IC46 - General Insurance A_c Preparation Mock Test 05

1. With respect to golden rules of accounting, which of the following is INCORRECT?

A. Debiting and crediting accounts is governed by the golden rules of accounting.
B. We need to credit what comes in and debit what goes out for all accounts.
C. A transaction is always recorded as a ‘debit entry’ in one account and a credit entry in the other account.
D. We have to credit the giver and debit the receiver for personal accounts.
E. The debit and credit for recording transaction has to be as per double entry system.

2. Comment on the statement — “It is not required by a company to disclose the changes in its accounting policies and impact thereof in its financial statements.”

A. It is not compulsory but optional for the company to disclose about the changes in its accounting policies in its financial statements.
B. If there is any change in accounting policy, there has to be a full, fair and adequate disclosure of such change and the impact thereof in the ‘Notes on Accounts’ as per AS-1.
C. The statement is partially right.
D. The statement is right.
E. The statement is wrong.

3. Rupesh is preparing the financial statements for 31 Dec 2017. He had purchased a machine on 1 January 2013 for Rs. 2,00,000 and incurred installation expenses of Rs. 25,000 for the machine. The expected useful life of the machinery was 8 years. It charges depreciation on a straight-line basis. The estimated realizable value after 8 years is expected to be Rs. 1,000. What is the depreciation charge for 2017?

A. Rs. 23,500
B. Rs. 26,875
C. Rs. 31,750
D. Rs. 19,685
E. Rs. 29,300

4. When two or more insurers enter into a single contract with the insured to cover a risk in agreed proportions at a specified premium is known as __________.

A. Special Insurance
B. Co-insurance
C. Bancassurance
D. Subrogation
E. Reinsurance

5. Insurance companies can ask the auditor to provide certification on which of the following matter(s)?

1. Terms of registration of the insurer have been complied with.
2. The Management Report is in consistency with the financial statements.
3. Verification of cash and bank balances.

A. Only 1
B. Only 2
C. Only 3
D. Both 2 and 3
E. All 1, 2 and 3

6. As per Companies Act, 2013 — what criteria has to be fulfilled by a company to be a private company?

A. It has to limit the number of its members to 200.
B. It has to restrict the right to transfer its shares.
C. It has to have a minimum paid-up share capital of one lakh rupees or higher as may be prescribed.
D. Both 1 and 2
E. All 1, 2 and 3

7. In what way are the profits/losses on sale of equity and derivative instruments recognized in the financial statements of a general insurance company?

1. The P/L are transferred to equity under the head ‘Fair Value Change Account’ which ultimately is transferred to General Reserve.
2. They are recognized directly in Profit or Loss.
3. The P/L are transferred to equity under the head ‘Fair Value Change Account’ which ultimately is recycled to Profit or Loss Account on actual sale of the securities.

A. Option 1
B. Option 2
C. Option 3
D. Both 1 and 2
E. Both 2 and 3

8. What are the major considerations in selecting an accounting policy?

A. Prudence, going concern and materiality
B. Substance over form, prudence and materiality
C. Prudence, substance over form and relevance
D. Prudence, materiality and consistency
E. Accrual, substance over form and materiality

9. With respect to CASH BOOK, which of the following statements is/are INCORRECT?

1. Cash deposited in the bank is a contra transaction.
2. Goods purchased on credit are recorded in the credit side of the cash book.
3. Cash withdrawn from the bank is recorded in the bank column on the payment side and the cash column on the receipt side of the cash book.

A. Only 1
B. Only 2
C. Only 3
D. Both 1 and 2
E. Both 2 and 3

10. The process of recording financial transactions which includes the origination of the transactions, its recognition, processing and summarization in the financial statements is called as __________.

A. Journal
B. Ledger
C. P/L Account and Balance Sheet
D. Accounting
E. Double Entry System