Advanced Financial Accounting MCQs
In this Post You will Get Accounts of Advanced Financial Accounting MCQs which is useful for BCOM CBCS Pattern, BBA, MBA, MCOM and other Competitive and Career Oriented Exams for Commerce stream students.
Choose the
Correct Answer
1. Banks prepare the accounts for
a)
Calendar year.
b) Financial
year.
c) Cooperative
year.
d)
Diwali year.
Ans: b) Financial
year.
2. Banks show the provision for
income-tax under the head
a)
Contingency accounts.
b) Contingent
liabilities.
c) Other
liabilities and provisions.
d)
Borrowings.
Ans: c) Other
liabilities and provisions.
3. The heading other assets does not
include
a) Silver.
b)
Interest accrued.
c) Inter-office
adjustment (Dr.)
d)
Gold.
Ans: d) Gold.
4. Rebate on bills discounted is
a)
An item of income.
b)
A liability.
c) Income
received in advance.
d)
Income outstanding.
Ans: c) Income
received in advance.
5. A non-banking asset is
a)
An item of office equipment.
b)
Any asset acquired from the debtors in satisfaction of claim.
c)
Money at call and short notice.
d)
Furniture and fixtures.
Ans: b) Any
asset acquired from the debtors in satisfaction of claim.
6. A non-performing asset is
a) Money
at call and short notice.
b) An
asset that ceases to generate income.
c) Cash
balance in nil.
d)
Cash balance with RBI.
Ans: b) An
asset that ceases to generate income.
Also Read: Multiple Choice Questions and Answers
- Advanced Financial Accounting MCQs 2023
- Accounts of Banking Companies MCQs
- Accounts of Life Insurance Companies MCQs
- Accounts of General Insurance Companies MCQs
- MCQ on Investment Accounting
- Advanced Financial MCQs (Dibrugarh University 2013 to 2023)
7. When income is to be recognized on
cash basis, a distinction should be made between
a)
Performing and non-performing assets.
b)
Banking and non-banking assets.
c) Monetary
and non-monetary assets.
d)
Current and non-current assets.
Ans: a) Performing
and non-performing assets.
8. A valuation balance sheet is
prepared by
a)
A trading company.
b)
A banking company.
c) A
life insurance company.
Ans: c) A
life insurance company.
9. Provision is created for
standard assets @:
a) 10%
b) 20%
c) 30%
d)
0.40%
Ans: d)
0.40%
10. Provision is created for
sub-standard assets @:
a) 10%
b) 15%
c) 20%
d) 30%
Ans: b) 15%
11. Provision created against
loose assets and unsecured doubtful debts is:
a) 10%
b) 20%
c) 30%
d)100 %
Ans: d)100 %
12. Which one of the following
is correct?
a)
Provision created for assets doubtful upto one year is 25%.
b)
Provision created for assets doubtful above one year and upto three year is
40%.
c)
Provision created for assets doubtful for more than 3 years is 100%.
d) All
of the above
Ans: d) All
of the above
13. General Insurance business was nationalized in
the year:
a) 1935
b) 1950
c) 1956
d) 1972
Ans: c) 1972
14. Insurance business in India is regulated by:
a) SEBI
b) RBI
c) IRDA
d)
Government
Ans: c) IRDA
15. General insurance contract is a contract of:
a)
Indemnity
b)
Guarantee
c) Both of
the above
d) None of
the above
Ans: a) Indemnity
16. A general insurance business carrying on
more than one type of insurance business prepares
a) A
separate revenue account for each type of business.
b) A
separate profit and loss account for each type of business.
c) A
separate revenue account and a combined profit and loss account.
d)
Consolidated financial statements are prepared
Ans: c) A separate revenue
account and a combined profit and loss account.
17. Survey expenses for marine
insurance claims must be
a)
Added to claims.
b)
Added to law charges.
c)
Shown as a separate item.
d)
Non shown in revenue account
Ans: a) Added
to claims.
18. In case of fire insurance the provision against
unexpired risk should be:
a) 40% of
the net premium
b) 50% of
the net premium
c) 60% of
the net premium
d) 100% of
the net premiums.
Ans: b) 50% of the net premium
19. Which of the following
investments is not true?
a)
Current investments are in the nature of current assets.
b)
Trade investments are in the nature of non-current assets.
c) Cost
of investment includes brokerage at the time of purchase.
d) Cost
of investment includes brokerage paid at the time of sale.
Ans: d) Cost of investment includes brokerage paid at the time of sale.
20. Income-tax on interest,
dividends and rent should be
a)
Debited to provision for taxation.
b)
Credited to provision for taxation.
c)
Deducted from interest, dividends and rents.
d) None
of these
Ans: c) Deducted from interest, dividends and rents.
21. Investments
other than current investments are classified as long term investments even
though they:
a) Are
readily marketable
b) May
not be readily marketable
c) Both
a & b
d) None
of these
Ans: a) Are readily marketable
22. Current investments are
valued at:
a) Cost
b) Fair
value
c) Cost
or fair value whichever is lower
d) None
of these
Ans: c) Cost or fair value whichever is lower
23. Long term or non-current
investments are valued at:
a) Cost
b) Fair
value
c) Cost
or fair value whichever is lower
d) None
of these
Ans: a) Cost
24. A provision
for diminution in the value of a non-current investment should be made when the
decline is believed to be:
a)
Temporary
b)
Permanent
c) None
of these
Ans: b) Permanent
25. Cost of bonus shares is:
a) Fair
market value
b) Nil
c) Cost
of original investment
d) None
of these
Ans: b) Nil
Fill in the blanks:
1.
A banking company cannot grant loan to any of its directors.
2.
Banking companies are governed by the Banking Realisation Act, 1949.
3.
The maximum number of Partners in a banking business is
10.
4.
Rebate on Bills Discounted for a banking company is
not an income.
5. No
banking company shares pay any dividend unless its capital
expenses and fictitious assets are written off.
6.
Statutory reserve required = 25%
7. Cash
reserve with RBI = 3% of its time and demand liabilities.
8. Limit
on investments in shares of other companies: 30% of paid up capital and
reserves.
9. Rebate
on bills discounted is shown under the head “other liabilities” of the balance sheet as unexpired discounts.
10.
Paid up capital of a banking company must be at least one-half
of the subscribed capital of a banking company.
11.
The accounting year of a banking company ends on 31st march
of every year.
12.
Provision for bad and doubtful debts cannot be
shown as deduction from interest earned in the profit and loss account of
banking companies.
13.
Bills for collection at the end of the year are
not shown in any schedule. They appear at the foot of the balance sheet.
14.
Contingent liabilities are shown under schedule 12.
15.
Revenue accounts of insurance companies are prepared under the provisions of IRDA
Regulation’ 2002.
16. Valuation
balance sheet is prepared in case of life assurance business only
to ascertain surplus or deficit.
17.
Annuity is an expense and it is shown
under the head benefits paid (Schedule 4).
18. Revenue
account of Life Insurance companies: Form A - RA
19. Profit
and loss account of Life Insurance companies: Form A – PL
20. Balance
sheet of Life Insurance companies: Form A – BS.
21. Reinsurance
premium whether ceded or accepted has been shown on gross
basis before deducting commission.
22. Liabilities
under existing policies are determined by actuarial valuation.
23. Life
insurance is more appropriate to be called life assurance.
24. Bonus
in reduction of premium is both at expense and income in
revenue account.
25. General
insurance includes all types of insurance except life insurance.
26. IRDA
was set up in the year 1996.
27. Revenue
accounts of insurance companies are prepared under the provisions of IRDA
Regulation’ 2002.
28. Provisions
for unexpired risk in respect of marine business =
100%
29. Provisions
for unexpired risk in respect of fire business = 50%
30. Partly
paid investments, guarantee, reinsurance obligations not provided in accounts
are contingent liabilities.
31. Income
from rent includes only the realised rent. It does not include any notional
rent.
32. Commission
on reinsurance ceded is an income and commission on
reinsurance accepted is an expense.
33. FORM
B – RA: Revenue account of general insurance companies.
34. FORM
B – PL: Profit and loss account of general insurance
companies.
35.
FORM B – BS: Balance sheet of general insurance companies.
36.
Investments hold for more than one year to earn continuous income or to control
business is called trade investments.
37.
Investment held with a view to buy or sale is known as temporary
investments or current investments or marketable securities.
38.
Current investments are valued at cost or fair value whichever
is lower and fixed investments are valued at cost.
39.
Investment account is real account.
40. Sale
of right is a capital receipt in
case of right issue.
41. Brokerage is
included in the cost of investment in case of purchase of investments and are
deducted with the cost of investment in case of sale.
42.
FIFO and average cost method is used to calculate
cost of closing balance of investment.
43.
Cost of Bonus shares is nil.
44. Accounting
for investments: AS – 13.
45. In
case of cum-interest, interest is included in quoted price and in case of
ex-interest, interest is excluded from quoted price.
46. Real
price of investment is Ex-interest/dividend price.
47.
When interest on doubtful debts is realised the amount is debited to Interest
suspense account and credited to Interest account.
48.
The bases for recording bank transactions are the Slips prepared
by customers and sometimes bank staff.
49.
Liability on account of bills rediscounted will appear under Contingent
Liabilities of the bank’s balance sheet.
50.
Banks are required to transfer 25% of
their profits to a statutory reserve.
51.
The excess of net liability over the ‘Life Assurance Fund’ represents the Deficiency for
the inter-valuation period.
52.
The concept of surrender value of a policy is peculiar to Life
insurance.
53. When
an insurance company finds the risk heavy, part of the risk is insured with
another company. Such a procedure is known as Reinsurance.
54. The
purpose of preparing the valuation balance sheet is to ascertain the Profit
or loss made by life insurance
business.
55.
Valuation balance sheet is prepared once in every Two years in the case of life insurance business.
56.
In the case of marine insurance the provision against unexpired risk should
be 100% of
the net premiums.
57.
Investments are freely bought and sold in the stock exchange through banks and
brokers.
58.
As per the Finance Act, 2005, banks are allowed to issue preference shares.
59.
Life insurance business is carried on by Life Insurance Corporation of India
since 1956.
60.
The general insurance business was taken over by the Central Government with
effect from 1972
61. Purchase price is not the real price of investment.
62.
A banking company cannot grant loan to any of its directors.
63. Valuation
Balance Sheet is prepared to know surplus or deficiency of life
insurance.
64.
In case of marine insurance, the provision against unexpired risk is 100%.
65.
Investments are freely bought and sold in the stock exchange through
banks and brokers.
State whether the following statements are ‘TRUE’ or ‘FALSE’:
1.
Subscribed capital of a banking company should not exceed half of the
authorized capital and the paid-up capital should not exceed half of the
subscribed capital. [True]
2.
A banking company should transfer 20% of its profits to a statutory reserve, only
till such reserve together with share premium account balance equals the
paid-up capital. [False]
3. A
banking company cannot pay dividend on its shares until it writes off all
capitalized expenses such an preliminary expenses, brokerage and commission on
issue of shares, etc. [True]
4. A
banking company cannot grant any loans or advances on the security of its own
shares. [True]
5. The
total of bank’s advances comprises loans, cash credits, overdrafts and money at
call and short notice. [False]
6. In
a bank’s balance sheet gold is shown under ‘Other assets’ whereas silver is
shown under ‘Investments’. [False]
7. Banks
do not make a provision for bad debts, as they secure or insure all their
advances. [False]
8.
‘Rebate on bills discounted’ is a liability and is, therefore, shown under the
heading ‘Other liabilities’ by banks. [True]
9. Life
insurance is more appropriate to be called life assurance. [True]
10.
All insurance contracts are contracts of indemnity. [False]
11.
There is no difference between a wagering contract and contract of
insurance. [True]
12.
Bonus payable on maturity of the policy is called reversionary bonus. [False]
13. A
life insurance business is said to have earned profit only if its life
assurance fund exceeds its net liability on all outstanding policies. [False]
14.
A balance sheet of a life insurance company is called a ‘Valuation balance
sheet’. [False]
15.
Life insurance contract is a contract of indemnity. [False]
16.
Banks in India are under the general supervision of the Central Government.
False, RBI
17. Life
insurance is more appropriate to be called life
assurance.
True
18. Commission
on re-insurance ceded is an income. True
19. Only
FIFO method is used to calculate cost of closing balance of
investment. False
20. Banking
companies are governed by the Banking Regulation Act, 1989. False, 1949
21. Life
insurance business is carried on by Life Insurance Corporation of India since
1956. True
22. General
insurance includes all types of insurances. False
23. Investments
may be fixed or current asset. True
24.
Right shares are first offered to the existing shareholders of the
company. True
25.
Brokerage on purchase of investment is added while calculating cost of
investment. True
FAQs
1. Which method is used to calculate cost of closing balance of investment?
Ans: Fifo and Average cost method is used to calculated cost of closing balance of investment.
2. Which type of contract is general insurance?
Ans: General insurance is a contract of indemnity.
3. Which type of contract is life insurance?
Ans: Life insurance is a contract of Guarantee.
4. How many statutory reserves are required?
Ans: As per Sec. 17 of the Banking Regulation Act every bank has to transfer of profit to statutory reserve fund account @ 25% of the profit earned during the current year.
5. What are various categoreis of NPA?
Ans: Banks are required to classify non-performing assets further into the following three categories - Sub-standard assets, Doubtful assets and loss assets.
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