SEBI Grade A 2022- Commerce & Accountancy Question | Set-5

Correct Answer:  E. None of these

Explanation: AS 5 specifies the method of classification and disclosure for the following items:

1. Prior period items
2. Extraordinary items
3. Certain specific items w.r.t. profit and loss from ordinary activities

The standard also describes the treatment of changes in accounting estimates and policies and disclosures to be made on account of such changes.The standard doesn’t deal with tax implication on account of such changes as mentioned above.

Correct Answer:  E. None of these

Explanation: Net profit ratio = Net profit/Sales * 100

3,60,000/25,20,000*100

= 14.285%

Correct Answer: A. Prepaid asset

Explanation: Payment of insurance premium is a prepaid asset in the balance sheet. As the insurance premium is not yet due and any kind of advance paid will not be treated like an expense. Hence, the same is treated like as an advance and a prepaid expense in the balance sheet which will be recognized as expense when it is due.

Correct Answer: C. Long term investments

Explanation: As per para 30 of AS 13, an enterprise holding investment properties should account for them as long term investments.

Correct Answer: E. Both (c) and (d)

Explanation: In recording a forward exchange contract intended for trading or speculation purposes, the premium or discount on the contract is ignored and at each balance sheet date, the value of the contract is marked to its current market value and the gain or loss on the contract is recognised.

Correct Answer: D. All the above

Explanation: The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple.

P/E ratios are used by investors and analysts to determine the relative value of a company’s shares in an apples-to-apples comparison. It can also be used to compare a company against its own historical record or to compare aggregate markets against one another or over time.

The price-earnings ratio (P/E ratio) relates a company’s share price to its earnings per share.

A high P/E ratio could mean that a company’s stock is over-valued, or else that investors are expecting high growth rates in the future.

Correct Answer: E. None of the above

Explanation: Debtor velocity ratio is also called debtor turnover ratio.

Debtors Turnover Ratio = Net Credit Sales / Average Receivables

Net sales = Sales – Sales return = 1000 – 500 = 500

Average receivables = (opening + closing)/2 = (200+400)/2 = 300

= 500/300 = 1.67

Correct Answer:  D. Both (a) and (b)

Explanation: A Nominal account is a General ledger account pertaining to all income, expenses, losses and gains.The income statement accounts record and report the company’s revenues, expenses, gains, and losses. When the company is a sole proprietorship, the balances in these accounts will be closed by transferring the net amount into the owner’s capital account. If the business is a corporation, the balances will be transferred to the retained earnings account. Hence, the interest on loans and sales is a nominal account as they pertain to income and expenses.

Correct Answer:  D. Prudence concept

Explanation: The conservatism principle is the general concept of recognizing expenses and liabilities as soon as possible when there is uncertainty about the outcome, but to only recognize revenues and assets when they are assured of being received. Thus, when given a choice between several outcomes where the probabilities of occurrence are equally likely, you should recognize that transaction resulting in the lower amount of profit, or at least the deferral of a profit. Similarly, if a choice of outcomes with similar probabilities of occurrence will impact the value of an asset, recognize the transaction resulting in a lower recorded asset valuation.

Under the conservatism principle, if there is uncertainty about incurring a loss, you should tend toward recording the loss. Conversely, if there is uncertainty about recording a gain, you should not record the gain.

Correct Answer: E. Rs. 102,400

Explanation: Written down value = Original cost – Accumulated depreciation till date