Question 1
Which of the following is considered a non-cash transaction?
✅ Correct Answer: Issue of shares to vendors for machinery
Explanation: Issue of shares for purchase of machinery does not involve movement of cash and is therefore a non-cash transaction.
Question 2
Which account is credited when debentures are issued at premium?
✅ Correct Answer: Securities Premium Account
Explanation: Premium received on issue of debentures is credited to Securities Premium Account.
Question 3
Which ratio indicates the relationship between owners' funds and total assets?
✅ Correct Answer: Proprietary Ratio
Explanation: Proprietary Ratio measures the contribution of proprietors' funds in total assets of the business.
Question 4
If a partnership deed is silent regarding partner's salary, then:
✅ Correct Answer: No salary is allowed
Explanation: According to Partnership Act, no partner is entitled to salary unless provided in the partnership deed.
Question 5
Which of the following statements is correct regarding goodwill?
✅ Correct Answer: It represents favourable reputation of business
Explanation: Goodwill reflects the reputation and earning potential of the business developed over time.
Question 6
A company issued $12,000$ shares of ₹$10$ each payable ₹$4$ on application, ₹$3$ on allotment and balance on first and final call. Total amount due on first and final call is:
✅ Correct Answer: ₹$36,000$
Explanation: Balance payable = $10 - 4 - 3 = 3$ per share.
Call money due = $12,000 \times 3 = 36,000$.
Question 7
Current Ratio of a business is $2.5: 1$. Current liabilities are ₹$2,00,000$. Current assets will be:
✅ Correct Answer: ₹$5,00,000$
Explanation: Current Assets = $2.5 \times$ Current Liabilities
$= 2.5 \times 2,00,000 = 5,00,000$.
Question 8
A company purchased equipment worth ₹$3,00,000$ by paying ₹$1,00,000$ cash and issuing shares for the balance. Cash outflow under investing activities will be:
✅ Correct Answer: ₹$1,00,000$
Explanation: Only actual cash payment is considered in Cash Flow Statement. Issue of shares is non-cash.
Question 9
Which of the following transactions increases working capital?
✅ Correct Answer: Issue of shares for cash
Explanation: Issue of shares for cash increases current assets without increasing current liabilities, thereby increasing working capital.
Question 10
Revenue from Operations is ₹$20,00,000$ and Gross Profit Ratio is $30\%$. Cost of Revenue from Operations will be:
✅ Correct Answer: ₹$14,00,000$
Explanation: Gross Profit = $30\%$ of $20,00,000 = 6,00,000$.
Cost of Revenue = $20,00,000 - 6,00,000 = 14,00,000$.
Question 11
Assertion (A): Quick Ratio excludes inventory from current assets.
Reason (R): Inventory may not be immediately convertible into cash.
✅ Correct Answer: Both A and R are true, and R correctly explains A
Explanation: Inventory may take time to sell and convert into cash, so it is excluded while calculating quick ratio.
Question 12
Assertion (A): Interest on debentures is compulsory even if company incurs losses.
Reason (R): Debenture holders are external liabilities of the company.
✅ Correct Answer: Both A and R are true, and R correctly explains A
Explanation: Debenture interest is a fixed charge because debenture holders are creditors, not owners.
Question 13
Read the following case carefully:
Riya Ltd. forfeited $600$ shares of ₹$10$ each issued at par due to non-payment of allotment ₹$3$ and final call ₹$2$. Application money received was ₹$5$ per share. Amount forfeited per share is:
✅ Correct Answer: ₹$5$
Explanation: Amount already received before forfeiture = Application money = ₹$5$ per share. This amount is transferred to Share Forfeiture Account.
Question 14
Read the following information carefully:
Net Profit before tax = ₹$4,20,000$
Depreciation = ₹$50,000$
Increase in outstanding salary = ₹$10,000$
Decrease in debtors = ₹$30,000$
Cash generated from operations will increase by:
✅ Correct Answer: ₹$90,000$
Explanation: Add depreciation ₹$50,000$, increase in outstanding salary ₹$10,000$ and decrease in debtors ₹$30,000$.
Total increase = ₹$90,000$.
Question 15
A company started offering discounts for early cash payments from customers. Which area improved directly?
✅ Correct Answer: Liquidity position
Explanation: Early collection from customers improves cash availability and liquidity position.
Question 16
A company has debt ₹$9,00,000$ and shareholders' funds ₹$6,00,000$. Debt-Equity Ratio is:
✅ Correct Answer: $1.5: 1$
Explanation: Debt-Equity Ratio = $9,00,000 / 6,00,000 = 1.5 : 1$.
Question 17
A business has high inventory turnover but low gross profit ratio. This may indicate:
✅ Correct Answer: Goods are sold quickly at lower margins
Explanation: High inventory turnover with low gross profit ratio generally means faster sales with smaller profit margins.
Question 18
Which of the following will NOT change Quick Ratio?
✅ Correct Answer: Collection from debtors
Explanation: Collection from debtors converts one quick asset into another quick asset (cash), so total quick assets remain unchanged. (Tricky conceptual question.)
Question 19
A company has sufficient profits but poor cash flows from operations. Which situation is most likely responsible?
✅ Correct Answer: Large credit sales remaining unpaid
Explanation: Unpaid receivables increase profits through credit sales but do not generate immediate cash inflow.
Question 20
A company reissued forfeited shares at ₹$8$ per share which were originally issued at ₹$10$ and ₹$3$ per share had been forfeited. Amount transferred to Capital Reserve per share will be:
✅ Correct Answer: ₹$1$
Explanation: Discount on reissue = ₹$2$ ($10 - 8$) adjusted against forfeiture amount ₹$3$. Remaining forfeiture = ₹$1$ transferred to Capital Reserve.
🔙 Back to Scorecard