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Question 1Corporate and Management Accounting

Under the Companies Act, 2013, which of the following best describes the primary objective of Schedule II for a company preparing its financial statements?

  1. To prescribe the useful lives and residual value norms for depreciation of tangible fixed assets Correct answer.
  2. To prescribe the format of the balance sheet and statement of profit and loss
  3. To lay down the conditions for declaring dividends out of reserves
  4. To specify the disclosure requirements for related party transactions

Explanation

Schedule II of the Companies Act, 2013 deals with the manner of depreciation, prescribing useful lives for various classes of tangible assets and a residual value cap of five percent. It does not regulate the financial statement formats, related party disclosures, or dividend declaration conditions.

Question 2Corporate and Management Accounting

A company issues 10,000 equity shares of Rs. 10 each at a premium of Rs. 5 per share, fully payable on application. What is the amount credited to the Securities Premium account?

  1. Rs. 1,00,000
  2. Rs. 15,000
  3. Rs. 1,50,000
  4. Rs. 50,000 Correct answer.

Explanation

Securities premium equals the premium per share multiplied by the number of shares issued, i.e., Rs. 5 x 10,000 = Rs. 50,000. The face value of Rs. 1,00,000 is credited to share capital, not to securities premium.

Question 3Corporate and Management Accounting

Which of the following is a fundamental accounting assumption underlying the preparation of financial statements?

  1. Going concern Correct answer.
  2. Consistency
  3. Materiality
  4. Conservatism

Explanation

Going concern is one of the fundamental accounting assumptions, along with accrual and consistency, as recognised in accounting standards. Conservatism and materiality are accounting concepts or conventions rather than fundamental assumptions.

Question 4Corporate and Management Accounting

A company's current assets are Rs. 6,00,000 and current liabilities are Rs. 3,00,000. If it pays Rs. 1,00,000 of its creditors using cash, what is the revised current ratio?

  1. 1.67 : 1
  2. 2.00 : 1
  3. 1.50 : 1
  4. 2.50 : 1 Correct answer.

Explanation

After payment, current assets become Rs. 5,00,000 (6,00,000 - 1,00,000) and current liabilities become Rs. 2,00,000 (3,00,000 - 1,00,000). The revised current ratio is 5,00,000 / 2,00,000 = 2.50 : 1. When the ratio exceeds 1, equal reductions in both sides increase the ratio.

Question 5Corporate and Management Accounting

Which cost is classified as a product cost under absorption costing but excluded from inventory valuation under marginal costing?

  1. Fixed production overhead Correct answer.
  2. Direct labour
  3. Direct material
  4. Variable production overhead

Explanation

Marginal costing values inventory at variable cost only, so fixed production overhead is treated as a period cost and excluded from inventory. Direct material, direct labour, and variable overhead are all variable product costs included under both methods.

Question 6Corporate and Management Accounting

A company has fixed costs of Rs. 2,00,000, a selling price of Rs. 50 per unit, and variable cost of Rs. 30 per unit. What is the break-even point in units?

  1. 10,000 units Correct answer.
  2. 4,000 units
  3. 2,500 units
  4. 6,667 units

Explanation

Contribution per unit is Rs. 50 - Rs. 30 = Rs. 20. Break-even units = fixed costs / contribution per unit = 2,00,000 / 20 = 10,000 units.

Question 7Corporate and Management Accounting

In the context of the cash flow statement prepared under AS-3, which of the following is classified as a financing activity?

  1. Payment of income tax
  2. Proceeds from the issue of debentures Correct answer.
  3. Sale of an investment held for trading
  4. Purchase of a fixed asset for cash

Explanation

Financing activities include obtaining and repaying resources from owners and creditors, so proceeds from issuing debentures are a financing inflow. Purchase of fixed assets is investing, and tax payments are typically operating.

Question 8Corporate and Management Accounting

Which of the following is true of the treatment of a contingent liability in financial statements?

  1. It is disclosed in the notes when a possible obligation depends on a future event Correct answer.
  2. It is recognised as a liability at the discounted amount
  3. It is disclosed in the notes when the possibility of outflow is remote
  4. It is recognised as a provision in the balance sheet

Explanation

A contingent liability is a possible obligation whose existence depends on uncertain future events, and it is disclosed in the notes unless the possibility of outflow is remote. It is not recognised in the balance sheet because the obligation is not probable.

Question 9Corporate and Management Accounting

A company follows the cost model for its machinery. It revalues the machinery upward to fair value. Which accounting treatment applies?

  1. Recognise the revaluation surplus in other comprehensive income Correct answer.
  2. Recognise the revaluation surplus in the statement of profit and loss
  3. Recognise the revaluation surplus as a reduction in depreciation expense
  4. Ignore the revaluation and continue with the carrying amount

Explanation

Under the revaluation model, an upward revaluation is recognised in other comprehensive income and accumulated in a revaluation surplus within equity. It is not routed through profit or loss, and it is not ignored because the entity has chosen the revaluation model.

Question 10Corporate and Management Accounting

Which of the following is the correct formula for the degree of operating leverage?

  1. Contribution / Profit before interest and tax Correct answer.
  2. Profit before tax / Sales
  3. Profit before interest and tax / Contribution
  4. Sales / Contribution

Explanation

The degree of operating leverage is the ratio of contribution to profit before interest and tax, showing the sensitivity of operating profit to changes in sales. The other expressions invert or misplace the components and do not represent operating leverage.

Question 11Corporate and Management Accounting

A company's equity share capital is Rs. 10,00,000 (Rs. 10 each) and its reserves are Rs. 5,00,000. It issues bonus shares in the ratio of 1:2. What is the amount transferred from reserves to share capital?

  1. Rs. 7,50,000
  2. Rs. 10,00,000
  3. Rs. 5,00,000 Correct answer.
  4. Rs. 2,50,000

Explanation

A 1:2 bonus means one bonus share for every two held. Existing shares are 1,00,000, so bonus shares = 50,000, and at Rs. 10 each the amount capitalised is Rs. 5,00,000. This amount is transferred from reserves to share capital.

Question 12Corporate and Management Accounting

Which of the following is the primary purpose of preparing a funds flow statement?

  1. To disclose the changes in working capital and the sources and uses of funds Correct answer.
  2. To show the profitability of the business over a period
  3. To determine the break-even level of sales
  4. To record day-to-day cash receipts and payments

Explanation

A funds flow statement explains the movement of funds by identifying sources and applications, including changes in working capital. Profitability is shown by the income statement, and daily cash receipts are recorded in the cash book, not the funds flow statement.

Question 13Corporate and Management Accounting

A company has a net profit after tax of Rs. 4,00,000, preference dividend of Rs. 50,000, and 50,000 equity shares of Rs. 10 each. What is the earnings per share?

  1. Rs. 8.00
  2. Rs. 7.00 Correct answer.
  3. Rs. 6.00
  4. Rs. 9.00

Explanation

Earnings available to equity shareholders = 4,00,000 - 50,000 = Rs. 3,50,000. EPS = 3,50,000 / 50,000 = Rs. 7.00 per share. Preference dividend must be deducted because it is not available to equity holders.

Question 14Corporate and Management Accounting

Which of the following statements about the treatment of under-absorption of overheads in cost accounts is correct?

  1. It is always carried forward as a deferred cost
  2. It is adjusted through the cost of sales or apportioned to work-in-progress, finished goods, and cost of sales Correct answer.
  3. It is added to the value of closing stock of raw materials
  4. It is always written off to the costing profit and loss account

Explanation

Under-absorbed overhead arises when actual overhead exceeds absorbed overhead, and it is usually adjusted by apportioning it over work-in-progress, finished goods, and cost of sales, or by charging it to cost of sales. It is not automatically written off or deferred, and it does not attach to raw materials.

Question 15Corporate and Management Accounting

Which of the following is a correct treatment of a prior period item under AS-5?

  1. It is adjusted in the opening balance of retained earnings and disclosed separately Correct answer.
  2. It is included in the determination of net profit or loss for the current period
  3. It is disclosed separately in the statement of profit and loss
  4. It is ignored in the financial statements

Explanation

Prior period items are material errors or omissions relating to prior periods, and they are adjusted in the opening retained earnings and disclosed separately so that current-period results are not distorted. They are not routed through current-period profit.

Question 16Corporate and Management Accounting

A company's sales are Rs. 20,00,000, variable costs are 60% of sales, and fixed costs are Rs. 5,00,000. What is the margin of safety?

  1. Rs. 12,50,000
  2. Rs. 7,50,000 Correct answer.
  3. Rs. 8,00,000
  4. Rs. 5,00,000

Explanation

Contribution = 40% of sales = Rs. 8,00,000. Profit = 8,00,000 - 5,00,000 = Rs. 3,00,000. Margin of safety = profit / P/V ratio = 3,00,000 / 0.40 = Rs. 7,50,000.

Question 17Corporate and Management Accounting

In process costing, normal loss is valued at which amount when scrap has no realisable value?

  1. At zero value Correct answer.
  2. At the selling price of the scrap
  3. At the market price of the finished product
  4. At the cost of production of the process

Explanation

When scrap arising from normal loss has no realisable value, the normal loss is assigned a nil value, and its cost is absorbed by the good units produced. Valuing it at cost or selling price would overstate the value of output.

Question 18Corporate and Management Accounting

Which of the following best describes the treatment of a change in accounting policy under AS-5?

  1. It is adjusted directly in the revaluation reserve
  2. It is applied retrospectively with restatement of prior period figures Correct answer.
  3. It is applied retrospectively only if the effect is immaterial
  4. It is applied prospectively without any disclosure

Explanation

A change in accounting policy is generally applied retrospectively, with prior period figures restated and the impact disclosed, so that comparability is maintained. Prospective application without disclosure is not permitted, and the revaluation reserve is unrelated.

Question 19Corporate and Management Accounting

A company has a debt-equity ratio of 2:1 and total debt of Rs. 20,00,000. What is the shareholders' equity?

  1. Rs. 10,00,000 Correct answer.
  2. Rs. 40,00,000
  3. Rs. 5,00,000
  4. Rs. 20,00,000

Explanation

A debt-equity ratio of 2:1 means debt is twice equity. With debt of Rs. 20,00,000, equity = 20,00,000 / 2 = Rs. 10,00,000. The other figures misapply the ratio.

Question 20Corporate and Management Accounting

In the context of the Companies Act, 2013, which of the following statements about the buy-back of shares is correct?

  1. Buy-back can be financed out of the proceeds of a fresh issue of shares
  2. Buy-back can be made out of free reserves or securities premium account Correct answer.
  3. Buy-back requires board resolution in all cases irrespective of the limit
  4. The maximum permissible buy-back in a financial year is 25% of paid-up capital and free reserves

Explanation

Section 68 permits buy-back out of free reserves, the securities premium account, or the proceeds of a fresh issue of shares or other specified securities, subject to conditions. A fresh issue cannot be used to finance buy-back of the same class of shares, and the 25% cap applies to total paid-up capital and free reserves.

Question 21Corporate and Management Accounting

A company has an operating profit of Rs. 6,00,000, interest on long-term debt of Rs. 1,00,000, and tax of Rs. 1,50,000. What is the interest coverage ratio?

  1. 4.00 times
  2. 5.00 times
  3. 6.00 times Correct answer.
  4. 3.50 times

Explanation

Interest coverage = earnings before interest and tax / interest. EBIT = 6,00,000 (operating profit before interest), so the ratio is 6,00,000 / 1,00,000 = 6.00 times. Tax is below EBIT and is not deducted.

Question 22Corporate and Management Accounting

A company revalues its building upward by Rs. 3,00,000. The original cost was Rs. 10,00,000 with accumulated depreciation of Rs. 4,00,000. Under the proportionate method, what is the revaluation surplus?

  1. Rs. 4,20,000
  2. Rs. 1,80,000
  3. Rs. 3,00,000 Correct answer.
  4. Rs. 1,20,000

Explanation

Under the proportionate method, both cost and accumulated depreciation are restated in proportion to the revalued amount, and the net effect equals the increase in carrying amount. The carrying amount rises from Rs. 6,00,000 to Rs. 9,00,000, so the surplus is Rs. 3,00,000.

Question 23Corporate and Management Accounting

Which of the following is the correct treatment of a government grant related to an asset under AS-12?

  1. Recognise the grant as a deferred income and amortise it over the useful life of the asset Correct answer.
  2. Credit the grant directly to the securities premium account
  3. Recognise the grant as income immediately in the statement of profit and loss
  4. Present the grant as a deduction from the gross value of the asset

Explanation

AS-12 permits either deducting the grant from the asset's cost or treating it as deferred income recognised over the useful life of the asset. Immediate recognition as income is not permitted, and the securities premium account is unrelated.

Question 24Corporate and Management Accounting

A company has the following data: sales Rs. 10,00,000, variable cost Rs. 6,00,000, fixed cost Rs. 2,00,000, and interest Rs. 50,000. What is the combined leverage?

  1. 1.33
  2. 2.00
  3. 4.00
  4. 2.67 Correct answer.

Explanation

Contribution = 4,00,000; EBIT = 4,00,000 - 2,00,000 = 2,00,000; PBT = 2,00,000 - 50,000 = 1,50,000. Combined leverage = contribution / PBT = 4,00,000 / 1,50,000 = 2.67.

Question 25Corporate and Management Accounting

In the context of the Companies Act, 2013, which of the following statements about the transfer of profits to reserves before declaring dividend is correct?

  1. A company may transfer any amount to reserves before declaring dividend
  2. A company may transfer a prescribed percentage of profits to reserves, subject to the rules Correct answer.
  3. A company cannot transfer any amount to reserves before declaring dividend
  4. A company must transfer its entire profit to reserves before declaring dividend

Explanation

Section 123 permits a company to transfer a prescribed percentage of its profits to reserves before declaring dividend, subject to the rules made under the Act. It is neither mandatory to transfer the entire profit nor prohibited to transfer any amount.

Question 26Corporate and Management Accounting

Under the Companies Act, 2013, a company declares a dividend in a year where it has earned adequate profits. Which of the following must the company mandatorily transfer to reserves before declaring the dividend?

  1. No transfer is required; the entire profit may be distributed
  2. At least 25% of the net profit after tax every year
  3. Such amount as may be prescribed by the Central Government, subject to the rules on transfers to reserves Correct answer.
  4. At least 10% of the paid-up share capital every year

Explanation

Section 123 of the Companies Act, 2013 permits a dividend to be declared out of profits after providing for depreciation, and where profits are inadequate the rules prescribe a mandatory transfer to reserves before declaring a dividend. The amount is governed by the Companies (Declaration and Payment of Dividend) Rules rather than a flat statutory percentage of capital or profit.

Question 27Corporate and Management Accounting

A company issues 10,000 equity shares of Rs. 10 each at a premium of Rs. 5 per share, fully payable on application. Which accounting entry correctly records the receipt of application money?

  1. Bank A/c Dr. Rs. 50,000; To Securities Premium A/c Rs. 50,000
  2. Bank A/c Dr. Rs. 1,00,000; To Equity Share Capital A/c Rs. 1,00,000
  3. Bank A/c Dr. Rs. 1,50,000; To Equity Share Capital A/c Rs. 1,50,000
  4. Bank A/c Dr. Rs. 1,50,000; To Equity Share Capital A/c Rs. 1,00,000; To Securities Premium A/c Rs. 50,000 Correct answer.

Explanation

Share capital is credited only with the face value of the shares issued, and any amount received above face value is credited to the securities premium account. Here the total received is Rs. 1,50,000, split between Rs. 1,00,000 capital and Rs. 50,000 premium.

Question 28Corporate and Management Accounting

A company's current assets are Rs. 6,00,000, inventory is Rs. 2,00,000, and current liabilities are Rs. 2,00,000. What is the quick ratio?

  1. 1.00
  2. 2.00 Correct answer.
  3. 0.50
  4. 3.00

Explanation

The quick ratio excludes inventory from current assets, giving quick assets of Rs. 4,00,000 against current liabilities of Rs. 2,00,000. The ratio is therefore 2.00, which is higher than the current ratio would suggest only because inventory is stripped out.

Question 29Corporate and Management Accounting

In marginal costing, which of the following costs is treated as a product cost and carried into inventory valuation?

  1. Administrative salaries incurred at the head office
  2. Variable factory overhead only Correct answer.
  3. Fixed factory overhead absorbed on a normal capacity basis
  4. Selling and distribution expenses

Explanation

Marginal costing values inventory at variable cost of production, so only variable manufacturing costs such as direct material, direct labour and variable overhead enter product cost. Fixed production overhead is treated as a period cost and written off against contribution.

Question 30Corporate and Management Accounting

A company has a contribution of Rs. 8,00,000 and a profit before tax of Rs. 3,00,000. Fixed costs are Rs. 5,00,000. What is the margin of safety in rupee sales if the P/V ratio is 40%?

  1. Rs. 3,00,000
  2. Rs. 7,50,000 Correct answer.
  3. Rs. 20,00,000
  4. Rs. 12,50,000

Explanation

Margin of safety in value equals profit divided by the P/V ratio, so Rs. 3,00,000 divided by 0.40 gives Rs. 7,50,000. It can also be seen as actual sales of Rs. 20,00,000 less break-even sales of Rs. 12,50,000.

Question 31Corporate and Management Accounting

In standard costing, a favourable material price variance arises when the actual price paid is lower than the standard price. Which of the following could most plausibly cause such a variance?

  1. Using more material per unit than the standard allows
  2. Purchasing lower-grade material at a discounted rate Correct answer.
  3. A rise in the market price of the raw material
  4. Paying overtime wages to production workers

Explanation

A price variance isolates the effect of paying a different rate from standard, so buying cheaper material at a discount produces a favourable price variance. The other listed events affect usage or labour cost rather than the purchase price.

Question 32Corporate and Management Accounting

A company's net profit after tax is Rs. 6,00,000 and it has 1,00,000 equity shares of Rs. 10 each outstanding. It also has 20,000 10% preference shares of Rs. 10 each. What is the basic earnings per share?

  1. Rs. 6.00
  2. Rs. 5.00
  3. Rs. 4.00 Correct answer.
  4. Rs. 5.80

Explanation

Earnings attributable to equity shareholders are net profit less preference dividend, i.e. Rs. 6,00,000 minus Rs. 20,000, giving Rs. 5,80,000. Dividing by 1,00,000 equity shares gives Rs. 5.80 per share.

Question 33Corporate and Management Accounting

A company uses the weighted average cost method for inventory. During the year it purchased 1,000 units at Rs. 20 and later 1,000 units at Rs. 24, selling 1,500 units. What is the closing inventory value under weighted average cost?

  1. Rs. 12,000
  2. Rs. 10,000
  3. Rs. 11,000 Correct answer.
  4. Rs. 8,000

Explanation

The weighted average cost is total cost of Rs. 44,000 divided by 2,000 units, i.e. Rs. 22 per unit. Closing inventory of 500 units is therefore valued at Rs. 11,000.

Question 34Corporate and Management Accounting

Under the Companies Act, 2013, which of the following statements about the appointment of a statutory auditor of a company is correct?

  1. The auditor is appointed at the first annual general meeting for five years, subject to ratification at every annual general meeting
  2. The auditor is appointed for five years at the first annual general meeting and the appointment is not required to be ratified annually Correct answer.
  3. The auditor is appointed by the board of directors for a term of five years and cannot be removed before that term
  4. The auditor is appointed by the Comptroller and Auditor General in every company

Explanation

Section 139 requires the auditor to be appointed for a term of five consecutive years at the first annual general meeting, and the requirement of annual ratification was omitted by the Companies (Amendment) Act, 2017. The appointment is made by members in general meeting, not by the board for that full term.

Question 35Corporate and Management Accounting

A company has an operating cycle of 90 days and a cash conversion cycle of 60 days. What does the difference of 30 days most likely represent?

  1. The average payment period to creditors Correct answer.
  2. The average collection period from debtors
  3. The inventory holding period
  4. The period for which finished goods remain in the warehouse

Explanation

The cash conversion cycle equals the operating cycle less the average payment period allowed by creditors. A 30-day difference therefore represents the credit period enjoyed on payables that funds part of the operating cycle.

Question 36Corporate and Management Accounting

In process costing, when units are lost in a process and the loss is abnormal, how is the abnormal loss treated in the cost accounts?

  1. It is credited to the process account at realisable value only
  2. It is carried forward to the next process as work in progress
  3. It is absorbed by good units as part of normal cost
  4. It is valued at cost and written off to the costing profit and loss account Correct answer.

Explanation

Abnormal loss is valued at the cost of production per good unit and is transferred to the costing profit and loss account so that it does not inflate the cost of good output. Only normal loss is borne by good units.

Question 37Corporate and Management Accounting

A company has a debt-equity ratio of 1.5:1 and total assets of Rs. 25,00,000. Assuming there are no other liabilities, what is the amount of shareholders' funds?

  1. Rs. 15,00,000
  2. Rs. 5,00,000
  3. Rs. 25,00,000
  4. Rs. 10,00,000 Correct answer.

Explanation

With a debt-equity ratio of 1.5:1, debt is 1.5 times equity, so total funds of Rs. 25,00,000 split in the ratio 1.5:1 give debt of Rs. 15,00,000 and equity of Rs. 10,00,000. Shareholders' funds are therefore Rs. 10,00,000.

Question 38Corporate and Management Accounting

Which of the following best describes the accounting treatment of a proposed dividend under the current Indian accounting framework for companies?

  1. It is recognised as a liability in the year to which the profit relates
  2. It is never recognised as a liability
  3. It is recognised as a liability when declared by the board and paid before the year end
  4. It is recognised as a liability only when approved by the shareholders at the annual general meeting Correct answer.

Explanation

A dividend becomes an obligation of the company only when it is approved by the members in general meeting, so it is recognised as a liability in the period of approval rather than the period whose profits are distributed. This follows from the principle that a liability arises only when an obligation exists.

Question 39Corporate and Management Accounting

A firm has fixed costs of Rs. 4,00,000, a P/V ratio of 25%, and actual sales of Rs. 20,00,000. What is its profit?

  1. Rs. 5,00,000
  2. Rs. 1,00,000 Correct answer.
  3. Rs. 16,00,000
  4. Rs. 4,00,000

Explanation

Contribution equals 25% of Rs. 20,00,000, i.e. Rs. 5,00,000. Deducting fixed costs of Rs. 4,00,000 leaves a profit of Rs. 1,00,000.

Question 40Corporate and Management Accounting

In fund flow analysis, which of the following transactions results in an increase in working capital?

  1. Purchase of machinery for cash
  2. Issue of shares for cash Correct answer.
  3. Payment of a long-term loan
  4. Conversion of debentures into equity shares

Explanation

Issuing shares for cash brings in a long-term source of funds without a corresponding increase in current liabilities, so working capital rises. Purchasing fixed assets or repaying long-term loans uses funds and reduces working capital.

Question 41Corporate and Management Accounting

A company's cost of goods sold is Rs. 9,00,000 and average inventory is Rs. 1,50,000. What is the inventory turnover ratio and the approximate holding period in days?

  1. 6 times and 61 days Correct answer.
  2. 8 times and 46 days
  3. 4 times and 91 days
  4. 5 times and 73 days

Explanation

Inventory turnover is cost of goods sold divided by average inventory, giving six times. The holding period is 365 divided by six, approximately 61 days.

Question 42Corporate and Management Accounting

Which of the following is the correct treatment of an extraordinary item under AS-5 as applicable in India?

  1. It is adjusted directly in retained earnings without touching the profit and loss account
  2. It is disclosed separately in the statement of profit and loss as a distinct line item Correct answer.
  3. It is merged with revenue from operations
  4. It is treated as a prior period item and adjusted in the opening reserves

Explanation

Extraordinary items are disclosed separately in the statement of profit and loss so that users can distinguish them from ordinary activities. They are not routed through reserves or merged with ordinary revenue.

Question 43Corporate and Management Accounting

A company has a current ratio of 2:1 and a quick ratio of 1.2:1. Current liabilities are Rs. 5,00,000. What is the value of inventory?

  1. Rs. 1,00,000
  2. Rs. 6,00,000
  3. Rs. 10,00,000
  4. Rs. 4,00,000 Correct answer.

Explanation

Current assets are twice current liabilities, i.e. Rs. 10,00,000, and quick assets are 1.2 times Rs. 5,00,000, i.e. Rs. 6,00,000. The difference of Rs. 4,00,000 represents inventory.

Question 44Corporate and Management Accounting

In responsibility accounting, a manager who has authority over costs but not over the level of investment or revenue is best described as heading which type of responsibility centre?

  1. Profit centre
  2. Revenue centre
  3. Investment centre
  4. Cost centre Correct answer.

Explanation

A cost centre is a responsibility centre where the manager is accountable primarily for costs incurred within the unit. Profit and investment centres carry wider responsibility for revenues and capital employed.

Question 45Corporate and Management Accounting

A company's operating profit before working capital changes is Rs. 5,00,000. Debtors increased by Rs. 80,000, creditors increased by Rs. 50,000, and inventory decreased by Rs. 30,000. What is the cash generated from operations?

  1. Rs. 5,00,000 Correct answer.
  2. Rs. 4,40,000
  3. Rs. 4,70,000
  4. Rs. 5,60,000

Explanation

An increase in debtors reduces cash by Rs. 80,000, an increase in creditors adds Rs. 50,000, and a decrease in inventory adds Rs. 30,000. The net adjustment is zero, so cash generated from operations remains Rs. 5,00,000.

Question 46Corporate and Management Accounting

A company has sales of Rs. 30,00,000, variable costs of Rs. 18,00,000, and fixed costs of Rs. 8,00,000. What is the degree of operating leverage?

  1. 1.5
  2. 4.0
  3. 2.5 Correct answer.
  4. 1.25

Explanation

Contribution is Rs. 12,00,000 and operating profit is Rs. 4,00,000, so the degree of operating leverage is 12,00,000 divided by 4,00,000, i.e. 3.0. Care is needed because the figure depends on the correct identification of contribution and fixed cost.

Question 47Corporate and Management Accounting

Under AS-10, which of the following costs should be capitalised as part of the cost of a self-constructed item of property, plant and equipment?

  1. Administration and other general overhead costs
  2. Direct material, direct labour and directly attributable construction overheads Correct answer.
  3. Losses arising from a strike during construction
  4. Cost of relocating the plant after it is ready for use

Explanation

AS-10 requires the cost of an asset to include its purchase price and any directly attributable costs of bringing it to working condition, which covers direct material, labour and attributable overheads. General administration costs and abnormal losses are excluded.

Question 48Corporate and Management Accounting

A company's profit after tax is Rs. 10,00,000. It has 1,00,000 equity shares and 50,000 potential equity shares that would increase earnings by Rs. 1,00,000 if converted. What is the diluted earnings per share?

  1. Rs. 6.67
  2. Rs. 10.00
  3. Rs. 7.33 Correct answer.
  4. Rs. 8.00

Explanation

Diluted earnings add back the earnings attributable to the potential shares, giving Rs. 11,00,000, and divide by 1,50,000 shares, giving approximately Rs. 7.33. Dilution must be tested because the adjusted EPS is lower than the basic EPS of Rs. 10.00.

Question 49Corporate and Management Accounting

Which of the following statements about the treatment of a contingent asset under the accounting standards is correct?

  1. It is recognised and also disclosed in the notes
  2. It is disclosed as a contingent asset where an inflow is probable Correct answer.
  3. It is recognised as an asset only when the inflow is virtually certain
  4. It is recognised as an asset when the inflow is probable

Explanation

A contingent asset is not recognised because recognition requires virtual certainty of inflow; where an inflow is probable, the standard requires disclosure rather than recognition. Once the inflow becomes virtually certain, the related asset is no longer a contingent asset and is recognised.

Question 50Corporate and Management Accounting

A company wants to buy back its own shares under the Companies Act, 2013. Which of the following conditions must be satisfied?

  1. The buy-back must not exceed 25% of the aggregate of paid-up capital and free reserves in a financial year Correct answer.
  2. The company may buy back shares even if it has defaulted in repayment of deposits
  3. The buy-back may be funded by a fresh issue of shares of the same kind during the same year
  4. The buy-back must be authorised by a board resolution only in every case

Explanation

Section 68 limits buy-back in any financial year to 25% of the aggregate of paid-up capital and free reserves, and the buy-back must be authorised by the articles and by a board or special resolution as applicable. Funding by a fresh issue of the same kind of shares is prohibited, and a company in default of deposits cannot buy back.