JAIIB Paper 3 Module A Quiz 1

Accounting systematically identifies, measures, records, classifies and communicates financial information to users for decision-making. It supports stewardship and accountability but does not guarantee profitability and is broader than cash recording or tax preparation.

The going-concern assumption presumes that an entity will continue its operations for the foreseeable future and will not be forced to liquidate or materially curtail operations. This affects asset valuation and the classification of assets and liabilities.

Ind AS are notified by the Ministry of Corporate Affairs under the Companies Act framework, after the prescribed standard-setting and consultation process. The ICAI plays an important role in recommending standards, while MCA notification gives them legal force for applicable entities.

Accounting standards establish common recognition, measurement, presentation and disclosure requirements. They improve comparability and reliability but do not eliminate judgement or guarantee higher profits.

International Financial Reporting Standards are issued by the International Accounting Standards Board (IASB). IFRS aims to support transparent and comparable financial reporting across jurisdictions; estimates and judgement remain necessary.

US GAAP and IFRS are distinct frameworks. Although convergence has reduced some differences, particular treatments, terminology and detailed requirements can still differ. Neither is an RBI-issued tax accounting system.

Transfer pricing concerns prices charged in transactions between associated enterprises, including cross-border related-party dealings. Tax rules commonly require an arm’s-length basis to reduce profit shifting and protect the tax base.

Under accrual accounting, income is recognised when earned and expenses when incurred, subject to the applicable standards, rather than solely when cash is received or paid. This better matches activity to the relevant period.

Prudence requires caution when making judgements under uncertainty. It does not permit deliberate bias or hidden reserves; it aims to avoid overstating assets or income and understating liabilities or expenses.

Double-entry accounting records the dual effect of every transaction. Total debits must equal total credits, which helps preserve the accounting equation and supports error detection.

The stationery expense increases, so it is debited; cash decreases, so it is credited. If material stationery is held as inventory under the entity’s policy, the initial treatment may differ, but ordinary consumed office stationery is generally expensed.

Cash, an asset, increases and is debited. The proprietor’s capital/equity also increases and is credited. The transaction is not revenue because it is an owner contribution.

Furniture is a tangible asset and is classified as a real account under the traditional personal/real/nominal classification. Rent and commission are nominal accounts; salary payable is a personal liability account.

The journal records transactions chronologically; the ledger groups postings by individual accounts, allowing balances such as cash, debtors, creditors, expenses and capital to be determined.

Subsidiary books specialise in particular transaction types, such as credit purchases of goods or credit sales. They improve efficiency and control; totals are later posted to relevant ledger accounts.

The purchases book generally records credit purchases of goods dealt in by the business. Cash purchases, fixed-asset purchases and expenses are normally recorded in the cash book or journal proper, depending on the system.

A contra entry records transfers between cash and bank, such as cash deposited into the bank or cash withdrawn from the bank for office use. Both cash and bank columns are affected, so no separate ledger posting is generally needed.

Suppliers are creditors. A credit balance in a supplier’s account generally indicates the amount the business owes that supplier, subject to any special circumstances or adjustments.

Debit and credit are recording sides, not synonyms for increase and decrease. Debits usually increase assets and expenses, while credits usually increase liabilities, equity and income; the effect depends on the account category.

The matching concept aims to recognise expenses in the same reporting period as the related revenues, where the applicable accounting framework permits. It helps measure periodic performance meaningfully.

Production budget = sales + desired closing stock − opening stock = 700 + 120 − 200 = 620 units.

Labour rate variance = actual hours × (standard rate − actual rate) = 220 × (₹21 − ₹23) = ₹-440. A higher actual rate creates an adverse variance.

Units to produce = budgeted sales + desired closing inventory − opening inventory, subject to production constraints and the entity’s budgeting policy.

Production budget = sales + desired closing stock − opening stock = 725 + 165 − 100 = 790 units.

Marginal costing is useful for short-term decisions but depends on assumptions about linear costs, constant selling prices and relevant range. Long-term decisions must cover fixed costs and capacity needs.

Break-even units = fixed costs ÷ contribution per unit = ₹85,000 ÷ ₹40 = 2,125 units. At this output, contribution equals fixed costs and profit is zero.

Total contribution = 2300 × ₹30 = ₹69,000. Profit/(loss) = contribution − fixed costs = ₹69,000 − ₹50,000 = ₹19,000.

A budget expresses planned operations and resource use in financial or quantitative terms. It supports coordination, communication, planning and control.

A basic standard is a long-term benchmark, useful for trend comparisons but less suitable for day-to-day control if conditions change significantly.

Total cost at the stated activity level = variable cost + fixed cost = ₹130,000 + ₹90,000 = ₹220,000.

Contribution = sales − variable costs = ₹5,00,000 − ₹3,00,000 = ₹2,00,000.

Material usage variance = standard price × (standard quantity − actual quantity) = ₹15 × (260 − 270) = ₹-150. Positive is favourable; negative is adverse.

A refund can arise when advance tax, TDS/TCS and other eligible credits exceed the final tax payable. Refund is subject to return processing and applicable verification.

Material usage variance = standard price × (standard quantity − actual quantity) = ₹15 × (320 − 330) = ₹-150. Positive is favourable; negative is adverse.

Total contribution = 1500 × ₹50 = ₹75,000. Profit/(loss) = contribution − fixed costs = ₹75,000 − ₹110,000 = ₹-35,000.

Contribution = sales − variable costs = ₹500,000 − ₹275,000 = ₹225,000. P/V ratio = contribution ÷ sales × 100 = 45.0%.

Total contribution = 1600 × ₹40 = ₹64,000. Profit/(loss) = contribution − fixed costs = ₹64,000 − ₹60,000 = ₹4,000.

Labour rate variance isolates the effect of paying a rate different from standard: AH × (SR − AR). A higher actual rate generally creates an adverse variance.

Standard costing sets benchmarks for material, labour and overhead costs, then compares actual performance to identify variances for control and corrective action.

Break-even units = fixed costs ÷ contribution per unit = ₹135,000 ÷ ₹30 = 4,500 units. At this output, contribution equals fixed costs and profit is zero.