Questions in: Audit Associate

Right Answer:
Rates and ratios are not the same.

A rate is a ratio that compares two quantities of different units, such as speed (miles per hour) or interest rates (percentage per year). For example, if a car travels 60 miles in 1 hour, the rate is 60 miles/hour.

A ratio compares two quantities of the same unit. For example, if a company has 10 employees and 5 managers, the ratio of employees to managers is 10:5 or 2:1.

In summary, rates involve different units, while ratios involve the same units.

Right Answer:
Capital Receipt refers to funds received that result in the creation of a liability or the reduction of an asset, such as loans or sale of fixed assets. Revenue Receipt, on the other hand, refers to funds received from regular business operations, such as sales revenue or service income, which do not create a liability or reduce an asset.

Right Answer:
Net Cash Accrual refers to the difference between cash received and cash paid out during a specific period, reflecting the actual cash flow of a business. It affects Working Capital by indicating the liquidity available to meet short-term obligations; positive net cash accrual increases working capital, while negative net cash accrual decreases it.

Right Answer:
Costs subsequent to the acquisition of Property, Plant, and Equipment can be capitalized when they enhance the asset's value, extend its useful life, or improve its efficiency. This includes costs for major repairs, upgrades, or improvements that provide future economic benefits. Routine maintenance and repairs that do not significantly increase value or extend life should be expensed.

Right Answer:
Pre-paid insurance is treated as a current asset on the balance sheet.

Right Answer:
At 60% capacity, the cost per unit is Rs 250. At 80% capacity, the cost per unit is Rs 225.

Right Answer:
Net Cash Accrual refers to the difference between cash inflows and cash outflows during a specific period, adjusted for non-cash items like depreciation and changes in working capital. It affects working capital by providing a clearer picture of a company's liquidity and operational efficiency, as it reflects the actual cash available for day-to-day operations. Positive net cash accrual can improve working capital, while negative accrual can indicate potential liquidity issues.

Right Answer:
EMI Reports, or Equated Monthly Installment Reports, are financial documents that detail the monthly payments due on loans or credit. To create EMI Reports, you typically gather data on the loan amount, interest rate, loan tenure, and payment frequency, then calculate the monthly installment using the EMI formula. This report can also include a breakdown of principal and interest components for each payment.

Right Answer:
The unit selling price is Rs 120.

Right Answer:
Provision refers to an amount set aside to cover a future liability or expense that is uncertain in timing or amount, while a reverse is the act of canceling or reducing a previously recognized provision when the obligation no longer exists or is reduced.

Right Answer:
Controlling accounts are general ledger accounts that summarize the total balances of a group of related subsidiary accounts. They provide a way to maintain the overall financial picture while keeping detailed records in subsidiary ledgers.

A subsidiary ledger is a detailed record that supports a controlling account. It contains individual accounts for specific transactions, such as accounts receivable or accounts payable, allowing for more detailed tracking of transactions.

Mixed accounts are accounts that contain both personal and impersonal transactions. They can include both assets and liabilities or a combination of different types of accounts, making them less straightforward than typical accounts.

Right Answer:
The salaries of the previous month are Rs. 6,250.

Right Answer:
A prepaid expense is a payment made for goods or services that will be received in the future. It is recorded as an asset on the balance sheet until the benefit is realized, at which point it is expensed on the income statement. The effect is that it reduces current assets initially and increases expenses over time as the service or benefit is consumed.

Right Answer:
A bridge loan is a short-term loan used to cover immediate cash flow needs until a longer-term financing solution is secured or until an existing obligation is paid off.

Right Answer:
An Inter-Company Account is an account used to record transactions between two or more subsidiaries or divisions within the same parent company.

Right Answer:
Comprehensive income is the total change in equity of a company during a period, excluding transactions with owners, which includes net income plus other comprehensive income items like unrealized gains and losses on investments and foreign currency translation adjustments.

Right Answer:
The amount of profit will be Rs 12,500.

Right Answer:
The land should be treated as an investment property and measured at fair value through profit or loss in accordance with IAS 40 (Investment Property).

Right Answer:
A balance sheet is a financial statement that shows a company's assets, liabilities, and equity at a specific point in time, providing a snapshot of its financial position. Off-balance sheet refers to assets or liabilities that are not recorded on the balance sheet, often used to keep certain financial obligations or risks outside of the company's official financial statements.

Right Answer:
Material Usage Variance = (Standard Quantity - Actual Quantity) × Standard Price

For Material X:
Standard Quantity = 40 kgs
Actual Quantity = 55 kgs
Standard Price = Rs 10

Material X Variance = (40 - 55) × 10 = -150 Rs (Unfavorable)

For Material Y:
Standard Quantity = 50 kgs
Actual Quantity = 35 kgs
Standard Price = Rs 5

Material Y Variance = (50 - 35) × 5 = 75 Rs (Favorable)

Total Material Usage Variance = -150 + 75 = -75 Rs (Unfavorable)