Page 146 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
supporting documents. The amount booked as on 31.03.2021 was based on the exchange rate as on the
date of the invoice.

Mr. T, another team member verified the fixed assets of the Company. onetime Limited had purchased
few cars for its directors during the year of audit. The same were appearing in the fixed assets schedule
of the Company. Mr T verified the same with respect to the invoices as well as physically verified the
assets in the Company’s premises. Since the cars were for the official use of the Directors, they were
purchased in the name of the Directors of the Company. Mr. T verified the amount with the Invoice and
checked the registration and insurance documents.

One of the article clerks was assigned the work of verification of “Provisions” appearing in the Balance
sheet. He wanted to understand from you the circumstances in which a provision is recognised in the
books of account. You explained him the situations in which an entity recognises Provisions in its books.

Onetime Limited has invested in the shares of other companies. One of the Companies has
declared dividend on its shares. Onetime Limited has not recognised the same in the profit & loss
account. Team Member R has asked you to look into the matter since she is unable to understand the
reasons for the same.

The Company had spent a huge amount on repair and maintenance of the machinery used for the
production of the clocks. The amount was accounted for in two parts: repairs were booked as a revenue
expenditure and annual maintenance charges were capitalised and added to the machinery cost. Ms. R
has verified the same in detail and raised her observations.
I. Is the raw material lying in the warehouse of onetime Limited accounted for correctly in its books
of account?
(a) No, since the same belongs to Mr. AM and should appear in his books.
(b) Yes, since the same is in possession of onetime Limited and was billed to it the following month.
(c) It should be shown in the books of both onetime Limited and Mr. AM.
(d) It should not appear in the books of onetime Limited or Mr. AM and the raw material should be
disclosed as a note in the final accounts of both the entities.
II. Which exchange rate is considered for accounting of foreign debtors at the year end?
(a) Exchange Rate on the date of the invoice.
(b) Exchange Rate on the last day of the financial year.
(c) Exchange Rate on the date of shipment of the products to the customer.
(d) Exchange Rate on the date of delivery of the products to the customer.

III. Which of the following assertions with respect to fixed assets has not been complied with by the
Company?
(a) Existence
(b) Valuation
(c) Cut-Off
(d) Rights and Obligations
IV. Which of the following condition is not required to be met for recognizing a provision?
(a) When a possible obligation that arises from past events and whose existence will be confirmed
only by the occurrence or non-occurrence of one or more uncertain future events not wholly
within the control of the entity.
(b) When an entity has a present obligation (legal or constructive) as a result of a past event.
(c) A reliable estimate can be made of the amount of the obligation.
(d) When it is probable that an outflow of resources embodying economic benefits will be required
to settle the obligation.
V. Dividends are recognized in the statement of profit and loss only on fulfilment of which condition:
(a) the entity’s right to receive payment of the dividend is established.
(b) it is probable that the economic benefits associated with the dividend will flow to the entity.
(c) the amount of the dividend can be measured reliably.
(d) All of the above
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