Tuesday, December 2, 2025

Off-Balancesheet Financing (OBS) Why treated as financial irregularities?

 

*Off‑balance‑sheet (OBS) financing* is when a company gets funding or incurs liabilities that aren’t recorded on its main balance sheet. Because they don’t show up as debt on the “Assets = Liabilities + Equity” statement, the firm’s reported leverage looks lower — 

which can make it appear financially healthier than it really is.


How It Works (Simple Breakdown)

- *Legal “true‑sale” structures*: The company transfers assets or risks to another entity (often a special‑purpose vehicle or partnership) that isn’t consolidated on its books.

- *Accounting rules*: If the transfer meets certain criteria under GAAP or IFRS (e.g., the risks and rewards truly pass to the other entity), the liability can stay off‑balance‑sheet.

- *Impact*: Investors and creditors see lower reported debt, improving ratios like debt‑to‑equity — but the underlying financial risk may remain.


Classic Example — _Operating Lease_

A retailer wants to use a storefront without showing the building’s cost as debt.


- *On‑balance‑sheet*: If the retailer buys the building with a loan, the building appears as an asset and the loan as a liability.

- *Off‑balance‑sheet*: Instead, the retailer enters a long‑term operating lease (under older lease‑accounting rules). The lease payments are expensed on the income statement, but the leased asset and corresponding lease liability don’t appear on the balance sheet.

_Under new lease‑accounting standards (ASC 842 / IFRS 16), most leases now _do_ get recorded on the balance sheet, tightening the loophole._


Another Example — _Special‑Purpose Entity (SPE)_

Think of Enron’s infamous “special‑purpose entities” that kept billions of dollars of debt off its balance sheet. Enron transferred debt to these separate entities — which weren’t consolidated — so the debt never showed up on Enron’s own financial statements.


Why It Can Be “Financial Irregularities”

If OBS arrangements are structured *primarily to deceive* investors or hide true leverage, they’re treated as accounting fraud (as with Enron). Regulators and auditors scrutinize such deals because they can mislead stakeholders about the company’s real financial position.


Key Takeaway

Legitimate OBS financing can be a useful risk‑management tool (e.g., true operating leases), but when used to obscure debt, it raises red flags and can lead to serious financial irregularities.


Off‑balance‑sheet (OBS) financing is often flagged as a financial irregularity because it lets companies keep certain liabilities out of the main financial statements — which can obscure the true level of debt and risk [1][2].


*Why it raises red flags…*


- *Misleading financial picture* – By not recording liabilities on the balance sheet, the reported debt‑to‑equity ratio looks healthier than it really is, potentially deceiving investors and creditors.

- *Regulatory and accounting standards* – Rules like GAAP and IFRS require that transactions which transfer “substantive” risks or rewards of ownership be reflected on the balance sheet; sidestepping these rules can be seen as non‑compliance.

- *Increased audit risk* – Auditors dig deeper into OBS arrangements because they’re prone to “creative accounting” — sometimes used to manipulate earnings or hide debt.

- *Potential for abuse* – If structured improperly, OBS vehicles can be used to hide losses, inflate profits or even facilitate fraud (think of the Enron scandal where special‑purpose entities kept massive debt off the books).

- *Stakeholder trust* – When investors discover hidden liabilities later, confidence plummets, leading to stock price drops and possible legal actions against the company.


So, “financial irregularities” surrounding off‑balance‑sheet financing usually stem from the intent or effect of distorting the company’s true financial health rather than the legitimate use of such structures for genuine risk management or operational purposes.

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Disclosing off‑balance‑sheet (OBS) financing in footnotes is crucial because it pulls back the curtain on liabilities that aren’t visible on the main balance sheet — helping stakeholders get the full picture of a company’s financial health 🤓


- *Transparency for investors & creditors* – Footnotes give details about the nature, terms and risks of OBS arrangements, so investors can assess true leverage and make informed decisions.

- *Compliance with accounting standards* – GAAP and IFRS require that material off‑balance‑sheet items be explained in the notes to the financial statements; regulators enforce this to curb “creative accounting.”

- *Risk assessment* – Hidden liabilities can signal future cash‑outflows or credit risk; footnote disclosure lets analysts evaluate the potential impact on future earnings and solvency.

- *Preventing fraud & misleading reports* – Historic scandals (like Enron) showed how undisclosed OBS vehicles can be used to manipulate results — mandatory footnotes act as a deterrent against such abuse.

- *Enhanced comparability* – When companies consistently disclose OBS items in a standardized way, it’s easier for investors to compare financial positions across firms.


In short, footnote disclosure of off‑balance‑sheet financing is necessary to provide a complete, accurate and fair view of a company’s financial position — protecting investors, satisfying regulatory requirements and promoting market integrity 👍

Thanks students..feel free 🆓 to discuss with me if you have any questions ‼️ You can write ✍️ comment,below 👇 in comment section,I will respond you with clarification at earliest.Call or Text me on 9773464206

MCQ questions on Financial Reporting

 Below are 40 high-quality MCQs with answers on the requested topics from Financial Statements & Accounting Concepts, covering current vs non-current assets, EPS, diluted EPS, dividends, stock dividend vs stock split, trading on equity, debt trap, profitability/liquidity/solvency ratios, leverage, off–balance sheet financing, fraud, going concern, concepts & principles, etc.



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✅ MCQs with Answers



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1. Current Assets vs Non-Current Assets


Q1. Which of the following is NOT a current asset?


A. Inventory

B. Prepaid expenses

C. Trade receivables

D. Trademark


Answer: D — Trademark (intangible and non-current).



---


Q2. A non-current asset is expected to be held for:


A. Less than 3 months

B. Less than 12 months

C. More than 12 months

D. Only until next operating cycle


Answer: C — More than 12 months



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Q3. Which of the following will be classified as a current asset even if its maturity exceeds 12 months?


A. Long-term fixed deposits

B. Trade receivable from credit sales

C. Land held for sale in 2 years

D. Long-term loan to subsidiary


Answer: B — Trade receivable (part of working capital cycle).



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2. Earnings Per Share (EPS) & Diluted EPS


Q4. Basic EPS is calculated as:


A. Net income / Weighted average shares

B. Net income / Closing shares

C. Net income – dividends / Equity

D. Operating income / Shares


Answer: A



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Q5. Diluted EPS incorporates:


A. Only existing equity shares

B. Only warrants

C. Potential shares from convertible instruments

D. Only treasury stock


Answer: C



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Q6. Which instrument reduces diluted EPS?


A. Anti-dilutive options

B. Convertible preference shares

C. Anti-dilutive warrants

D. Restricted stock that increases EPS


Answer: B — Convertible preference shares increase denominator



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3. Dividends: Annual vs Interim


Q7. Interim dividend is declared by:


A. Shareholders only

B. Board of Directors

C. Statutory auditor

D. Government authority


Answer: B



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Q8. Which statement is correct?


A. Annual dividend is paid mid-year

B. Interim dividend is final

C. Annual dividend is declared after year-end financial statements

D. Interim dividend is always higher


Answer: C



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4. Stock Dividend vs Stock Split


Q9. A stock split results in:


A. Increase in paid-up capital

B. Increase in number of shares; same total equity

C. Cash outflow

D. Increase in retained earnings


Answer: B



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Q10. A stock dividend results in:


A. Cash outflow

B. Transfer from retained earnings to share capital

C. Decrease in shareholders’ equity

D. No accounting entry


Answer: B



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5. Trading on Equity & Debt Trap


Q11. Trading on equity refers to:


A. Raising equity to increase EPS

B. Using debt to increase EPS

C. Using preference shares to reduce EPS

D. None


Answer: B



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Q12. A company enters a debt trap when:


A. Profit decreases

B. Depreciation increases

C. New loans are taken to pay old loans

D. Working capital increases


Answer: C



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6. Profitability, Liquidity & Solvency


Q13. Profitability ratio indicates:


A. Short-term paying ability

B. Long-term financial health

C. Ability to generate earnings

D. Ability to issue shares


Answer: C



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Q14. Solvency ratio measures:


A. Ability to pay dividends

B. Long-term debt repayment ability

C. Market share

D. Inventories turnover


Answer: B



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Q15. Liquidity ratio excludes:


A. Inventory

B. Cash

C. Bank balance

D. Marketable securities


Answer: A — Inventory is excluded in quick ratio



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7. Operating Leverage & Financial Leverage


Q16. Degree of operating leverage arises due to:


A. Debt financing

B. Fixed operating costs

C. Variable operating costs

D. Dividends


Answer: B



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Q17. Financial leverage exists when the firm uses:


A. Equity only

B. Working capital loans

C. Debt or preference capital

D. Depreciation


Answer: C



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Q18. High operating leverage means the firm has:


A. High variable costs

B. Low break-even point

C. High fixed costs

D. No contribution margin


Answer: C



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8. Off-Balance Sheet Financing


Q19. Off-balance-sheet financing includes:


A. Capital leases

B. Operating leases

C. Internal accruals

D. Depreciation


Answer: B (under old GAAP classification)



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Q20. Purpose of off-balance-sheet financing is to:


A. Improve liquidity

B. Hide liabilities

C. Increase equity capital

D. Reduce interest cost


Answer: B



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9. Accounting Manipulation & Fraud


Q21. Window dressing is:


A. Ethical accounting

B. Manipulation of accounts to show better financial position

C. Amortization policy

D. Tax compliance


Answer: B



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Q22. Recording fake sales is an example of:


A. Error of omission

B. Accounting fraud

C. Depreciation error

D. Capitalization


Answer: B



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Q23. Cutter Company delays recording expenses to next year. This is:


A. conservatism

B. manipulation

C. realization

D. prudence


Answer: B



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10. Going Concern


Q24. Going concern assumes:


A. Business will liquidate in 1 year

B. Business will continue indefinitely

C. Business stops operations

D. Assets valued at NRV only


Answer: B



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Q25. Going concern may fail if:


A. Revenue increases

B. Cash flow declines persistently

C. Depreciation is high

D. Inventory turnover rises


Answer: B



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11. Money Measurement Concept


Q26. Money measurement concept states:


A. Only monetary transactions are recorded

B. All events must be recorded

C. Non-monetary events prioritized

D. Inflation-adjusted accounts required


Answer: A



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Q27. Which item will not be recorded under money measurement?


A. Purchase of machinery

B. Employee loyalty

C. Rent paid

D. Sales revenue


Answer: B



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12. Consistency Principle


Q28. Consistency principle means:


A. Changing methods every year

B. Same accounting methods must be used over periods

C. Management free to change policy without disclosure

D. Switching methods to increase profits


Answer: B



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Q29. Consistency ensures:


A. True and fair view

B. Comparability over years

C. Faster audits

D. Lower tax


Answer: B



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13. Realisation Concept


Q30. Revenue is recognised when:


A. Cash is collected

B. Goods are produced

C. Risk & rewards transferred

D. Order is received


Answer: C



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Q31. Under realisation principle, credit sales are recorded:


A. When cash received

B. Immediately when goods delivered

C. Only when cheque clears

D. Never


Answer: B



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14. Dual Aspect Concept


Q32. Dual aspect states:


A. Only assets recorded

B. Every transaction has two effects

C. Transactions have one entry

D. Liabilities ignored


Answer: B



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Q33. Buying machinery for cash impacts:


A. Asset increases; liability increases

B. Asset increases; asset decreases

C. Expense increases; liability increases

D. No effect


Answer: B



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15. Additional Mixed MCQs


Q34. Earnings management means:


A. Legal, ethical enhancement of earnings

B. Deliberate manipulation within GAAP boundaries

C. Tax fraud

D. Insider trading


Answer: B



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Q35. A company with high leverage will have:


A. Lower interest obligation

B. Higher risk & higher EPS volatility

C. No debt

D. Lower returns to shareholders


Answer: B



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Q36. Inventory is valued at:


A. Market price

B. Cost or NRV whichever higher

C. Cost or NRV whichever lower

D. Selling price


Answer: C



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Q37. Capitalizing an expense results in:


A. Lower profit

B. Higher profit

C. No effect

D. Lower assets


Answer: B (expense avoided)



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Q38. Which affects operating leverage?


A. Interest expense

B. Fixed operating cost

C. Dividend

D. Depreciation


Answer: B



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Q39. Which affects financial leverage?


A. Interest expense

B. Contribution margin

C. Fixed operating expenses

D. Variable cost


Answer: A



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Q40. If EPS decreases due to conversion of debentures, the instrument is:


A. Anti-dilutive

B. Dilutive

C. Equity-neutral

D. Not issued


Answer: B

Sunday, November 30, 2025

MCQ questions on Data Analytics

MCQ questions on Data Analytics...

Section A:

*1. Big Data & Data Types*

_Which characteristic best defines “Big Data” in the context of IS audit?_

A) Small volume of structured data

B) High volume, velocity, and variety of data 

C) Only financial transaction records

D) Data stored exclusively on mainframes


*2. Data & Information*

_Information differs from data primarily because it:_

A) Is raw facts

B) Has context and meaning 

C) Is stored in databases

D) Never changes


*3. Data Analytics*

_Which technique is most appropriate for detecting patterns in large datasets?_

A) Manual sampling

B) Descriptive statistics

C) Predictive data analytics 

D) Compliance testing


*4. Data Integrity*

_Which control BEST ensures data integrity during data entry?_

A) Field checks 

B) Data encryption

C) Backup procedures

D) Network firewalls


*5. Data Mining*

_Data mining is primarily used to:_

A) Store current operational data

B) Discover hidden patterns in large datasets 

C) Perform routine transaction processing

D) Conduct physical security audits


*6. Data Warehouse & Data Mart*

_What is the main difference between a data warehouse and a data mart?_

A) Data warehouses store only current data; data marts store historical data

B) Data warehouses are department‑specific; data marts are enterprise‑wide

C) Data warehouses are centralized repositories of integrated data; data marts are subsets for specific user groups 

D) Data warehouses are cloud‑only; data marts are on‑premises only


*7. Structured, Unstructured & Semi‑Structured Data*

_Which of the following BEST describes “semi‑structured” data?_

A) Data that fits neatly into rows and columns

B) Data without any organization

C) Data that contains tags or markers to separate elements (e.g., XML, JSON) 

D) Data stored only in paper files


*8. Data Science & Cloud Computing*

_In cloud computing, “Software as a Service (SaaS)” means:_

A) The organization provides hardware to users

B) The provider delivers applications over the internet 

C) Users manage the underlying infrastructure

D) Data is stored only on local servers


*9. Computer Bug & Computer Virus*

_Which statement accurately differentiates a “bug” from a “virus”?_

A) A bug is malicious code; a virus is a coding error

B) A bug is an unintentional coding error; a virus is malicious software 

C) Both are types of malware

D) Bugs affect hardware; viruses affect software


*10. Data Redundancy*

_Which of the following is a benefit of controlled data redundancy?_

A) Improves data consistency when properly managed 

B) Reduces storage costs

C) Increases risk of unauthorized access

D) Eliminates the need for backups


*11. Data Life Cycle*

_Which phase of the data life cycle involves deciding when data is no longer needed and can be destroyed?_

A) Creation

B) Usage

C) Retention

D) Disposal 


*12. Data Visualization*

_The primary purpose of data visualization is to:_

A) Encrypt sensitive data

B) Present data in graphical formats to aid understanding 

C) Increase data storage capacity

D) Perform complex calculations


*13. Application Controls*

_Which of the following is an example of an application control?_

A) Firewalls

B) Input validation checks 

C) Intrusion detection systems

D) Physical access locks


Section B:

1. Big Data & Data Types

_Which “V” of Big Data refers to the speed at which data is generated and processed?_

A) Volume

B) Variety

C) Velocity 

D) Veracity


2. Structured vs. Unstructured Data

_Which of the following is an example of unstructured data?_

A) Relational database tables

B) CSV files

C) Emails 

D) Excel spreadsheets


3. Semi‑Structured Data

_XML and JSON are examples of:_

A) Structured data

B) Unstructured data

C) Semi‑structured data 

D) No data


4. Data Analytics – Types

_Descriptive analytics helps organizations:_

A) Predict future trends

B) Summarize historical data 

C) Recommend optimal actions

D) Identify hidden patterns


5. Data Integrity Controls

_Which control is MOST effective to prevent unauthorized alterations of financial data?_

A) Data encryption at rest

B) Digital signatures 

C) Regular backups

D) Network intrusion detection


6. Data Mining

_The “association rule learning” technique in data mining is used to:_

A) Classify data into predefined categories

B) Discover relationships between variables 

C) Reduce dataset dimensionality

D) Perform statistical hypothesis testing


7. Data Warehouse & Data Mart

_Data marts typically serve which of the following purposes?_

A) Store all enterprise data in raw form

B) Provide department‑specific analytical data 

C) Replace operational databases

D) Perform real‑time transaction processing


8. Cloud Computing Models

_In which cloud service model does the provider manage the operating system, middleware, and runtime?_

A) IaaS

B) PaaS 

C) SaaS

D) Hybrid cloud


9. Computer Bug vs. Virus

_A “bug” in software typically results from:_

A) Intentional malicious code

B) Unintentional programming error 

C) Hardware failure

D) User negligence


10. Data Redundancy

_Controlled redundancy in a database improves:_

A) Storage cost efficiency

B) Fault tolerance 

C) Processing speed exclusively

D) Complexity of queries


11. Data Life Cycle – Retention

_During which phase are data retention policies defined?_

A) Creation

B) Usage

C) Retention 

D) Disposal


12. Data Visualization

_Which chart type is BEST for showing trends over time?_

A) Pie chart

B) Line chart 

C) Scatter plot

D) Heat map


13. Application Controls – Input Controls

_Which of the following validates that a date entry falls within a permissible range?_

A) Check digit

B) Reasonableness check 

C) Hash total

D) Authorization check


14. Cloud Data Security

_When data resides in a public cloud, which party is primarily responsible for physical security of the data center?_

A) Cloud customer

B) Cloud provider 

C) Third‑party auditor

D) End‑users


15. Data Science Lifecycle (CRISP‑DM)

_Which step follows “Data Understanding” in the CRISP‑DM methodology?_

A) Business Understanding

B) Data Preparation 

C) Modeling

D) Evaluation


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ANSWERS:

MCQ questions on Data Analytics...

Section A:

*1. Big Data & Data Types*

_Which characteristic best defines “Big Data” in the context of IS audit?_

A) Small volume of structured data

B) High volume, velocity, and variety of data ✅

C) Only financial transaction records

D) Data stored exclusively on mainframes


*2. Data & Information*

_Information differs from data primarily because it:_

A) Is raw facts

B) Has context and meaning ✅

C) Is stored in databases

D) Never changes


*3. Data Analytics*

_Which technique is most appropriate for detecting patterns in large datasets?_

A) Manual sampling

B) Descriptive statistics

C) Predictive data analytics ✅

D) Compliance testing


*4. Data Integrity*

_Which control BEST ensures data integrity during data entry?_

A) Field checks ✅

B) Data encryption

C) Backup procedures

D) Network firewalls


*5. Data Mining*

_Data mining is primarily used to:_

A) Store current operational data

B) Discover hidden patterns in large datasets ✅

C) Perform routine transaction processing

D) Conduct physical security audits


*6. Data Warehouse & Data Mart*

_What is the main difference between a data warehouse and a data mart?_

A) Data warehouses store only current data; data marts store historical data

B) Data warehouses are department‑specific; data marts are enterprise‑wide

C) Data warehouses are centralized repositories of integrated data; data marts are subsets for specific user groups ✅

D) Data warehouses are cloud‑only; data marts are on‑premises only


*7. Structured, Unstructured & Semi‑Structured Data*

_Which of the following BEST describes “semi‑structured” data?_

A) Data that fits neatly into rows and columns

B) Data without any organization

C) Data that contains tags or markers to separate elements (e.g., XML, JSON) ✅

D) Data stored only in paper files


*8. Data Science & Cloud Computing*

_In cloud computing, “Software as a Service (SaaS)” means:_

A) The organization provides hardware to users

B) The provider delivers applications over the internet ✅

C) Users manage the underlying infrastructure

D) Data is stored only on local servers


*9. Computer Bug & Computer Virus*

_Which statement accurately differentiates a “bug” from a “virus”?_

A) A bug is malicious code; a virus is a coding error

B) A bug is an unintentional coding error; a virus is malicious software ✅

C) Both are types of malware

D) Bugs affect hardware; viruses affect software


*10. Data Redundancy*

_Which of the following is a benefit of controlled data redundancy?_

A) Improves data consistency when properly managed ✅

B) Reduces storage costs

C) Increases risk of unauthorized access

D) Eliminates the need for backups


*11. Data Life Cycle*

_Which phase of the data life cycle involves deciding when data is no longer needed and can be destroyed?_

A) Creation

B) Usage

C) Retention

D) Disposal ✅


*12. Data Visualization*

_The primary purpose of data visualization is to:_

A) Encrypt sensitive data

B) Present data in graphical formats to aid understanding ✅

C) Increase data storage capacity

D) Perform complex calculations


*13. Application Controls*

_Which of the following is an example of an application control?_

A) Firewalls

B) Input validation checks ✅

C) Intrusion detection systems

D) Physical access locks


Section B:

1. Big Data & Data Types

_Which “V” of Big Data refers to the speed at which data is generated and processed?_

A) Volume

B) Variety

C) Velocity ✅

D) Veracity


2. Structured vs. Unstructured Data

_Which of the following is an example of unstructured data?_

A) Relational database tables

B) CSV files

C) Emails ✅

D) Excel spreadsheets


3. Semi‑Structured Data

_XML and JSON are examples of:_

A) Structured data

B) Unstructured data

C) Semi‑structured data ✅

D) No data


4. Data Analytics – Types

_Descriptive analytics helps organizations:_

A) Predict future trends

B) Summarize historical data ✅

C) Recommend optimal actions

D) Identify hidden patterns


5. Data Integrity Controls

_Which control is MOST effective to prevent unauthorized alterations of financial data?_

A) Data encryption at rest

B) Digital signatures ✅

C) Regular backups

D) Network intrusion detection


6. Data Mining

_The “association rule learning” technique in data mining is used to:_

A) Classify data into predefined categories

B) Discover relationships between variables ✅

C) Reduce dataset dimensionality

D) Perform statistical hypothesis testing


7. Data Warehouse & Data Mart

_Data marts typically serve which of the following purposes?_

A) Store all enterprise data in raw form

B) Provide department‑specific analytical data ✅

C) Replace operational databases

D) Perform real‑time transaction processing


8. Cloud Computing Models

_In which cloud service model does the provider manage the operating system, middleware, and runtime?_

A) IaaS

B) PaaS ✅

C) SaaS

D) Hybrid cloud


9. Computer Bug vs. Virus

_A “bug” in software typically results from:_

A) Intentional malicious code

B) Unintentional programming error ✅

C) Hardware failure

D) User negligence


10. Data Redundancy

_Controlled redundancy in a database improves:_

A) Storage cost efficiency

B) Fault tolerance ✅

C) Processing speed exclusively

D) Complexity of queries


11. Data Life Cycle – Retention

_During which phase are data retention policies defined?_

A) Creation

B) Usage

C) Retention ✅

D) Disposal


12. Data Visualization

_Which chart type is BEST for showing trends over time?_

A) Pie chart

B) Line chart ✅

C) Scatter plot

D) Heat map


13. Application Controls – Input Controls

_Which of the following validates that a date entry falls within a permissible range?_

A) Check digit

B) Reasonableness check ✅

C) Hash total

D) Authorization check


14. Cloud Data Security

_When data resides in a public cloud, which party is primarily responsible for physical security of the data center?_

A) Cloud customer

B) Cloud provider ✅

C) Third‑party auditor

D) End‑users


15. Data Science Lifecycle (CRISP‑DM)

_Which step follows “Data Understanding” in the CRISP‑DM methodology?_

A) Business Understanding

B) Data Preparation ✅

C) Modeling

D) Evaluation


*Answers Key*

1‑C, 2‑C, 3‑C, 4‑B, 5‑B, 6‑B, 7‑B, 8‑B, 9‑B, 10‑B, 11‑C, 12‑B, 13‑B, 14‑B, 15‑B


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MCQ questions on Financial statements


✅ MCQ QUESTIONS— FINANCIAL ACCOUNTING


1. Which of the following is a characteristic of an operating lease (lessee books)?

A. Lessee records asset and liability
B. Lease transfers major risks & rewards
C. Lease rental is charged to Profit & Loss
D. Lessee records depreciation

Answer: 


2. In a finance/capital lease, the leased asset is recorded by the lessee at:

A. Residual value
B. Fair value or PV of lease payments, whichever is lower
C. Cost of asset to lessor
D. Only PV of lease payments

Answer: 


3. Age-wise analysis of trade receivables is mainly used for:

A. Cash flow forecasting
B. Bad debts provisioning
C. Inventory valuation
D. Depreciation estimation

Answer: 


4. Under mortgage loan, the security is:

A. Movable property
B. Immovable property
C. Hypothecated stock
D. Shares pledged

Answer: 


5. Under hypothecation, the lender has:

A. Physical possession of goods
B. No charge on assets
C. Charge on movable goods without possession
D. Charge on immovable property

Answer: 


6. Under pledge, the lender has:

A. Physical possession of goods
B. Charge without possession
C. Charge only on immovable assets
D. Charge on debtor's receivables

Answer: 


7. Refinance loan taken to repay an existing long-term loan is classified as:

A. Current liability
B. Non-current liability
C. Other equity
D. Deferred asset

Answer: 


8. The prudent (conservatism) concept requires:

A. Recognise income early
B. Record liabilities when uncertain
C. Ignore probable losses
D. Overstate assets

Answer: 


9. The first footnote below a balance sheet generally contains:

A. Auditor’s report
B. Accounting policies summary
C. Director’s report
D. Cash flow information

Answer: 


10. Going concern assumption means:

A. Business is for temporary period
B. Business will liquidate shortly
C. Business will continue for foreseeable future
D. Business will operate for one year only

Answer: 


11. Realisation concept recognizes revenue when:

A. Cash is received
B. Risk and rewards transfer
C. Order is received
D. Invoice is raised

Answer: 


12. Separate entity concept means:

A. Owner and business are same
B. Owner is responsible for all acts
C. Business is distinct from owner
D. Assets belong to owner personally

Answer: 


13. Capital expenditure relates to:

A. Day-to-day expenses
B. Cost generating future economic benefits
C. Purely advertisement cost
D. Salary of employees

Answer: 


14. Revenue expenditure is:

A. Cost improving asset life
B. Expenses recurring in nature
C. Cost of new machine installation
D. Cost of building extension

Answer: 


15. Proprietary theory treats equity as:

A. Owners’ interest
B. Liability
C. Asset
D. Capital loss

Answer: 


16. Under proprietary theory, accounting equation is:

A. Assets = Liabilities
B. Assets – Liabilities = Equity
C. Assets = Equity
D. Assets = Equity – Liabilities

Answer: 


17. Residuary equity theory views ownership interest as:

A. Fixed claim
B. Residual claim after satisfying liabilities
C. Equal to liabilities
D. Priority claim

Answer: 


18. A stock dividend means:

A. Dividend paid in cash
B. Dividend paid in shares
C. Dividend paid in debentures
D. Dividend paid through assets

Answer: 


19. Equity dividend refers to:

A. Dividend paid to preference shareholders
B. Dividend paid to debenture holders
C. Dividend paid to equity shareholders
D. Dividend paid to creditors

Answer: 


20. Audit committee independence requires:

A. Majority internal employees
B. Majority independent directors
C. CEO must be chairperson
D. CFO must be a member

Answer: 


21. Which is NOT a component of the annual report?

A. Director’s Report
B. Auditor’s Report
C. Statement of Profit & Loss
D. Employees’ personal information

Answer: 


22. Accrual concept means revenue/expense is recorded:

A. Only when cash is received
B. On performance/obligation basis
C. Only when bank approves
D. Only at end of year

Answer: 


23. Money measurement concept records transactions:

A. In units of time
B. In monetary terms only
C. In physical quantities
D. Based on manager’s judgment

Answer: 


24. An item of value in accounting is:

A. Liability
B. Asset
C. Expense
D. Loss

Answer: 


25. Net worth of a company equals:

A. Total assets – Total liabilities
B. Current assets – current liabilities
C. Equity share capital only
D. Profit for the year

Answer: 


26. Listing of a public company in stock exchange requires:

A. Only incorporation
B. SEBI approval and compliance
C. RBI approval only
D. GST registration

Answer: 


27. CEO stands for:

A. Chief Engineering Officer
B. Central Executive Officer
C. Chief Executive Officer
D. Chief Entity Officer

Answer: 


28. CFO is responsible for:

A. HR management
B. Finance and financial reporting
C. Legal affairs only
D. Production planning

Answer: 


29. Depreciation is:

A. Physical reduction only
B. Allocation of cost of tangible asset
C. Market value reduction
D. Cash loss

Answer: 


30. Amortisation is used for:

A. Tangible asset
B. Intangible asset
C. Land
D. Inventory

Answer: 


31. Impairment loss equals:

A. Carrying amount – recoverable amount
B. Cost – depreciation
C. Market value – cost
D. Fair value – residual value

Answer: 


32. Historical cost concept records assets at:

A. Market value
B. Replacement cost
C. Original purchase price
D. Discounted value

Answer: 


33. Which is a component of financial statements?

A. Internal memo
B. Board meeting notes
C. Cash flow statement
D. Advertisement brochure

Answer: 


34. Lessor in a finance lease recognises:

A. Lease expenses
B. Lease receivable
C. Leased asset
D. Asset impairment only

Answer: 


35. Lessee in an operating lease recognises:

A. Leased asset
B. Lease liability
C. Lease rental expense
D. Lease receivable

Answer: 


36. Mortgage loan appears in the balance sheet under:

A. Equity
B. Other current liabilities
C. Long-term borrowings
D. Other assets

Answer: 

37. Hypothecated goods appear in:

A. Off-balance sheet only
B. Inventory
C. Other current liabilities
D. Loans & advances

Answer: 


38. Footnotes in FS are used for:

A. Disclosing accounting policies
B. Selecting audit firm
C. Disclosing salary slips
D. Registering company

Answer: 


39. Capital lease depreciation is charged by:

A. Lessor
B. Lessee
C. Bank
D. Auditor

Answer: 


40. Impairment is required when:

A. Market value increases
B. Asset becomes obsolete
C. Asset is under construction
D. Inventory is sold at higher price

Answer: 


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ANSWERS....

MCQ QUESTIONS WITH ANSWERS — FINANCIAL ACCOUNTING


1. Which of the following is a characteristic of an operating lease (lessee books)?

A. Lessee records asset and liability
B. Lease transfers major risks & rewards
C. Lease rental is charged to Profit & Loss
D. Lessee records depreciation

Answer: C


2. In a finance/capital lease, the leased asset is recorded by the lessee at:

A. Residual value
B. Fair value or PV of lease payments, whichever is lower
C. Cost of asset to lessor
D. Only PV of lease payments

Answer: B


3. Age-wise analysis of trade receivables is mainly used for:

A. Cash flow forecasting
B. Bad debts provisioning
C. Inventory valuation
D. Depreciation estimation

Answer: B


4. Under mortgage loan, the security is:

A. Movable property
B. Immovable property
C. Hypothecated stock
D. Shares pledged

Answer: B


5. Under hypothecation, the lender has:

A. Physical possession of goods
B. No charge on assets
C. Charge on movable goods without possession
D. Charge on immovable property

Answer: C


6. Under pledge, the lender has:

A. Physical possession of goods
B. Charge without possession
C. Charge only on immovable assets
D. Charge on debtor's receivables

Answer: A


7. Refinance loan taken to repay an existing long-term loan is classified as:

A. Current liability
B. Non-current liability
C. Other equity
D. Deferred asset

Answer: B


8. The prudent (conservatism) concept requires:

A. Recognise income early
B. Record liabilities when uncertain
C. Ignore probable losses
D. Overstate assets

Answer: B


9. The first footnote below a balance sheet generally contains:

A. Auditor’s report
B. Accounting policies summary
C. Director’s report
D. Cash flow information

Answer: B


10. Going concern assumption means:

A. Business is for temporary period
B. Business will liquidate shortly
C. Business will continue for foreseeable future
D. Business will operate for one year only

Answer: C


11. Realisation concept recognizes revenue when:

A. Cash is received
B. Risk and rewards transfer
C. Order is received
D. Invoice is raised

Answer: B


12. Separate entity concept means:

A. Owner and business are same
B. Owner is responsible for all acts
C. Business is distinct from owner
D. Assets belong to owner personally

Answer: C


13. Capital expenditure relates to:

A. Day-to-day expenses
B. Cost generating future economic benefits
C. Purely advertisement cost
D. Salary of employees

Answer: B


14. Revenue expenditure is:

A. Cost improving asset life
B. Expenses recurring in nature
C. Cost of new machine installation
D. Cost of building extension

Answer: B


15. Proprietary theory treats equity as:

A. Owners’ interest
B. Liability
C. Asset
D. Capital loss

Answer: A


16. Under proprietary theory, accounting equation is:

A. Assets = Liabilities
B. Assets – Liabilities = Equity
C. Assets = Equity
D. Assets = Equity – Liabilities

Answer: C


17. Residuary equity theory views ownership interest as:

A. Fixed claim
B. Residual claim after satisfying liabilities
C. Equal to liabilities
D. Priority claim

Answer: B


18. A stock dividend means:

A. Dividend paid in cash
B. Dividend paid in shares
C. Dividend paid in debentures
D. Dividend paid through assets

Answer: B


19. Equity dividend refers to:

A. Dividend paid to preference shareholders
B. Dividend paid to debenture holders
C. Dividend paid to equity shareholders
D. Dividend paid to creditors

Answer: C


20. Audit committee independence requires:

A. Majority internal employees
B. Majority independent directors
C. CEO must be chairperson
D. CFO must be a member

Answer: B


21. Which is NOT a component of the annual report?

A. Director’s Report
B. Auditor’s Report
C. Statement of Profit & Loss
D. Employees’ personal information

Answer: D


22. Accrual concept means revenue/expense is recorded:

A. Only when cash is received
B. On performance/obligation basis
C. Only when bank approves
D. Only at end of year

Answer: B


23. Money measurement concept records transactions:

A. In units of time
B. In monetary terms only
C. In physical quantities
D. Based on manager’s judgment

Answer: B


24. An item of value in accounting is:

A. Liability
B. Asset
C. Expense
D. Loss

Answer: B


25. Net worth of a company equals:

A. Total assets – Total liabilities
B. Current assets – current liabilities
C. Equity share capital only
D. Profit for the year

Answer: A


26. Listing of a public company in stock exchange requires:

A. Only incorporation
B. SEBI approval and compliance
C. RBI approval only
D. GST registration

Answer: B


27. CEO stands for:

A. Chief Engineering Officer
B. Central Executive Officer
C. Chief Executive Officer
D. Chief Entity Officer

Answer: C


28. CFO is responsible for:

A. HR management
B. Finance and financial reporting
C. Legal affairs only
D. Production planning

Answer: B


29. Depreciation is:

A. Physical reduction only
B. Allocation of cost of tangible asset
C. Market value reduction
D. Cash loss

Answer: B


30. Amortisation is used for:

A. Tangible asset
B. Intangible asset
C. Land
D. Inventory

Answer: B


31. Impairment loss equals:

A. Carrying amount – recoverable amount
B. Cost – depreciation
C. Market value – cost
D. Fair value – residual value

Answer: A


32. Historical cost concept records assets at:

A. Market value
B. Replacement cost
C. Original purchase price
D. Discounted value

Answer: C


33. Which is a component of financial statements?

A. Internal memo
B. Board meeting notes
C. Cash flow statement
D. Advertisement brochure

Answer: C


34. Lessor in a finance lease recognises:

A. Lease expenses
B. Lease receivable
C. Leased asset
D. Asset impairment only

Answer: B


35. Lessee in an operating lease recognises:

A. Leased asset
B. Lease liability
C. Lease rental expense
D. Lease receivable

Answer: C


36. Mortgage loan appears in the balance sheet under:

A. Equity
B. Other current liabilities
C. Long-term borrowings
D. Other assets

Answer: C


37. Hypothecated goods appear in:

A. Off-balance sheet only
B. Inventory
C. Other current liabilities
D. Loans & advances

Answer: B


38. Footnotes in FS are used for:

A. Disclosing accounting policies
B. Selecting audit firm
C. Disclosing salary slips
D. Registering company

Answer: A


39. Capital lease depreciation is charged by:

A. Lessor
B. Lessee
C. Bank
D. Auditor

Answer: B


40. Impairment is required when:

A. Market value increases
B. Asset becomes obsolete
C. Asset is under construction
D. Inventory is sold at higher price

Answer: B


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