board of Directors.
Reason (R)—The Board of Directors is responsible for adherence to Accounting Standards in preparation of financial statements.

59. Assertion (A)—Analytical review procedures are useful only at the time of planning of an audit.
Reason (R)—Analytical reviews are the test of financial information conducted through a study and review of relationship among financial data.

60. Assertion (A)—In dividend stripping or bond washing which is resorted to in some countries, fixed-interest securities are bought when they have gone exdividend and sold before the next dividend is paid.
Reason (R)—In such countries, dividends are taxed at a higher rate than capital gains.

61. To which one of the following aspects does an established pattern of relationships among the components of an organization refer ?
(A) Organization strategy
(B) Organization structure
(C) Organization process
(D) Organization policy

62. Consider the following statements—
1. Authority in an organization is the formal or institutional right to command stemming from official delegation of position.
2. Legitimate power is the right to manage derived from delegation based on ownership or property rights.
Which of the statements given above is/are correct ?
(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) Neither 1 nor 2

63. Which one of the following is not correct in respect of the Theory X?
(A) It emphasizes that most average human beings avoid to be led, want to lead
(B) According to the theory X, the Managers tend to be autocratic
(C) The theory X assumes that most human beings must be directly controlled in order to achieve organizational goals
(D) The theory X assumes that most individuals have little ambition and want security

64. When Maslow's need hierarchy is compared with Herzberg's two-factor theory of motivation, which of the following statements are correct ?
1. Maslow's psychological needs; security, safety and affiliation or acceptance represent almost the same meanings as Herzberg's maintenance factor.
2. Esteem or status is also a part of maintenance factor.
3. Self-actualization can be compared as a component of motivators as in Herzberg's theory.
Select the correct answer using the code given below—
(A) 1, 2 and 3
(B) 1 and 2 only
(C) 2 and 3 only
(D) 1 and 3 only

65. Which one of the following is not an element of direction ?
(A) Planning and organizing various resources for doing work
(B) Continuous training activity in which subordinates are instructed to carry out a particular assignment
(C) Motivation of subordinates to try to meet the expectations of manager
(D) Maintaining discipline and rewarding those who perform properly

66. Consider the following statements in respect of PERT—
1. PERT is a variation of milestone budgeting.
2. PERT employs probabilistic estimate of time required for completion of an activity.
3. PERT also includes the transfer of resources for reduction of duration of completion of a project.
Which of the statements given above are correct ?
(A) 1, 2 and 3
(B) 1 and 2 only
(C) 2 and 3 only
(D) 1 and 3 only

67. Some organizations have escalator clause in their labour agreements.
What does this clause provide for ?
(A) Automatic increase in wage/salary depending on seniority
(B) Wage increase depending on output per day by the worker
(C) Automatic increase in wage/salary depending upon increase in price index
(D) Automatic increase in wage/salary depending on increase in profits of the firm

68. What is an organization structure in which each employee reports to both a functional (or division) manager and to a project (or group) manager, known as ?
(A) Strategic business unit
(B) Departmentation by customer
(C) Matrix structure
(D) Departmentation by territory

69. According to force-field theory, every behaviour is the result of equilibrium between which of the following ?
(A) Push and pull effect
(B) Strong and weak forces
(C) Positive and negative forces
(D) Driving and restraining forces

70. Life insurance is a contract of which one of the following ?
(A) Indemnity
(B) Guarantee
(C) Contribution
(D) Subrogation

71. What is outsourcing of production and concentrating on marketing operations in international business, known as ?
(A) Licensing
(B) Franchising
(C) Contract manufacturing
(D) Joint venture

72. Which of the following is not a feature of bonds ?
(A) Par value
(B) Yield to maturity
(C) Coupon rate
(D) Maturity

73. On 1st April, 2006, Y Ltd. Issued 1000, 12% debentures of Rs. 100 each at a discount of 6%. These debentures are redeemable in five equal annual instalments at the end of each year. What is the amount of discount to be written off in the first year i.e. on 31st March, 2007, through P & L A/c ?
(A) Rs. 2000
(B) Rs. 1800
(C) Rs. 1200
(D) Rs. 600

74. XYZ Ltd. issued 10,000 shares of Rs. 100 each at Rs. 120 per share with Rs. 25 on application, Rs. 45 on allotment including premium, Rs. 20 on first call and Rs. 30 on final call. Govind who held 200 shares did not pay any call money and his shares were forfeited. What is the amount to be credited to Share Forfeiture Account on forfeiture ?
(A) Rs. 14,000
(B) Rs. 10,000
(C) Rs. 9,000
(D) Rs. 4,000

75. X Ltd. purchased a car from Maruti Udyog Ltd. for Rs. 5,00,000. As per agreement Rs. 80,000 was to be paid in cash and the balance by issue of shares of Rs. 10 each at a premium of Rs. 5 per share. How many shares should X Ltd. issue to Maruti Udyog Ltd. for the car ?
(A) 30,000 shares
(B) 29,000 shares
(C) 28,500 shares
(D) 28,000 shares

76. A company has issued a 20-year bond at Rs. 1000 par value with a coupon rate of 10 per cent. The required rate of return on similar bonds is 12 per cent. What is the current value of the bond ?
(A) Rs. 905•33
(B) Rs. 850•45
(C) Rs. 833•33
(D) Rs. 820•20

77. Consider the following statements—
Current ratio is increased by
1. issue of redeemable preference shares.
2. selling of old furniture for cash.
3. cash realized from debtors.
Which of the statements given above are correct ?
(A) 1 and 2 only
(B) 2 and 3 only
(C) 1 and 3 only
(D) 1, 2 and 3

78. Which one of the following statements is correct ?
When creditors' velocity or creditors' turnover is higher as compared to debtors' velocity, it would
(A) improve liquidity
(B) reduce liquidity
(C) have no effect on liquidity
(D) improve financial position

79.
Sundry Debtors — Rs.15,000
Bills Receivable (B/R) — Rs.12,500
Cash at Bank — Rs.17,500
Stock — Rs.15,000
Profit — Rs.20,000
Creditors — Rs.25,000
Bills Payable (B/P) — Rs.15,000
Sales — Rs.1,00,000
What is the Acid Test Ratio ?
(A) 1•5 : 1
(B) 1•125 : 1
(C) 16 2/3%
(D) 50%

80. Which one of the following transactions changes the current ratio ?
(A) Purchase of goods for cash
(B) Plant acquired on account
(C) Sold goods on credit
(D) Debentures converted into equity capital

81. Few items of P/L A/c of a company are—
Sales — Rs.1,60,000
Closing stock — Rs.38,000
Non-operating Expenses — Rs.800
Non-operating Income — Rs.4,800
Net Profit — Rs.28,000
What is the Operating Profit Ratio ?
(A) 18%
(B) 20%
(C) 15%
(D) 57%

82. Net profit after tax of Rs. 2,00,000 is Rs. 4,00,000. Share capital is Rs. 8,00,000 and revenue reserve is Rs. 2,00,000. What is rate of return on equity ?
(A) 40%
(B) 50%
(C) 60%
(D) 75%

83. Members of a company may apply to which one among the following for relief under the Companies Act, 1956 in cases of oppression ?
(A) Central Government
(B) High Court of Judicature
(C) National Company Law Tribunal
(D) National Company Law Appellate Tribunal

84. A company limited by shares has to call the statutory meeting within a period of not less than one month and not more than six months. This period is counted with reference to which one of the following ?
(A) The date of incorporation
(B) The date at which the company is entitled to commence business
(C) The date of actual receipt of certificate of incorporation
(D) The date of actual commencement of business

85. Which among the following is eligible to issue Shelf Prospectus ?
(A) Any company contemplating for public issue of securities
(B) Any public financial institution
(C) Only manufacturing companies
(D) Only foreign companies engaged in trading in India

86. Which of the following companies do not have the obligation to get its Articles of Association registered along with the Memorandum of Association ?
(A) Public Company limited by shares
(B) Unlimited companies
(C) Private companies limited by shares
(D) Companies limited by guarantee

87. What does management audit imply ?
(A) Complete audit
(B) Detailed audit
(C) Efficiency audit
(D) Interim audit

88. Which one of the following statements is correct ?
(A) Internal audit and Management audit are the same
(B) Internal audit and statutory audit are the same
(C) Internal audit is compulsory in all cases
(D) Statutory audit of company accounts is compulsory

89. Where does an auditor of a cooperative society submit the audit report ?
(A) To the managing committee of the society only
(B) To the Registrar of Cooperative Societies of the State concerned only
(C) To the State Assembly concerned
(D) To the Registrar of Cooperative Societies of the State concerned and a copy to the society

90. Which one of the following statements is correct ?
(A) Audit of an educational institution is compulsory if it is run by a charitable trust
(B) A club is treated as a commercial establishment
(C) The accounts of a charitable trust can be audited by any person who belongs to accountancy profession
(D) Audit of a charitable trust is not compulsory under law

91. Consider the following statements—
The vouching of remuneration to directors involve the checking of
1. special resolution.
2. statement of accounts.
3. approval note of the Central Government.
4. Minutes Book.
Which of the statements given above are correct ?
(A) 1 and 2 only
(B) 2 and 3 only
(C) 1, 2 and 4
(D) 1, 3 and 4

92. Match List-I with List-II and select the correct answer using the code given below the Lists—
List-I (Liability of Auditor)
(a) Liability for negligence
(b) Liability for misfeasance
(c) Criminal liability
(d) Liability to third party
List-II (Example)
1. Breach of trust or duty
2. Untrue statement in the prospectus
3. Not liable for untrue statement in prospectus
4. Dividends paid out of capital
Codes :
(a) (b) (c) (d)
(A) 4 3 2 1
(B) 2 1 4 3
(C) 4 1 2 3
(D) 2 3 4 1

93. Consider the following statements—
1. Corporate governance requires the appointment of audit committees by public
limited companies.
2. The members of an audit committee should be those non-executive directors who do not represent the controlling group.
3. The independence of the statutory auditors is likely to be affected if he deals directly with the audit committee.
Which of the statements given above are correct ?
(A) 1 and 2 only
(B) 2 and 3 only
(C) 1 and 3 only
(D) 1, 2 and 3

94. Under the head ‘Secured Loans’ the following are disclosed—
1. Loans and Advances from banks.
2. Debentures.
3. Loans and Advances from subsidiaries.
4. Other loans and advances.
What is the correct chronological order of disclosure of the items given above in balance sheet of a company ?
(A) 3 - 1 - 2 - 4
(B) 2 - 4 - 3 - 1
(C) 3 - 4 - 2 - 1
(D) 2 - 1 - 3 - 4

95. Consider the following statements—
Accounting control comprises
1. The plan of organization concerned with decision process.
2. The plan of organization concerned with safeguarding of assets.
3. The procedure concerned with safeguarding of assets.
Which of the statements given above are correct ?
(A) 1 and 2 only
(B) 2 and 3 only
(C) 1 and 3 only
(D) 1, 2 and 3

96. Which of the following statements is/are correct ?
1. Internal control includes quality control.
2. Internal control is compulsory for all forms of business organizations.
3. Internal control helps external auditor to design suitable audit programme for client's organization.
Select the correct answer using the code given below—
(A) 1 only
(B) 2 only
(C) 3 only
(D) 1 and 3

97. Which of the following is not a part of the usual contents of the current file and audit working papers ?
(A) A copy of accounts on which auditors are reporting
(B) Audit programme
(C) Minutes of the meetings
(D) Memorandum of Association and Articles of Association

98. Consider the following statements—
Audit working papers are maintained because
1. they act as a guide to subsequent audit.
2. they verify the arithmetical accuracy of the books of accounts.
3. they provide evidence of the work performed by the auditor.
Which of the statements given above are correct ?
(A) 1 and 2 only
(B) 2 and 3 only
(C) 1 and 3 only
(D) 1, 2 and 3

99. Match List-I with List-II and select the correct answer using the code given below the Lists—
List-I (Technique)
(a) Rotation of Duties
(b) Random Sampling
(c) Trend Analysis
(d) Cash verification
List-II (Auditing Procedure)
(1) Internal control
(2) Physical examination
(3) Selective verification
(4) Overall assessment
Codes :
(a) (b) (c) (d)
(A) 1 4 3 2
(B) 2 3 4 1
(C) 1 3 4 2
(D) 2 4 3 1

100. Consider the following stages an auditor has to undergo before commencing an audit—
1. Ascertaining the scope of audit work.
2. Gaining knowledge about business of the client.
3. Going through the agreement with the client.
4. Instructions to and information from the client.
What is the correct sequence of the above stages ?
(A) 2 - 1 - 3 - 4
(B) 3 - 4 - 2 - 1
(C) 2 - 4 - 3 - 1
(D) 3 - 1 - 2 – 4

101. Which one of the following statements is correct ?
(A) If an asset is used by a company, it should be owned by the company
(B) Verification of liabilities means that the amounts of current and long-term liabilities shown in the balance sheet are correct
(C) Vouching and verification means the same thing
(D) It is not the duty of an auditor to confirm the physical existence and ownership of an asset

102. The following steps should be adopted by an auditor for verification of land—
1. To examine that the land has been shown in the balance sheet at its original cost.
2. To ensure that the cost of land also includes the expenses like broker's commission, legal expenses, improvement expenses etc.
3. To get a certificate from solicitor of the client regarding validity of the title deeds.
4. To examine that the land is not subject to any charge or mortgage.
What is the correct sequence of the above steps to be followed by an auditor during the course of auditing ?
(A) 1 - 4 - 2 - 3
(B) 3 - 2 - 4 - 1
(C) 1 - 2 - 4 - 3
(D) 3 - 4 - 2 – 1

103. What does payout ratio mean ?
(A) Ratio of debtors to creditors
(B) Ratio of profit distributed to profit retained
(C) Ratio of dividends per share and earnings per share
(D) Retained earnings

104. Consider the following statements—
1. Premium on issue of shares is transferred to General Reserve Account.
2. For declaration of bonus shares out of General Reserve, a resolution in the shareholders' meeting is necessary.
Which of the statements given above is/are correct ?
(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) Neither 1 nor 2

105. How is ‘Calls in arrear’ shown in the balance sheet on the liability side ?
(A) By deducting the amount from the called up capital
(B) Under the heading ‘Reserves and Surplus’
(C) By deducting the amount from ‘Capital Reserve’
(D) By deducting the amount from the ‘Share Forfeited Account’

106. Match List-I with List-II and select the correct answer using the code given below the Lists—
List-I (Activity)
(a) Admission of a partner
(b) Partnership dissolution
(c) Rectification of errors
(d) Transfer of realization profit
List-II (Account)
(1) Capital Accounts
(2) Suspense Account
(3) Revaluation Account
(4) Realization Account
Codes :
(a) (b) (c) (d)
(A) 3 4 2 1
(B) 2 1 3 4
(C) 3 1 2 4
(D) 2 4 3 1

107. The balance of old provision for doubtful debts on 1-4-2006 was Rs. 10,000. The bad debts written off during the year 2006-07 amounted to Rs. 12,000, and the new provision requiredon 31-3-2007 was Rs. 15,000. What is the total amount to be debited to profit and loss account on account of bad debts and the provision for doubtful
debts ?
(A) Rs. 37,000
(B) Rs. 27,000
(C) Rs. 17,000
(D) Rs. 15,000

108. A and B sharing profit in the ratio of 3 : 2 and having capitals of Rs. 30,000 (for A) and Rs. 15,000 (for B), decided to dissolve their firm. After paying off all liabilities, cash realized from various assets is Rs. 15,000. How will this amount be distributed to A and B ?
(A) A–Rs. 9,000 and B–Rs. 6,000
(B) A–Rs. 10,000 and B–Rs. 5,000
(C) A–Rs. 7,500 and B–Rs. 7,500
(D) A–Rs. 12,000 and B–Rs. 3,000

109. X and Y sharing profits in the ratio of 7 : 3 admit Z on 37th share in the new firm. Z takes 27 th from X and 17th from Y.
What is the new ratio among X, Y and Z ?
(A) 7 : 3 : 3
(B) 4 : 2 : 15
(C) 14 : 6 : 15
(D) 29 : 11 : 30

110. Given—
Opening inventory : Rs. 3,500
Closing inventory : Rs. 1,500
Cost of goods sold : Rs. 22,000
What is the amount of purchase ?
(A) Rs. 20,000
(B) Rs. 24,000
(C) Rs. 27,000
(D) Rs. 17,000

111. Consider the following—
Amortization refers to writing off the value of
(1) tangible assets
(2) intangible assets
(3) fictitious assets
Which of the above is/are correct ?
(A) 1 and 2
(B) 2 and 3
(C) 1 only
(D) 2 only

112. The following information is disclosed by ‘A’— Rs. Provision for doubtful debts as on 1.1.2006 : 6,000 Bad debts written off during the year 2006 : 1,200 Total debtors as on
31.12.2006 : 80,000 A provision for Doubtful Debts to be made @ 5% What is the amount to be shown on the credit side of P/L A/c ?
(A) Rs. 4,800
(B) Rs. 2,400
(C) Rs. 1,200
(D) Rs. 800

113. What is reduction of paid-up share capital called ?
(A) External reconstruction
(B) Internal reconstruction
(C) Reorganization
(D) Redemption of capital

114. Under which of the following methods of depreciation the amount of an asset is never reduced to zero ?
(A) Straight line method
(B) Diminishing balance method
(C) Sums of Years Digit method
(D) Annuity method

115. An insurance claim of Rs. 300 was accepted in respect of stock (inventory) of Rs. 500, which was destroyed by fire. Rs. 200 not covered by insurance should be debited to which one of the following ?
(A) Stock account
(B) Trading account
(C) Profit and loss account
(D) Goodwill account

116. Debtors turnover ratio is 4.
What is the average collection period ?
(A) 5 months
(B) 4 months
(C) 3 months
(D) 2 months

117. The net profits of a business after providing for taxation for the past five years are Rs. 80,000, Rs. 85,000, Rs. 92,000, Rs. 1,05,000 and Rs. 1,18,000. Capital employed in the business is Rs. 8,00,000. Normal rate of return is 10%. What is the value of goodwill on the basis of capitalization of super profit method ?
(A) Rs. 1,00,000
(B) Rs. 1,50,000
(C) Rs. 1,60,000
(D) Rs. 1,80,000

118. Given—
Purchases — Rs.50,000
Sales — Rs.90,000
Closing Stock — Rs.7,000
Manufacturing Exp. — Rs.5,000
Rate of gross profit — Rs.331
3% on cost
What is the opening stock ?
(A) Rs. 20,000
(B) Rs. 19,500
(C) Rs. 22,500
(D) Rs. 25,000

119. A particular firm provided the following data for a year—
Current Ratio 2•5 : 1
Liquid Ratio 1•5 : 1
Net Working Capital
Rs. 3,00,000
What are the current assets and current liabilities of this firm, respectively ?
(A) Rs. 3,00,000 and Rs. 1,50,000
(B) Rs. 5,00,000 and Rs. 2,00,000
(C) Rs. 2,00,000 and Rs. 5,00,000
(D) Rs. 3,00,000 and Rs. 1,00,000

120. Depreciation is a process of which one of the following ?
(A) Valuation of assets
(B) Allocation of acquisition cost over the estimated useful life of the asset
(C) Allocation of realizable value over the estimated useful life of the asset
(D) Estimating the market value of the asset on the balance sheet date


Answers with Hints
1. (B) 2. (C) 3. (A) 4. (B)
5. (A) Small shareholders of a public company will be able to appoint (elect) one director on the Board of Company if the company has a paid up capital of Rs. 5 crore or more, or has 1000 or more small shareholders as per section 252 Companies (Amendment) Act, 2000.
6. (C) 7. (A)
8. (D) 7S McKinsey Model's elements includes :
(i) Strategy, (ii) Structure, (iii) System, (iv) Shared value, (v) Skills, (vi) Style, (vii) Staff
9. (C) 10. (D) 11. (C)
12. (C) Funds from operation computed as follows :
Net profit — Rs.2,00,000
Add : Preliminary Exp. — Rs.20,000
Depreciation — Rs.40,000
= 2,60,000
Less : Gain on sale of machinery — Rs.10,000
Funds from operation = 2,50,000
13. (C) 14. (C) 15. (D) 16. (A) 17. (A) 18. (C) 19. (C)
20. (A) According to Spicer and Pegler internal check is an arrangement of staff duties whereby no one person is allowed to carry through and record every aspect of a transaction so that, without collusion between any two or more persons, fraud is prevented and at the same time the possibilities of errors are reduced to a minimum.
21. (B) 22. (C) 23. (C) 24. (C) 25. (B) 26. (D) 27. (D) 28. (D) 29. (B) 30. (D)
31. (A) 32. (D) 33. (B) 34. (B) 35. (B) 36. (B) 37. (A) 38. (C) 39. (A) 40. (D)
41. (B) 42. (A) 43. (C) 44. (B) 45. (C) 46. (C) 47. (C) 48. (C) 49. (A) 50. (B)
51. (D) 52. (B) 53. (D) 54. (C) 55. (C) 56. (A) 57. (D) 58. (D) 59. (A) 60. (B)
61. (B) 62. (C) 63. (A) 64. (B) 65. (C) 66. (C) 67. (D)
68. (C) An organisation in which each employee reports to both a functional manager and to a project manager as Matrix Structure of organisation.
69. (D) 70. (B) 71. (B) 72. (B) 73. (C) 74. (B) 75. (D) 76. (A) 77. (A) 78. (C)
79. (B) 80. (B) 81. (C) 82. (A) 83. (C) 84. (B) 85. (B) 86. (A) 87. (C) 88. (D)
89. (B) 90. (A) 91. (D) 92. (C) 93. (A) 94. (D) 95. (B) 96. (D) 97. (D) 98. (C)
99. (C) 100. (D) 101. (B) 102. (B) 103. (C) 104. (B) 105. (A) 106. (A) 107. (C)
108. (A) 109. (D) 110. (A) 111. (D) 112. (D) 113. (B) 114. (B) 115. (C) 116. (C)
117. (C) 118. (B) 119. (B) 120. (B)

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