APSET Paper 2 Mock Test - 1 (Commerce) - AP TET MCQ

The correct answer is Supply chain networks.

Key Points

As per the passage,  "One of the significant impacts was on the supply chain dynamics. Global supply chain networks experienced severe disruptions due to pandemic-induced restrictions."

Refer to:

‘The rates of recovery have been rather high. This was true of the acquisition of Bhushan Steel by Tata Steel and of Electro­steel by Vedanta. Bhushan Steel owed its financial creditors around Rs 56,000 crore, whereas the Tata Steel bid returned Rs 35,200 crore upfront to the financial creditors, besides giving them a 12.3% stake in the company in lieu of returning the remaining debt. That was substantial relative to the estimated ­liquidation value of Rs 15,000 crore to Rs 20,000 crore, and far better than the average 10% recovery rate reported on aggregate write-offs in the recent past.’

‘The evidence that the assets were valuable despite the defaults emerged also from the battle between bidders who were often taken to the courts.’

I and II are correct.

III is opposite of the correct answer and is incorrect.

Brainstorming:

• Brainstorming is a group activity in which teams generate some creative ideas spontaneously to solve a specific problem.
• They come up with a vast collection of ideas without any fear of criticism and draw links between them to find out the potential solution.
• At first, even if the ideas seem a bit unrealistic, they are taken into consideration.
• In brainstorming sessions, the greater the number of ideas generated there is bigger the chance of producing radical and effective solutions. 

Therefore, ‘No ideas are ever criticized’ and ‘the more radical the ideas are the better’ – are the rules of the Brainstorming decision-making process.

Key PointsThe CAG (The Comptroller and Auditor General of India) shall within 60 days from audit report received u/s 143(5) have right to conduct a supplementary audit by the person authorised by him to require additional information on matters and in form as directed by him.

Important PointsSection 143(6) – CAG (The Comptroller and Auditor General of India) Right to Supplementary Audit of Government Company

• On receipt of audit report of the govt company the C&AG can carry out supplementary audit with 60 days from the date of receipt of such audit report.
• The CAG will then comment on or supplement the audit report, which will then be sent by the company in accordance with section 143(6)'s first proviso to every member, trustee for debenture holder, and other parties entitled to copies of the audited financial statements under section 136(1).
• The audit report and the CAG's comments will also be placed before the AGM at the same time and in the same manner.
• The Annual Report on the operations and affairs of that firm must be prepared in accordance with Section 394(1) within 3 months of the AGM, before which the CAG's comments and the audit report are subject to Section 143's proviso (6).

Hence, it can be concluded that The Comptroller and Auditor General of India has the right to conduct a supplementary audit under Sec 143(6)(a).

Upward communication is the flow of information from front-line employees to managers, supervisors, and directors. Downward communication is the flow of information from the upper level of the organization to the lower level of the organization. Diagonal communication is the sharing of information among different structural levels within a business.

IND AS 38 requires an entity to recognize an intangible asset, whether purchased or self-created (at cost) if, and only if: (a) it is probable that the future economic benefits that are attributable to the asset will flow to the entity; and (b) The cost of the asset can be measured reliably.

According to Ind AS 36, Impairment of Assets when an asset is carried at more than its recoverable amount i.e. its carrying amount exceeds the amount to be recovered through use or sale of the asset, then in this case, the asset is described as impaired and an entity has to recognise an impairment loss.Ind AS 34, Interim Financial Reporting: The objective of Ind AS 34 is to prescribe the minimum content of an interim financial report and to prescribe the principles for recognition and measurement in complete or condensed financial statements for an interim period.

Ind AS 31 refers to both contributions and sales between a venturer and a joint venture as follows: 'When a venturer contributes or sells assets to a joint venture, recognition of any portion of a gain or loss from the transaction shall reflect the substance of the transaction'.

The correct answer is Vision is positioning it in future and mission is purpose of existence of an organization.

Key Points 
Mission Statement:

• A mission statement is used by a company to explain, in simple and concise terms, its purpose(s) for being.
• It is usually one sentence or a short paragraph, explaining a company's culture, values, and ethics.
• Mission statements serve several purposes, including motivating employees and reassuring investors of the company's future.
• To craft a mission statement, consider how your company impacts customers, donors, investors, or your community and why you strive to help these parties.

Vision Statement: 

• A vision statement describes what a company desires to achieve in the long run, generally in a time frame of five to ten years, or sometimes even longer.
• It depicts a vision of what the company will look like in the future and sets a defined direction for the planning and execution of corporate-level strategies.
• In simple terms, a vision statement is a written document that describes where an organization is going and what it will look like when it gets there.

Important Points 
Relationship between Mission and Vision Statement: 

• The Mission Statement concentrates on the present; it defines the customer(s), and critical processes and it informs you about the desired level of performance.
• The Vision Statement focuses on the future; it is a source of inspiration and motivation.

Hence, the correct answer is Vision is positioning it in the future and mission is the purpose of existence of an organization.

Chalapathi Rao Committee was constituted for the restructuring of Regional Rural Banks in India.

Key Points

1. Regional Rural Banks have been in existence for around three decades in the Indian financial scene.
2. The inception of regional rural banks (RRBs) can be seen as a unique experiment as well as an experience in improving the efficacy of rural credit delivery mechanisms in India.
3. With joint shareholding by Central Government, the concerned State Government, and the sponsoring bank, an effort was made to integrate commercial banking within the broad policy thrust towards social banking keeping in view the local peculiarities.
4. The genesis of the RRBs can be traced to the need for a stronger institutional arrangement for providing rural credit.
5. The financial viability of RRBs has engaged the attention of the policymakers from time to time.

Important Point

1. The committee under the Chairmanship of Chalapathy Rao in 2003 (Chalapathy Rao Committee) recommended that the entire system of RRBs may be consolidated while retaining the advantages of the regional character of these institutions.
2. As part of the process, some sponsor banks may be eased out.
3. The sponsoring institutions may include other approved financial institutions as well, in addition to commercial banks.

The correct answer is Value-Oriented Customers.

Key Points

Value-Oriented Customers:

• They do not mind paying a high initial cost for a product if high quality and performance are associated with the product.
• They understand that their purchase is an investment that will benefit them in the long run.
• They maintain a healthy relationship with the vendors.

Additional Information
Technology-Oriented Customers:

• These customers are concerned with buying products that come equipped with the latest technology.
• They do not give much importance to cost, performance, and longevity while buying a product.
• For them being ahead in the technical aspect of the products they purchase is of utmost importance.
• These customers, too, maintain a healthy relationship with the vendors.

Cost-Oriented Customers:

• These customers are interested in the cheapest product available and are even ready to give up factors such as quality.
• There is a chance that they might blame the supplier in the event of failure of the product ignoring the fact that they purchased a low-cost product and compromised on quality. 
• Some consumers fix the problems related to the product by themselves or with the help of unauthorized personnel to save money.
• Such consumers may also be more interested in second-hand products but expect such products to perform at par with a brand new unit.
• Suppliers frequently face payment issues with such customers.

The 'marketing mix' (also known as the four Ps) is a foundation concept in marketing. The marketing mix has been defined as the "set of marketing tools that the firm uses to pursue its marketing objectives in the target market". Thus the marketing mix refers to four broad levels of marketing decision, namely: product, price, promotion, and place. The contemporary marketing mix, or the 4Ps, which has become the dominant framework for marketing management decisions, was first published in 1960. In services marketing, a modified and expanded marketing mix is used, typically comprising 7 Ps made up of the original 4 Ps plus process, people, physical environment. Occasionally service marketers will refer to eight Ps; comprising the 7 Ps plus performance.

Net working capital = Excess of current assets over current liabilities 

Net working capital emphasises the qualitative aspects of working capital management, which indicate the firm's ability to meet its operating expenses and short term liabilities.

The audit engagement letter, generally, should include a reference to each of the following except a description of the auditor’s method of sample selection.

Key Points An audit engagement letter is a written agreement used by auditors when signing a new client. This letter serves as a legal contract between both parties. It also defines their rights and responsibilities for their business relationship. The requirement for these letters comes from auditing and accounting standards. These require both the client and auditors to agree on the terms and conditions of an audit engagement.

Important Points

Auditors should only accept a new audit engagement or continue an existing audit engagement if the 'preconditions for an audit required by ISA 210 Agreeing to the terms of audit engagements are present.

ISA 210 requires the auditor to:

• Determine whether the financial reporting framework to be applied in the preparation of the financial statements is appropriate; and
• Obtain the agreement of management that it acknowledges and understands its responsibilities.

If the preconditions for an audit are not present, the auditor should discuss the matter with management, and should not accept the engagement unless required to do so by law or regulation.

Additional Information

What Are The Elements Of The Audit Engagement Letter?

1. The Objectives And Scopes Of The Audit Engagement
2. The Responsibilities Of The Auditor
3. The Responsibilities Of The Management
4. Identification Of The Applicable Financial Reporting Framework That The Entity Uses In Order To Prepare The Financial Statements
5. Reference To The Expected Form And Content Of Any Applicable Reports To Be Issued By The Auditors.
6. Others

The above sections are compulsory for any audit engagement letter. Apart from the above, this letter also includes other elements. These requirements come from ISA 210. The additional sections include the following.

• Reference to relevant professional standards, regulations as well as legislation that are applicable to the audit engagement.
• Limitations of an audit engagement
• Expectations that management will provide written representations
• The basis on which the fees are calculated
• Agreement of management to notify the auditor of subsequent events after the auditor’s report is signed
• Agreement of management indicating the provision of the draft financial statements in time to allow the audit to be completed by the deadline
• Form (and timing) of any other means of communication during the course of the audit
• The audit engagement letter may also cover other matters. These include the following.
• Any arrangements that concern the involvement of internal auditors and other staff of the entity
• Limitations to the auditor’s liability.

The correct answer is Bangladesh.

Key Points

• In IMF's latest World Economic Outlook, Bangladesh has overtaken India in GDP per capita.
• Generally, countries are compared on the basis of GDP growth rate, or on absolute GDP.
• For the most part since Independence, on both these counts, India’s economy has been better than Bangladesh.
• GDP Per capita calculation involves the overall population and is arrived at by dividing the total GDP by the total population.
• Reasons for India's poor performance 
  • Bangladesh the economy has been growing rapid GDP growth rates since 2004.
  • India’s population grew faster (around 21%) than Bangladesh population (just under 18%).
  • The relative impact of Covid-19 on the two economies in 2020. While India’s GDP is set to reduce by 10%, Bangladesh is expected to grow by almost 4%.

Additional Information

• IMF(International Monetary Fund) established in 1945 and headquartered in Washington.
• IMF Managing Director is Kristalina Georgieva.
• Presently IMF has 190 member countries.

About Consumer Protection Act:

• The act aimed at protecting the consumer from exploitation in the hands of manufacturers.
• This act provides for the establishment of Consumer Protection Forums at the district level, Consumer dispute redressal Commission at the state level and National Consumer Dispute Redressal Commission at a national level.
• The pecuniary limit for the district level authority is less than Rs. 20 lakh, from Rs. 20 lakh to 1 crore for state-level that more than 1 crore for a national commission.
• The consumer can appeal against the decision of a lower redressal authority to a higher authority.
• In 2019 a new Consumer protection act was introduced that provided for the establishment of the Central Consumer Protection Authority, widened the definition of consumer, increased the pecuniary limits, etc.

Thus, the Consumer Protection Act was introduced in 24th December, 1986.

Line and Staff Managers:

• Line managers usually have the final responsibility for achieving the organization's goals as they have the authority to direct the work of subordinates.
• Staff managers have the responsibility of helping and advising line managers in achieving organizational goals.
• HR managers perform staff functions.
• HR managers assist line managers in the decision-making process of an organization like recruiting, selecting, training, and compensating.
• Managing people, in a broader context, is every manager’s business and successful organizations generally combine the experience of line managers with the experience of HR specialists while utilizing the talents of employees to their greatest potential.
• HR managers have to win the hearts of employees working together with line managers and deliver results in a cost-effective manner.
• HR managers as indicated earlier are assuming a greater role in top management planning and decision making a trend that indicates the growing realization among executives that HRM can make significant contributions to the success of an organization.

Therefore, statement (A) is incorrect, but (R) is correct.

The correct answer is corporation.

Key Points

• A corporation is an independent legal entity from its owners or stockholders.
• It is a formed artificial entity with the ability to succeed and the abilities, qualities, and characteristics specifically granted by law or resulting from its creation.

Important PointsLimited Liability in Corporations

• Shareholders are protected by corporations from corporate obligations and debts.
• Although the company does not have any inherent protections, it has unlimited liability, any liabilities are assumed by the company and are not paid out of the personal assets of the owners or shareholders, they have limited liability.
• Only the corporate assets, not the shareholders' personal assets, would be liable to seizure in the event of a lawsuit. These types of personal assets include homes, vehicles, boats, and bank accounts.

Hence, it can be concluded that limited liability is a feature of corporations.

Additional Information

• Sole Proprietorship: Limited liability protection is not available to sole proprietorships. The solitary proprietor is instead completely liable. This implies that the business's debts and expenses are personally answerable for the lone proprietor. The sole proprietor runs the danger of losing his personal assets if the business is sued.
• Partnership: Each participant in a general partnership (often referred to as just a "partnership") is entirely responsible for the partnership's debts. Each partner has the authority to bind the partnership to a contract in their capacity as the entity's agent.
• Joint Proprietorship: A joint owner of a company has unlimited liability when they are fully liable for all of the company’s financial and non-financial liabilities. A company’s liabilities may include, for instance, damages assessed against the firm in lawsuits or other litigations.

The correct answer is Work of the Auditor.

Internal Check is an integral function of the internal control system. It is an arrangement of duties of the staff members in such a way that the work performed by one person is automatically and independently checked by the other.

Auditing is the systematic and scientific examination of the books of accounts and records of a business so as to enable the auditor to satisfy himself that the Balance Sheet and the Profit and Loss Account are properly drawn up so as to exhibit a true and fair view of the financial state of affairs of the business and profit or loss for the financial period.

From the Auditors Point of View,

• The auditor may be relieved of undertaking detailed checking if there is an efficient system of internal checks.
• The system of internal checks facilitates the work of auditors to a great extent by enabling them to rely on test checking.
• He can plan to utilize the time saved thereby in auditing the other important areas.
• He should test the systems of internal checks for his satisfaction. In the event of his dissatisfaction or suspicion, he must probe the matter to the bottom.
• In the absence of any suspicious circumstances, he may rely upon the internal checks in force but is not totally relieved of his responsibility.
• He runs the risk of being held liable for negligence if errors and frauds are de­tected afterward.
• The internal check system is in­troduced not by the auditor but by the client or­ganisation. So, the auditor should appraise the sys­tem for reliability with reasonable skill and care.
• In short, the existence of an efficient internal check system may reduce the auditor’s work vol­ume but does not reduce his liability.

Right shares issued to existing equity shareholders have the preferential right regarding the payment of retained earnings. A rights issue is an issue of rights to a company's existing shareholders. The benefit of rights offering to shareholders is that shares are generally offered at a discount. Retained earnings are a part of shareholder funds on which right shareholders or equity shareholders have the preferential right.

Buying Process: Set of procedures used to identify products for purchase, verify quality and compliance of products and vendors, carry out purchasing transactions, and verify that operations associated with purchasing have been executed appropriately. Different organizations have buying processes of varying complexity, depending on the industry in which they work and the nature of the products being purchased.

Therefore, a good method of identifying and understanding customers is to develop a Customer Profile.

The correct answer is a - ii, b - iii, c - iv, d - i. 

Important Points 

Additional InformationLaw of Demand:

• The law of demand states that other factors being constant (cetris peribus), price and quantity demand of any good and service are inversely related to each other.
• When the price of a product increases, the demand for the same product will fall and vice-versa. 

Network externality:

• Network externality is an economics term that describes how the demand for a product is dependent on the demand of others buying that product.
• In other words, the buying patterns of consumers are influenced by others purchasing a product.

Hence, the correct answer is a - ii, b - iii, c - iv, d - i. 

The correct answer is Provision should be made for outstanding depreciation.

Important Points

The Declaration of Dividend for the financial year is provided in S. 123 of the Companies Act, 2013 read with Rule 3 of the Companies(Declaration and Payment of Dividend) Rules 2014.

Key Points

S. 123: "No company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company for the current year."

RULE 3: DECLARATION OF DIVIDEND OUT OF RESERVES

In the event of inadequacy or absence of profits in any year, a company may declare dividend out of free reserves subject to the fulfillment of the following conditions, namely:

• The rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the three years immediately preceding that year:
  • Provided that this sub-rule shall not apply to a company, which has not declared any dividend in each of the three preceding financial years.
• The total amount to be drawn from such accumulated profits shall not exceed one-tenth of the sum of its paid-up share capital and free reserves as appearing in the latest audited financial statement.
• The amount so drawn shall first be utilized to set off the losses incurred in the financial year.
• The balance of reserves after such withdrawal shall not fall below fifteen percent of its paid-up share capital as appearing in the latest audited financial statement."
• The amount of the dividend, including the interim dividend, shall be deposited in the scheduled bank in a separate account within five days from the date of declaration of such dividend.

For example, when a person is guilty of a crime or when an applicant who can be successful on the job is rejected, these are false negatives.

The correct answer is 3.5%.

Key PointsReal rate of interest:

The real rate of interest is the interest rate adjusted for inflation. It represents the rate at which the purchasing power of an investment increases. In other words, it is the rate of return on an investment after accounting for the impact of inflation.

The formula for calculating the real rate of interest is as follows:

Real rate of interest = Nominal rate of interest - Inflation rate

For example, if the nominal interest rate on a savings account is 4%, and the inflation rate is 2%, the real rate of interest would be:

Real rate of interest = 4% - 2% = 2%

This means that the investor is earning a real rate of return of 2% on their investment after accounting for inflation 

The real rate of interest is the nominal rate of interest minus the inflation rate.

Therefore, the real rate of interest in this scenario would be:

Real rate of interest = Nominal rate of interest - Inflation rate
Real rate of interest = 6.5% - 3.0%
Real rate of interest = 3.5%

So the real rate of interest in this scenario is 3.5%.

(a) - (iii), (b) - (iv), (c) - (ii), (d) - (i) is correct.

• Treasury bills: Treasury bills are risk-free, as individuals are backed by the highest authority in the country, and have to be paid even during the economic crisis.
• Beta: Beta is used in the capital asset pricing model which describes the relationship between systematic risk and expected return for assets.
• Capital budgeting: The time value of money is important in capital budgeting decisions because it allows small-business owners to adjust cash flows for the passage of time.
• Working capital: Working capital is also called circulating capital or revolving capital i.e. the money which circulates in various forms of current assets in a continuous manner. The amount always keeps on circulating or revolving from cash to current assets and back again to cash. Thus, it is known as the Operating cycle. 

Key-Points

1. Pareto analysis

• It is a formal technique useful where many possible courses of action are competing for attention. In essence, the problem-solver estimates the benefit delivered by each action, then selects a number of the most effective actions that deliver a total benefit reasonably close to the maximal possible one.
• Pareto analysis is a creative way of looking at causes of problems because it helps stimulate thinking and organize thoughts. However, it can be limited by its exclusion of possibly important problems that may be small initially, but which grow with time. In terms of inventory management, the Pareto principle can be declared as 20% of inventory items by type account for 80% of annual consumption value.

2. The net income (NI) 

• This approach is also called the traditional approach.
• This is an approach in which both costs of debt and equity are independent of capital structure. The components which are involved in it are constant and don't depend on how much debt the firm is using. This theory was proposed by David Durand.

3. Net operating income

• It measures an income-producing property's profitability before adding in any costs from financing or taxes.
• The operating expenses used in the NOI metric can be manipulated if a property owner defers or accelerates certain income or expense items.
• The NOI metric does not include capital expenditures.

4. Miller – Orr Model

• It deals with cash inflows/outflows that change on a daily basis.
• The model works in terms of upper and lower control limits, and a target cash balance. As long as the cash balance remains within the control limits the firm will make no transaction.

Therefore, the correct match is:

Hence Option4 is the correct answer.

According to the Indian Companies Act, 1956 Section 229, an audit report must be signed by a company auditor.

Key PointsSection 229 of Indian Companies Act, 1956 - Right to Signature on Audit Report:

• The auditor's report, as well as any other document of the company required by law to be signed or certified by the auditor, may be signed only by the company's designated auditor, or in the event of a partnership, only by a partner in the firm practicing in India.

Additional Information

1. Audit Report - An audit report is a written assessment of a company's financial statements by an auditor. The report is formatted in accordance with widely acknowledged auditing standards (GAAS). GAAS mandates or allows various deviations in the report depending on the conditions of the audit work in which the auditor engages.
2. Board of Directors - The Board of Directors (BOD) is an elected corporate body that represents the interests of a company's stockholders. The board of directors sits at the top of the organization and is in charge of ensuring that the company achieves its goals in a timely manner.
3. Company Auditor - An auditor is a person who has the authority to review and verify financial papers for accuracy, as well as to ensure that organizations comply with tax laws. They protect companies from fraud, point up anomalies in accounting methods, and, on rare occasions, act as consultants, assisting companies in identifying ways to increase operational efficiency.
4. Company Secretary - The board of directors selects the corporate secretary. In most cases, the person is a member of the board of directors. Corporate secretaries are in charge of ensuring that their company is properly managed. They make certain that the company complies with all legal and regulatory requirements, as well as that the board's decisions are carried out.

Section 4 of the Indian Contract Act 1872 states that "The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. The communication of an acceptance is complete-as against the proposer, when it is put in a course of transmission to him so as to be out of the power of the acceptor; as against the acceptor when it comes to the knowledge of the proposer.