SPSC Accounts Officer (BPS-17) Paper held on 17 January 2024

Correct Answer: A. Depreciation Expense

Accumulated Depreciation is a contra-asset account that is not closed at the end of an accounting period. It represents the total depreciation expense recognized on an asset over its useful life. Unlike other temporary accounts such as Depreciation Expense, Dividends, and Service Revenue, Accumulated Depreciation is not closed because it is a continuous record of the cumulative depreciation of an asset.

Correct Answer: D. The quantity of materials to be order at a time

The quantity of materials to be ordered at a time
Economic Order Quantity (EOQ) refers to the optimal order quantity that minimizes total inventory holding costs and ordering costs. It represents the quantity of materials that should be ordered at one time to achieve the most cost-effective balance between holding too much inventory and incurring holding costs versus ordering too frequently and incurring ordering costs.

Correct Answer: B. Inelastic, Elastic

The demand for necessary goods (essential items like salt and rice) is often inelastic, meaning that changes in price have relatively little impact on the quantity demanded. These goods are considered essential, and consumers are less responsive to price changes.
On the other hand, the demand for comfort and luxury goods is typically more elastic. Consumers are more responsive to changes in the price of comfort or luxury items because these are not considered essential, and consumers may adjust their consumption based on price changes.

Correct Answer: C. Uruguay Round of 1986 – 1993

Uruguay Round of 1986 – 1993-94
The creation of the World Trade Organization (WTO) resulted from the Uruguay Round of international trade negotiations, which took place from 1986 to 1993. The Uruguay Round concluded with the establishment of the WTO on January 1, 1995, replacing the General Agreement on Tariffs and Trade (GATT) as the global entity overseeing international trade.

Correct Answer: A. Hedging

The reduction or covering of foreign exchange risk is called hedging. Hedging involves using financial instruments or strategies to offset the risk of adverse movements in exchange rates, thereby protecting against potential losses.

Correct Answer: C. Generally Accepted Accounting Principles

GAAP stands for Generally Accepted Accounting Principles. These are a set of accounting principles, standards, and procedures that are widely accepted and followed in the preparation and presentation of financial statements. GAAP provides a common framework for financial reporting, ensuring consistency and comparability in financial statements across different organizations.

Correct Answer: C. 25%

The Profit-Volume (P/V) ratio is calculated using the formula:
P/V Ratio=Change in Sales/ Change in Profit×100. Given that the sales increase from Rs. 40,000 to Rs. 60,000, and the profit increases by Rs. 5,000:
Change in Sales=Rs.60,000−Rs.40,000=Rs.20,000
Change in Profit=Rs.5,000
P/V Ratio=Rs.20,000/Rs.5,000×100=25%
Therefore, the correct answer is:
C. 25%

Correct Answer: D. Administration Overhead

Audit fees are typically considered a part of Administration Overhead. Administration Overhead includes the costs associated with managing and administering the overall organization, and it often includes items like office rent, salaries of administrative staff, office supplies, and professional fees such as audit fees.

Correct Answer: B. Operating Expense

Depreciation on fixed assets is considered an operating expense. Operating expenses are costs associated with the day-to-day operations of a business, including costs related to maintaining and using fixed assets. Depreciation reflects the allocation of the cost of a fixed asset over its useful life, and it is deducted as an expense on the income statement.

Correct Answer: C. Control by important and Exception

Stock control through stock levels and Economic Order Quantity (EOQ) is often referred to as “Control by Important and Exception.” This approach involves setting certain stock levels and placing orders or taking actions when inventory levels deviate from the established norms. It helps in efficiently managing inventory by focusing attention on important items and exceptions that require action.

Correct Answer: C. Budget

A single-use plan is a plan that is developed to achieve a particular and unique objective, and it is not intended to be used again in the future. Budgets are often considered single-use plans because they are prepared for a specific period to allocate resources and achieve specific financial goals. In contrast, policies, rules, and business strategies are more enduring and are not specific to a particular time frame or objective.

Correct Answer: A. Substituting Foreign for domestic labor

Offshoring refers to the practice of a company moving some of its business processes or production to another country, typically one with lower labor costs. It involves substituting domestic labor with foreign labor to take advantage of cost savings.

Correct Answer: A. Discount Rate

The State Bank of Pakistan uses the Discount Rate as its main policy tool to control inflation and influence economic activity. The Discount Rate is the interest rate at which commercial banks can borrow short-term funds directly from the central bank. By adjusting the Discount Rate, the central bank can influence the cost of borrowing for commercial banks, impacting overall economic activity and inflation.

Correct Answer: C. Reflects the average change in prices of goods and services purchased by households

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. In the context of Pakistan or any other country, the CPI is a key economic indicator used to assess inflation, which is the rate at which the general level of prices for goods and services is rising.
So, option C accurately represents the significance of the Consumer Price Index.

Correct Answer: C. Current Liability

An invoice for an expense owing represents an obligation to make a payment in the future, and it is considered a current liability on the balance sheet until the payment is made. Current liabilities are obligations that are expected to be settled within one year or the operating cycle of the business, whichever is longer.

Correct Answer: C. $25000

The amount of prime costs includes direct materials and direct labor. In this case:
Prime Costs=Direct Materials+Direct LaborPrime Costs=Direct Materials+Direct Labor
\text{Prime Costs} = $14000 + $11000
\text{Prime Costs} = $25000
Therefore, the correct answer is:
C. $25000

Correct Answer: A. At Net Book Value

Non-current assets are typically shown on a balance sheet at their net book value. Net book value is the value of an asset as it appears on the balance sheet, calculated by subtracting accumulated depreciation or impairment from the original cost of the asset. This reflects the carrying amount of the asset on the company’s books.

Correct Answer: B. Profitability index is greater than 1

The profitability index is calculated as the ratio of the present value of cash inflows to the present value of cash outflows. The decision criterion is generally to accept a project if the profitability index is greater than 1. A value greater than 1 indicates that the present value of expected cash inflows is higher than the present value of cash outflows, making the project potentially profitable.

Correct Answer: A. Accept IRR > Cost of Capital

The Internal Rate of Return (IRR) is a criterion used in capital budgeting to evaluate the profitability of an investment. The decision rule is generally to accept a project if the IRR is greater than the company’s cost of capital. In other words, if the IRR exceeds the cost of capital, it suggests that the project is expected to generate returns higher than the company’s required rate of return, making it an attractive investment.

Correct Answer: B. Equity

The cost of capital is the required rate of return that a firm must generate to attract investment from its investors or financiers. It is the overall cost of financing the company’s operations, combining the cost of debt and the cost of equity. Equity represents ownership in a company. Equity investors, such as shareholders, expect a return on their investment in the form of dividends and capital appreciation. The cost of equity is higher than the cost of debt because equity investors take on more risk; they are residual claimants and only receive returns after all other obligations have been met.

Correct Answer: B. Beautiful

“Exquisite” is an adjective that describes something of rare beauty or elegance, often characterized by intricate details, fine craftsmanship, or exceptional quality. It is used to convey the idea of extreme beauty, delicacy, or refinement. Something described as exquisite is typically pleasing to the senses and possesses a high level of aesthetic appeal.

Correct Answer: C. Stubborn

“Stubborn” is an adjective that describes a person who is determined to do what they want and refuses to change their mind, despite attempts to persuade them otherwise. A stubborn individual may be resistant to influence, unyielding, or persistent in holding onto their opinions, decisions, or actions.

Correct Answer: A. To

In the context of the sentence “I am looking forward to the party,” the preposition “to” is used to indicate the direction of your anticipation or expectation. It expresses that you are eagerly awaiting or anticipating the occurrence of the party. “To” is commonly used in this way to convey a forward-looking sense of expectation or intention.

Correct Answer: B. On

In the context of the sentence “The restaurant is located on the beach,” the preposition “on” is used to indicate a specific location or position. It suggests that the restaurant is situated directly on the surface of the beach or in close proximity to the beach area. “On” is commonly used to express location when referring to surfaces, and in this case, it conveys the idea that the restaurant is physically situated on or by the beach.

Correct Answer: B. Lavish

The term “frugal” describes a person who is economical or thrifty in the use of resources, especially money and food. It involves being careful and mindful about spending, avoiding unnecessary expenses, and using resources efficiently to avoid waste. Being frugal usually implies being prudent and avoiding extravagance or luxury.

Correct Answer: D. To

In the context of the sentence “She’s allergic to cats,” the preposition “to” is used to indicate the relationship between the person and the object causing the allergy. It expresses that the person has an allergic reaction concerning cats. The preposition “of” is not the correct choice in this case. The correct usage is “allergic to.”

Correct Answer: B. In, In

In the context of the sentence “She lives in a small apartment in the city,” the preposition “in” is used to indicate location or position within an enclosed space. It specifies where the person lives, which is inside the small apartment. In this case, “in” is used to convey the idea of being within the boundaries or confines of the apartment.

Correct Answer: C. Abundance

The word “dearth” refers to a scarcity or lack of something, especially when there is an insufficient quantity or supply of a particular resource or commodity. It is often used to describe a shortage or an inadequate amount of something.

Correct Answer: B. Amateur

The correct spelling is “Amateur.” An amateur refers to a person who engages in a particular activity or pursuit for the love of it, without being a professional or receiving payment for their services.

Correct Answer: A. Aniverssary

The misspelled word is:
A. Aniverssary (correct spelling: Anniversary)

Correct Answer: B. Balance Sheet

The Balance Sheet, also known as the Statement of Financial Position, provides a snapshot of an entity’s financial position at a specific point in time. It shows the company’s assets, liabilities, and shareholders’ equity at that particular moment. The Income Statement, Cash Flow Statement, and Statement of Retained Earnings, on the other hand, report financial activities and performance over a period of time.

Correct Answer: D. Account Payable

A person from whom goods are purchased on a credit basis is referred to as an “Account Payable.” This represents a liability for the purchasing firm, indicating that they owe money to the supplier for the goods purchased.

Correct Answer: D. Convention of Conservatism

Correct Answer: D. Actual Amount Paid

The cost concept in accounting refers to the actual amount paid or incurred to acquire an asset or service. Therefore, among the options provided, “Actual Amount Paid” is the most aligned with the cost concept in accounting.

Correct Answer: A. Limiting Factor

The key factor is also known as the limiting factor. It is the factor that restricts or limits the production or performance of a business or process. This factor determines the overall capacity or efficiency of a system. So, the correct term is “Limiting Factor,” and the answer is:
A. Limiting Factor

Correct Answer: B. DPS / EPS

Dividend Payout Ratio is calculated as the proportion of earnings distributed as dividends to shareholders. The formula for Dividend Payout Ratio is:
Dividend Payout Ratio=Dividends per Share (DPS)Earnings per Share (EPS)Dividend Payout Ratio=Earnings per Share (EPS)Dividends per Share (DPS)
So, the correct answer is:
B. DPS / EPS

Correct Answer: C. Rs. 15,00,000

Let’s use the formula for the Current Ratio:
Current Ratio=Current AssetsCurrent LiabilitiesCurrent Ratio=Current LiabilitiesCurrent Assets
Here, the Current Ratio is given as 1.5:1. This means that for every 1.5 units of current assets, there is 1 unit of current liabilities.
Let x represent the current liabilities. Then, the current assets would be 1.5 x1.5x.
Given that Net Current Assets are Rs. 5,00,000, we can set up the equation:
1.5 x− x=5,00,0001.5x−x=5,00,000
Solving for x:
0.5 x=5,00,0000.5x=5,00,000
x=5,00,0000.5x=0.55,00,000
x=10,00,000x=10,00,000
So, the current liabilities (x) are Rs. 10,00,000, and the current assets are 1.5 x=1.5×10,00,000=15,00,0001.5x=1.5×10,00,000=15,00,000.
Therefore, the correct answer is:
C. Rs. 15,00,000

Correct Answer: C. Current Assets < Current Liabilities

The Current Ratio is calculated as:
Current Ratio=Current AssetsCurrent LiabilitiesCurrent Ratio=Current LiabilitiesCurrent Assets
A Current Ratio of less than one indicates that the current liabilities exceed the current assets. This could suggest potential liquidity issues for a company as it may have difficulty covering its short-term obligations with its existing current assets. Therefore, the correct interpretation is:
C. Current Assets < Current Liabilities

Correct Answer: B. Increase in Expense

The Gross Profit Ratio is calculated as follows:
Gross Profit Ratio=(Gross ProfitNet Sales)×100Gross Profit Ratio=(Net SalesGross Profit)×100
The Net Profit Ratio is calculated as follows:
Net Profit Ratio=(Net ProfitNet Sales)×100Net Profit Ratio=(Net SalesNet Profit)×100
If the Gross Profit Ratio remains the same, but the Net Profit Ratio is decreasing, it suggests that there is an increase in other operating expenses (besides the cost of goods sold). This could include selling, general, and administrative expenses, interest expenses, or other non-operating costs. Therefore, the correct answer is:
B. Increase in Expense

Correct Answer: B. Cost of Goods Sold

In the inventory turnover ratio calculation, the numerator is the Cost of Goods Sold (COGS). The formula for inventory turnover is:
Inventory Turnover=Cost of Goods SoldAverage InventoryInventory Turnover=Average InventoryCost of Goods Sold
The cost of goods sold represents the cost incurred to produce or purchase the goods that have been sold during a specific period

Correct Answer: C. Vertical Analysis

Vertical Analysis involves expressing each line item on a financial statement as a percentage of a base item. In the case of the balance sheet, it typically involves expressing each item as a percentage of total assets. For the income statement, it involves expressing each item as a percentage of net sales or revenue. This type of analysis is also known as common-size analysis or vertical common-size analysis. Therefore, the correct answer is:
C. Vertical Analysis

Correct Answer: B. A Fund Flow Analysis

An examination of the sources and uses of funds statement is part of funds flow analysis. This analysis involves understanding how funds move within an organization, specifically identifying the sources (where the funds come from) and uses (how the funds are utilized). This analysis provides insights into changes in a company’s financial position over a specific period.

Correct Answer: B. Common –Size Income Statement

A common-size income statement is a popular tool for evaluating profitability in relation to sales. It expresses each line item on the income statement as a percentage of total revenue. This allows for a better understanding of the proportional contribution of each expense or income category to the overall revenue, helping in the analysis of profitability and cost structure.

Correct Answer: C. Decrease assets and increase expense

Adjustments for prepaid expenses typically involve recognizing the portion of the prepaid expense that has been used or expired as an expense. This adjustment decreases the asset (prepaid expense) and increases the expense on the income statement.
So, the correct answer is: C. Decrease assets and increase expense

Correct Answer: D. (3), (2), (1), (4)

The correct sequencing of the closing entries in the closing process is typically as follows:
Close Revenues: Transfer the balances of revenue accounts to Income Summary.
Close Expenses: Transfer the balances of expense accounts to Income Summary.
Close Income Summary: Transfer the balance of Income Summary to the owner’s equity account.
Close Owner’s Drawings: Transfer the balance of the owner’s drawings account to the owner’s equity account.
So, the correct sequencing is:
D. (3), (2), (1), (4)

Correct Answer: B. $686

The credit terms “2/10, net/30” mean that the buyer can take a 2% discount if the payment is made within 10 days; otherwise, the net amount is due in 30 days.
Here’s how the payment is calculated:
Original Sale: $750 on June 13.
Return: $50 on June 16.
Net amount after return: $750 – $50 = $700.
Payment made on June 23 (within the discount period):
The net amount is due in 30 days, but the buyer can take a 2% discount if paid within 10 days.
If the buyer pays within the discount period (10 days), they can take a 2% discount on the net amount of $700:
Discount = 2% of $700 = 0.02 * $700 = $14
So, the payment made on June 23 is the net amount minus the discount:
$700 – $14 = $686
Therefore, the correct answer is:
B. $686

Correct Answer: D. $90,000

The gross profit rate is calculated as a percentage of sales, and it is used to estimate the cost of ending inventory under the gross profit method. The formula for the gross profit rate is:
Gross Profit Rate=(Gross ProfitNet Sales)×100Gross Profit Rate=(Net SalesGross Profit)×100
Given that the gross profit rate is 30%, we can calculate the gross profit using the formula:
Gross Profit=Gross Profit Rate×Net SalesGross Profit=Gross Profit Rate×Net Sales
Gross Profit=0.30×$150,000Gross Profit=0.30×$150,000
Gross Profit=$45,000Gross Profit=$45,000
Now, to estimate the cost of ending inventory, we use the formula:
Cost of Ending Inventory=Cost of Goods Available for Sale−Gross ProfitCost of Ending Inventory=Cost of Goods Available for Sale−Gross Profit
Cost of Ending Inventory=$135,000−$45,000Cost of Ending Inventory=$135,000−$45,000
Cost of Ending Inventory=$90,000Cost of Ending Inventory=$90,000

Correct Answer: A. 6%

The profit margin is calculated as the ratio of net income to net sales, expressed as a percentage. The formula for profit margin is:
Profit Margin=(Net IncomeNet Sales)×100Profit Margin=(Net SalesNet Income)×100
Using the given values:
Profit Margin=($24,000$400,000)×100Profit Margin=($400,000$24,000)×100
Profit Margin=0.06×100Profit Margin=0.06×100
Profit Margin=6%Profit Margin=6%
Therefore, the correct answer is:
A. 6%

Correct Answer: C. Fixed Costs per Unit

C. Fixed Costs per Unit Fixed costs per unit are not typically involved in Cost-Volume-Profit (CVP) analysis. CVP analysis focuses on the relationships between sales volume, costs, and profit. The key components involved in CVP analysis include:
A. Sales Mix: The proportion in which different products or services are sold.
B. Unit Selling Price: The price at which each unit of a product or service is sold.
C. Fixed Costs per Unit: This is not typically a variable considered in CVP analysis. Fixed costs are usually considered as total fixed costs, not on a per-unit basis.
D. Volume or Level of Activity (Quantity): The quantity of units sold or produced, which affects total revenue, total costs, and ultimately, profit.
So, the correct answer is C. Fixed Costs per Unit.

Correct Answer: A. Actual Sales – Break – Even Sales

The correct formula for calculating the margin of safety is generally:
Margin of Safety=Actual Sales−Break-Even SalesMargin of Safety=Actual Sales−Break-Even Sales
Therefore, the most appropriate option from the given choices is A. Actual Sales – Break – Even Sales. The margin of safety is a measure of how much actual sales exceed the break-even point, providing a buffer against unexpected declines in sales.