JAIIB Paper 3 Mock 3

ITC depends on statutory conditions and restrictions, including eligible business use and required documentation.

GST supply is defined by statute and includes specified deemed supplies and exceptions; the full legal definition must be applied.

A factory supervisor supports production but is not normally traceable to one unit, so the cost is production overhead/indirect labour.

Prime cost = direct materials + direct labour + direct expenses = ₹1,80,000 + ₹95,000 + ₹15,000 = ₹2,90,000.

Passenger-kilometre combines passenger numbers and distance and is commonly used in passenger transport costing.

Job costing accumulates material, labour and overhead by identifiable job or order.

Normal loss is expected under efficient operating conditions and is generally reflected in the cost of good output.

Equivalent units allow costs to be assigned between completed output and work in progress based on completion percentages.

Joint products share common processing costs up to a split-off point; joint costs then require an allocation method.

Retention money is withheld by the customer until contract conditions or defect-liability requirements are met.

Usage variance = (standard quantity − actual quantity) × standard price = (4,800−5,000)×₹12 = ₹2,400 adverse.

Material mix variance isolates the cost impact of changing the proportion of inputs from the standard mix.

Rate variance = actual hours × (standard rate − actual rate) = 1,200×(₹180−₹190) = ₹12,000 adverse.

Fixed-overhead expenditure variance = budgeted fixed overhead − actual fixed overhead = ₹2,00,000 − ₹2,10,000 = ₹10,000 adverse.

Contribution per unit = selling price − variable cost = ₹250 − ₹160 = ₹90.

Break-even units = fixed costs/contribution per unit = ₹3,60,000/₹120 = 3,000 units.

Required units = (fixed costs + target profit)/contribution = (₹2,40,000+₹1,20,000)/₹80 = 4,500 units.

Absorption costing includes fixed and variable manufacturing/production costs in product cost, subject to the applicable costing framework.

A flexible budget adjusts variable and semi-variable costs to actual activity, enabling a more meaningful comparison.

A cash budget forecasts cash flows and helps identify future liquidity needs and financing surpluses.

ZBB evaluates and justifies spending packages rather than treating prior-period budgets as an automatic baseline.

The business is treated as separate from its owner; personal expenses should not be charged to business expenses.

Where applicable recognition criteria are met, a provision can be recognised for a present obligation when an outflow is probable and can be estimated reliably.

The expense is recognised in the period in which electricity was consumed, not merely when payment occurs.

Liabilities = Assets − Equity = ₹18.4 lakh − ₹11.9 lakh = ₹6.5 lakh.

Furniture is a fixed asset increasing by debit; the bank balance decreases and is credited.

A contra entry records transfers between the cash and bank columns, such as depositing cash into the bank.

Credit purchases of goods for resale are entered in the purchases day book; cash purchases are recorded in the cash book.

The supplier is a creditor; crediting the personal account records an increase in the amount owed.

The cash book must be updated for the bank debit by recognising interest expense and reducing the bank balance.

Purchases is understated by ₹900 while the supplier credit is correct; debit Purchases by the difference.

A transaction omitted entirely from both sides does not create a debit-credit difference.

Suspense is temporary while a difference is investigated; the underlying error should be found and corrected.

The WDV method applies a constant percentage to the remaining book value, so the charge usually declines over time.

Depreciable amount = ₹2,40,000 − ₹24,000 = ₹2,16,000; annual charge = ₹2,16,000 ÷ 6 = ₹36,000.

The excess of carrying amount over recoverable amount is recognised as an impairment loss, subject to the relevant standard.

Directly attributable costs needed to bring an asset to the location and condition necessary for operation are generally capitalised.

Recoverable taxes are generally not part of inventory cost; non-recoverable taxes may be included, subject to applicable standards.

An endorser signs to transfer the instrument; the person receiving it is the endorsee.

Noting charges are generally recoverable from the party liable on the dishonoured instrument, subject to the applicable legal rules.

Principal recovery reduces the outstanding loan asset; it is not interest income.

Unmatched inter-office items require investigation, confirmation, ageing and authorised resolution, not automatic write-off.

External confirmation obtained directly by the auditor is generally more reliable than internally generated or verbal evidence.

Auditing one’s own operational decisions creates a self-review threat and undermines objectivity.

A revision based on new information is normally applied prospectively rather than restating prior periods.

Interest accrued to depositors represents an obligation and is recognised according to the applicable accounting policy.

Closing inventory is included as a current asset and used in calculating cost of goods sold, subject to the applicable reporting framework.

An expected-credit-loss framework recognises a forward-looking estimate of credit losses in accordance with the relevant standard.

The excess of issue price over face value is share premium, subject to applicable company law and accounting treatment.

Share forfeiture requires compliance with applicable company law, the articles and due process; accounting entries follow the legal action.

Cumulative terms allow unpaid preference dividends to accumulate, subject to the share terms and applicable law.

A dividend is a distribution to owners and reduces equity when recognised under the applicable rules.

Acquisition of a long-term investment is generally an investing activity, subject to the applicable cash-flow standard and entity-specific rules.

Depreciation reduces accounting profit but does not itself involve a current-period cash outflow, so it is added back in the indirect reconciliation.

The transaction exchanges equity for a non-current asset without cash; significant non-cash investing/financing transactions are excluded from cash totals and disclosed as required.

Commission is non-interest income when recognition criteria are met under the bank’s accounting policy and applicable standards.

Impairment is recognised through profit or loss and an allowance/adjustment to the carrying value, according to the applicable framework.

Contingent liabilities may create future exposure and are disclosed according to regulatory and accounting requirements.

Pillar 2 addresses supervisory review of capital adequacy and risk-management processes; Pillar 1 covers minimum requirements and Pillar 3 market discipline.

Capital disclosures provide information about regulatory capital, risk-weighted exposures and related measures.

CBS corrections should be authorised and traceable, preserving the audit trail and complying with bank procedures.

Maker-checker is a segregation-of-duties control that reduces the risk of unauthorised or erroneous transactions.

A disaster recovery site supports continuity or restoration of systems and services after a disruptive event.

Control accounts summarise subsidiary ledgers and help identify discrepancies when reconciled.

Cash equivalents are held to meet short-term cash commitments and carry insignificant risk of changes in value.

Revenue is recognised as control transfers and performance obligations are satisfied, subject to the relevant standard.

The general lessee model recognises a right-of-use asset and lease liability, with specified exemptions and measurement requirements.

Control totals help identify missing, duplicated or inconsistent transaction processing at batch or system level.

Significant accounting policies explain the basis used to prepare financial statements and improve comparability and understanding.

Logs support traceability and accountability; they do not by themselves prevent every error or fraud.

Quick assets = ₹7.2 lakh − ₹1.8 lakh = ₹5.4 lakh; quick ratio = ₹5.4 lakh/₹3 lakh = 1.8:1.

Debt-equity ratio = debt/equity = ₹24 lakh/₹16 lakh = 1.5:1.

ROA = ₹2.4 lakh/₹48 lakh × 100 = 5%.

Cash conversion cycle = inventory days + receivable days − payable days = 42 + 28 − 25 = 45 days.

Simple interest = P × R × T = ₹80,000 × 7.5% × 8/12 = ₹4,000.

Amount = ₹1,00,000 × 1.06² = ₹1,12,360; compound interest = ₹12,360.

PV = ₹1,21,000/(1.10)² = ₹1,00,000.

PV = 5,000 × [1 − (1.10)^−3]/0.10 ≈ ₹12,434.

With a level instalment and declining outstanding principal, interest generally declines and more of the instalment repays principal.

Current yield = annual coupon ₹80/market price ₹1,040 × 100 ≈ 7.69%.

For a standard discount bond, pull-to-par gains contribute to yield, so YTM is generally above current yield under conventional assumptions.

Macaulay duration weights each cash-flow time by its present value as a proportion of bond price.

NPV = present value of inflows − initial cost = ₹1,12,000 − ₹1,00,000 = ₹12,000.

IRR is the rate at which the present value of inflows equals the present value of outflows, giving NPV of zero.

Payback period = initial investment/annual cash inflow = ₹2,40,000/₹60,000 = 4 years.

After-tax debt cost = 8% × (1−0.25) = 6%; WACC = 0.60×14% + 0.40×6% = 10.8%.

High fixed operating costs amplify the percentage change in operating profit arising from a change in sales, all else equal.

Longer inventory holding increases the time cash is tied up before sale, lengthening the cash conversion cycle.

Non-recourse factoring usually transfers specified debtor credit risk to the factor, but contract exclusions and disputes may remain with the seller.

The forward premium/discount is measured by comparing the forward exchange rate with the spot rate using the quotation convention.

The bank buys EUR at its bid rate; the customer selling EUR receives the bid, under the stated quote convention.

If USD strengthens, more domestic currency is needed to buy the same USD amount; a suitable hedge can reduce this risk.

A standard interest-rate swap exchanges interest cash flows calculated on a notional amount; the notional is generally not exchanged.

Call payoff = max(spot − strike, 0) = max(₹118 − ₹100, 0) = ₹18.

Leasing can preserve upfront cash and provide asset use; economics, accounting, tax and contract terms determine its overall benefit.

The Income-tax Act, 2025 came into force on 1 April 2026, subject to its commencement and transitional provisions.

TDS requires a payer to deduct tax from specified payments and deposit it as required, subject to applicable thresholds and exemptions.

Taxable temporary differences generally create future taxable amounts and therefore deferred tax liabilities, subject to the applicable standard’s exceptions.

Activity or turnover ratios measure how efficiently a company utilizes its assets and resources, such as inventory or debtors.

Fixed costs do not change with changes in the volume of production (e.g., rent, manager salaries) over a short-term relevant range.