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Fundamentals of Accounting

1. The accounting system provides the financial information needed to evaluate the
effectiveness of current and past operations.
(a) True
(b) False
2. …………… is concerned with the recording of financial transactions and analyzing the
effect of such transactions to assist in the development of business decisions
(a) Management accounting
(b) Financial accounting
(c) Business accounting
(d) None of these
3. The scope of …………. accounting is broader than that of cost accounting.
(a) management
(b) business
(c) Managerial
(d) None of these
4. Assets are equal to the liabilities plus equity, the sources of the assets.
(a) True
(b) False
5. A transaction can be classified as cash transaction and…………….
(a) debit transaction
(b) balance sheet
(c) credit transaction
(d) None of these
6. Financial accounting is a different representation of costs and financial performance that
includes a company’s assets and liabilities.
(a) True
(b) False
7. …………….means purchase and sale of goods or/and services.
(a) Assets
(b) Non- Trading items
(c) Trading items
(d) None of these
8. …………….assets are those assets which are acquired for long term use in the business
(a) Non-Current Assets

(b) Current Assets

(c) Both (a) and (b)

(d) None of these

9. Cost of Sales is expenses that cannot be directly attributed to sales items, such as
purchases of stocks.
(a) True
(b) False

10. ……………..are those liabilities which the business owes to the outsiders for goods
purchased on credit.
(a) Non-External liabilities

(b) External liabilities

(c) Both (a) and (b)

(d) None of these

11. Revenue refers to the inflow of money or other assets that result from the sale of goods or
services or from the use of money.
(a) True

(b) False

12. Expense may be different from ………………….

(a) Non- expenditure

(b) expenditure

(c) Both (a) and (b)

(d) None of these

13. Which one of the following does not appear on the balance sheet of a manufacturing company?
a. Finished goods inventory
b. Work in process inventory
c. Cost of goods manufactured
d. Raw materials inventory
14. Current assets are not listed on the balance sheet in the order of when the account will be
converted to cash.
(a) True

(b) False

15. ………………..aims at finding out profit or losses of an accounting year as well as the assets and liabilities
(a) Cost Accounting

(b) Financial Accounting

(c) Management Accounting

(d) None of these

16. A transaction means an activity; a business transaction means any activity which creates
some kind of legal relationship.
(a) Business transactions
(b) Classification of transactions
(c) Recording of transactions
(d) Summary of transactions
17. The Business Entity Assumption states that business is separate from the owners.
(a) True
(b) False
18. An accounting convention refers to common practices which are universally followed in
recording and presenting accounting information of the ……………..
(a) market entity

(b) price entity

(c) business entity

(d) None of these

19. Financial accounting is a different representation of ………… and financial performance

that includes a company’s assets and liabilities.
(a) price
(b) costs
(c) Both (a) and (b)
(d) None of these
20. Convention of full disclosure requires that all …………….. and relevant facts concerning
financial statements should be fully disclosed.
(a) element
(b) product
(c) material
(d) None of these

1. (a) 2. (a) 3. (a) 4. (a) 5. (a)

6. (a) 7. (c) 8. (a) 9. (b) 10. (b)

11. (a) 12. (b) 13. (c) 14. (b) 15. (b)

16. (a) 17. (a) 18. (c) 19. (b) 20. (c)


Corporate Financial Statements

1. Accounting Ratios are important tools used by ………….

(a) Managers

(b) Researchers


(d) All of the above

2. Net Profit Ratio Signifies:

(a) Operational Profitability

(b) Liquidity Position

(c) Big-term Solvency

(d)Profit for Lenders.

3. Working Capital Turnover measures the relationship of Working Capital with

(a)Fixed Assets




4. In Ratio Analysis, the term Capital Employed refers to

(a)Equity Share Capital

(b)Net worth

(c)Shareholders' Funds

(d)None of the above

5. Dividend Payout Ratio is:

(a)PAT Capital

(b)DPS ÷ EPS

(c) Pref. Dividend ÷ PAT

(d) Pref. Dividend ÷ Equity Dividend

6. DU PONT Analysis deals with…………

(a) Analysis of Current Assets

(b)Analysis of Profit
(c)Capital Budgeting

(d) Analysis of Fixed Assets

7. In Net Profit Ratio, the denominator is……………

(a)Net Purchases

(b)Net Sales

(c) Credit Sales

(d) Cost of goods sold

8. Inventory Turnover measures the relationship of inventory with………..

(a) Average Sales

(b)Cost of Goods Sold

(c)Total Purchases

(d) Total Assets

9. The term 'EVA' is used for………..

(a)Extra Value Analysis

(b)Economic Value Added

(c)Expected Value Analysis

(d)Engineering Value Analysis

10. Return on Investment may be improved by:

(a)Increasing Turnover

(b) Reducing Expenses

(c)Increasing Capital Utilization

(d)All of the above

11. In Current Ratio, Current Assets are compared with………..

(a)Current Profit

(b)Current Liabilities

(c)Fixed Assets

(d)Equity Share Capital

12. Debt to Total Assets Ratio can be improved by……………

(a)Borrowing More

(b)Issue of Debentures

(c)Issue of Equity Shares

(d)Redemption of Debt

13. Ratio of Net Income to Number of Equity Shares known as:

(a)Price Earnings Ratio

(b) Net Profit Ratio

(c)Earnings per Share

(d) Dividend per Share

14. Trend Analysis helps comparing performance of a firm

(a)With other firms

(b)Over a period of firm

(c)With other industries

(d) None of these

15. Rolling Budget System, budget for every month is prepared.

(a) True

(b) False

16. Cash budget is an important element of profit planning.

(a) True

(b) False

17. Financial Planning deals with:

(a) Preparation of Financial Statements

(b)Planning for a Capital Issue

(c) Preparing Budgets

(d)All of these

18. Financial planning starts with the preparation of ……………

(a) Master Budget

(b) Cash Budget

(c) Balance Sheet

(d)None of these

19. Which of the following is not a part of Master Budget?

(a)Projected Balance Sheet

(b) Capital Expenditure Budget

(c)Operating Budgets

(d) Budget Manual

20. Working Capital Turnover Ratio may be classified as an Activity Ratio.

(a) True

(b) False

1. (d) 2. (a) 3. (a) 4. (d) 5. (b)

6. (b) 7. (b) 8. (b) 9. (b) 10. (d)

11. (b) 12. (d) 13. (c) 14. (b) 15. (b)

16. (b) 17. (c) 18. (b) 19. (d) 20. (a)


Financial statement analysis and interpretation

1. In Ratio Analysis, the term Capital Employed refers to:

(a)Equity Share Capital

(b)Net worth

(c)Shareholders' Funds

(d)None of the above

2. Return on Investment may be improved by:

(a)Increasing Turnover

(b) Reducing Expenses

(c)Increasing Capital Utilization

(d)All of the above

3. Financial statement analysis is not a common technique that allows small business owners to
review their company operational performance.

(b) True

(b) False

4. Which of the following is not followed in capital budgeting?

(a) Cash flows Principle

(b) Interest Exclusion Principle

(c) Accrual Principle

(d) Post-tax Principle

5. Profitability ratios is:

(a) operating ratios

(b) liquidity ratios

(c) solvency ratios

(d) None of these

6. Liquidity ratios are measures of the short-term ability of the company to pay its debts when
they come due and to meet unexpected needs for cash.

(a) True

(b) False

7. Ratio analysis is one of the techniques of financial analysis to evaluate the financial condition
and performance of a …………… concern.

(a) marketing management

(b) marketing

(c) business
(d) business management

8. Ratio analysis is a technique of …………… and thus, ignores qualitative factors, which may
be important in decision making

(a) quantitative analysis

(b) business analysis

(c) market analysis

(d) financial analysis

9. Operating margin captures how much a company makes or loses from its primary business per
dollar of sales.

(a) True

(b) False

10. Liquidity ratios provide information about a firm's ability to meet its …………….. obligations.

(a) middle-term financial

(b) long-term financial

(c) short-term financial

(d) None of these

11. The current assets used in the quick ratio are:

(a) cash

(b) accounts receivable

(c) notes receivable

(d) All of these

12. Gross profit is simply the difference between a company's sales of goods or services and how
much it must pay to provide those goods or services.

(a) True

(b) False

13. Financial leverage ratios provide an indication of the ………… solvency of the firm.
(a) middle-term

(b) short-term

(c) long-term

(d) None of these

14. Average Collection Period = …………….. ÷ Receivables Turnover

(a) 363

(b) 364

(c) 365

(d) 366

15. Fund flow analysis is accomplished by preparing a …………. for evaluating the uses of
funds and determining the sources of funds to finance those users.

(a) case flow statement

(b) cost flow statement

(c) fund flow statement

(d) None of these

16. 8. In Projected Balance Sheet, a balancing figure:

(a) May appear on Assets Side

(b) May appear on Liabilities Side

(c) Would never appear

(d) Any of (a) or (&).

17. The balance sheet is also known as the statement of financial condition or position.

(a) True

(b) False

18. The income statements are also called as the profit loss statements.

(a) True
(b) False

19. The real options analysis helps in evaluating the two options termed as call and put options.

(a) input option

(b) output option

(c) put option

(d) None of these

20. The financial statement notes define each and every item in the balance sheet besides
describing cash flow statement and income statement in details.
(a) True

(b) False

1. (d) 2. (d) 3. (b) 4. (c) 5. (a)

6. (a) 7. (c) 8. (a) 9. (a) 10. (c)

11. (d) 12. (a) 13. (c) 14. (c) 15. (c)

16. (d) 17. (a) 18. (a) 19. (c) 20. (a)


Asset Valuation

1. ……………………….. is commonly performed prior to the sale of an asset or prior to purchasing

insurance for an asset.

(a) Cost valuation

(b) Asset valuation

(c) Price valuation

(d) None of these

2. The FRS requires its carrying amount to be its current value as at the balance sheet date.
(a) True

(b) False

3. The straight line method calculates depreciation by spreading the cost evenly over the life of …………..

(a) the non fixed asset

(b) the fixed asset

(c) the asset

(d) the non asset

4. Intangible assets (resources) play a fundamental role in economies’ change, from traditional
scale-based manufacturing to new innovation-oriented activities.

(a) True

(b) False

5. The sum of all estimated future cash flows is not less than the carrying value of the asset.

(a) True

(b) False

6. Considering asset impairment can be a difficult process for a company or ………...

(a) business

(b) market

(c) Both (a) and (b)

(d) None of these

7. The amount of fixed production overheads allocated to each unit of production is ……….. as a
consequence of low production or idle plant.

(a) increased

(b) not increased

(c) decreased

(d) not decreased

8. The term asset is used for any factor of …………. that has monetary returns.

(a) market

(b) industrial

(c) organization

(d) business

9. Valuation of assets is continually reviewed to reflect the fair market value as much as possible.

(a) True

(b) False

10. Depreciation is defined as an accounting methodology which allows an organization to spread the
cost of a …………. over the expected useful life of that asset.

(a) variable asset

(b) fixed asset

(c) none variable asset

(d) non fixed asset

11. The required variables for calculating depreciation are ……….. and the expected life of the fixed asset.

(a) the market

(b) the price

(c) the cost

(d) the business

12. The cost of inventories should be assigned by using the first-in, first-out (FIFO).

(a) True

(b) False

13. The required variables for calculating depreciation are the cost and the expected life of the

(a) variable asset

(b) fixed asset

(c) asset

(d) None of these

14. Operating leases give the lessee the use of property without ownership.

(a) True

(b) False

15. Intangible assets (resources) play a fundamental role in economies’ change, from traditional
scale-based manufacturing to new innovation-oriented activities.

(a) True

(b) False

16. The current income statement will include an impairment ………… before tax from
continuing operations.

(a) benefit in income

(b) loss in income

(c) Both (a) and (b)

(d) None of these

17. Past ratios that evaluated fixed assets and depreciation policy are distorted by

(a) read-down

(b) up-down

(c) bottom-up

(d) white-down

18. The cost of inventories should comprise all costs of purchase, costs of conversion and other
costs incurred in bringing the inventories to their present location and condition.

(a) True

(b) False
19. The costs of conversion of inventories include costs directly related to the units of production,
such as …………...

(a) labor

(b) indirect labor

(c) direct labor

(d) None of these

20. The allocation of fixed production overheads for the purpose of their inclusion in the costs of
conversion is not based on the normal capacity of the production facilities.

(a) True

(b) False

1. (b) 2.(a) 3.(b) 4.(a) 5.(b)

6. (a) 7.(b) 8.(d) 9.(a) 10.(b)
11. (c) 12.(a) 13.(b) 14.(a) 15.(a)
16. (b) 17.(d) 18.(a) 19.(c) 20.(b)


Techniques of Cost Control

1. ………………………… technique helps in this task by segregating the costs between variable and

(a) Financial costing

(b) Marketing costing

(c) Marginal costing

(d) None of these

2. The first stage in budgetary control is not developing various budgets.

(a) True

(b) False

2. Principal value of a bond is called the ………….

(a)Maturity Value

(b)Issue Price

(c)Par Value

(d)Market Price

3. Market interest rate and bond price have ……………………

(a)Positive relationship

(b)Inverse relation

(c)No relationship

(d)Same relationship

4. 7. The rate of interest payable on a bond is also called ……………….

(a)Effective Rate of Interest

(b)Yield to Maturity

(c)Coupon Rate

(d)Internal Rate of Return

5. If the coupon rate and required rate of return are equal, the value of the bond is equal to

(a) Market Value

(b) Par Value

(c)Redemption Value

(d) None of the above

6. Budgeting plays an important role in planning and controlling.

(a) True

(b) False
7. Zero Base Budgeting (ZBB) is not method of budgeting whereby all activities are revaluated
each time budget is formulated and every item of expenditure in the budget is fully justified.

(a) True

(b) False

8. Material Cost Variance = Material Price Variance + …………………………………………

(a) financial Quantity Variance

(b) business Quantity Variance

(c) Material Quantity Variance

(d) None of these

9. Responsibility Accounting collects and reports planned and actual accounting information
about the ……………………. of responsibility centers.

(a) inputs

(b) outputs

(c) Both (a) and (b)

(d) None of these

10. When the manager is held responsible for both Costs (inputs) and Revenues (output) it is
called a ……………...

(a) Profit Centers

(b) Investment centers

(c) Cost Centers,

(d) None of these

11. The performance of the managers is evaluated by comparing the costs incurred with the

(a) financial cost

(b) business cost

(c) marketing cost

(d) budgeted costs

12. A profit centre will generate too much of interest in the ………………………..

(a) short-run profit to long-term

(b) long-term profit to short-run

(c) short-term

(d) long-run

13. 3. No. of units of domestic currency required to buy one unit of a foreign currency is known as

(a)Indirect Route


(c)Direct Route

(d)Spot Rate

15. Budgeting is a coordinated exercise and hence combines the ideas of different levels of management
in preparation of the same.

(a) True

(b) False

16. Budgeting is an effective means for planning and thus ensures sufficient availability of
………… and other resources.

(a) business capital

(b) financial capital

(c) working capital

(d) None of these

17. A budget centre is not a group of activities or a section of the organization for which budget
can be developed.

(a) True

(b) False

18. Budgets like capital expenditure are generally prepared for a period from 1 year to 3 years.

(a) 1 year
(b) 2 year to 3 years

(c) 1 year to 2 years

(d) 1 year to 3 years

19. In program budgeting, programs are identified and goals are developed for the organization
for the particular program.

(a) True

(b) False

20. Cost involved in preparation and implementation of this system is very high.

(a) very low

(b) middle

(c) very high

(d) None of these

1. (c) 2.(b) 3.(c) 4.(b) 5.(c)

6. (c) 7.(a) 8.(b) 9.(c) 10.(c)
11. (a) 12.(d) 13.(a) 14.(c) 15.(a)
16. (c) 17.(b) 18.(d) 19.(a) 20.(c)


Management Applications
1. Managerial accounting information is generally prepared for
a. shareholders
b. creditors
c. managers
d. regulatory agencies
2. The concept of "Total Quality Management" is precisely to integrate the external and internal ideas of the
(a) True
(b) False
3. Managerial accounting information
a. relates to the entity as a whole and is highly aggregated
b. relates to sub-units of the entity and may be very detailed
c. is prepared only once a year
d. is constrained by the requirements of generally accepted accounting principles
4. Which of the following is not an internal user of management information?
a. Creditor
b. Department manager
c. Controller
d. Treasurer
5. Managerial accounting does not encompass
a. calculating product cost
b. calculating earnings per share
c. determining cost behavior
d. profit planning
6. Management accounting is applicable to
a. service entities
b. manufacturing entities
c. not-for-profit entities
d. all of these
7. Financial statements for external users can be described as
a. user-specific
b. general-purpose
c. special-purpose
d. management reports
8. Management accounting reports can be described as
a. general-purpose
b. macro-reports
c. special-purpose
d. classified financial statements
9. Which of the following is not a management function?
a. Demotivating
b. Planning
c. Controlling
d. Directing

10. Sales commissions are classified as

a. prime costs
b. period costs
c. product costs
d. indirect labour
11. Conduct market research to determine the price points that a company is not most likely to achieve if it
creates a product with a certain set of features.
(a) True
(b) False
12. Which of the following is not another name for the term manufacturing overhead?
a. Factory overhead
b. Pervasive costs
c. Burden
d. Indirect manufacturing costs
13. Both direct materials and indirect materials are classified as
a. raw materials
b. manufacturing overhead
c. merchandise inventory
d. non-current assets
14. A manager who is establishing objectives is performing which management function?
a. Motivating
b. Directing
c. Planning
d. Constraining
15. Marginal costing is not the ascertainment of marginal cost and of the effect on profit of
changes in volume by differentiating between fixed costs and variable costs.
(a) True

(b) False

16. Internal reports are generally

a. aggregated
b. detailed
c. regulated
d. unreliable
17. In manufacturing a product, prime costs are
a. raw materials and manufacturing overhead
b. indirect materials and manufacturing overhead
c. indirect labour and manufacturing overhead
d. direct materials and direct labour
18. Which one of the following costs would not be included in inventory?
a. Period costs
b. Prime costs
c. Conversion costs
d. Indirect labour costs
19. Product costs are also called
a. direct costs
b. prime costs
c. inventoriable costs
d. capitalisable costs
20. Cost-volume-profit analysis is a tool that can be utilized by business managers to make better business
(a) True
(b) False

1. (c) 2. (a) 3. (b) 4. (a) 5. (b)

6. (d) 7. (d) 8. (c) 9. (a) 10. (b)

11. (b) 12. (b) 13. (a) 14. (c) 15. (b)

16. (b) 17. (d) 18. (a) 19. (c) 20. (a)


Financial Statement Analysis

1. Which of the following is not a reason financial analysis is useful to investors?

a) Current position is the base on which future performance must be built

b) Investors use financial statements analysis to assess the risk associated with their expected returns
c) Future trends can always be accurately predicted
d) Investors read financial statements either to monitor their current investments or to plan their future ones
e) Past performance is often a good indicator of future performance
2. In relation to a company, creditors are least concerned with:

a) Its future share price

b) Its short-term liquidity
c) Its profitability
d) None of these
3. In relation to a company, investors are least concerned with:

a) Its future share price

b) Its profitability
c) Its solvency
d) Its short-term liquidity
4. In order to have a smoothed rate of growth, we use:

a) Trends statements
b) Common-size statements
c) Financial ratios
d) None of these
5. The difference between total current assets and total current liabilities is:

a) Operating working capital

b) Accounting working capital
c) Trade working capital
d) Net assets
6. Which of the following is a short-term liquidity ratio?

a) Cash ratio
b) Inventory turnover
c) Current ratio
d) All of the these
7. Which ratios would you not use to assess the capital gearing of an enterprise?

a) Debt-to-equity ratio
b) Asset turnover
c) Interest cover ratio
d) None of these
8. Which two of the following are not long-term solvency ratios?

a) Long-term debt to assets

b) ROI
c) Cash flow coverage ratio
d) Interest cover ratio
9. Operating performance is best measured by:

a) Asset turnover
b) P/E
c) Margin on sales
10. Which of the following statements is not true of diluted EPS?

a) It must always be presented on the income statement

b) It assumes conversions of all potentially dilutive securities
c) It is an expansion of the computation for EPS
d) All of the above
11. If a company's share price falls, then its P/E ratio and dividend yield:

a) P/E ratio: decrease; Dividend yield: increase

b) P/E ratio: decrease; Dividend yield: decrease
c) P/E ratio: decrease; Dividend yield: no effect
d) P/E ratio: increase; Dividend yield: increase
e) P/E ratio: increase; Dividend yield: decrease
12. Which of the following is not a category of financial statement ratios?

a) Financial leverage.
b) Liquidity.
c) Profitability.
d) Reliability.
13. Funds Flow Statement is an analytical tool in the hands of financial manager.

(a) True

(b) False

14. Accrual accounting requires companies to record revenues and expenses when transactions
occur, not when cash is exchanged.

(a) financial accounting

(b) market accounting

(c) Accrual accounting

(d) None of these

15. Free cash flow signals a company’s ability to pay debt, pay dividends, buy back stock and
facilitate the growth of business.

(a) True

(b) False

16. Investors tend to prefer companies that produce a net positive cash flow from operating

(a) negative cash flow

(b) positive cash flow

(c) Both (a) and (b)

(d) None of these

17. The cash flow statement shows how much cash comes in and goes out of the company over
the quarter or the year.

(a) True

(b) False

18. Funds flow statement is a test of effective use of working capital by the management during a
particular period.

(a) Cost flow

(b) Funds flow

(c) Price flow

(d) None of these

19. Income Statement measures flow restricted to transitions that pertain to rendering of goods
and services to customers.

(a) True

(b) False

20. Fund Flow is not a statement prepared to indicate the increase in cash resources and the
utilization of such resources of a business during the accounting period.

(a) True

(b) False

1. (c) 2.(b) 3.(d) 4.(d) 5.(b)

6. (d) 7.(d) 8.(a) 9.(d) 10.(a)
11. (d) 12.(a) 13.(a) 14.(c) 15.(a)
16. (b) 17.(a) 18.(b) 19.(a) 20.(b)


Financial Statements of Limited Companies

1. Accounting reference period (ARP), the period by reference to which the …………. have to
be prepared and presented to members.

(a) market statements

(b) business statements

(c) financial statements

(d) None of these

2. The financial year of a company will usually be the same as its not accounting reference

(a) True

(b) False

3. ……………….. has been accounted for on accrual basis based on audited/unaudited royalty returns
received from the licensees.

(a) Royalty income

(b) No Royalty income

(c) Both (a) and (b)

(d) None of these

4. Interest on delayed payment of …………….. is being accounted for on cash basis.

(a) no royalty

(b) royalty

(c) Both (a) and (b)

(d) None of these

5. Balances in such foreign …………… at the yearend are converted at the prevailing exchange

(a) market accounts

(b) business accounts

(c) currency accounts

(d) None of these

6. The premium paid on the basis of actuarial valuation are not charged to income and
expenditure account.

(a) True

(b) False

7. Cost of sales consists of the salary cost of temporary staff and costs incurred on behalf of
(a) principally advertising costs

(b) principally business costs

(c) principally marketing costs

(d) None of these

8. ………………. is represented by turnover less cost of sales and consists of the total placement fees
of permanent candidates.

(a) Cost of gross

(b) Cost of sales

(c) Gross profit

(d) None of these

9. Foreign currency transactions are translated into the respective functional currency using the
exchange rates prevailing at the dates of the transactions.

(a) True

(b) False

10. Assets and …………… for each balance sheet presented are translated at the closing rate at
the date of that balance sheet.

(a) Income

(b) liabilities

(c) expenses

(d) None of these

11. Gains and losses on the disposal of an entity include the carrying amount of goodwill
relating to the entity sold.
(a) True

(b) False

12. Amortization is charged to the income statement on a ……… basis over the estimated useful.

(a) curve-line

(b) straight-line

(c) Both and (a) (b)

(d) None of these

13. An impairment loss is not recognized for the amount by which the asset’s carrying amount
exceeds its recoverable amount.

(a) True

(b) False

14. Income tax expense represents the sum of the tax currently payable and deferred tax.

(a) True

(b) False

15. …………………. vesting conditions are included in assumptions about the number of
options that are expected to become exercisable.

(a) Business

(b) No-market

(c) market

(d) None of these

16. Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other
short-term highly liquid investments with original maturities of ………. or less.

(a) one months

(b) two months

(c) three months

(d) None of these

17. An annual report is a collective summary of a ……………. yearly spending and earnings.

(a) market’s

(b) business’s

(c) Both (a) and (b)

(d) None of these

18. Income statements are not used to determine how much the company is earning each month.

(a) True

(b) False

19. Corporate annual reports generally begin with a statement from the CEO and the chairperson.

(a) True

(b) False

20. Annual reports might contain feature stories on particular projects that are not underway, or
profiles of employees or departments within the company.

(a) True

(b) False

1. (a) 2.(b) 3.(a) 4.(b) 5.(c)

6. (b) 7.(a) 8.(c) 9.(a) 10.(b)
11. (a) 12.(b) 13.(b) 14.(b) 15.(c)
16. (b) 17.(a) 18.(a) 19.(a) 20.(b)

1. The standard cost of a product is:

a. The unit cost of products incurred at the start of a particular period

b. The average unit cost of products produced in the previous period
c. The planned unit cost of products produced during a particular period
d. The average unit cost of products produced during a particular period

2. What term is used to describe the level of efficiency achieved that appropriately trained,
motivated and resourced employees can achieve in the long-run?

a. Standard hours
b. Standard ex post
c. Standard performance
d. Standard ex ante
3. A standard that represents the most likely scenario can be referred to as the:

a. Basic standard
b. Average standard
c. Ideal standard
d. Attainable standard

4. When calculating cost variances under a standard costing system we must:

a. Compare actual costs with standard costs at the actual level of output
b. Compare actual costs with those that were budgeted
c. Compare standard costs with actual costs at the standard level of activity
d. Compare actual outputs against budgeted outputs
5. When carrying out variance analysis, ideally we should:

a. Look at all variances

b. Look at all adverse and favourable variances that are over a predetermined amount
c. Look at adverse variances that are over a predetermined amount
d. None of these
6. The efficiency ratio can be defined as:

a. Standard hours produced/ actual labour hours worked

b. Standard hours produced / budgeted labour hours
c. Actual hours worked / actual production based on standard hours
d. Actual hours worked / budgeted labour hours
7. The labour rate variance can be calculated by the following equation:

a. Budgeted labour costs - actual labour costs

b. (Standard hours - actual hours) * actual wage rate
c. (Standard wage rate - actual wage rate) * actual hours worked
d. (Standard wage rate - actual wage rate) * standard hours worked

8. An adverse material usage variance together with a favourable materials price variance could
suggest that:
a. We are using less materials than expected but in total we are paying more than we
b. We are paying less for our materials than expected but we are using more materials
c. We are paying higher prices for our materials than expected
d. We are paying the same for our materials but we are using more than expected

9. An adverse labour efficiency variance together with a favourable labour rate variance may
mean that:

a. More products are being made per hour

b. The business is paying a higher hourly rate than the standard
c. Less skilled staff are being used in production
d. Less labour hours are needed to make the same amount of output
10. The formula for calculating the variable overhead total variance is:

a. Actual variable overhead less (standard hours * actual production * variable

overhead absorption rate)
b. Actual variable overhead expenditure less budgeted variable overhead expenditure
c. (Standard hours less actual hours) * variable overhead absorption rate
d. Actual overhead less (actual hours * actual hours worked * variable overhead
absorption rate)
11. The formula for calculating the fixed overhead volume variance is:

a. Budgeted fixed expenditure less (actual hours * fixed overhead absorption rate)
b. Actual fixed overhead less (standard hours * actual production * fixed overhead
absorption rate)
c. Budgeted fixed expenditure less (standard hours * actual production * fixed
overhead expenditure variance)
d. Budgeted fixed expenditure less (actual hours * actual production * fixed overhead
absorption rate)
12. Planning is not the first tool for making the control effective.

(a) True

(b) False

13. A current standard is a standard which is established for use over a short period of time and is
related to current condition.

(a) True

(b) False

14. A basic standard may not be defined as a standard which is established for use for an
indefinite period which may a long period.
(a) True

(b) False

15. A price variance arises when the cost to purchase an item differs from its standard price.

(a) True

(b) False

16. Variance analysis can be defined as the process of computing the amount of, and isolating the
cause of variances between actual………….

(a) actual costs

(b) standard costs.

(c) Both (a) and (b)

(d) None of these

17. Actual Sales= Actual quantity sold × Actual selling price

(a) Actual quantity sold

(b) Sales Value Variance

(c) Both (a) and (b)

(d) None of these

18. Inflation accounting is also referred to as the …………..accounting.

(a) economical level

(b) cost level

(c) price level

(d) None of these

19. The technique of using standard costs for the purposes of cost control is known as standard

(a) True

(b) False

20. ……… is established for a long period and is not adjusted to the preset conations.
(a). Ideal standard

(b) Basic standard

(c) Current standards

(d) None of these

1. (c) 2.(c) 3.(d) 4.(a) 5.(d)

6. (a) 7.(c) 8.(b) 9.(c) 10.(a)
11. (d) 12.(b) 13.(a) 14.(b) 15.(a)
16. (c) 17.(a) 18.(c) 19.(a) 20.(b)


1. When the cost incurred on recruiting, training and developing the employees is considered for
determining the value of employees, it is called
A. the replacement cost approach
B. the historical cost approach
C. the opportunity cost approach
D. none of the above

2. The opportunity cost approach in human resource accounting was introduced by

A. Hekimian and Jones
B. Rensis Likert
C. Eric G. Flamholtz
D. William C. Pyle

3. The aggregate payment approach in human resource accounting was developed by

A. Myers and Flowers
B. Hermanson
C. S. K. Chakraborty
D. none of the above

4. The value of human resources is the function of the average salary of the employees and their
A. average employment tenure in the organization. This is the essence of the
B. aggregate payment model
C. five-dimensional model
D. causal, intervening and end-result model
E. unpurchased goodwill model

5. Fixing the value of an employee depending upon his productivity, promotability transferability
and retainability is the core of the

A. certainty equivalent model

B. stochastic reward valuation model
C. human asset multiplier model
D. present value of future earnings mo

6. A standard cost which will be most useful for control purposes is one which:
(a) Contains no allowances for normal losses or other forms of wastage.
(b) Is set in advance of the control period and which then remains unchanged.
(c) Contains a reasonable degree of allowances for operating inefficiencies.
(d) Managers are expected to achieve at all times.
7. Direct material total variances can be analysed into:
(a) Efficiency and price variances.
(b) Price and productivity variances.
(c) Price and usage variances.
(d) Efficiency and usage variances.
8. XYZ Ltd uses standard costing.Variance analysis has revealed an adverse total direct material
at the end of an operating period.Which of the following combinations of factors is the most
likely reason for the adverse variance?
(a) Price reductions and lower wastage.
(b) Price increases and greater wastage.
(c) Employing less skilled workers to lower labour costs.
(d) Over estimation of the material cost built into the standard cost.
9. Which of the following statements would be a valid explanation of a favourable direct labour
(a) The standard cost overestimated a national wage agreement settlement for the production
operatives in the factory.
(b) The standard labour time per unit was overstated as it failed to incorporate production
made possible by new machinery.
(c) There was a cost saving as a result of a strike in the factory during the year.
(d) The standard cost did not take into account changes in the product specification which meant
that in practice, less time per unit was needed for assembly.

10. Which of the following is likely to be classified as a direct material cost of a motor car
(a) The metal used to manufacture it.
(b) The metal used to manufacture one of the tools used in the car wheel factory.
(c) The cost of operating the raw material stores in the factory.
(d) The cost of the quality operation on the finished car wheels.
11. The first in, first out method of pricing raw material issues, exhibits which one of the
(a) The issue price is recalculated each time new deliveries are made into stock.
(b) The issue price is always at the latest price.
(c) The goods are always issued strictly in the physical order in which they are received.
(d) The issue price is always at the earliest price.
12. Which of the following is not a method of pricing raw material issues from stock?
(a) Standard costing.
(b) Unit cost.
(c) Marginal cost.
(d) Continuous weighted average.
13. Which of the following is a direct labour cost?
(a) Supervisors’ salaries in the factory.
(b) Costs of the payroll accounting section.
(c) A bonus paid to the storeman.
(d) The wages of an operative paid on the basis of output achieved.
14. Production overheads are absorbed into production units by the use of an overhead
absorptionrate. Which one of the following best describes how the absorption rate is calculated?
(a) Total number of units produced divided by the total cost centre overheads.
(b) Total number of units produced multiplied by the unit overhead cost.
(c) Total cost centre overheads divided by the cost centre activity level.
(d) Total indirect costs for the business divided by the total number of units produced.
15. XYZ Ltd has a labour intensive assembly department. Which of the following methods of
absorbing overheads is likely to used for that department?
(a) Direct labour hours method.
(b) Direct labour cost method.
(c) Direct material cost method.
(d) A percentage of prime cost.
16. XYZ Ltd has the following data relating to its assembly plant in the year ended 31 December
Direct material costs 500
Direct labour cost 250
Assembly plant indirect costs 100
In addition, the stores department has total costs of £30 000 and spends 50% of its time servicing
the assembly plant. There were 50 000 labour hours worked and 25 000 machine hours run in the
assembly plant in 2001.
The overhead cost per direct labour hour was:
(a) £2.
(b) £4.
(c) £2.3.
(d) £4.6.
17. If a company uses predetermined overhead recovery rates and at the end of a period finds that
there has been an under-recovery of overhead, which of the following best explains how the
has occurred?
(a) Actual overhead cost has exceeded the amount used as a basis for the establishment of the
predetermined rate.
(b) Actual overhead cost has been less than the amount used as a basis for the establishment of
predetermined rate.
(c) Actual activity levels were higher than planned due to an increase in demand.
(d) An expected price increase in the overhead costs which was built into the overhead recovery
rate did not take place.
18. If there has been an over recovery of overheads, at the end of the accounting period the
concerned should be?
(a) Debited to the company profit and loss account.
(b) Credited to the company profit and loss account.
(c) Carried forward to the next accounting period as a cost saving.
(d) Used to reduce next period’s overhead recovery rate.

19. Which of the following is not an essential prerequisite to permit the successful use of
financial statements for ratio analysis?
(a) The accounts should use comparable accounting policies.
(b) The accounts should be drawn from similar types of organizations.
(c) The accounts should be available for several accounting periods.
(d) The accounts used should not include forecast financial information.
20. The current ratio is an indicator of which following characteristic of an organization?
(a) The current level of profitability.
(b) The future level of profitability.
(c) The investment potential.
(d) The liquidity in the short term.

1. (b) 2.(a) 3.(c) 4.(b) 5.(b)

6. (c) 7.(c) 8.(b) 9.(a) 10.(a)
11. (d) 12.(c) 13.(d) 14.(c) 15.(a)
16. (c) 17.(a) 18.(b) 19.(d) 20.(d)