Unit 2 Accounting and Auditing PYQ’s 17th Oct 2020 Shift 1

The correct answer is – Any firm which earns normal profit has no goodwill.

Any firm which earns normal profit has no goodwill is true in the case of Partnership.

Key Takeaways

1. Goodwill is the value of the reputation of a firm built over time with respect to the expected future profits over and above the normal profits.
2. A well-established firm earns a good name in the market, builds trust with the customers, and also has more business connections as compared to a newly set up business. Thus, the monetary value of this advantage that a buyer is ready to pay is termed as Goodwill.
3. The buyer who pays expects that he will be able to earn super profits as compared to the profits earned by the other firms. Thus, it can be said that goodwill exists only in the case of firms making super profits and not in the case of firms earning normal profits or losses. It is an intangible real asset that cannot be seen or felt but exists in reality and can be bought and sold.

Additional Notes

1. In absence of a partnership deed, no partner is entitled to remuneration.
2. Business of the firm may be carried on by one or more partners.
3. Interest on loan given by a partner to the firm shall be paid irrespective of profit or losses.

The correct answer is – Depreciating fixed assets over their useful lives

The ‘going concern concept’ is the underlying basis for Depreciating fixed assets over their useful lives

Important Note

The going concern concept is a fundamental principle of accounting. It assumes that during and beyond the next fiscal period a company will complete its current plans, use its existing assets, and continue to meet its financial obligations. Simply put, it is an assumption that the company will stay in business and that the value of its assets will endure.

Key Takeaways

1. Disclosing the market value of securities is a Full Disclosure Concept.
2. Consolidating the accounts of subsidiary companies with those of the parent company is Consolidation Accounting.
3. Depreciating fixed assets over their useful lives is a going concern concept
4. Disclosing the sales and other operating information in the income statement is Revenue Recognition.

The correct answer is – (A), (D) only

Cost audit for Materials covers Goods inward procedure and Accounting for scrap, wastage, materials transfers.

Key Takeaways

A cost audit represents the verification of cost accounts and checking on the adherence to the cost accounting plan. Cost audit ascertains the accuracy of cost accounting records to ensure that they are in conformity with cost accounting principles, plans, procedures, and objectives.

A cost audit comprises the following;

• Verification of the cost accounting records such as the accuracy of the cost accounts, cost reports, cost statements, cost data, and costing technique
• Examination of these records to ensure that they adhere to the cost accounting principles, plans, procedures, and objective
• To report to the government on optimum utilization of national resources.

The correct answer is – A – IV, B – II, C – I, D – III

Key Takeaways

Therefore, it is clear from the above explanation that option 1) is the correct answer.

The correct answer is – (B), (A), (C), (E), (D)

A goal of manufacturing enterprises is not whatever product or service but only such one which will be successfully realized in the market, which satisfies customer´s demands and which brings adequate (optimal) profit and market share.

Key Takeaways

The following are the sequence of decisions in manufacturing enterprises :

1. Determination of key factors: A key factor is defined as the factor in activities of an undertaking which, at a particular point of time or over a period, will limit the volume of output.
2. Making of forecasts: Forecasting refers to the practice of predicting what will happen in the future by taking into consideration events in the past and present.
3. Consideration of alternative combination of forecasts: It simply means ‘available as another choice’.
4. Combination of factors: The optimum factors combination or the least cost combination refers to the combination of factors with which a firm can produce a specific quantity of output at the lowest possible cost.
5. Preparation of budgets: A production budget is the amount of product that will have to be manufactured or produced. In order to estimate this, you have to begin first with a sales budget, a per debt projection of how many units you’ll probably sell given the budget period. The sales budget comes first

Therefore, option 3 is the correct answer.