Chapter 1: Definition, Scope and Accounting Standards including Ind AS (JAIIB – Paper 3)

1. Which of the following best defines the primary purpose of accounting?

• A. To calculate tax liability
• B. To maintain cash records only
• C. To provide financial information useful for decision making
• D. To conduct auditing

The main purpose of accounting is to provide reliable financial information that helps stakeholders in making informed business decisions.

2. Which ancient civilization is credited with using clay tablets for recording financial transactions?

• A. Mesopotamian civilization
• B. Roman civilization
• C. Egyptian civilization
• D. Greek civilization

Mesopotamians used clay tablets to record commercial and tax transactions, making them one of the earliest users of accounting.

3. The double-entry system of accounting was popularized by which mathematician in the 15th century?

• A. Aristotle
• B. Adam Smith
• C. Karl Marx
• D. Luca Pacioli

Luca Pacioli, an Italian mathematician, documented the double-entry bookkeeping system in 1494, earning him the title "Father of Accounting".

4. Value system accounting primarily emphasizes:

• A. Recording only monetary transactions
• B. Measuring and reporting social, environmental, and ethical impact
• C. Auditing and compliance
• D. Cost reduction techniques

Value system accounting goes beyond financial results and includes reporting on social responsibility, ethics, and environmental impact of business activities.

5. Which of the following best explains the “scope of accounting”?

• A. Only recording transactions in journals
• B. Preparing tax returns for the government
• C. Identifying, measuring, recording, and communicating financial information
• D. Conducting internal audits only

The scope of accounting covers identification, measurement, recording, classification, summarization, interpretation, and communication of financial information.

6. Which fundamental accounting principle assumes that the business will continue to operate for the foreseeable future?

• A. Accrual principle
• B. Going concern principle
• C. Consistency principle
• D. Matching principle

The going concern principle assumes that the business will continue its operations and not liquidate in the near future.

7. Which accounting principle requires that expenses should be recorded in the same period as the revenues they help to generate?

• A. Prudence principle
• B. Consistency principle
• C. Realization principle
• D. Matching principle

The matching principle ensures that expenses are matched with the revenues of the same accounting period to show true profitability.

8. Accounting Standards in India are issued by which authority?

• A. Ministry of Finance
• B. RBI
• C. ICAI (Institute of Chartered Accountants of India)
• D. SEBI

In India, Accounting Standards are issued by the Institute of Chartered Accountants of India (ICAI) under the Companies Act provisions.

9. Ind AS in India are primarily based on which international framework?

• A. IFRS (International Financial Reporting Standards)
• B. US GAAP
• C. Basel norms
• D. OECD guidelines

Ind AS (Indian Accounting Standards) are converged with IFRS to align Indian financial reporting with global practices.

10. Which of the following best defines “scope of accounting standards”?

• A. Limiting accounting to tax compliance
• B. Preparation of cost statements only
• C. Recording transactions in journals only
• D. Ensuring uniformity, transparency, and comparability in financial statements

The scope of accounting standards is to provide consistency and comparability in financial reporting across entities.

11. US GAAP is primarily developed and issued by which body?

• A. SEC (Securities and Exchange Commission)
• B. PCAOB (Public Company Accounting Oversight Board)
• C. FASB (Financial Accounting Standards Board)
• D. AICPA (American Institute of CPAs)

The Financial Accounting Standards Board (FASB) develops and issues US GAAP, while the SEC has oversight authority.

12. Which of the following best describes the objective of US GAAP?

• A. To provide standardized financial reporting ensuring transparency and comparability
• B. To prepare tax returns for IRS
• C. To set monetary policy in the US
• D. To monitor stock market regulations

The goal of US GAAP is to ensure consistent, transparent, and comparable financial statements for investors, regulators, and stakeholders.

13. Which of the following is NOT a fundamental principle under US GAAP?

• A. Principle of Regularity
• B. Principle of Prudence
• C. Principle of Non-compensation
• D. Principle of Flexibility

US GAAP includes principles like regularity, consistency, prudence, and non-compensation. "Flexibility" is not recognized as a GAAP principle.

14. Which principle of US GAAP requires that all expenses must be recorded in the same period as the revenues they helped generate?

• A. Revenue recognition principle
• B. Matching principle
• C. Full disclosure principle
• D. Monetary unit principle

The matching principle requires aligning expenses with related revenues within the same accounting period to reflect true profitability.

15. Under US GAAP, which principle ensures that financial statements include all material facts relevant to stakeholders?

• A. Prudence principle
• B. Consistency principle
• C. Going concern principle
• D. Full disclosure principle

The full disclosure principle mandates that all significant information affecting users’ understanding of financial statements must be disclosed.

16. IFRS are issued by which international body?

• A. IASB (International Accounting Standards Board)
• B. FASB (Financial Accounting Standards Board)
• C. ICAI (Institute of Chartered Accountants of India)
• D. OECD (Organisation for Economic Co-operation and Development)

IFRSs are issued by the International Accounting Standards Board (IASB), an independent body based in London.

17. What is the primary objective of IFRS?

• A. To prepare tax filings
• B. To regulate stock exchanges
• C. To implement monetary policy
• D. To bring transparency, accountability, and comparability in global financial reporting

The objective of IFRS is to provide a common accounting language to ensure transparent and comparable reporting across countries.

18. Which of the following is NOT an advantage of IFRS adoption?

• A. Enhances comparability of financial statements
• B. Increases inconsistency in reporting
• C. Improves access to global capital markets
• D. Enhances investor confidence

IFRS reduces inconsistencies by providing uniform standards. Hence, option B is not an advantage.

19. In India, IFRS-converged standards are known as:

• A. Indian GAAP
• B. Accounting Standards (AS)
• C. Ind AS (Indian Accounting Standards)
• D. Corporate Accounting Rules

India has adopted IFRS-converged standards called Ind AS, notified under the Companies Act, 2013.

20. Which of the following statements correctly differentiates IFRS and US GAAP?

• A. IFRS is rules-based, US GAAP is principles-based
• B. IFRS is principles-based, US GAAP is rules-based
• C. Both IFRS and US GAAP are entirely principles-based
• D. Both IFRS and US GAAP are entirely rules-based

IFRS follows a principles-based approach with broad guidelines, while US GAAP is rules-based with detailed requirements.

21. Which of the following correctly states the main difference between US GAAP and IFRS?

• A. Both are rules-based frameworks
• B. Both are principles-based frameworks
• C. US GAAP is principles-based, IFRS is rules-based
• D. US GAAP is rules-based, IFRS is principles-based

US GAAP follows a detailed rules-based approach, whereas IFRS uses a broader principles-based framework.

22. Under IFRS, inventory is valued using which methods?

• A. FIFO and Weighted Average only
• B. FIFO, LIFO, and Weighted Average
• C. LIFO only
• D. Specific identification only

IFRS allows inventory valuation using FIFO and Weighted Average methods. LIFO is not permitted under IFRS, though it is allowed in US GAAP.

23. Which of the following is true about development costs under IFRS and US GAAP?

• A. Both IFRS and US GAAP require immediate expensing
• B. Both IFRS and US GAAP allow capitalization
• C. IFRS allows capitalization if criteria are met, GAAP requires immediate expensing
• D. GAAP allows capitalization, IFRS requires expensing

Under IFRS, development costs can be capitalized if certain conditions are met, while US GAAP requires such costs to be expensed as incurred.

24. In the context of fixed assets, how do IFRS and US GAAP differ?

• A. Both allow revaluation model
• B. IFRS allows revaluation model, US GAAP does not
• C. US GAAP allows revaluation model, IFRS does not
• D. Neither allows revaluation

IFRS permits both cost and revaluation models for fixed assets, while US GAAP permits only the cost model.

25. How do IFRS and US GAAP differ in the treatment of extraordinary items in the income statement?

• A. IFRS does not allow separate classification, US GAAP earlier allowed but later removed
• B. Both IFRS and US GAAP require separate reporting
• C. Only IFRS requires separate reporting
• D. Both prohibit reporting extraordinary items

IFRS does not permit separate disclosure of extraordinary items. US GAAP also eliminated the concept of extraordinary items in 2015.

26. What is the primary purpose of Transfer Pricing regulations?

• A. To calculate customs duty on imports
• B. To prevent double taxation in all countries
• C. To ensure transactions between related parties are at arm’s length
• D. To maximize profits of multinational companies

Transfer Pricing ensures that transactions between related parties (like parent and subsidiary companies) are conducted at an arm’s length price to avoid tax evasion and profit shifting.

27. Which of the following methods is NOT a recognized Transfer Pricing method?

• A. Comparable Uncontrolled Price Method
• B. Resale Price Method
• C. Cost Plus Method
• D. Double Entry Method

Double Entry Method is a bookkeeping concept, not a Transfer Pricing method. The recognized TP methods include CUP, Resale Price, Cost Plus, Profit Split, and TNMM.

28. The “Arm’s Length Principle” in Transfer Pricing means:

• A. Charging minimum possible price in related party transactions
• B. Pricing transactions as if they were between unrelated independent parties
• C. Maximizing profits by cost shifting
• D. Using government-fixed prices only

The Arm’s Length Principle ensures that the price charged between related parties is the same as if the transaction were carried out between unrelated, independent parties in an open market.

29. In India, Transfer Pricing regulations are governed under which section of the Income Tax Act?

• A. Section 92 to 92F
• B. Section 80C
• C. Section 44AB
• D. Section 10(23C)

Indian Transfer Pricing regulations are contained in Sections 92 to 92F of the Income Tax Act, 1961, dealing with international transactions and specified domestic transactions.

30. Which of the following is a Profit-based Transfer Pricing method?

• A. Resale Price Method
• B. Cost Plus Method
• C. Comparable Uncontrolled Price Method
• D. Transactional Net Margin Method (TNMM)

Transactional Net Margin Method (TNMM) and Profit Split Method are profit-based TP methods, whereas CUP, Resale Price, and Cost Plus are transaction-based methods.