Q 1.

Which of these is the correct accounting entry to record 'Provisions for

Doubtful Debts' ?
Provision for doubtful debts account - Dr ; Profit and Loss A/c - Cr
Debtors account - Dr ; Profit and Loss A/c - Cr
Profit and Loss A/c - Dr ; Debtors account - Cr
Profit and Loss A/c - Dr ; Provision for doubtful debts account - Cr
Bad Debt A/c - Dr ; Profit and Loss A/c - Cr

UnAttempted

CORRECT ANSWER:

Profit and Loss A/c - Dr ; Provision for doubtful debts account - Cr

Q 2.
Compute the NAV of a mutual fund based on the given details : -
Current market price of all holding – Rs 930 crores - Liabilities of the
fund – Rs 130 crores - Number of fund units outstanding – 30 crores -
Profit for the year Rs 24 crores
Rs. 26.66
Rs. 31.56
Rs. 24.76
Rs. 19.84
Rs. 33.66

UnAttempted

CORRECT ANSWER:

Rs. 26.66

Explanation:

We calculate the NAV of a mutual fund by dividing the total net assets by the
total number of units issued. To get the total net assets of a fund, subtract
any liabilities from the current value of the mutual fund’s assets and then
divide the figure by the total number of units outstanding. The resulting figure
is the NAV of the mutual fund.

So, the mathematical formula for NAV is: Assets – Debits / Number of
outstanding units = Net asset value (NAV)

Current market price of holding Rs 930 crores - Fund liabilities Rs 130 crores/
Number of fund units outstanding 30 crores:

930 – 130 / 30 = 26.66 i.e. NAV of the Mutual Fund = Rs. 26.66
Q 3.
To what does IFRS 4 applies to? 1. Financial assets within scope of IAS
39 2. Insurance contract issued by an entity issues 3. Reinsurance
contract held by an entity
All 1, 2 and 3
1 and 3 only
1 and 2 only
2 and 3 only
Only 2

UnAttempted

CORRECT ANSWER:

2 and 3 only

Explanation:

IFRS 4 is an International Financial Reporting Standard (IFRS) issued by the

'International Accounting Standards Board' providing guidance for the
accounting of insurance contracts.

IFRS 4 applies to Insurance contract that an entity issues & Reinsurance

contract that an entity holds. It is not applicable for financial assets within
scope of IAS 39.

Q 4.
Transactions between ______ can result in the flow of funds. 1. Fixed
Assets and Current Liabilities 2. Current Assets and Fixed Assets 3.
Current Assets and Long term liabilities and capital
Only 1
Only 2
Only 3
All 1, 2 and 3
Both 2 and 3

UnAttempted

CORRECT ANSWER:

Only 3

Explanation:
 The sources & application of funds i.e. where the Working Capital comes and
where it is utilized causes flow of funds. Transaction between Current assets
and long term liabilities and capital may cause the flow of funds

Q 5.
What would be the right treatment of unrealized gains or losses which
arise due to changes in the fair value of listed equity and derivatives
instruments in the financial statements of a Life Insurance Company ?
1. Deferred under the head miscellaneous expenses 2. Recognized in
profit or loss 3. Transferred to equity under the head ‘Fair Value Change
Account’
Only 1
Only 2
Only 3
Only 1 and 2
Only 2 and 3

UnAttempted

CORRECT ANSWER:

Only 3

Explanation:

In the financial statements of a life insurance company, unrealized gains /

losses arising due to changes in the fair value of listed equity and derivatives
instruments shall be transferred to equity under the head ‘Fair Value Change
Account’.

Q 6.
Life insurance companies have to prepare the CASH FLOW statement
using the ________ .
Direct method
Indirect method
Standard method
Accrual method
Proportional method

UnAttempted

CORRECT ANSWER:

Direct method
 Explanation:

Cash flow Statement is additional information to user of financial statement in

additional to Balance Sheet, Profit & Loss Account and Revenue Accounts.

Under this statement, the cash flow from operating, investing and financing
activities are recorded. All life insurance companies (whether listed or unlisted)
have to prepare cash flow statement using Direct Method called Receipt and
Payment Account by using AS 3 (Receipt and Payment Account). In Direct
Method, gross receipts & payments are disclosed.

Q 7.
In which way is Salary calculated while calculating House Rent
Allowance?
Basic Salary + bonus + leave encashment
Basic Salary + bonus + Uniform allowance
Basic Salary + bonus + conveyance
Basic Salary + bonus + Rent paid
Basic Salary + bonus +dearness allowance

UnAttempted

CORRECT ANSWER:

Basic Salary + bonus +dearness allowance

Explanation:

HRA calculation is done on the basis of the salary. For the purpose of
computing House Rent Allowance, Basic + Bonus + Dearness Allowance are taken
into consideration (Under section 10(13A) of the IT Act.) It cannot exceed
50% of the basic salary.

Q 8.
To whom is the Funds Flow analysis of primary importance ? 1.
Financial management 2. Personnel management 3. Auditing
Only 1
Only 2
Only 3
Both 1 and 2
Both 2 and 3
 UnAttempted

CORRECT ANSWER:

Only 1

Explanation:

A statement of change in financial position refers to fund flow statement. It

analyse the flow of funds during the period. It is a statement which shows the
sources & application of funds i.e. from where the working capital comes & its
utilisation.

Q 9.
The amount collected by the insurance company is kept in which
account till the time the underwriter takes a decision regarding
acceptance or rejection of the risk?
Special premium A/c
First premium A/c
Policy deposit A/c
Proposal deposit A/c
Short remittance A/c

UnAttempted

CORRECT ANSWER:

Proposal deposit A/c

Explanation:

The amount deposited by an insurance agent cannot be appropriated towards

premium account by insurance companies. Till the underwriter takes a decision
regarding acceptance or rejection of the risk, the amount collected by the
insurance company is kept in ‘Proposal Deposit Account/ Suspense Account’.
After acceptance, the premium is credited to premium account.

Q 10.
Which is the incorrect option from the below mentioned pairs with
regards to the accounting process ?
Identifying the transactions – Collecting data source
Analyzing the transactions – Posting to ledger accounts
Summarizing and reporting transactions – Preparing the trial balance
 Recording monetary transactions – Preparing the balance sheet
Recording monetary transactions – Preparing the primary books of
account

UnAttempted

CORRECT ANSWER:

Recording monetary transactions – Preparing the balance sheet

Explanation:

Accounting is the process of recording & reporting of financial transactions.

Under accounting process, ‘Recording monetary transactions – Preparing balance
sheet’ is incorrect’. The correct option would preparing either be ‘Journal or
Cash book’

Q 11.
Sub-standard asset is the one which has been classified as Non-
Performing Asset for a period of more than _____ .
6 months
12 months
18 months
24 months
36 months

UnAttempted

CORRECT ANSWER:

12 months

Explanation:

Classification of assets is done on the basis of the ability of the borrower to

repay, value & reliability. Sub-standard asset is the one which has been
classified as non-performing asset for a period exceeding 12 months.

Q 12.
_______ is not a component of the financial statements of an insurance
company.
Receipts and payments A/c
Statement of changes in Equity
Balance Sheet
 Revenue A/c
Profit and Loss A/c

UnAttempted

CORRECT ANSWER:

Statement of changes in Equity

Explanation:

Statement of changes in equity is not a component of financial statements.

Rests of the components are essentially part of any financial statement.

Q 13.
Which is the INCORRECT statement in relation to 'Accounting
Equation'?
If a transaction is debited in one account then it is credited in another
account
Sum total of all debit amounts and all credit amounts are equal
Total assets are equal to total liabilities in the Balance Sheet
Liabilities will have a debit balance
The net result of all incomes and expenses is considered as profit and is
added to capital

UnAttempted

CORRECT ANSWER:

Liabilities will have a debit balance

Explanation:

According to accounting equation : Assets = Capital + Liability i.e. Dr = Cr

Liabilities therefore are considered to have credit balance and not debit
balance.

Liabilities, revenues and sales, gains, owner equity and stockholders' equity
accounts normally have credit balances.

Q 14.
_______ expenses are included in the expenses of management for an
insurance company. 1. Medical fees 2. Depreciation 3. Remuneration to
 the auditor
Only 1 and 3
Only 2 and 3
Only 3
Only 2
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:

Expenses of management is an important part of revenue account for any

insurance company which includes all charges wherever incurred whether
directly or indirectly. It includes: Auditor’s remuneration, Medical fees and
Depreciation.

Q 15.
The purpose of a budget is to ________ . 1. Establishing strategic
options 2. Finalizing long term objectives 3. Planning operations 4.
Motivating the management
Statements 1 and 2
Statements 3 and 4
Statements 1 and 3
All 1, 2, 3 and 4
Only 2

UnAttempted

CORRECT ANSWER:

Statements 3 and 4

Explanation:

Budget is a basic instrument of planning involving calculations of facts & figures

for financial outcome in the future. Its objectives are manifold including
motivating management and planning operations

Q 16.
 Identify the INCORRECT statement with respect to a Sales Budget - 1. It
is expressed in quantitative terms as well as monetary terms 2. Volume
of sales demand and price of the product influence the sales budget 3.
Sales budget is the foundation of all functional budgets
Only 1
Only 2
Only 3
Both 1 and 3
Both 2 and 3

UnAttempted

CORRECT ANSWER:

Only 3

Explanation:

Sales budget is influenced by the sales demand and price of the product & is
expressed in quantitative terms as well as monetary terms. It is not
the foundation of all functional budgets.

Q 17.
In which of these statements a POSTING error has been made?
The ledger balance of ‘bad debts’ of Rs 2000 was carried forward by
Neeta wrongly as Rs 3000 to the trial balance
Rohit is an accountant with XYZ Insurance Company. When he made an
entry in the ledger, the amount was wrongly entered as Rs 1000 instead of
the correct amount of Rs 2000.
Bharat had to make an entry in the debit side of ledger, but instead made
an entry on the credit side of the correct ledger account
Manoj sold goods of Rs 5000, Rs 8000 and Rs 2000 to three clients.
These amounts were entered correctly in the sales day book. However, when
Manoj totaled the monthly sales, he came to Rs 10000 instead of Rs 15000
Ashish sold goods of Rs 5000, Rs 8000 and Rs 2000 to three clients.
These amounts were entered correctly in the sales day book. However, when
Ashish totaled the monthly sales, he came to Rs 20000 instead of Rs 15000

UnAttempted

CORRECT ANSWER:

Rohit is an accountant with XYZ Insurance Company. When he made an

entry in the ledger, the amount was wrongly entered as Rs 1000 instead of
the correct amount of Rs 2000.
 Explanation:

Posting error occurs while posting a transaction from the books of prime entry
to the ledgers. This can be -

1. Posting with wrong amount 2. Omission to post either Credit or Debit

entry 3. Posting to wrong side of correct ledger

Rohit entering Rs. 1000 instead of Rs. 2000 is a classic example of posting
error. The error occurred while posting a transaction from books of prime
entry to the ledger. The most common form of posting the wrong amount is a
transposition error.

Q 18.
For a life insurance company, on what basis is the Catastrophe Reserve
maintained?
5% of premium collected
10% of premium collected
12.5% of premium collected
20% of premium collected
As per IRDA, no such reserve need to be maintained

UnAttempted

CORRECT ANSWER:

As per IRDA, no such reserve need to be maintained

Explanation:

When an insurance company experiences significant losses from a catastrophe,

the company can draw upon these segregated funds to maintain financial
strength. The reserve does not provide a measurement or quantification of the
maximum amount a catastrophic event may cost an insurance company or the
insurance industry. IRDA has mandated life insurance companies to reinsure
with domestic reinsurers, a percentage of sums assured, on each policy.

Q 19.
The layering stage of money laundering consists of ______ .
Separation of proceeds from the source
Provision of apparent legitimacy to the funds
Physical disposal of cash
Withdrawing clean money from the system
Concealing the origin of the funds
 UnAttempted

CORRECT ANSWER:

Separation of proceeds from the source

Explanation:

Under money laundering, the launderer engage in a series of conversion or

movement of funds to ‘Separation of proceeds from the source’.

Q 20.
The ' Error of Principle' is committed at which stage of an accounting
transaction?
Posting stage
Balancing stage
Pre-recording stage
Preparation of the trial balance
Recording stage

UnAttempted

CORRECT ANSWER:

Recording stage

Explanation:

When a person violates the generally accepted accounting principle, it amounts

to error of principle. This is committed at the recording stage where wrong
account head is debited and credited simultaneously, although with a right
amount.

Q 21.
How is the CURRENT RATIO derived?
Current assets / Quick liabilities
Current liabilities / Current assets
Quick assets / Quick liabilities
Quick assets / Current assets
Current assets / Current liabilities

UnAttempted
 CORRECT ANSWER:

Current assets / Current liabilities

Explanation:

Current ratio indicates whether the current assets would be able to generate
sufficient cash to pay off the current liabilities as and when they fall due.

The ratio is derived as: Current assets / Current liabilities. It gives an idea of
the efficiency of a company’s operating cycle or its ability to turn its products
into cash.

Q 22.
Select which of the given statements hold true for a life insurance
company ? 1. The acquisition cost for acquiring new business will be
expensed in the period in which they are incurred 2. Segment reporting
is applicable to all insurance companies 3. The Cash flow statement has
to be prepared only under indirect method
Only 1 and 2 are correct
Only 2 and 3 are correct
All 1, 2 and 3 are correct
Only 1 is correct
Only 3 is correct

UnAttempted

CORRECT ANSWER:

Only 1 and 2 are correct

Explanation:

An additional statement in addition to balance sheet, profit & loss account and
revenue account is called Cash Flow statement. This relates to inflow & outflow
of cash & cash equivalent from operating, investing & financing activities.
Under this system segment reporting is applicable to all insurance companies.
The segment reporting refers to income, expenses, investing & financing
activities of an insurer. Also the acquisition cost for acquiring new business will
be expensed in the period in which they are incurred

Q 23.
________ is/are the purpose of budgetary control. 1. Its an tool for
decision making 2. Its an tool to monitor business performance 3. Its
used to forecast the income and expenditure and thus profitability
 Only 3
All 1, 2 and 3
Both 1 and 2
Only 1
Both 2 and 3

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:

Budgetary control is a means of monitoring revenue & cost thereby exercising

control by developing budgets & comparing budgeted figures with actual results.
Thus, the budgetary control has the purpose to forecast of income and
expenditure and thereby profitability, instrument for decision making & means
to monitor business performance.

Q 24.
Which benefit is not available in a health insurance policy ?
Domiciliary treatment benefit
Major surgical benefit
Death benefit
Fund value maturity
Hospital cash benefit

UnAttempted

CORRECT ANSWER:

Fund value maturity

Explanation:

In the health insurance policy, fund value on maturity in not available as there
is no fund created or opted from the premium charged/payable. Rest of the
benefits are all part of the health insurance policy.

Q 25.
The process of creating a formal plan and translating goals into a
quantitative format called ______ .
 Variance analysis
Budgeting
Process costing
Forecasting
Job costing

UnAttempted

CORRECT ANSWER:

Budgeting

Explanation:

Budgeting is a process. This means budgeting is a number of activities

performed in order to prepare a budget. A budget is a quantitative plan used
as a tool for deciding which activities will be chosen for a future time period.
It is thus a process of creating a formal plan and translating goals into a
quantitative format.

Q 26.
Unit Linked Insurance Plans are those plans in which the insurance
companies ________ .
pays a lump sum amount on the death of the life assured during the policy
period
pays the life assured the sum assured and the accumulated bonuses at
the end of the tenure of the plan
pay the life assured the fund value on maturity of the plan as per the NAV
of the fund
return back the premiums with accumulated interest to the life assured at
the end of the tenure of the plan
makes lump sum payments at specified time intervals during the plan to
life assured

UnAttempted

CORRECT ANSWER:

pay the life assured the fund value on maturity of the plan as per the NAV of
the fund

Explanation:

Unit Linked Insurance Plans - ULIPs contains both investment & insurance.
Under these insurance plans the insurance companies pay the life assured the
fund value on maturity of the plan on maturity NAV of sum only is paid.
Q 27.
Overall Expense ratio is _____ .
Its the ratio of Commission expense to Total management expenses
Its the ratio of Operation expenses to Total premium income
Its the ratio of Operating expenses to Total management expenses
Its the ratio of Total expenses of management to Total premium income
Its the ratio of Total management expense to Commission expense

UnAttempted

CORRECT ANSWER:

Its the ratio of Total expenses of management to Total premium income

Explanation:

Overall expense ratio indicates the overall operational efficiency of the unit. It
is derived dividing total expenses of management to total premium income.

Q 28.
Which are / is not a part of the 'performance budget' prepared by an
insurance company ? 1. Finance budget 2. Production budget 3.
Customer service budget
Only 1
Only 2
Only 3
Both 1 and 2
Both 2 and 3

UnAttempted

CORRECT ANSWER:

Only 2

Explanation:

Performance budget can be divided into four main parts i.e. Customer service
budget, Finance budget, Growth budget & Capital budget. Production budget
has nothing to do with performance budget. Since there is no production
involved in insurance companies’ activities, there is no need for a production
budget.
Q 29.
Most of the errors can be highlighted by preparing a trail balance.
Which of the below mentioned errors CANNOT be highlighted?
Commission
Casting
Posting
Wrong carry over to trial balance
Transposition

UnAttempted

CORRECT ANSWER:

Commission

Explanation:

Even if the totals of debits & credits are equal, it doesn’t ensure correctness
of accounting. Certain errors don’t create difference in a trial balance. Error
of commission is basically a clerical error which involves recording of
transaction to the wrong account or wrong amount. It would not affect the
trial balance.

Q 30.
The due date for filing quarterly statements of TDS through Form 24Q
for the quarter ending 30th September is _____ .
15th April
15th January
15th October
31st December
31st March

UnAttempted

CORRECT ANSWER:

15th October

Explanation:

Timeline for filing quarterly statements of TDS through Form 24Q is 15th of
the next month.
Q 31.
In the KYC (Know Your Customer) process which of the given
statements hold true ? 1. KYC has to be done only at the time of
entering into an insurance contracts 2. Those clients who do not wish to
reveal their identity are exempt from KYC process 3. Information about
the customers can also be collected from agents
Only 1
Only 2
Only 3
Both 1 and 2 are correct
Both 2 and 3 are correct

UnAttempted

CORRECT ANSWER:

Only 1

Explanation:

Knowing a customer is a basic need of insurance companies & they must

reasonable efforts to determine the true identity of customers. KYC is the
process through which it is done. It is essentially to be done at the time of
entering into an insurance contract for both new customers as well as for
existing customers.

Q 32.
Why does a lender to the company ( external user ) needs the financial
statements of the company?
To know only the liquidity and profitability of the company
To know the leverage and liquidity of the company
To know only the profitability of the company
To know only the leverage and profitability of the company
To know the liquidity, leverage and profitability of the company

UnAttempted

CORRECT ANSWER:

To know the liquidity, leverage and profitability of the company

Explanation:

Financial statements aids decision making and must be user friendly to various
entities. The lender, who is basically an external user, needs financial
statements to know liquidity, leverage and profitability of the company.
Q 33.
Which accounting records is used to check the arithmetical accuracy of
ledger posting?
Profit and Loss Account
Balance sheet
Trail Balance
Control accounts
Journal entry

UnAttempted

CORRECT ANSWER:

Trail Balance

Explanation:

The trial balance helps the accountant to check the arithmetic accuracy of the
accounting after the preparation of ledger accounts. It helps to locate the
errors & provide a basis of preparing the financial statements.

Q 34.
As per the guidelines for the appointment of statutory auditors of
Insurance Company in the IRDAI circular of 2005, the audit can be
conducted by a ____ and this entity should be in continuous practice
for a period of ____ or more.
Firm, 3 years
Firm, 5 years
Firm, 15 years
Company, 5 years
Company, 10 years

UnAttempted

CORRECT ANSWER:

Firm, 15 years

Explanation:

As per the guidelines for the appointment of statutory auditors of Insurance

Company in the IRDAI circular of 2005, the audit can be conducted by a firm
and this firm should be in continuous practice for a period of 15 years or
more.
Q 35.
___________ is/are Participating Policies. 1. Endowment plans 2.
Annuity plans 3. Children’s deferred insurance
Both 1 and 3
Both 1 and 2
Both 2 and 3
Only 1
Only 2

UnAttempted

CORRECT ANSWER:

Both 1 and 3

Explanation:

The majority of life insurance plans are either ‘with profit’ or ‘without profit’.
With profit policies are also known as ‘participating policies’ which participate in
profits till a claim arises.

Children’s deferred insurance and Endowment plans are the examples of

participating policies. Annuity plans do not participate in the profits of the
insurer.

Q 36.
_____ is a correct PAN number.
AEYPR555R
AEYPR5555R
AER5555R
AEYP5555R
AEYPR5555RT

UnAttempted

CORRECT ANSWER:

AEYPR5555R

Explanation:

Permanent account number (PAN) is a 10-digit alphanumeric number. The first

five characters are letters from the English alphabet, the next four
characters are numbers and the last character is also a letter. First three
characters selection is random. The fourth character of the PAN always
 represents the status of the holder i.e. ‘P’ stands for ‘Person’. The fifth
character represents the PAN holder's Surname e.g. If the surname is say
Banerjee, then the fifth character of the PAN will be 'B'. The last digit is
just the check digit assigned randomly by the IT department. It doesn't refer
to anything in particular. It is same as the first three alphabet of the pan
card. The four numeric characters are sequential number running from 0001 to
9999.

Q 37.
A retail shop owner consumed goods worth Rs 800 from inventory. The
normal selling price of the goods is Rs 900. What is the correct entry in
the books of accounts?
Debit drawings account for Rs 800 - Credit Purchase Account for Rs 800
Debit Inventory account for Rs 800 - Credit Purchase Account for Rs 800
Debit drawings account for Rs 900 - Credit Sales Account for Rs 900
Debit drawings account for Rs 800 - Credit Sales Account for Rs 900
Debit Sales account for Rs 900 - Credit Drawings Account for Rs 900

UnAttempted

CORRECT ANSWER:

Debit drawings account for Rs 800 - Credit Purchase Account for Rs 800

Explanation:

All accounting transactions are recorded by giving two accounting effects i.e.
debit & credit. For the grocery shop, the correct entry in the books of
accounts would be ‘Debit drawings account for Rs 800 and Credit Purchase
Account for Rs 800'.

Q 38.
Which of the below listed human resource accounting model involves
determining the value of human resources as the present value of
estimated future earnings of employees (in the form of wages, salaries
etc.) discounted by the rate of return on investment (cost of capital).
Elliots Model
Flamholtz Model
Likert’s Model
Lev and Schwartz Model
Hekimian and Jones Model

UnAttempted

CORRECT ANSWER:

Lev and Schwartz Model

 Explanation:

The Lev and Schwartz model states that the human resource of a co is the
summation of value of all the Net present value (NPV) of expenditure on
employees. The human capital embodied in a person of age R is the present
value of his earning from employment

Q 39.
When two parties agree to exchange one type of interest rate cash flow
for another, this is known as _____ .
Hedge forwards
Interest forwards
Interest rate swaps
Call interest swaps
Put interest swaps

UnAttempted

CORRECT ANSWER:

Interest rate swaps

Explanation:

Sometimes companies do not raise money by issuing shares/ Bonds. They prefer
private placement route where they are not be required to spend large
marketing expenses like; An agreement under which two parties agree to
exchange one type of interest rate cash flow for another is known as Interest
rate swaps.

Q 40.
The annual value of a self occupied property is calculated based on
________ (as per Income Tax Act)
It is considered as NIL
on actual amount paid to acquire property
the actual current market value
the value as per municipal valuation
the value as per indexation

UnAttempted

CORRECT ANSWER:
 It is considered as NIL

Explanation:

Section 22 to 27 of the IT Act deals with income under the head ‘Income from
House Property’.

Annual value of property calculated for self-occupied property, is considered to

be NIL.

Q 41.
On the liability side of the Balance Sheet, the proposed dividend is
shown under the head ______ .
Loans
Trade payables
Provisions
Profits
Reserve and Surplus

UnAttempted

CORRECT ANSWER:

Provisions

Explanation:

When a dividend is declared, the total value is deducted from the company's
retained earnings and transferred to a temporary liability sub-account called
dividends payable. This means the company owes its shareholders money, but
has not yet paid. When the dividend is eventually distributed, this liability is
wiped clean and the company's cash sub-account is reduced by the same
amount. As the proposed dividend is yet to be approved by the shareholders of
the Company, board of Directors it has to be shown as ‘Provisions’ for proposed
Dividend

Q 42.
Identify the correct statement(s) with respect to a journal. 1. The credits
are recorded on the left side and debits on the right side in a journal 2.
In a journal, the transactions are recorded in a chronological order 3.
Journalisation is basically a process of converting transactions into a
debit/credit format
Only 1
 Both 1 and 2
Both 2 and 3
Only 3
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

Both 2 and 3

Explanation:

Journal is a book of prime entry where journalisation is the process of

converting transactions and events into a debit/credit format and transactions
are recorded in the journal in a chronological order.

In the journal, credits are recorded on the right side and debits on the left
side.

Q 43.
The following details are for a new business started by Mr. Zampa.>
Cash Sales Rs 25000 ; Cash collected from Debtors Rs 90000 ; Bad
debts Rs 2000 ; Debtors at year end Rs 7000. What is the total sale
during the year?
Rs 124000
Rs 122000
Rs 115000
Rs 120000
Rs 113000

UnAttempted

CORRECT ANSWER:

Rs 120000

Explanation:

A total sale during the year is calculated as: (Cash sales) + (Cash collected
from debtors) + (Debtors at the year-end) – (Bad debts).

The total sales during the year thus would be: 25000 + 90000 + 7000 – 2000
= 120000
Q 44.
Describe an Endowment Insurance Plan.
In an Endowment Insurance Plan the insurance companies pay the life
assured the fund value on maturity of the plan and also the sum assured
In an Endowment Insurance Plan the insurance company makes lump
sum payments at specific time intervals during the plan to life assured
In an Endowment Insurance Plan the insurance companies pay back the
premiums to the life assured at the end of the tenure with interest.
In an Endowment Insurance Plan insurance company pays a lump sum
amount on the death of the life assured during the policy period
In an Endowment Insurance Plan the insurance company pays the life
assured the promised sum assured and accumulated bonuses, if any, at the
end of the tenure of plan

UnAttempted

CORRECT ANSWER:

In an Endowment Insurance Plan the insurance company pays the life

assured the promised sum assured and accumulated bonuses, if any, at the
end of the tenure of plan

Explanation:

Endowment policy gives an insurance cover that serves as a savings scheme as

well as gives financial protection. This would be the most ideal insurance that
serves as a savings scheme as well as gives financial protection to his family
against his premature death.

These are insurance plans in which the life assured the promised sum assured
and accumulated bonuses, if any, at the end of the tenure of plan.

Q 45.
The advance deposit is a minimum amount that has to be paid by the
proposer along with the ______ .
Proposal form
Single premium
Renewal premium
Salary saving scheme premium
First installment premium

UnAttempted

CORRECT ANSWER:

Proposal form
 Explanation:

Advance deposit is a minimum amount that needs to be paid by the proposer

along with the first installment premium. It is collected by the agent along with
the proposal form.

Q 46.
A payment was made by cheque for Rs. 400 for insurance. This was
mistakenly credited to Insurance Account and Debited to Cash book.
Which of these entry will be needed to correct it in the ledger accounts?
Dr Insurance A/c 800, Cr Cashbook 800
Dr Cashbook 400, Cr Insurance A/c 400
Dr Insurance A/c 400, Cr Cashbook 400
Dr Insurance A/c 800, Cr Suspense A/c 800
Dr Insurance A/c 400, Cr Suspense A/c 400

UnAttempted

CORRECT ANSWER:

Dr Insurance A/c 800, Cr Cashbook 800

Explanation:

An reverse entry will have to be passed with the double amount to correct the
error and validate the amount.

Q 47.
With the help of ________ , one can prepare the Bank Reconciliation
Statement.
Bank column of cash book and cash column of bank book
Bank column of cash book and bank statement
Cash column of cash book and bank statement
Both 1 and 2
Both 2 and 3

UnAttempted

CORRECT ANSWER:

Bank column of cash book and bank statement

Explanation:
 A bank reconciliation statement is prepared to reconcile any difference that
may exist between the cash book & the pass book. It is done by; Bank column
of cash book and bank statement.

Q 48.
________ expenses are included in the expenses of management for an
insurance company. 1. Depreciation 2. Medical fees 3. Remuneration to
the auditor
Only 2
Only 3
All 1, 2 and 3
Only 1 and 2
Only 1 and 3

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:

Expenses of management form an important part of the revenue account for an

insurance company. All the above expenses are included in an insurance
companies.

Q 49.
Accounting Standard 5 (AS 5) should be applied in presenting profit and
loss from - 1. Ordinary Activities 2. Prior period items 3. Extraordinary
items
Both 1 and 3
Both 2 and 3
Both 1 and 2
Only 1
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:
 AS 5 is applied in presenting profit or loss from ordinary activities,
extraordinary items & prior period items. They pertain to the activities of an
entity for calculating net profit or loss for the period & enhance the
comparability of financial statement of an enterprise.

Q 50.
______ the current ratio, the better it is as it gives an idea of the
company’s ability to pay back its current liabilities.
Higher
Lower
Weaker
Equal to 1
Less than 1

UnAttempted

CORRECT ANSWER:

Higher

Explanation:

A firm having a very high Current Ratio indicates that it will generate
sufficient cash to pay off the current liabilities. It is an indicator of the
firm’s high operating efficiency. The current ratio mainly gives an idea of the
company’s ability to pay back its current liabilities. Higher the ratio, better it
is.

Q 51.
In relation to Life Insurance covers, what is Gross Premium known as ?
Mega Premium
Cover premium
Core premium
Pure premium
Office premium

UnAttempted

CORRECT ANSWER:

Office premium

Explanation:
 In life insurance covers the gross premium is also known as ‘Office premium’. It
is communicated to the policyholder after loading the expenses to the ‘Pure
premium’

Q 52.
Which of these options is NOT a feature of whole life insurance policy ?
1. In a whole life insurance policy on the death of the life assured 2. A
whole life insurance policy is a good provision for old age 3. In a whole
life insurance policy the element of protection for dependents is the
important element
Only 1
Only 2
Only 3
Both 2 and 3
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

Only 2

Explanation:

Whole life insurance policy is the purest form of permanent contract. Under
this plan, the sum assured is payable only on death of the life assured it
offers protection for dependents which is its dominating element.

It doesn’t provide any provision of old age.

Q 53.
_______ would be found in a CASH BUDGET.
Capital expenditure for buying machine
Dividends payable
Accrued expenses
Depreciation
Provision for catastrophe reserve

UnAttempted

CORRECT ANSWER:

Dividends payable

Explanation:
 Generation of cash fund & its utilisation are the main domains of cash budget.
It depicts inflows & outflows of an organization. It is most important budget
for the management which is prepared after all financial budgets are ready.

Q 54.
_________ is/are Money Market instruments. 1. Collateralized Borrowing
and Lending Obligations 2. Treasury bills 3. G Sec
Only 1
Only 2
Only 3
Both 1 and 2
Both 2 and 3

UnAttempted

CORRECT ANSWER:

Both 1 and 2

Explanation:

Money market securities are the instruments with maturity of not more than
one year. Insurance companies are required to invest their funds in various
instruments like ‘Treasury bills by RBI and Collateralized Borrowing and Lending
Obligations (CBLO)’.

Q 55.
Mr. Ashutosh's accounts for the year to 31 March 2017 show a loss of
Rs. 14720. When he prepared the accounts, he had include an accrual of
Rs 15100 and a prepayment of Rs 7540. What is Mr. Ashutosh's profit or
loss for the year to 31 March 2017 after the adjustment of the accrual
and the prepayment?
Loss of Rs. 18760
Loss of Rs. 21630
Loss of Rs. 22280
Profit of Rs. 15840
Profit of Rs. 23950

UnAttempted

CORRECT ANSWER:

Loss of Rs. 22280

 Explanation:

An accrual always relates to an expense, the accrual therefore means an extra

expense, which will reduce the profit.

A prepayment reduces the expense, which means more profit.

So the correct profit is: - 14720 (loss) - 15100 (accrual) + 7540 (pre-
payment) = - 22280

Since it is negative, means a loss of Rs. 22280.

Q 56.
From the options listed below, which accounting standards are not
applicable to General Insurance companies ? 1. Accounting for
investments 2. Accounting for borrowing costs 3. Accounting for
Government grants
Only 1
Only 2
Only 3
Only 1 and 3
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

Only 1

Explanation:

The Institute of Chartered Accountants of India has set up an Accounting

Standard Board to formulate Accounting Standards. For insurance companies,
compliance with accounting standards issued by ICAI is mandatory. However,
Accounting for investments is mandatory for all companies other than general
insurance companies.

Q 57.
If a transaction is settled with cash rather than by bank cheque, this is
known as ______ of money laundering.
Positioning stage
 Integration stage
Layering stage
Convergence stage
Placement stage

UnAttempted

CORRECT ANSWER:

Placement stage

Explanation:

This is generally the 1 stage of money laundering wherein the launderer

st

inserts the illegitimate money into legitimate financial institution through

various means like through purchase of art, jewellery etc. & by depositing cash
in the bank.

Q 58.
What will be the result of reconciliation of overcasting on the receipts
side of the cash book?
It will lead to decrease in the pass book balance
It will lead to increase in the pass book balance
It will lead to decrease in the cash book balance
It will lead to increase in the cash book balance
There will no effect

UnAttempted

CORRECT ANSWER:

It will lead to decrease in the cash book balance

Explanation:

The term casting means adding up which affects the agreement of trial
balance. This error may be an error of overcasting or undercasting.
Overcasting means summing the total to more than what they are. Accordingly
reconciliation of overcasting on the receipts side of the cash book, results in
decrease in the cash book balance.

For eg. -The cash receipts were say Rs 10000 but it was overcasted and
recorded as say Rs 11000. So when it will be reconciled, the cash balance will
decrease.
Q 59.
The formula for calculating Average first premium per thousand sum
assured is ____ .
(Total FYP / Total SA ) * 1000
(Total FYP / Total SA ) * 100
(Total FP / Total SA ) * 1000
(Total FP / Total SA ) * 10
(Total SA / Total FP ) * 1000

UnAttempted

CORRECT ANSWER:

(Total FP / Total SA ) * 1000

Explanation:

Average first premium per 1000 Sum Assured =

Total First Premium (Only First installment) (Individual Business-Ordinary and

SSS) / Sum assured under Individual Business X 1000

These calculations falls under critical financial ratios which helps to recognize
the financial strengths & weaknesses of the insurers & doing the ratio analysis
for 2 or more than 2 years

Q 60.
As per the KYC requirements, when a policy is sold online by internet
sales, the documents should be collected for premiums exceeding one
lakh rupees within ____ days of issue of the policy.
7
10
15
30
45

UnAttempted

CORRECT ANSWER:

15

Explanation:

As per the KYC requirements, when a policy is sold online by internet sales, the
documents should be collected for premiums exceeding one lakh rupees within
15 days of issue of the policy. This applies to in case of no face to face
business including tele calling.
Q 61.
As per the Indian accounting standards, AS1 – Disclosure of
Accounting Policies is _______ .
Mandatory for companies having a net worth of Rs 50 crores plus
Mandatory only for insurance companies
Mandatory for all companies
Mandatory only for private companies in India
Mandatory only for listed companies

UnAttempted

CORRECT ANSWER:

Mandatory for all companies

Explanation:

AS1 – Disclosure of Accounting Policies is mandatory for all companies.

Q 62.
Which one of these is a book of PRIME ENTRY?
Profit and Loss book
Purchase journal
Employee attendance record
Cheque register
Bank reconciliation statement

UnAttempted

CORRECT ANSWER:

Purchase journal

Explanation:

Journal is a book of prime entry wherein accounting transactions are recorded.

It contains a chronological record of transactions.

Q 63.
Ms. Sharma wants to calculate her profit at the end of the year. Which is
the right equation for it?
Closing Net Assets + Drawings + Capital introduced + Opening Assets
Closing Net Assets - Drawings + Capital introduced + Opening Assets
 Closing Net Assets + Drawings – Capital introduced – Opening Assets
Closing Net Assets - Drawings – Capital introduced – Opening Assets
Closing Net Assets - Drawings + Capital introduced – Opening Assets

UnAttempted

CORRECT ANSWER:

Closing Net Assets + Drawings – Capital introduced – Opening Assets

Explanation:

To determine the profit at the year end, the Closing Net Assets + Drawings
must be greater than Capital introduced – Opening Assets. Mrs. Sharma
therefore, has to look at the 3rd equation to calculate her profit at the year
end.

Q 64.
Which method of recording accounting entries is followed by insurance
companies with reference to claim payments?
Grossing of claims method
Surrender value method
Deferral method
Accrual method
Netting of claims method

UnAttempted

CORRECT ANSWER:

Netting of claims method

Explanation:

Under ‘Netting of claims method’, as soon as a claim arises, the total payable
amount less all deductions i.e. policy loan, interest on policy loan, due premium
etc. is treated as outstanding claim.

Q 65.
______ is the minimum lock-in period for Unit Linked Insurance plan in
India.
2 years
3 years
 5 years
6.5 years
7 years

UnAttempted

CORRECT ANSWER:

5 years

Explanation:

ULIP’s contains both investment & insurance. The minimum lock-in period for
Unit Linked Insurance plan in India is 5 years.

Q 66.
Locate which out of the following is an Error of Omission ?
Goods sold to Mr. A for Rs 5000 were recorded in the sales day book
correctly buy were not recorded in Mr. A's receivable account. At the same
goods purchased from Mr. B for Rs 5000 were recorded in the purchase day
book but not recorded in Mr. B's payables account
KKK Ltd. sold goods to Mak for Rs 1200 and recorded this in the sales day
book. However instead of debiting the amount to Mak’s account, it was
debited to Harrys account
XYZ Ltd. sold goods to Mak for Rs 6300 but omitted to record the
transaction in both the sales day book and the debtors ledger
PQR Corp purchased a motor cycle for Rs 1 lakh and the payment was
made by cheque. The purchases A/c was debited instead of the asset A/c
A sale to Mr. Q for Rs 1200 is recorded as Rs 2100 in the Mr. Q receivable
account and Rs 1200 in the sales account

UnAttempted

CORRECT ANSWER:

XYZ Ltd. sold goods to Mak for Rs 6300 but omitted to record the transaction
in both the sales day book and the debtors ledger

Explanation:

Under error of omission, a transaction is completely omitted in the financial

records. Since transaction is completely omitted (neither credit nor debit is
recorded), there cannot be difference in the trial balance.
Q 67.
What is Inflation Accounting?
Its an accounting system that doesn’t adjusts values for changes in selling
power
Its an accounting system that adjusts values for changes in purchasing
power
Its an accounting system that doesn’t adjusts values for changes in
purchasing power
Its an accounting system that adjusts values for changes in selling power
as well as purchasing power
Its an accounting system that adjusts values for changes in selling power

UnAttempted

CORRECT ANSWER:

Its an accounting system that adjusts values for changes in purchasing power

Explanation:

Inflation accounting is an accounting system that adjusts values for changes in

purchasing power. It is an attempt to account for price level changes and
adjust the financial statement accordingly.

Q 68.
As per AS 5, which of these will be considered as an error ? 1.
Mathematical mistakes 2. Changes in the methods of depreciation 3.
Misinterpretation of facts
Only 1
Only 2
Only 3
Both 1 and 3
Both 2 and 3

UnAttempted

CORRECT ANSWER:

Both 1 and 3

Explanation:
 According to AS 5, errors in the preparation of the financial statements of
one or more prior periods may be discovered in the current period. Errors may
occur as a result of mathematical mistakes, mistakes in applying accounting
policies, misinterpretation of facts, or oversight.

Q 69.
If the outstanding claim payments remains unpaid for a period of five
years for a life insurance company, how is this treated?
Prospective change is made in the claims paid figure so as to reduce
expenses
It is removed from the books and transferred to Investor Protection A/c
It is written back to Revenue account
Retrospective change is made in the claim paid figures
It is removed from books and transferred to IRDAI A/c

UnAttempted

CORRECT ANSWER:

It is written back to Revenue account

Explanation:

Outstanding claim payments which remain unpaid for a period of 5 years for a
life insurance company are ‘Written back to Revenue account’. The claims
written back are treated as income

Q 70.
The following are the details of the Current Assets of a company : Cash
available Rs. 22000, Marketable Securities Rs. 15000, Inventory Rs.
9000, Accounts receivable Rs. 16000, Prepaid Expenses - Rs. 5000. The
total Current Liabilities were Rs. 32000. What is the Quick Ratio of the
company?
1.81
1.53
1.97
1.06
1.22

UnAttempted

CORRECT ANSWER:

1.81
 Explanation:

Liquidity means the ability to convert any asset to cash within a short time for
pay out of short term liabilities. There are two ratios to highlight business
liquidity; Current Ratio & Quick Ratio/ Acid Test Ratio. The ratios illustrate
how the companies’ liquid current assets can cover its current liabilities. It
excludes stocks or inventory. Generally Quick Ratio of 1:1 & Current Ratio of
2:1 are considered reasonable. Quick Ratio is calculated by the following
formula:

Quick ratio= Quick Assets (= Current Assets excluding Inventory)

Quick Liabilities (= Current Liabilities – Bank overdraft)

Cash Rs 22000 + Marketable securities Rs 15000 + Accounts receivable Rs

16000 + Prepaid Expenses Rs 5000 / Current Liabilities Rs 32000

58000/ 32000 = 1.81

Q 71.
________ expenses will be recorded in a Cash Paid book. 1.
Commission paid to agents 2. Management expenses 3. Survival
benefits
Both 1 and 2
Only 3
Both 2 and 3
Only 1
All 1 , 2 and 3

UnAttempted

CORRECT ANSWER:

Both 1 and 2

Explanation:

At the branch office level on an insurance company, two cash paid books have
to be maintained i.e. Cash Paid Book & Cask Outgo Book. Under Cash Paid
Book, there would be recording of management expenses & commission to the
agents.

Q 72.
 With respect to ledgers in the accounting process, which of the
following statement(s) is/are true ? 1. Ledgers are also known as books
of final entry 2. Ledger is the main basis of preparing the final accounts
3. The debit balance and credit balance of a ledger account is always
same at any given point
Only 1
Only 2
Only 1 and 3
Only 2 and 3
Only 1 and 2

UnAttempted

CORRECT ANSWER:

Only 1 and 2

Explanation:

Ledger is a book containing accounts. Ledger is the basis of preparing the final
accounts and ledgers are known as books of final entry. It stores information
related to an individual element of the financial statements.

Q 73.
The Pradhan Mantri Jeevan Jyoti Bima Yojana has which of the
following feature(s) - 1. The Risk coverage is Rs. 2 lakhs in case of
death 2. The maximum entry age in this scheme is 50 years 3. A Person
even without a bank account can apply for this scheme
All 1,2 and 3
Only 1
Both 2 and 3
Both 1 and 2
Both 1 and 3

UnAttempted

CORRECT ANSWER:

Both 1 and 2

Explanation:

Under Pradhan Mantri Jeevan Jyoti Bima Yojana, the maximum entry age under
the scheme is 50 years and risk coverage is Rs. 2 lakhs in case of death. It’s
a low premium insurance scheme for the residents of India having a bank
account.
Q 74.
A company purchases a machine for Rs 68000 and this has a life of 8
years. At the end of 8 years its residual value is estimated to be Rs
3000. Using straight line depreciation, how much depreciation is shown
in the accounts solely for the first two years of this period?
Rs. 17000
Rs. 15500
Rs. 17650
Rs. 15750
Rs. 16250

UnAttempted

CORRECT ANSWER:

Rs. 16250

Explanation:

The formula Straight Line Depreciation is -

Cost of the asset – Estimated residual value / Estimated life of the asset.

68000 - 3000 / 8 = Rs 8125 Depreciation for each year

So depreciation for 2 years = 8125 x 2 = Rs.16250

Q 75.
The funds flow statement is considered an important tool for ____ . 1.
Financial analysis 2. Performance analysis 3. Cost control
Only 1
Only 2
Only 3
Only 1 and 2
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

Only 1 and 2

Explanation:
 A statement of change in financial position refers to fund flow statement. It
analyse the flow of funds during the period. It is a statement which shows the
sources & application of funds i.e. from where the working capital comes & its
utilisation. The funds flow statement is thus considered to be a tool for
‘Performance analysis and Financial analysis’.

Q 76.
Locate which of the given below statements fall under the
'UNDERCASTING' error ?
Mr. A was supposed to make an entry on the debit side of the ledger but
ended up making an entry on the credit side of the correct ledger account
Mr. B sold goods to 3 different customers of Rs 2000, Rs 4000 and Rs
6000 respectively. He entered these 3 amounts correctly in the sales day
book but when he totaled the months sale, he came to Rs 11000 instead of
Rs 12000.
Mrs. C sold goods to 3 different customers of Rs 2000, Rs 4000 and Rs
6000 respectively. She entered these 3 amounts correctly in the sales day
book but when she totaled the months sale, he came to Rs 13000 instead of
Rs 12000.
Mr. D is as an accountant with Megacity Insurance Company. While
making an entry in the ledger, the amount was wrongly entered as Rs 7000
instead of the correct amount of Rs 17000.
There were bad debts of Rs. 9000. Mrs. E carried forward this amount
wrongly as Rs 19000 to the trial balance

UnAttempted

CORRECT ANSWER:

Mr. B sold goods to 3 different customers of Rs 2000, Rs 4000 and Rs 6000

respectively. He entered these 3 amounts correctly in the sales day book but
when he totaled the months sale, he came to Rs 11000 instead of Rs 12000.

Explanation:

The term casting means adding up which affects the agreement of trial
balance. This error may be an error of overcasting or undercasting.
Overcasting means summing the total to more than what they are against under
casting means summing the total to less than what they are. Option 2 is thus
an example of ‘undercasting'.

Q 77.
 _______ can be allowed as deductions from the income of an employee
under Section 80D.
Mediclaim premium paid for self only
Mediclaim premium paid for mother in law only
Mediclaim premium paid for spouse only
Mediclaim premium paid for self and spouse
Mediclaim premium paid for self, spouse and mother in law

UnAttempted

CORRECT ANSWER:

Mediclaim premium paid for self and spouse

Explanation:

Mediclaim insurance premium paid for self & Mediclaim insurance premium paid
for spouse are allowed as deductions from the income of an employee under
Section 80D. Mediclaim insurance premium paid for mother in law are not
included.

Q 78.
In Annuity Plans, the insurance company makes lump sum payments at
some specified time intervals during the plan to the life assured. What
are these amounts known as?
Premium payments
Maturity claim
Sum assured
Survival benefits
Maturity amount

UnAttempted

CORRECT ANSWER:

Sum assured

Explanation:

The specified lump sum payments at specified time intervals during the plan
to the life assured is known as sum insured. It is paid in installments over a
selected period of years. The sum insured payable on claim being utilized as
purchase price.
Q 79.
As per the IRDAI circular issued in 2005 gives guidelines for the
appointment of statutory auditors of Insurance Company, which of the
following statements are true? 1. The auditor has to be in continuous
practice for a period of 15 years or more 2. Insurance companies can
only be audited by a firm 3. The two partners should have been in
continuous practice as partners for a minimum period of 10 years
Only 1
Only 2
Only 3
Both 1 and 2 only
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:

The IRDAI circular issued in 2005 gives guidelines for the appointment of
statutory auditors of Insurance Company. Accordingly, to be eligible to become
an auditor of an insurance company, it is mandated that: The insurance
company can only be audited by a firm, the auditor should have been in
continuous practice for a period of 15 years or more and two partners should
have been in continuous practice as partners for a minimum period of 10 years.

Q 80.
The ideal way for a company to meet its foreign exchange requirement
for capital and revenue expenditure is through __________ .
External commercial borrowing
IPO
Issue of Debentures
G Sec
Private placement

UnAttempted

CORRECT ANSWER:

External commercial borrowing

 Explanation:

To run a business, every enterprise requires money. To augment Foreign

Exchange Reserve and to meet foreign exchange requirement for capital
expenditure and revenue expenditure, External commercial borrowing is
permitted. These are generally dated loan for 3 to 5 years. Such deals are
called swap deals.

Q 81.
With respect to Endowment Policy, which of these statement(s) is/are
NOT TRUE ? 1. When the policy becomes a claim the payment of
premium stops 2. No fixed period for the insurance cover 3. The sum
insured is paid on death or maturity whichever is earlier
Only 1
Only 2
Only 3
Only 1 and 2
Only 2 and 3

UnAttempted

CORRECT ANSWER:

Only 2

Explanation:

Endowment policy gives an insurance cover that serves as a savings scheme as

well as gives financial protection. This would be the most ideal insurance that
serves as a savings scheme as well as gives financial protection to his family
against his premature death. The assured can choose the policy period of his
choice. Typical maturities are ten, fifteen or twenty years up to a certain age
limit.

Q 82.
One of the main disadvantage of Whole Life Insurance is that premiums
have to be paid even in the old age when the capacity to pay is lessened
due to limitation of income. How have the insurance companies
overcome this issue?
By limiting the maximum number of premiums payable till age 75
By limiting the maximum number of premiums that are payable either till
age 75 or till 35 annual premiums are paid whichever is later
By limiting the maximum number of premiums that are payable till age 80
By limiting the maximum number of premiums that are payable either till
 age 80 or till 35 annual premiums are paid whichever is later
By limiting the maximum number of premiums that are payable till 35
annual premiums are paid

UnAttempted

CORRECT ANSWER:

By limiting the maximum number of premiums that are payable either till age
80 or till 35 annual premiums are paid whichever is later

Explanation:

Whole life insurance has the disadvantage that premiums continue in old age
when the liability to pay them may be lessened by limitation of income. To
overcome this problem, the LIC Limits the maximum numbers of premiums that
are payable either till age 80 or till 35 annual premiums are paid whichever is
later.

Q 83.
Mutual funds which invest major portion of their money in Government
Securities (G Secs) like Treasury Bills and / or Long Dated securities are
known as _____ .
Balanced schemes
Gilt schemes
Money market schemes
Debt schemes
Open ended schemes

UnAttempted

CORRECT ANSWER:

Gilt schemes

Explanation:

To cater the requirements of various group of people, Mutual fund houses

floats different schemes. Gilt schemes invest major portion of their money in
Govt. Securities (G-Secs) like treasury bills and / or Long Dated securities.

Gilts are securities issued by the central government and are said to carry
sovereign or minimal risk. Funds which invests in these are called Gilt Funds.
Q 84.
The period which an insurance company gives its customers within
which they can get back to the insurer with any queries regarding their
life insurance policy is known as _______ .
Free look confirmation period
Free look period
Free look decision period
Free look cancellation period
Free look approval period

UnAttempted

CORRECT ANSWER:

Free look period

Explanation:

If a person is not satisfied with the terms of his life insurance policy, he can
raise questions and/or return the policy within 15 days from the receipt of
policy document. This is known as Free Look period.

Q 85.
______ BONUS is added to the sum assured and paid at the time of
claim. 1. Cash bonuses 2. Reversionary bonuses 3. Bonuses in
reduction of premiums
Only 1
Only 2
Only 3
Only 1 and 2
Only 2 and 3

UnAttempted

CORRECT ANSWER:

Only 2

Explanation:

The bonus that is added to the sum assured and paid at the time of claim is
called Reversionary bonus. Once a policy becomes paid-up, it is not entitled to
future bonuses. These bonuses declared regularly and paid at the end (at the
time of claim) are called reversionary bonuses. They are declared as a
 percentage rate, which applies to the sum assured of the policy, in respect of
the basic policy benefit.

Q 86.
Who normally issues G Sec? 1. The Central Government 2. The State
Government 3. Public Limited Companies
Only 1
Only 2
Only 3
Both 1 and 2
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

Both 1 and 2

Explanation:

Government Securities are generally called G Sec. They are issued by Central
& State Governments to fulfill their financial requirements. They carry lowest
risk with lesser rate of interest compared with Corporate Bonds.

Q 87.
Identify the CORRECT statement(s) for an Unit Linked Pension Plan? 1.
The policy holder's are paid guaranteed maturity value 2. Hospitalization
benefits are provided in this plan 3. These cannot be surrendered
All 1, 2 and 3 are correct
Only 1 and 2 are correct
Only 1 and 3 are correct
Only 2 and 3 are correct
Only 3 is correct

UnAttempted

CORRECT ANSWER:

Only 1 and 3 are correct

Explanation:

Since PENSION plans is socially oriented plan, under Unit Linked Pension plan,
plans cannot be surrendered and the policy holders are paid guaranteed
maturity value.
Q 88.
The Net Premium are also known as _______ , in life insurance covers.
Discounted premium
Pure premium
Core premium
Add on premium
Cover premium

UnAttempted

CORRECT ANSWER:

Pure premium

Explanation:

In life insurance covers, net premium is also known as ‘pure premium’. It

includes mortality charges and interest. Net premium covers only probable
losses. When the premium is loaded to cover the expenses, it is called ‘office
premium’.

Q 89.
Identify the CORRECT statement(s) respect to Term life insurance
policies - 1. Provides death protection and varies with interest rates 2.
Provides death benefit equal to the face amount of the policy if the
insured dies during the policy period 3. Provides death protection and
savings accumulation
Only 1 and 2
All 1 , 2 and 3
Only 1
Only 2
Only 3

UnAttempted

CORRECT ANSWER:

Only 2

Explanation:
 Term life insurance polices do not have any saving element nor they vary with
interest rates. They provide a lumpsum amount (policy amount) only in case of
death during the policy period.

Q 90.
Gopal had purchased life insurance policy 10 years back. Under the
policy, his premium amount had remained the same over the years and
will also not change in future. Which type of premium is being charged
by the insurance company?
Level premium
Net premium
Increasing premium
Gross premium
Decreasing premium

UnAttempted

CORRECT ANSWER:

Level premium

Explanation:

Level premium is being charged by the insurance company.

Q 91.
______ are shown as Assets in the Balance Sheet pf an insurance
company.
Survival benefits
Loan against policies
Premium amount
Claim payments
None of the above

UnAttempted

CORRECT ANSWER:

Loan against policies

Explanation:

Loan given against policies are to be received back and are the assets of the
insurance company.
Q 92.
As per Insurance Act 1938, a maximum of how many statutory audits
can be conducted by one audit firm for a certain life insurance
company?
Not more than 1 statutory audit
Not more than 2 statutory audit
Not more than 3 statutory audit
Not more than 4 statutory audit
Not more than 5 statutory audit

UnAttempted

CORRECT ANSWER:

Not more than 2 statutory audit

Q 93.
An ULIP growth fund will invest majority of its funds in ______ .
Gilt edged securities
Government securities
Commercial paper
Equities
50% Equity and 50% Debt

UnAttempted

CORRECT ANSWER:

Equities

Explanation:

Equities / Shares have one of the best growth potential for long term
investors. So ULIPs seeking growth will invest majority of its funds in equities.

Q 94.
The Cash Flow statement is useful ____ to management and ____ to
investors and creditors.
Externally ; Internally
Internally ; Externally
for a short period ; for a long period
for a long period ; for a short period
None of the above

UnAttempted
 CORRECT ANSWER:

Internally ; Externally

Explanation:

Cash flow statement is useful internally to management to assess the liquidity

of the business and externally to investors to generate positive cash flows in
future to pay its liabilities.

Q 95.
_____ is a periodical payment made, in exchange for purchase money
(capital payment), for the remainder of the life time of a named life or for
a specific period, irrespective of the duration of the human life.
Premium
Claim
Annuity
Insurance
Re-insurance

UnAttempted

CORRECT ANSWER:

Annuity

Explanation:

An Annuity is a periodical payment made, in exchange for purchase money

(capital payment), for the remainder of the life time of a named life or for a
specific period, irrespective of the duration of the human life.

Q 96.
In case of ULIPs, which of the following will not be accepted by the
insurance companies for premium?
Pay order
Cash
Outstation cheques
Demand Drafts
Local cheques

UnAttempted

CORRECT ANSWER:
 Outstation cheques

Explanation:

Outstation cheques will not be accepted by the insurance companies for

premium.

Q 97.
Claim payments that remain outstanding for more than 5 years are
____ .
credited to bank account
written back to revenue accounts
debited to outstanding maturity claims amount
treated as expense and written back to expense account
None of the above

UnAttempted

CORRECT ANSWER:

written back to revenue accounts

Explanation:

Claim payments that remain outstanding for more than 5 years are written
back to revenue accounts.

Q 98.
_____ is also known as Pure Premium.
Net Premium
Office Premium
Level Premium
Gross Premium
Value Premium

UnAttempted

CORRECT ANSWER:

Net Premium

Explanation:

Net Premium is also known as Pure Premium.

Q 99.
Which of the following entries will be recorded in the CASH PAID book?
Survival benefits
Loans
Management Expenses
Surrenders
All of the above

UnAttempted

CORRECT ANSWER:

Management Expenses

Explanation:

The Management Expenses will be recorded in the Cash Paid book.

Q
100. Which of these is an asset? 1. Expenses accrued 2. Expenses prepaid 3.
Income accrued 4. Income prepaid
Only 1
Only 3
Both 1 and 2
Both 2 and 3
Both 3 and 4

UnAttempted

CORRECT ANSWER:

Both 2 and 3

Explanation:

Prepaid expenses and Accrued income are assets.

Out of 100 questions 100 are un attempted.