Accounting & Financial Management
🔹 Section A – Accounting Principles and Standards
1. The primary objective of accounting is to:
A. Record all financial transactions
B. Provide financial information for decision-making
C. Calculate tax
D. Maintain secrecy
Answer: B
Explanation: Accounting provides relevant information to management and stakeholders for better decisions.*
2. The principle that states “business and owner are separate entities” is:
A. Cost Concept
B. Business Entity Concept
C. Matching Concept
D. Dual Aspect
Answer: B
3. The assumption that business will continue in the foreseeable future is:
A. Going Concern
B. Matching
C. Realisation
D. Conservatism
Answer: A
4. The concept of “recording only monetary transactions” refers to:
A. Accrual Concept
B. Money Measurement
C. Materiality
D. Entity
Answer: B
5. Matching Concept relates to:
A. Assets and Liabilities
B. Expenses and Revenues
C. Income and Capital
D. Assets and Income
Answer: B
6. Conservatism principle means:
A. Record all profits immediately
B. Provide for expected losses
C. Ignore depreciation
D. Avoid provisions
Answer: B
7. “Dual Aspect” means:
A. Every transaction has two sides
B. Assets = Liabilities
C. Income = Expenditure
D. Credit = Income
Answer: A
8. Accrual Concept records:
A. Only cash transactions
B. Income and expenses when incurred
C. Only credit transactions
D. Receipts only
Answer: B
9. Accounting Standards are issued in India by:
A. ICAI
B. SEBI
C. RBI
D. Ministry of Finance
Answer: A
10. Indian Accounting Standards are known as:
A. IAS
B. Ind AS
C. IFRS
D. GAAP
Answer: B
🔹 Section B – Financial Statements and Analysis
11. Financial statements are prepared to show:
A. Operational data
B. Financial performance and position
C. Employee satisfaction
D. Product quality
Answer: B
12. The statement showing profit or loss for a period is:
A. Balance Sheet
B. Income Statement
C. Cash Flow
D. Fund Flow
Answer: B
13. Which of the following is a financial statement?
A. Trial Balance
B. Cash Flow Statement
C. Ledger
D. Journal
Answer: B
14. “Financial position at a point of time” is shown by:
A. Income Statement
B. Cash Flow
C. Balance Sheet
D. Profit & Loss
Answer: C
15. Funds Flow Statement shows:
A. Movement of working capital
B. Profit distribution
C. Depreciation
D. Cash inflow only
Answer: A
16. Ratio Analysis helps in:
A. Measuring profitability, liquidity, solvency
B. Cost computation only
C. Production planning
D. Marketing
Answer: A
17. Current Ratio is:
A. Current Assets / Current Liabilities
B. Total Assets / Current Liabilities
C. Fixed Assets / Current Liabilities
D. Sales / Current Liabilities
Answer: A
18. Ideal Quick Ratio is:
A. 3:1
B. 2:1
C. 1:1
D. 0.5:1
Answer: C
19. Debt-Equity Ratio measures:
A. Solvency
B. Liquidity
C. Profitability
D. Turnover
Answer: A
20. DuPont analysis decomposes ROE into:
A. 2 parts
B. 3 parts
C. 4 parts
D. 5 parts
Answer: B
Explanation: ROE = Net Profit Margin × Asset Turnover × Equity Multiplier.*
🔹 Section C – Funds Flow and Cash Flow Analysis
21. Fund Flow statement is based on:
A. Cash basis
B. Accrual basis
C. Realisation concept
D. Cost basis
Answer: B
22. Cash Flow statement is classified into how many activities?
A. Two
B. Three
C. Four
D. Five
Answer: B
Explanation: Operating, Investing, Financing Activities.*
23. Cash Flow Statement is prepared as per:
A. AS–1
B. AS–3
C. AS–5
D. AS–9
Answer: B
24. Cash inflow from financing activity includes:
A. Issue of shares
B. Purchase of machinery
C. Interest received
D. Depreciation
Answer: A
25. Increase in current assets leads to:
A. Increase in cash
B. Decrease in cash
C. No effect
D. Increase in capital
Answer: B
26. Increase in current liabilities leads to:
A. Increase in working capital
B. Decrease in working capital
C. Increase in fixed capital
D. No effect
Answer: B
27. Depreciation is added back in Cash Flow because:
A. It is a cash expense
B. It is a non-cash expense
C. It reduces cash
D. It increases cash
Answer: B
28. Payment of dividend appears under:
A. Operating activities
B. Financing activities
C. Investing activities
D. None
Answer: B
29. Sale of fixed assets is a:
A. Cash inflow from investing activities
B. Cash outflow from investing activities
C. Cash inflow from financing activities
D. None
Answer: A
30. Issue of debentures for cash is a:
A. Financing inflow
B. Investing inflow
C. Operating inflow
D. None
Answer: A
🔹 Section D – Cost Sheet and Cost Accounting
31. Prime Cost =
A. Direct Material + Direct Labour + Direct Expenses
B. Factory Cost + Admin Overheads
C. Sales − Profit
D. Fixed Cost + Variable Cost
Answer: A
32. Factory Overheads include:
A. Indirect materials, labour, factory expenses
B. Direct materials only
C. Office expenses
D. Selling expenses
Answer: A
33. Total Cost of Production includes:
A. Prime cost only
B. Works cost + Office overhead
C. Selling cost only
D. Direct cost only
Answer: B
34. Cost Sheet helps in:
A. Price fixation and cost control
B. Tax calculation
C. Audit
D. Advertising
Answer: A
35. Selling and distribution overheads are added to:
A. Works cost
B. Cost of production
C. Prime cost
D. Office cost
Answer: B
36. Works Cost =
A. Prime cost + Factory overheads
B. Prime cost + Office overheads
C. Total cost – Selling expenses
D. None
Answer: A
37. The main objective of cost accounting is:
A. Cost control and cost reduction
B. Tax assessment
C. Cash management
D. Record keeping
Answer: A
38. Fixed costs remain constant:
A. Per unit
B. In total
C. Both
D. None
Answer: B
39. Variable costs vary:
A. With time
B. With volume of output
C. With capital
D. With assets
Answer: B
40. Semi-variable costs are:
A. Fixed only
B. Variable only
C. Partly fixed and partly variable
D. None
Answer: C
🔹 Section E – Marginal Costing and CVP Analysis
41. Contribution =
A. Sales – Variable Cost
B. Sales – Fixed Cost
C. Profit – Variable Cost
D. None
Answer: A
42. Break-even point means:
A. No profit, no loss
B. Maximum profit
C. Minimum loss
D. Maximum sales
Answer: A
43. P/V Ratio =
A. (Contribution / Sales) × 100
B. (Profit / Variable Cost) × 100
C. (Sales / Profit) × 100
D. (Cost / Sales) × 100
Answer: A
44. If Fixed Cost = ₹50,000 and Contribution per unit = ₹10, BEP (units) = ?
A. 5000
B. 4000
C. 6000
D. 4500
Answer: A
45. Margin of Safety =
A. Actual Sales – BEP Sales
B. BEP Sales – Actual Sales
C. Contribution – Profit
D. Sales – Variable Cost
Answer: A
46. At BEP, contribution equals:
A. Profit
B. Fixed Cost
C. Variable Cost
D. None
Answer: B
47. Higher P/V ratio indicates:
A. Higher profit potential
B. Higher cost
C. Lower sales
D. None
Answer: A
48. Variable cost per unit is ₹30, Selling price ₹50, Fixed cost ₹2,00,000.
BEP units = ?
A. 10,000
B. 20,000
C. 5,000
D. 15,000
Answer: A
(Fixed Cost ÷ (SP − VC) = 2,00,000 ÷ 20 = 10,000)
49. CVP analysis helps in:
A. Profit planning and decision-making
B. Tax calculation
C. Salary fixation
D. Inventory valuation
Answer: A
50. Margin of Safety ratio =
A. (MOS / Sales) × 100
B. (BEP / Sales) × 100
C. (Profit / Sales) × 100
D. None
Answer: A
🔹 Section F – Standard Costing & Variance Analysis
51. Variance =
A. Standard Cost − Actual Cost
B. Fixed Cost − Variable Cost
C. Sales − Cost
D. None
Answer: A
52. Material Price Variance =
A. (SP − AP) × AQ
B. (SQ − AQ) × SP
C. (SQ − AQ) × AQ
D. None
Answer: A
53. Material Usage Variance =
A. (SQ − AQ) × SP
B. (SP − AP) × AQ
C. (SP × AQ)
D. None
Answer: A
54. Labour Efficiency Variance =
A. (SH − AH) × SR
B. (SR − AR) × AH
C. (SR × AH)
D. None
Answer: A
55. Overhead Variance measures difference between:
A. Standard and Actual Overhead
B. Standard and Actual Cost
C. Direct and Indirect Cost
D. None
Answer: A
56. Variance analysis is used for:
A. Cost control
B. Profit estimation only
C. Production
D. Legal reporting
Answer: A
57. Adverse variance means:
A. Actual > Standard (cost)
B. Standard > Actual
C. Profit increase
D. None
Answer: A
58. Standard Costing helps in:
A. Setting performance benchmarks
B. Recruitment
C. Financial auditing
D. Tax planning
Answer: A
59. Labour Rate Variance =
A. (SR − AR) × AH
B. (SH − AH) × SR
C. (AR − SR) × SH
D. None
Answer: A
60. Favourable variance means:
A. Actual cost < Standard cost
B. Actual cost > Standard cost
C. No change
D. None
Answer: A
🔹 Section G – Financial Management Concepts
61. The main objective of financial management is:
A. Profit maximization
B. Wealth maximization
C. Sales maximization
D. Cost reduction
Answer: B
62. Investment decision relates to:
A. Capital budgeting
B. Dividend policy
C. Working capital
D. All of these
Answer: A
63. Financing decision deals with:
A. Sources of funds
B. Use of funds
C. Profit sharing
D. None
Answer: A
64. Dividend decision concerns:
A. Distribution of profits
B. Raising of funds
C. Investments
D. None
Answer: A
65. Liquidity decision ensures:
A. Sufficient working capital
B. Higher debt
C. More dividends
D. None
Answer: A
66. The term “capital budgeting” refers to:
A. Long-term investment decisions
B. Cash budget
C. Sales planning
D. Payroll
Answer: A
67. Weighted Average Cost of Capital (WACC) represents:
A. Overall cost of financing
B. Only debt cost
C. Only equity cost
D. None
Answer: A
68. Financial management focuses on:
A. Planning and controlling financial resources
B. Auditing
C. Accounting
D. Legal compliance
Answer: A
69. Working capital =
A. Current Assets − Current Liabilities
B. Fixed Assets − Liabilities
C. Assets + Liabilities
D. Equity + Debt
Answer: A
70. The goal of financial management is to maximize:
A. Shareholders’ wealth
B. Managerial perks
C. Sales volume
D. Government revenue
Answer: A
🔹 Section H – Capital Structure and Cost of Capital
71. Capital structure means:
A. Mix of debt and equity
B. Asset composition
C. Working capital
D. Expenses
Answer: A
72. Modigliani–Miller theory suggests:
A. Capital structure is irrelevant
B. High debt increases value
C. Low debt increases value
D. None
Answer: A
73. Traditional theory suggests:
A. Optimum debt–equity ratio maximizes value
B. No relation between value and leverage
C. Only debt should be used
D. Only equity should be used
Answer: A
74. Cost of equity (Ke) is calculated using:
A. Dividend and market price
B. Interest
C. EBIT
D. None
Answer: A
75. WACC formula:
A. (E/V × Ke) + (D/V × Kd × (1−T))
B. E/V + D/V
C. (D−E)/V
D. None
Answer: A
76. Cost of debt is calculated after:
A. Tax
B. Dividend
C. Interest
D. Depreciation
Answer: A
77. Optimum capital structure minimizes:
A. Overall cost of capital
B. Profit
C. Assets
D. Tax
Answer: A
78. Debt-Equity ratio of 2:1 means:
A. Debt is double equity
B. Equity is double debt
C. Equal
D. None
Answer: A
79. Financial risk increases with:
A. Increase in debt
B. Increase in equity
C. Increase in reserves
D. Decrease in sales
Answer: A
80. Retained earnings are:
A. Internal source of finance
B. External source
C. Loan
D. None
Answer: A
🔹 Section I – Budgeting and Control
81. Budgeting means:
A. Planning future activities in monetary terms
B. Cost recording
C. Profit calculation
D. None
Answer: A
82. Budgetary control involves:
A. Comparing actual results with budgets
B. Recording transactions
C. Auditing
D. None
Answer: A
83. Cash budget shows:
A. Expected cash inflows and outflows
B. Profitability
C. Assets
D. Liabilities
Answer: A
84. Flexible budget adjusts to:
A. Different activity levels
B. Fixed activity level
C. Production cost only
D. None
Answer: A
85. Zero-Based Budgeting starts from:
A. Zero base
B. Previous year
C. Standard cost
D. Fixed cost
Answer: A
86. Capital budgeting deals with:
A. Long-term investments
B. Short-term loans
C. Payroll
D. None
Answer: A
87. The first step in budgetary control is:
A. Setting objectives
B. Implementing budget
C. Evaluating variance
D. Feedback
Answer: A
88. Budget Manual contains:
A. Procedures for preparing budgets
B. Annual report
C. Cash flow
D. Accounting standards
Answer: A
89. Responsibility accounting links budget with:
A. Departmental responsibility
B. Sales team
C. Government
D. Customers
Answer: A
90. Variance between actual and budgeted is used for:
A. Control
B. Audit
C. Tax
D. None
Answer: A
🔹 Section J – Leverages and EBIT–EPS Analysis
91. Leverage means:
A. Use of fixed costs to magnify returns
B. Sales increase
C. Cost reduction
D. Risk elimination
Answer: A
92. Operating leverage measures:
A. Effect of sales change on EBIT
B. Effect of EBIT on EPS
C. Financial risk
D. None
Answer: A
93. Financial leverage measures:
A. Effect of EBIT change on EPS
B. Effect of sales on EBIT
C. Production risk
D. None
Answer: A
94. Combined leverage =
A. Operating leverage × Financial leverage
B. Sales ÷ EBIT
C. EBIT ÷ EPS
D. None
Answer: A
95. Financial Breakeven Point =
A. Fixed financial charges
B. EBIT
C. EBT
D. Sales
Answer: A
96. Indifference point is where:
A. EPS under two financing options is same
B. Profit = Loss
C. Sales = Cost
D. None
Answer: A
97. Higher leverage means:
A. Higher risk and higher return
B. Lower risk
C. Constant profit
D. None
Answer: A
98. If contribution = ₹4,00,000 and EBIT = ₹2,00,000, Operating Leverage = ?
A. 2
B. 1
C. 0.5
D. 4
Answer: A
99. EBIT–EPS analysis helps in:
A. Selecting best financing option
B. Determining product price
C. Cost control
D. Inventory valuation
Answer: A
100. Combined leverage indicates:
A. Overall business and financial risk
B. Only operating risk
C. Only financial risk
D. None
Answer: A