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IRFC Assistant (Finance) practice questions

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Question 1Financial Accounting and Reporting

Under IFRS, which component of a defined benefit pension obligation reflects the present value of benefits earned by employees for service already rendered?

  1. The defined benefit obligation Correct answer.
  2. The current service cost
  3. The plan assets fair value
  4. The net interest on the net defined benefit liability

Explanation

The defined benefit obligation is the actuarial present value of all benefits attributed to employee service to date, measured using projected benefit methods. Current service cost is only the portion arising from service in the current period, and plan assets are a separate measurement on the funding side.

Question 2Financial Accounting and Reporting

A company issues 10,000 ordinary shares with a nominal value of $1 each at an issue price of $4 per share. Under IFRS, how is the excess over nominal value presented?

  1. As a gain in profit or loss
  2. As share premium within equity Correct answer.
  3. As a deferred tax liability
  4. As a reduction of retained earnings

Explanation

Amounts received above nominal value on a share issue are credited to share premium (additional paid-in capital), which is a component of equity. Transactions with owners in their capacity as owners are never recognised in profit or loss.

Question 3Financial Accounting and Reporting

Which measurement basis does the IASB Conceptual Framework describe as reflecting the price that would be received to sell an asset in an orderly transaction between market participants?

  1. Historical cost
  2. Fair value Correct answer.
  3. Deprival value
  4. Value in use

Explanation

Fair value is defined as the price received to sell an asset or paid to transfer a liability in an orderly transaction at the measurement date. Historical cost reflects the transaction price at initial recognition, and value in use is an entity-specific present value of expected cash flows.

Question 4Financial Accounting and Reporting

An entity sells goods on 2/10, net 30 terms. Under IFRS 15, the promised consideration is $100,000 and the customer is expected to take the discount. How should revenue initially be measured?

  1. At $102,000, grossing up for the potential penalty
  2. At $100,000, with the discount recognised as an expense when taken
  3. At $100,000, with the discount recorded as a reduction of equity
  4. At $98,000, reflecting the expected discount Correct answer.

Explanation

IFRS 15 requires variable consideration to be estimated and included in the transaction price when it is highly probable no significant reversal will occur. If the customer is expected to take the 2% discount, revenue is measured at the expected $98,000.

Question 5Financial Accounting and Reporting

Which of the following costs is capitalised as part of the cost of property, plant and equipment under IAS 16?

  1. Costs of opening a new facility
  2. Costs of relocating the entity's staff to the new site
  3. Initial delivery and handling costs of the asset Correct answer.
  4. General administrative overheads

Explanation

IAS 16 includes directly attributable costs necessary to bring the asset to the location and condition for its intended use, such as delivery and handling. Relocation, opening costs and general overheads are excluded because they are not directly attributable to the asset.

Question 6Financial Accounting and Reporting

An entity holds a debt instrument whose contractual cash flows are solely payments of principal and interest, and it is held within a business model whose objective is to collect contractual cash flows. Under IFRS 9, how is it measured?

  1. At fair value through other comprehensive income
  2. At cost less impairment
  3. At amortised cost Correct answer.
  4. At fair value through profit or loss

Explanation

The amortised cost category applies when both the business model test (hold to collect) and the solely payments of principal and interest test are met. Fair value through OCI applies to a hold-to-collect-and-sell model, and fair value through profit or loss is the residual category.

Question 7Financial Accounting and Reporting

Which of the following best describes the objective of general purpose financial reporting according to the IASB Conceptual Framework?

  1. To ensure that the entity's share price is fairly valued
  2. To provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors Correct answer.
  3. To provide information to management for internal decision-making
  4. To enable tax authorities to assess the entity's tax liability

Explanation

The Conceptual Framework states that the objective is to provide financial information useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity. Management and tax authorities are not the primary users addressed by general purpose reports.

Question 8Financial Accounting and Reporting

An entity recognises a provision for a warranty. Under IAS 37, which condition is required before a provision can be recognised?

  1. A future obligation that management intends to create next year
  2. A possible obligation whose existence will be confirmed by a future event
  3. An obligation that can be settled only by issuing shares
  4. A present obligation arising from a past event, a probable outflow of resources, and a reliable estimate Correct answer.

Explanation

IAS 37 requires a present obligation from a past event, a probable outflow of economic benefits, and a reliable estimate of the amount. Possible obligations whose existence depends on future events are contingent liabilities and are not recognised.

Question 9Financial Accounting and Reporting

Under IFRS, how is a change in accounting estimate that affects the current period and future periods accounted for?

  1. By adjusting opening retained earnings only
  2. Prospectively, in the current and future periods Correct answer.
  3. By disclosing the change and making no adjustment to any period
  4. Retrospectively, by restating prior period comparatives

Explanation

IAS 8 requires changes in accounting estimates to be applied prospectively, affecting the current period and, if relevant, future periods. Retrospective restatement applies to changes in accounting policy and correction of prior period errors.

Question 10Financial Accounting and Reporting

An entity leases equipment for five years with annual payments of $20,000 payable at the end of each year. The lessee's incremental borrowing rate is 5%. The present value of an annuity of 1 for five years at 5% is 4.3295. What is the initial lease liability under IFRS 16?

  1. $100,000
  2. $20,000
  3. $105,000
  4. $86,590 Correct answer.

Explanation

IFRS 16 measures the lease liability at the present value of lease payments not paid at the commencement date. Multiplying $20,000 by the annuity factor 4.3295 gives $86,590.

Question 11Financial Accounting and Reporting

A company has taxable temporary differences of $200,000 relating to accelerated tax depreciation. The enacted tax rate expected to apply when the difference reverses is 25%. What is the deferred tax treatment?

  1. Recognise no deferred tax because the difference is temporary
  2. Recognise a deferred tax liability of $50,000 Correct answer.
  3. Recognise a deferred tax asset of $50,000
  4. Recognise a deferred tax liability of $200,000

Explanation

A taxable temporary difference will result in higher taxable amounts in future periods, creating a deferred tax liability measured using the rate expected to apply on reversal. $200,000 multiplied by 25% gives $50,000.

Question 12Financial Accounting and Reporting

Under IAS 7, which of the following is classified as a cash flow from financing activities?

  1. Proceeds from issuing debentures Correct answer.
  2. Interest received on a bank deposit
  3. Cash paid to suppliers for inventory
  4. Cash received from the sale of property, plant and equipment

Explanation

Financing activities include cash flows from issuing or repaying debt and equity instruments, so proceeds from debentures belong there. Supplier payments are operating, and the sale of property, plant and equipment is an investing inflow.

Question 13Financial Accounting and Reporting

An entity measures inventory at the lower of cost and net realisable value. An item has a cost of $50,000 and can be sold for $55,000 after incurring selling costs of $8,000. At what amount should the inventory be measured?

  1. $50,000
  2. $55,000
  3. $47,000 Correct answer.
  4. $42,000

Explanation

Net realisable value is the estimated selling price less the estimated costs of completion and sale, which is $55,000 less $8,000, or $47,000. Because this is below cost of $50,000, inventory is written down to $47,000.

Question 14Financial Accounting and Reporting

Under IFRS 15, an entity licences software to a customer for three years. The customer can benefit from the licence only in combination with ongoing hosting services provided by the entity, and the services are highly integrated. How should the arrangement be accounted for?

  1. As two separate performance obligations, with the licence recognised at a point in time
  2. As a single performance obligation satisfied over time Correct answer.
  3. As a lease of an intangible asset
  4. As a variable consideration arrangement with no fixed price

Explanation

When the licence and hosting services are highly integrated and the customer cannot benefit from the licence without the services, they form a single performance obligation. That combined obligation is satisfied over time as the services are provided.

Question 15Financial Accounting and Reporting

An entity has a machine with a carrying amount of $120,000. Its fair value less costs of disposal is $95,000 and its value in use is $105,000. Under IAS 36, what is the impairment loss?

  1. $15,000 Correct answer.
  2. $25,000
  3. $10,000
  4. Nil

Explanation

Recoverable amount is the higher of fair value less costs of disposal and value in use, which is $105,000. The impairment loss is the carrying amount of $120,000 less the recoverable amount of $105,000, giving $15,000.

Question 16Financial Accounting and Reporting

A lessee subleases a right-of-use asset to a third party. Under IFRS 16, how is the sublease classified by the intermediate lessor?

  1. By reference to the underlying asset's useful life only
  2. Always as an operating lease because the head lease is a lease
  3. By reference to the right-of-use asset arising from the head lease, not the underlying asset Correct answer.
  4. Always as a finance lease because the head lease is capitalised

Explanation

IFRS 16 requires the intermediate lessor to classify the sublease by reference to the right-of-use asset from the head lease rather than the underlying asset. This can differ from the head lease classification.

Question 17Financial Accounting and Reporting

Under IAS 12, how should deferred tax assets and liabilities be presented in the statement of financial position?

  1. Netted against the related property, plant and equipment balance
  2. As current items because they reverse within a year
  3. As a single net deferred tax balance when the entity has a legally enforceable right to offset current tax and the taxes relate to the same taxation authority Correct answer.
  4. Always as non-current liabilities and non-current assets respectively

Explanation

IAS 12 requires offsetting of deferred tax assets and liabilities when the entity has a legally enforceable right to set off current tax assets against current tax liabilities and the deferred taxes relate to income taxes levied by the same taxation authority. The resulting balance is presented as non-current.

Question 18Financial Accounting and Reporting

An entity issues a convertible bond with a face value of $1,000,000 for proceeds of $1,000,000. The fair value of the liability component without the conversion option is $900,000. Under IFRS 9, how is the instrument initially measured?

  1. Liability of $1,000,000 and no equity component
  2. Equity of $1,000,000 with no liability component
  3. Liability of $900,000 and equity component of $100,000 Correct answer.
  4. Liability of $1,100,000 and negative equity of $100,000

Explanation

A compound instrument is split into a liability component measured first at the fair value of a similar instrument without the conversion feature, and an equity component equal to the residual. Here the liability is $900,000 and the equity component is $100,000.

Question 19Financial Accounting and Reporting

Which of the following is a key difference between IFRS and US GAAP in the treatment of development costs?

  1. IFRS expenses all development costs, while US GAAP capitalises them when criteria are met
  2. IFRS requires capitalisation of all research costs, while US GAAP prohibits it
  3. Both frameworks prohibit any capitalisation of research and development costs
  4. IFRS requires capitalisation of development costs meeting specified criteria, while US GAAP generally expenses them Correct answer.

Explanation

IAS 38 requires capitalisation of development costs once specified criteria such as technical feasibility and intention to complete are met, whereas US GAAP generally requires research and development costs to be expensed as incurred. Both frameworks prohibit capitalising research costs.

Question 20Financial Accounting and Reporting

An entity applies the revaluation model to a building. The carrying amount before revaluation is $500,000 and the fair value is $560,000. There is a prior revaluation surplus of $20,000 relating to the same asset. How is the revaluation increase recognised?

  1. Recognise $20,000 in other comprehensive income and $40,000 in profit or loss
  2. Recognise $60,000 in profit or loss
  3. Recognise $60,000 in other comprehensive income and accumulate it in equity Correct answer.
  4. Recognise $40,000 in profit or loss and $20,000 in other comprehensive income

Explanation

Under IAS 16, an increase in carrying amount on revaluation is recognised in other comprehensive income and accumulated in equity as a revaluation surplus, unless it reverses a previously recognised decrease. Here the full $60,000 increase goes to OCI.

Question 21Financial Accounting and Reporting

A company has profit before tax of $500,000. It has non-deductible entertainment expenses of $30,000 and tax-exempt income of $20,000. The tax rate is 25%. What is the current tax expense?

  1. $122,500
  2. $127,500 Correct answer.
  3. $125,000
  4. $132,500

Explanation

Taxable profit is accounting profit adjusted for permanent differences: $500,000 plus $30,000 less $20,000, giving $510,000. Applying 25% gives a current tax expense of $127,500.

Question 22Financial Accounting and Reporting

Under IFRS, how should a material prior period error be corrected?

  1. Prospectively in the current period's profit or loss
  2. Retrospectively by restating comparative amounts and adjusting opening retained earnings Correct answer.
  3. By disclosing the error only, with no adjustment to the financial statements
  4. By adjusting the current period's tax expense only

Explanation

IAS 8 requires material prior period errors to be corrected retrospectively, restating comparative amounts and adjusting the opening balance of retained earnings. Prospective correction is reserved for changes in accounting estimates.

Question 23Financial Accounting and Reporting

An entity has a defined benefit obligation of $2,000,000 and plan assets of $1,800,000 at the start of the year. The discount rate is 6%. During the year, current service cost is $150,000 and contributions are $120,000. Under IAS 19, what is the net interest on the net defined benefit liability for the year?

  1. $12,000 income
  2. $12,000 expense Correct answer.
  3. $108,000 expense
  4. $120,000 expense

Explanation

Net interest is calculated by applying the discount rate to the net defined benefit liability at the start of the period. The net liability is $200,000, and 6% of that gives a $12,000 expense.

Question 24Financial Accounting and Reporting

An entity enters into a sale and leaseback transaction. It transfers the asset to the buyer-lessor and leases it back for five years. The transfer qualifies as a sale under IFRS 15. The entity retains a right-of-use asset of $300,000 and the total carrying amount of the asset was $1,000,000. What is the accounting treatment under IFRS 16?

  1. Recognise a gain only to the extent of the rights transferred to the buyer-lessor Correct answer.
  2. Defer all gain and recognise it over the lease term
  3. Recognise the full gain on sale in profit or loss
  4. Recognise no gain and treat the transaction as a financing arrangement

Explanation

When a sale and leaseback qualifies as a sale, IFRS 16 requires the seller-lessee to recognise a gain only to the extent of the rights transferred to the buyer-lessor. The portion relating to the retained right-of-use asset is not recognised.

Question 25Financial Accounting and Reporting

An entity applies the expected credit loss model under IFRS 9 to trade receivables without a significant financing component. Which approach is required?

  1. A lifetime expected credit loss allowance at initial recognition Correct answer.
  2. No allowance until a default event occurs
  3. An allowance based on incurred losses only
  4. A 12-month expected credit loss allowance at initial recognition

Explanation

IFRS 9 provides a simplified approach for trade receivables without a significant financing component, requiring a loss allowance measured at lifetime expected credit losses from initial recognition. The general three-stage model applies to other financial assets.

Question 26Financial Accounting and Reporting

Under IAS 1, an entity must present a statement of financial position. Which item is classified as a non-current liability in that statement?

  1. Accrued interest payable on a loan due next month
  2. A bank loan repayable in full after 18 months from the reporting date Correct answer.
  3. Deferred revenue expected to be recognised within 12 months
  4. Trade payables due to suppliers within 30 days

Explanation

IAS 1 requires classification as current unless the entity has an unconditional right to defer settlement for at least twelve months after the reporting period. A loan repayable in full after eighteen months therefore meets the non-current criterion. Short-dated payables, accruals and revenue recognised within a year are current.

Question 27Financial Accounting and Reporting

An entity sells goods on credit for $10,000 with a cash alternative price of $9,700 payable within 30 days. Under IFRS 15, how should revenue initially be measured?

  1. $10,000, with the $300 difference recognised as other income
  2. $9,850, spreading the discount evenly across the credit period
  3. $10,000, because the invoice price is the transaction price
  4. $9,700, with the $300 treated as a financing component over time Correct answer.

Explanation

IFRS 15 requires the transaction price to reflect the time value of money when the timing of payments provides financing to either party. Because the cash price is lower, the promised consideration includes a financing component, so revenue is initially measured at $9,700 and interest income is recognised over the credit period.

Question 28Financial Accounting and Reporting

An entity holds a portfolio of equity investments not held for trading and irrevocably designates them at fair value through other comprehensive income under IFRS 9. How are dividends received on these investments recognised?

  1. As a reduction of the investment's carrying amount
  2. Directly against retained earnings
  3. In other comprehensive income and never reclassified
  4. In profit or loss as dividend income Correct answer.

Explanation

Under IFRS 9, the fair value through other comprehensive income election for equity instruments applies to fair value movements only. Dividends are recognised in profit or loss as income, unless they clearly represent a recovery of part of the cost of the investment.

Question 29Financial Accounting and Reporting

An entity issues a financial guarantee contract to a lender in respect of a loan owed by an unrelated third party. Under IFRS 9, how is such a contract initially measured?

  1. At fair value, with subsequent measurement at the higher of expected credit loss allowance and the amount initially recognised less cumulative income Correct answer.
  2. At the present value of expected guarantee payments
  3. At nil until a claim is made against the entity
  4. At the amount of the loan guaranteed

Explanation

Financial guarantee contracts within IFRS 9's scope are initially recognised at fair value. Subsequently, they are measured at the higher of the loss allowance determined under the impairment requirements and the amount initially recognised less cumulative income, unless the issuer applies the premium allocation approach.

Question 30Financial Accounting and Reporting

An entity acquires a patent for $300,000. Legal costs of $20,000 to successfully defend the patent are incurred after acquisition. Under IAS 38, how are these defence costs treated?

  1. Expensed, because they relate to a legal dispute
  2. Capitalised as part of the patent's cost Correct answer.
  3. Deducted from the patent's carrying amount
  4. Recognised in other comprehensive income

Explanation

IAS 38 permits expenditure that maintains or restores the economic benefits embodied in an intangible asset to be capitalised where it is probable that those benefits will flow to the entity and the cost can be measured reliably. Successful legal defence of a patent meets these criteria and is added to the carrying amount.

Question 31Financial Accounting and Reporting

Under IAS 16, an entity adopts the cost model for a class of plant. Which statement describes the required accounting for subsequent measurement?

  1. Cost less accumulated depreciation and accumulated impairment losses Correct answer.
  2. Cost less accumulated depreciation, with no impairment testing required
  3. Fair value at each reporting date with changes in profit or loss
  4. Revalued amount less subsequent depreciation

Explanation

Under the cost model in IAS 16, an item of property, plant and equipment is carried at cost less accumulated depreciation and accumulated impairment losses. Impairment testing under IAS 36 still applies, and revaluation is not permitted under the cost model.

Question 32Financial Accounting and Reporting

An entity with a 31 December year end declares dividends to shareholders on 20 December 20X1, payable on 15 February 20X2. How should these dividends be treated in the 20X1 financial statements under IAS 10?

  1. Recognised as a liability only if paid before the financial statements are authorised for issue
  2. Disclosed in the notes but not recognised as a liability Correct answer.
  3. Recognised as a deduction from retained earnings at 31 December 20X1
  4. Recognised as a liability at 31 December 20X1

Explanation

Under IAS 10, dividends declared after the reporting period are a non-adjusting event, because the obligation did not exist at the reporting date. They are disclosed in the notes so users understand the amount declared before authorisation of the financial statements.

Question 33Financial Accounting and Reporting

An entity receives a government grant of $100,000 towards the purchase of equipment costing $400,000. Under IAS 20, using the deferred income approach, how is the grant presented?

  1. Recognised immediately in profit or loss
  2. Deducted from the carrying amount of the equipment
  3. Recognised as deferred income and released to profit or loss over the asset's useful life Correct answer.
  4. Recognised in other comprehensive income

Explanation

IAS 20 permits grants related to assets to be presented either as deferred income or by deducting the grant from the asset's carrying amount. Under the deferred income approach, the grant is recognised in profit or loss over the periods in which the related asset's depreciation is charged.

Question 34Financial Accounting and Reporting

An entity has a defined contribution plan. It contributes $50,000 to the plan during the year but only $45,000 was due. How should the excess contribution be treated?

  1. As a liability for the shortfall
  2. As an expense in the current year
  3. As a prepayment asset Correct answer.
  4. As a reduction of retained earnings

Explanation

Under IAS 19, contributions to a defined contribution plan are expensed as the entity incurs the obligation to pay them. Any excess paid over the amount due is recognised as a prepayment, because it represents a right to future benefit rather than an expense of the current period.

Question 35Financial Accounting and Reporting

Under IAS 21, an entity's functional currency is the currency of the primary economic environment in which it operates. Which factor is a primary indicator for determining functional currency?

  1. The currency used by the entity's parent for consolidation
  2. The currency that mainly influences sales prices for goods and services Correct answer.
  3. The currency in which the entity prepares its tax returns
  4. The currency in which the entity's shares are denominated

Explanation

IAS 21 identifies the currency that mainly influences sales prices, and the currency of the country whose competitive forces and regulations determine those prices, as primary indicators of functional currency. Presentation currency and share denomination are not determinants.

Question 36Financial Accounting and Reporting

An entity has a 25% shareholding in an associate and exercises significant influence. The associate reports profit of $200,000 for the year. Under IAS 28, how does the investor account for its share?

  1. Recognise dividend income only when received
  2. Recognise the investment at fair value through profit or loss
  3. Recognise $50,000 of income in profit or loss using the equity method Correct answer.
  4. Recognise $50,000 in other comprehensive income

Explanation

Under the equity method in IAS 28, the investor recognises its share of the associate's profit or loss in the investor's profit or loss. The share is 25% of $200,000, being $50,000, which increases the carrying amount of the investment.

Question 37Financial Accounting and Reporting

An entity has a machine with a cost of $500,000, accumulated depreciation of $200,000 and a recoverable amount of $250,000. What is the impairment loss under IAS 36?

  1. $100,000
  2. $250,000
  3. $50,000 Correct answer.
  4. Nil

Explanation

IAS 36 requires an impairment loss when the carrying amount exceeds the recoverable amount. The carrying amount is $300,000 ($500,000 less $200,000), and the recoverable amount is $250,000, so the impairment loss is $50,000.

Question 38Financial Accounting and Reporting

Under IFRS 8, an entity must disclose information about major customers. Which threshold triggers disclosure of reliance on a major customer?

  1. 20% or more of the entity's profit before tax
  2. 25% or more of the entity's external revenue
  3. 5% or more of the entity's total assets
  4. 10% or more of the entity's external revenue Correct answer.

Explanation

IFRS 8 requires disclosure where revenues from transactions with a single external customer amount to 10% or more of the entity's revenue. The disclosure includes the total amount of revenue from each such customer and the identity of the segment or segments reporting the revenue.

Question 39Financial Accounting and Reporting

An entity recognises an onerous contract provision. Under IAS 37, which amount is recognised as the provision?

  1. The full cost of fulfilling the contract regardless of penalties
  2. The total remaining contract revenue
  3. The expected loss on the contract discounted at the entity's cost of capital
  4. The unavoidable costs of meeting the contract, being the lower of the cost of fulfilling it and any compensation for failure to fulfil it Correct answer.

Explanation

IAS 37 requires an onerous contract provision to be measured at the present obligation under the contract, being the lower of the unavoidable cost of fulfilling it and the compensation or penalty arising from failure to fulfil it. The unavoidable cost is the net cost of exiting or fulfilling, not the gross contract value.

Question 40Financial Accounting and Reporting

An entity holds a 20% interest in another entity and has significant influence. It sells half of that interest, retaining 10% with no significant influence, and classifies the retained interest as fair value through profit or loss. Under IAS 28, how is the retained interest measured on loss of significant influence?

  1. At cost less any impairment
  2. At fair value, with the difference from carrying amount recognised in profit or loss Correct answer.
  3. At its carrying amount under the equity method
  4. At the proportionate share of the associate's net assets

Explanation

When an entity loses significant influence, IAS 28 requires the retained interest to be measured at fair value. The difference between the fair value of the retained interest plus proceeds and the carrying amount of the interest disposed of is recognised in profit or loss.

Question 41Corporate Finance and Treasury Operations

In Indian Railways' finance function, which document authorises expenditure from the Consolidated Fund of India for a financial year?

  1. The departmental sanction order of the General Manager
  2. The annual budget circular issued by the ministry
  3. The Appropriation Act passed by Parliament Correct answer.
  4. The treasury voucher signed by the Pay and Accounts Officer

Explanation

Withdrawal of money from the Consolidated Fund of India requires parliamentary authorisation, which is given through the Appropriation Act after the Demands for Grants are voted. Budget circulars and departmental sanctions only operationalise spending within limits already authorised by that Act.

Question 42Corporate Finance and Treasury Operations

A vendor invoice for signalling equipment is received and the stores are accepted, but the payment has not yet been released. Which entry correctly records this event in the accounts?

  1. Debit Works Expenditure, credit Cash
  2. Debit Stores, credit Sundry Creditors Correct answer.
  3. Debit Sundry Creditors, credit Stores
  4. Debit Cash, credit Stores

Explanation

Once goods are received and accepted, the expenditure and the liability both arise, so stores or expenditure is debited and the creditor is credited. Cash is untouched until payment is actually released, which is why the cash entries are premature.

Question 43Corporate Finance and Treasury Operations

Which instrument is most appropriate for a railway zone that needs to park surplus funds for one weekend with near-zero credit and liquidity risk?

  1. Purchase of an equity exchange-traded fund
  2. Three-year corporate fixed deposit with a private bank
  3. Overnight or weekend repo against government securities Correct answer.
  4. Subscription to a close-ended infrastructure fund

Explanation

Short-term parking of public funds prioritises capital preservation and liquidity, which repo against government securities provides with collateral backing and same-day unwind. Equity, long-tenor deposits, and closed-ended funds all introduce market, tenor, or lock-in risk unsuitable for a weekend placement.

Question 44Corporate Finance and Treasury Operations

Under the standard three-way match in public procurement, which combination is reconciled before an invoice is cleared for payment?

  1. Purchase order, goods receipt note, and supplier invoice Correct answer.
  2. Budget estimate, cash book, and bank statement
  3. Ledger extract, trial balance, and appropriation register
  4. Tender notice, price bid, and contract agreement

Explanation

The three-way match compares the approved purchase order, the receipt or acceptance record, and the supplier invoice for quantity, rate, and terms. Only when all three agree is the payment released without exception reporting.

Question 45Corporate Finance and Treasury Operations

Which of the following best describes the purpose of a cash flow forecast in a railway treasury function?

  1. To fix the tariff for freight traffic in the coming quarter
  2. To determine the depreciation charge for rolling stock in the annual accounts
  3. To anticipate timing gaps between receipts and payments so that funds can be arranged in advance Correct answer.
  4. To calculate the dearness allowance payable to staff

Explanation

A cash flow forecast projects the timing and quantum of inflows and outflows so that treasury can plan borrowings, investments, and liquidity buffers. It does not set tariffs, compute allowances, or determine depreciation, which are separate functions.

Question 46Corporate Finance and Treasury Operations

A cheque issued to a contractor is presented and paid by the bank. What is the correct effect on the entity's books?

  1. Bank balance decreases and a new creditor liability arises
  2. Bank balance is unchanged and only a contingent liability is created
  3. Bank balance decreases and the creditor liability is extinguished Correct answer.
  4. Bank balance increases and expenditure is reversed

Explanation

On encashment of the cheque, the bank account is credited and the previously recognised creditor balance is debited, extinguishing the liability. The cash position therefore falls while no new obligation is created.

Question 47Corporate Finance and Treasury Operations

Which of these is a capital receipt for a railway organisation?

  1. Sale of scrap generated in workshops
  2. Recovery of overpayment from a supplier
  3. Interest earned on short-term deposits
  4. Proceeds from a long-term loan raised for track doubling Correct answer.

Explanation

Capital receipts create or increase a liability or reduce an asset and are used to fund capital expenditure such as track doubling. Scrap sale, interest income, and recoveries are revenue receipts that flow into ordinary operations.

Question 48Corporate Finance and Treasury Operations

A finance assistant must verify that a payment voucher is complete before release. Which control is being exercised?

  1. Corrective control applied after an audit observation
  2. Preventive control at the transaction entry stage Correct answer.
  3. Directive control issued through a policy circular
  4. Detective control performed after year-end closing

Explanation

Checking a voucher for completeness before payment stops an error or irregularity from entering the books, which makes it preventive. Detective and corrective controls operate after the event, and a policy circular is guidance rather than a transaction check.

Question 49Corporate Finance and Treasury Operations

A zone expects a large lump-sum payment to a contractor next month and holds funds today in a 91-day fixed deposit. What is the most relevant treasury consideration?

  1. Maximising the coupon by extending the deposit tenor
  2. Converting the deposit into foreign currency holdings
  3. Matching the deposit maturity with the expected payment date Correct answer.
  4. Investing the funds in long-dated government securities

Explanation

Liquidity management requires that the maturity of a placement align with the known outflow so that funds are available without premature encashment or penalty. Extending tenor or shifting to volatile assets would create a funding gap or market risk.

Question 50Corporate Finance and Treasury Operations

An invoice of Rs 10,00,000 is subject to a 2% prompt-payment discount if paid within 10 days, and the entity pays on day 8. What amount is recorded as the payment to the supplier?

  1. Rs 10,00,000
  2. Rs 9,00,000
  3. Rs 10,20,000
  4. Rs 9,80,000 Correct answer.

Explanation

A 2% discount on Rs 10,00,000 is Rs 20,000, so the net payment is Rs 9,80,000. The discount is recognised as a reduction of the cost or as income only when the early-payment condition is actually met.