Here are 100 case-based MCQs (with answers) covering the full spectrum of financial accounting topics.
📘 CASE-BASED MCQs (1–100)
🔹 Equity Shares, Preference Shares, Debentures, Bonds
1. A company issues equity shares with voting rights. A shareholder demands fixed returns. Which instrument is more suitable?
C. Debentures
D. Bonds
Answer: B
2. A company issues non-convertible debentures. What is the key obligation?
A. Dividend payment
B. Interest payment
C. Bonus shares
D. Voting rights
Answer: B
3. Preference shareholders receive dividends:
A. After equity shareholders
B. Before equity shareholders
C. Only on liquidation
D. Never guaranteed
Answer: B
4. A bond issued at discount implies:
A. Coupon rate > market rate
B. Coupon rate < market rate
C. No interest
D. Zero risk
Answer: B
5. Convertible debentures provide:
A. Voting rights
B. Conversion into equity
C. Guaranteed dividend
D. Tax exemption
Answer: B
---
🔹 Interest & Dividend
6. A company skips dividend due to losses. This affects:
A. Interest expense
B. Equity holders only
C. Debenture holders
D. Tax liability
Answer: B
7. Interest on debentures is:
A. Appropriation of profit
B. Expense
C. Contingent liability
D. Capital item
Answer: B
---
🔹 COGS & Gross Margin
8. Opening stock = 50,000; Purchases = 2,00,000; Closing stock = 70,000. COGS?
A. 1,80,000
B. 2,20,000
C. 1,80,000
D. 1,70,000
Answer: A
9. Gross margin increases when:
A. Sales decrease
B. COGS decreases
C. Expenses increase
D. Assets increase
Answer: B
---
🔹 Financial Statements
10. Which item appears in balance sheet?
A. Sales
B. Wages
C. Cash
D. Discount allowed
Answer: C
11. Cash flow from operating activities includes:
A. Loan repayment
B. Purchase of machinery
C. Net profit adjustments
D. Share issue
Answer: C
---
🔹 Current Assets & Liabilities
12. Cash equivalent includes:
A. Inventory
B. 3-month treasury bills
C. Land
D. Machinery
Answer: B
13. Accounts payable is:
A. Current asset
B. Current liability
C. Long-term asset
D. Equity
Answer: B
---
🔹 Contingency
14. A lawsuit outcome uncertain. Treatment?
A. Recognize liability
B. Disclose contingency
C. Ignore
D. Capitalize
Answer: B
---
🔹 Accounting Theories
15. Proprietary theory focuses on:
A. Entity
B. Owner
C. Creditors
D. Government
Answer: B
16. Residuary theory applies to:
A. Sole proprietorship
B. Corporations
C. Partnership
D. NGO
Answer: B
---
🔹 Depreciation & Assets
17. Double declining method results in:
A. Higher early depreciation
B. Equal depreciation
C. Lower early depreciation
D. No depreciation
Answer: A
18. Sum-of-years-digits is:
A. Straight-line
B. Accelerated
C. Depletion
D. Amortization
Answer: B
---
🔹 Liquidity, Solvency, Profitability
19. Current ratio measures:
A. Profitability
B. Liquidity
C. Efficiency
D. Leverage
Answer: B
20. Debt-equity ratio measures:
A. Liquidity
B. Solvency
C. Profitability
D. Turnover
Answer: B
---
🔹 Stock Dividend, Split
21. Stock dividend affects:
A. Cash
B. Share capital
C. Liability
D. Expenses
Answer: B
22. Stock split results in:
A. Increase in total capital
B. Decrease in share price
C. Increase in reserves
D. Increase in assets
Answer: B
---
🔹 Revenue Recognition
23. Revenue is recognized when:
A. Cash received
B. Earned
C. Invoice raised
D. Order placed
Answer: B
---
🔹 Amortization & Depletion
24. Depletion applies to:
A. Buildings
B. Patents
C. Natural resources
D. Machinery
Answer: C
---
🔹 Accruals & Prepayments
25. Prepaid expense is:
A. Liability
B. Asset
C. Income
D. Expense
Answer: B
---
🔹 Leverage & Capital Structure
26. Trading on equity means:
A. Using debt to increase returns
B. Selling shares
C. Issuing bonds
D. Dividend payment
Answer: A
27. Debt trap occurs when:
A. High profits
B. High debt with low returns
C. Low assets
D. No liabilities
Answer: B
---
🔹 Shareholder Rights
28. Preemptive rights allow:
A. Sell shares
B. Buy new shares first
C. Vote
D. Dividend claim
Answer: B
29. Voting rights belong to:
A. Debenture holders
B. Equity shareholders
C. Creditors
D. Employees
Answer: B
---
🔹 Net Worth
30. Net worth =
A. Assets – liabilities
B. Profit – expenses
C. Revenue – COGS
D. Equity – debt
Answer: A
---
🔹 Listing & Stock Exchange
31. Listing provides:
A. Liquidity
B. Fixed return
C. Tax exemption
D. No regulation
Answer: A
---
🔹 Interest Capitalization
32. Interest during construction is:
A. Expense
B. Capitalized
C. Ignored
D. Liability
Answer: B
---
🔹 Credit Loss
33. Allowance for credit loss follows:
A. Cash basis
B. Accrual basis
D. Prudence
Answer: D
---
🔹 Bad Debts
34. Recovery of bad debts is:
A. Expense
B. Income
C. Liability
D. Capital
Answer: B
---
🔹 Dividends
35. Interim dividend declared:
A. End of year
B. During year
C. After liquidation
D. Never
Answer: B
---
🔹 Annual Report
36. Key section for investors:
A. Auditor report
B. Notes to accounts
C. Both
D. None
Answer: C
---
🔹 Stakeholders
37. Employees focus on:
A. Dividends
B. Job security
C. Tax
D. Interest
Answer: B
38. Creditors focus on:
A. Profit
B. Liquidity
C. Dividend
D. Share price
Answer: B
---
🔹 Conflict & Governance
39. Fiduciary duty means:
A. Personal gain
B. Acting in best interest
C. Avoiding taxes
D. Maximizing debt
Answer: B
---
🔹 Accounting Standards
40. US GAAP is issued by:
A. IASB
B. FASB
C. SEC
D. RBI
Answer: B
🔥 Continue (41–100 Quick Advanced Mix)
41. Operating leverage relates to*fixed costs
42. Financial leverage relates to *debt
43. Gross profit = Sales – COGS → True
44. Cash flow investing includes asset purchase → True
45. Accrual income recorded before cash → True
46. Amortization for intangibles → True
47. Straight-line depreciation gives equal charge → True
48. Liquidation pays creditors first → True
49. Preference shares priority in liquidation → True
50. Bonds classified as*non current liabilities.
51. Deferred revenue is liability → True
52. Inventory is current asset → True
53. Quick ratio excludes inventory → True
54. Working capital = CA – CL → True
55. Bonus shares from*security premium
56. Retained earnings part of *equity
57. EPS important for *investors
58. Capital maintenance protects capital → true
59. Depletion reduces natural resource value → True
60. Contingent asset not recognized → True
61. Write-off *reduces receivable
62. Cash discount affects revenue → true
63. Trade discount not recorded → true
64. Debenture interest tax deductible → true
65. Dividend not tax deductible → true
66. Equity risk higher than debt → true
67. High leverage increases risk → true
68. ROE measures profitability → true
69. Inventory turnover measures efficiency of operation→ true
70. Capital gain from share sale → true
71. Market value differs from book value → True
72. Cash flow indirect starts with net profit → True
73. Depreciation non-cash expense → True
74. Revenue recognition under performance obligation → true
75. Matching principle aligns expense with revenue → True
76. Conservatism recognizes losses early → True
77. Going concern assumes *continuity
78. Historical cost principle related to financial position→ True
79. Fair value used in financial instruments → True
80. Lease liability recognized → True
81. Goodwill is intangible asset → True
82. Impairment reduces asset *book value
83. Cash flow financing includes dividends received → False
84. Preference dividend is variable → False
85. Callable bonds redeemable early → True
86. Convertible bonds lower interest → True
87. Treasury shares reduce equity → True or False
88. Net income affects retained earnings → True
89. Earnings management impacts statements → True
90. Auditor ensures compliance. True
91. Internal control reduces fraud risk. True
92. Segment reporting improves transparency True
93. Cash budget forecasts liquidity True
94. Capital budgeting uses NPV True
95. Break-even depends on fixed cost Yes
96. Contribution margin = Sales – variable cost True
97. Financial statements interlinked..Yes
98. Deferred tax arises*timing differences
99. Earnings quality important for *investors
100. Compliance with standards ensures*comparability
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