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Q.1. (i) Select the best option/answer and fill in the appropriate Circle on the OMR Answer Sheet. (20x1=20)
(ii) Answers given anywhere, other than OMR Answer Sheet, shall not be considered.
4. A company is considered sick under the Companies Ordinance 1984 where current
ratio is:
(a) Below 0.5 : 1 (b) Below 3 : 1 (c) Above 2.5 : 1 (d) None of these
5. Banks are required to prepare their financial statements as per following legislation:
(a) Free to prepare with no legislative requirements (b) Under Companies Ordinance
1984
(c) Banking Ordinance 1962 (d) State Bank Laws
In terms of Section 34 of the Banking Companies Ordinance, 1962 the banks are required to
prepare their annual accounts in the forms set out in the Second Schedule to the said
Ordinance.
BASIS OF PRESENTATION The financial statements have been prepared in accordance with the
requirements of accounting regulations laid down by the SECP (Insurance Rules, 2002) of the Insurance
Ordinance, 2000.
Insurance Ordinance, 2000 (Primarily), CO1984 (secondary).
Simple, when cost (e.g. Rs. 100) is greater than Revenue (e.g. Rs. 80), then loss (of Rs.
20) will occur.
Furthermore, See matching concept also.
Generally, while making financial statements only those costs are undertaken which
MATCHES to the accounting period in which the Matched Revenue was generated.
12. The following represent tangible assets and are shown in the balance sheet as:
(a) People (b) Expenses (c) Revenue (d) Goodwill
It should be INtangible.
option a,b,c are irrelevant as they cannot be shown on Balance Sheet.
http://www.encyclopediaofcredit.com/Working-Capital
Current Ratio: The current ratio gauges how capable a business is in paying current
liabilities by using current assets only. Current ratio is also called the working capital ratio.
A general rule of thumb for the current ratio is 2 to 1 (or 2:1 or 2/1).
http://www.grbi.gov.pk/Documents/BudgetaryReform.pdf
pg 31
The recurrent budget estimates are prepared on incremental basis.
Revenue and Share capital are not tangible items for which depreciation is calculated.
19. Partnerships are legally required to prepare their financial statements for
distribution on wide basis under:
(a) Partnerships Act 1932 (b) Securities & Exchange Rules 2000
(c) Voluntary Act for Compliance (d) None of these
Partnerships are not legally required for FS especially to be distributed on wide basis.
20. A company is considered sick if the market value compared to its par value is:
(a) 1 : 1 (b) 2 : 1 (c) 0.25 : 1 (d) None of these
Past Papers
(1) Accounting principles are generally based on
(a) Practicability (b) Subjectivity (c) Convenience in recording
(2) Real accounts are related to
(a) Assets (b) Expense and incomes (c) Customers and creditor etc
(3) Rent paid to the land lord should be credited to
(a) Landlord Account (b) Rent account (c) Cash Account
4) In the event of dissolution of a partnership firm the provision for doubtful debts is
transferred to
(a) Realization Account (b) Partner capital accounts (c) sundry debtors Accounts
(5) A prospectus for share can be issued only by
(a) A public company (b) A private company (c) None of these.
(6) Preliminary expense is
(a) Current asset (b) Current Liability (c) Fictitious asset
(7) The valuation of closing stock is at
(a) Cost price (b) Market price
(c) Cost or Market price whichever is lower
(8) The master budget includes
(a) as income statement (b) a balance sheet (c) a cash budget (d)these all of these
(9) Cost volume profit analysis is the method used to estimate the impact on profit is of
changes in
(a) Unit variable cost (b) unit sales price (c) Sale volume (d) All of these
(10) In a manufacturing company product cost include
(a) Material cost only (b) Material and labour (c) Labour cost only (d) material labour and
overhead cost
(11) A liability in the amount of Rs 500 is paid in cash which of the fallowing is true
(a) Asset is increased and liability is decreased (b) Asset is increased and liability is
increased
(b) Asset is decreased and liability is decreased (b) Liability is decreased and owner’s
equity is increased
(12) Which one of the following account would usually have credit balance?
(a) Cash (b) Account payable (c) Equipment (d) Salaries expense
(13) A company collected one year’s rent in advance on October 1st ,1997 the entries Rs
1200 was credited to unearned revenue account the adjusting entry at the December
31,1997 year ended would include
(a) A debit to unearned revenue for Rs 300 (b) A debit to unearned revenue for Rs 900
(c) A credit to unearned revenue for Rs 300 (d) A debit to rent earned for Rs 900
(14) Net income plus operating expense is equal to
(a) Net sale (b) Cost of good available for sales (c) Cost of good sold (d) Gross profit
(15) When purchase merchandise is returned under a perpetual inventory system a credit
would be made to
(a) Inventory (b) Freight in (c) Purchases (d) Purchase return
(16) Which of the fallowing accounts would not be included in the computation of the cost of
goods sold
(a) Purchase returns (b) Freight in (c) Purchase discount lost (d) Purchase discounts
(17) Total manufacturing cost for a period includes all of the fallowing except
(a) Raw material used (b) Direct labour cost
(c) Cost of good completed (d) Factory overhead cost(18) Quick Asset includes which of
the fallowing
(a) Cash (b) Account receivable (c) Marketable securities (d) All of these (e) a &b
(19) When a small stock dividend is declared which of the fallowing accounts is credited
(a) Common stock (b) Dividend payable (c) Common stock dividend
distributable (d)Retained Earnings
(20) An advantages of the partnership from of business organization is its
(a) Unlimited liability (b) Mutual agency (c) Ease of the formation (d) Limited life
(1) Maximum number of partners in a partnership firm set up in Pakistan under Partnership
Act, 1932 is:
(a) 5
(b) 25
© 20
(d) None of these
Write only the correct answer in the Answer Book. Do not reproduce the questions.
(3) The latest computation of variances of manufacturing overheads is in one the following
ways:
(a) Two variance approaches
(b) Three variance approaches
© Four variance approaches
(d) None of these
(4) Banks, for the preparation of financial statements, are governed under:
(a) Banking Companies Ordinance, 1962
(b) State Bank of Pakistan Act
© None of these
(5) Return on investment is computed:
(a) Investment/Profit x 100
(b) Profit x 100/Investment
© None of these
Write only the correct answer in the Answer Book. Do not reproduce the questions.
(1) Rent of the premises constitutes variable expenses for cost allocation:
(a) True
(b) False
(4) Agricultural income is taxable under the Income Tax Laws of Pakistan:
(a) True
(b) False
(5) Principal and markup payment within one year constitutes long term liability for disclosure in the
balance sheet of a company.
(a) True
(b) False
(6) Ordinarily one can have the following partners in a partnership in Pakistan under the Partnership
Act 1932.
(a) 10
(b) 20
© 30
(d) None of these
(7) Working Capital finance can be termed as “Running Finance” in a limited company.
(a) True
(b) False
(8) Income from Capital gains arising out of trading on a stock strange in Pakistan is taxable these
days:
(a) True
(b) False
b) drawings, rent.....
10) Although accounting information is used by a wide variety of external parties, financial reporting is
primarily directed toward the information needs of:
12) In comparison with a financial statement prepared in conformity with generally accepted accounting
principles, a managerial accounting report is more likely to:
17) The income statement of Laurel Company shows a large gross profit. This means that Laurel:
18) In a perpetual inventory system, purchases of merchandise on account are recorded by debiting:
19) Colby's General Store uses a periodic inventory system. At year-end, the balance in the Inventory
account is $8,500. Assuming that the inventory records have been maintained properly, a year-end
physical inventory:20) Ward Company discovered that merchandise purchased on account was defective
and returned this merchandise to the supplier. The entry to record this return will reduce Ward's:
21) Which of the following should not be included as part of cash on the balance sheet?
22) The financial statement which shows cash activity (receipts and disbursements) during the accounting
period is called a(n):
24) When a voucher system is in use, the finance department has access to each of the following except:
26) During preparation of a bank reconciliation, interest earned on the average bank balance during the
month should be:
27) A company which uses the direct write-off method recognizes uncollectible accounts expense:
28) Which of the following transactions would increase the net cash flow from operating activities?
29) For purposes of preparing a cash flow statement, which of the following is not considered a "cash
equivalent"?
30) Warner Corporation reported net income in excess of its net cash flow from operations. A possible
explanation of this difference is:
31) An important distinction between the direct method and the indirect method of preparing a statement
of cash flows is that:
33) Which of the following is ordinarily computed and reported as part of the financial statements of a
large corporation?
35) How would a company's current ratio be affected if a substantial amount of accounts payable were
paid in cash?
36) Assume that net sales are increasing faster than the rate of inflation, and that the company's gross
profit rate is falling. The most likely explanation is:
37) Assume that for several years, the net income of Delta-Baines (DB) has been rising as a percentage of
the company's net sales. Analysts normally would interpret this to mean that:
38) Clay Corporation earns a rate of return on common stockholders' equity of 14%. Which of the
following will cause the rate of return to increase?
39) If more units are produced than the "normal" level, and the overhead spending variance is favorable,
then:
40) Which of the following unfavorable cost variances would be the least relevant in evaluating the
performance of a production supervisor?
41) A difference between the overhead applied to work in process at a standard and the overhead
budgeted for the level of output achieved:
46) The terms purchasing and procurement should not be seen as synonymous. As such, which of the
following statements do you think has greatest validity?
48) E-procurement aims to improve performance of what is known as the 'five rights of purchasing'. One
aim of e-procurement is increasing savings by sourcing items:
48) Another aim of e-procurement is increased choice of supplier leading to sourcing items:
50) Negotiated contracts with regular suppliers typically in long-term relationships is an example of: