Financial Accounting MCQ Quiz in বাংলা - Objective Question with Answer for Financial Accounting - বিনামূল্যে ডাউনলোড করুন [PDF]

The correct option is option 4 

Additional Information:

Step 1: Calculate the relevant ratios for both years.

Current Ratio (CR): Current Assets / Current Liabilities
20X4: $250,000 / $150,000 = 1.67:1
20X5: $350,000 / $200,000 = 1.75:1

• • Quick Ratio (QR): (Current Assets - Inventory) / Current Liabilities
    • 20X4: ($250,000 - $100,000) / $150,000 = 1.00:1
    • 20X5: ($350,000 - $180,000) / $200,000 = 0.85:1
  • Inventory Days (ID): (Inventory / Cost of Sales) * 365 days
    • 20X4: ($100,000 / $800,000) * 365 = 45.63 days
    • 20X5: ($180,000 / $950,000) * 365 = 69.05 days
  • Gearing Ratio: (Long-term Debt / (Long-term Debt + Equity)) * 100%
    • 20X4: ($500,000 / ($500,000 + $400,000)) * 100% = 55.56%
    • 20X5: ($600,000 / ($600,000 + $450,000)) * 100% = 57.14%

• Step 2: Analyze the changes in ratios and relate them to the strategic decision.

  • CR slightly improved (1.67 to 1.75).
  • QR worsened (1.00 to 0.85).
  • ID significantly increased (45.63 to 69.05 days).
  • Gearing slightly increased (55.56% to 57.14%).

• Step 3: Evaluate the options.

  • A. An improvement in liquidity is evident from the increased current ratio, while the declining inventory turnover indicates successful management of inventory levels. This is partially correct about the current ratio but misinterprets inventory turnover. A declining (meaning increasing days) inventory turnover period suggests inventory is held for longer, which often implies less efficient management, not more.
  • B. The increase in gearing suggests higher financial risk, but this is justified by the improved efficiency in inventory management as reflected by the quick ratio. This is incorrect. The quick ratio declined, indicating worsening immediate liquidity once inventory is excluded. Also, the premise of improved efficiency in inventory management is false as inventory days increased.
  • C. A worsening of liquidity and efficiency ratios, coupled with higher gearing, indicates that the strategic decision has negatively impacted the company's short-term financial stability without clear operational benefits yet. This is largely plausible but "worsening of liquidity" is not entirely accurate as the current ratio slightly improved. The key is the shift in the composition of current assets towards less liquid inventory.
  • D. While the current ratio has improved, the increase in inventory days and gearing highlights a trade-off where improved sales potential comes with higher holding costs and financial risk. This is the most accurate conclusion.
    • The current ratio did slightly improve, suggesting overall current assets grew faster than current liabilities.
    • However, the significant increase in inventory (from $100,000 to $180,000), reflected in the increased inventory days, means more capital is tied up in less liquid assets. This supports the strategic decision to expand inventory but also implies higher holding costs (storage, insurance, obsolescence risk).
    • The increase in long-term debt to fund this expansion led to a higher gearing ratio, indicating increased financial risk.
    • This option perfectly captures the trade-off: pursuing sales potential (by increasing inventory to avoid stock-outs and gain discounts) at the cost of increased holding costs and financial risk.

The correct option is option 3

Additional Information:

•  It is the balance owed at the start of the year plus the expense for the year less the balance outstanding at the year end ($391 = ($72 + $375 − $56)). This means that the amount of cash paid is greater than the profit or loss expense.

The correct option is option 1 

Additional Information:

The correct option is option 3

Addiitonal Information:

• Share capital represents the nominal, or par value, of shares issued to the owners of the company. This is reported in the equity section of the statement of financial position and represents an amount owed by the company to its shareholders. Retained earnings represents the profits retained in the business. This is reported in the equity section of the statement of financial position.
• Land and buildings, inventory, and bank and cash are assets of the business and will be used to derive future benefit.
• A bank loan is a liability that has to be repaid at a specified point in time.

The correct option is option 3

Additional Information:

• Dividends are a form of payment to owners of a limited liability company. Sole traders take drawings from the business. Therefore this option is false.
• There is no legal distinction between the owner’s assets and the assets of the business so this option is false.
• Sole traders, just like any other business, can employ others to do work, however a sole trader is more likely to do a lot of the work themselves. Therefore this option is false.

The correct option is option 2

Additional Information:

• Error 1 (Omission from Payables): This is a single-sided entry error. A debit was correctly made to Purchases, but the corresponding credit to Payables was omitted. This will cause total debits to exceed total credits, preventing the trial balance from balancing.
• Error 2 (Receipt Mistakenly Debited to Sales Revenue): The cash received was correctly debited to the Bank account ($1,500). However, instead of a corresponding credit (e.g., to Receivables), another debit was mistakenly posted to Sales Revenue ($1,500). A transaction with two debits (and no credit) creates an imbalance where total debits will exceed total credits, preventing the trial balance from balancing.
• Error 3 (Unequal Values): The debit of $5,000 to Machinery and the credit of $500 to Bank result in unequal debits and credits for a single transaction. This directly prevents the trial balance from balancing.
• Error 4 (Complete Omission of Cash Sale): A cash sale involves both a debit (to Cash/Bank) and a credit (to Sales Revenue). If both sides are completely omitted, the trial balance will still balance, as total debits and credits are equally understated. This error does not prevent the trial balance from balancing.

The correct option is option 1 

Additional Information:

• Irredeemable Preference Shares: These are classified as equity because they do not have to be repaid. Their dividends (200,000×10%=$20,000) are treated as distributions of profit and affect the statement of changes in equity, not the statement of profit or loss.
• Ordinary Shares: Dividends on ordinary shares (500,000×$0.05=$25,000) are also distributions of profit and are recognized in the statement of changes in equity. The proposed dividend is only accounted for once paid.
• Redeemable Preference Shares: These are classified as a liability because they are repayable. Their dividends are treated as finance costs and are recognized as an expense in the statement of profit or loss. 
• Finance cost from Redeemable Preference Shares: 1,000,000×6%=$60,000.
• Therefore, the total finance costs recognized in the statement of profit or loss for the year ended 31 December 20X7 is $60,000.

The correct option is option 2 

Additional Information:

• Finance Cost for the year ended 31 March 20X5 (Statement of Profit or Loss): The loan notes were issued on 1 July 20X4. For the year ended 31 March 20X5, the interest has accrued for 9 months (from 1 July 20X4 to 31 March 20X5). Annual interest: $1,000,000×8%=$80,000. Finance cost for 9 months: $80,000×(9/12)=$60,000. This is recognized as an expense in the statement of profit or loss.
• Interest Payable (Current Liability) at 31 March 20X5 (Statement of Financial Position): Interest payments are due on 31 December and 30 June. The interest for the period 1 July 20X4 to 31 December 20X4 (6 months) would have been paid on 31 December 20X4. The period from 1 January 20X5 to 31 March 20X5 is 3 months. Interest for this period has accrued (80,000×(3/12)=$20,000) but is not yet due for payment (as the next payment date is 30 June 20X5). This accrued amount is a current liability (an accrual).

The correct option is option 2

Additional Information:

• A major fire occurring after the reporting period is a non-adjusting event because it reflects conditions that arose after the reporting date, not conditions existing at that date. Since the loss is significant but doesn't threaten the going concern, it requires disclosure in the notes to provide relevant information to users. 
• Incorrect Options:
• Option1: Discovery of an error in inventory valuation at the reporting date is an adjusting event, as it provides additional evidence about the value of an asset existing at the reporting date. 
• Option 3: The resolution of a lawsuit where the infringement occurred before the reporting date is an adjusting event. It provides further evidence of a condition existing at the reporting date. 
• Option 4: The sale of inventory below cost after the reporting period is an adjusting event. It indicates that the net realisable value of that inventory at the reporting date was lower than its cost, and thus the inventory valuation needs adjustment. 

The correct option is option 3 

Additional Information:

• Event 1 (Restructuring plan): The plan was announced and formally committed to after the reporting date. It does not provide evidence of a condition existing at the reporting date. Therefore, it is a non-adjusting event. Given its significance, it requires disclosure in the notes. 
• Event 2 (Patent rejection): The patent application was filed before the reporting date, and its rejection after the reporting date provides additional evidence that the asset (capitalized R&D costs) was impaired at the reporting date. Thus, it is an adjusting event, requiring the $700,000 to be written off. 
• Event 3 (Dividend declaration): A dividend declared after the reporting period is a non-adjusting event. An entity does not have a present obligation to pay a dividend until it is declared. Such events are typically disclosed in the notes as a non-adjusting event if material.