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Accounting interview questions and answers

Accounting interview questions check the basics every accountant uses: journal entries, the three statements and the standards behind them.

Below are 60 Accounting questions with the correct answer and a short explanation, grouped from fresher to experienced level. Try each one before you open the answer.

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What Accounting interviews usually check

  • ✓Journal entries and the double-entry system
  • ✓Trial balance and month-end close
  • ✓Financial statements
  • ✓Revenue recognition
  • ✓Fixed assets and depreciation

Accounting interview questions for freshers easy

1. Recording a credit sale

Goods worth ₹30,000 are sold on credit to Ravi Traders. Ignoring GST, what is the entry?

  1. A.Debit Sales, credit Ravi Traders
  2. B.Debit Ravi Traders (trade receivable), credit Sales
  3. C.Debit Cash, credit Sales
  4. D.Debit Purchases, credit Ravi Traders
Show answer

Answer: B. Debit Ravi Traders (trade receivable), credit Sales

Ravi Traders now owes the business money, so the customer account, a receivable, is debited. Sales revenue increases, so Sales is credited. Cash is not involved because the sale is on credit.

2. Returning goods to a supplier

Goods worth ₹4,000 bought on credit from Mehta & Co are returned because they were damaged. Ignoring GST, what is the entry?

  1. A.Debit Purchase returns, credit Mehta & Co
  2. B.Debit Sales returns, credit Mehta & Co
  3. C.Debit Mehta & Co (trade payable), credit Purchase returns
  4. D.Debit Cash, credit Purchases
Show answer

Answer: C. Debit Mehta & Co (trade payable), credit Purchase returns

Returning goods reduces what the business owes the supplier, so the supplier account is debited. Purchase returns (returns outward) is credited, which reduces net purchases. Sales returns relate to goods customers send back to us.

3. Why land is not depreciated

Why is freehold land usually not depreciated, while the building on it is?

  1. A.Because land is too expensive to depreciate
  2. B.Because land usually has an unlimited useful life
  3. C.Because tax law forbids depreciation on land
  4. D.Because land is always shown at market value
Show answer

Answer: B. Because land usually has an unlimited useful life

Depreciation spreads the cost of an asset over its useful life. Freehold land normally does not wear out or get used up, so its useful life is treated as unlimited. A building does wear out, so it is depreciated separately even when bought together with the land.

4. Why a suspense account is opened

The trial balance totals differ by ₹1,800 and the close deadline is today. Why might the accountant open a suspense account?

  1. A.To record cash that has gone missing from the cash box
  2. B.To park the difference until the errors are found
  3. C.To hold all transactions that have no supporting invoice
  4. D.To write off the difference as a sundry expense
Show answer

Answer: B. To park the difference until the errors are found

A suspense account temporarily holds a trial balance difference so draft accounts can be prepared. It must be cleared by finding and correcting the actual errors. A balance left in suspense at year end is a warning sign for reviewers and auditors.

5. Accrual basis compared with cash basis

Under the accrual basis of accounting, when is an expense recorded?

  1. A.Only when the cash is actually paid
  2. B.When the supplier sends a payment reminder
  3. C.When it is incurred, paid or not
  4. D.Only at the end of the financial year
Show answer

Answer: C. When it is incurred, paid or not

The accrual basis records income when earned and expenses when incurred, regardless of cash timing. Companies in India must keep books on the accrual basis under the Companies Act, 2013. Cash basis records items only when money moves.

6. Booking monthly depreciation

At month end the accountant books depreciation of ₹12,000 on office equipment. What is the usual entry?

  1. A.Debit Depreciation expense, credit Accumulated depreciation
  2. B.Debit Office equipment, credit Depreciation expense
  3. C.Debit Accumulated depreciation, credit Bank
  4. D.Debit Depreciation expense, credit Bank
Show answer

Answer: A. Debit Depreciation expense, credit Accumulated depreciation

Depreciation is a non-cash expense, so Bank is never involved. The expense is debited and the contra-asset Accumulated depreciation is credited, keeping the original cost visible in the asset account. Net book value is cost less accumulated depreciation.

7. Golden rule for personal accounts

Goods are sold on credit to Meena Stores. Which golden rule explains debiting Meena Stores?

  1. A.Debit the receiver, credit the giver
  2. B.Debit what comes in, credit what goes out
  3. C.Debit all expenses and losses
  4. D.Credit all incomes and gains
Show answer

Answer: A. Debit the receiver, credit the giver

Meena Stores is a personal account and is the receiver of the goods, so it is debited. The Sales account, a nominal account, is credited as income. The customer’s debit balance shows money owed to the business.

8. Where accumulated depreciation sits

What type of account is Accumulated depreciation?

  1. A.An expense account with a debit balance
  2. B.A contra-asset with a credit balance
  3. C.A liability account with a credit balance
  4. D.An income account with a credit balance
Show answer

Answer: B. A contra-asset with a credit balance

Accumulated depreciation is deducted from the related asset’s cost to give its carrying amount. It has a credit balance even though it sits with assets. The yearly charge is the expense; the accumulated total is the contra-asset.

9. What a complete set of statements includes

Under IAS 1 / Ind AS 1, which item is part of a complete set of financial statements?

  1. A.A statement of changes in equity
  2. B.The directors’ report
  3. C.The management discussion and analysis
  4. D.The budget for next year
Show answer

Answer: A. A statement of changes in equity

A complete set includes the balance sheet, statement of profit and loss (with OCI), statement of changes in equity, cash flow statement, notes and comparatives. The directors’ report and MD&A are required by company law or listing rules but are outside the financial statements. Budgets are never part of them.

10. A customer goes bankrupt after year end

The year ends on 31 March. On 20 April, before the accounts are approved, a major customer owing ₹2 crore at year end is declared bankrupt. Under IAS 10 / Ind AS 10, this is:

  1. A.An adjusting event; impair the 31 March receivable
  2. B.A non-adjusting event; disclose it in the notes only
  3. C.Ignored, because it happened after the year end
  4. D.Recorded as a loss in next year’s accounts only
Show answer

Answer: A. An adjusting event; impair the 31 March receivable

Bankruptcy shortly after year end usually gives evidence that the customer was already in difficulty at the reporting date. That makes it an adjusting event, so the year-end receivable is impaired. A fire after year end, by contrast, is a new condition and is only disclosed.

11. A voluntary change of accounting policy

A company voluntarily changes an accounting policy because the new one gives more relevant information. Under IAS 8 / Ind AS 8, how is it applied?

  1. A.Prospectively, from the date of the change only
  2. B.Retrospectively, restating the comparatives
  3. C.Only in the notes, without changing any numbers
  4. D.By booking the full effect in current-year profit
Show answer

Answer: B. Retrospectively, restating the comparatives

Voluntary policy changes are applied retrospectively, adjusting opening equity of the earliest period presented and restating comparatives, unless that is impracticable. This keeps periods comparable. Changes in estimates, by contrast, are applied prospectively.

12. What diluted EPS adds

Compared with basic EPS, what does diluted earnings per share (IAS 33 / Ind AS 33) take into account?

  1. A.Dilutive options, warrants and convertibles
  2. B.Only the shares bought back during the year
  3. C.Dividends paid to the ordinary shareholders
  4. D.Preference shares held by the promoter group
Show answer

Answer: A. Dilutive options, warrants and convertibles

Diluted EPS shows the effect if dilutive potential ordinary shares, such as share options, warrants and convertible bonds, were converted. Only instruments that reduce EPS are included. Ordinary dividends do not affect the EPS numerator.

13. Depreciation on an asset held for sale

A machine is classified as held for sale under IFRS 5 / Ind AS 105. What happens to its depreciation?

  1. A.Depreciation stops
  2. B.Depreciation doubles
  3. C.Depreciation continues as before
  4. D.It is depreciated to zero immediately
Show answer

Answer: A. Depreciation stops

Once an asset is held for sale, its value will be recovered by selling, not by using it. So depreciation stops and it is measured at the lower of carrying amount and fair value less costs to sell. It is shown separately in the balance sheet.

14. Who sets IFRS and who notifies Ind AS

Which statement about standard setters is correct?

  1. A.ICAI issues IFRS, and the IASB notifies Ind AS for India
  2. B.SEBI issues both IFRS and Ind AS for listed companies
  3. C.The IASB issues IFRS; MCA notifies Ind AS in India
  4. D.Ind AS are issued directly by the IASB for India
Show answer

Answer: C. The IASB issues IFRS; MCA notifies Ind AS in India

IFRS Accounting Standards are issued by the IASB in London. Ind AS are converged versions notified by the Ministry of Corporate Affairs under section 133 of the Companies Act, 2013, after recommendations involving ICAI and NFRA. SEBI regulates listed company disclosures, not the standards themselves.

15. What triggers revenue at a point in time

Under IFRS 15 / Ind AS 115, revenue for goods sold at a point in time is recognised when:

  1. A.The sales order is received
  2. B.Control of the goods passes to the customer
  3. C.Cash is received from the customer
  4. D.The invoice is printed
Show answer

Answer: B. Control of the goods passes to the customer

Revenue is recognised when the performance obligation is satisfied, which for goods means when the customer obtains control. Control is the ability to direct the use of, and get the benefits from, the asset. Orders, invoices and cash timing are not the test.

16. What amount revenue is measured at

Under IFRS 15 / Ind AS 115, revenue is measured at:

  1. A.The list price shown in the catalogue
  2. B.The cash received from the customer to date
  3. C.The consideration it expects to be entitled to
  4. D.The cost of goods plus a standard margin
Show answer

Answer: C. The consideration it expects to be entitled to

Revenue is measured at the transaction price allocated to each performance obligation. That price reflects discounts, rebates, refunds and other variable amounts, and excludes taxes collected for others. List price and cash received are often different from it.

17. Evidence that goods were delivered

For a sale where control passes on delivery to the customer, which document best supports that revenue has been earned?

  1. A.The customer’s signed sales order
  2. B.A proof of delivery signed by the customer
  3. C.The internal sales forecast for the month
  4. D.The current price list sent to the customer
Show answer

Answer: B. A proof of delivery signed by the customer

A signed proof of delivery (or courier delivery record) shows the customer received the goods, which is when control passed. Orders show intent and invoices show billing, but neither proves delivery. Auditors match invoices to PODs in cut-off testing.

18. Interest earned by a manufacturer

A cement manufacturer earns ₹3 crore of interest on surplus fixed deposits. In the statement of profit and loss under Schedule III, where does this appear?

  1. A.Revenue from operations
  2. B.Finance costs, as a reduction
  3. C.Exceptional items
  4. D.Other income
Show answer

Answer: D. Other income

Revenue from operations covers income from the main business, which here is selling cement. Interest on treasury surpluses is incidental, so it is shown as other income; analysts often exclude it when judging operating performance.

19. Simple free cash flow

A company has operating cash flow of ₹120 crore, capital expenditure of ₹45 crore and dividends paid of ₹20 crore. What is its free cash flow (OCF minus capex)?

  1. A.₹75 crore
  2. B.₹55 crore
  3. C.₹165 crore
  4. D.₹100 crore
Show answer

Answer: A. ₹75 crore

Free cash flow on this common definition is operating cash flow minus capital expenditure: 120 − 45 = ₹75 crore. Dividends are paid out of free cash flow, so they are not deducted to reach it.

20. Why the auditor attends the count

Why does the auditor attend the client’s physical inventory count?

  1. A.To count all the inventory personally
  2. B.To observe count procedures and do test counts, gaining evidence on existence and condition
  3. C.To value inventory at market price
  4. D.To approve purchase orders for the next year
Show answer

Answer: B. To observe count procedures and do test counts, gaining evidence on existence and condition

Under SA 501 / ISA 501, when inventory is material the auditor attends the count, unless impracticable, to evaluate management’s procedures, observe them, inspect the inventory and perform test counts. This gives evidence about existence and condition. The client, not the auditor, does the count.

Accounting intermediate interview questions medium

21. RSUs in a listed company

An offer includes RSUs worth ₹12 lakh at today's share price, vesting over 4 years. What should the candidate understand?

  1. A.The full ₹12 lakh is paid in cash on the first day
  2. B.The value will rise or fall with the share price as it vests
  3. C.The value is fixed at grant and can never change
  4. D.RSUs in a listed company can never be sold at all
Show answer

Answer: B. The value will rise or fall with the share price as it vests

RSU grants are often stated as a value at grant, but what the employee receives depends on the share price on each vesting date. The recruiter should explain the vesting schedule and that the value is not guaranteed.

22. Book value under the WDV method

A vehicle costs ₹1,00,000 and is depreciated at 20% per year on the written down value (reducing balance) method. What is its book value at the end of year 2?

  1. A.₹60,000
  2. B.₹64,000
  3. C.₹80,000
  4. D.₹36,000
Show answer

Answer: B. ₹64,000

Year 1 depreciation is 20% of ₹1,00,000 = ₹20,000, leaving ₹80,000. Year 2 depreciation is 20% of ₹80,000 = ₹16,000, leaving ₹64,000. ₹60,000 would be the straight-line result at 20% of cost each year.

23. Stock lost in a fire with a part claim

Goods costing ₹2,00,000 are destroyed by fire. The insurer admits a claim of ₹1,40,000, to be paid next month. What is the entry?

  1. A.Debit Insurer ₹1,40,000 and Fire loss ₹60,000, credit Purchases ₹2,00,000
  2. B.Debit Loss by fire ₹2,00,000, credit Purchases ₹2,00,000
  3. C.Debit Bank ₹1,40,000, credit Purchases ₹1,40,000 on the fire date
  4. D.Debit Insurance company ₹2,00,000, credit Purchases ₹2,00,000
Show answer

Answer: A. Debit Insurer ₹1,40,000 and Fire loss ₹60,000, credit Purchases ₹2,00,000

The cost of goods lost is removed from purchases. The admitted claim is a receivable from the insurer, and the uninsured ₹60,000 is a loss to profit and loss. When the insurer pays, Bank is debited and the insurance company account credited.

24. A difference divisible by nine

The trial balance is out by ₹2,700. What kind of error should you look for first?

  1. A.Swapped digits, such as ₹4,100 posted as ₹1,400
  2. B.A contra entry that was left out completely
  3. C.An error of principle in a fixed asset account
  4. D.A pair of compensating errors in two accounts
Show answer

Answer: A. Swapped digits, such as ₹4,100 posted as ₹1,400

When digits are swapped or shifted, the difference is always divisible by 9, and ₹2,700 is. For example ₹4,100 entered as ₹1,400 gives ₹2,700. Errors of principle and compensating errors do not create a trial balance difference at all.

25. Cost of a major overhaul every four years

A ship must undergo a regulatory dry-dock inspection every 4 years costing ₹4 crore. How is the inspection cost treated?

  1. A.Expensed as a repair each time it is done
  2. B.Capitalised and depreciated over 4 years
  3. C.Provided for in advance as a liability
  4. D.Ignored as part of normal maintenance cost
Show answer

Answer: B. Capitalised and depreciated over 4 years

Major inspections that are required to keep operating are capitalised as a separate component when performed, if recognition criteria are met. Any remaining carrying amount of the previous inspection is derecognised. Providing in advance is not allowed, as there is no present obligation.

26. Reviewing useful life each year

How often should useful lives and residual values of PPE be reviewed under IAS 16 / Ind AS 16?

  1. A.At least at each financial year end
  2. B.Only when the asset is bought
  3. C.Every five years
  4. D.Only when the auditor asks
Show answer

Answer: A. At least at each financial year end

Useful lives, residual values and depreciation methods must be reviewed at least at each year end. If expectations change, the revision is a change in estimate applied prospectively. Ignoring reviews can leave many fully depreciated assets still in use.

27. A dividend paid by a subsidiary to its parent

A wholly owned subsidiary pays a ₹50 lakh dividend to its parent. How is it treated in the consolidated statements?

  1. A.Shown as dividend income of the group
  2. B.Eliminated as a transfer within the group
  3. C.Shown as a dividend paid to outside investors
  4. D.Added to the goodwill on the subsidiary
Show answer

Answer: B. Eliminated as a transfer within the group

The group cannot earn income from itself. The parent’s dividend income is eliminated against the subsidiary’s dividend in equity on consolidation. Only dividends paid to non-controlling interests or the parent’s own shareholders appear.

28. Due diligence and legal fees on an acquisition

An acquirer pays ₹1.2 crore of legal, valuation and due diligence fees to buy a company. Under IFRS 3 / Ind AS 103, how are these costs treated?

  1. A.Added to the cost of investment and goodwill
  2. B.Capitalised as an intangible asset
  3. C.Expensed in profit or loss as incurred
  4. D.Deducted from the target’s net assets
Show answer

Answer: C. Expensed in profit or loss as incurred

Acquisition-related costs are expensed as incurred because they are not part of the fair value exchanged with the seller. Including them would inflate goodwill. Costs of issuing debt or equity to fund the deal follow IFRS 9 and IAS 32 instead.

29. A free guarantee for a subsidiary’s loan

A parent gives a bank a financial guarantee for its subsidiary’s loan without charging a fee. How is the guarantee treated in the parent’s separate Ind AS statements?

  1. A.Not recognised, because no fee was received for it
  2. B.Disclosed only as a contingent liability in the notes
  3. C.Recognised as an expense equal to the full loan amount
  4. D.At fair value, usually added to the investment in the sub
Show answer

Answer: D. At fair value, usually added to the investment in the sub

A financial guarantee contract is initially recognised at fair value under Ind AS 109. When given free to a subsidiary, the fair value is a capital contribution, so it is added to the investment. Later it is measured at the higher of ECL and the amount initially recognised less amortisation.

30. Selling to a customer unlikely to pay

A company ships goods to a customer in financial distress; at inception it is not probable that it will collect. The customer pays a small non-refundable deposit. How is the deposit treated?

  1. A.As a liability until the IFRS 15 criteria are met
  2. B.As revenue immediately, because it is non-refundable
  3. C.As other income, outside revenue
  4. D.As a reduction in the cost of inventory shipped
Show answer

Answer: A. As a liability until the IFRS 15 criteria are met

If collection is not probable, step 1 fails and no contract exists for IFRS 15. Cash received is a liability until the criteria are met, or until the entity has no remaining obligations and the cash is non-refundable. The criteria are reassessed as facts change.

31. A payment with no remittance advice

A customer with ten open invoices pays a round ₹10 lakh with no remittance details. What is the best practice?

  1. A.Ask the customer; if no instruction, apply oldest first
  2. B.Leave it unapplied in the ledger until year end
  3. C.Treat the whole amount as an advance for future orders
  4. D.Apply it to the newest invoices so the ageing looks better
Show answer

Answer: A. Ask the customer; if no instruction, apply oldest first

Receipts should be applied promptly and correctly. If the customer gives no instruction, contact them; the common default is oldest first, matching how ageing is used for collections and ECL. Parking cash as unapplied distorts ageing and dunning.

32. Allocating a bundle discount

A telecom sells a handset plus a one-year service plan as a bundle for ₹36,000. Standalone prices are ₹30,000 for the handset and ₹10,000 for the plan. How much revenue is allocated to the handset?

  1. A.₹30,000
  2. B.₹26,000
  3. C.₹36,000
  4. D.₹27,000
Show answer

Answer: D. ₹27,000

The transaction price is allocated in proportion to standalone selling prices. The handset is 30,000 ÷ 40,000 = 75% of the total, so it gets 75% × 36,000 = ₹27,000, and the plan gets ₹9,000 spread over the year.

33. Provision or just a disclosure

A company is being sued. Lawyers say losing is possible but not probable, and the amount could be ₹3 crore. What is the correct treatment?

  1. A.Record a ₹3 crore provision
  2. B.Disclose a contingent liability in the notes
  3. C.Record a ₹1.5 crore provision as a midpoint
  4. D.Ignore it until the court rules
Show answer

Answer: B. Disclose a contingent liability in the notes

A provision is recognised only when an outflow is probable (more likely than not) and can be estimated reliably. Here the outflow is only possible, so it is disclosed as a contingent liability; if it were remote, even disclosure would not be needed.

34. Writing off a provided debt

A ₹1 lakh debt that was fully covered by the expected credit loss allowance is now written off. What is the effect on profit at the time of write-off?

  1. A.A ₹1 lakh expense
  2. B.A ₹1 lakh gain
  3. C.No effect on profit
  4. D.A ₹2 lakh expense
Show answer

Answer: C. No effect on profit

The loss was already charged to profit when the allowance was created. Writing the debt off simply reduces both gross receivables and the allowance by ₹1 lakh, so net receivables and profit are unchanged.

35. Gratuity remeasurement loss

An actuarial valuation shows a ₹60 lakh remeasurement loss on the company's gratuity (defined benefit) plan due to lower discount rates. Where is it recognised under Ind AS 19?

  1. A.Finance costs in profit or loss
  2. B.Employee benefit expense in profit or loss
  3. C.Directly in share capital
  4. D.Other comprehensive income
Show answer

Answer: D. Other comprehensive income

Ind AS 19 requires remeasurements of defined benefit plans, including actuarial gains and losses, to go to other comprehensive income. They are never reclassified to profit or loss, so they affect total comprehensive income and equity but not EPS.

36. DTL from faster tax depreciation

A machine has a book value of ₹80 lakh and a tax base of ₹60 lakh because tax depreciation is faster. The tax rate is 25%. What deferred tax balance arises?

  1. A.A deferred tax liability of ₹5 lakh
  2. B.A deferred tax asset of ₹5 lakh
  3. C.A deferred tax liability of ₹20 lakh
  4. D.A deferred tax asset of ₹15 lakh
Show answer

Answer: A. A deferred tax liability of ₹5 lakh

Book value exceeds tax base by ₹20 lakh, a taxable temporary difference: the company has already taken extra tax deductions and will pay more tax later. The liability is 20 × 25% = ₹5 lakh.

37. Measuring a new lease liability

A lease requires ₹10 lakh at the end of each year for 3 years. The incremental borrowing rate is 10%. What lease liability is recognised at the start?

  1. A.₹30.00 lakh
  2. B.About ₹24.87 lakh
  3. C.About ₹27.36 lakh
  4. D.About ₹22.53 lakh
Show answer

Answer: B. About ₹24.87 lakh

The liability is the present value of the payments: 10 × (1/1.1 + 1/1.1² + 1/1.1³) = 10 × 2.4869 = ₹24.87 lakh. The right-of-use asset starts at the same amount, plus any initial direct costs.

38. ESOP cost in the income statement

A company grants 1 lakh options with a grant-date fair value of ₹30 each, vesting after 3 years of service. Assuming all are expected to vest, what is the yearly expense?

  1. A.₹30 lakh
  2. B.₹10 lakh
  3. C.₹3 lakh
  4. D.Nothing until exercise
Show answer

Answer: B. ₹10 lakh

Equity-settled share-based payments are measured at grant-date fair value (1 lakh × 30 = ₹30 lakh) and spread over the vesting period: ₹10 lakh a year. It is a non-cash expense, so it is added back in operating cash flow.

39. How segments are chosen

Under Ind AS 108, on what basis does a listed company decide its reportable operating segments?

  1. A.Equal splits of revenue across the regions
  2. B.How the chief decision maker reviews results
  3. C.The auditor's own choice of business lines
  4. D.The list of legal entities in the group
Show answer

Answer: B. How the chief decision maker reviews results

Ind AS 108 uses the management approach: segments follow the internal reports the chief operating decision maker uses to allocate resources and assess performance. Segments above set size thresholds must then be reported.

40. Auditing slow-moving inventory

Which procedure best tests whether slow-moving inventory is valued correctly?

  1. A.Review the inventory ageing and compare cost with selling prices achieved after year end, less costs to sell
  2. B.Count the items again
  3. C.Confirm inventory with customers
  4. D.Check that purchase orders were approved
Show answer

Answer: A. Review the inventory ageing and compare cost with selling prices achieved after year end, less costs to sell

The risk for slow-moving or obsolete stock is that net realisable value has fallen below cost. Ageing reports show which items have not moved, and actual selling prices after year end show what they can really be sold for. Where NRV is below cost, a write-down is needed.

Accounting interview questions for experienced candidates hard

41. A 10-month equipment lease

A company rents equipment for 10 months with no purchase option and no extension option. It has elected the short-term lease exemption for this class of asset. How is the lease accounted for under IFRS 16 / Ind AS 116?

  1. A.A right-of-use asset and lease liability are recognised at present value
  2. B.The full 10 months of payments are expensed on day one
  3. C.It is capitalised as property, plant and equipment
  4. D.Lease payments are expensed on a straight-line basis over the 10 months
Show answer

Answer: D. Lease payments are expensed on a straight-line basis over the 10 months

A lease of 12 months or less with no purchase option qualifies as short-term. If the exemption is elected, no right-of-use asset or lease liability is recognised, and payments are expensed on a straight-line or other systematic basis over the lease term. Low-value assets have a similar exemption.

42. Bargain purchase gain under Ind AS

An Indian company acquires a business for less than the fair value of the net assets acquired, and there is clear evidence of a bargain purchase. Under Ind AS 103, how is the gain generally recognised?

  1. A.In profit or loss for the year, as under IFRS 3
  2. B.As negative goodwill under non-current assets
  3. C.In other comprehensive income and accumulated in equity as capital reserve
  4. D.As deferred income spread over five years
Show answer

Answer: C. In other comprehensive income and accumulated in equity as capital reserve

This is one of the well-known Ind AS carve-outs from IFRS. IFRS 3 recognises a bargain purchase gain in profit or loss, but Ind AS 103 recognises it in OCI and accumulates it in capital reserve, or directly in capital reserve when there is no clear evidence of a bargain purchase. Before recognising any gain, the acquirer must recheck that all assets and liabilities were identified and measured correctly.

43. Reverse charge on advocate fees

A registered company receives an invoice of ₹50,000 from an individual advocate. GST of 18% is payable by the company under reverse charge, and the credit is eligible. Which entry is correct when the tax is paid?

  1. A.Debit Legal fees ₹59,000, credit Advocate ₹59,000
  2. B.Debit Legal fees ₹50,000, credit Advocate ₹50,000 and nothing else
  3. C.Debit Legal fees ₹50,000, Input GST ₹9,000; credit Advocate ₹59,000
  4. D.Debit Legal fees ₹50,000, RCM input ₹9,000; credit Advocate ₹50,000, Bank ₹9,000
Show answer

Answer: D. Debit Legal fees ₹50,000, RCM input ₹9,000; credit Advocate ₹50,000, Bank ₹9,000

Under reverse charge the recipient pays the GST directly to the government, so the advocate is owed only ₹50,000. RCM tax must be paid in cash, not from existing credit. Once paid, the company can claim the ₹9,000 as input tax credit, so it is not a cost.

44. A sale posted to sales but not the customer

A ₹3,000 credit sale was posted correctly to the Sales account but never posted to the customer’s account. The trial balance difference was put to suspense. What entry corrects it?

  1. A.Debit Suspense ₹3,000, credit Customer ₹3,000
  2. B.Debit Customer ₹3,000, credit Sales ₹3,000
  3. C.Debit Customer ₹3,000, credit Suspense ₹3,000
  4. D.Debit Sales ₹3,000, credit Suspense ₹3,000
Show answer

Answer: C. Debit Customer ₹3,000, credit Suspense ₹3,000

The credit was posted but the debit was missing, so the debit side was short and suspense held a ₹3,000 debit. Posting the missing debit to the customer and crediting suspense fixes both. Crediting Sales again would double count revenue.

45. Selling samples made during trial runs

While testing a new plant before it is ready for use, a company produces and sells samples for ₹20 lakh. After the 2022 amendment to IAS 16 / Ind AS 16, how are these proceeds treated?

  1. A.Deducted from the cost of the new plant
  2. B.Credited directly to capital reserve
  3. C.In profit or loss, with the cost of the samples
  4. D.Deferred until the plant is ready for use
Show answer

Answer: C. In profit or loss, with the cost of the samples

The amendment prohibits deducting sale proceeds of items produced before the asset is ready for use from its cost. Proceeds and the related costs measured under IAS 2 are recognised in profit or loss. The cost of testing whether the asset works properly is still capitalised.

46. A machine paid for after two years

A machine with a cash price of ₹90 lakh is bought on terms to pay ₹1 crore after two years, well beyond normal credit. What is recorded as the machine’s cost?

  1. A.₹90 lakh, with ₹10 lakh recognised as interest over two years
  2. B.₹1 crore
  3. C.₹95 lakh
  4. D.₹90 lakh, with ₹10 lakh added to the cost later
Show answer

Answer: A. ₹90 lakh, with ₹10 lakh recognised as interest over two years

When payment is deferred beyond normal credit terms, cost is the cash price equivalent. The difference from the total payment is interest, recognised over the credit period, unless capitalised as a borrowing cost for a qualifying asset. The machine is depreciated on ₹90 lakh.

47. Deemed cost when moving to Ind AS

An Indian company is adopting Ind AS. Which option does Ind AS 101 give for measuring PPE in the opening Ind AS balance sheet?

  1. A.Only full retrospective restatement of every asset under Ind AS 16
  2. B.Revalue every asset to fair value at each year end from then on
  3. C.Measure all PPE at the tax written-down value
  4. D.Use previous GAAP carrying amounts, or fair value for chosen items, as deemed cost
Show answer

Answer: D. Use previous GAAP carrying amounts, or fair value for chosen items, as deemed cost

Ind AS 101 allows an entity to continue previous GAAP carrying values for all PPE as deemed cost (with decommissioning adjustments), a common Indian choice. Alternatively, fair value at transition can be deemed cost for items chosen. Full retrospective application is also allowed.

48. Moving a loan to stage 2

An NBFC has a loan whose borrower is now 35 days past due. Under the Ind AS 109 general approach, what is the default presumption?

  1. A.The loan is credit-impaired, so it moves to stage 3
  2. B.Credit risk has risen significantly: stage 2, lifetime ECL
  3. C.Nothing changes until the loan is 90 days past due
  4. D.The loan must be written off in full immediately
Show answer

Answer: B. Credit risk has risen significantly: stage 2, lifetime ECL

Ind AS 109 has a rebuttable presumption that credit risk has increased significantly when payments are more than 30 days past due. The loan moves from 12-month ECL to lifetime ECL. More than 90 days past due is the rebuttable presumption for default.

49. Factoring receivables with recourse

A company sells ₹5 crore of receivables to a factor for ₹4.8 crore cash, but must repay the factor for any customer defaults. How does it account for this?

  1. A.Derecognise the receivables and book a ₹20 lakh loss
  2. B.Derecognise half the receivables and keep the rest
  3. C.Keep the receivables and record a ₹4.8 crore liability
  4. D.Show the ₹4.8 crore of cash received as revenue
Show answer

Answer: C. Keep the receivables and record a ₹4.8 crore liability

With full recourse, the company keeps substantially all the credit risk, so the derecognition test is failed. The cash is treated as a secured borrowing. The receivables stay on the balance sheet and the ₹20 lakh difference is recognised as finance cost over time.

50. Using cost for unquoted shares

A company holds a small stake in an unlisted startup at FVTPL. The latest funding round was three years ago and the startup has since missed its plans badly. Can it keep using cost as fair value?

  1. A.Yes, cost is always acceptable for unquoted shares
  2. B.No; these facts suggest cost no longer reflects fair value
  3. C.Yes, because no active market exists for the shares
  4. D.No; it must write the stake down to zero at once
Show answer

Answer: B. No; these facts suggest cost no longer reflects fair value

IFRS 9 allows cost as an estimate of fair value only when recent information is insufficient and cost represents the best estimate. Significant underperformance against plans is listed as an indicator that cost is not representative. A valuation is needed, not an automatic write-off.

51. A price dispute settled after year end

At 31 March a customer was disputing the price on ₹40 lakh of March deliveries. In April, before the accounts are approved, it is settled with a ₹6 lakh credit note. How is this treated?

  1. A.Reduce March revenue by ₹6 lakh (adjusting)
  2. B.Book the credit note in April only
  3. C.Disclose it as a non-adjusting event
  4. D.Treat it as a bad debt expense in March
Show answer

Answer: A. Reduce March revenue by ₹6 lakh (adjusting)

The dispute existed at year end, and the settlement gives evidence of the amount the entity was entitled to. It is an adjusting event, and the variable consideration estimate for March is updated. It is a price adjustment, not a credit loss.

52. A customer goes insolvent midway

A company has been providing monthly services under a 2-year contract. In month 10 the customer enters insolvency and further payment is no longer probable. What is the right accounting?

  1. A.Reverse all revenue recognised since month one
  2. B.Continue recognising revenue and provide for it later
  3. C.Treat the insolvency as a contract modification
  4. D.Stop future revenue; test existing receivables for ECL
Show answer

Answer: D. Stop future revenue; test existing receivables for ECL

Collectability is reassessed when there is a significant change in facts. If it is no longer probable, the contract fails step 1 going forward, so no further revenue is recognised until the criteria are met. Revenue already earned is not reversed; existing receivables are impaired instead.

53. Lease accounting and EBITDA

Under Ind AS 116 / IFRS 16, a retailer brings its store leases onto the balance sheet. Compared with the old method of expensing rent, what happens to reported EBITDA?

  1. A.EBITDA falls, because rent becomes larger
  2. B.EBITDA is unchanged
  3. C.EBITDA rises, because rent is replaced by depreciation and interest
  4. D.EBITDA becomes negative
Show answer

Answer: C. EBITDA rises, because rent is replaced by depreciation and interest

The lease rent is no longer an operating expense. Instead the company records depreciation on a right-of-use asset and interest on a lease liability, both below EBITDA. EBITDA and reported debt both rise, so analysts adjust comparisons with older periods or peers.

54. Research and development split

A pharma company spent ₹30 crore on early research and then ₹50 crore on development after technical feasibility and all other Ind AS 38 criteria were met. What does the year's P&L show?

  1. A.₹80 crore expense
  2. B.₹80 crore capitalised as an intangible
  3. C.₹50 crore expense; ₹30 crore capitalised
  4. D.₹30 crore expense; ₹50 crore capitalised
Show answer

Answer: D. ₹30 crore expense; ₹50 crore capitalised

Ind AS 38 requires all research costs to be expensed, because future benefits are too uncertain. Development costs are capitalised only once criteria such as technical feasibility, intention and ability to complete, and probable benefits are met, so the ₹50 crore becomes an intangible asset.

55. Extra shares from stock options

Employees hold 10 lakh vested options with an exercise price of ₹40. The average market price in the year was ₹50. How many incremental shares go into diluted EPS?

  1. A.10 lakh
  2. B.8 lakh
  3. C.2.5 lakh
  4. D.2 lakh
Show answer

Answer: D. 2 lakh

The treasury stock method assumes exercise proceeds (10 lakh × 40 = ₹4 crore) buy back shares at the average price: 4 crore ÷ 50 = 8 lakh shares. Only the shortfall, 10 − 8 = 2 lakh shares, is added to the denominator.

56. EPS after a 1:1 bonus issue

Last year's reported EPS was ₹20. This year the company made a 1:1 bonus issue. What prior-year EPS is shown as the comparative this year?

  1. A.₹20
  2. B.₹10
  3. C.₹40
  4. D.₹13.33
Show answer

Answer: B. ₹10

A bonus issue doubles the share count with no new cash, so it is treated as if it happened at the start of the earliest period shown. Prior-year EPS is restated using the new share count: 20 ÷ 2 = ₹10, which keeps the two years comparable.

57. Covenant breach at year-end

At 31 December a company breaches a covenant, making a 5-year loan repayable on demand. The bank grants a waiver in January, before the accounts are approved. Under IAS 1, how is the loan classified at 31 December?

  1. A.Non-current, because the waiver was obtained
  2. B.Current, because the waiver came after year-end
  3. C.Split evenly into current and non-current
  4. D.Off-balance sheet until the waiver expires
Show answer

Answer: B. Current, because the waiver came after year-end

IAS 1 classifies a liability using the right to defer settlement at the reporting date. At 31 December the company had no such right, so the loan is current; the January waiver is a non-adjusting event. Note that Ind AS 1 has a carve-out that allows non-current if the lender agrees before approval.

58. Cash tax with a deferred element

Total tax expense is ₹30 crore: ₹22 crore current and ₹8 crore deferred. Current tax payable rose by ₹4 crore during the year. How much tax was paid in cash?

  1. A.₹26 crore
  2. B.₹22 crore
  3. C.₹18 crore
  4. D.₹30 crore
Show answer

Answer: C. ₹18 crore

Deferred tax is a non-cash accounting charge, so only current tax drives payments. Cash paid = current tax − increase in payable = 22 − 4 = ₹18 crore. Starting from total tax of ₹30 crore would overstate the cash outflow.

59. Cash paid to suppliers

COGS is ₹400 crore. Inventory went from ₹60 crore to ₹75 crore and trade payables from ₹50 crore to ₹45 crore. All purchases are on credit. How much cash was paid to suppliers?

  1. A.₹415 crore
  2. B.₹420 crore
  3. C.₹410 crore
  4. D.₹380 crore
Show answer

Answer: B. ₹420 crore

Purchases = COGS + closing inventory − opening inventory = 400 + 75 − 60 = ₹415 crore. Payments = purchases + opening payables − closing payables = 415 + 50 − 45 = ₹420 crore. Both the inventory build and the lower payables used cash.

60. Reverse factoring and operating cash

A company starts a supplier finance (reverse factoring) programme: a bank pays suppliers on day 30 and the company pays the bank on day 120, still shown as trade payables. What should an analyst check first?

  1. A.Nothing, since payables stay payables
  2. B.Supplier finance notes, as OCF may be flattered
  3. C.Whether revenue recognition changed
  4. D.Whether the tax rate has fallen
Show answer

Answer: B. Supplier finance notes, as OCF may be flattered

Stretching payment terms through a bank raises payables and boosts operating cash flow, while the arrangement behaves much like short-term debt. Amendments to IAS 7 and IFRS 7, effective from 2024, require disclosure of terms, amounts and payment ranges so analysts can adjust.

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