✅ 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
