PGT Commerce Level-3 (HTEТ), Exam 2024

Total Questions: 150

101. A company has net profit margin of 5%, total assets of ₹90,00,000 and return on assets of 9%. Its total assets turnover ratio would be:

Correct Answer: 2. 1.8
Solution:

Return on Assets (ROA) = Net Profit Margin x Total Assets
Turnover Ratio
⇒ 9% = 5% x Total Assets Turnover
Total Assets Turnover = 9 ÷ 5 = 1.8 times

102. ______is the amount received or receivable by the enterprise from its operating activities.

Correct Answer: 4. Revenue
Solution:

Revenue refers to the total amount received or receivable by an enterprise from its operating activities like sale of goods or services before deducting any expenses.

103. Proposed Dividend for the current year is shown under which heading?

Correct Answer: 2. Contingent liabilities
Solution:

A Proposed Dividend for the current year is only a recommendation by the Board of Directors and becomes a binding liability only after it is approved by shareholders at the Annual General Meeting (AGM). Until that approval, the company has no present obligation to pay; hence, it is not recognized as a liability in the balance sheet.
According to Ind AS 10 (Events after the Reporting Period) and the Companies Act, 2013 (Schedule III), such proposed dividends are disclosed in the Notes to Accounts under Contingent Liabilities and Commitments, as their payment depends on shareholder approval.

104. Which source document is issued if a customer returns goods previously invoiced or the customer is allowed further discount?

Correct Answer: 4. Credit Note
Solution:

A Credit Note is issued by the seller to a customer when the latter returns goods previously sold or when an additional discount or correction of an overcharge is allowed.
It signifies that the customer's account is being credited (reduced) by the seller because the amount receivable from the customer has decreased.
Common scenarios include:

  • Sales returns (return inwards): Goods returned by the customer.
  • Allowance or correction: When a discount or billing correction is made post-invoice.

Conversely, the buyer issues a Debit Note when returning goods to the seller.

105. Prince Ltd. wants to prepare its cash flow statement It sold equipment of book value of ₹60,000 at a gain of ₹8,000. The amount to be reported in its cash flow statements under activities is:

Correct Answer: 3. ₹ 68,000
Solution:

Sale proceeds reported under Investing Activities = Book value + Gain = ₹60,000 +₹8,000 = ₹68,000. (Note: The ₹8,000 gain is deducted from profit in Operating Activities under the indirect method, but the cash inflow shown under Investing is the full ₹68,000.)

106. Rama Ltd. forfeited 40 shares of ₹10 on which ₹7 were called and the shareholder had pair ₹5 of these, 30 shares were reissued @ ₹6 per share. The amount transferred to capital accumulation account will be:

Correct Answer: 3. ₹120
Solution:

Given: 40 shares forfeited ( ₹10 each), ₹7 called, ₹5 paid;
30 of these reissued @ ₹6.
Total forfeiture (40 shares) = 40 × ₹5 = ₹200
Forfeiture related to 30 reissued shares = ₹200 × 30/40 = ₹150
Discount on reissue = 30 x (₹7 - ₹6) = ₹30
Transfer to Capital Accumulation (Capital Reserve)
= ₹ 150 -₹ 30 = ₹ 120.

107. Which of the following is not correct for provisions?

Correct Answer: 3. It is made for strengthening the financial position of the business. Some are also mandatory under law.
Solution:

This statement is incorrect for provisions because it actually describes reserves. Provisions are created to meet known liabilities or anticipated losses, the amount or timing of which is uncertain-for example, Provision for Tax, Provision for Doubtful Debts, or Provision for Depreciation.
They are a charge against profit (reduce profits and taxable income) and are made to ensure a true and fair view of financial statements under the prudence principle.
In contrast, reserves are appropriations of profit created after profit determination (do not reduce taxable profit) to strengthen the financial position of a business, meet future contingencies, or comply with statutory requirements (like Statutory Reserve). Hence, this option is not correct for provisions.

108. Reserve Capital is a part of which Capital in the event of winding up of a company?

Correct Answer: 4. Subscribed Capital
Solution:

Reserve Capital is that part of the uncalled capital of a company which can be called up only in the event of winding up.
It is created by passing a special resolution under Section 65 of the Companies Act, 2013. It forms part of the subscribed capital, since it is subscribed by shareholders but remains uncalled during the company's normal existence.
Thus, Reserve Capital is a portion of Subscribed Capital, not issued or paid-up capital.

109. ______are the customs, usage or practices followed by accountants as a guide in the preparation of financial statements.

Correct Answer: 4. Accounting conventions
Solution:

Accounting conventions are the customs, usages, and practices traditionally followed by accountants while preparing financial statements-e.g., consistency, conservatism, full disclosure, and materiality.

110. A_______gross profit ratio achieved by an organization compared to that of the industry's average, indicates the organization's successful attempt to produce at relatively lower costs.

Correct Answer: 3. high
Solution:

A high gross profit ratio compared to the industry average shows that the organization is producing goods at relatively lower costs, demonstrating efficiency in production and cost control.