JAIIB Paper 3 Mock 2

The IASB develops and issues IFRS Accounting Standards; regulators in each jurisdiction determine their application.

Changes in estimates reflect revised information and are generally recognised prospectively, unlike retrospective correction of material prior-period errors under the applicable framework.

Cash increases as an asset and capital/equity increases correspondingly.

Equity = Assets − Liabilities = ₹9,20,000 − ₹3,70,000 = ₹5,50,000.

The traditional rule for nominal accounts is to debit expenses/losses and credit incomes/gains.

Imprest replenishment normally equals supported petty-cash expenditure, restoring the float to its fixed level.

The purchase returns book records returns of goods previously purchased on credit.

Cash and discount allowed together settle the full debtor balance: ₹19,500 + ₹500 = ₹20,000.

The excess of debit over credit is the account’s debit balance, carried down on the credit side to balance it.

Bank statement balance = ₹48,000 + ₹7,500 − ₹4,000 = ₹51,500, assuming no other differences.

The dishonoured cheque means the cash book overstated its bank position by ₹6,000; reversing it increases the overdraft to ₹24,000.

It incorrectly treats capital expenditure as revenue expenditure, violating the proper accounting classification.

The amount is recorded but posted to an incorrect account of the same general class, which is an error of commission.

Once the cause is identified, the correction should eliminate the suspense balance attributable to that error.

Six months of service is ₹18,000/6 = ₹3,000 per month. Three months remain after 31 March, so unearned revenue is ₹9,000.

Six months (April–September is not the relevant period; Oct–Mar = six months) have expired by 31 March, leaving six months prepaid: ₹24,000 × 6/12 = ₹12,000.

Carrying amount = ₹2,00,000 − ₹1,40,000 = ₹60,000; proceeds ₹52,000, so loss = ₹8,000.

Annual depreciation = ₹3,60,000/6 = ₹60,000; three months = ₹60,000 × 3/12 = ₹15,000.

FIFO assumes oldest units are issued first, so closing inventory consists of more recently purchased units.

Overstated closing inventory reduces cost of goods sold and therefore overstates profit, all else equal.

Acceptance makes the drawee (acceptor) primarily liable to pay according to the bill’s terms.

A promissory note is an unconditional promise by its maker to pay; a bill of exchange is an order to another person.

Sixty days from 10 June is 9 August; adding three days of grace gives 12 August, subject to applicable bill rules and holidays.

Risk-based audit allocates effort according to risk, control weaknesses and materiality rather than applying identical effort everywhere.

Stationery consumed = ₹9,000 purchased − ₹2,000 unused = ₹7,000; the unused portion is carried as a prepaid/current asset where appropriate.

Assets = Liabilities + Equity; with liabilities unchanged, an increase in assets must be matched by an equal increase in equity.

Closing inventory is a current asset and is also used in determining cost of goods sold when not already adjusted in the trial balance.

Outstanding rent is charged to the period incurred and recognised as a payable liability.

Bad debts reduce the amount expected to be collected and are recognised as an expense under the applicable accounting policy.

Premium per share is ₹3; ₹3 × 10,000 shares = ₹30,000 credited to securities premium.

Calls in arrears are amounts called on shares that shareholders have failed to pay by the due date.

Cumulative terms carry forward unpaid preference dividends, subject to the applicable legal and contractual conditions.

A bonus issue converts eligible reserves into share capital and does not itself bring in new cash.

Trade payables are obligations arising from purchases/services and are normally current liabilities unless classification criteria indicate otherwise.

Ind AS 116 sets out lease accounting requirements for lessees and lessors, subject to its scope and exemptions.

Customer receipts arise from the entity’s principal revenue-producing activities and are ordinarily operating cash flows.

Purchase of long-term productive assets is an investing activity under the cash-flow framework.

Issuing shares changes the entity’s contributed equity and is a financing activity.

An increase in receivables means some recognised revenue has not yet been collected, reducing cash generated relative to profit.

Traditional funds-flow analysis often focuses on changes in working capital, unlike a cash-flow statement focused on cash and cash equivalents.

Deposits are amounts the bank owes to depositors and are therefore liabilities.

Interest paid/payable to depositors is a cost of funds and is shown as interest expense under the applicable reporting format.

Loans and advances are financial assets representing amounts due to the bank, with applicable impairment/provisioning and presentation requirements.

Notes give additional accounting policies, breakdowns and disclosures needed to understand the financial statements.

Basel Pillar 3 promotes market discipline through disclosure; Pillars 1 and 2 address minimum requirements and supervisory review.

CBS integrates customer/account information and transaction processing across branches, subject to system controls and availability.

Role-based permissions enforce least privilege and segregation of duties.

Audit trails record the sequence and attribution of transactions or changes, supporting accountability and investigation.

Automation still requires controlled rules, exception review, authorised adjustments and auditability.

A contingent liability depends on uncertain future events and is generally disclosed rather than recognised unless the applicable recognition criteria are met.

Operating margin = operating profit ÷ revenue × 100 = 3.75/25 × 100 = 15%.

ROE = net profit ÷ average equity × 100 = 6/40 × 100 = 15%.

Inventory turnover = COGS ÷ average inventory = ₹18 lakh ÷ ₹3 lakh = 6 times.

Receivables days = average receivables ÷ annual credit sales × 360 = 3/36 × 360 = 30 days.

Interest coverage = EBIT ÷ interest = ₹8 lakh ÷ ₹2 lakh = 4 times.

Net working capital = current assets − current liabilities = ₹15 lakh − ₹11 lakh = ₹4 lakh.

Amount = ₹50,000 × 1.08³ = ₹62,985.60, approximately ₹62,986.

EAR = (1 + 0.09/4)^4 − 1 ≈ 9.31%.

Future value of ordinary annuity = 10,000 × [((1.10)^3 − 1)/0.10] = ₹33,100.

With a fixed rate, interest is calculated on outstanding principal; as principal reduces, the interest component generally falls.

Annual coupon = ₹70; current yield = ₹70/₹950 × 100 ≈ 7.37%.

A bond price above face value is a premium; below face value is a discount.

Modified duration estimates percentage price sensitivity to yield changes; a higher value generally means greater sensitivity.

The dealer buys the foreign currency at its bid; the customer selling USD receives the bid rate, ignoring specific bank/customer conventions stated otherwise.

For the stated quotation convention, a forward rate below spot means fewer domestic currency units per foreign unit forward, i.e. a forward discount on the foreign currency.

Arbitrage exploits inconsistent prices to secure a profit under the assumptions of the opportunity; real-world costs and constraints matter.

Fixed interest obligations amplify changes in residual earnings available to shareholders, increasing financial risk.

High fixed costs magnify the effect of sales changes on operating profit, producing higher operating leverage.

After-tax debt cost = 8% × (1 − 0.25) = 6%; WACC = 0.5×14% + 0.5×6% = 10%.

NPV = ₹4.6 lakh − ₹5 lakh = −₹0.4 lakh; a negative NPV fails the required-return test, all else equal.

Profitability index = PV of inflows ÷ initial outlay = 10/8 = 1.25.

Cash conversion cycle = inventory days + receivables days − payables days = 45 + 30 − 25 = 50 days.

Forfaiting commonly involves purchasing export receivables, often evidenced by bills or notes, on a without-recourse basis.

A standard interest-rate swap exchanges fixed and floating interest cash flows on a notional amount; principal is typically not exchanged.

The Income-tax Act, 2025 uses “tax year” in place of “previous year” and discontinues the “assessment year” terminology for tax years beginning on or after 1 April 2026. For an existing business, the tax year is the twelve-month financial year beginning 1 April.

Residential status is tested for the relevant year under the applicable statutory conditions; citizenship alone does not determine it in every case.

TDS collects tax during the year on specified payments; final liability and return obligations depend on applicable law and facts.

TCS is collected by a specified seller/collector from the buyer or payer on transactions covered by law.

Advance tax is a pay-as-you-earn mechanism for taxpayers meeting statutory conditions, with instalments and exceptions specified by law.

A taxable temporary difference is expected to increase taxable amounts in future periods and generally creates a deferred tax liability, subject to recognition exceptions.

GST’s statutory definition covers specified transactions and also includes deemed supplies/other provisions; employee services in the course of employment are generally outside supply under Schedule III.

ITC avoids cascading for eligible business inputs but is subject to statutory conditions, restrictions and documentation.

Tax invoices are prescribed supply documents and support tax reporting and eligible credit claims, but do not alone prove every other tax condition.

Fixed costs remain constant in total within the relevant range, though fixed cost per unit changes as output changes.

Total variable cost = ₹45 × 800 = ₹36,000.

Prime cost comprises direct costs traceable to the cost unit: direct materials, direct labour and direct expenses.

Conversion cost represents costs of converting materials into finished goods and typically includes direct labour and production overhead.

A predetermined rate allocates budgeted overhead using a selected activity base such as labour hours or machine hours.

Job costing accumulates costs separately for each identifiable job, order or contract.

Equivalent units for conversion = 500 × 60% = 300 units.

Abnormal losses exceed expected normal process loss and are separately identified rather than absorbed as normal cost.

Contribution = sales − variable costs = ₹7,50,000 − ₹4,80,000 = ₹2,70,000.

Break-even sales = fixed costs ÷ P/V ratio = ₹2 lakh ÷ 0.40 = ₹5 lakh.

Margin of safety = actual sales − break-even sales = ₹12 lakh − ₹9 lakh = ₹3 lakh.

Total budgeted cost = fixed cost ₹80,000 + variable cost (₹40 × 1,500) ₹60,000 = ₹1,40,000.

Programme budgeting links allocations to programmes, objectives and expected results rather than only to input categories.

Price variance = (standard price − actual price) × actual quantity = (5 − 5.50) × 2,000 = ₹1,000 adverse.

Standard hours for output = 300; excess actual hours = 20. Variance = (SH − AH) × SR = (300 − 320) × ₹200 = ₹4,000 adverse.

The Business Entity (or Separate Entity) concept states that the owner and the business are distinct and separate entities for accounting purposes.

A positive NPV indicates that the project’s discounted cash inflows exceed its initial cash outflows, thereby adding value to the firm.