The 'Physical Verification' of inventory is a part of: MCQ with Answer and Explanation

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The 'Physical Verification' of inventory is a part of:

A. Internal control evaluation

B. Substantive procedure

C. Compliance procedure

D. None

Answer: Option B

Solution (By JKSSB Mock Tests)

Physical verification is a substantive audit procedure to verify existence of inventory.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

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Question #1

If debt-equity ratio is 2:1 and total assets ₹12,00,000, long-term debt is: (Assume no current liabilities)

A. ₹2,00,000

B. ₹8,00,000

C. ₹6,00,000

D. ₹4,00,000

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Correct Answer: Option B

Explanation:
Total assets = Equity + Debt (since no CL). D/E = 2, so D=2E. E + 2E = 12L => 3E=12 => E=4L, D=8L.

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Question #2

A company's quick ratio is 1:1, current assets ₹2,00,000, inventory ₹40,000. Current liabilities are:

A. ₹1,00,000

B. ₹2,00,000

C. ₹1,60,000

D. ₹40,000

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Correct Answer: Option C

Explanation:
Quick assets = Current assets - Inventory = 2,00,000 - 40,000 = 1,60,000. Quick ratio = QA / CL = 1:1, so CL = ₹1,60,000.

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Question #3

S1: The Profit and Loss Appropriation Account is prepared by a partnership firm. S2: It is prepared to distribute the net profit among the partners. Which statement(s) is/are correct?

A. Both S1 and S2

B. Neither S1 nor S2

C. S2 only

D. S1 only

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Correct Answer: Option A

Explanation:
A partnership firm prepares a Profit and Loss Appropriation Account after the Profit and Loss Account. Its purpose is to distribute the net profit among partners by accounting for interest on capital, salaries, and profit shares. Both are correct.

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