FR
A business has closing inventory that cost $8 million but has a net realisable value of $7.2 million.
At what amount should inventory be reported?
$7.2 million
An auditor starts with the physical inventory count and traces selected items back to the accounting records.
Which assertion is primarily being tested?
Completeness
I measure the return shareholders demand
for investing in a company's equity.
Risk-free rate, beta and market premium
help me find my answer.
What am I?
Cost of equity
Management deliberately chooses an accounting estimate at the most favourable end of a reasonable range because it wants to meet a profit target.
Which Conceptual Framework quality is most directly threatened?
Neutrality
A company records an expense of ₹100,000 that has been incurred but not yet paid.
What liability is created?
Accrued expenses
A company changes the useful life of an asset from 10 years to 15 years because new technical information becomes available.
Is this a change in policy or estimate?
Accounting Estimate
An auditor obtains evidence by comparing this year's gross profit margin with previous years and investigating significant fluctuations.
What type of audit procedure is this?
Analytical Procedure
A company has a project with a positive NPV but a negative accounting rate of return.
Which investment appraisal technique should primarily determine whether the project adds shareholder wealth?
NPV
A company buys a building specifically to earn rental income from tenants rather than to use it in its own operations.
How should the building generally be classified?
Investment Property
A business has total assets of ₹80 lakh and liabilities of ₹30 lakh. The owner withdraws ₹5 lakh cash and the business earns ₹8 lakh profit.
What is the owner's closing equity?
₹53 lakh
A company purchases a debt investment with the intention of holding it to collect contractual cash flows. The contractual cash flows consist solely of principal and interest.
Which measurement category is most appropriate, assuming the relevant business-model criteria are met?
Amortised cost
An auditor discovers that a client's internal control requires two signatures for payments. The auditor selects a sample of payments and checks whether both signatures were obtained.
What type of test is being performed?
Test of Controls
Under the Modigliani and Miller theory without taxes, changing the debt-equity mix does not affect the company's overall value.
What key assumption makes this result possible?
Perfect capital markets
A company has a present obligation from a past event. Management estimates a 70% probability that it will have to pay ₹8 million. However, the amount cannot be measured with sufficient reliability.
Should the company recognise a provision?
No — disclose as a contingent liability, if the relevant disclosure criteria are met.
I can be an asset or a liability.
I arise because accounting and tax rules don't always agree on timing.
I create consequences for future tax payments.
What am I?
Deferred tax
Parent owns 80% of Subsidiary.
Subsidiary reports profit of ₹5m.
The profit includes ₹1m of unrealised profit arising from a sale made by the subsidiary to the parent.
What is NCI's share of adjusted profit?
₹800,000
I am not an error.
I am not a fraud.
I am the level at which the auditor decides
that a misstatement could influence users' decisions.
What am I?
Materiality
A company needs ₹100 million to finance a new project.
Management prefers to use retained earnings first, then debt, and only issues new equity as a last resort.
Which capital structure theory does this behaviour illustrate?
Pecking order theory
An accountant discovers that their employer is involved in potentially illegal activity. Reporting it internally could lead to retaliation, while ignoring it could result in the accountant being associated with improper conduct.
What ethical concept requires the accountant to consider their responsibility to act in the public interest?
Professional behaviour
Inventory cost is ₹10 lakh.
Its estimated selling price is ₹11 lakh and costs to complete and sell it are ₹2 lakh.
At what amount should the inventory be measured?
₹9lakh
Profit attributable to ordinary shareholders = ₹12m.
Ordinary shares:
2m shares throughout the year
1m additional shares issued on 1 July
What is basic EPS?
₹4.8
An auditor discovers that management has refused to provide sufficient appropriate audit evidence relating to a material and pervasive balance. The auditor cannot obtain alternative evidence.
What type of audit opinion may be required?
Disclaimer of opinion
A company has several profitable projects but limited funds. Management must choose a combination of projects that maximises value within the available investment budget.
What problem is management facing?
Capital Rationing
A company purchases a debt investment with the intention of holding it to collect contractual cash flows. The contractual cash flows consist solely of principal and interest.
Which measurement category is most appropriate, assuming the relevant business-model criteria are met?
Amortised cost
Sales are ₹50m. Purchases are ₹30m. Opening inventory is ₹5m and closing inventory is ₹8m.
What is gross profit?
₹23 Million