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CIMA - Management Accounting Fundamentals Paper - Multiple Choice Questions
Quiz
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1. Which of the following best describes a fixed cost? A cost which:
A. ? represents a fixed proportion of total costs
B. ? remains at the same level up to a particular level of output
C. ? has a direct relationship with output
D. :-) remains at the same level when output increases
2. A business's telephone bill should be classified into which one of these categories?
A. ? Fixed cost
B. ? Stepped fixed cost
C. :-) Semi-variable cost
D. ? Variable cost
3. The total production cost for making 20,000 units was £21,000 & total production cost for making 50,000 was £34,000. When production goes over 25,000 units, more fixed costs of £4,000 occur. So full production cost per unit for making 30,000 units is:
A. ? £0.30
B. ? £0.68
C. ? £0.84
D. ? £0.93
4. There are 40,000 units of Part Number LC36 on order from suppliers and 28,000 units outstanding on existing customers' orders. If the free stock is 16,000 units, what is the physical stock of units?
A. ? 12,000
B. ? 4,000
C. ? 24,000
D. ? 44,000
5. A business has high stock turnover and uses the FIFO method of pricing stock issues. If our supplier purchase prices are currently, generally rising, the valuation of closing stock will be:
A. ? based on prices of those items received first
B. ? lower than current supplier prices
C. ? near to current supplier purchase prices
D. ? based on the average of all the stock purchased in the latest period
6. A job needs 3,000 actual labour hours to be completed. It is expected there will be 25% idle time. If the wage rate is £12.50 per hour, what is budgeted labour cost for the job?
A. ? £26,000
B. ? £37,500
C. ? £50,000
D. ? £42,000
7. A business always absorbs its overheads on labour hours. In the 8th period 18,000 hours were worked, actual overheads were £279,000 and there was a £36,000 over-absorption. The overhead absorption rate per hours was
A. ? £15.50
B. ? £17.50
C. ? £18.00
D. ? £13.50
8. A way of dealing with overheads uses a method of spreading common cost values over the cost centres on the basis of benefits received. This is referred to as
A. ? overhead apportionment
B. ? overhead allocation
C. ? overhead analyis
D. ? overhead absorption
9. A manufacturer produced 22,500 units at a total cost of £26 each. Seventy-five per cent of the costs were variable and the remainder were fixed. 15,500 units were sold at £53 each. There were no opening stocks. By how much wiil the profit calculated using absorption costing principles differ from the profit if the marginal costing basis had been used?
A. ? The absorption costing profit will be £38,500 less
B. ? The absorption costing profit would be £45,500 less
C. ? The absorption costing profit would be £50,375 more
D. ? The absorption costing profit would be £45,500 more
10. ACG Plc makes a single product with the following values - all per unit
Selling price £15.00; Direct Materials cost £3.50; Direct Labour £4.00
Variable Overhead £2.00; Budgeted fixed production overhead costs are £60,000 per annum charged evenly across each month of the year. Budgeted production costs are 30,000 units per annum. In July when actual production was 2,400 units and exceed sales by 180 units the profit reported under absorption costing was:
A. ? £8,200
B. ? £7,770
C. ? £6,660
D. ? £7,570
11. The following items may be used to cost jobs:
i) Actual labour cost
ii) Actual material cost
iii) Actual manufacturing overheads
iv) Absorbed manufacturing overheads
Which of the above are contained in a typical job cost?
A. ? All four of them
B. ? (i) (ii) & (iii) only
C. ? (i) & (ii) only
D. ? (i), (ii) & (iv) only
12. A large management consultancy has prepared the the following information:
Overhead absorption rate per consultancy hour : £25.00
Salary cost per Senior consultant hour £60.00
Salary cost per Junior consultant hour £35.00
The firm adds 50% to total cost to arrive at a selling price for invoicing purposes.
A consultancy job CY 3987 took 120 hours using a senior consultant and 430 hours using a junior consultant. What will be the invoice price charged to the client for CY 3987.
A. ? £36,000
B. ? £54,000
C. ? £13,750
D. ? £20,625
13. The following information relates to activity of an outpatients' department at a local hospital near where you live.
Number of consultations received by patients: 7,000 (June) 8,600 (July)
Total cost £507,500 £543,500
Fixed costs are £350,000 per month. What is the variable cost per patient consultation in June and July? Is it?
A. ? £72.50 in June and £63.20 in July
B. ? £50.00 in June and £40.70 in July
C. ? £22.50 in June and £22.50 in July
D. ? £67.37 in June and £67.37 in July
14. In process costing an equivalent unit is:
A. ? a unit made in more than one process cost centre
B. ? a unit being currently made which is the same as previously manufactured
C. ? a notional whole unit representing incomplete work
D. ? a unit made at standard performance
15. In process costing, the value attributed to any abnormal gain is:
A. ? debited to abnormal gain account & credited to normal loss account
B. ? debited to normal loss account and credited to abnormal gain account
C. ? debited to abnormal gain account & credited to process account
D. ? debited to process account & credited to abnormal gain account
16. Process Beta had no opening stock. 13,500 units of raw material were transferred in £4.50 per unit. Additional material at £1.25 per unit was added into process. Labour & overheads were £6.25 per completed unit and £2.50 per unit incomplete.
If 11,750 completed units were transferred out, what was the value of the closing stock of Process Beta?
A. ? £24,000
B. ? £89, 450
C. ? £14,437.50
D. ? £152,000.00
17. The most relevant costs that should be used in decision making are:
A. ? current costs
B. ? estimated future costs
C. ? notional costs
D. ? costs already incurred which are
known with certainity
18. Acclerate Ltd has fixed costs of £72,000 per annum. It makes one product which it sells for £32 per unit. Its contribution to sales ratio is 45%.
Accelerate's break even point in units is:
A. ? 5,000 units
B. ? 7,000 units
C. ? 2,250 units
D. ? 2,750 units
19. Good Job Plc makes one product which sells for £80 per unit. Fixed costs are £28,000 per month and marginal costs are £42 a unit. What sales level in units will provide a profit of £10,000?
A. ? 1,350 units
B. ? 350 units
C. ? 1,000 units
D. ? 667 units
20. Railway Product Ltd makes one product that sells for £72 per unit. Fixed costs are £81,000 per month & the product has a contribution to sales ratio of 37.5%. In a period when actual sales were £684,000 the company's unit margin of safety was :
A. ? 4,000 units
B. ? 6,500 units
C. ? 5,500 units
D. ? 4,800 units
21. The master budget comprises:
A. ? the budgeted profit and loss account
B. ? the capital expenditure budget
C. ? the budgeted profit and loss account, budgeted, cash flow and budgeted balance sheet
D. ? the budgeted cashflow
22. In Creative Products Ltd the actual output was 200,000 units and the actual fixed costs of £94,000 were as budgeted. However, the actual total expenditure of £440,000 was £26,000 over budget. What was the budgeted variable cost per unit for Creative Products Ltd?
A. ? £2.20
B. ? £1.60
C. ? £2.07
D. ? £1.86
23. LPG Limited purchased 6,850 kilos of material at a total cost of £21,920. The material price variance was £1,370 favourable. The standard price per kilo was:
A. ? £3.10
B. ? £0.80
C. ? £2.80
D. ? £3.40
24. In the 10th period 22,600 labour hours were worked at a standard cost of £8.00 per hour. The labour efficiency variance was £11,200 favourable, How many standard hours were produced?
A. ? 24,000 hours
B. ? 22,600 hours
C. ? 20,800 hours
D. ? 21,600 hours
25. A flexible budget is defined as:
A. ? a budget of variable production costs only
B. ? a budget which shows the costs and revenues at different levels of activity
C. ? a budget which is prepared using a computer spreadsheet model
D. ? a budget which is updated with actual costs and revenues as they occur during the budget period
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ADVANCED COST ACCOUNTING MULTIPLE CHOICE QUESTIONS
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ADVANCED COST ACCOUNTING MULTIPLE CHOICE QUESTIONS
1. Absorption costing measures contribution to profit as:
A) Sales less unit- level costs spent of goods sold.
B) Sales less absorption cost of goods sold.
C) Sales less absorption cost of goods sold.
D) Sales less all costs including operating expenses.
2. In a job-order costing system, the journal entry to record depreciation on factory equipment would be recorded by a:
A) Debit to Depreciation Expense, credit to Accumulated Depreciation
B) Debit to Manufacturing Overhead, credit to Depreciation Expense
C) Debit to manufacturing Overhead, credit to Work-in-Process
D) Debit to Manufacturing Overhead, credit to Accumulated Depreciation
3. Which of the following statements regarding traditional cost accounting systems is False?
A) Products are often over or under costed in traditional cost accounting systems
B) Most traditional cost accounting systems do not trace individual costs to products.
C) The advantage of traditional cost accounting systems is their simplicity.
D) Traditional cost accounting systems can be sufficient to meet managers' cost information needs as long as the level of indirect costs is relatively high compared to the level of direct costs.
4. Which of the following indicates that a company may benefit from an Activity-Based Costing system?
A) Standard high-volume goods and services show significant profits.
B) Indirect costs are insignificant in proportion to direct costs.
C) The company loses relatively high priced bids.
D) Goods and services are complex and may require many different processes or inputs
5. Which of the following is not a planning issue in Activity-Based-Management?
A) The intended scope of the project
B) The current customer base
C) Information gathering
D) Resistance to change
6. Under what conditions will the FIFO method produce the same cost of goods manufactured as the weighted-average method?
A) When there is no ending inventory
B) When the beginning and ending inventories are both 50% complete
C) When there is no beginning inventory
D) When the beginning and ending inventories are equal
7. Which of the following is not a step needed to maximize the profits from joint products?
A) Forecasting the sales price of each final product.
B) B) Identifying alternative sets and quantities of final products possible from the joint process.
C) Determining how to allocate joint costs to the final products.
D) Estimating the costs required to further process joint products into salable products.
8. Which of the following is not a method of allocating joint costs?
A) Sales value at split-off
B) Net realizable value
C) By-product method
D) Physical-measures method
9. Which of the following statements best describes the account analysis approach to cost estimation?
A) Cost estimates are based on optimal or ideal operating conditions.
B) Discernible patterns of the past are used to predict future behavior.
C) Historical operating costs are plotted against some past operating activity.
D) Relies heavily on the accounting personnel's experience and judgment.
10. Which cost estimation method is based on both past and future data?
A) Engineering method.
B) Regression method.
C) Account analysis method.
D) All of the above.
11. Cost-volume profit (CVP) analysis is a key factor in many decisions, including choice of product lines, pricing of products, marketing strategy, and use of productive facilities. A calculation used in a CVP analysis is the break-even point. Once the break-even point has been reached, operating income will increase by the
A) contribution margin per unit for each additional unit sold
B) fixed cost per unit for each additional unit sold.
C) variable cost per unit for each additional unit sold
D) none of the above.
12. Break-even analysis assumes that:
A) total revenue is constant.
B) unit variable cost is constant.
C) unit fixed cost is constant.
D) all of the above.
13. Which of the following is typically considered fixed under traditional budgeting processes, but considered variable under activity based budgeting:
A) Set ups, inspections and purchasing
B) Material handling, designing and quality control
C) A and B
D) None of the above
14. Which of the following does not affect a material purchase price variance?
A) Increases in the demand for the firm's output
B) Need to purchase component parts with precise engineering specifications
C) Rush order requests from the production department
D) World-wide shortages of critical input materials
15. Subjective performance evaluation:
A) Compares an individual's performance to that of others.
B) Bases rewards on a performance evaluation formula.
C) Compares individual performance to set objectives or expectations.
D) Uses non-quantified criteria to evaluate individuals.
16. In a multi-product firm, activity levels for a flexible budget are based on
A) output measures
B) input measures
C) Either
D) Neither
17. Which of the following companies would most likely use a process costing system?
A) A large computer manufacturer where each computer is made to customer specifications.
B) A luxury home builder
C) A law firm
D) A manufacturer of cereals
The purpose of recording depreciation on productive assets is to
a.reflect the decline in the market value of the assets each period.
b.reduce income when the company has an exceptionally profitable year.
c.be in conformity with the revenue recognition principle.
d.allocate the original cost of a productive asset to expense over its useful life.
Newell Company debited Prepaid Insurance for $600 on July 1, 2003 for a one-
year fire insurance policy. If he company prepares monthly financial statements,
failure to make an adjusting entry on July 31, for the amount of insurance that has
expired would cause
a. assets to be overstated by $600 and expenses to be understated by $600.
b. expenses to be overstated by $50 and assets to be understated by $50.
c. assets to be overstated by $50 and expenses to be understated by $50.
d. expenses to be overstated by $600 and assets to be understated by $600.
Edited by Customer (name blocked for privacy) on October 25 2006 at 7:19 PM
Customer (name blocked for privacy)
Status: Closed Value: $10
Answer
October 25 8:42 PM (1 hour and 52 minutes and 24 seconds later)
ACCEPTED
The purpose of recording depreciation on productive assets is to
a.reflect the decline in the market value of the assets each period.
b.reduce income when the company has an exceptionally profitable year.
c.be in conformity with the revenue recognition principle.
d.allocate the original cost of a productive asset to expense over its useful life.
Newell Company debited Prepaid Insurance for $600 on July 1, 2003 for a one-
year fire insurance policy. If he company prepares monthly financial statements,
failure to make an adjusting entry on July 31, for the amount of insurance that has
expired would cause
a. assets to be overstated by $600 and expenses to be understated by $600.
b. expenses to be overstated by $50 and assets to be understated by $50.
c. assets to be overstated by $50 and expenses to be understated by $50.
d. expenses to be overstated by $600 and assets to be understated by $600.
RD -- Certified Public Accountant (CPA) -- 99% Positive Feedback on 529 Finance Accepts
April/May 1999
1. Define overhead.
2. Mention the differences between cost of goods sold and cost of sales.
Cost of goods sold includes cost of materials, labour and factory overheads. Selling and administrative expenses are normally excluded whereas Cost of sales includes cost of good sold along with selling and administrative expenses.
3. What are the techniques of costing?
(i) Job Costing
(ii) Batch Costing
(iii) Contract Costing
(iv) Single or Output Costing
(v) Process Costing
(vi) Operating Costing
(vii) Multiple Costing
4. Give two types of undertakings which use operating costing.
It is used in the case of concerns rendering services like :
(i) Transport
(ii) Supply of water
(iii) Retail trade
5. What is E.O.Q.? Give its utility.
Economic Order Quantity or Re-order Quantity is the quantity for which the order is placed when stock reaches the re-order level. It is known as Economic Order Quantity because it is a quantity which is most economical to order.
By fixing this quantity, the purchaser need not re-calculate the quantity to be purchased each time he orders for materials.
6. What are the methods used in Time-keeping?
There are two methods of time keeping :
(i) Manual Methods
(a) Attendance Register Method
(b) Metal Disc Method
(ii) Mechanical Methods
(a) Time Recording Clocks
(b) Dial Time Records
7. What is meant by absorption of overhead?
It is defined as the process of absorbing all overhead costs allocated to or apportioned over particular cost centre or production department by the units produced. For example, the overhead costs of a lathe centre may be absorbed by using a rate per lathe hour.
8. What do you mean by controllable costs? Give example.
These are the costs which can be influenced by the action of a specified member of an undertaking. Controllable costs incurred in a particular responsibility centre can be influenced by the action of the executive heading that responsibility centre.
e.g. Direct costs comprising direct labour, direct materials, direct expenses and some of the overhead are generally controllable by the shop level management.
9. What are Joint products? Give example.
Joint products represent "two or more products separated in the course of the same processing operation usually requiring further processing, each product being in such proportion that no single product can be designated as a major product".
In other words, two or more products of equal importance, produced simultaneously from the same process, are known as joint products.
For example, in the oil industry, gasoline, fuel oil, lubricants, paraffin, coal tar, asphalt and kerosene are all produced from crude petroleum.
10. How do you treat plant used in a contract and lost in fire?
11. What do you mean by margin of safety?
12. What are variable overheads? Write examples.
Expenses that change in proportion to the change in the volume of activity; when output goes up by 10% the variable expenses also go up by 10%. Correspondingly, on a decline in the output, these expenses also decline proportionately.
e.g. power consumed; consumable stores; repairs and maintenance and depreciation are dependent on the use of assets.
November/December 1999
1. Mention any two uses of cost accounting system to management.
(a) Budgeting : Nowadays detailed estimates in terms of quantities and amounts are drawn up before the start of each activity. This is done to ensure that a practicable course of action can be chalked out and the actual performance corresponds with the estimated or budgeted performance. The preparation of the budget is the function of Costing Department.
(b) Price determination : Cost accounts should provide information which enables the management to fix remunerative selling prices for various items of products and services in different circumstances.
2. What is Bill of material?
It is also known as Material Specification List or simply Material List. It is a schedule of standard quantities of materials required for any job or other unit of production. A comprehensive Material List should rigidly lay down the exact description and specifications of all materials required for a job or other unit of production and also required quantities so that if there is any deviation from the standard list, it can easily be detected.
3. What are fixed overheads? Give examples.
These are expenses that are not affected by any variation in the volume of activity. e.g. rent. Fixed or constant expenses remain the same from one period to another except when they are deliberately changed. e.g. additional staff being engaged.
4. What is meant by retention money? What is its objective?
Usually the contractee stipulates in the contract deed that he would withhold a part of the contract price to be paid at a later stage after completion of the contract. This is to make sure that the contractor has performed all work relating to contract on the most satisfactory manner and that no repair work arises within a prescribed time limit. The amount so withheld by the contractee is known as retention money. It safeguards the interest of the contractee against the contractor, who may at time perform sub-standard work and gain therefrom.
5. What are indirect labour costs? Give two examples.
Labour costs which cannot be allocated but can be apportioned to or absorbed by cost units or cost centres is known as indirect labour. Examples of indirect labour includes – charge hands and supervisors; maintenance workers; etc.
6. What are notional rent and notional interest?
7. How do you calculate bonus under Rowan Premium Plan?
According to this system, a standard time allowance is fixed for the performance of a job and bonus is paid if time is saved. Under Rowan system, the bonus is that proportion of the time wages as time saved bears to the standard time.
Bonus = (Time Saved / Standard Time) * Time taken * Rate per hour
8. What is meant by Escalation clause?
Sometimes, owing to fluctuation in the prices of materials and labour costs, the contract price is altered so that neither party suffers the loss arising out of the change in price level. To protect his interest against the rise in prices, the contractor inserts a clause known as the 'escalation clause', under which, the contractee will be obliged to pay the enhanced price of the contract because of increase in the rates of materials, labour and other expenses.
9. What is meant by continuous stock verification?
The system of continuous stock-taking consists of counting and verifying the number of items daily throughout the year so that during the year, all items of stores are covered three or four times. The stock verifiers are independent of the stores, and the stores staff have no foreknowledge as to the particulars items that would be checked on any particular day.
10. Distinguish between waste and scrap.
(a) Waste represents the portion of basic raw materials lost in processing, having no recoverable value whereas scrap is the incidental residue from certain types of manufacture, usually of small amount and low value, recoverable without further processing.
(b) Normal waste is absorbed in the cost of net output. Abnormal waster is transferred to the Costing Profit and Loss Account. When the value of scrap is negligible, it may be excluded from costs. When scrap is identifiable with a particular job or process and its value is significant, the scrap account should be charged with full cost.
11. What is meant by centralised buying?
Purchasing should be centralised i.e. all purchases should be done by the purchasing department except for small purchases which may be done by the user's department. What is needed is that there should be staff wholly devoted to purchasing and becoming expert in the various matters to be attended to. e.g. units of materials to be purchased and licences to be obtained, transport, sources of supply, probable price, etc.
12. What are the types of budgets, as per functions?
April/May 2000
1. Define Cost Accounting.
Cost Accounting is defined as "the process of accounting for cost which begins with the recording of income and expenditure or the basis on which they are calculated and ends with the preparation of periodical statements and reports for ascertaining and controlling costs."
2. What is a Cost Centre?
It is defined as a location, person or an item of equipment (or group of these) for which cost may be ascertained and used for the purpose of Cost Control. Cost Centres are of two types, viz., Personal and Impersonal.
3. State two differences between Bincard and Store Ledger Card.
(i) In the case of Bin Cards, store records are dispersed over a wide area whereas Store Ledger Card enables stock records to be centralised in case of an organisation having a number of depots.
(ii) The bin cards are liable to be smeared with dirt and grease because of proximity to material and also because of handling materials whereas the records in the Store Ledger Card are clearer and neater.
4. Define overheads.
[April/May 1999]
5. State two reasons responsible for the differences in profit shown by cost accounts and financial accounts.
(i) Items included in financial accounts but not in cost accounts.
(ii) Items included in cost accounts only.
(iii) Under or over absorption of overheads.
(iv) Adoption of different basis for stock valuation.
(v) Adoption of different basis for depreciation.
(vi) Adoption of different basis for valuing work-in-progress.
(vii) Expenses of abnormal nature are excluded in cost accounts.
(viii) Recording of costs while approximation in cost accounts in some cases.
6. What do you mean by ABC Analysis?
It is a system of inventory control. It exercises discriminating control over different items of stores classified on the basis of the investment involved. Usually the items are divided into three categories according to their importance, namely, their value and frequency of replenishment during a period.
7. State the features of Contract Costing.
(i) The major part of the work in connection with each contract is ordinarily carried out at the site of the contract.
(ii) The bulk of the expenses incurred by the contractor are considered as direct.
(iii) The indirect expenses mostly consist of office expenses of the yards, stores and works.
(iv) A separate account is usually maintained for each contract.
(v) The number of contracts undertaken by a contractor at a time is not usually very large.
(vi) The cost unit in contract costing is the contract itself.
8. Distinguish between joint products and by-products.
The main points of distinction as apparent from the definitions of Joint Products and By-Products are :
(i) Joint products are of equal importance whereas by-products are of small economic value.
(ii) Joint products are produced simultaneously but the by-products are produced incidentally in addition to the main products.
9. How do you calculate bonus under Rowan Premium Plan?
[November/December 1999]
10. Define the term 'Material Control'?
The publication of the Institute of Cost and Management Accountants on Budgetary Control defines Material Control as "the function of ensuring that sufficient good are retained in stock to meet all requirements without carrying unnecessarily large stocks".
11. What is meant by 'Work Certified'?
Work certified represents that portion of the contract that has been duly approved by the architect of the contractee. This is denoted in terms of money value in contract account and appears on the credit side of the contract account.
12. What is Uniform Costing?
When several undertakings start using the same costing principles and/or practices they are said to be following uniform costing. The basic idea behind uniform costing is that the different concerns in an industry should adopt a common method of costing and apply uniformly the same principles and techniques for better cost comparison and common good.
October/November 2000
1. What is cost unit?
It is a unit of product, service or time (or combination of these) in relation to which costs may be ascertained or expressed. We may for instance determine the cost per tonne of steel, per tonne kilometer of a transport service or cost per machine hour.
2. What is contract costing?
Contract or terminal costing, as it is termed, is one form of application of the principles of job costing. In fact a bigger job is referred to as a contract. Contract costing is usually adopted by building contractors engaged in the task of executing Civil Contracts.
3. Give any two differences between Cost Accounting and Financial Accounting.
(i) Cost Accounting is used for management control and internal reporting whereas Financial Accounting is used to portray a true and fair view of the financial position of the organization during a period.
(ii) Cost Accounting can provide information to assess the performance of various persons and departments and to see that costs do not exceed a reasonable limit for a given quantum of work of the requisite quality whereas Financial Accounting cannot.
(iii) Cost Accounting can help the management to decide whether investment should be made in a new project or whether a product given up but Financial Accounting cannot.
4. Distinguish between allocation and apportionment of overhead.
(i) Allocation implies relating overheads directly to the various departments whereas apportionment implies the allotment of proportions of items of cost to cost centres or departments.
(ii) Overhead items will remain unallocated after allocation whereas Apportionment deals with spreading over the unallocable expenses to the various departments or cost centres on an equitable basis.
(iii) Apportionment succeeds allocation.
5. What is meant by absorption of overhead?
[April/May 1999]
6. Give the meaning of job costing.
According to Job Costing, costs are collected and accumulated to jobs, contracts, products or work orders. Each job or unit of production is treated as a separate entity for the purpose of costing. Job costing is carried out for the purpose of ascertaining cost of each job and takes into account the cost of materials, labour and overheads, etc.
e.g. Motor workshop, etc.
7. Define the term Joint Product.
Joint Products is defined as "two or more products separated in the course of the same processing operation usually requiring further processing, each product being in such proportion that no single product can be designated as a major product".
8. What is Memorandum Reconciliation Statement?
Memorandum Reconciliation Account is an account prepared for reconciliation of Cost and Financial Accounts. In this account, the items charged in one set of accounts but not in the other or those charged in excess as compared to that in the other are collected and by adding or subtracting them from the balance of the amount of profit shown by one of the accounts, shown by the other can be reached.
9. Give four examples of office overheads.
(i) Expenses on the routine office work.
(ii) Salaries of managerial personnel.
(iii) Cost of facilities provided to managerial personnel.
(iv) Salaries of their personal staff.
10. Mention any two benefits which a firm may derive from the introduction of Cost Accounting System in the organization.
(i) A good Cost Accounting System helps in identifying unprofitable activities, losses or inefficiencies in any form.
(ii) Cost Accounting is quite useful for price fixation. It serves as a guide to test the adequacy of selling prices. The price determined may be useful for preparing estimates or filling tenders.
(iii) Cost comparison helps in cost control. Such a comparison may be made from period to period by using the figures in respect of the same unit of firms or of several units in an industry by employing uniform costing and inter-firm comparison methods. Comparison may be made in respect of costs of jobs, processes or cost centres.
(iv) The cost of idle capacity can be easily worked out, when a concern is not working to full capacity.
11. What do you mean by Operating Cost?
12. Give four examples of idle time.
Normal idle time :
(i) Time lost between factory gate and the place of work
(ii) The interval between one job and another
(iii) The setting up time for machine
(iv) Normal fatigue
Abnormal idle time :
(v) Power failure
(vi) Breakdown of machines
(vii) Non-availability of raw materials
(viii) Strikes
April/May 2001
1. What is works on cost? How does it differ from works cost?
2. What is the difference between direct and indirect materials? Give two examples each.
Materials which are present in the finished product or can be identified in the product are called direct materials whereas materials which do not normally form part of the finished product are known as indirect materials.
e.g. Direct Materials – Cloth in dress making
Indirect Materials – Stores used for maintaining machines and buildings
3. What is a purchase requisition? To whom is it submitted?
A purchase requisition is a form used for making a formal request to the purchasing department to purchase materials. This form is usually filled up by the store keeper for regular materials and by the departmental head for special materials (not stocked as regular items). The requisition form is duly signed by either works manager or plant superintendent, in addition to the one originating it.
4. What is 'Retention money'? Why is it retained?
[November/December 1999]
5. How do you calculate bonus under Halsey Premium Plan?
Under Halsey scheme, bonus is given for 50% of the time saved at the hourly rate.
Bonus = 50% * Time saved * Time rate
6. Distinguish between normal loss and abnormal loss?
(i) Normal loss can be reasonably anticipated from the nature of material, nature of operation, the experience or technical data whereas Abnormal loss is the loss in excess of the pre-determined loss.
(ii) The cost of normal loss in practice is absorbed by good units produced under the process whereas cost of abnormal loss is not treated as a part of the cost of the product.
7. What is a 'fixed overhead'? Give two examples.
[November/December 1999]
8. Differentiate between LIFO and FIFO system of Material Issue?
(i) Under LIFO method, the items of the last batch purchased are the first to be issued whereas under FIFO method, the materials are issued in the order in which they arrive in the store.
(ii) During the period of rising prices, LIFO would help to ensure that the cost of production determined on the above basis is approximately the current one, whereas FIFO method is considered suitable in times of falling prices because the material cost charged to production will be high.
9. Distinguish between waste and scrap? Give examples.
[November/December 1999]
Examples :
Waste – Disappearance of basic raw materials through evaporation, smoke, etc.
Scrap – Trimmings from timber on which operations are performed.
10. What do you mean by 'Uncertified' work in contract?
Work uncertified refers to that portion of work completed by the contractor but disapproved by the architect on the ground that it has not reached a stipulated stage. The value of work uncertified also appears on the credit side of the contract account.
11. What is inter-process profit?
In some process industries, the output of one process is transferred to the next process not at cost but at market value or cost plus a percentage of profit. The difference between cost and the transfer price is known as inter-process profits. The system shows profits which are not realised because of stock not sold out.
12. What is 'operating costing'? In which industry do you apply? Give two examples.
It is a method of ascertaining costs of providing or operating a service. This method of costing is applied by those undertakings which provide services rather than production of commodities. This costing method is usually made use of by transport companies, gas and water works departments, electricity supply companies, canteens, hospitals, theatres, schools, etc.
October/November 2001
1. Define Prime Cost. What are its components?
Prime Cost consists of the cost of materials consumed, direct wages and direct expenses.
2. Name any four service departments in a factory.
(i) Stores keeping
(ii) Purchase department
(iii) Time keeping department or Payroll department
(iv) Canteen, welfare and recreation services
(v) Maintenance department
(vi) Internal transport department
(vii) Inspection department
3. What do you mean by Minimum level? How do you calculate?
It indicates the lowest figure of inventory balance, which must be maintained in hand at all times, so that there is no stoppage of production due to non-availability of inventory. The formula used for its calculation is as follows :
Minimum level of inventory = Re-order level - (Average rate of consumption * Average time of inventory delivery)
4. Define cost centre.
[April/May 2000]
5. What do you mean by "Cost Plus Contract"?
Under Cost plus Contract, the contract price is ascertained by adding a percentage of profit to the total cost of the work. Such type of contracts are entered into when it is not possible to estimate the Contract Cost with reasonable accuracy due to unstable condition of material, labour services, etc.
6. What do you mean by Codification of Materials? How many methods are there?
Proper classification and codification of various items of stores is essential for a good system of store keeping. Under codification, each item of stores is given a distinctive code number. Codification of classified material can be done by using alphabetic, numerical or alphanumerical approaches. Numerical system of Codification is commonly used.
7. Mention what method of costing you suggest for the following industries?
a) Printing press : Job Costing
b) Oil refinery :
c) Cinema Theatre : Operating/Service Costing
d)T.V. and Radio :
8. Mention any four examples of factory overheads.
(i) Expenses connected with purchasing and handling of materials.
(ii) Expenses connected with labour.
(iii) Expenses connected with administration of the factory.
9. Name any four items of expenses which are not taken in Cost Accounts.
(i) Expenses of the company's share transfer office, if any.
(ii) Interest paid on bank overdraft.
(iii) Damages and penalties payable at law.
(iv) Losses on scrapping of machinery.
(v) Losses arising out of natural calamities.
(vi) Donations and charities.
(vii) Loss on sale of investment.
10. What is Bincard? How does it differ from Store ledger card?
[April/May 2003 & April/May 2000]
11. Who are 'Out Workers'?
12. What is 'Muster Roll'? Explain.
Muster Roll is a register wherein the time-keeper, under Metal Disc Method of time-keeping, records the attendance of workers which is subsequently passed on to the Pay Roll Department. There are chances of inclusion of dummy or ghost workers by the time-keeper in the attendance register or Muster Roll.
April/May 2003
1. What is cost?
(a) The amount of expenditure (actual or notional) incurred on or attributable to a given thing.
(b) To ascertain the cost of a given thing.
2. What is direct material?
Direct materials are the materials that can be identified with and allocated to cost centres and cost units. It's that material that becomes part of a product. For example, cloth in dress making; materials purchased for a specific job, etc. Materials which become part of a product but are of negligible cost or used in comparatively small quantities are however grouped under indirect materials.
3. What is overhead?
It is the aggregate of indirect material costs, indirect labour costs and indirect expenses. Overheads also represent expenses that have been incurred in providing certain ancillary facilities or services which facilitate or make possible the carrying out of the production process; by themselves these services are not of any use.
4. Mention any four examples of Administrative overhead.
[October/November 2000]
5. What is Cost Unit?
[October/November 2000]
6. What do you mean by "Cost plus contract"?
[October/November 2001]
7. Mention any four service departments in a factory.
[October/November 2001]
8. Define Cost Centre.
[April/May 2000]
9. Mention what method of costing you suggest for the following industries :
a) Printing press : Job Costing
b) T.V. and Radio manufacturing concern : Batch Costing
10. What is Bin Card?
Bin cards are a form of maintaining store records. They are kept attached to the bins or receptacles or quite near thereto so that these also assist in the identification of stock. There are less chances of mistakes being made under such system since entries will be made at the same time as goods are received or issued by the person actually handling the materials.
11. What are 'out workers'?
[October/November 2001]
12. Mention four examples for 'idle time'.
[October/November 2000]
March/April 2004
1. What do you mean by 'cost unit'?
[October/November 2000]
2. State the elements of cost.
(i) Materials Cost (Direct and Indirect Materials Cost)
(ii) Labour Cost (Direct and Indirect Labour Cost)
(iii) Other Expenses (Direct and Indirect Expenses)
(iv) Overheads (Production or Works Overheads, Administration Overheads, Selling Overheads and Distribution Overheads)
3. What do you mean by opportunity cost?
This cost refers to the value of sacrifice made or benefit of opportunity foregone in accepting an alternative course of action. For example, a firm financing its expansion plan by withdrawing money from its bank deposits. In such a case the loss of interest on the bank deposit is the opportunity cost for carrying out the expansion plan.
4. Give the meaning of 'Cost plus Contract'.
[October/November 2001]
5. What is secondary overhead distribution summary?
6. How do you treat opening and closing stock of finished goods in Cost Sheet?
When opening and closing figures of finished goods are given, the same may be adjusted before calculating cost of goods sold. Opening stock of finished goods is added to cost of production and closing stock of finished goods deducted therefrom.
7. Mention four features of Job Costing.
(i) Costs are collected and accumulated according to jobs, contracts, products or work orders.
(ii) Each job or unit of production is treated as a separate entity for the purpose of costing.
(iii) Job costing is carried out for the purpose of ascertaining cost of each job and takes into account the cost of materials, labour and overhead, etc.
(iv) The basic principles enunciated for the job costing method are valid for all types of industry.
8. What do you mean by Joint Products? Give an example.
[April/May 1999]
9. How do you calculate bonus under 'Rowan plan'?
[November/December 1999]
10. What do you mean by absorption of overhead?
[April/May 1999]
11. Define the term 'Material Control'.
[April/May 2000]
12. How do you calculate maximum level?
Maximum level indicates the maximum figure of inventory quantity held in stock at any time. The formula used for its calculation is as follows :
Maximum level of inventory = Re-order level + Re-order quantity - (Minimum consumption * Minimum re-order period)
Thursday, October 30, 2008
dCPA EXAM MULTIPLE CHOICE QUESTIONS - Introduction to Auditing
1. Auditing standards differ from auditing procedures in that procedures relate to
a) Measure of performance.
b) Audit principles.
c) Acts to be performed.
d) Audit judgments.
2. The independent auditor of 1900 differs from the auditor of today in that the 1900 auditor was more concerned with the
a) Validity of the income statement.
b) Determination of fair presentation of financial statements.
c) Improvement of accounting systems.
d) Detection of irregularities.
3. The first general standard of generally accepted auditing standards which states, in part, that the examination is to be performed by a person or persons having adequate technical training, requires that an auditor have
a) Education and experience in the field of auditing.
b) Ability in the planning and supervision of the audit work.
c) Proficiency in business and financial matters.
d) Knowledge in the areas of financial accounting.
4. The first standard of field work, which states that the work is to be adequately planned, and assistants, if any, are to be properly supervised, recognizes that
a) Early appointment of the auditor is advantageous to the auditor and the client.
b) Acceptance of an audit engagement after the close of the client's fiscal year is generally not permissible.
c) Appointment of the auditor subsequent to the physical count of inventories requires a disclaimer of opinion.
d) Performance of substantial parts of the examination is necessary at interim dates.
5. An independent audit aids in the communication of economic data because the audit
a) Assures the reader of financial statements that any fraudulent activity has been corrected.
b) Confirms the accuracy of management's financial representations.
c) Lends credibility to the financial statements.
d) Guarantees that financial data are fairly presented.
6. A CPA is most likely to refer to one or more of the three general auditing standards in determining
a) Whether the CPA should undertake an audit engagement.
b) The nature of the CPA's report qualification.
c) The scope of the CPA's auditing procedures.
d) Requirements for the review of internal control.
7. The first standard of field work recognizes that early appointment of the independent auditor has many advantages to the auditor and the client. Which of the following advantages is least likely to occur as a result of early appointment of the auditor?
a) The auditor will be able to complete the audit work in less time.
b) The auditor will be able to perform the examination more efficiently.
c) The auditor will be able to better plan for the observation of the physical inventories.
d) The auditor will be able to plan the audit work so that it may be done expeditiously.
8. Which of the following best describes the reason why an independent auditor reports on financial statements?
a) A management fraud may exist and is more likely to be detected by independent auditors.
b) Different interests may exist between the company preparing the statements and the persons using the statements.
c) A misstatement of account balances may exist and is generally corrected as the result of the independent auditor's work.
d) Poorly designed internal control may exist.
9. What is the general character of the three generally accepted auditing standard classified as general standards?
a) Criteria for content of the F/S and the auditor's report.
b) Criteria of audit planning and supervision and evidence gathering.
c) The need to maintain an independence in mental attitude in all matters relating to the assignments.
d) Criteria for competence, independence and professional care of individuals performing the audit.
10. A CPA, while performing an audit, strives to achieve independence in appearance in order to
a) Reduce risk and liability.
b) Comply with the generally accepted standards of field work.
c) Become independent in fact.
d) Maintain public confidence in the profession.
11. The "generally accepted auditing standards" are standards which
a) Are sufficiently established so that independent auditors generally agree on their existence.
b) Are generally accepted based upon a pronouncement of the Financial Accounting Standards Board.
c) Are generally accepted in response to the changing needs of the business community.
d) Are generally accepted as a consequence of approval of the AICPA membership.
12. The primary objective of the ordinary examination of financial statement by a CPA is the expression of an opinion on
a) The competence of management in accounting matters which is implied by whether the opinion is qualified or not.
b) The conformity of the statements with the book of account.
c) The conformity of the financial statements with generally accepted auditing standards applied on a basis consistent with that of the prior year.
d) The fairness with which the financial statements present cash flows and results of operations.
13. The primary responsibility for the adequacy of disclosure in the financial statements of a publicly held company rests with the
a) Partner assigned to the engagement.
b) Auditor in charge of field work.
c) Management of the company.
d) Securities & Exchange Commission.
14. A CPA should comply with applicable GAAS on every engagement
a) Without exception.
b) Except in examinations that result in a qualified report.
c) Except in engagements where the CPA is associated with unaudited F/S.
d) Except in examinations of interim financial statements.
15. Which of the following best describes what is meant by GAAS?
a) Audit objectives generally determined on audit engagements.
b) Acts to be performed by the auditor.
c) Measures of the quality of the auditor's performance.
d) Procedures to be used to gather evidence to support financial statements.
16. The first general standard recognizes that regardless of how capable an individual may be in other fields, the individual can not meet the requirements of the auditing standards without the proper
a) Business and finance course.
b) Quality control and peer review.
c) Education & experience in auditing.
d) Supervision and review skills.
17. The first general standard requires that the examination of F/S is to be performed by a person having adequate technical training and
a) Independence with respect to the F/S and supplementary disclosures.
b) Exercising professional care as judged by peer reviewers.
c) Proficiency as an auditor which likely has been acquired from previous experience.
d) Objectivity as an auditor as verified by proper supervision.
18. Due professional care requires
a) A critical review of the work done at every level of supervision.
b) The examination of all corroborating evidence available.
c) The exercise of error free judgment.
d) A study and review of the I/C's that include tests of controls
19. The third general standard states that due care is to be exercised in the performance of the examination. This standard means that a CPA who undertakes an engagement assumes a duty to perform each audit
a) As a professional possessing the degree of skill commonly possessed by others in the field.
b) In conformity with generally accepted accounting principles.
c) With reasonable diligence and without fault or error.
d) To the satisfaction of governmental agencies and investors who rely upon the audit.
20. According to court decision, GAAS established by the AICPA applies
a) Only to AICPA members.
b) To all CPA's.
c) Only to those who choose to follow them.
d) Only when conducting audits subject to the AICPA jurisdiction.
21. Which of the following best describes the reason why an independent auditor reports on financial statements?
a) A management fraud may exist and is more likely to be detected by independent auditors.
b) Different interests may exist between the company preparing the statements and the persons using the statements.
c) A misstatement of account balances may exist and is generally corrected as the result of the independent auditor's work.
d) Poorly designed internal control may exist.
(Yes, this is the same as #8, ask me why!!!)
22. The independent audit is important to readers of F/S because it
a) Determines the future stewardship of the management of the company whose financial statements are audited.
b) Measures and communicates financial and business data in the F/S.
c) Involves the objective examination of, and reporting on, management-prepared statements.
d) Reports on the accuracy of all information in the F/S.
23. Independent auditing can best be described as
a) A branch of accounting.
b) A discipline that attests to the results of accounting and other functional operations and data.
c) A professional activity that measures and communicates financial and business data.
d) A regulatory function that prevents the issuance of improper financial information.
24. What is the meaning of the GAAS that requires the auditor to be independent?
a) The auditor must be without bias with respect to the client under audit.
b) The auditor must adopt a critical attitude during the audit.
c) The auditor's sole obligation is to third parties.
d) The auditor may have a direct ownership interest in the client's business if it is not material.
25. The primary purpose of a management advisory services engagement is to help the client
a) Become more profitable by relying upon the CPA's existing personal knowledge about the client's business.
b) Improve the use of its capabilities and resources to achieve its objectives.
c) Document and quantify its future plans without impairing the CPA's objectivity or allowing the CPA to assume the role of management.
d) Obtain benefits that are guaranteed implicitly by the CPA.
26. Operational auditing is primarily oriented toward
a) Future improvements to accomplish the goals of management.
b) The accuracy of data reflected in management's financial records.
c) The verification that a company's financial statements are fairly presented.
d) Past protection provided by existing internal control.
27. Because an examination i/a/w GAAS is influenced by the possibility of material errors, the auditor should conduct the examination with an attitude of
a) Professional responsiveness.
b) Conservative advocacy.
c) Objective judgment.
d) Professional skepticism.
28. The exercise of due professional care requires that an auditor
a) Use error-free judgment.
b) Consider the internal control structure, including tests of controls.
c) Critically review the work done at every level of supervision.
d) Examine all corroborating evidence available.
29. CPA firms should establish quality control policies and procedures for personnel management in order to provide reasonable assurance that
a) Employees promoted possess the appropriate characteristics to perform competently.
b) Personnel will have the knowledge required to fulfill responsibilities assigned.
c) The extent of supervision and review in a given instance will be appropriate.
d) All of the above are reasons.
30. The least important evidence of a CPA firm's evaluation of its system of QC would concern the CPA firm's policies and procedures for
a) Employment (hiring).
b) Confidentiality of audit engagements.
c) Assigning personnel to audit engagements.
d) Determination of audit fees.
31. A CPA establishes QC policies and procedures for deciding whether to accept a new client or continue to perform services for a current client. The primary purpose for establishing such policies is to
a) Enable the auditor to attest to the integrity or reliability of a client.
b) Comply with the quality control standards established by regulatory bodies.
c) Minimize the likelihood of association with clients whose management lacks integrity.
d) To lessen the exposure to litigation resulting from failure to detect irregularities in client financial statements.
32. In pursuing its quality control objectives with respect to acceptance of a client, a CPA firm is not likely to
a) Make inquiries of the proposed client's legal counsel.
b) Review financial statements of the proposed client.
c) Make inquiries of previous auditors.
d) Review the personnel practices of the proposed client.
33. Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide personnel within the firm with
a) Technical training that assures proficiency as an auditor.
b) Professional education that is required in order to perform with due professional care.
c) Knowledge required to fulfill assigned responsibilities and to progress within the firm.
d) Knowledge required in order to perform a peer review.
34. In pursuing a CPA firms' quality control objectives, a CPA firm may maintain records indicating which partners or employees of the CPA firm were previously employed by the CPA firm's clients. Which quality control objective would this be most likely to satisfy?
a) Acceptance of client.
b) Supervision.
c) Independence.
d) Monitoring.
35. In pursuing its quality control objectives with respect to independence, a CPA firm may use policies and procedures such as
a) Emphasizing independence of mental attitude in firm training programs and in supervision and review of work.
b) Prohibiting employees from owning stock of public companies.
c) Suggesting that employees conduct their banking transactions with banks that do not maintain accounts with client firms.
d) Assigning employees who may lack independence to research positions that do not require participation in field audit work.
36. Which of the following is an element of quality control?
a) Supervision
b) Inspection
c) Personnel management
d) Consultation
37. In connection with the element of monitoring, a CPA firm's system of quality control should ordinarily provide for the maintenance of
a) A file of minutes of staff meetings.
b) Updated personnel files.
c) Documentation to demonstrate compliance with its policies and procedures.
d) Documentation to demonstrate compliance with peer review directives.
38. One element of the personnel management quality control standard is professional development. The primary reason why a CPA firm establishes policies and procedures for professional development of staff accountants is to
a) Comply with the continuing educational requirements imposed by various states for all staff accountants in CPA firms.
b) Establish, in fact as well as in appearance, that staff accountants are increasing their knowledge of accounting and auditing matters.
c) Provide a forum for staff accountants to exchange their experiences and views concerning firm policies and procedures.
d) Provide reasonable assurance that staff personnel will have the knowledge required to enable them to fulfill responsibilities.
39. Which of the following is a quality control standard?
a) Peer review.
b) Administrative control.
c) Engagement performance.
d) Time studies.
40. What is the responsibility of a successor auditor (SA) with respect to communicating with the predecessor auditor (PA) in connection with a prospective new client?
a. The SA has no responsibility to contact the PA.
b. The SA should obtain permission from the prospective client to contact the PA.
c. The SA should contact the PA regardless of whether the prospective client authorizes contact.
d. The SA need not contact the PA if the successor is aware of all available relevant facts.
41. A CPA firm's personnel partner periodically studies the CPA firm's personnel advancement experience to ascertain whether individuals meeting stated criteria are assigned increased degrees of responsibility. This is evidence of the CPA firm's adherence to prescribed standards of
a) Quality control.
b) Due professional care.
c) Supervision and review.
d) Field work.
42. Quality control for a CPA firm as referred to in Statements on Quality Control Standards, applies to
a) Auditing services only.
b) Auditing and management advisory services.
c) Auditing and tax services.
d) Auditing and accounting and review services.
43. A prospective client's refusal to grant a CPA permission to communicate with the predecessor auditor will bear directly on the CPA's ability to
a) Determine appropriate pricing of the audit.
b) Determine the integrity of management.
c) Determine the beginning balances of the current year's financial statements.
d) Establish consistency in application of GAAP between years.
44 . Prior to the acceptance of an audit engagement with a client who has terminated the services of the predecessor auditor, the CPA should
a. Contact the predecessor auditor without advising the prospective client and request a complete report of the circumstances leading to the termination with the understanding that all information disclosed will be kept confidential.
b. Accept the engagement without contacting the predecessor auditor since the CPA can include audit procedures to verify the reason given by the client for the termination.
c. Not communicate with the predecessor auditor because this would, in effect, be asking the auditor to violate the confidential relationship between auditor and client.
d. Advise the client of the intention to contact the predecessor auditor and request permission for the contact.
45. Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor's
a. Awareness of the consistency in the application of GAAP between periods.
b. Evaluation of all matters of continuing accounting significance.
c. Opinion of any subsequent events occurring since the predecessor's audit report was issued.
d. Understanding as to the reasons for the change of auditors.
CPA Question Index Page
1. Auditing standards differ from auditing procedures in that procedures relate to
a) Measure of performance.
b) Audit principles.
c) Acts to be performed.
d) Audit judgments.
2. The independent auditor of 1900 differs from the auditor of today in that the 1900 auditor was more concerned with the
a) Validity of the income statement.
b) Determination of fair presentation of financial statements.
c) Improvement of accounting systems.
d) Detection of irregularities.
3. The first general standard of generally accepted auditing standards which states, in part, that the examination is to be performed by a person or persons having adequate technical training, requires that an auditor have
a) Education and experience in the field of auditing.
b) Ability in the planning and supervision of the audit work.
c) Proficiency in business and financial matters.
d) Knowledge in the areas of financial accounting.
4. The first standard of field work, which states that the work is to be adequately planned, and assistants, if any, are to be properly supervised, recognizes that
a) Early appointment of the auditor is advantageous to the auditor and the client.
b) Acceptance of an audit engagement after the close of the client's fiscal year is generally not permissible.
c) Appointment of the auditor subsequent to the physical count of inventories requires a disclaimer of opinion.
d) Performance of substantial parts of the examination is necessary at interim dates.
5. An independent audit aids in the communication of economic data because the audit
a) Assures the reader of financial statements that any fraudulent activity has been corrected.
b) Confirms the accuracy of management's financial representations.
c) Lends credibility to the financial statements.
d) Guarantees that financial data are fairly presented.
6. A CPA is most likely to refer to one or more of the three general auditing standards in determining
a) Whether the CPA should undertake an audit engagement.
b) The nature of the CPA's report qualification.
c) The scope of the CPA's auditing procedures.
d) Requirements for the review of internal control.
7. The first standard of field work recognizes that early appointment of the independent auditor has many advantages to the auditor and the client. Which of the following advantages is least likely to occur as a result of early appointment of the auditor?
a) The auditor will be able to complete the audit work in less time.
b) The auditor will be able to perform the examination more efficiently.
c) The auditor will be able to better plan for the observation of the physical inventories.
d) The auditor will be able to plan the audit work so that it may be done expeditiously.
8. Which of the following best describes the reason why an independent auditor reports on financial statements?
a) A management fraud may exist and is more likely to be detected by independent auditors.
b) Different interests may exist between the company preparing the statements and the persons using the statements.
c) A misstatement of account balances may exist and is generally corrected as the result of the independent auditor's work.
d) Poorly designed internal control may exist.
9. What is the general character of the three generally accepted auditing standard classified as general standards?
a) Criteria for content of the F/S and the auditor's report.
b) Criteria of audit planning and supervision and evidence gathering.
c) The need to maintain an independence in mental attitude in all matters relating to the assignments.
d) Criteria for competence, independence and professional care of individuals performing the audit.
10. A CPA, while performing an audit, strives to achieve independence in appearance in order to
a) Reduce risk and liability.
b) Comply with the generally accepted standards of field work.
c) Become independent in fact.
d) Maintain public confidence in the profession.
11. The "generally accepted auditing standards" are standards which
a) Are sufficiently established so that independent auditors generally agree on their existence.
b) Are generally accepted based upon a pronouncement of the Financial Accounting Standards Board.
c) Are generally accepted in response to the changing needs of the business community.
d) Are generally accepted as a consequence of approval of the AICPA membership.
12. The primary objective of the ordinary examination of financial statement by a CPA is the expression of an opinion on
a) The competence of management in accounting matters which is implied by whether the opinion is qualified or not.
b) The conformity of the statements with the book of account.
c) The conformity of the financial statements with generally accepted auditing standards applied on a basis consistent with that of the prior year.
d) The fairness with which the financial statements present cash flows and results of operations.
13. The primary responsibility for the adequacy of disclosure in the financial statements of a publicly held company rests with the
a) Partner assigned to the engagement.
b) Auditor in charge of field work.
c) Management of the company.
d) Securities & Exchange Commission.
14. A CPA should comply with applicable GAAS on every engagement
a) Without exception.
b) Except in examinations that result in a qualified report.
c) Except in engagements where the CPA is associated with unaudited F/S.
d) Except in examinations of interim financial statements.
15. Which of the following best describes what is meant by GAAS?
a) Audit objectives generally determined on audit engagements.
b) Acts to be performed by the auditor.
c) Measures of the quality of the auditor's performance.
d) Procedures to be used to gather evidence to support financial statements.
16. The first general standard recognizes that regardless of how capable an individual may be in other fields, the individual can not meet the requirements of the auditing standards without the proper
a) Business and finance course.
b) Quality control and peer review.
c) Education & experience in auditing.
d) Supervision and review skills.
17. The first general standard requires that the examination of F/S is to be performed by a person having adequate technical training and
a) Independence with respect to the F/S and supplementary disclosures.
b) Exercising professional care as judged by peer reviewers.
c) Proficiency as an auditor which likely has been acquired from previous experience.
d) Objectivity as an auditor as verified by proper supervision.
18. Due professional care requires
a) A critical review of the work done at every level of supervision.
b) The examination of all corroborating evidence available.
c) The exercise of error free judgment.
d) A study and review of the I/C's that include tests of controls
19. The third general standard states that due care is to be exercised in the performance of the examination. This standard means that a CPA who undertakes an engagement assumes a duty to perform each audit
a) As a professional possessing the degree of skill commonly possessed by others in the field.
b) In conformity with generally accepted accounting principles.
c) With reasonable diligence and without fault or error.
d) To the satisfaction of governmental agencies and investors who rely upon the audit.
20. According to court decision, GAAS established by the AICPA applies
a) Only to AICPA members.
b) To all CPA's.
c) Only to those who choose to follow them.
d) Only when conducting audits subject to the AICPA jurisdiction.
21. Which of the following best describes the reason why an independent auditor reports on financial statements?
a) A management fraud may exist and is more likely to be detected by independent auditors.
b) Different interests may exist between the company preparing the statements and the persons using the statements.
c) A misstatement of account balances may exist and is generally corrected as the result of the independent auditor's work.
d) Poorly designed internal control may exist.
(Yes, this is the same as #8, ask me why!!!)
22. The independent audit is important to readers of F/S because it
a) Determines the future stewardship of the management of the company whose financial statements are audited.
b) Measures and communicates financial and business data in the F/S.
c) Involves the objective examination of, and reporting on, management-prepared statements.
d) Reports on the accuracy of all information in the F/S.
23. Independent auditing can best be described as
a) A branch of accounting.
b) A discipline that attests to the results of accounting and other functional operations and data.
c) A professional activity that measures and communicates financial and business data.
d) A regulatory function that prevents the issuance of improper financial information.
24. What is the meaning of the GAAS that requires the auditor to be independent?
a) The auditor must be without bias with respect to the client under audit.
b) The auditor must adopt a critical attitude during the audit.
c) The auditor's sole obligation is to third parties.
d) The auditor may have a direct ownership interest in the client's business if it is not material.
25. The primary purpose of a management advisory services engagement is to help the client
a) Become more profitable by relying upon the CPA's existing personal knowledge about the client's business.
b) Improve the use of its capabilities and resources to achieve its objectives.
c) Document and quantify its future plans without impairing the CPA's objectivity or allowing the CPA to assume the role of management.
d) Obtain benefits that are guaranteed implicitly by the CPA.
26. Operational auditing is primarily oriented toward
a) Future improvements to accomplish the goals of management.
b) The accuracy of data reflected in management's financial records.
c) The verification that a company's financial statements are fairly presented.
d) Past protection provided by existing internal control.
27. Because an examination i/a/w GAAS is influenced by the possibility of material errors, the auditor should conduct the examination with an attitude of
a) Professional responsiveness.
b) Conservative advocacy.
c) Objective judgment.
d) Professional skepticism.
28. The exercise of due professional care requires that an auditor
a) Use error-free judgment.
b) Consider the internal control structure, including tests of controls.
c) Critically review the work done at every level of supervision.
d) Examine all corroborating evidence available.
29. CPA firms should establish quality control policies and procedures for personnel management in order to provide reasonable assurance that
a) Employees promoted possess the appropriate characteristics to perform competently.
b) Personnel will have the knowledge required to fulfill responsibilities assigned.
c) The extent of supervision and review in a given instance will be appropriate.
d) All of the above are reasons.
30. The least important evidence of a CPA firm's evaluation of its system of QC would concern the CPA firm's policies and procedures for
a) Employment (hiring).
b) Confidentiality of audit engagements.
c) Assigning personnel to audit engagements.
d) Determination of audit fees.
31. A CPA establishes QC policies and procedures for deciding whether to accept a new client or continue to perform services for a current client. The primary purpose for establishing such policies is to
a) Enable the auditor to attest to the integrity or reliability of a client.
b) Comply with the quality control standards established by regulatory bodies.
c) Minimize the likelihood of association with clients whose management lacks integrity.
d) To lessen the exposure to litigation resulting from failure to detect irregularities in client financial statements.
32. In pursuing its quality control objectives with respect to acceptance of a client, a CPA firm is not likely to
a) Make inquiries of the proposed client's legal counsel.
b) Review financial statements of the proposed client.
c) Make inquiries of previous auditors.
d) Review the personnel practices of the proposed client.
33. Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide personnel within the firm with
a) Technical training that assures proficiency as an auditor.
b) Professional education that is required in order to perform with due professional care.
c) Knowledge required to fulfill assigned responsibilities and to progress within the firm.
d) Knowledge required in order to perform a peer review.
34. In pursuing a CPA firms' quality control objectives, a CPA firm may maintain records indicating which partners or employees of the CPA firm were previously employed by the CPA firm's clients. Which quality control objective would this be most likely to satisfy?
a) Acceptance of client.
b) Supervision.
c) Independence.
d) Monitoring.
35. In pursuing its quality control objectives with respect to independence, a CPA firm may use policies and procedures such as
a) Emphasizing independence of mental attitude in firm training programs and in supervision and review of work.
b) Prohibiting employees from owning stock of public companies.
c) Suggesting that employees conduct their banking transactions with banks that do not maintain accounts with client firms.
d) Assigning employees who may lack independence to research positions that do not require participation in field audit work.
36. Which of the following is an element of quality control?
a) Supervision
b) Inspection
c) Personnel management
d) Consultation
37. In connection with the element of monitoring, a CPA firm's system of quality control should ordinarily provide for the maintenance of
a) A file of minutes of staff meetings.
b) Updated personnel files.
c) Documentation to demonstrate compliance with its policies and procedures.
d) Documentation to demonstrate compliance with peer review directives.
38. One element of the personnel management quality control standard is professional development. The primary reason why a CPA firm establishes policies and procedures for professional development of staff accountants is to
a) Comply with the continuing educational requirements imposed by various states for all staff accountants in CPA firms.
b) Establish, in fact as well as in appearance, that staff accountants are increasing their knowledge of accounting and auditing matters.
c) Provide a forum for staff accountants to exchange their experiences and views concerning firm policies and procedures.
d) Provide reasonable assurance that staff personnel will have the knowledge required to enable them to fulfill responsibilities.
39. Which of the following is a quality control standard?
a) Peer review.
b) Administrative control.
c) Engagement performance.
d) Time studies.
40. What is the responsibility of a successor auditor (SA) with respect to communicating with the predecessor auditor (PA) in connection with a prospective new client?
a. The SA has no responsibility to contact the PA.
b. The SA should obtain permission from the prospective client to contact the PA.
c. The SA should contact the PA regardless of whether the prospective client authorizes contact.
d. The SA need not contact the PA if the successor is aware of all available relevant facts.
41. A CPA firm's personnel partner periodically studies the CPA firm's personnel advancement experience to ascertain whether individuals meeting stated criteria are assigned increased degrees of responsibility. This is evidence of the CPA firm's adherence to prescribed standards of
a) Quality control.
b) Due professional care.
c) Supervision and review.
d) Field work.
42. Quality control for a CPA firm as referred to in Statements on Quality Control Standards, applies to
a) Auditing services only.
b) Auditing and management advisory services.
c) Auditing and tax services.
d) Auditing and accounting and review services.
43. A prospective client's refusal to grant a CPA permission to communicate with the predecessor auditor will bear directly on the CPA's ability to
a) Determine appropriate pricing of the audit.
b) Determine the integrity of management.
c) Determine the beginning balances of the current year's financial statements.
d) Establish consistency in application of GAAP between years.
44 . Prior to the acceptance of an audit engagement with a client who has terminated the services of the predecessor auditor, the CPA should
a. Contact the predecessor auditor without advising the prospective client and request a complete report of the circumstances leading to the termination with the understanding that all information disclosed will be kept confidential.
b. Accept the engagement without contacting the predecessor auditor since the CPA can include audit procedures to verify the reason given by the client for the termination.
c. Not communicate with the predecessor auditor because this would, in effect, be asking the auditor to violate the confidential relationship between auditor and client.
d. Advise the client of the intention to contact the predecessor auditor and request permission for the contact.
45. Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor's
a. Awareness of the consistency in the application of GAAP between periods.
b. Evaluation of all matters of continuing accounting significance.
c. Opinion of any subsequent events occurring since the predecessor's audit report was issued.
d. Understanding as to the reasons for the change of auditors.
CPA Question Index Page
Tuesday, October 7, 2008
Impact of Globalisation on Developing Countries and India
Impact of Globalisation on Developing Countries and India
Globalisation is the new buzzword that has come to dominate the world since the nineties of the last century with the end of the cold war and the break-up of the former Soviet Union and the global trend towards the rolling ball. The frontiers of the state with increased reliance on the market economy and renewed faith in the private capital and resources, a process of structural adjustment spurred by the studies and influences of the World Bank and other International organisations have started in many of the developing countries. Also Globalisation has brought in new opportunities to developing countries. Greater access to developed country markets and technology transfer hold out promise improved productivity and higher living standard. But globalisation has also thrown up new challenges like growing inequality across and within nations, volatility in financial market and environmental deteriorations. Another negative aspect of globalisation is that a great majority of developing countries remain removed from the process. Till the nineties the process of globalisation of the Indian economy was constrained by the barriers to trade and investment liberalisation of trade, investment and financial flows initiated in the nineties has progressively lowered the barriers to competition and hastened the pace of globalisation
Definition:
Globalised World - What does it mean?
Does it mean the fast movement of people which results in greater interaction?
Does it mean that because of IT revolution people can be in touch with each other in any part of the world?
Does it mean trade and economy of each country is open in Non-Intrusive way so that all varieties are available to consumer of his choice?
Does it mean that mankind has achieved emancipation to a level of where we can say it means a social, economic and political globalisation?
Though the precise definition of globalisation is still unavailable a few definitions worth viewing, Stephen Gill: defines globalisation as the reduction of transaction cost of transborder movements of capital and goods thus of factors of production and goods. Guy Brainbant: says that the process of globalisation not only includes opening up of world trade, development of advanced means of communication, internationalisation of financial markets, growing importance of MNC’s, population migrations and more generally increased mobility of persons, goods, capital, data and ideas but also infections, diseases and pollution
Impact on India:
India opened up the economy in the early nineties following a major crisis that led by a foreign exchange crunch that dragged the economy close to defaulting on loans. The response was a slew of Domestic and external sector policy measures partly prompted by the immediate needs and partly by the demand of the multilateral organisations. The new policy regime radically pushed forward in favour of amore open and market oriented economy.
Major measures initiated as a part of the liberalisation and globalisation strategy in the early nineties included scrapping of the industrial licensing regime, reduction in the number of areas reserved for the public sector, amendment of the monopolies and the restrictive trade practices act, start of the privatisation programme, reduction in tariff rates and change over to market determined exchange rates.
Over the years there has been a steady liberalisation of the current account transactions, more and more sectors opened up for foreign direct investments and portfolio investments facilitating entry of foreign investors in telecom, roads, ports, airports, insurance and other major sectors.
The Indian tariff rates reduced sharply over the decade from a weighted average of 72.5% in 1991-92 to 24.6 in 1996-97.Though tariff rates went up slowly in the late nineties it touched 35.1% in 2001-02. India is committed to reduced tariff rates. Peak tariff rates are to be reduced to be reduced to the minimum with a peak rate of 20%, in another 2 years most non-tariff barriers have been dismantled by march 2002, including almost all quantitative restrictions.
India is Global: The liberalisation of the domestic economy and the increasing integration of India with the global economy have helped step up GDP growth rates, which picked up from 5.6% in 1990-91 to a peak level of 77.8% in 1996-97. Growth rates have slowed down since the country has still bee able to achieve 5-6% growth rate in three of the last six years. Though growth rates has slumped to the lowest level 4.3% in 2002-03 mainly because of the worst droughts in two decades the growth rates are expected to go up close to 70% in 2003-04. A Global comparison shows that India is now the fastest growing just after China.
This is major improvement given that India is growth rate in the 1970’s was very low at 3% and GDP growth in countries like Brazil, Indonesia, Korea, and Mexico was more than twice that of India. Though India’s average annual growth rate almost doubled in the eighties to 5.9% it was still lower than the growth rate in China, Korea and Indonesia. The pick up in GDP growth has helped improve India’s global position. Consequently India’s position in the global economy has improved from the 8th position in 1991 to 4th place in 2001. When GDP is calculated on a purchasing power parity basis.
Globalisation and Poverty:
Globalisation in the form of increased integration though trade and investment is an important reason why much progress has been made in reducing poverty and global inequality over recent decades. But it is not the only reason for this often unrecognised progress, good national polices , sound institutions and domestic political stability also matter.
Despite this progress, poverty remains one of the most serious international challenges we face up to 1.2 billion of the developing world 4.8 billion people still live in extreme poverty.
But the proportion of the world population living in poverty has been steadily declining and since 1980 the absolute number of poor people has stopped rising and appears to have fallen in recent years despite strong population growth in poor countries. If the proportion living in poverty had not fallen since 1987 alone a further 215million people would be living in extreme poverty today.
India has to concentrate on five important areas or things to follow to achieve this goal. The areas like technological entrepreneurship, new business openings for small and medium enterprises, importance of quality management, new prospects in rural areas and privatisation of financial institutions. The manufacturing of technology and management of technology are two different significant areas in the country.
There will be new prospects in rural India. The growth of Indian economy very much depends upon rural participation in the global race. After implementing the new economic policy the role of villages got its own significance because of its unique outlook and branding methods. For example food processing and packaging are the one of the area where new entrepreneurs can enter into a big way. It may be organised in a collective way with the help of co-operatives to meet the global demand.
Understanding the current status of globalisation is necessary for setting course for future. For all nations to reap the full benefits of globalisation it is essential to create a level playing field. President Bush’s recent proposal to eliminate all tariffs on all manufactured goods by 2015 will do it. In fact it may exacerbate the prevalent inequalities. According to this proposal, tariffs of 5% or less on all manufactured goods will be eliminated by 2005 and higher than 5% will be lowered to 8%. Starting 2010 the 8% tariffs will be lowered each year until they are eliminated by 2015.
GDP Growth rate:
The Indian economy is passing through a difficult phase caused by several unfavourable domestic and external developments; Domestic output and Demand conditions were adversely affected by poor performance in agriculture in the past two years. The global economy experienced an overall deceleration and recorded an output growth of 2.4% during the past year growth in real GDP in 2001-02 was 5.4% as per the Economic Survey in 2000-01. The performance in the first quarter of the financial year is5.8% and second quarter is 6.1%.
Export and Import:
India’s Export and Import in the year 2001-02 was to the extent of 32,572 and 38,362 million respectively. Many Indian companies have started becoming respectable players in the International scene. Agriculture exports account for about 13 to 18% of total annual of annual export of the country. In 2000-01 Agricultural products valued at more than US $ 6million were exported from the country 23% of which was contributed by the marine products alone. Marine products in recent years have emerged as the single largest contributor to the total agricultural export from the country accounting for over one fifth of the total agricultural exports. Cereals (mostly basmati rice and non-basmati rice), oil seeds, tea and coffee are the other prominent products each of which accounts fro nearly 5 to 10% of the countries total agricultural exports.
Where does Indian stand in terms of Global Integration?
India clearly lags in globalisation. Number of countries have a clear lead among them China, large part of east and far east Asia and eastern Europe. Lets look at a few indicators how much we lag.
· Over the past decade FDI flows into India have averaged around 0.5% of GDP against 5% for China 5.5% for Brazil. Whereas FDI inflows into China now exceeds US $ 50 billion annually. It is only US $ 4billion in the case of India
· Consider global trade – India’s share of world merchandise exports increased from .05% to .07% over the pat 20 years. Over the same period China’s share has tripled to almost 4%.
· India’s share of global trade is similar to that of the Philippines an economy 6 times smaller according to IMF estimates. India under trades by 70-80% given its size, proximity to markets and labour cost advantages.
· It is interesting to note the remark made last year by Mr. Bimal Jalan, Governor of RBI. Despite all the talk, we are now where ever close being globalised in terms of any commonly used indicator of globalisation. In fact we are one of the least globalised among the major countries – however we look at it.
· As Amartya Sen and many other have pointed out that India, as a geographical, politico-cultural entity has been interacting with the outside world throughout history and still continues to do so. It has to adapt, assimilate and contribute. This goes without saying even as we move into what is called a globalised world which is distinguished from previous eras from by faster travel and communication, greater trade linkages, denting of political and economic sovereignty and greater acceptance of democracy as a way of life.
Consequences:
The implications of globalisation for a national economy are many. Globalisation has intensified interdependence and competition between economies in the world market. This is reflected in Interdependence in regard to trading in goods and services and in movement of capital. As a result domestic economic developments are not determined entirely by domestic policies and market conditions. Rather, they are influenced by both domestic and international policies and economic conditions. It is thus clear that a globalising economy, while formulating and evaluating its domestic policy cannot afford to ignore the possible actions and reactions of policies and developments in the rest of the world. This constrained the policy option available to the government which implies loss of policy autonomy to some extent, in decision-making at the national level.
~
Globalisation is the new buzzword that has come to dominate the world since the nineties of the last century with the end of the cold war and the break-up of the former Soviet Union and the global trend towards the rolling ball. The frontiers of the state with increased reliance on the market economy and renewed faith in the private capital and resources, a process of structural adjustment spurred by the studies and influences of the World Bank and other International organisations have started in many of the developing countries. Also Globalisation has brought in new opportunities to developing countries. Greater access to developed country markets and technology transfer hold out promise improved productivity and higher living standard. But globalisation has also thrown up new challenges like growing inequality across and within nations, volatility in financial market and environmental deteriorations. Another negative aspect of globalisation is that a great majority of developing countries remain removed from the process. Till the nineties the process of globalisation of the Indian economy was constrained by the barriers to trade and investment liberalisation of trade, investment and financial flows initiated in the nineties has progressively lowered the barriers to competition and hastened the pace of globalisation
Definition:
Globalised World - What does it mean?
Does it mean the fast movement of people which results in greater interaction?
Does it mean that because of IT revolution people can be in touch with each other in any part of the world?
Does it mean trade and economy of each country is open in Non-Intrusive way so that all varieties are available to consumer of his choice?
Does it mean that mankind has achieved emancipation to a level of where we can say it means a social, economic and political globalisation?
Though the precise definition of globalisation is still unavailable a few definitions worth viewing, Stephen Gill: defines globalisation as the reduction of transaction cost of transborder movements of capital and goods thus of factors of production and goods. Guy Brainbant: says that the process of globalisation not only includes opening up of world trade, development of advanced means of communication, internationalisation of financial markets, growing importance of MNC’s, population migrations and more generally increased mobility of persons, goods, capital, data and ideas but also infections, diseases and pollution
Impact on India:
India opened up the economy in the early nineties following a major crisis that led by a foreign exchange crunch that dragged the economy close to defaulting on loans. The response was a slew of Domestic and external sector policy measures partly prompted by the immediate needs and partly by the demand of the multilateral organisations. The new policy regime radically pushed forward in favour of amore open and market oriented economy.
Major measures initiated as a part of the liberalisation and globalisation strategy in the early nineties included scrapping of the industrial licensing regime, reduction in the number of areas reserved for the public sector, amendment of the monopolies and the restrictive trade practices act, start of the privatisation programme, reduction in tariff rates and change over to market determined exchange rates.
Over the years there has been a steady liberalisation of the current account transactions, more and more sectors opened up for foreign direct investments and portfolio investments facilitating entry of foreign investors in telecom, roads, ports, airports, insurance and other major sectors.
The Indian tariff rates reduced sharply over the decade from a weighted average of 72.5% in 1991-92 to 24.6 in 1996-97.Though tariff rates went up slowly in the late nineties it touched 35.1% in 2001-02. India is committed to reduced tariff rates. Peak tariff rates are to be reduced to be reduced to the minimum with a peak rate of 20%, in another 2 years most non-tariff barriers have been dismantled by march 2002, including almost all quantitative restrictions.
India is Global: The liberalisation of the domestic economy and the increasing integration of India with the global economy have helped step up GDP growth rates, which picked up from 5.6% in 1990-91 to a peak level of 77.8% in 1996-97. Growth rates have slowed down since the country has still bee able to achieve 5-6% growth rate in three of the last six years. Though growth rates has slumped to the lowest level 4.3% in 2002-03 mainly because of the worst droughts in two decades the growth rates are expected to go up close to 70% in 2003-04. A Global comparison shows that India is now the fastest growing just after China.
This is major improvement given that India is growth rate in the 1970’s was very low at 3% and GDP growth in countries like Brazil, Indonesia, Korea, and Mexico was more than twice that of India. Though India’s average annual growth rate almost doubled in the eighties to 5.9% it was still lower than the growth rate in China, Korea and Indonesia. The pick up in GDP growth has helped improve India’s global position. Consequently India’s position in the global economy has improved from the 8th position in 1991 to 4th place in 2001. When GDP is calculated on a purchasing power parity basis.
Globalisation and Poverty:
Globalisation in the form of increased integration though trade and investment is an important reason why much progress has been made in reducing poverty and global inequality over recent decades. But it is not the only reason for this often unrecognised progress, good national polices , sound institutions and domestic political stability also matter.
Despite this progress, poverty remains one of the most serious international challenges we face up to 1.2 billion of the developing world 4.8 billion people still live in extreme poverty.
But the proportion of the world population living in poverty has been steadily declining and since 1980 the absolute number of poor people has stopped rising and appears to have fallen in recent years despite strong population growth in poor countries. If the proportion living in poverty had not fallen since 1987 alone a further 215million people would be living in extreme poverty today.
India has to concentrate on five important areas or things to follow to achieve this goal. The areas like technological entrepreneurship, new business openings for small and medium enterprises, importance of quality management, new prospects in rural areas and privatisation of financial institutions. The manufacturing of technology and management of technology are two different significant areas in the country.
There will be new prospects in rural India. The growth of Indian economy very much depends upon rural participation in the global race. After implementing the new economic policy the role of villages got its own significance because of its unique outlook and branding methods. For example food processing and packaging are the one of the area where new entrepreneurs can enter into a big way. It may be organised in a collective way with the help of co-operatives to meet the global demand.
Understanding the current status of globalisation is necessary for setting course for future. For all nations to reap the full benefits of globalisation it is essential to create a level playing field. President Bush’s recent proposal to eliminate all tariffs on all manufactured goods by 2015 will do it. In fact it may exacerbate the prevalent inequalities. According to this proposal, tariffs of 5% or less on all manufactured goods will be eliminated by 2005 and higher than 5% will be lowered to 8%. Starting 2010 the 8% tariffs will be lowered each year until they are eliminated by 2015.
GDP Growth rate:
The Indian economy is passing through a difficult phase caused by several unfavourable domestic and external developments; Domestic output and Demand conditions were adversely affected by poor performance in agriculture in the past two years. The global economy experienced an overall deceleration and recorded an output growth of 2.4% during the past year growth in real GDP in 2001-02 was 5.4% as per the Economic Survey in 2000-01. The performance in the first quarter of the financial year is5.8% and second quarter is 6.1%.
Export and Import:
India’s Export and Import in the year 2001-02 was to the extent of 32,572 and 38,362 million respectively. Many Indian companies have started becoming respectable players in the International scene. Agriculture exports account for about 13 to 18% of total annual of annual export of the country. In 2000-01 Agricultural products valued at more than US $ 6million were exported from the country 23% of which was contributed by the marine products alone. Marine products in recent years have emerged as the single largest contributor to the total agricultural export from the country accounting for over one fifth of the total agricultural exports. Cereals (mostly basmati rice and non-basmati rice), oil seeds, tea and coffee are the other prominent products each of which accounts fro nearly 5 to 10% of the countries total agricultural exports.
Where does Indian stand in terms of Global Integration?
India clearly lags in globalisation. Number of countries have a clear lead among them China, large part of east and far east Asia and eastern Europe. Lets look at a few indicators how much we lag.
· Over the past decade FDI flows into India have averaged around 0.5% of GDP against 5% for China 5.5% for Brazil. Whereas FDI inflows into China now exceeds US $ 50 billion annually. It is only US $ 4billion in the case of India
· Consider global trade – India’s share of world merchandise exports increased from .05% to .07% over the pat 20 years. Over the same period China’s share has tripled to almost 4%.
· India’s share of global trade is similar to that of the Philippines an economy 6 times smaller according to IMF estimates. India under trades by 70-80% given its size, proximity to markets and labour cost advantages.
· It is interesting to note the remark made last year by Mr. Bimal Jalan, Governor of RBI. Despite all the talk, we are now where ever close being globalised in terms of any commonly used indicator of globalisation. In fact we are one of the least globalised among the major countries – however we look at it.
· As Amartya Sen and many other have pointed out that India, as a geographical, politico-cultural entity has been interacting with the outside world throughout history and still continues to do so. It has to adapt, assimilate and contribute. This goes without saying even as we move into what is called a globalised world which is distinguished from previous eras from by faster travel and communication, greater trade linkages, denting of political and economic sovereignty and greater acceptance of democracy as a way of life.
Consequences:
The implications of globalisation for a national economy are many. Globalisation has intensified interdependence and competition between economies in the world market. This is reflected in Interdependence in regard to trading in goods and services and in movement of capital. As a result domestic economic developments are not determined entirely by domestic policies and market conditions. Rather, they are influenced by both domestic and international policies and economic conditions. It is thus clear that a globalising economy, while formulating and evaluating its domestic policy cannot afford to ignore the possible actions and reactions of policies and developments in the rest of the world. This constrained the policy option available to the government which implies loss of policy autonomy to some extent, in decision-making at the national level.
~
Monday, April 14, 2008
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