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FINALTERM EXAMINATION
FALL 2006 Marks: 60
MGT401 - FINANCIAL ACCOUNTING II (Session - 1 ) Time: 120min

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Ex Mond
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m Febru
Da ary
te: 19,
2007

VIRTUAL UNIVERSITY OF PAKISTAN

Financial Accounting II (MGT401)

FINAL TERM EXAM (1) (Fall 2006)

Total Marks: 60
Please read the following instructions carefully before attempting any
question:

§ All questions are compulsory.

§ This exam consists of 15 Multiple Choice Questions (MCQs) of 1 mark
each, 5 True/False of 1 mark each, 5 fill in the blanks of 1 mark each, 3
Short questions carry 5 marks each and 2 Descriptive questions carry 10
marks each.
§ For each Multiple Choice Question, read the options available and
select which you consider is the correct option.
§ This examination is closed book, closed notes and closed neighbours.

§ Do not ask question about the contents of this examination from

anyone.

§ You may wish to pace yourself with your own watch, but the Supervisor
will be the official timekeeper of the test.

§ Failure to comply with the Supervisor’s directions will result in your

test being cancelled. Please comply with supervisor’s directions to avoid
any unpleasant event.

For Teacher's use only

Question 1 2 3 4 5 6 7 8 9 10 Total
Marks
Question 11 12 13 14 15 16 17 18 19 20
Marks
Question 21 22 23 24 25 26 27 28 29 30
Marks

Question No: 1 ( Marks: 1 ) - Please choose one

Issuance of shares at discount is the inverse of:

► Issuance of Bonus

► Issuance at Premium

► Right Shares Issue

 ► Further Issue

Question No: 2 ( Marks: 1 ) - Please choose one

A private company is not required to issue a _________ as it is prohibited by its

articles from inviting general public to subscribe for its shares.

► Cash flow statement

► Prospectus

► Income statement

► Balance sheet

Question No: 3 ( Marks: 1 ) - Please choose one

Risks and rewards associated with the ownership related to:

► Finance Lease

► Operating Lease

► Hire Purchase Agreement

► Installments

Question No: 4 ( Marks: 1 ) - Please choose one

Minimum lease payment(MLP) includes from lessor point of view:

► Total payment

► Residual value guaranteed by lessee

 ► Party related to him or third party

► All of the given options

Question No: 5 ( Marks: 1 ) - Please choose one

In operating lease, rental expenses should be charged to:

► Balance sheet

► Profit and loss account

► Income of lessee

► None of the given options

Question No: 6 ( Marks: 1 ) - Please choose one

Fair presentation means:

► Application of Companies Ordinance, 1984

► Income Tax Ordinance, 2001

► IAS with additional disclosure

► None of the given options

Question No: 7 ( Marks: 1 ) - Please choose one

Rendering of services, revenue associated with the transaction can be

estimated reliably when, which of the following conditions are satisfied:
 ► The amount of revenue cannot be measured reliably

► It is doubtful that economic benefits associated with the

transaction will flow to the entity

► The stage of completion of the transaction at the balance sheet

date can be measured reliably

► The cost incurred for the transaction and the cost to complete the
transaction cannot be measured reliably

Question No: 8 ( Marks: 1 ) - Please choose one

Which transaction will cause an increase in capital employed:

► Receipt of payment from account receivables in cash

► Increasing the provision for bad debts

► Receipt of a loan

► Disposal of a fixed asset for more than its book value

Question No: 9 ( Marks: 1 ) - Please choose one

Income statement formats based on classification of:

► Expenses

► Incomes

► Revenues

► All of the given options

Question No: 10 ( Marks: 1 ) - Please choose one

Preliminary expenses are an example of:

► Revenue expenditure

► Deferred revenue expenditure

► Capital expenditure

► None of the given options

Question No: 11 ( Marks: 1 ) - Please choose one

The stock sheet for the previous year was incorrectly undercasted by Rs.
200,000, whether it is:

► Changes in accounting policy

► Change in accounting estimate

► Prior period error

► None of the given options

Question No: 12 ( Marks: 1 ) - Please choose one

An example of cash flows from operating activities is:

► Cash receipt from sale of goods and rendering of services

► Cash payment to acquire property plant and equipment

► Proceed from short term financing

 ► Cash payment and receipt from acquisition and disposal other long
term assets

Question No: 13 ( Marks: 1 ) - Please choose one

Inventories are carried in the books of accounts according to the methods of

valuation given in:

► IAS 28

► IAS 2

► IAS 4

► IAS 29

Question No: 14 ( Marks: 1 ) - Please choose one

A public company is required to file a _____________with SECP before

allotment of shares.

► Prospectus

► Statement in lieu of prospectus

► Articles of Association

► None of the given options

Question No: 15 ( Marks: 1 ) - Please choose one

According to the International Accounting Standards any decrease in the

value of goodwill is made with the help of:

► Amortization
 ► Impairment

► Depreciation

► None of the given options

Question No: 16 ( Marks: 1 ) - Please choose one

Fractional shares shall not be offered and all fractions less than a share shall
be consolidated and disposed of by the company.

► True

► False

Question No: 17 ( Marks: 1 ) - Please choose one

IAS 20 “Employee Benefits” – specifies calculation, recording and reporting of

retirement benefit related costs of the entity.

► True

► False

Question No: 18 ( Marks: 1 ) - Please choose one

Lease payments are recognized as expense and sublease payments received

are recognized as income, in the books of lessee.

► True

► False

Question No: 19 ( Marks: 1 ) - Please choose one

Creditors (long and short term) are more interested in profitability rather
than an entity’s ability to repay them.
 ► True

► False

Question No: 20 ( Marks: 1 ) - Please choose one

An entity shall not present any items of income and expense as extraordinary
items, either on the face of the income statement or in the notes.

► True

► False

Question No: 21 ( Marks: 1 )

_______________ in the lease is the discount rate that, causes the aggregate
present value of minimum lease payments to be equal to the fair value of the
leased asset.

Question No: 22 ( Marks: 1 )

IAS 1 suggest certain order for the notes to the account, these notes are
helpful for users when comparing different _________ of different entities.

Question No: 23 ( Marks: 1 )

__________ include expense incurred on administration and management of

the business.

Question No: 24 ( Marks: 1 )

___________ is the current estimate of discounted value of future cash flows.

Question No: 25 ( Marks: 1 )

______________ are those liabilities that depend on happening of an event.

Question No: 26 ( Marks: 5 )

Briefly describe major classifications of expenses that are to be presented on

the face of balance sheet.

Question No: 27 ( Marks: 5 )

An organization with a called up and paid up capital of 200,000 ordinary
shares of Rs. 10/- each and also 20,000, 10% Preference shares of Rs. 10/-
each. The organization manufactures spare parts. The gross profit was Rs.
600,000. The organization paid the required preferred share dividend and
declared @ Rs. 1/- per share.
Required:
Assuming an income tax rate 20% show the trading results and EPS of the
organization.

Question No: 28 ( Marks: 5 )

Differentiate between: (2.5+2.5)

1. Wholly Owned and Partially Owned Subsidiaries.
2. Direct and Indirect Subsidiaries

Question No: 29 ( Marks: 10 )

Under what conditions a Company can buy its own shares, what is the mode
for such purchase and if the company make default in compliance with this
section what are the penalties?(6+4)

Question No: 30 ( Marks: 10 )

Briefly explain the following terms: (2.5x4)

a. Inception of lease
b. Lease term
c. Guaranteed residual value
d. Interest rate implicit