Problem Set for Part A

1. Suppose Mr. X runs a sweet shop in central Delhi on his own, then what form of Business
is this?
a) Partnership
b) Sole Proprietorship
c) Corporation
d) Limited Liability Partnership

2. Rahul & Raghav came into a partnership business in 2010 and in 2020, the business was
not able to repay the loan, then would Raghav & Rahul be liable to repay the amount from
their personal assets? State Yes or No.
a) Yes
b) No

3. Who of the following are users of information provided by accounting?

a) Human Resource Managers
b) Labour Unions
c) Investors
d) All of the above

4. Which of the following is true for Retained Earnings statement?

a) It shows expenses incurred.
b) It shows the liquidity of a business.
c) The balance in retained earnings shows the cumulative sum of profit earned since
inception & the amount distributed as dividends.
d) It shows that portion of the earnings that the company has earned by investing its surplus
cash in various financial securities.

5. Which of the following is not true for the Cash Flow Statement?
a) It is prepared on the basis of the stock concept.
b) It shows where did the cash come from during the period?
c) It shows where did the cash go during the period.?
d) All of these are true for Cash Flow Statement

6. Which of the following is an example of a financing activity?

a) Issuing shares of common stock
b) Selling goods on account
c) Buying delivery equipment
d) Buying inventory

7. Which of the following will not be considered as an asset?

a) Office furniture purchased in cash.
b) Machinery purchased on EMI.
c) Office Space on the annual leased agreement.
d) Reputation of the Company built over a period of time

8. Interest paid on loan is an example of which of the following?

a) Asset
b) Liability
c) Expense
d) Revenue

9. Which of the is considered as an expense in the accounting period in which it is incurred?

a) Employee Training Programs
b) Research & Development
c) None of the above
d) Both of the above

10. Which of the following is correct for faithful financial representation of information?
a) Complete in all aspects.
b) Free from biases
c) Free from material error
d) All of these

11. An item is material when omission or misstatement is likely to influence the decision of
the user of financial statements. Is this statement true or false?
a) True
b) False

12. Which of the following is not one of the qualitative characteristic of financial reporting
that complements information quality
a) Comparability
b) Verifiability
c) Materiality
d) Timeliness

13. Which of the following will be not recorded in books of accounts?

a) Machinery purchased on credit.
b) Purchase of raw material for cash.
c) Repayment of loan.
d) Sale pitch for equipment to potential customers.

14.Suppose ABC Ltd has liabilities of $ 60,000 & stockholders’ equity is ½ of liabilities then
calculate Assets of ABC Ltd
a) $30,000
b) $90,000
c) $60,000
d) $20,000

15. During 2019, Todd Company assets decreased INR 50,000 and its liabilities decreased
INR 90,000. Its stockholders’ equity therefore:
a) Increased INR 40,000
b) Decreased INR 140,000
c) Decreased INR 40,000
d) Increased INR 140,000

16. Which of the following Assumption is behind the distributing the cost of Machinery
for over 10 years, if company assumes that Machinery will be used for 10 years in business?
a) Separate Entity
b) Going Concern
c) None of the above
d) Accrual Basis of Accounting

17. Which of the following convention/principle says to postpone the recognition of gains &
prepone the recognition of losses ?
a) Historical Cost
b) Conservatism
c) Matching Principle
d) None of the above

18. Which of the following option represent the correct matching between the terms with
their appropriate description?
Terms:
1. Historical Cost
2. Going Concern Assumption
3. Periodicity assumption
4. Realization Principal
Description:
a. Is the rationale for why plant assets are not reported at liquidation value.
b. Separates financial information into time period for reporting purposes
c. Requires recognition of revenue of only that amount that is certain to be realized
d. Indicates that market value changes subsequent to purchase are not recorded in the
accounts
Options:
a) 1a, 2c, 3d, 4b
b) 1d, 2a, 3b, 4c
c) 1b, 2d, 3b, 4a
d) 1a, 2d, 3b, 4c
19. A local retail shop has been operating as a sole proprietorship. The business is growing and
now the owner wants to incorporate. Which of the following is not a reason for this owner
to incorporate?
a) Ability to raise capital for expansion
b) Desire to limit the owner’s personal liability
c) The prestige of operating as a corporation
d) The ease in transferring shares of the corporation’s stock

20. Ending retained earnings for a period is equal to beginning

a) Retained earnings + Net income + Dividends
b) Retained earnings – Net income – Dividends
c) Retained earnings + Net income – Dividends
d) Retained earnings – Net income + Dividends

21. Ramso Company began the year with retained earnings of INR 330,000. During the year,
the company recorded revenues of INR 500,000, expenses of INR 380,000, and paid
dividends of INR 40,000. What was Ramso’s retained earnings at the end of the year?
a) INR 490,000
b) INR 410,000
c) INR 790,000
d) INR 450,000

22. Aditya’s Repair Shop started the year with total assets of INR 200,000 and total liabilities
of INR 160,000. During the year the business recorded INR 420,000 in revenues, INR
220,000 in expenses, and dividends of INR 40,000. Stockholders’ equity at the end of the
year for Aditya’s Repair Shop was
a) INR 160,000.
b) INR 200,000.
c) INR 120,000.
d) INR 380,000.

23. If total liabilities decreased by INR 50,000 and stockholders’ equity increased by INR
10,000 during a period of time, then total assets must change by what amount and direction
during that same period?
a) $40,000 decrease
b) $40,000 increase
c) $50,000 increase
d) $60,000 increase
24. The ATL Company has five buildings nationwide that cost INR 300 Crore. The current
market value of the buildings is INR 500 Crore. The buildings will be reported as assets at
a) INR 200 Cr
b) INR 800 Cr
c) INR 300 Cr
d) INR 500 Cr

25. Which of the following option represent the correct matching between the terms with
their appropriate description?
Terms
a. Consistency
b. Materiality
c. Going concern assumption
d. Periodicity
Description
1. The life of a business is divided into artificial time periods.
2. This characteristic best enhances comparability of financial statements between years.
3. The business will continue in operation long enough to carry out its existing objectives.
4. A large company rounds its financial statement figures to the nearest thousand.
Options:
a) a2,b4, c3, d1
b) a4, b2, c1, d3
c) a2, b4, c1, d3
d) a2, b2, c3, d1

26. If total liabilities decreased by INR 40,000, then

a) stockholders’ equity must have decreased by INR 40,000.
b) assets must have decreased by INR 40,000, or stockholders’ equity must have
increased by INR 40,000.
c) assets and stockholders’ equity each increased by INR 20,000.
d) assets must have increased by INR 40,000.

27. Aurangabad Energy received a cash advance of INR 500,000 from a customer. As a result
of this event,
a) assets increased by INR 500,000
b) equity increased by INR 500,000
c) liabilities decreased by INR 500,000
d) Both assets and equity increased by INR 500,000

28. Sheldon Company purchased equipment for INR 18,000 cash. As a result of this event,
a) equity decreased by INR 18,000.
b) assets increased by INR 18,000
c) total assets remained unchanged.
d) Both assets and equity decreased by INR 18,000