Financial Statement Preparation: Frameworks, GAAP, AS 1 & Sole Proprietor Final Accounts: 16 MCQs

All 16 multiple-choice questions from this kit, free and with no sign-up.

Full kit · everything Flashcards · 25 Quick Revision · 15

Warm-up · 5 questions

Q1. Which of the following correctly lists the four frameworks of accounting?

Beginner

A Conceptual, statutory, professional, and judicial

B Institutional, regulatory, managerial, and cost

C Legal, tax, audit, and reporting

D Conceptual, legal, institutional, and regulatory

Answers and explanations are in the Veda app.

Q2. Under the conceptual framework, an asset is best defined as:

Beginner

A Any item appearing on the debit side of the trial balance

B A resource controlled by the entity from which future economic benefits are expected

C Anything the business owns outright

D Cash and bank balances only

Answers and explanations are in the Veda app.

Q3. Which body was constituted by the ICAI in 1977 to formulate accounting standards in India?

Beginner

A Accounting Standards Board (ASB)

B MCA

C RBI

D SEBI

Answers and explanations are in the Veda app.

Q4. AS 1 primarily deals with:

Beginner

A Revenue recognition

B Depreciation methods

C Valuation of inventories

D Disclosure of accounting policies

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Q5. The Accounting Standards Board (ASB) was constituted by the ICAI in 1977 to formulate accounting standards in India.

Beginner

A True

B False

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Building up · 6 questions

Q6. A sole proprietor asks whether the horizontal or vertical balance sheet format is mandatory for her. What is the correct position?

Intermediate

A Neither format applies; sole proprietors file only tax returns

B Only the horizontal format is permitted for sole proprietors

C Only the vertical format is permitted for sole proprietors

D Either format is acceptable, but the vertical format is increasingly preferred

Answers and explanations are in the Veda app.

Q7. A trader pays rent for the next quarter in advance. Which pair of adjustments correctly records this?

Intermediate

A Accrued income in the balance sheet and addition to income in the P&L

B Closing stock in the balance sheet and deduction from purchases

C Outstanding expense in the balance sheet and addition to rent in the P&L

D Prepaid expense in the balance sheet and deduction from rent in the P&L

Answers and explanations are in the Veda app.

Q8. Which statement best explains why GAAP cannot be memorised as a single document?

Intermediate

A GAAP is issued afresh every year by the ICAI

B GAAP is identical to Ind AS

C GAAP applies only to listed companies

D GAAP is a hierarchy of conceptual, standard, legal, and regulatory layers

Answers and explanations are in the Veda app.

Q9. A company's accountant argues that a disclosure should be skipped because it is not the most 'relevant' information. Which framework should prevail?

Intermediate

A The institutional framework, because the ICAI can waive the law

B The conceptual framework, because relevance always wins

C The legal framework, because legal requirements are binding

D The regulatory framework, because SEBI overrides all statutes

Answers and explanations are in the Veda app.

Q10. Which of the following is NOT a step in the procedure for issuing an Accounting Standard?

Intermediate

A Constituting a study group

B Issuing an exposure draft for public comment

C Approval by the ICAI Council

D Ratification by the RBI for all standards

Answers and explanations are in the Veda app.

Q11. Consider these statements about the balance sheet formats: I. The horizontal format places assets on the left and liabilities plus capital on the right. II. The vertical format is prescribed by Schedule III for companies. III. Both formats must satisfy $\text{Assets} = \text{Liabilities} + \text{Capital}$. Which combination is correct?

Intermediate

A I and II only

B II and III only

C I and III only

D I, II, and III

Answers and explanations are in the Veda app.

Topper level · 5 questions

Q12. A firm changes its method of inventory valuation from FIFO to weighted average. Under AS 1, what must the firm do?

Advanced

A Restate all prior years without disclosure

B Silently adopt the new method to maintain consistency

C Disclose the change and its financial impact

D Obtain SEBI approval before changing the method

Answers and explanations are in the Veda app.

Q13. A sole proprietor withdraws goods from the business for personal use. What is the correct treatment?

Advanced

A Deduct from purchases and deduct from capital

B Ignore it because the business and owner are the same person

C Show as an outstanding expense in the balance sheet

D Add to sales and add to capital

Answers and explanations are in the Veda app.

Q14. An error is made while journalising a credit sale. What is the most likely consequence?

Advanced

A It is neutralised by the adjusting entries

B It affects only the balance sheet, never the P&L

C It is corrected automatically at the trial balance stage

D It propagates through the ledger, trial balance, and final statements

Answers and explanations are in the Veda app.

Q15. Which of the following correctly distinguishes AS from Ind AS?

Advanced

A Ind AS apply only to sole proprietors; AS apply only to companies

B AS are issued by the ICAI/ASB; Ind AS are converged with IFRS and apply to larger entities

C AS are converged with IFRS; Ind AS are issued by the ASB

D AS and Ind AS are the same set with different names

Answers and explanations are in the Veda app.

Q16. Assertion (A): The conceptual framework is persuasive rather than binding. Reason (R): Legal requirements, such as those in the Companies Act 2013, are binding on the entities they cover.

Advanced

A Both A and R are true, and R correctly explains A.

B A is true but R is false.

C Both A and R are true, but R does not explain A.

D A is false but R is true.

Answers and explanations are in the Veda app.

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