Group 18: Audit of Items of Financial Statements

30 original practice MCQs. 2 marks each. Separate practice and test sets.

Original practice, not ICAI questions, official suggested answers or an official examiner scheme. Equivalent correct work is credited within the stated caps. Public practice availability is not full official question-bank completion.

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AUD-G18-P001 · 2 marks

A valid issue has 8000 fully called Rs 10 shares, but only Rs 65000 cash paid. Which presentation concern is correct?

A. Rs 145000 paid capital arises by adding called and received amounts. B. All shares are automatically void from any arrears. C. Rs 65000 cash proves Rs 80000 paid. D. Rs 15000 unpaid calls prevent describing the entire Rs 80000 as paid capital.

Explanation

Correct answer D: Rs 15000 unpaid calls prevent describing the entire Rs 80000 as paid capital.

8000 x 10=80000 called;80000-65000=15000 unpaid. Issue legality is supplied, not inferred.

AUD-G18-P002 · 2 marks

An authorised issue is 2000 shares of Rs 10 face at Rs 16 price, cash fully received. What split is supported?

A. Rs 12000 profit and Rs 20000 loan. B. Rs 32000 premium with no face capital. C. Rs 20000 share capital and Rs 12000 premium. D. Rs 32000 share capital only.

Explanation

Correct answer C: Rs 20000 share capital and Rs 12000 premium.

2000 x 10=20000;2000 x 6=12000. Cash total does not determine face capital.

AUD-G18-P003 · 2 marks

Verified services already delivered create a Rs 60000 creditor, but the entity creates an equity reserve instead. What is missing?

A. Evidence that a bank payment already occurred, which is required before all accruals. B. Only a larger logo in the notes. C. The actual service expense and liability; an equity appropriation does not record the creditor. D. A rule that every liability can be recorded as reserves.

Explanation

Correct answer C: The actual service expense and liability; an equity appropriation does not record the creditor.

Obligation/expense differs from appropriation within equity. Do not duplicate the charge when correcting.

AUD-G18-P004 · 2 marks

A loan opens at Rs 9 lakh, new principal Rs 4 lakh, repayments Rs 3 lakh. What closing principal follows before interest?

A. Rs 9 lakh because temporary transactions never matter. B. Rs 10 lakh. C. Rs 16 lakh by adding repayments. D. Rs 8 lakh by subtracting new borrowing.

Explanation

Correct answer B: Rs 10 lakh.

9+4-3=10. Verify lender schedule and cash allocation rather than temporary labels.

AUD-G18-P005 · 2 marks

Loan confirmation agrees on principal but omits debt interest, security and maturity. Which conclusion should be avoided?

A. Inspect terms and lender evidence. B. That principal agreement proves every debt assertion and disclosure. C. Check secured and current/non-current presentation. D. Reconcile interest independently.

Explanation

Correct answer B: That principal agreement proves every debt assertion and disclosure.

Confirmation contents matter; principal existence is not automatic measurement/completeness/classification assurance.

AUD-G18-P006 · 2 marks

Under an explicit recovery-based rule, debtor gross Rs 500000 has supported recovery Rs 350000 and recorded allowance Rs 40000. What additional allowance follows?

A. Rs 40000 because only the recorded amount matters. B. Rs 110000. C. Rs 500000 because every uncertain debt must be wholly written off. D. Rs 150000 additional despite an existing Rs 40000 allowance.

Explanation

Correct answer B: Rs 110000.

Required 500000-350000=150000;less recorded 40000=110000 additional. Confirmation alone would not establish recovery.

AUD-G18-P007 · 2 marks

A material debtor fails to reply to confirmation. What is the sound next step?

A. Automatically declare the full debt nonexistent. B. Treat silence as full confirmation. C. Issue a fixed adverse opinion before further work. D. Perform appropriate alternative procedures and assess sufficiency of evidence, not assume agreement.

Explanation

Correct answer D: Perform appropriate alternative procedures and assess sufficiency of evidence, not assume agreement.

Subsequent receipts, underlying transactions and delivery evidence can be relevant; actual findings drive reporting.

AUD-G18-P008 · 2 marks

Two cashiers are counted on different days and can transfer money between tills. What risk is directly addressed by simultaneous checks where practicable?

A. A shortage in one balance being concealed by moving cash from another. B. Automatic correction of every employee advance. C. A guarantee that every bank account is already confirmed. D. A ban on all petty-cash balances.

Explanation

Correct answer A: A shortage in one balance being concealed by moving cash from another.

Simultaneous count reduces window-dressing risk; counts still need records, custodian and reconciliation.

AUD-G18-P009 · 2 marks

Bank balance ledger Rs 90000; bank Rs 87000. Only verified current bank charges Rs 3000 are unposted, no timing issue. What is correct?

A. Add Rs 3000 to cash because charges are gains. B. Reduce book cash and recognise Rs 3000 expense rather than keep a permanent timing difference. C. Record a new Rs 90000 loan automatically. D. No adjustment because a reconciliation exists.

Explanation

Correct answer B: Reduce book cash and recognise Rs 3000 expense rather than keep a permanent timing difference.

90000-3000=87000. Actual bank charges differ from outstanding-cheque timing items.

AUD-G18-P010 · 2 marks

A trader counts supplier-owned consignment goods with its owned stock. Which assertion is most directly challenged?

A. That counted goods cannot physically exist. B. That every supplier invoice is a share issue. C. Rights/ownership of the recorded inventory, even though physical existence is evident. D. Only whether bank deposits are current.

Explanation

Correct answer C: Rights/ownership of the recorded inventory, even though physical existence is evident.

Physical possession does not establish ownership; inspect actual consignment terms.

AUD-G18-P011 · 2 marks

80 units cost Rs 250 each; expected sale Rs 240 less selling costs Rs 20, no completion costs. Supplied lower-of-cost/NRV rule applies. What carrying value follows?

A. Rs 17600. B. Rs 20000 because physical count equals books. C. Rs 19200 by ignoring selling costs. D. Rs 21600 because losses add to inventory.

Explanation

Correct answer A: Rs 17600.

NRV240-20=220;80 x 220=17600;reduction 2400 fromcost 20000.

AUD-G18-P012 · 2 marks

Goods owned at year-end are in counted closing stock but the related invoice/payable is omitted. What correction avoids duplication?

A. Remove all stock because supplier payment is later. B. Ignore the payable because no invoice was in the folder. C. Record the omitted purchase/payable consistently without adding the same stock to closing inventory again. D. Add the goods twice because the invoice came later.

Explanation

Correct answer C: Record the omitted purchase/payable consistently without adding the same stock to closing inventory again.

Receiving/title evidence drives cut-off and liability; count inclusion must be reconciled to purchase entries.

AUD-G18-P013 · 2 marks

Machine net purchase Rs 400000, delivery Rs 15000, installation Rs 35000 and unrelated launch party Rs 20000. AS 10 criteria supplied. What supported asset cost follows?

A. Rs 450000. B. Rs 470000 including the launch party. C. Rs 20000 because only the party is capital. D. Rs 400000 excluding necessary delivery and installation.

Explanation

Correct answer A: Rs 450000.

400000+15000+35000=450000. Unrelated launch costs do not bring the machine to intended condition.

AUD-G18-P014 · 2 marks

A straight-line AS 10 machine is temporarily idle, not held for disposal and not fully depreciated. What is sound?

A. Delete every idle machine immediately. B. Use title to conclude no useful life exists. C. Always stop depreciation on the first idle day. D. Idleness alone does not stop depreciation or require deletion; assess condition/impairment separately.

Explanation

Correct answer D: Idleness alone does not stop depreciation or require deletion; assess condition/impairment separately.

AS 10 paragraph 57 distinguishes idleness from retired-held-for-disposal/derecognition; usage-method qualification is not this case.

AUD-G18-P015 · 2 marks

Asset cost Rs 250000, accumulated depreciation at sale Rs 160000, proceeds Rs 105000. What disposal gain follows?

A. Rs 265000 by adding proceeds and depreciation. B. Rs 105000 because all proceeds are profit. C. Rs 90000 because carrying amount is gain. D. Rs 15000.

Explanation

Correct answer D: Rs 15000.

Carrying 250000-160000=90000;105000-90000=15000 gain. Remove cost and accumulated depreciation too.

AUD-G18-P016 · 2 marks

Project research costs are capitalised only because management hopes for eventual success. AS 26 research-expense criterion is supplied. What is appropriate?

A. Every research budget automatically creates patent ownership. B. All later development must always be expensed without separate criteria. C. A board vote changes the stated accounting criterion. D. Verify phase and expense research expenditure rather than recognise an asset solely from optimism.

Explanation

Correct answer D: Verify phase and expense research expenditure rather than recognise an asset solely from optimism.

Research and qualifying development require distinct evidence/criteria; the exercise explicitly fixes the research rule.

AUD-G18-P017 · 2 marks

A recognised software-use right has a three-year non-transferable contract, vendor retaining code ownership. Which description is supported?

A. The controlled contractual use right, not source-code ownership. B. A rule that every licence must be rejected as an asset. C. Perpetual ownership of all vendor software. D. An automatic lifetime with no amortisation assessment.

Explanation

Correct answer A: The controlled contractual use right, not source-code ownership.

Rights and duration derive from actual licence; exercise supplies recognition to avoid framework guesswork.

AUD-G18-P018 · 2 marks

A major supplier has nil recorded closing balance but substantial annual purchases. Should it be ignored solely on that basis?

A. Yes, supplier statements can never reveal omitted invoices. B. No, but automatically add all annual purchases again as creditors. C. Yes, every nil balance proves no obligation. D. No; nil recorded balances may hide omitted liabilities, so consider activity, statements and subsequent payments.

Explanation

Correct answer D: No; nil recorded balances may hide omitted liabilities, so consider activity, statements and subsequent payments.

Positive-ledger-only selection is incomplete; investigate actual year-end obligations.

AUD-G18-P019 · 2 marks

A single Rs 32000 invoice is posted twice to expense/payable, both unpaid. What linked error is supported?

A. Expense and payable each overstated Rs 32000, not two independent cash losses. B. Only inventory changes automatically. C. Rs 64000 cash theft despite no payment. D. A new Rs 64000 verified service.

Explanation

Correct answer A: Expense and payable each overstated Rs 32000, not two independent cash losses.

Reverse the duplicate while retaining one valid obligation; reconcile invoice identifier and supplier evidence.

AUD-G18-P020 · 2 marks

A refundable equipment advance is confirmed and recoverable, with no delivery/control yet. What should be avoided?

A. Show the supported capital advance under applicable presentation. B. Recognising completed PPE or maintenance expense solely because cash was paid. C. Inspect the order and refund terms. D. Check later delivery/refund evidence.

Explanation

Correct answer B: Recognising completed PPE or maintenance expense solely because cash was paid.

Payment precedes performance/control; evidence determines advance and recovery, not a label of settlement.

AUD-G18-P021 · 2 marks

Explicit warranty model:600 units,10% expected repair at Rs 500 each, no other balances. What estimate follows?

A. Zero until the first customer claims in every framework. B. Rs 6000 because unit count alone is expense. C. Rs 30000. D. Rs 300000 because all units will need repair.

Explanation

Correct answer C: Rs 30000.

600 x 10% x 500=30000 expectedcost under supplied present-obligation/probable/reliable criteria; not guaranteed exact cash.

AUD-G18-P022 · 2 marks

A possible non-remote obligation fails the supplied probable/present provision criteria. What is fitting?

A. Always record the maximum claim as liability. B. Always hide every possible claim. C. Appropriate contingent disclosure under the applicable criteria, not automatic provision. D. Treat possible and probable as identical terms.

Explanation

Correct answer C: Appropriate contingent disclosure under the applicable criteria, not automatic provision.

Assess actual legal evidence and recognition/disclosure criteria separately; no fixed opinion follows.

AUD-G18-P023 · 2 marks

Invoices precede delivery/title transfer that the supplied policy requires. What does the invoice alone fail to establish?

A. That sales cut-off may need checking. B. That a paper invoice exists. C. That customer terms can matter. D. That goods revenue was earned in the invoiced period.

Explanation

Correct answer D: That goods revenue was earned in the invoiced period.

Invoice date is not the supplied earning trigger; inspect delivery/title and related stock/cost entries.

AUD-G18-P024 · 2 marks

All sampled invoices match dispatch, but dispatch-to-sales testing is absent. Which risk remains?

A. Unrecorded qualifying deliveries may be omitted from revenue. B. Proof that inventory valuation is complete. C. Only cash denomination risk. D. Every matched invoice is automatically fictitious.

Explanation

Correct answer A: Unrecorded qualifying deliveries may be omitted from revenue.

Recorded-invoice occurrence testing is different from tracing an independent delivery population for completeness.

AUD-G18-P025 · 2 marks

Deposit Rs 800000 for three months at 6% annual simple interest, explicit accrual policy and no default. What earned interest follows?

A. Rs 200000 because three months means one quarter of principal is income. B. Rs 12000. C. Zero until cash arrives. D. Rs 48000 for a full year.

Explanation

Correct answer B: Rs 12000.

800000 x 6% x 3/12=12000. Verify actual rate/outstanding period.

AUD-G18-P026 · 2 marks

A vendor payment includes an opening creditor settlement and next-period refundable advance. What purchase test is needed?

A. Recognise all future goods as already delivered. B. Separate payment allocation and receipt/title/performance before determining current purchases. C. Ignore genuine current purchases whenever the vendor had an opening balance. D. Expense the entire bank payment automatically.

Explanation

Correct answer B: Separate payment allocation and receipt/title/performance before determining current purchases.

Cash outflow and current purchasing are not identical; avoid duplicate expense or premature stock.

AUD-G18-P027 · 2 marks

Payroll bank total reconciles, but leavers remain in the master and leave accrual population omits current staff. What is missing?

A. Evidence of valid employee/benefit population and complete measurement, beyond payment agreement. B. Automatic proof that all payroll is fraudulent. C. Only a universal tax-exemption statement. D. A guarantee that every paid name worked.

Explanation

Correct answer A: Evidence of valid employee/benefit population and complete measurement, beyond payment agreement.

HR, attendance, master approvals and benefit data address occurrence/completeness/measurement; cash matching is not all evidence.

AUD-G18-P028 · 2 marks

AS 10 asset cost Rs 360000 residual Rs 60000, life five years, available for exactly six months in the year. Straight-line applies. What charge follows?

A. Rs 36000 by ignoring residual value. B. Rs 30000. C. Rs 60000 for a full year. D. Zero until first production regardless of availability.

Explanation

Correct answer B: Rs 30000.

(360000-60000)/5 x 6/12=30000. Actual ready-for-use date and policy must be verified.

AUD-G18-P029 · 2 marks

Rs 48000 insurance covers 12 months, of which four belong after year-end under supplied accrual criteria. What prepayment follows?

A. Zero because cash was paid. B. Rs 48000 because no coverage has begun. C. Rs 16000. D. Rs 32000 because that is the expired portion.

Explanation

Correct answer C: Rs 16000.

48000 x 4/12=16000 unexpired;current expense 32000. Verify dates/policy instead of cash-only inference.

AUD-G18-P030 · 2 marks

Correct totals conceal a secured loan described as unsecured and a pledged deposit called freely available cash. What is justified?

A. Disclosure/classification can still be materially wrong despite correct arithmetic. B. Add the balances as new expense automatically. C. Delete both balances merely because notes are wrong. D. Every correct total proves full financial-statement compliance.

Explanation

Correct answer A: Disclosure/classification can still be materially wrong despite correct arithmetic.

Security, restrictions and maturity require their own supporting evidence and applicable criteria; no automatic opinion type.

Official concept links appear with each question. The source hold is included in the review pack. No blanket 2026 statutory completeness is claimed; supplied mandate/criteria and visible source holds apply.