Financial Statements Interpretation – Corporate and Management Accounting MCQ

Students should practice Financial Statements Interpretation – Corporate and Management Accounting CS Executive MCQ Questions with Answers based on the latest syllabus.

Financial Statements Interpretation – Corporate and Management Accounting MCQ

Question 1.
As per Section 198 of the Companies Act, 2013 while calculating net profit for managerial remuneration, if gross profit is the starting point then which of the following is allowed to deduct
(A) Loss of capital natures
(B) Voluntarily compensation
(C) Directors seating fee
(D) Super-tax on the income
Answer:
(C) Directors seating fee

Question 2.
If Net Profit is the starting point for the purpose of calculation of managerial remuneration then which of the following you will add:
(A) Ex-gratia payment to an employee
(B) Capital Profit
(C) Debenture trustee Remuneration
(D) Revenue profit on the sale of plant
Answer:
(A) Ex-gratia payment to an employee

Question 3.
Which of the following are current assets of a business?
(i) Income received in advance
(ii) Stock
(iii) Debtors
(iv) Pre-paid expenses
(v) Accrued income
Select the correct answer from the options given below
(A) Both (i) and (iv) above
(B) Both (ii) and (iii) above
(C) (i), (ii) and (iii) above
(D) (ii), (iii), (iv) and (v) above
Answer:
(D) (ii), (iii), (iv) and (v) above

Question 4.
As per Section 198 of the Companies Act, 2013 while calculating net profit for managerial remuneration, if gross profit is the starting point then which of the following is allowed to deduct
(A) Contributions made u/s 181
(B) Actual bad debts written-off
(C) Liability arising from a breach of contract
(D) All of the above
Answer:
(D) All of the above

Question 5.
The arrangement of assets and liabilities in accordance with a particular order is known as of balance sheet.
(A) Tallying
(B) Marking
(C) Ruling
(D) Marshalling
Answer:
(D) Marshalling

Question 6.
If Net Profit is the starting point for the purpose of calculation of managerial remuneration then which of the following you will deduct:
(A) Income Tax
(B) Capital Profits
(C) Compensation for breach of contract
(D) General expenses
Answer:
(B) Capital Profits

Question 7.
In_____, approach assets which are to be used for long-term in the business and are not meant to be sold are presented first and assets that are most liquid such as cash in hand, are presented at the bottom.
(A) Alphabetical order
(B) Permanence order
(C) Liquidity order
(D) None of the above
Answer:
(B) Permanence order

Question 8.
If the Effective Capital of the company is ₹ 5 Crores and above but less than ₹ 100 Crores it may, without the approval of Central Government, pay remuneration to the managerial person not exceeding:
(A) ₹ 7 lakhs per month
(B) ₹ 5 lakhs per month
(C) ₹ 4 lakhs per month
(D) ₹ 9 lakhs per month
Answer:
(A) ₹ 7 lakhs per month

Question 9.
In_____, approach the assets are stated in the balance sheet in the order in which they can be easily converted into cash and the liabilities in the order in which they have to be paid off.
(A) Alphabetical order
(B) Permanence order
(C) Liquidity order
(D) None of the above
Answer:
(C) Liquidity order

Question 10.
If the Effective Capital of the company is ₹ 100 Crores and above but less than ₹ 250 Crores it may, without the approval of Central Government, pay remuneration to the managerial person not exceeding:
(A) ₹ 240 lakhs per annum
(B) ₹ 180 lakhs per annum
(C) ₹ 120 lakhs per annum
(D) ₹ 100 lakhs per annum
Answer:
(C) ₹ 120 lakhs per annum

Question 11.
Arrange the following assets as per liquidity order.
I. Cash & Bank
II. Building
III. Investment
IV. Stock
Select the correct answer from the options given below-
(A) II, III, I, IV
(B) I, II, III, IV
(C) I, IV, III, II
(D) I, IV, II, III
Answer:
(C) I, IV, III, II

Question 12.
If the Effective Capital of the company is ₹ 250 Crores and above it may, without the approval of Central Government, pay remuneration to the managerial person not exceeding:
(A) ₹ 160 lakhs plus 0.05% of the effective capital in excess of ₹ 250 Crores
(B) ₹ 180 lakhs plus 0.25% of the effective capital in excess of ₹ 250 Crores
(C) ₹ 240 lakhs plus 0.02% of the effective capital in excess of ₹ 2 50 Crores
(D) ₹ 120 lakhs plus 0.01% of the effective capital in excess of ₹ 250 Crores
Answer:
(D) ₹ 120 lakhs plus 0.01% of the effective capital in excess of ₹ 250 Crores

Question 13.
Which of the following statement is true?
(A) The amount reported on the balance sheet for property, plant, and equipment is the estimate of the fair market value as of the balance sheet date.
(B) The third line of the balance sheet at the end of the year should begin with “for the year ended”.
(C) The total amount reported for owners’ equity is the approximate fair value or net worth of the corporation as of the balance sheet date.
(D) None of the above
Answer:
(D) None of the above

Question 14.
The annual installment to depreciation fund for replacement of a fixed asset is
(A) Charge against profit
(B) An appropriation of profits
(C) Charge against the reserve
(D) Charge against cash
Answer:
(A) Charge against profit

Question 15.
Arrange the following assets as per permanence order.
I. Cash & Bank
II. Building
III. Investment
IV. Stock
Select the correct answer from the options given below
(A) II, III, I, IV
(B) I, II, III, IV
(C) I, IV, III, II
(D) II, III, IV, I
Answer:
(D) II, III, IV, I

Question 16.
If the Effective Capital of the company is negative and it passes special resolution then it may, without the approval of Central Government, pay remuneration to the managerial person not exceeding:
(A) ₹ 60 lakhs per annum
(B) ₹ 120 lakhs per annum
(C) No remuneration since effective capital is negative
(D) ₹ 90 lakhs per annum
Answer:
(B) ₹ 120 lakhs per annum

Question 17.
______are those fixed assets that have fixed content, like coal in a coal mine; the value of the asset goes down as the contents are taken out.
(A) Intangible Assets
(B) Fictitious Assets
(C) Wasting Assets
(D) Floating Assets
Answer:
(C) Wasting Assets

Question 18.
Depreciation is a process of
(A) Valuation
(B) Allocation
(C) Reduction
(D) Appreciation
Answer:
(B) Allocation

Question 19.
_____which can be immediately be converted into cash, such as Government Securities.
(A) Intangible Assets
(B) Fictitious Assets
(C) Wasting Assets
(D) Floating Assets
Answer:
(D) Floating Assets

Question 20.
Amortization applies to
(A) Current Assets
(B) Wasting Assets
(C) Intangible Assets
(D) Non-Current Assets
Answer:
(C) Intangible Assets

Question 21.
Which of the following statements is /are NOT correct?
(A) Provision for bad debts appears as a liability on the balance sheet
(B) The provision for bad debts is owed to the company
(C) Bad debts could be less than the provision for bad debts
(D) Bad debts could exceed the provision for bad debts
Answer:
(B) The provision for bad debts is owed to the company

Question 22.
Provisions of Corporate Social Responsibility (CSR) are applicable to the company having a turnover of
(A) ₹ 100 Crore or more
(B) ₹ 250 Crore or more
(C) ₹ 500 Crore or more
(D) ₹ 1,000 Crore or more
Answer:
(D) ₹ 1,000 Crore or more

Question 23.
Which of the following is/are the important characteristic of depreciation?
P. Depreciation is a permanent, continuous, and gradual increase in the value of a fixed asset.
Q. Depreciation is the appropriation of profit.
R. Depreciation is always computed in a systematic and rational manner.
Select the correct answer from the options given below
(A) Q & R only
(B) P & R only
(C) R only
(D) P & Q only
Answer:
(C) R only

Question 24.
The balance sheet gives information regarding the
(A) Results of operations for a particular period
(B) Financial position during a particular period
(C) Profit earning capacity for a particular period
(D) Financial position as on a particular date
Answer:
(D) Financial position as on a particular date

Question 25.
Obsolescence of a depreciable asset may be caused by
(I) Technological changes.
(II) Improvement in the production method.
(III) Change in market demand for the product or service output.
(IV) Legal or other restrictions.
The correct option is
(A) Only (I) above
(B) Both (I) & (II) above
(C) All (I), (II), (III) & (IV) above
(D) Only (IV) above
Answer:
(C) All (I), (II), (III) & (IV) above

Question 26.
Computers taken on hire by a business for a period of twelve months should be classified as
(A) Current assets
(B) Intangible assets
(C) Deferred revenue expenditure
(D) Not an asset
Answer:
(D) Not an asset

Question 27.
In the case of downward revaluation of an asset which is for the first time, the account to be debited is
(A) Fixed Asset A/c
(B) Revaluation Reserve A/c
(C) Profit & Loss A/c
(D) General Reserve A/c
Answer:
(C) Profit & Loss A/c

Question 28.
Which of the following expenses is NOT included in the acquisition cost of a plant and equipment?
(A) Cost of site preparation
(B) Delivery and handling charges
(C) Installation costs
(D) Financing costs incurred subsequent to the period after plant and equipment is put to use.
Answer:
(D) Financing costs incurred subsequent to the period after plant and equipment is put to use.

Question 29.
Tick the correct match.

1. Current Asset	1. Depreciation
2. Nominal A/c	2. Land
3. Non-Depreciable Asset	3. Insurance A/c
4. Non Cash Expense	4. Prepaid Rent A/c

Select the correct answer from the options given below
(A) (1, 2), (2, 3), (3, 4), (4, 1)
(B) (1, 3), (2, 1), (3, 4), (4, 2)
(C) (1, 4), (2, 2), (3, 1), (4, 3)
(D) (1, 4), (2, 3), (3, 2), (4, 1)
Answer:
(D) (1, 4), (2, 3), (3, 2), (4, 1)

Question 30.
The most compelling reason for accounting for depreciation is:
(A) To match a portion of the depreciable cost of the asset against the income generated by it.
(B) To build up resources for the purpose of replacing the non-current assets.
(C) Because that is a requirement of company law.
(D) To write down the non-current assets to what it is worth by the end of the period.
Answer:
(A) To match a portion of the depreciable cost of the asset against the income generated by it.

Question 31.
Revenues affect net income
(A) In the period during which they are earned
(B) In the period when they are collected
(C) In the period when they are accounted for
(D) Any of the above three which occur first
Answer:
(A) In the period during which they are earned

Question 32.
What do you understand when one refers to as “net book value” of a non-current asset?
(A) The cost of the asset.
(B) The cost of the asset less amount expensed as depreciation in the current period.
(C) The cost less accumulated depreciation up to the date of reporting.
(D) The current worth of the asset.
Answer:
(C) The cost less accumulated depreciation up to the date of reporting.

Question 33.
Choose the true statement.
(A) Accrued incomes represent in-come unearned but realized in cash.
(B) Accrued incomes represent income earned but not realized in cash.
(C) Accrued income A/c is shown on the liability side.
(D) No tax is payable on accrued income
Answer:
(B) Accrued incomes represent income earned but not realized in cash.

Question 34.
The depreciation fund method is also known as
(A) Redemption fund method
(B) Amortization fund method
(C) Sinking fund method
(D) All of the above
Answer:
(D) All of the above

Question 35.
According to AS-6 “Depreciation Accounting”, issued by the ICAI change in method is permitted
(A) Prospectively
(B) Retrospectively
(C) Negatively
(D) None of the above
Answer:
(B) Retrospectively

Question 36.
In case of companies depreciation on assets are provided on the basis of
(A) Life of the asset as given in Schedule IV
(B) Rate of depreciation as given in Schedule III
(C) Life of the asset as given in Schedule II
(D) Rate of depreciation as given in Schedule V
Answer:
(C) Life of the asset as given in Schedule II

Question 37.
Every company fulfilling specified criteria shall constitute Corporate Social Responsibility (CSR) Committee of the Board consisting of:
(A) 5 or more directors, out of which at least 2 directors shall be an independent director
(B) 10 or more directors, out of which at least 3 directors shall be an independent director
(C) 5 or more directors, out of which at least 1 director shall be an independent director
(D) 3 or more directors, out of which at least 1 director shall be an independent director
Answer:
(D) 3 or more directors, out of which at least 1 director shall be an independent director

Question 38.
Provisions of Corporate Social Responsibility (CSR) are applicable to the company having a net worth of
(A) ₹ 100 Crore or more
(B) ₹ 250 Crore or more
(C) ₹ 500 Crore or more
(D) ₹ 1,000 Crore or more
Answer:
(C) ₹ 500 Crore or more

Question 39.
The Board of every company shall ensure that the company spends, in every financial year, at least of the company made during the____, in pursuance of its CSR Policy.
(A) 2% of the average net profits; 3 immediately preceding financial years
(B) 5% of the average net profits; 5 immediately preceding financial years
(C) 5% of the average net profits; 3 immediately preceding financial years
(D) 2% of the average net profits; 5 immediately preceding financial years
Answer:
(A) 2% of the average net profits; 3 immediately preceding financial years

Question 40.
Computation of net profit for Section 135 is as per Section 198 of the Companies Act, 2013 which is primarily:
(A) Profit After Tax (PAT)
(B) Earnings Before Interest & Tax (EBIT)
(C) Profit Before Tax (PBT)
(D) Net Operating Profit After Tax (NOPAT)
Answer:
(C) Profit Before Tax (PBT)

Question 41.
Net profit after tax of XYZ Ltd. is ₹ 1,00,000 after debiting provisions for tax ₹ 40,000 and Managing Director’s Salary 60,000. Maximum remuneration payable to Managing Director as per provisions of the Companies Act, 2013 without complying with provisions of the Schedule V is
(A) ₹ 14,000
(B) ₹ 8,000
(C) ₹ 10,000
(D) ₹ 12,000
Hint:

Net profit	1,00,000
Provisions for tax	40,000
Managing Director’s Salary	60,000
Profit as per Section 198	2,00,000

Maximum remuneration to MD = 2,00,000 × 5% = 10,000
Answer:
(C) ₹ 10,000

Question 42.
The net profit after tax of QPR Ltd. is ₹ 15,48,000. This net profit is arrived at after debiting P & L A/c following items:
Income Tax: ₹ 3,20,000;
Ex-gratia payment to employee: ₹ 50,000 ’
Following items are credited to P & L A/c before arriving above net profit:
Capital Profit: ₹ 75,000
Profit on forfeiture of shares: ₹ 4,300
Maximum remuneration payable to
Managing Director as per provisions of the Companies Act, 2013 without complying with provisions of the Schedule Vis-
(A) ₹ 91,935
(B) ₹ 95,685
(C) ₹ 90,425
(D) ₹ 94,750
Hint:

Net profit	15,48,000
Income Tax	3,20,000
Ex-gratia payment to employee	50,000
Capital Profit	(75,000)
Profit on forfeiture of shares	(4,300)
Profit as per Section 198	18,38,700

Maximum remuneration to MD = 18,38,700 × 5% = 91,935
Answer:
(A) ₹ 91,935

Question 43.
The gross profit of AG Ltd. is ₹ 20,78,000 before considering the following items:
Revenue profit on the sale of plant 1,40,000
Subsidy from Central Govt. 7,30,000
Capital profit on the sale of plant 1,30,000
Interest on Investment 60,000
Depreciation as per Schedule II 3,00,000
Maximum remuneration payable to MD without complying provisions of the Schedule V is:
(A) ₹ 1,23,700
(B) ₹ 1,35,400
(C) ₹ 1,53,200
(D) ₹ 1,46,300
Hint:

Gross profit	20,78,000
Revenue profit on the sale of plant	1,40,000
Subsidy from Central Govt.	7,30,000
Capital profit on the sale of the plant (not allowed)	–
Interest on Investment	60,000
Depreciation as per Schedule II	(3,00,000)
Profit as per Section 198	27,08,000

Maximum remuneration to MD = 27,08,000 × 5% = 1,35,400
Answer:
(B) ₹ 1,35,400

Question 44.
Net profits before charging the commission ₹ 80,000. Following had been charged off against the profits as determined as above:
– Depreciation ₹ 31,900
– Provision for bad debts ₹ 920.
Other relevant information:
– Actual bad debts ₹ 800.
– Depreciation as per Schedule II ₹ 39,160.
Maximum remuneration payable to MD without complying with provisions of the Schedule V is
(A) ₹ 3,643
(B) ₹ 5,728
(C) ₹ 4,762
(D) ₹ 1,874
Hint:

Net profit	80,000
Depreciation	31,900
Provision for bad debts	920
Actual bad debts	(800)
Depreciation as per Schedule II	(39,160)
Profit as per Section 198	72,860

Maximum remuneration to MD = 72,860 × 5% = 3,643
Answer:
(A) ₹ 3,643

Question 45.
The manager of Z Ltd. is entitled to a commission @ 3% on net profit after charging such commission. Calculate the commission payable to the manager.
Net profit before tax and managerial remuneration = ₹ 8,80,000
Depreciation as provided in books of account = ₹ 1,10,000
Depreciation as per the Companies Act, 2013 = ₹ 1,32,000
(A) ₹ 25,740
(B) ₹ 24,990
(C) ₹ 42,900
(D) ₹ 23,330
Hint:

Net profit	8,80,000
(+) Depreciation as per books of account	1,10,000
(-) Depreciation as per Companies Act, 2013	(1,32,000)
Profit as per Section 198	8,58,000

Commission payable = 8,58,000 × \(\frac{3}{103}\) = 24,990
Note: Percentage of commission is “after charging commission ” so formula used is:
Commission payable = Profit as per Section 198 × \(\frac{\text { Rate }}{100+\text { Rate }}\)
Answer:
(B) ₹ 24,990

Question 46.
The gross profit of G Ltd. is ₹ 40,38,000 before considering the following items:
Salaries & Bonus 1,80,000
Repairs to Buildings 90,000
R & D Expenses 15,000
Directors Fees 6,000
Managing Director’s Salary 36,000
Interest on Debentures 20,000
Profit on sale of plant 1,20,000
Subsidy from Central Govt. 2,19,000
The whole of the R & D expenses has been incurred for the purchase of equipment. On Plant depreciation provided up to date was ₹ 42,000. Maximum remuneration payable to MD without complying with provisions of the Schedule V is
(A) ₹ 2,22,440
(B) ₹ 2,12,320
(C) ₹ 2,48,650
(D) ₹ 2,00,150
Hint:

Gross profit	40,38,000
Salaries & Bonus	(1,80,000)
Repairs to Buildings	(90,000)
R & D Expenses (not allowed)	–
Directors Fees	(6,000)
Managing Director’s Salary (not allowed)	–
Interest on Debentures	(20,000)
Revenue profit on the sale of the plant (Note)	42,000
Subsidy from Central Govt.	2,19,000
Profit as per Section 198	40,03,000

Note: Profit to the extent of accumulated depreciation is revenue profit.
Maximum remuneration to MD = 40,03,000 × 5% = 2,00,150
Answer:
(D) ₹ 2,00,150

Question 47.
Profits of Q Ltd. before remuneration of MD was 12,06,000 for the year ended 31st March 2020. The said profit has been calculated considering the following figures:
Capital expenditure 4,95,000
Depreciation as per Schedule II 42,000 Bonus to technicians 1,89,000
Compensation paid to work- 42,000 men
Loss on sale of fixed assets 42,000 Subsidy from Govt. 2,52,000
Multiple shift allowance 63,000
Provision for taxation 16,80,000
Ex-gratia payments to workers 21,000 Profit on sale of building 1,26,000
Determine the maximum remuneration payable to the MD of Z Ltd. from the above information.
(A) ₹ 1,76,800
(B) ₹ 1,56,600
(C) ₹ 1,65,900
(D) ₹ 1,68,800
Hint:

Net Profit	12,06,000
(+) Capital Expenditure	4,95,000
(+) Loss on sale of fixed assets	42,000
(+) Provision for taxation	16,80,000
(+) Ex-gratia payments to an employee	21,000
(-) Profit on sale of the building	(1,26,000)
Profit as per Section 198	33,18,000

Maximum remuneration to MD = 33,18,000 × 5% = 1,65,900
Answer:
(C) ₹ 1,65,900