Page 173 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
Mr. T, another team member verified the PPE of the Company. Onetime Limited had purchased few cars
for its directors during the year of audit. The same were appearing in the PPE 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. Besides, all items appearing in the PPE schedule were verified
and he was satisfied that all PPE items that should have been recorded have, in fact, been recorded.

One of the articled 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 accounts. 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.
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 management assertions is not satisfied with respect to Cars included in
the PPE items by the company :
(a) Existence
(b) Valuation
(c) Completeness
(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. Which of the following conditions is not necessary for recognising dividends in the statement of
profit and loss of Onetime Ltd.:
(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) payment of income tax on dividends received

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