Advanced Financial Accounting MCQs 2023 [Multiple Choice Questions and Answers]

Advanced Financial Accounting MCQs

Multiple Choice Questions and Answers
For B.Com / BBA / MBA Exam

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.

33FORM B – RA: Revenue account of general insurance companies.

34FORM B – PL: Profit and loss account of general insurance companies.

35. FORM B – BSBalance 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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