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Accountancy: CUET Mock Test - 6 - CUET MCQ


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30 Questions MCQ Test CUET Mock Test Series - Accountancy: CUET Mock Test - 6

Accountancy: CUET Mock Test - 6 for CUET 2025 is part of CUET Mock Test Series preparation. The Accountancy: CUET Mock Test - 6 questions and answers have been prepared according to the CUET exam syllabus.The Accountancy: CUET Mock Test - 6 MCQs are made for CUET 2025 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Accountancy: CUET Mock Test - 6 below.
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Accountancy: CUET Mock Test - 6 - Question 1

Contribution received by a Non-profit organisation is shown in the statement of activities under the caption

Accountancy: CUET Mock Test - 6 - Question 2

In which of these employee stock plans, the company grants an option to its employees to acquire shares at a future date?

Detailed Solution for Accountancy: CUET Mock Test - 6 - Question 2

The correct answer is Employee stock option scheme.

Key Points

Employees' Stock Option Plan

  • Under this plan, the company provides employees with an option to take shares at a future date.
  • ​It is a grant to an employee giving the right to buy a certain number of shares in the company's stock for a set price.
  • These shares are purchased by employees at price below market price, or in other words, at discounted price.
  • It motivates the employee to be committed to the company for the long term.
  • The employees have to wait for a certain time period which is known as the vesting period to claim the benefits.

Additional Information

Stock Appreciation Right

  • It refers to the right to be paid compensation equivalent to an increase in the company's common stock price over a base or the value of appreciation of the equity shares currently being traded on the public market.

Employee Stock Purchase Plan

  • It allows an employee to purchase company stock at a discounted price.

Premium price options:

  • A premium priced option plan is a great way to incentivise key employees.
  • Under a premium priced option plan, a company issues the right to purchase shares
    • at a future point in time
    • at a specified exercise price
    • subject to vesting conditions
Accountancy: CUET Mock Test - 6 - Question 3

Ratio analysis is a technique of ________ of financial statement.

Detailed Solution for Accountancy: CUET Mock Test - 6 - Question 3

The correct answer is Both 1 and 2.

  • Ratio analysis is a quantitative method of gaining insight into a company's liquidity, operational efficiency, and profitability by studying its financial statements such as the balance sheet and income statement.
  • Ratio analysis is a cornerstone of fundamental equity analysis.
  • Ratio analysis is a technique of analysis and interpretation of financial statements.
  • Ratio analysis can be defined as the process of ascertaining the financial ratios that are used for indicating the ongoing financial performance of a company using few types of ratios such as liquidity, profitability, activity, debt, market, solvency, efficiency, and coverage ratios.
  • Ratio analysis is a process used for the calculation of financial ratios or in other words, for the purpose of evaluating the financial wellbeing of a company.
  • The values used for the calculation of financial ratios of a company are extracted from the financial statements of that same company.
Accountancy: CUET Mock Test - 6 - Question 4

Gearing Ratio indicates:

Detailed Solution for Accountancy: CUET Mock Test - 6 - Question 4

Key PointsGearing ratio

  • it is the ratio between fixed income bearing funds and equity shareholders' funds.
  • Gearing ratio are calculated to find out leverage in the company i.e. how much debt and how much equity is employed in the company and in which proportion.
  • It is useful for risk assessment by the management of the company.
  • Gearing ratio is related to equity and debt proportion of the firm.

Important Points

The gearing ratio formula is as follows:
Gearing Ratio =
  • Short term funds: These are the funds the repayment of which will be done within 1 year.
  • Long term funds: These are the funds which will be repaid after 1 year or more.
  • Shareholder's Fund: Shareholders' funds refer to the amount of equity in a company, which belongs to the shareholders. It is also called net worth.
  • Bank overdraft is a short-term financing option for drawing money in excess of the bank balance.
Hence, Gearing ratio indicates the relationship between loan funds and net worth.
Accountancy: CUET Mock Test - 6 - Question 5
The two basic measures of liquidity are:
Detailed Solution for Accountancy: CUET Mock Test - 6 - Question 5

The correct answer is the Current ratio and liquid ratio.

Key Points

  • Current Ratio: This is a key financial metric that indicates a company's capacity to pay its short-term liabilities with its short-term assets. It's calculated by dividing the company's current assets (as in assets that can be converted to cash within one year) by its current liabilities (debts or obligations that are due within the same year). A Current Ratio greater than one implies that the company can satisfy its short-term obligations, thus suggesting better liquidity.

  • Liquid Ratio (or Quick Ratio): This ratio provides a more stringent measure of a company’s short-term liquidity. It subtracts inventories from current assets before comparing against current liabilities, as inventory may not be easily or quickly convertible into cash. If the quick ratio is high, it means the company can cover its short-term liabilities even without selling its inventories, indicating higher liquidity.

Additional Information

  • Stock and Debtors Turnover Ratio: These are indeed financial ratios, however, they don't measure liquidity.
    • Stock Turnover Ratio: This measures the speed at which a company sells inventory. It is the ratio of the cost of goods sold (COGS) to its average stock. While it tells us how quickly a company can sell its stock, it doesn't necessarily imply the firm's ability to meet short-term liabilities.
    • Debtors Turnover Ratio (or Accounts Receivable Turnover): It measures how efficiently a firm uses its assets. It's calculated by dividing the net credit sales by average accounts receivable for that period. This ratio helps evaluate if the company can efficiently collect money owed by their customers but not the overall capability in paying off its current liabilities.
  • Current Ratio and Operating Ratio: The Current ratio, as mentioned above, is a liquidity measure, but the Operating Ratio is not.
    • Operating Ratio: This measures a company's operating efficiency and pricing strategy related to its business operations. It’s expressed as a percent of net sales. It involves elements such as the cost of goods sold (COGS) and operating expenses, however, it does not measure the company's short-term liquidity.
  • Gross Profit and Net Profit Ratio: These are profitability ratios, not liquidity ratios.
    • Gross Profit Ratio: This measures a company's manufacturing and distribution efficiency during the production process. It’s calculated as (Gross profit / Net sales) * 100. While important, it doesn't speak to liquidity.
    • Net Profit Ratio: This ratio compares net profit (total revenue minus total expenses) with revenue, showing how much each dollar of revenue translates to profit. However, high net profit doesn't guarantee high liquidity as the assets making up this profit could be non-current assets (not quickly convertible into cash).
Accountancy: CUET Mock Test - 6 - Question 6

Arrange the following ratios in the order in which they appear on a common-size income statement, from top to bottom:

A. Gross profit margin
B. Operating profit margin
C. Net profit margin
D. Earnings per share

Detailed Solution for Accountancy: CUET Mock Test - 6 - Question 6

The correct answer is A, B, C, D.

Key Points A common-size income statement expresses each line item as a percentage of net sales. Here's the breakdown of the ratios in the correct sequence:

  • A. Gross profit margin: Gross profit margin is calculated by dividing gross profit by net sales and represents the percentage of revenue left after deducting the cost of goods sold. It is typically presented as one of the first ratios on a common-size income statement, hence it appears at the top.
  • B. Operating profit margin: Operating profit margin is calculated by dividing operating profit by net sales. It indicates the profitability of the company's core operations before considering interest and taxes. It appears after the gross profit margin.
  • C. Net profit margin: Net profit margin is calculated by dividing net income by net sales. It represents the percentage of revenue that remains as profit after accounting for all expenses, including taxes and interest. It appears after the operating profit margin.
  • D. Earnings per share: Earnings per share (EPS) represents the portion of the company's profit allocated to each outstanding share of common stock. It is not a ratio that directly appears on a common-size income statement, as it relates to the number of shares outstanding rather than the percentage of revenue.

Therefore, the correct sequence is A (Gross profit margin), B (Operating profit margin), C (Net profit margin), and D (Earnings per share), making option B the correct answer.

Accountancy: CUET Mock Test - 6 - Question 7
On Dissolution of partnership firm out of total debtors of ₹2,50,000, ₹10,000 became bad and the rest realised 70%. In the given case Bank A/c will be debited by :
Detailed Solution for Accountancy: CUET Mock Test - 6 - Question 7

The correct answer is ₹1,68,000.

Key Points

  • Upon the dissolution of a partnership firm, it is required to settle its accounts, including the collection of debts and payment of liabilities.
  • In this scenario, out of the total debtors amounting to ₹2,50,000, ₹10,000 worth of debts turned bad, which means they were not recoverable.
  • The remaining debtors, after excluding the bad debts, amount to ₹2,40,000 (₹2,50,000 - ₹10,000).
  • These remaining debtors were realized at 70%, which means 70% of ₹2,40,000 was successfully collected. This amounts to ₹1,68,000 (70% of ₹2,40,000).
  • Therefore, the Bank Account will be debited by ₹1,68,000, reflecting the actual cash inflow from the collection of the debtors after accounting for the bad debts and the realization percentage.

Additional Information

  • Debiting the Bank Account in the context of accounting means increasing the cash or bank balance of the firm. It reflects the receipt of money.
  • The process of dissolution involves the winding up of the firm's business activities, selling off assets, paying off liabilities, and distributing any remaining assets or cash among the partners according to their respective shares in the partnership.
  • The realization of debtors is a critical component in the dissolution process as it directly impacts the cash flow and the amount available for discharging the firm's obligations.
Accountancy: CUET Mock Test - 6 - Question 8
If there appears a Tournament Fund, then the expenses incurred on Tournament activities will be shown:
Detailed Solution for Accountancy: CUET Mock Test - 6 - Question 8

The correct answer is by way of subtracting/deducting from Tournament Fund.

Key Points

  • Subtracting/deducting from Tournament Fund:
    • When expenses are incurred on tournament activities, these are directly related to the specific fund set up for the tournament, hence deducted from the Tournament Fund.
    • This method ensures that the fund reflects the net balance after accounting for the expenses specifically incurred for the tournament purposes.
    • Recording expenses in this manner helps in accurately tracking the usage of the fund allocated for tournament activities.

Additional Information

  • On the debit side of Income and Expenditure Account:
    • While expenses are typically recorded on the debit side of the Income and Expenditure Account, this approach is generalized for all expenses and does not specifically address how expenses related to a designated fund are treated.
  • On the credit side of Income and Expenditure Account:
    • The credit side of the Income and Expenditure Account is used to record incomes, not expenses, making this option incorrect for the treatment of tournament expenses.
  • By way of adding to the Tournament Fund:
    • Adding expenses to the Tournament Fund would inaccurately increase the fund balance, contrary to the actual decrease due to expenses, hence this approach is incorrect.
Accountancy: CUET Mock Test - 6 - Question 9

Calculate and state the nature of activity under cash flow statement:

Acquired Machinery for ₹5,00,000 paying 50% by cheque and executing a bond for the balance payable :

Detailed Solution for Accountancy: CUET Mock Test - 6 - Question 9

The correct answer is Outflow Investing activity ₹(2,50,000)

Key Points

  • Outflow Investing activity ₹(2,50,000):
    • When machinery is acquired for ₹5,00,000 with 50% paid by cheque, the cash outflow under the cash flow statement is ₹2,50,000.
    • This transaction is classified under investing activities because it involves the purchase of a fixed asset, which is a long-term investment in the business.
    • The remaining 50% of the cost not paid immediately but through executing a bond indicates a financing activity for the unpaid portion but does not impact the cash flow statement immediately as a cash outflow.

Additional Information

  • Inflow operating activity ₹2,50,000:
    • This option is incorrect because the acquisition of machinery is not an operating activity. Operating activities involve the cash flows directly related to the primary revenue-generating activities of the entity.
  • Outflow Investing activity ₹(5,00,000):
    • This option incorrectly states the entire purchase amount as a cash outflow, disregarding the part of the purchase financed through a bond, which does not result in an immediate cash outflow.
  • Inflow Investing activity ₹(5,00,000):
    • This option is incorrect as it suggests an inflow of cash for an investing activity, which contradicts the nature of the transaction being an acquisition (an outflow).
Accountancy: CUET Mock Test - 6 - Question 10
Aradya Ltd. had debt equity ratio of 2.5 : 1. State which of the following transaction will not effect the Debt Equity Ratio:
Detailed Solution for Accountancy: CUET Mock Test - 6 - Question 10

The correct answer is ₹2,00,000 paid to creditors.

Key Points

  • ₹2,00,000 paid to creditors:
    • Paying off creditors does not affect the debt equity ratio as it involves settling current liabilities rather than altering the company's debt or equity financing structure.
    • This transaction reduces the company's liabilities without affecting its total debt or equity, thus maintaining the existing debt equity ratio.

Additional Information

  • Purchase of machinery by taking bank loan:
    • This transaction increases both the company's debt (bank loan) and its assets (machinery), but since the ratio of debt to equity changes, it does affect the debt equity ratio.
  • Conversion of debentures into equity shares:
    • Converting debentures into equity shares directly affects the debt equity ratio by reducing debt and increasing equity.
  • Sale of furniture:
    • The sale of an asset, even at a profit, primarily affects the asset side of the balance sheet and does not directly alter the debt or equity amounts, but the cash received could indirectly affect the ratio if used to pay down debt or distributed to shareholders.
Accountancy: CUET Mock Test - 6 - Question 11

Current liabilities include:

(A) Trade receivables

(B) Unclaimed dividend

(C) Interest accrued but not due on loan

(D) Acceptances

(E) 12% debentures redeemable after four years

Choose the correct answer from the options given below:

Detailed Solution for Accountancy: CUET Mock Test - 6 - Question 11

The correct answer is (B), (C) and (D) only.

Key Points

  • Trade receivables (A)
    • This statement is incorrect.
    • Trade receivables are amounts owed to a business by its customers following the sale of goods or services on credit. They are considered a current asset, not a current liability.
  • Unclaimed dividend (B)
    • This statement is correct.
    • Unclaimed dividends refer to dividends that have been declared and set aside for shareholders but have not yet been claimed. They are considered a current liability because the company owes these amounts to shareholders.
  • Interest accrued but not due on loan (C)
    • This statement is correct.
    • Interest accrued but not due represents the interest expense that has been incurred but not yet paid. It is recognized as a current liability because it is an obligation that the company needs to settle in the near term.
  • Acceptances (D)
    • This statement is correct.
    • Acceptances refer to agreements to pay for goods or services at a future date, usually within a year. They are considered current liabilities because they represent a commitment to make payments within the short term.
  • 12% debentures redeemable after four years (E)
    • This statement is incorrect.
    • Debentures redeemable after four years are classified as non-current liabilities because they do not require settlement within the company's normal operating cycle or twelve months. They represent long-term borrowing.

Hence, the correct statements are (B) Unclaimed dividend, (C) Interest accrued but not due on loan, and (D) Acceptances, making the correct option '(B), (C) and (D) only'.

Accountancy: CUET Mock Test - 6 - Question 12

_____ is a amount received by a non profit organization as per the WILL of a deceased person

Detailed Solution for Accountancy: CUET Mock Test - 6 - Question 12

Legacy is the amount received by a non-profit organisation when a person has mentioned about transferring his property value to such organisation on his or her death. Hence, on death of that person, his property will be taken by the non-profit organisation.

Accountancy: CUET Mock Test - 6 - Question 13

Which of the following is generally considered as a non profit oriented organization?

Accountancy: CUET Mock Test - 6 - Question 14

Non-profit organizations prepare all of the following accounts except the

Accountancy: CUET Mock Test - 6 - Question 15

_________ is a fixed annual payment and usually continue only during the life time of the named beneficiary

Accountancy: CUET Mock Test - 6 - Question 16

An advance receipt of subscription from a member of the non-profit organization is considered as a/an

Accountancy: CUET Mock Test - 6 - Question 17

Life Membership is a capital receipt and will be added to capital fund in _______

Detailed Solution for Accountancy: CUET Mock Test - 6 - Question 17

Life Membership Fees is a capital receipt and we add it to the Capital Fund on the liabilities side of the Balance Sheet. We do not account it as an income because a life member makes a one-time payment and avails services all through his life.

Accountancy: CUET Mock Test - 6 - Question 18

Honorarium is a kind of remuneration paid to a person who is not the employee of a non-profit organization. Which of the following statements is true about the honorarium payment?

Accountancy: CUET Mock Test - 6 - Question 19

When cash is received for life membership, which one of the following double entries is passed? 

Detailed Solution for Accountancy: CUET Mock Test - 6 - Question 19

Some organisations provide its members an option to pay a lump sum amount to become members for the whole life. The members opting for the life membership are not required to pay a periodic subscription. As this is received only once it is transferred to the Capital fund Account in Balance Sheet. As cash is received, the cash account is debited and it is a liability, so capital/ General fund is credited.

Accountancy: CUET Mock Test - 6 - Question 20

Which of the following statement is false regarding receipt and payment account

Detailed Solution for Accountancy: CUET Mock Test - 6 - Question 20

Because accrual basis means recording items in advance. As it already include prepaid rent, outstanding salary etc.

Accountancy: CUET Mock Test - 6 - Question 21

A nonprofit organization's assets that have been designated by its board of directors for a specific project should be reported on the external financial statements as__________________ net assets.

Accountancy: CUET Mock Test - 6 - Question 22

Which of the following is true relating to Income and expenditure account

Detailed Solution for Accountancy: CUET Mock Test - 6 - Question 22

In the normal course of business, some of the expenses may be paid in advance. However, the organization may not receive the benefits from these expenses by the end of the current accounting year. We call these expenses as prepaid expenses. We treat them as current assets.

Sometimes in the normal course of business, an enterprise may have some expenses relating to which the payment is due at the end of the year. We know these expenses as Outstanding Expenses.

Wages, salary, rent, interest on the loan, etc. are examples of such expenses that may remain due at the end of the accounting year.

Accountancy: CUET Mock Test - 6 - Question 23

Which form of financing is allowed for a nonprofit organization?

Accountancy: CUET Mock Test - 6 - Question 24

The receipts and payments account of a non-profit organization is a 

Accountancy: CUET Mock Test - 6 - Question 25

Excess of expenditure over income of a Non-profit organisation is termed as______

Detailed Solution for Accountancy: CUET Mock Test - 6 - Question 25

Deficit : excess of expenditure over income.

The balance of the account, if credit, indicates surplus, i.e. excess of income over expenditure.

While the balance of the account, if debit, indicates deficit, i.e. excess of expenditure over income.

Accountancy: CUET Mock Test - 6 - Question 26

Rent expense of a non-profit organization paid in advance. Which of the following is the correct classification of rent?

Accountancy: CUET Mock Test - 6 - Question 27

Income and expenditure account is based on 

Detailed Solution for Accountancy: CUET Mock Test - 6 - Question 27

Accrual Accounting. Accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged. The term "accrual" refers to any individual entry recording revenue or expense in the absence of a cash transaction.Income and Expenditure Account is prepared on an accrual basis. All incomes and expenses relating to the accounting year, whether they are actually received and paid or not, are taken into consideration. Expenditure is recorded on the debit side and income is recorded on the credit side.

Accountancy: CUET Mock Test - 6 - Question 28

Which of the following is to be recorded in an income and expenditure account?

Detailed Solution for Accountancy: CUET Mock Test - 6 - Question 28

The correct option is B.

Income and expenditure is a nominal account which includes all revenue expenses and incomes. It is prepared the same as a profit and loss account i.e. on accrual basis. The difference of this account will represent surplus or deficit. Purchase and sale of fixed assets is a capital expense. And profit on sale of fixed assets is a revenue income, hence it will be included in income and expenditure accounts.

Accountancy: CUET Mock Test - 6 - Question 29

The capital of a non-profit organization is generally known as

Accountancy: CUET Mock Test - 6 - Question 30

XYZ club has a bar that maintains a separate trading account for its trading activities. Which of the following is the treatment of profit or loss on bar trading activities?

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