MCQS (F. Accounting)

A Key to Success
For All Audit & Accounts Related Tests of

FPSC, PPSC & NTS
FPSC Senior Auditor

Guide BS-16
Part-II
Professional Test
Prepare by Mr. Arsalan Chuhdry

Shared by Faisal Qureshi
arslan.chudary@yahoo.com
Arslan Chudhary
1
Sami Ullah Khan 0313-9836454
Faisal Qureshi
Accounting Principles & Procedure:
 Transaction:-
Any financial dealing between two person or things is a transaction. It
may be relate to purchase and sells goods, receipt and payment of cash
and rendering of service by one party to another.
OR
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A business event which can be
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measured in terms of money and which must be recorded in books of
account is called transaction.
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 Classification:-
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Transaction may be divided into two groups.
(1) Cash Transaction:-
or
If the value of a transaction in met is cash
immediately, it is called cash transaction. e.g. We buy furniture for Rs.
sc
2000/- from Zubair and immediately pay him in cash. It is cash
transaction.
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(2) Credit Transaction:-

If a transaction is made with the consent to
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make the payment in some future time, against such transaction.

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Business:-
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Any legal activity which is done for the purpose of earning profit
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is known as business. e.g. banking business, an insurance business,

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etc.
 Proprietor:-
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He is owner of a business. He invests capital in it,

gives his time and attention to it. He is entitled to receive the profit or
bear loss arising out of it.
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Faisal Qureshi
 Capital:- It is the source of funds provided by the
owner of the business and it is long term liability of the business
which is re-payable to the owner at the time of dissolution of the
business or any other case.
 Drawing:- The amounts of cash or goods taken away by

owners from the business for his personal use are known as
drawings.
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Purchases:-
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 In accounting language the word ―purchases‖
has special meaning. When tradable goodsare brought in business
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it is called that purchases have been made.
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Cash Purchases:- If goods are purchases from a supplier and
payment is made to him at the same time, such purchases are
or
known as ―cash purchases‖.
sc
Credit Purchases or Purchases on Account:-
When goods are purchased from seller/supplier and
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payment is not made to him at the same time, rather the

payment is arranged to be made at some future date, such
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purchases are known as ―credit purchases‖ or ―purchases on

account‖.
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Purchases Return or Returns Outwards:- Goods once

purchased may subsequently be sent back to the seller for
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certain reasons, i.e. goods are defective, not according to

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specification, damaged or below standard. Such return of

goods to the seller is known as ―purchases return‖.
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Purchases Discount:- The concession given by the supplier

to the buyer on purchases of goods is known as purchases
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discount.
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 Sales: - When goods of the business are sale out to someone

others for earning profit, this is known as sale is made the
business.
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Cash Sales:- If goods are sold to customers at a specific price
and price of goods is received from them at the time of sale of
goods, such sales are known as ―cash sales‖.
Credit Sales:-If goods are sold to customers and he does not

pay the price of goods at the same time but to make payment on
some future date, the sales are called ―credit sales‖ or ―sales on
account‖.
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Sales Returns or Return Inwards:- If a customer to whom
goods have been sold finds that the goods are defective,
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unsatisfactory, below standard Or not according to the
specification, he may return these goods to the seller. Such return
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of goods is known as ―sales return‖.
 Trade Discount:-Discount allowed by manufacturer or
or
wholesaler at the time of selling goods to retailer as a deduction
from the list price or catalogue price is called trade discount.
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 Debtors/Accounts Receivable:-A person who owes money to
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another is debtor when we say that we owe Mr. Amir Rs. 5000/
we mean that we have received from Mr. Amir 5000/ which we
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have to repay. We stand as debtor to Mr. Amir for Rs. 5000/ it is

also termed as account receivable.
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 Creditors/Accounts Payable:-A person who pays out

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something or to whom money owing is a creditor. It is also

termed as accounts payable.
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 Commission:-It is form of remuneration for services rendered

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by one person to another.

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 Expenses:-Expenses are the cost of the goods and services used

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up in the process of obtaining revenue. e.g. Salaries, Insurance,

rent etc.
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Appropriation Accounts
Federal Appropriation Accounts show the audited accounts of
expenditure from the appropriations for the year with full explanations
of all important variations between the original and modified
appropriations and expenditure.
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The Federal Appropriation Accounts of defence services deal with:
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 A general review of expenditure on Defence Service. This will
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include explanation for variation between the original modified
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Appropriation and the actual by Main Heads of Accounts.
 Changes in form of the Accounts or in their classification.
or
 Misc. observations. sc
 Federal Appropriation Accounts showing the figures for original
modified Appropriation and actual by Major Heads.
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 Goods merchandise:-It includes all merchandise commodities,

which are purchased by the business for selling purpose.
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 Stock Inventory:-(List of Goods)

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Goods or merchandise on hand that is goods

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remaining unsold is called stock in trader inventory.

 Bad debt:- A bad debt is a business loss. The debts, which are
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irrecoverable from debtors, are called ―bad debts‖

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 Depreciation:- Gradual decrease in the machinery value

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of an asset due to usage in business is known as depreciation.

Depreciation is a loss to the business.
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Fluctuation:- The decrease or increase in value of an asset not

due to use in business is known a fluctuation.
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 Petty cash book: - A book, in which small cash payments
recorded, which are not convenient to record in the main cash
book directly (like postage traveling expenditure purchase of
stationery are recorded) is petty cash book.
 Imprest system;_ A system in which a fixed sum of money is
given to cashier for the month is called Imprest system.
 Assets:- These are the things of value possessed by a trader
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such as Building, Stock, Debtor, Cash, Goodwill
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etc.Assets have the following kinds mentioned below:-
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Fixed Assets:- Assets which have long life and which are
bought for use in business for long period of time are called
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fixed assetse.g. Land Buildings, Furniture etc.
or
Current Assets/ Circulatory/ Floating Assets:- Assets
which have short life and which can be converted into cash
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quickly to meet the short terms liabilities are called current
assets e.g stock, Debtor, Cash etc. These are also called
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circulatory or floating assets.

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Tangible Assets:-Assets which have physical existence and

which can be seen, touched or felt are called tangible assets
e.g land buildings, machinery.
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Intangible Assets:- Assets which have no Physical

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existence and which cannot be seen, touched or felt are

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called intangible assets e.g Good will, patent right, Trade

mark etc.
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Liquid or Quick Assets:- Assets which can be converted

into cash very quickly or which are already in the form of
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cash are called liquid or Quick assets. E.g cash in hand, cash
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at bank etc.
Wasting Assets:-Those assets whose value gradually

reduce on account of use and finally exhausted completely
are called wasting assets.
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 Liabilities:- Liabilities are debts or obligation of a business which
are payable to outsiders or the persons inside the business like
owners of the business.
Fixed liabilities:- Fixed liabilities, which are repayable after

a long Period. E.g. long term loan, capital etc.
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Current Liabilities:-The debts that are repayable within a
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short period are called current or short-term liabilities e.g
Creditors, bills payable bank overdraft.
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Contingent liabilities:Contingent liabilities is not a liabilities
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at present but may or may not become liability in future it
depends upon certain future event.
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 Contra Entry;- Anentry in which cash a/c and bank a/c involved
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and it is recorded on both sides of cash book is called contra
entry.
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 Accounting:-Accounting is the art of recording, classifying and

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summarizing in a significant manner and in terms of money,

transaction and events, which are, in part at least, of a financial
character, and interpreting the result thereof.
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 Book Keeping:-Bookkeeping is the art of recording monetary

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transactions in the books of accounts in a proper manner.

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 Accounting & Accountancy:-The two words ―Accounting‖ and

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―Accountancy‖ are often used to mean the same thing. But it is not
correct. Accountancy is a main subject and Accounting is one of its
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branches. The word ―Accountancy‖ is for wide and extensive

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compared to Accounting. It covers the entire body of theory and

practice. i.e. Books Keeping, Accounting, Costing, Auditing,
Transaction.
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 Financial Accounting:- The main purpose of Financial Accounting
is to ascertain the true result (profit or loss) of the business
operations during a particular period of time and to state the
financial position of the business on a particular point of time.
 Management Accounting:- It is accounting for the management

i.e. accounting, which provides necessary information to the
management for discharging their duties. It take decisions and to
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control activities.
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 Cost Accounting:-The main object of cost accounting is to
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determine the cost of product and to the business in controlling the
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costs by indication avoidable losses and wastes.
 Cash System of Accounting:-Under this system of accounting,
or
transactions are recorded only when cash is received or paid,
whether they are related to current year or not.
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 Accrual System of Accounting:The system under which all items
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of revenues and expenses relating to the current accounting period

whether received or paid in cash or not are taken into consideration
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while determing the profit or loss of the business, is called accrual

system of accounting or Mercantile system of accounting.
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 Accrual Revenues:- The revenue, which we have been earned in

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the current year but has not been received in cash within the current
year, it will be received in next year, is known as accrued revenue
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e.g. accrued commission (CR), Rent receivables etc.

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 Accrual Expenses or Outstanding Expenses:-

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The expenses which have been incurred during the current

year but have not been paid till the end of the current year are called
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outstanding expenses payablee.g. Wages Payable, accrued Salaries etc.

 Capital Expenditure:An expenditure, which results in the
acquisition of permanent asset in the business for the purpose of
earning revenue, is known as capital expenditure.
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 Revenue Expenditure:All those expenditure which are incurred in
the day-to-day conduct and the administration of a business and the
effect of which is completely exhausted within the current
accounting year are known as Revenue Expenditures. These are also
known as Expenses or Expired Cost.
 Debit Note:-If goods bought on credit are returned to seller for any
solid reason the buyer debit the seller account and inform the seller
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through a note. This note is called debit note.
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 Credit Note: - If goods sold on credit are returned by the buyer,
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the seller credits the buyer account and informs the buyer through a
note. This note is called credit note.
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 Cash Discount: - It is a deduction or allowance given by a
or
creditor to a debtor before the due date.
 Trade Discount:- Discount allowed
sc by manufacturer or
wholesaler at the time of selling goods to retailer as a deduction
from the list price or catalogue price is called trade discount.
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1. FINAL ACCOUNT
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It is prepared to determine the profit and loss of the business

and its financial position.
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2. TRADING & PROFIT & LOSS ACCOUNT/ INCOME

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STATEMENT
As the name of this account, it is made up two accounts that in
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trading account and profit & loss account. Trading Account in

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prepared to determine the gross profit or gross loss of a trader

while profit & loss account is prepared to determine the net profit
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or net loss of a trader.

Trading & profit & loss account/income statement is
prepared in both ways. It is prepared in T form (T Account) as
well as in report form.
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Faisal Qureshi
3. DIRECT EXPENSES
Direct expenses are those which are incurred to convert the raw
material into finished goods. Direct expenses are charged to
Trading Account for example wages, freight, cartage, excise duty
etc.
4. MANUFACTURING EXPENSES
Manufacturing Expenses are those which are relating to
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manufacturing process/factory such as factory insurance and
factory repair etc. these expenses are direct expenses and shall
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be charged to Trading Account.
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5. PROFIT & LOSS ACCOUNT
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Profit & Loss Account is prepared to determine the net profit or
net loss of a trader.
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6. COST OF GOODS SOLD
Indicates the cost price of goods which have been sold during a
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given period. Simply it can be written as Opening Stock + Cost of
goods purchase = Cost of Goods Sold – Closing Stock.
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7. GROSS PROFIT.
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The excess of the net income from sales over the cost of goods
sold is called gross profit and through this, we can obtain net
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profit or net income of the business.

8. OPERATING EXPENSES.
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Operating expenses are two types there are. Selling expenses

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and administrative or general expenses. Selling Expenses are

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incurred directly and entirely due to sale of goods for example

Salaries of Salesman, Advertisement etc.
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Administrative or General Expenses are incurred due to the

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administration of business for examples office Salaries, Office

Supplies etc.
9. NET PROFIT
The final figure on the Profit & Loss Account is called net profit or
net loss and which is carried to the balance sheet.
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Arslan Ullah Khan 0313-9836454
Faisal Qureshi
10. BALANCE SHEET
It is a statement which shows the financial state of the
expenditure. It is the statement of all the assets and liabilities. It
is prepared after trading and profit & loss account.
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DEFINE ASSETS AND WHAT ARE THE MAIN TYPES OF
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ASSETS/ CLASSIFICATION OF ASSETS.
ASSETS
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Any valuable thing possessed by the firm or owner of
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the business in called asset for example Building, Plant, Machinery,
etc.
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TYPE/ CLASSIFICATION OF ASSETS
The main types of classes are as follows:-
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i. FIXED ASSETS
Fixed Assets are those which are acquired
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not for sale but only for permanent use in the

business are called fixed assets e.g. Plant,
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Machinery, Land, Building etc.

ii. FLOATING/ CIRCULATING/CURRENT
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ASSETS
Floating or circulating or current assets are
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those which are held for sale and which are

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converted into cash after sometime for example

Bill Receivable, Stock of Goods etc.
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iii. LIQUID ASSETS

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Liquid assets are those which are with us

in cash or which are easily converted into cash
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for example cash in hand, cash at bank etc.

iv. WASTING ASSETS
Wasting Assets are those which have
become depreciated through fair wear & tear
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Arslan Khan 0313-9836454
Chudhary
Faisal Qureshi
with the passage of time. It is a sub class of
fixed asset e.g. Land, Building, Machinery etc.
v. FICTITIOUS ASSETS/ INTANGIBLE

ASSETS.
Fictitious or intangible assets are those
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which have no physical existence and which
neither can be seen with eyes nor touched with
in
hands for example Good Will, Prepaid Insurance
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etc.
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vi. CONTINGENT ASSETS
Contingent Assets are those which are
or
arise after happening of a certain event. For
example uncalled capital for a limited company.
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vii. Outstanding Assets
Out Standing Assets are those when
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expenses paid in advance are called outstanding

assets for example prepaid wages etc.
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DEFINE LIABILITY? WHAT ARE THE TYPES/

CLASSIFICATION OF LIABILITIES?
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LIABILITY
The outstanding amount against the assets of
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the firm is called liability.

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TYPE OF LIABILITY
There are following types of liabilities:-
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a. FIXED LIABILITIES
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These are the liabilities which are not

payable immediately or in near future. These
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liabilities are payable after a long period of time

for example long term loans etc.
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b. CURRENT LIABILITIES
These liabilities are payable immediately or
in near future such as creditors, Bank loans etc.
c. CONTINGENT LIABILITIES.
These are liabilities which are arises after
happening of a certain event. The event may or
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may not involve. Thus a contingent liabilities
may or may not involve the payment of money
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These liabilities are not recorded in the
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balance sheet. It is just sufficient to make a foot
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note on balance sheet for example a pending
case against a person in court etc, debtor fails
or
to fulfill his obligation.
d.
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OUT STANDING LIABILITIES
Outstanding expense or unearned income is
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called out standing liability for example

outstanding wages, outstanding rent,
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outstanding salary etc.

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ACCOUNTING EQUATION
ASSETS = LIABILITIES + CAPITAL
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RULES OF DEBIT AND CREDIT

FOR ASSETS ACCOUNTS:
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Increase in an asset is debit………….……. Dr.

Decrease in an asset is credit……….……...Cr.
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FOR LIABILITIES ACCOUNTS:

Increase in a liability is credit…………….…. Cr.
Decrease in a Liability is Debit...…….……...Dr.
FOR PROPRIETORSHIP/CAPITAL ACCOUNT:
Increase in Capital is Credit ……….…………Cr.
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Chudhary
Faisal Qureshi
Decrease in Capital is Debit ………………….Dr.
FOR REVENUE ACCOUNTS
Increase in Revenue is Credit………………….Cr.
Decrease in Revenue is Debit…………………..Dr.
FOR EXPENSES ACCOUNTS
Increase in Expense is Debit…………………….Dr.
Decrease in Expense is Credit…………………..Cr.
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DEFINE CAPITAL? WHAT ARE THE TYPES?
CAPITAL
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Sum of cash or goods invested in business by
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the owner is called capital.
TYPE OF CAPITAL
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The following are the main types of the Capital
a. TRADING CAPITAL
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The profit of the funds of a concern which is
represented by fixed or floating assets is called
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trading capital.
b. FIXED CAPITAL
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The portion of the funds of a concern, which is

represented by fixed assets, is called fixed
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capital.
c. CIRCULATING CAPITAL
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The portion of the funds of a concern which is

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represented by floating or circulating assets is

called circulating capital.
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d. WORKING CAPITAL
The excess of the floating assets over the
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floating liabilities is called working capital

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e. LOAN CAPITAL
Debentures or other fixed loans are called loan
capital
f. WATERED CAPITAL
It is represented by fictitious assets.
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DESCRIBES THE DIFFERENCE BETWEEN THE TRIAL
BALANCE & BALANCE SHEET?
Sr. TRIAL BALANCE Sr. BALANCE SHEET

No. No.
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01 It is the list of balance 01 It is a statement of assets
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obtainedfrom the ledger and liabilities.
account.
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02 It contains the balances of 02 It contains the balances of
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all accounts real, nominal& assets and liabilities.
personal A/C’s.
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03 It is prepared before 03 It is prepare after trading
trading and profit & losssc and profit and loss account.
Account.
04 It does not contain the 04 It contains the value of
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value of closing stock. closing stock which appears

on the assets side.
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05 Expenses due but not paid 05 Expenses due but not paid,
income due but not income due but not
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received do not appear in received appears in the

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the trial balance. balance sheet.

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OUTSTANDING EXPENSE
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Expenses incurred but have not been actually paid are

called out standing expenses for example outstanding
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wages, outstanding rent etc. these are shown in profit &

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loss account as expenses and shown in the balance sheet as

liabilities.
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PREPAID EXPENSES
Expenses paid in advance before they have fallen due
are called prepaid expenses for example prepaid rent,
prepaid wages etc. these are shown in profit & loss account
by deducting from the relevant account on debit side and
shown in balance sheet as assets
ACCRUED INCOME
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Earning or income such as interest on loan,
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commission, dividend and rent receivable from tenant is
called accrued income. This will be shown in profit & loss
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account as income on credit side and will be shown in
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balance sheet as an asset
UN EARNED INCOME
or
Income received in advance but not earned is called
un earned income for example rent, interest commission
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and discount etc which might have been receivable in
advance but full service have not been given so for this will
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be shown in profit & loss account by deduction from the

relevant account on credit side and will be shown in balance
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sheet as liability.
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SOME IMPORTANT DEFINITIONS

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PRIME COST
The sum of direct material, direct labour are called
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prime cost. It is also called basic or flat cost.

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1. CONVERSION COST/ TOTAL COAST

It is the total cost which converts the basic raw
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martial from one stage of production to the next stage

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of production. It is the cost which converting the

direct raw material into prepared material or finished
goods excluding the cost of raw material.
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2. MARGINAL COST
It is the difference in the cost of alternatives is called
marginal cost.
3. FACTORY COST/ TOTAL WORK COST/ TOTAL
MAIN COST
This cost is made up of prime cost plus factory
overhead. In other words, it is the figure by which
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completed goods are shown in the inventory. This is
also known as total works cost or total manufacturing
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cost.
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4. VARIABLE COST/ FLUCTUATION COSTS
Variable costs are those which fluctuate in proportion
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to the volume of production are called variable costs
e.g. direct material and direct labour.
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5. FACTORY OVERHEAD sc
Factory overhead are those costs which are indirectly
related with production and are incurred before the
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goods are put into the finished goods.

6. FIXED/ CONSTANT COSTS
Fixed/ constant costs are those costs which remain
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fixed in total except the charges in the volume of

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production or sale.
7. OVER TRADING
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Means purchasing beyond your capital is called over

trading.
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8. OVER HEADS
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Over-heads are indirect expenses e.g. selling

expenses administration expenses and financing
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expenses are called overheads.

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9. COST OF GOODS MANUFACTURED

Cost of goods manufactured is a summary of the costs
included in the manufacture of goods e.g. cost
materials, labors etc.
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Chudhary
Faisal Qureshi
10. DIRECT LABOUR/ WAGES
The labour engaged directly in the production of
goods and which converts the raw material into
finished goods is called direct labour.
11. INDIRECT LABOUR
Which is not involved directly in the production
manufacturing from but helps the manufacturing
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process indirectly is called indirect labour.
12. INDIRECT EXPENSES
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In direct expense are those which are not directly
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related to the production but helps in-directly in the
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production process is called indirect expense e.g. rent,
insurance, Gen expenses etc.
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13. TURN OVER
The total sales of a trader within a given period is
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called turn over.
14. DIRECT COST
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The aggregate of the material which is directly used in

the course of manufacture is called direct cost.
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15. INDIRECT COST.

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The aggregate of the material which is not directly

used in the course of manufacture is called indirect
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cost e.g. repair to machinery, inspection etc.

16. GOOD WILL
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The value of a business bought as a going concern

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over and above the cash price of its marketable assets

such as houses, lands and plants etc.
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17. SINKING FUNDS

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A sinking fund is a reserve created out of profit and

usually invited outside the business in early
marketable securities.
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18. DEPRECIATION
Depreciation means the gradual decrease in the value
of an asset. The net results of asset deprecation are
that sooner or later the asset will become useless.
19. DIVIDEND
The term dividend means the profit of a company
which is distributed among its shareholders. It is the
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liability of the company and appears in the balance
sheet on liability side.
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20. BAD DEBTS
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Irrecoverable recoveries from debtors are called bad
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debts.
21. DOUBTFUL DEBTS
When the recoveries from debtors are seems, to
or
become bad debt, such debts are called doubtful
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debts.
22. TRANSFER ENTRY
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Transfer Entries are the entries, which are intended to

transfer an item form one head of account to another
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23. PETTY CASH & PETTY CASH BOOK

The sum of small money which is required for the
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purpose of small payment.

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24. SUSPENSE ACCOUNT.

The word suspense means uncertainty. It is an
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account in which the transactions are not entered in

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its proper head due to lack of information.

25. PUNCHING MEDIA
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Punching Media is an extract of certain date pertaining

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to a voucher which is sent by audit sections of

Controller’s Office to the Data Management section of
MAG’s Office for compilation.
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26. PREFERENCE SHARE
These are the shares whose holders have preferential
rights in respect of the payment of dividend and
repayment of capital in the event of winding up. The
rate of dividend on these shares is fixed.
27. PARTNERSHIP DEED
It is a document which contains all necessary rules
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and regulations which are required to run the
partnership business.
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28. ACCOMMODATION BILL
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Accommodation Bill is a bill of exchange which has
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been drawn and accepted for financial assistance.
29. BILL OF EXCHANGE
It is an unconditional order in writing to pay
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addressed by one person to another, and a person
sc
who gives must be sign in it and a person who
receives it must be accepted. It may be drawn on any
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paper. Stamp Duty has to be paid on bill of exchange.

It can be drawn is sets.
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30. Promissory Note.

It is an unconditional promise in writing signed by the
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maker to pay on demand. There are only two parties

the drawer in to the payee. There is no need of
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acceptance. It is never drawn in sets.

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31. Bank DRAFT.

Commercial Banks give the facility of transferring
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money from one place to another place. So it means

that the bank draft is a source of transferring money
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from one place to another. It is an order from one

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bank to its other branch at another place to pay the

specified sum to or the order of the holder on demand
for value received.
32. POSTAL ORDER.
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Chudhary
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It is an instrument like bank draft but the postal
department issues it.
33. BANK OVER DRAFT.
When a customer is authorized to overdraw an agreed
amount in excess of his bank balance is called our
draft/Bank overdraft. The bank charged the interest
on the amount which is overdrawn by the customer.
fo
34. TYPE OF DEPRECIATION
in
There are following types of depreciation.
r.
a. Straight line method
ne
b. Diminishing method/ Reducing method
or
c. Annuity method
sc
d. Depreciation fund method.
e. Revaluation method.
ee
oy
35. ANNUITY
It is methods of depreciation in which the valued of an

pl
asset along with interest are written down annually by

m
equal installments until the book value is reduced to

.e
nil. The annual charge is to be made out by way of

w
depreciation, which is found out from annuity tables.

w
36. MEMORANDUM OF ASSOCIATION.

w
It is a document which contains the right, powers and

objects of company business. It is the main document
of the business.
21
Sami Ullah
Chudhary
Faisal Qureshi
37. ARTICLES OF ASSOCIATION
It is a document, which contains the rules and
regulations of the business.
38. RESERVE FUNDS
It is a fund, which is made against profits of the
fo
business to avoid the losses uncertain condition which
in
may arise in future. It is the liability of the business.
r.
ne
or
COMPANY AND ITS TYPES
sc
Company means an association of persons who contribute
money or money’s worth for a common stock and uses it for
ee
a common purpose of business.

KIND OF COMPANIES
oy
a. on the basis of liability

pl
b. on the basis of investment

m
a. On The Basis Of Liability

.e
(i) Unlimited Company:In these companies, the

liability of the members is unlimited. It may or may
w
not house share capital. When this company winds up,

w
the private property of the members is also liable to

w
pay company’s debt.
22
Arslan Chudhary
Faisal Qureshi
(ii) Companies limited by share
In these companies, the liability of the members is
limited up to the value of their share.
(iii) Companies limited by Guarantee
fo
In these companies every member gives guarantee to
in
contribute a specified amount of money at the
winding up of company. This company may be formed
r.
with or without share capital.
ne
or
b. ON THE BASIS OF INVESTMENT
I.
sc
PRIVATE COMPANY
Private company is a company which has the
ee
following characteristics
oy
i. Minimum members are two and maximum

members are 50
pl
ii. The shares of the company are not

m
transferable.
.e
iii. The company uses the word private with its

name.
w
iv. It is not necessary for the company to issue

w
prospectus.
w
II. PUBLIC COMPANY

Public Company has the following characteristics
Arslan Chudhary 23
Faisal Qureshi
a. Minimum members must be “Seven‖ and no
limit for maximum members.
b. The word limited is used after the name of
company.
c. Shares are easily transferable.
fo
d. It is necessary for the company to issue
in
prospects.
r.
Differentiates between a private company and a
ne
public company.
or
sc
PRIVATE COMPANY PUBLIC COMPANY
ee
1 In private Company Minimum 1 In Public Company minimum

members are two and members must be Seven and
oy
maximum members are fifty . there is no limit for maximum

members.
pl
2 The shares of the company are 2 The shares of the company are
m
not transferable . transferable .

3 The company uses the word 3 The Company was the word
.e
―Private‖ with its name . ―Limited‖ after its name.

w
4 It is not necessary for the 4 It is necessary for the company

w
company to issue prospectus . to issue prospectus .

5 A private company cannot sells 5 A public company can sells its
w
its shares to public . share.

6 The audit of the company is not 6 The audit of the company is
compulsory . compulsory.
24
Arslan
SamiChudhary
Ullah Khan 0313-9836454
Faisal Qureshi
7 The member of directors must 7 The number of directors must
be at least two. be at least seven .
BRANCHES OF ACCOUNTING
Financial Accounting: it is the original form of accounting. It is mainly
fo
confined to the preparation of financial statements for the use of
outsiders like creditors, bankers and financial institutions etc. the main
in
purpose of financial accounting is to calculate profit or loss made by the
r.
business during the year and exhibit financial position of the business
ne
as on a particular date.
or
Cost Accounting: The main purpose of cost accounting is to determine
the of the product and to help the management in the control of cost.
sc
In the first phase it determines the standards of all the elements of cost
ee
i.e. Direct Material, Direct Labour and FOH costfor production

department to control the cost of the product.
oy
Management Accounting:Accounting which provides necessary

pl
information to the management for discharging its functions. It is the

m
reproduction of financial accounts in such a way as will enable the

.e
management to take decision and to control activities.

w
System of Accounting
w
w
Cash system of Accounting: It is a system in which accounting entries

are made only when cash is received or paid. No entry is made when a
payment or receipt is merely due.
25
Sami
Chudhary
Faisal Qureshi
Accrual System of Accounting: It is a system in which accounting
entries are made on the basis of amount having become due for
payment or receipt. For example payment system of salaries of PMAD.
fo
ACCOOUNTING CYCLE/ACCOUNTING PROCEDURE.
in
r.
ne
or
sc
ee
oy
pl
m
.e
w
w
w
COST ACCOUNTING SYSTEM
26
Arslan Chudhary
Faisal Qureshi
It is a system of collecting, processing and evaluating
the operating data i.e. cost of products, cost of operation,cost of
processing the jobs, cost of material used, cost of labour used
etc. for internal planning and control as well as for external
control and reporting.
fo
System of Cost Accounting
in
i) Actual Cost Accounting System
ii) Standard Cost Accounting System
r.
ne
NATURE/PURPOSE OF COST ACCOUNTING
or
it is helpful and provide the guidelines in the following ways
 PLANNING
sc
 Controlling
ee
 Evaluation of alternatives
 Internal Reporting
oy
 External Reporting
pl
 Pricing of products and projects.

m
 Analysis of Financial Statements

.e
w
w
KINDS OF COST
w
Standard Cost: It is the predetermined cost of
manufacturing a single unit or a specific Quantity of Goods. It has

two components, a physical standard (i.e., standard quantity of
27
Arslan
SamiChudhary
Ullah Khan 0313-9836454
Faisal Qureshi
inputs per unit of output) and a price standard (i.e. rate per unit
of output)
Fixed Cost: Cost which is not change with the
change of Production activity, e.g Rent of Factory Building
Variable Cost:which change according to the change
fo
of activity level, e.g. D. Material and D.Labour cost of the product.
in
Semi-variable Cost: composed of both fixed and
r.
variable cost of production eg. Cost of electricity consumed in the
ne
factory.
or
i) Cost for lighting and air conditioning purpose is fixed
cost.
sc
ii)Electricity consumed for driving the machines is the
ee
Component which change with the activity level of output

CONTROLLABLE COST
oy
Which may control by the manager with some planning and

pl
activity, e.g for a production, cost of D. material and D. Labour

m
cost may control with some strict control over the activity?
.e
w
UNCONTROLLABLE COST
w
Depreciation of plant, accidental losses, insurances,

w
taxes, supervisor salaries etc.

Capacity level
28
Arslan Chudhary
Faisal Qureshi
It means ability to produce up to a specific level and it is
also known activity level or volume for capacity.
Theoretical Capacity
It is a maximum capacity level that could be attained if
fo
there were 100% Utilization of time and resources. This level can
in
never be achieved because of unavoidable interruptions e.g.
Sunday holidays, repairs, maintenance, break down of machines
r.
and break down of electricity etc.
ne
Practical capacity
or
It is the maximum activity level that can be attained
sc
under effective working condition. (Theoretical capacity level –
unavoidable losses.)
ee
Expected Actual Capacity

oy
It is the level which is expected to be attained during the

financial year for which the budget is being prepared. It is heavily
pl
dependent on the market demand for the products. It may be

m
equal to or less then the practical capacity. Term Annual Budget

.e
volume and Master Volume are also used to denote expected

Actual Capacity.
w
Normal Capacity
w
Normal Capacity is the average of expected Actual Capacity

w
over a number of year. The object of computing such and

average activity level is to smooth out the effects of seasonal,
cyclical and trend variations.
29
Arslan Chudhary
Faisal Qureshi
Factory Over Heads
All manufacturing Costs other then the Direct
Material and Direct Labour costs are collectively termed as
Factory Overhead cost. It is also known as manufacturing
overheads, indirect material, indirect labour, power, lights,
fo
depreciation charges, repairs, cleaning and maintenance charges.
in
etc. Some examples of FOH is given below.
ELEMENTS OF VARIABLE OVERHEADS
r.
 Pay & allowances and over time (officers/staff employed in
ne
Production shop).
or
 General shop labour
 Over Time / Piece Work
sc
 Wages Under / Over Allocation.
ee
 Shop store (consumable)

oy
 Maintenance & repair services

 Idle time
pl
 Maintenance & repair of tools for general shop use

m
 Utilities Expenses
.e
 Electricity
Gas
w

 Steam
w
 Compressed air high pressure

w
 Water
 Ice
30
Arslan
SamiChudhary
Ullah Khan 0313-9836454
Faisal Qureshi
ELEMENTS OF FIXED OVERHEADS
 Pay & Allowances (officers & staff of non production shops /
manager & above)
 Pay & Allowances (officers & staff of services at factory level
i.e. TPT, telephone & yard etc.
fo
 Admin expenses at factory level
in
 Group insurance
 Misc. Charges
r.
 Assistance package
ne
 Store adjustment / loss
or
 TA / DA

sc
Shop Store (other than consumable items)
 Maintenance of Building
ee
 Maintenance / repair of Plant & Machinery.

oy
 Maintenance & repair of TPT., Rail & Road

 Repair of Furniture
pl
 Depreciation
m
KINDS OF FACTORY OVERHEADS

.e
Plant wise or Blanket Rate:

It is a kind of rate which is calculated for the
w
whole factory over head expenses of entire Factory.

w
Shop/Departmental Rate:
w
This type of rate may be calculated for all the

shops of the factory separately through which the product pass.
31
Arslan
SamiChudhary
Ullah Khan 0313-9836454
Faisal Qureshi
DEPRECIATION
Value of an asset gradually reduces on account of
use. Such reduction in value is known as
depreciation. or we can say that depreciation is the
gradual and permanent decrease in the value of fixed
fo
asset from any cause.
in
Kinds of Depreciation
1) Depreciation: This term is used with reference
r.
ne
to tangible fixed assets for their reduction in
value.
or
2) Depletion: The depletion is used for the
sc
depreciation of wasting assets such as mines, oil
well, timber trees etc.
ee
3) Amortization: The term amortization is used in

oy
respect of intangible assets like patents,

copyright, leasehold and good will which are
pl
recorded at cost.
m
.e
MATHODS OF DEPRECIATION
w
There are following methods of depreciation.

w
a. Straight line method: under this method the

expected life of an asset is first calculated, in
w
years.After this scrap value deducted from the cost

of the asset then net value divided on the useful
life of the asset. In this way a fixed amount
32
Sami Ullah
Chudhary
Faisal Qureshi
calculated which is charged every year from the
value of an asset.Depreciation of copy right, patent
and short lease etc.
Formula:
Depreciation = Cost of Machinery – Breakup Value(Scrap value)
fo
Estimated life of Machinery
in
r.
ne
b. Diminishing method/ Reducing
method/written down value method.
or
Under this method the asset is depreciated at
sc
fixed percentage calculated on the debit balance of
the asset which is diminished year after year on
ee
account of depreciation. Depreciation of machinery

oy
and plant etc.

pl
c. Annuity method
m
According to this method the cost of the asset

.e
and interest are written down annually by equal

w
installments until the book value of the asset in

w
question is reduced to nil or its breakup value at

w
the end of its effective life. These charges made by

way of depreciation out of annuity tables.
This is applicable on long leases assets.
33
Arslan Chudhary
Faisal Qureshi
d. Depreciation fund method/Sinking Fund
Amortization method.
Under this method a fund known as
depreciation Fund is created and an amount is
added at this accommodated fund until the life
fo
of the asset.
in
It is suitable whenever it is desired not
only to charge depreciatio0n but also to replace
r.
the asset as happens in case of plant and
ne
machinery and other wasting assets.
or
sc
e. Insurance policy system.
Under this method the amount represented by
ee
the depreciation fund, instead of being used to

oy
buy securities is paid to an insurance company

as premium. The insurance company issues a
pl
policy promising to pay a lump sum at the end

m
of the working life of the asset for its

.e
replacement.
w
w
w
34
Arslan Chudhary
Faisal Qureshi
JOURNAL,LADGER & CASH BOOK
JOURNAL:
The word journal has been derived from the French word “Jour”. Jour
fo
means day. So journal mean daily. Transactions are recorded daily in Journal
and hence it has been named so.
in
It is a book of original entry to record chronologically, means date wise
r.
recordings are made on daily biases. It is also called Day Book, as per the
ne
recording of entries.
Important Features of journal Entries.
or
 Journal is the first successful step of the Double Entry system. A
transaction is recorded first of all in thejournal. So, journal is called book
sc
of original entry.
ee
 A transaction is recorded on the same day it takes place. so, journal is

called Day Book.
oy
 Transactions are recorded chronologically. So, journal is called

pl
Chronological Book.
m
 For each transaction the names of the two concerned accounts indicating
.e
which is debited and which is credited, are clearly written in two

consecutive lines. This makes ledger-posting easy. That is why journal is
w
called ―Assistant to ledger ―or―Subsidiary Book ―.

w
 Narration is written below each entry.

w
 The amount is written in the last two columns----debut amount in Debit

Column and credit amount in Credit Column.
35
ArslanSami
Chudhary
Ullah Khan 0313-9836454
Faisal Qureshi
Example of Journal
 Jan 15,2012 Mr. Malik Zaman started Business with cash Rs. 15,00,000/-
 Jan 21,2012. Purchase Building for Cash Rs. 12,00,000/-
Journal
Date Particulars L.F. Debit Credit
Rs. Rs.
fo
P-
2012 Cash Account No.03& 15,00,000
in
Jan-15 Capital Account 04 15,00,000
Started business with cash
r.
P-NO
Jan-21 Building Account 05 &03 12,00,000
ne
Cash Account 12,00,000
Purchase Building on cash
or
LEDGER ACCOUNTS
sc
When all the transactions for a given period have been
ee
journalized, the next step is to classify them according to the accounts

oy
affected. For example, all transactions relating to cash must be put in

one place. Similarly, all transactions with a customer or a supplier must
pl
also be assembled at one place. The book in which this classification is

m
done is called the Ledger.

.e
Recording of data from original book of entry/journal to ledger is

known as posting of data.
w
w
FEATURES OF LEDGER BOOK

It has two identical sides ---Left side is Debit side and Right
w
side is called Credit side.
36
Arslan
SamiChudhary
Ullah Khan 0313-9836454
Faisal Qureshi
Debit aspect of all the concerned transaction is recorded on
Debit side, while credit aspect on Credit side according to
date:
Difference of the totals of the two sides represents balance.
The excess of Debit side over Credit side indicates debit
fo
balance and vice versa.
in
Usually balance is drawn at the end of the year and
recorded on deficit side to make the two sides equal. This
r.
ne
balance is known as closing balance.
The closing balance of the current year will be the opening
or
balance of the next year.
sc
Separate account is opened for each item of assets,
liabilities, expense and revenue. In this way relevant
ee
closing balance is transferred to Trial Balance accordingly.

oy
Complete and reliable information is available in respect of

each and every account.
pl
m
EXAMPLE OF POSTING FROM JOURNAL TO

.e
LEDGER ACCOUNTS
w
w
 Jan 15,2012 Mr. Malik Zaman started Business with cash Rs.
15,00,000/-
w
 Jan 21, 2012. Purchase Building for Cash Rs. 12,00,000/-
Arslan Chudhary 37
Faisal Qureshi
Journal
Date Particulars L.F. Debit Credit
Rs. Rs.
P-
2012 Cash Account No.03& 15,00,000
Jan-15 Capital Account 04 15,00,000
fo
Started business with cash
in
P-NO
Jan-21 Building Account 05 & 12,00,000
Cash Account 03 12,00,000
r.
ne
Purchase Building on cash
or
sc
LEDGER ACCOUNTS (POSTING OF DATA FROM
JOURNAL TO LEDGER)
ee
Cash Accounts
oy
Date Particular J.F. Amount Date Particular J.F. Amount

Rs. Rs.
pl
2012 2012
m
Jan-15 Capital a/c 15,00,000 Jan-21 Building a/c 12,00,000

.e
Jan-31 Balance a/c B/F 3,00,000

w
w
w
Jan-31 Total 15,00,000 Total 15,00,000
Capital Accounts
Arslan Chudhary 38
Faisal Qureshi
Rs. Rs.
2012 2012
Jan-31 Balance a/c B/F 15,00,000 Jan-21 Capital a/c 15,00,000
fo
in
r.
Jan-31 Total 15,00,000 Total 15,00,000
ne
or
sc
Building Accounts
ee
Rs. Rs.
oy
2012 2012
Jan-21 Cash a/c 12,00,000
pl
Jan-31 Balance a/c B/F 12,00,000

m
.e
w
Jan-31 Total 12,00,000 Total 12,00,000

w
w
TRIAL BALANCE
Having posted all the transactions into the ledger, it is
necessary to check the correctness of the work done before
39
SamiChudhary
Faisal Qureshi
proceeding further. In order to test the arithmetical accuracy of our
ledger we should prepare a statement called the Trial Balance.
A trial Balance is a statement prepared by taking out the debit
and credit balances of all accounts appearing in the ledger.
fo
Example of Trial Balance
in
r.
Note: please carry on the above stated example
ne
Ledger Accounts L.F Dr. Cr. Balance
Balance
or
Cash Accounts sc 3,00,000 -
Capital Accounts - 15,00,000
ee
Building Accounts 12,00,000 -

oy
pl
Total 15,00,000 15,00,000

m
.e
w
CASH BOOK
w
w
The cash book is the book of original entry in which transactions

relating only to cash receipts and payments are recorded in detail.
When the cash is received it is entered on the debit or left side and
40
Arslan Chudhary
Faisal Qureshi
similarly cash is paid out, the same is recorded on the credit or the right
hand side of the cash book.
The cash book is balanced at the end of a given period by
inserting the excess of the debit on the credit side as ―By balance
carried down‖ to make both sides agree. The balance is then shown on
fo
the debit by ―to balance brought down‖ to start the next period.
in
Kinds of Cash Book
r.
The following are the three forms of Cash Books met with in
ne
practice:
or
 Simple or Single Column Cash Book
sc
Dr. (Receipt Side) Cr. (Payment Side)
ee

Rs. Rs.
oy
pl
Double Column Cash Book

m

.e
Date Particular V.No J.F. Disc Amount Date Particular V.No J.F. Disc Amount
w
Rs. Rs.
w
w
41
Arslan Chudhary
Faisal Qureshi
fo
 Triple Column Cash Book
in
r.
ne
or
Date Particular V.No J.F. Disc Disc Cash Bank Date Particular V.No J.F. Disc Disc Cash Bank
sc
ee
oy
pl
m
.e
w
w
w
42
Sami Ullah
Chudhary
Faisal Qureshi
PUBLIC PROCUREMENT RULES,2004
Islamabad, June 9, 2004
NOTIFICATION
S.R.O. 432(I)/2004.- In exercise of the powers conferred by section 26
of the Public Procurement Regulatory Authority Ordinance, 2002 (XXII
fo
of 2002), the Federal Government is pleased to make the following
rules, namely:-
in
1. Short title and commencement.-
r.
ne
(1) These rules may be called the Public Procurement Rules, 2004.
(2) They shall come into force at once.
or
GENERAL PROVISIONS sc
2. Definitions.-
ee
(1) In these rules, unless there is anything repugnant in the subject or

context,-
oy
(a) ―bid‖ means a tender, or an offer, in response to an invitation, by a

person, consultant, firm, company or an organization expressing his or
pl
its willingness to undertake a specified task at a price;

(b) “Bidder‖ means a person who submits a bid;
m
(c) ―competitive bidding‖ means a procedure leading to the award of

.e
a contract whereby all the interested persons, firms, companies or

organizations may bid for the contract and includes both national
w
competitive bidding and international competitive bidding;

w
(d) “Contractor” means a person, consultant, firm, company or an

organization who undertakes to supply goods, services or works;
w
(e) “Contract‖ means an agreement enforceable by law;

(f) ―corrupt and fraudulent practices‖ includes the offering, giving,
receiving, or soliciting of anything of value to influence the action of a
public official or the supplier or contractor in the procurement process
or in contract execution to the detriment of the procuring agencies; or
43
Arslan Chudhary
Sami Ullah Khan 0313-9836454 Faisal Qureshi
misrepresentation of facts in order to influence a procurement process
or the execution of a contract, collusive practices among bidders (prior
to or after bid submission) designed to establish bid prices at artificial,
non-competitive levels and to deprive the procuring agencies of the
benefits of free and open competition and any request for, or
solicitation of anything of value by any public official in the course of
the exercise of his duty;
fo
(g) “emergency” means natural calamities, disasters, accidents, war
in
and operational emergency which may give rise to abnormal situation
requiring prompt and immediate action to limit or avoid damage to
r.
person, property or the environment;
ne
(h) ―lowest evaluated bid” means,-
(i) a bid most closely conforming to evaluation criteria and other
or
conditions specified in the bidding document; and
(ii) having lowest evaluated cost;
sc
(i) ―Ordinance‖ means the Public Procurement Regulatory Authority
Ordinance, 2002 (XXII of 2002);
ee
(j) ―Repeat orders” means procurement of the same commodity from

the same source without competition and includes enhancement of
oy
contracts;
(k) ―Supplier” means a person, consultant, firm, company or an
pl
organization who undertakes to supply goods, services or works; and

m
(l) “value for money” means best returns for each rupee spent in
terms of quality, timeliness, reliability, after sales service, up-grade
.e
ability, price, source, and the combination of whole-life cost and quality
w
to meet the procuring agency’s requirements.

(2) The expressions used but not defined in these rules shall have the
w
same meanings as are assigned to them in the Ordinance.

w
3. Scope and applicability.-

Save as otherwise provided, these rules shall apply to all procurements
made by all procuring agencies of the Federal Government whether
within or outside Pakistan.
4. Principles of procurements.- Procuring agencies, while engaging
in procurements, shall ensure that the procurements are conducted in a
44
SamiChudhary
Arslan Ullah Khan 0313-9836454 Faisal Qureshi
fair and transparent manner, the object of procurement brings value for
money to the agency and the procurement process is efficient and
economical.
5. International and inter-governmental commitments of the

Federal Government.- Whenever these rules are in conflict with an
obligation or commitment of the Federal Government arising out of an
international treaty or an agreement with a State or States, or any
fo
international financial institution the provisions of such international
in
treaty or agreement shall prevail to the extent of such conflict.
r.
6. Language.-
(1) All communications and documentation related to procurements of
ne
the Federal Government shall either be in Urdu or English or both.
Except where a procuring agency is situated outside the territories of
or
Pakistan and procurements are to be made locally, the procuring
agency may use the local language in addition to Urdu or English.
sc
(2) Where the use of local language is found essential, the original
documentation shall be in Urdu or English, which shall be retained on
ee
record; for all other purposes their translations in local language shall
be used:
oy
Provided that such use of local language ensures maximum economy

and efficiency in the procurement.
(3) In case of the dispute reference shall be made to the original
pl
documentation retained on record.

m
7. Integrity pact.- Procurements exceeding the prescribed limit shall

.e
be subject to an integrity pact, as specified by regulation with approval

of the Federal Government, between the procuring agency and the
w
suppliers or contractors.
Issued within thirty days of the expiry of the said period enabling the
w
supplier or contractor to submit the final bill. Except for unsettled

w
claims, which shall be resolved through arbitration, the bill shall be paid
within the time given in the conditions of contract, which shall not
exceed sixty days to close the contract for final audit.
45
Arslan
SamiChudhary
Ullah Khan 0313-9836454 Faisal Qureshi
PROCUREMENT PLANNING
. Procurement planning.-
Within one year of commencement of these rules, all procuring
agencies shall devise a mechanism, for planning in detail for all
proposed procurements with the object of realistically determining the
requirements of the procuring agency, within its available resources,
delivery time or completion date and benefits that are likely to accrue
fo
to the procuring agency in future.
in
. Limitation on splitting or regrouping of proposed
r.
procurement.-
Save as otherwise provided and subject to the regulation made by
ne
the Authority, with the prior approval of the Federal Government, a
procuring agency shall announce in an appropriate manner all proposed
or
procurements for each financial year and shall proceed accordingly
without any splitting or regrouping of the procurements so planned.
sc
The annual requirements thus determined would be advertised in
advance on the Authority’s website as well as on the website of the
ee
procuring agency in case the procuring agency has its own website.
oy
Specifications.-
Specifications shall allow the widest possible competition and shall
not favour any single contractor or supplier nor put others at a
pl
disadvantage. Specifications shall be generic and shall not include

references to brand names, model numbers, catalogue numbers or
m
similar classifications. However if the procuring agency is convinced

.e
that the use of or a reference to a brand name or a catalogue number

is essential to complete an otherwise incomplete specification, such use
w
or reference shall be qualified with the words ―or equivalent‖.

w
. Approval mechanism.-
w
All procuring agencies shall provide clear authorization and

delegation of powers for different categories of procurement and shall
only initiate procurements once approval of the competent authorities
concerned has been accorded.
46
Arslan
SamiChudhary
PROCUREMENT ADVERTISEMENTS
. Methods of advertisement.-
(1) Procurements over one hundred thousand rupees and up to the
limit of two million rupees shall be advertised on the Authority’s website
in the manner and format specified by regulation by the Authority from
time to time. These procurement opportunities may also be advertised
in print media, if deemed necessary by the procuring agency:
fo
Provided that the lower financial limit for advertisement on
in
Authority’s website for open competitive bidding shall be the prescribed
financial limit for request for quotations under clause (b) of rule 42; and
r.
(2) All procurement opportunities over two million rupees should be
advertised on the Authority’s website as well as in other print media or
ne
newspapers having wide circulation. The advertisement in the
newspapers shall principally appear in at least two national dailies, one
or
in English and the other in Urdu.
(3) In cases where the procuring agency has its own website it may
sc
also post all advertisements concerning procurement on that website as
well.
ee
(4) A procuring agency utilizing electronic media shall ensure that the
information posted on the website is complete for the purposes for
oy
which it has been posted, and such information shall remain available
on that website until the closing date for the submission of bids.
pl
Response time.-
(1) The procuring agency may decide the response time for receipt of
m
bids or proposals (including proposals for pre-qualification) from the

.e
date of publication of an advertisement or notice, keeping in view the

individual procurement’s complexity, availability and urgency. However,
w
under no circumstances the response time shall be less than fifteen

days for national competitive bidding and thirty days for international
w
competitive bidding from the date of publication of advertisement or

w
notice. All advertisements or notices shall expressly mention the

response time allowed for that particular procurement along with the
information for collection of bid documents which shall be issued till a
given date, allowing sufficient time to complete and submit the bid by
the closing date:
Provided that no time limit shall be applicable in case of emergency.
47
Arslan
SamiChudhary
(2) The response time shall be calculated from the date of first
publication of the advertisement in a newspaper or posting on the web
site, as the case may be.
(3) In situations where publication of such advertisements or notices
has occurred in both electronic and print media, the response time shall
be calculated from the day of its first publication in the newspapers.
. Exceptions.-
fo
It shall be mandatory for all procuring agencies to advertise all
in
procurement requirements exceeding prescribed financial limit which is
applicable under sub-clause (i) of clause (b) of rule 42. However under
r.
following circumstances deviation from the requirement is permissible
with the prior approval of the Authority,-
ne
(a) the proposed procurement is related to national security and its
publication could jeopardize national security objectives; and
or
(b) the proposed procurement advertisement or notice or publication of
it, in any manner, relates to disclosure of information, which is
sc
proprietary in nature or falls within the definition of intellectual property
which is available from a single source.
ee
PRE-QUALIFICATION, QUALIFICATION AND DIS-

oy
QUALIFICATION OF SUPPLIERS AND CONTRACTORS
. Pre-qualification of suppliers and contractors.-

pl
(1) A procuring agency, prior to the floating of tenders, invitation to

proposals or offers in procurement proceedings, may engage in pre-
m
qualification of bidders in case of services, civil works, turnkey projects

.e
and in case of procurement of expensive and technically complex

equipment to ensure that only technically and financially capable firms
w
having adequate managerial capability are invited to submit bids. Such

pre-qualification shall solely be based upon the ability of the interested
w
parties to perform that particular work satisfactorily.

w
(2) A procuring agency while engaging in pre-qualification may take

into consideration the following factors, namely:-
(a) Relevant experience and past performance;
48
Sami Ullah
Chudhary Faisal Qureshi
(b) Capabilities with respect to personnel, equipment, and plant;
(c) Financial position;
(d) Appropriate managerial capability; and
(e) Any other factor that a procuring agency may deem relevant, not
inconsistent with these rules.
Pre-qualification process.-
(1) The procuring agency engaging in pre-qualification shall announce,
fo
in the pre-qualification documents, all information required for pre-
in
qualification including instructions for preparation and submission of the
pre-qualification documents, evaluation criteria, list of documentary
r.
evidence required by suppliers or contractors to demonstrate their
respective qualifications and any other information that the procuring
ne
agency deems necessary for pre-qualification.
(2) The procuring agency shall provide a set of pre-qualification
or
documents to any supplier or contractor, on request and subject to
payment of price, if any. sc
Explanation.- For the purposes of this sub-rule price means the cost of
printing and providing the documents only.
ee
(3) The procuring agency shall promptly notify each supplier or

contractor submitting an application to pre-qualify whether or not it has
oy
been pre-qualified and shall make available to any person directly

involved in the pre-qualification process, upon request, the names of all
suppliers or contractors who have been pre-qualified. Only suppliers or
pl
contractors who have been pre-qualified shall be entitled to participate

further in the procurement proceedings.
m
(4) The procuring agency shall communicate to those suppliers or

.e
contractors who have not been pre-qualified the reasons for not pre-
qualifying them.
w
. Qualification of suppliers and contractors.-

w
A procuring agency, at any stage of the procurement

w
proceedings, having credible reasons for or prima facie evidence of any

defect in supplier’s or contractor’s capacities, may require the suppliers
or contractors to provide information concerning their professional,
technical, financial, legal or managerial competence whether already
pre-qualified or not:
49
Arslan Chudhary
Provided that such qualification shall only be laid down after recording
reasons therefore in writing. They shall form part of the records of that
procurement proceeding.
Disqualification of suppliers and contractors.-

The procuring agency shall disqualify a supplier or contractor if it
finds, at any time, that the information submitted by him concerning his
qualification as supplier or contractor was false and materially
fo
inaccurate or incomplete.
in
. Blacklisting of suppliers and contractors.-
r.
The procuring agencies shall specify a mechanism and manner to
permanently or temporarily bar, from participating in their respective
ne
procurement proceedings, suppliers and contractors who either
consistently fail to provide satisfactory performances or are found to be
or
indulging in corrupt or fraudulent practices. Such barring action shall be
duly publicized and communicated to the Authority:
sc
METHODS OF PROCUREMENT
ee
. Principal method of procurement.-

oy
Save as otherwise provided hereinafter, the procuring agencies

shall use open competitive bidding as the principal method of
procurement for the procurement of goods, services and works.
pl
Open competitive bidding.-

m
Subject to the provisions of rules 22 to 37 the procuring agencies

.e
shall engage in open competitive bidding if the cost of the object to be

procured is more than the prescribed financial limit which is applicable
w
under sub-clause (i) of clause (b) of rule 42

w
. Submission of bids.-
w
(1) The bids shall be submitted in a sealed package or packages in such

manner that the contents are fully enclosed and cannot be known until
duly opened.
50
Arslan Chudhary
(2) A procuring agency shall specify the manner and method of
submission and receipt of bids in an unambiguous and clear manner in
the bidding documents.
Bidding documents.-
(1) Procuring agencies shall formulate precise and unambiguous
bidding documents that shall be made available to the bidders
immediately after the publication of the invitation to bid.
fo
(2) For competitive bidding, whether open or limited, the bidding
in
documents shall include the following, namely:-
(a) Invitation to bid;
r.
(b) Instructions to bidders;
(c) Form of bid;
ne
(d) Form of contract;
(e) General or special conditions of contract;
or
(f) Specifications and drawings or performance criteria (where
applicable); sc
(g) List of goods or bill of quantities (where applicable);
(h) Delivery time or completion schedule;
ee
(i) Qualification criteria (where applicable);

(j) bid evaluation criteria;
oy
(k) Format of all securities required (where applicable);

(l) Details of standards (if any) that are to be used in assessing the
quality of goods, works or services specified; and
pl
(m) Any other detail not inconsistent with these rules that the procuring
agency may deem necessary.
m
.e
(3) Any information, that becomes necessary for bidding or for bid
evaluation, after the invitation to bid or issue of the bidding documents
w
to the Prospectivebidders shall be provided in a timely manner and on

equal opportunity basis. Where notification of such change, addition,
w
modification or deletion becomes essential, such notification shall be

w
made in a manner similar to the original advertisement.

(4) Procuring agencies shall use standard bidding documents as and
when notified by regulation by the Authority:
Provided that bidding documents already in use of procuring agencies
may be retained in their respective usage to the extent they are not
51
Arslan
SamiChudhary
inconsistent with these rules and till such time that the standard
bidding documents are specified by regulations.
(5) The procuring agency shall provide a set of bidding documents to
any supplier or contractor, on request and subject to payment of price,
if any.
Explanation. - For the purpose of this sub-rule price means the cost of
printing and providing the documents only.
fo
. Reservations and preference.-
in
(1) Procuring agencies shall allow all prospective bidders to participate
in procuring procedure without regard to nationality, except in cases in
r.
which any procuring agency decides to limit such participation to
national bidders only or prohibit participation of bidders of some
ne
nationalities, in accordance with the policy of Federal Government.
(2) Procuring agencies shall allow for a preference to domestic or
or
national suppliers or contractors in accordance with the policies of the
Federal Government. The magnitude of price preference to be accorded
sc
shall be clearly mentioned in the bidding documents under the bid
evaluation criteria.
ee
Bid security.-
oy
The procuring agency may require the bidders to furnish a bid

security not exceeding five per cent of the bid price.
pl
Bid validity.-
(1) A procuring agency, keeping in view the nature of the procurement,
m
shall subject the bid to a bid validity period.

.e
(2) Bids shall be valid for the period of time specified in the bidding
document.
w
(3) The procuring agency shall ordinarily be under an obligation to

process and evaluate the bid within the stipulated bid validity period.
w
However under exceptional circumstances and for reason to be

w
recorded in writing, if an extension is considered necessary, all those

who have submitted their bids shall be asked to extend their respective
bid validity period. Such extension shall be for not more than the period
equal to the period of the original bid validity.
(4) Bidders who,-
52
Arslan
SamiChudhary
(a) Agree to extension of their bid validity period shall also extend the
validity of the bid bond or security for the extended period of the bid
validity;
(b) Agree to the procuring agency’s request for extension of bid validity
period shall not be permitted to change the substance of their bids; and
(c) Do not agree to an extension of the bid validity period shall be
allowed to withdraw their bids without forfeiture of their bid bonds or
securities.
fo
in
. Extension of time for submission of bids.-
Where a procuring agency has already prescribed a deadline for the
r.
submission of bids and due to any reason the procuring agency finds it
necessary to extend such deadline, it shall do so only after recording its
ne
reasons in writing and in an equal opportunity manner. Advertisement
of such extension in time shall be done in a manner similar to the
or
original advertisement.
sc
OPENING, EVALUATION AND REJECTION OF BIDS
ee
Opening of bids.-
oy
(1) The date for opening of bids and the last date for the submission of
bids shall be the same. Bids shall be opened at the time specified in the
bidding documents. The bids shall be opened at least thirty minutes
pl
after the deadline for submission of bids.

(2) All bids shall be opened publicly in the presence of the bidders or
m
their representatives who may choose to be present, at the time and

.e
place announced prior to the bidding. The procuring agency shall read
aloud the unit price as well as the bid amount and shall record the
w
minutes of the bid opening. All bidders in attendance shall sign an

attendance sheet. All bids submitted after the time prescribed shall be
w
rejected and returned without being opened.

w
Evaluation criteria.-
Procuring agencies shall formulate an appropriate evaluation
criterion listing all the relevant information against which a bid is to be
evaluated. Such evaluation criteria shall form an integral part of the
Arslan Chudhary 53
bidding documents. Failure to provide for an unambiguous evaluation
criteria in the bidding documents shall amount to mis-procurement.
. Evaluation of bids.-
(1) All bids shall be evaluated in accordance with the evaluation criteria
and other terms and conditions set forth in the prescribed bidding
documents. Save as provided for in sub-clause (iv) of clause (c) of rule
36 no evaluation criteria shall be used for evaluation of bids that had
fo
not been specified in the bidding documents.
in
(2) For the purposes of comparison of bids quoted in different
currencies, the price shall be converted into a single currency specified
r.
in the bidding documents. The rate of exchange shall be the selling
rate, prevailing on the date of opening of bids specified in the bidding
ne
documents, as notified by the State Bank of Pakistan on that day.
(3) A bid once opened in accordance with the prescribed procedure
or
shall be subject to only those rules, regulations and policies that are in
force at the time of issue of notice for invitation of bids.
sc
Clarification of bids.-
(1) No bidder shall be allowed to alter or modify his bid after the bids
ee
have been opened. However the procuring agency may seek and
accept clarifications to the bid that do not change the substance of the
oy
bid.
(2) Any request for clarification in the bid, made by the procuring
agency shall invariably be in writing. The response to such request shall
pl
also be in writing.
Discriminatory and difficult conditions.-
m
Save as otherwise provided, no procuring agency shall introduce

.e
any condition, which discriminates between bidders or that is

considered to be met with difficulty. In ascertaining the discriminatory
w
or difficult nature of any condition reference shall be made to the

ordinary practices of that trade, manufacturing, construction business
w
or service to which that particular procurement is related.

w
. Rejection of bids.-
(1) The procuring agency may reject all bids or proposals at any time
prior to the acceptance of a bid or proposal. The procuring agency shall
upon request communicate to any supplier or contractor who submitted
Arslan Chudhary 54
a bid or proposal, the grounds for its rejection of all bids or proposals,
but is not required to justify those grounds.
(2) The procuring agency shall incur no liability, solely by virtue of its
invoking sub-rule (1) towards suppliers or contractors who have
submitted bids or proposals.
(3) Notice of the rejection of all bids or proposals shall be given
promptly to all suppliers or contractors that submitted bids or
proposals.
fo
in
. Re-bidding.-
(1) If the procuring agency has rejected all bids under rule 33 it may
r.
call for a re-bidding.
(2) The procuring agency before invitation for re-bidding shall assess
ne
the reasons for rejection and may revise specifications, evaluation
criteria or any other condition for bidders as it may deem necessary.
or
. Announcement of evaluation reports.-
sc
Procuring agencies shall announce the results of bid evaluation in
the form of a report giving justification for acceptance or rejection of
ee
bids at least ten days prior to the award of procurement contract. .

Procedures of open competitive bidding.-
oy
Save as otherwise provided in these rules the following

procedures shall be permissible for open competitive bidding, namely:-
(a) Single stage – one envelope procedure.-
pl
Each bid shall comprise one single envelope containing, separately,

financial proposal and technical proposal (if any). All bids received shall
m
be opened and evaluated in the manner prescribed in the bidding

.e
document.
(b) Single stage – two envelope procedure.- (i) The bid shall comprise a
w
single package containing two separate envelopes. Each envelope shall

contain separately the financial proposal and the technical proposal;
w
(ii) The envelopes shall be marked as ―FINANCIAL PROPOSAL‖ and

w
―TECHNICAL PROPOSAL‖ in bold and legible letters to avoid confusion;

(iii) Initially, only the envelope marked ―TECHNICAL PROPOSAL‖ shall
be opened;
(iv) The envelope marked as ―FINANCIAL PROPOSAL‖ shall be retained
in the custody of the procuring agency without being opened;
Arslan Chudhary 55
(v) The procuring agency shall evaluate the technical proposal in a
manner prescribed in advance, without reference to the price and reject
any proposal which does not conform to the specified requirements;
(vi) During the technical evaluation no amendments in the technical
proposal shall be permitted;
(vii) The financial proposals of bids shall be opened publicly at a time,
date and venue announced and communicated to the bidders in
advance;
fo
(viii) After the evaluation and approval of the technical proposal the
in
procuring agency, shall at a time within the bid validity period, publicly
open the financial proposals of the technically accepted bids only. The
r.
financial proposal of bids found technically non-responsive shall be
returned un-opened to the respective bidders; and
ne
(ix) The bid found to be the lowest evaluated bid shall be accepted.
(c) Two stage bidding procedure.-
or
First stage
(i) The bidders shall first submit, according to the required
sc
specifications, a technical proposal without price;
(ii) The technical proposal shall be evaluated in accordance with the
ee
specified evaluation criteria and may be discussed with the bidders

regarding any deficiencies and unsatisfactory technical features;
oy
(iii) After such discussions, all the bidders shall be permitted to revise
their respective technical proposals to meet the requirements of the
procuring agency;
pl
(iv) The procuring agency may revise, delete, modify or add any aspect
of the technical requirements or evaluation criteria, or it may add new
m
requirements or criteria not inconsistent with these rules:

.e
Provided that such revisions, deletions, modifications or additions are

communicated to all the bidders equally at the time of invitation to
w
submit final bids, and that sufficient time is allowed to the bidders to
prepare their revised bids:
w
Provided further that such allowance of time shall not be less than
w
fifteen days in the case of national competitive bidding and thirty days
in the case of international competitive bidding;
(v) Those bidders not willing to conform their respective bids to the
procuring agencies technical requirements may be allowed to
withdraw from the bidding without forfeiture of their bid security;
Second stage
Arslan Chudhary 56
(vi) The bidders, whose technical proposals or bids have not been
rejected and who are willing to conform their bids to the revised
technical requirements of the procuring agency, shall be invited to
submit a revised technical proposal along with the financial
proposal;
(vii) The revised technical proposal and the financial proposal shall be
opened at a time, date and venue announced and communicated
to the bidders in advance; and
fo
(viii) The revised technical proposal and the financial proposal shall be
in
evaluated in the manner prescribed above. The bid found to be
the lowest evaluated bid shall be accepted:
r.
Provided that in setting the date for the submission of the revised
technical proposal and financial proposal a procuring agency shall
ne
allow sufficient time to the bidders to incorporate the agreed
upon changes in the technical proposal and prepare their financial
or
proposals accordingly.
(d) Two stage - two envelope bidding procedure.-
sc
First stage
(i) The bid shall comprise a single package containing two separate
ee
envelopes. Each envelope shall contain separately the financial

proposal and the technical proposal;
oy
(ii) The envelopes shall be marked as ―FINANCIAL PROPOSAL‖ and

―TECHNICAL PROPOSAL‖ in bold and legible letters to avoid
confusion;
pl
(iii) Initially, only the envelope marked ―TECHNICAL PROPOSAL‖ shall

be opened;
m
(iv) The envelope marked as ―FINANCIAL PROPOSAL‖ shall be retained

.e
in the custody of the procuring agency without being opened;

(v) The technical proposal shall be discussed with the bidders with
w
reference to the procuring agency’s technical requirements;

(vi) Those bidders willing to meet the requirements of the procuring
w
agency shall be allowed to revise their technical proposals following

w
these discussions;
(vii) Bidders not willing to conform their technical proposal to the
revised requirements of the procuring agency shall be allowed to
withdraw their respective bids without forfeiture of their bid
security;
Second stage
Arslan Chudhary 57
(viii) after agreement between the procuring agency and the bidders on
the technical requirements, bidders who are willing to conform to
the revised technical specifications and whose bids have not
already been rejected shall submit a revised technical proposal
and supplementary financial proposal, according to the technical
requirement;
(ix) The revised technical proposal along with the original financial
proposal and supplementary financial proposal shall be opened at
fo
a date, time and venue announced in advance by the procuring
in
agency:
Provided that in setting the date for the submission of the revised
r.
technical proposal and supplementary price proposal a procuring
agency shall allow sufficient time to the bidders to incorporate the
ne
agreed upon changes in the technical proposal and to prepare the
required supplementary financial proposal; and
or
(x) The procuring agency shall evaluate the whole proposal in
accordance with the evaluation criteria and the bid found to be
sc
the lowest evaluated bid shall be accepted.
ee
. Conditions for use of single stage two envelope, two stage

and two stage two envelope bidding procedures.-
oy
Single stage one envelope bidding procedure shall ordinarily be

the main open competitive bidding procedure used for most of the
procurement. Other appropriate procedures of open competitive bidding
pl
shall be selected in the following circumstances, namely:-

(a) single stage two envelope bidding procedure shall be used where
m
the bids are to be evaluated on technical and financial grounds and

.e
price is taken into account after technical evaluation;

(b) two stage bidding procedure shall be adopted in large and complex
w
contracts where technically unequal proposals are likely to be

encountered or where the procuring agency is aware of its options in
w
the market but, for a given set of performance requirements, there are
w
two or more equally acceptable technical solutions available to the

procuring agency; and
(c) two stage two envelope bidding method shall be used for
procurement where alternative technical proposals are possible, such as
certain type of machinery or equipment or manufacturing plant
58
Arslan Chudhary
ACCEPTANCE OF BIDS AND AWARD OF PROCUREMENT
CONTRACTS
Acceptance of bids.-
The bidder with the lowest evaluated bid, if not in conflict with
any other law, rules, regulations or policy of the Federal Government,
shall be awarded the procurement contract, within the original or
extended period of bid validity.
fo
. Performance guarantee.-
in
Where needed and clearly expressed in the bidding documents,
the procuring agency shall require the successful bidder to furnish a
r.
performance guarantee which shall not exceed ten per cent of the
contract amount.
ne
Limitation on negotiations.-
or
Save as otherwise provided there shall be no negotiations with
the bidder having submitted the lowest evaluated bid or with any other
sc
bidder:
Provided that the extent of negotiation permissible shall be
ee
subject to the regulations issued by the Authority.

oy
Confidentiality.-
The procuring agency shall keep all information regarding the bid
evaluation confidential until the time of the announcement of the
pl
evaluation report in accordance with the requirements of rule 35.

m
Alternative methods of procurements.-

.e
A procuring agency may utilize the following alternative methods

of procurement of goods, services and works, namely:-
w
(a) Petty purchases.-

Procuring agencies may provide for petty purchases where the object of
w
the procurement is below the financial limit of twenty five thousand

w
rupees. Such procurement shall be exempt from the requirements of

bidding or quotation of prices:
Provided that the procuring agencies shall ensure that procurement of
petty purchases is in conformity with the principles of procurement
prescribed in rule 4:
59
Arslan Chudhary
Provided further that procuring agencies convinced of the
inadequacy of the financial limit prescribed for petty purchases in
undertaking their respective operations may approach the Federal
Government for enhancement of the same with full and proper
justifications.
(b) Request for quotations.-
A procuring agency shall engage in this method of procurement
only if the following conditions exist, namely:-
fo
(i) The cost of object of procurement is below the prescribed limit of
in
one hundred thousand rupees:
Provided that the respective Boards of Autonomous bodies are
r.
authorized to fix an appropriate limit for request for quotations method
of procurement subject to a maximum of rupees five hundred thousand
ne
which will become financial limit under this sub-rule:
(ii) The object of the procurement has standard specifications;
or
(iii) Minimum of three quotations have been obtained; and
(iv) The object of the procurement is purchased from the supplier
sc
offering the lowest price:
Provided that procuring agencies convinced of the inadequacy of
ee
the financial limit prescribed for request for quotations in undertaking

their respective operations may approach the Federal Government for
oy
enhancement of the same with full and proper justifications;

(c) direct contracting.- A procuring agency shall only engage in direct
contracting if the following conditions exist, namely:-
pl
(i) The procurement concerns the acquisition of spare parts or

supplementary services from original manufacturer or supplier:
m
Provided that the same are not available from alternative sources;
.e
(ii) Only one manufacturer or supplier exists for the required

procurement:
w
Provided that the procuring agencies shall specify the appropriate

forum, which may authorize procurement of proprietary object
w
after due diligence; and

w
(iii) Where a change of supplier would oblige the procuring agency to

acquire material having different technical specifications or
characteristics and would result in incompatibility or
disproportionate technical difficulties in operation and
maintenance:
Arslan Chudhary 60
Provided that the contract or contracts do not exceed three years in
duration;
(iv) Repeat orders not exceeding fifteen per cent of the original
procurement;
(v) In case of an emergency:
Provided that the procuring agencies shall specify appropriate forum
vested with necessary authority to declare an emergency;
(vi) When the price of goods, services or works is fixed by the
fo
government or any other authority, agency or body duly authorized by
in
the Government, on its behalf, and
(vii) For purchase of motor cars from local original manufacturers or
r.
their authorized agents at manufacturer’s price.
(d) Negotiated tendering.- A procuring agency may engage in
ne
negotiated tendering with one or more suppliers or contractors with or
without prior publication of a procurement notification. This procedure
or
shall only be used when,-
(i) The supplies involved are manufactured purely for the purpose of
sc
supporting a specific piece of research or an experiment, a study
or a particular development;
ee
(ii) For technical or artistic reasons, or for reasons connected with

protection of exclusive rights or intellectual property, the supplies
oy
may be manufactured or delivered only by a particular supplier;

(iii) For reasons of extreme urgency brought about by events
unforeseeable by the procuring agency, the time limits laid down
pl
for open and limited bidding methods cannot be met. The

circumstances invoked to justify extreme urgency must not be
m
attributable to the procuring agency:

.e
Provided that any procuring agency desirous of using negotiated

tendering as a method of procurement shall record its reasons
w
and justifications in writing for resorting to negotiated tendering

and shall place the same on record.
w
w
On account payments.- All procuring agencies shall make prompt

payments to suppliers and contractors against their invoices or running
bills within the time given in the conditions of the contract, which shall
not exceed thirty days.
61
Arslan Chudhary
. Entry into force of the procurement contract.-
A procurement contract shall come into force,-
(a) Where no formal signing of a contract is required, from the date the
notice of the acceptance of the bid or purchase order has been given to
the bidder whose bid has been accepted. Such notice of acceptance or
purchase order shall be issued within a reasonable time; or
(b) Where the procuring agency requires signing of a written contract,
from the date on which the signatures of both the procuring agency
fo
and the successful bidder are affixed to the written contract. Such
in
affixing of signatures shall take place within a reasonable time:
Provided that where the coming into force of a contract is contingent
r.
upon fulfillment of a certain condition or conditions, the contract shall
take effect from the date whereon such fulfillment takes place.
ne
Closing of contract.-
or
(1) Except for defect liability or maintenance by the supplier or
contractor, as specified in the conditions of contract, performance of
sc
the contract shall be deemed close on the issue of overall delivery
certificate or taking over certificate which shall be issued within thirty
ee
days of final taking over of goods or receiving the deliverables or

completion of works enabling the supplier or contractor to submit final
oy
bill and the auditors to do substantial audit.

(2) In case of defect liability or maintenance period, defect liability
certificate shall be issued within thirty days of the expiry of the said
pl
period enabling the supplier or contractor to submit the final bill. Except
for unsettled claims, which shall be resolved through arbitration, the bill
m
shall be paid within the time given in the conditions of contract, which
.e
shall not exceed sixty days to close the contract for final audit.
MAINTENANCE OF RECORD AND FREEDOM OF INFORMATION
w
. Record of procurement proceedings.-

w
(1) All procuring agencies shall maintain a record of their respective

w
procurement proceedings along with all associated documentation for a

minimum period of five years.
(2) Such maintenance of record shall be subject to the regulations
framed in this regard from time to time.
62
Arslan
SamiChudhary
Public access and transparency.- As soon as a contract has been
awarded the procuring agency shall make all documents related to the
evaluation of the bid and award of contract public:
Provided that where the disclosure of any information related to the
award of a contract is of proprietary nature or where the procuring
agency is convinced that such disclosure shall be against the public
interest, it can withhold only such information from public disclosure
subject to the prior approval of the Authority.
fo
REDRESSAL OF GRIEVANCES AND SETTLEMENT OF DISPUTES
in
Redressal of grievances by the procuring agency.-
r.
(1) The procuring agency shall constitute a committee comprising of
odd number of persons, with proper powers and authorizations, to
ne
address the complaints of bidders that may occur prior to the entry into
force of the procurement contract.
or
(2) Any bidder feeling aggrieved by any act of the procuring agency
after the submission of his bid may lodge a written complaint
sc
concerning his grievances not later than fifteen days after the
announcement of the bid evaluation report under rule 35.
ee
(3) The committee shall investigate and decide upon the complaint
within fifteen days of the receipt of the complaint.
oy
(4) Mere fact of lodging of a complaint shall not warrant suspension of

the procurement process.
(5) Any bidder not satisfied with the decision of the committee of the
pl
procuring agency may lodge an appeal in the relevant court of

jurisdiction.
m
Arbitration.-
.e
(1) After coming into force of the procurement contracts, disputes

between the parties to the contract shall be settled by arbitration.
w
(2) The procuring agencies shall provide for a method of arbitration in

the procurement contract, not inconsistent with the laws of Pakistan.
w
Mis-procurement.-
w
Any unauthorized breach of these rules shall amount to mis-

procurement.
Overriding effect.-
The provisions of these rules shall have effect notwithstanding anything
to the contrary contained in any other rules concerning public
procurements:
Arslan Chudhary 63
Provided that the prevailing rules and procedures will remain applicable
only for the procurement of goods, services and works for which notice
for invitation of bids had been issued prior to the commencement of
these rules unless the procuring agency deems it appropriate to re-
issue the notice for the said procurement after commencement of these
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rules.
in
ANNUAL BUDGET & CONTROL OVER
r.
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EXPENDITURE
or
GOVT. BUDGETING SYSTEM
sc
A government budget is the forecast by a government of its
revenue and expenditure for a specific period of time. Through
ee
budgetary process a Govt. decides how much to spend, the

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purpose for which it will be spent and where the money will
come from.
pl
It is away of process to determine size and composition of

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revenue and expenditure to run the Govt activities.

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The Annual Budget Statement comprising the estimated

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receipt and expenditure of the Federal Government pertaining to

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every financial year shall be laid before the National Assembly

by the Federal Government.
w
The Annual Budget Statement shall separately indicate the

charged and other expenditure proposed to be made from the
64
Arslan Chudhary
FederalConsolidated Fund. It is constituted under the Article 80 of
the 1973 Constitution:
BUDGET CYCLE
A common pattern of budgetary process consists of following
fo
stages:
in
 Preparation
r.
ne
 Authorization
 Implementation
or
 Evaluation sc
FUNCTIONS OF BUDGET
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 TOOL OF ACCOUNTABILITY.
 INSTRUMENT OF ECONOMIC POLICY.
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 AID TO MANAGEMENT.
pl
m
Budget cycle
.e
The budget cycle consists of six phases:

w
· Setting of budget policy and initiatives–

w
Cabinet will meet to determine budgetpolicy, initiatives and

w
priorities. The budget policy, initiatives and priorities willthen be

communicated to the Ministry of Finance, who will then
communicatethese to ministries and departments via the financial
advisers
65
Sami Ullah
· Preparation - The preparation of the budget papers commences in
October ofeach financial year with the preparation and submission of
entity estimatesand the subsequent review and consolidation of those
submissions by theMinistry of Finance
· Authorization - This phase commences with the submission of the
fo
annualbudget to the Assembly and is completed when the entity gains
in
control over itsappropriations·
Implementation- The next step in the cycle is for the entity to
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implement theactivities for which it has been funded. The recording and
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control of theseactivities is the subject of the accounting system·
or
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Reporting- Reporting is the first step through which individuals within
the entityand the Minister are held accountable for the implementation
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of the budget.This step involves both internal and external reporting ·

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Performance review - This phase incorporates both internal and

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externalreview and together with the reporting phase covers most of

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what is referredto as accountability. The principal offices concerned

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with the review ofperformance are the Auditor-General’s office and the
Public Accounts.
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Federal Consolidated Fund: comprises all federal revenues,

w
w
all loans raised by the government and all moneys received by it in

repayment of any loan.
66
Arslan Chudhary
Public Account :
All other moneys received by or on behalf of the Federal
Government or received by or deposited with the Supreme Court
or any other federal court shall constitute the public account of
the Federation.
fo
Procedure of Annual Budget of PMAD
in
(Para-114 of procedure of MAG office)
r.
Each CMA prepares his own Budget Estimates and submits
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them to the Concern Section on the dates prescribed. B.Estimates
or
for the MAG office is prepared by the General Sec received from
various controllers. G sec checked and compared the past actual
sc
and received Estimated of the Current year with regard to any
ee
abnormal expenditure. After the checked made of the Estimated

figures they consolidate the organization wise and send to the
oy
respective Budget Directorates on due date.

pl
Para-115
m
Budget Estimates for the Following Year. These are prepared

by the various controllers and the G sec of the MAG’s office based on
.e
the actual strength of the offices concerned. It should be reached to

w
Admin sec by the 25th July and the budget Estimates by the 25th Oct
w
each year supported by necessary justification.

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The above stated estimates are scrutinized and

submitted to the respective Budget Directorates before 25th Sep
and 15th Dec each year.
Arslan Chudhary 67
Preliminary Revised Estimates: (Para-118)
This estimate is a forecast as accurate as possible of
what the actual expenditure of the year is likely to be. All
important changes tending to increase or decrease the budget
estimates during the year are taken into account in the
fo
preparation of these estimates.It is based on the actual
in
expenditure for the first 2 months of the year.
Revised Estimates (Para-119): This is more accurate
r.
estimates of what the expenditure of the year is likely to be and is
ne
based mainly on actual expenditure for the first 3 months of the
or
year. It is submitted by the controller and the ―G‖ sec of MAG
sc
office by the 25th Oct each year and consolidated estimate is
submitted to the respective Budget Directorate before 15th Dec,
ee
each year.
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Control of Expenditure within the limit: The MAG controlsall

expenditure for keeping the expenditure within the sectioned
pl
allotment. The actual expenditure compiled under several

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detailed heads by the DM sec of MAG office in shape of

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Expenditure statement in respect of all Pakistan Defence Services‖

and issue an extracts monthly.The actual expenditure compiled by
w
the different CMAs under detail heads like Transportation, Hiring

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of Accommodation, Medical Charges, Welfare grant,

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Repair/Renovation, Contingencies and Misc Expense etc. are

compared with their proportionate allotments and cases where
found variation brought to the notice of head of office concerned.
68
Arslan Chudhary
PENSION
PENSION IS A PERIODICAL PAYMENT TO THE GOVT.
SERVANT AFTER THE RETIREMENT BY THE GOVERNMENT IN
CONSIDERATION OF HIS/ HER PAST SERVICES RENDERED FOR
THE GOVERNMENT.
fo
Family:
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The ―family‖ under Pension-Cum-Gratuity Scheme
r.
includes the following relatives of the govt. servant:
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1- Wife or Wives (in case of male govt. servant)
2. Husband (in case of female govt. servant.
or
3. Children of the government servant.
sc
4. Widow or Widows and children of a deceased son of the govt.
servant.
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KINDS OF PENSION
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Compensation Pension:
pl
If govt. wants to reduce the establishment, the govt.

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servants have the option to take compensation pension or

gratuity to which he may be entitled for the service he has
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already rendered.
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INVALID PENSION
w
It is awarded when a govt. servant who by bodily or

mental infirmity is permanently incapacitated for the public
service, or for the particular branch of it to which he belongs.
69
Sami Ullah
The infirmity has, however, to be certified by a duly
constituted Medical Board.
SUPERANNUATION PENSION
It is granted to a govt. servant who is entitled or compelled,
by rule, to retire at a particular age i.e. 60 years.
fo
RETIRING PENSION
in
A retiring pension is granted to a govt. servant who is
r.
permitted to retire after completing qualifying service of 25
ne
years.
or
In case of voluntary retirement of govt. servant the
sc
Heads of Departments are responsible for ensuring verification
ee
of qualifying service by the Audit within one month from the

date of receipt of applicant for voluntary retirement after 25
oy
years qualifying service.

pl
If the qualifying service comes out to be less than 25

m
years, the govt. servant will have to continue in service till he

.e
completes that length of service. This fact should be pointed

w
out by the Head of the Department to the Govt. servant before

w
expiry of three months notice period.

w
Conditions of qualifying service.

The service begins to qualify for pension from the date
the employee takes charge of the office to which he is first
appointed.The service must be under government. A
70
Arslan
SamiChudhary
government servant does not qualify his service for pension
unless he is appointed and his duties and pay are regulated
by the government.
The employment must be substantive and permanent.
The continuous temporary service of more than 5 years counts
fo
for pension or gratuity .Continuous temporary service of less
in
than 5 years immediately followed by confirmation is also
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count for pension or gratuity.
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or
Emoluments reckoned for pension sc
The term ―Emoluments‖ means which a government
ee
servant was receiving immediately before his retirement and

oy
includes:
 Pay as defined in FR 9(21) (a)(i).
pl
 Personal Pay
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 Technical Pay
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 Increments accrued during L.P.R.

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 Indexed Pay
w
 Annual Increment in the year of retirement if service is

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six months in that year.

 Senior Post Allowance (apply to officers who retire on or
after 1-5-1977).
71
Sami Ullah
 Any other addition to pay which may specifically be
declared by President as emoluments reckoning for
pension.
 Orderly allowance is paid as an additional pension to B-20
& above.
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 Medical Allowance is paid with the pension.
in
r.
Note: The term ―Average‖ means the average
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calculated upon the last 12 months of service. If the pay
or
of a government servant has been reduced otherwise
sc
than as penalty, the average of last 3 years pay can be
ee
calculated if opted by the pensioner.

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PENSION DOCUMENTS
pl
The following documents are prepared before the case is

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submitted to the competent authority for approval of pension.

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 Revised CSR 25 (approved application form)

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 LPC ( last pay Certificate)

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 PFA-357
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 Banker’s Name
 Copy of CNIC of the Pensioners
 Photo Graph
 Death Certificate & Nomination in case of family pension
72
Arslan Chudhary
 Service Performa
 List of family members
 Option Certificate
 Commutation of Civilian Pension
 Under taking/not to take participate in politics
fo
 Article 922( a) CSR
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 Concerned from recovery of Govt dues
 No demand Certificate
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 Daily office order Part-II ( retirement order)
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 Signature and Thumb impression
or
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HEADS OF GOVT ACCOUNTS
 Revenue Division
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 Capital Division
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 Debt Division
pl
 Remittance Division
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The following main heads of Accounts deals as under.

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Revenue Division
w
w
Deals with the proceeds of taxation and other receipts

classed as Revenue and the Expenditure there from.
73
Sami Ullah
Capital Division:
Deals with the expenditure usually met from Reserved/
borrowed fund, Being incurred with the object of increasing
concrete assets (Plant, Machinery etc.), or Of reducing
recurring liabilities such as those for future pensions by
fo
payment of the capitalized value.
in
r.
ne
Debts Divisions:
It comprises long term debts and short term debts
or
eg: A/P, Preliminary expenses etc. receipts in respect of which
sc
Government becomes liable to repay the moneys received (
ee
known as ―deposits‖), and the payments in respect of which

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Government has a claim to recover the amounts paid (known

as Advances).
pl
Remittance Division:
m
It shall embrace all merely adjusting heads under which

.e
shall appear items in transit between different account (eg

w
MID/CID schedules), circles in Pakistan including the Accounts

w
Department of the Ambassador for Pakistan in United Kingdom

w
as well as the Account Department of the diplomatic

representative of the Government of Pakistan in any other
foreign country.
Arslan Chudhary 74
SCRUTINY OF CONTRACT AND AUDIT OF LOCAL
PURCHASE BILLS
Contractor bills are divided into two main classes
 i. Bills for store purchased locally for stock in supply or
fo
store Depots and for direct delivery to consuming units.
in
 ii. Bills for hired transport including carriage of personal
r.
ne
luggage on transport indents and of Military passenger and
their baggage on the authority of road and river warrants.
or
 NOTE:- the term “store Depot” as used includes an
sc
Arsenal , Ordnance, clothing, Medical store and
ee
remount Depot, a heavy Repair shop and a

Mechanical Transport store Depot.
oy
 The Term “supply Depot” means the HQrs of Supply

pl
Depot or sub depot thereof holding separate stock

m
of store”
.e
w
All contractor bills should be paid as soon as possible.

w
After audit they will be entered in the Income Tax Register

w
by an auditor. The entries in the bill and income tax register

will be checked by AAO.
75
Sami Chudhary
The register and bills submitted to the officer in charge of
the section for scrutiny and approval and be submitted to
disbursement section.
Scrutiny of contract
fo
 The contracts must be concluded by the competent
in
administrative authority. Sanction has been accorded by an
authority competent to sanction it. All orders received from
r.
ne
time to time by the Govt must be kept in view.Lowest
tender must be accepted, if other than lowest is accepted
or
than reasons must be recorded.Price current rates have
sc
been obtained from civil authorities.Tenders are issued to all
ee
contractors on list of approved contractor.The selected rates

oy
compare favorably with last year’s contract rates and the

price current rates.Terms of the contract must be precise
pl
and no room left for ambiguity.No contract involving an

m
uncertain or indefinite liability or any condition of unusual

.e
character should be entered into without previous consent

w
of the competent financial authority.Competent financial

w
authority means the authority within whose financial powers

w
the amount at issue falls‖Contract must be placed only after

tenders have been called.The original copy of the contract is
duly signed by contractor, witnesses and the officer
76
Arslan Chudhary
concluding the contract. The schedules are framed
according to instructions contained in regulations and letters
from Govt and administrative authorities.―Schedule may be
of delivery or rate etc‖.Amount of security must be
deposited.The amount of security deposited is noted on the
fo
schedule and is correctly calculated in accordance with the
in
terms of the contract and rules laid down in FR Vol I, 1986.
r.
If the security is waived sanction of the QMG is
ne

necessary.
or
 The rates must be clearly written in words and figures.
sc
 The rates accepted are same as are noted in the
ee
comparative statement and have not been tampered.

oy
AUDIT OF LOCAL PURCHASE BILLS

pl
The bills should be audited in accordance with the general

m
rules laid down in Military Audit Code. The purchase is

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within the financial power of the officer in charge. A letter of

w
sanction must be obtained when necessary by the officer in

w
charge of the Armed Forces Medical Store & Depot.The

w
rates charged should agree with those in the contract

Register rate sanctioned by the Director General Medical
services. Bills and vouchers must be in prescribed form and
original.The detail work up to the total and totals are in
77
Arslan Chudhary
words and figures.No erasures and alternation, if it happens
it must be attested by the officer as many times as made
alternations are made.Bills must be signed in ink. No
stamped signature is accepted. No signature on the bill by
the subordinate officer is acceptable. When a local purchase
fo
bill has been passed for payment by the officer, and before
in
it is sending to the Disbursement section, the auditor will
r.
detach the CRVs etc and enter the total number on a
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proforma.‖ Monthly summary‖ of CRVs etc will be kept in a
or
loose pad until the end of the month.
sc
At the end of the month the auditor will add up the total
ee
number of CRVs and make sure that the number is actually

in his pad and will forward to the concerned LAO office.
oy
pl
Auditor should not at liberty to make relaxation in

m
audit of their own motion it is considerable

.e
importance that the prescribed check should be

w
observed in true spirit”

w
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78
SamiChudhary
General Rule of Audit and Scrutiny
 Bills and vouchers must be in prescribed form and
original.
 The detail work up to the total and the totals are in words
and figures.
fo
in
 No erasures and alternation, if it happens it must be
attested by the officer as many times as alternations are
r.
made.
ne
 Bills must be signed in ink. No stamped signature is
or
accepted.
sc
 No signature on the bill by the subordinate officer is
acceptable.
ee
oy
 The copies of sanctions are certified by the sanctioning

officer or by the gazetted officer authorized to sign for
pl
him.
m
 Revenue stamp must be affixed and defaced.

.e
 In case agreement is effected between two different

w
documents, facts must be written down on both the

w
documents.
w
 Income tax and sales tax must be deducted.
 Claims preferred after 12 months need sanction of the

competent authority.
79
Arslan Chudhary
`
 Necessary entries must be made in prescribed audit
register.
 All documents after payment must be stamped ―PAID‖.
fo
DUTIES OF AN AUDITORS
in
r.
DUTIES WITH RESPECT TO DAK:-
ne
• Count the letters and bills, delivered to you by the Dak supervisor
or the group accountant before initialing the receipt.
or
• See that the letters etc actually pertains to the portion of the
sc
work dealt with you. If a particular letter or bill does not pertain
ee
to you, it should be transferred to the group concerned (if in the

same section) or to the section concerned on the same day
oy
through the work book or record section, as the case may be, in
pl
no case should the letter or bill not pertaining to you, be kept

with you.
m
MAINTENANCE OF WORK BOOK:-

.e
Each auditor will maintain a work book in which:-

w
• Enter immediately all letters and bills etc, received on each day in
w
your work book. The number thus entered must tally with the
w
receipt given by you.

• Mark the disposal of each letter and bill in your work book
showing therein the date of submission of the disposal and the
date of its dispatch.
80
Arslan Chudhary
• Prepare daily outstanding list of letters and bills, etc, in the work
book at the close of each day, showing the number outstanding
as also the date of oldest letter and bill etc, in hand.
• Submit your work book daily to A.A.O. of the group.
MAINTENANCE OF Note BOOK:-
fo
• Maintain a note book in which all important orders and decisions
in
affecting the work dealt with in your section, especially those
relating to the portion of work allotted to you, are properly noted.
r.
Submit your note book to the AAO for examination every month.
ne
However a master note book will be maintained by the AAOs, and
or
shall be handed over to his successor on his
sc
transfer/relinquishment of charge.
Disposal of Correspondence:-
ee
• All letters and bills etc, received by you should be dealt with
oy
promptly and systematically. In fact it should be your Endeavour

to dispose of your correspondence etc. on the date of receipt or
pl
on the following day at the least.

m
• If any special difficulty is encountered, or delay is anticipated in

.e
dealing with a particular case, you should bring the matter

promptly to the notice of AAO. You should not delay or neglect
w
such cases for prolonged periods, in order that attention may be

w
given to other work.

w
Duties with respect to Files:-

a) Give a ―Subject‖ on each file opened by you.
Arslan Chudhary 81
b) Allot a number to each new file opened with reference to the file
index register (maintained in AN Section) and enter its
subject in that register against the particular number allotted.
c) Keep your files neat and in tidy manner.
d) Allot page numbers to correspondence in the file and link and
fo
interlink the correspondence when necessary.
in
e) Do not file correspondence letters in the subject file.
f) Open a new part of the file after it has reached between 150 to
r.
200 pages.
ne
Do not keep ―Dead‖ files in the section, transfer them to ―Record
or
Section‖ after due approval.
Duties with respect to Registers:-
sc
 Ensure that fly leaf instructions are pasted in the each register
ee
and are being initialed by the AAO every month.

oy
 Keep all register posted up to date

 Submit all registers to the officer in charge or group officer as
pl
and when required / asked

m
 Demand / Payment register is one of the most important

.e
register, see that all new demands are duly noted in this register
and all demands adjusted on receipt of bills, treasury
w
receipts are properly scored out.

w
Duties with respect to Bills:-

w
a) Deals with the bills promptly, e.g. arithmetical calculations,

rates, etc.
b) Verification of signatures.
82
Arslan Chudhary
c) After subjecting each bill to audit check, enface it with payment
order.
d) Submit each bill with the relevant register e.g. provisional
payment register to AAO
e) If the payment of the bills affects the demand register make
fo
necessary entries in that register simultaneously with
in
submission of bills
f) Prepare punching medium and cheque slip at the time of
r.
payment
ne
g) Check the punching medium if prepared by the unit accountant
or
h) Pursue promptly all objections raised as a result of Post Audit of
sc
bills, etc until they are settled.
Duties with respect to Reports & Returns:-
ee
a) A list of reports and returns due in and due out is required to

oy
be kept by the Auditor, see that with reference to this list all
reports and returns due in are actually received by you in time
pl
and necessary use of them for which they are rendered by

m
outside parties is made without delay.

.e
b) Similarly, see that reports and returns due out with reference to
the list of reports and returns are submitted by the auditor to the
w
AAO in sufficient time to admit to their being dispatched to the

w
parties concerned on due dates.

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83
Arslan
SamiChudhary
Commerce Pk - QUALITY EDUCATION BEYOND YOUR
IMAGINATION
MCQ‛S QUESTION BANK - AUDITING

INTRODUCTION TO AUDITING
1. The main object of an audit is ___
a) Expression of opinion b) Detection and Prevention of fraud and error
c) Both (a) and (b) d) Depends on the type of audit.
2. The title of AAS-2 issued by Council of ICAI is ___

a) Objective and Scope of the Financial Statements
b) Objective and Scope of the Audit of Financial Statements
fo
c) Objective and Scope of Business of an Entity
d) Objective and Scope of Financial Statements Audit
in
3. Which of the following is not true about opinion on financial statements?
a) The auditor should express an opinion on financial statements.
r.
b) His opinion is no guarantee to future viability of business
c) He is responsible for detection and prevention of frauds and errors in financial statements
ne
d) He should examine whether recognised accounting principle have been consistently
4. A sale of Rs. 50.000 to A was entered as a sale to B. This is an example of _

a) Error of omission b) Error of commission c) Compensating error d) Error of principle
or
5. ‘Goods sent on approval basis’ have been recorded as ‘Credit sales’. This is an example of _
sc
a) Error of principle b) Error of commission c) Error of omission d) Error of duplication
6. Which of the following statements is not true?

a) Management fraud is more difficult to detect than employee fraud
ee
b) Internal control system reduces the possibility of occurrence of employee fraud and
management fraud
c) The auditor’s responsibility for detection and prevention of errors and frauds is similar.
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d) All statements are correct.
7. As per AAS-4 if auditor detects an error then –

pl
a) He should inform the management.

b) He should communicate it to the management if it is material
c) The auditor should ensure financial statements are adjusted for detected errors.
m
d) Both (b) and (c)

.e
8. Which of the following is not a limitation of audit as per AAS-4?

a) Objectivity of auditor’s judgment b) Selective testing
c) Persuasiveness of evidence d) Limitations of internal control system.
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9. How many principles are listed in AAS1 which govern auditor’s professional obligation?
w
a) Nine b) Fourteen c) Seven d) Eight
10. Both auditing and accounting are concerned with financial statements. Which of the
w
following
a) Auditing uses the theory of evidence to verify the financial information made available by
Accountancy
b) Auditing lends credibility dimension and quality dimension to the financial statements
prepared by the accountant.
c) Auditor should have through knowledge of accounting concepts and convention to enable
him to express an opinion on financial statements
d) All of the above.
11. The risk of management fraud increases in the presence of :
a) Frequent changes in supplies b) Improved internal control system c) Substantial
increases in sales
d) Management incentive system based on sales done in a quarter
AUDITING MCQS________________________1
Faisal Qureshi
www.commercepk.com
12.Auditing standards differ from audit procedures in that procedures relate to

a) Audit assumptions b) acts to be performed c) quality criterion d) methods of work
13. Which of the following factors likely to be identified as a fraud factor by the auditor?
a) The company is planning a initial public offer of quality shares to raise additional capital
for expansion.
b) Bank reconciliation statement includes deposits-in-transit.
c) Plant and machinery is sold at a loss.
d) The company has made political contributions.
14.The most difficult type of misstatement to detect fraud is based on:

a) Related party purchases b) Related party sales
c) The restatement of sales d) Omission of a sales transaction from being recorded.
15. Which of the following statements is correct concerning the required documentation in
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working papers of fraud risk assessment undertaken by the auditor?
a) All risk factors as mentioned in AAS-4, should be considered and documented along with
response to them.
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b) Document the identification of fraud risk factors along with response to them.
c) Document material fraud, risk factors and response to them.
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d) No documentation in required.
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16. Which of the following is the most appropriate potential reaction of the auditor to his
assessment that the risk of material misstatement due to fraud is high in relation to
existence of inventory?
a) Visit location on surprise basis to observe test counts
or
b) Request inventory count at a date close to year-end
c) Vouch goods sent on approval very carefully
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d) Perform analytical procedures.
17. Which of the following is not likely to be a fraud risk factor relating to management’s
characteristics
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a) Tax evasion b) Failure to correct known weakness in internal control system c)

Adoption of conservative accounting principles
d) High management turnover
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18. Professional skepticism requires that the auditor assume that management is
a) reasonably honest b) Neither honest nor dishonest
pl
c) Not necessarily honest d) Dishonest unless proved otherwise
19. Which of the following information should a successor auditor obtain during the inquiry of
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the predecessor auditor before accepting engagement?

i) Information about integrity of management
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ii) Disagreement with management concerning auditing procedures

iii) Review of internal control system.
iv) Organisation structure
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a) (i) and (ii) b) (ii) and (iii) c) (i) , (ii) and (iii) d) i) and (iii)
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20.The audit engagement letter, generally, should include a reference to each of the following
except
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a) limitations of auditing b) responsibilities of management with respect to audit work

c) expectation of receiving a written management representation letter.
d) a description of the auditor’s method of sample selection.
21. The use of an audit engagement letter is the best method of assuring the auditor will have
which of the following?
a) Auditor will obtain sufficient appropriate audit evidence.
b) Management representation letter
c) Access to all books, accounts and vouchers required for audit purpose
d) Cooperation from other auditors
AUDITING MCQS_______________________2
Faisal Qureshi
www.commercepk.com
22. The use of an audit engagement letter is the best method of documenting
i) the required communication of significant deficiencies in internal control
ii) significantly higher control risk than that assessed in prior audit.
iii) Objective and scope of auditor’s work
iv) Notification of any changes in the original arrangements of the audit.
a) (i) and (ii) b) (i) and (iii) c) ii and (iv) d) (iii and (iv)
23. An auditor who accepts an audit but does not possess the industry expertise of the business
entity should
a) engage experts
b) obtain knowledge of matters that relate to the nature of entity’s
business c) inform management about it d) take help of other auditors
24. The least important element in the evaluation of an audit firm’s system of quality control
would relate to-
fo
a) assignment of audit assistants b) system of determining audit fees
c) consultation with experts d) confidentiality of client’s information
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25. The primary purpose of establishing quality control policies and procedures for deciding on
client evaluation is to-
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a) ensure adherence to generally accepted auditing standards
b) acceptance or retention of clients whose management does not lack integrity
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c) ensure audit fees is charged according to the type of audit work assigned
d) all of the above
or
26. Which of the following is not a quality control consideration on accepting a new client?
a) Availability of audit assistants with necessary skill and competence.
b) Provision of other services to the client which may impair independence
sc
c) Predecessor auditor’s advice as to whether audit fees were paid promptly
d) Review of audit work done by one partner by the other
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27. An auditor obtains knowledge about a new client’s business and its industry to
a) Make constructive suggestions concerning improvements to the client’s internal control
system.
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b) Evaluate the appropriateness of audit evidence obtained

c) Under stand the events and transactions that may have an effect on client’s financial
statements.
d) All of the above
pl
CONCEPTS OF AUDITING
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1. Audit of banks is an example of –

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a) Statutory audit b) Balance sheet audit c) Concurrent audit

d) Both (a) and (b) e) All of the above
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2. Concurrent audit is a part of-

a) Internal check system b) Continuous audit c) Internal audit system d) None
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3. In India, balance sheet audit is synonymous to-

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a) Annual audit b) Continuous audit c) Detailed audit d) Statutory audit
4. Audit in depth is synonymous for-

a) Complete audit b) Completed audit c) Final audit d) Detailed audit
5. Balance sheet audit includes verification of_

a) Assets b) Liabilities
c) Income and expense accounts where appropriate d) All of the above
AUDITING MCQS________________________3
Faisal Qureshi
WWW.COMMERCEPK.COM
6. Which of the following statements is not true about continuous audit?

a) It is conducted at regular interval b) It may be carried out on daily basis c) It is needed
when the organization has a good internal control system
d) It is expensive
7. Which of the following is not a fact of EPA?

a) Economic audit b) Efficiency audit c) Expenditure audit d) Effectiveness audit
8. The Delhi Government had constructed six bungalows for its ministers. They are lying
unoccupied for last three years. This would be a matter of concern for-
a) Propriety Auditor b) Performance Auditor c) Financial Auditor d) None of the above
9. Financial auditor is not concerned with propriety of business transactions. However, the
exceptions to this rule are contained for audit of limited companies in_
a) Section 227 (IA) of the Companies Act, 1956
fo
b) Section 227 (IA) and section 227(4A) of the Act
c) CARO, 2003 d) Section 227 (IA) and CARO, 2003
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10. Balance sheet does not include-
a) Verification of assets and liabilities
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b) Vouching of income and expense accounts related to assets and liabilities
c) Examination of adjusting and closing entries d) Routine checks
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11. Which of the following statements is not correct about materiality?
a) Materiality is a relative concept
b) Materiality judgments involve both quantitative and qualitative judgments
or
c) Auditor’s consideration of materiality is influenced by the auditor’s perception of the
needs of an informed decision maker who will rely on the financial statements
sc
d) At the planning state, the auditor considers materiality at the financial statement level
only
12. …..the audit risk,….. the materiality and ……the audit effort
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a) Lower, Higher, Lower b) Lower, Lower, Higher

c) Higher, Lower, Lower d) Lower, Higher, Higher
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13. When issuing unqualified opinion, the auditor who evaluates the audit findings should be
satisfied that the
a) Amount of known misstatement is documented in working papers
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b) Estimates of the total likely misstatement is less than materiality level c)

Estimate of the total likely misstatement is more than materially level
d) Estimates of the total likely misstatement cannot be made
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14. In determining the level of materiality for an audit, what should not be considered?
.e
a) Prior year’s errors b) The auditor’s remuneration

c) Adjusted interim financial statements d) Prior year’s financial statements
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15. Analytical procedures issued in the planning stage of an audit, generally

a) helps to determine the nature, timing and extent of other audit procedures
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b) directs attention to potential risk areas

c) indicates important aspects of business d) All of the above
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16. Which of the following statements is most closely associated with analytical procedure
applied at substantive stage?
a) It helps to study relationship among balance sheet accounts
b) It helps to discover material misstatements in the financial statements
c) It helps to identify possible oversights
d) It helps to accumulate evidence supporting the validity of a specific account balance
AUDITING MCQS_______________________4
Faisal Qureshi
COMMERCE PK- QUALITY EDUCATION BEYOND YOUR IMAGINATION
17. For all audits of financial statements made in accordance with AAS-14, the use of analytical
procedures is at the discretion of the auditor in which stage?
a) Substantive testing b) Planning stage c) Overall review stage d) All of the above
18.The basic assumption underlying the use of analytical procedures is :

a) It helps the auditor to study relationship among elements of financial information
b) Relationship among data exist and continue in the absence of known condition to the
contrary
c) Analytical procedures will not be able to detect unusual relationships
d) None of the above.
19. What are analytical procedures?

a) Substantive tests designed to assess control risk
b) Substantive tests designed to evaluate the validity of management’s representation letter
c) Substantive tests designed to study relationships between financial and non-financial
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d) All of the above
20. Which of the following is not an analytical procedure?
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a) Tracing of purchases recurred in the purchase book to purchase invoices.
b) Comparing aggregate wages paid to number of employees
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c) Comparing the actual costs with standard costs
d) All of them are analytical procedure
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21. When applying analytical procedures, an auditor could develop independent estimate of an
account balance to compare it to-
a) client’s unedited account balance
or
b) client’s unedited account balance adjusted for trends in the industry
c) Prior year audited balance
sc
d) Prior year audited balance adjusted for trends in the industry
22. What is the primary objective of analytical procedures used in the overall review stage of an
audit?
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a) To help to corroborate the conclusions drawn from individual components of financial

statements
b) To reduce specific detection risk
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c) To direct attention to potential risk areas

d) To satisfy doubts when questions arise about a client’s ability to continue
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AUDIT EVIDENCE
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1. Of the following, which is the least persuasive type of audit evidence?

a) Bank statements obtained from the client
b) Documents obtained by auditor from third parties directly.
.e
c) Carbon copies of sales invoices inspected by the auditor

d) Computations made by the auditor
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2. Which of the following statements is, generally, correct about the reliability of audit
evidence?
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a) To be reliable, evidence should conclusive rather than persuasive

b) Effective internal control system provides reliable audit evidence
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c) Evidence obtained from outside sources routed through the client

d) All are correct.
3. In an audit of financial statements, substantive tests are audit procedures that __

a) may be eliminated for an account balance under certain conditions
b) are designed to discover significant subsequent events
c) will increase proportionately when the auditor decreases the assessed level of control risk
d) may be test of transactions, test of balance and analytical procedures
AUDITING MCQS________________________5
Faisal Qureshi
WWW.COMMERCEPK.COM
4. The nature, timing and extent of substantive procedures is related to assessed level of
control risk
a) randomly b) disproportionately c) directly d) inversely
5. Which of the following factors is most important in determining the appropriations of audit
evidence?
a) The reliability of audit evidence and its relevance in meeting the audit objective
b) The objectivity and integrity of the auditor
c) The quantity of audit evidence d) The independence of the source of evidence
6. When is evidential matter, generally, considered sufficient?

a) When it constitutes entire population
b) When it is enough to provide a basis for giving reasonable assurance regarding
truthfulness
c) When it is objective and relevant
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d) When auditor collects and evaluates it independently
7. Which of the following is not a corroborative evidence?
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a) Minutes of meetings b) Confirmations from debtors c) Information gathered
by auditor through observation
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d) Worksheet supporting consolidated financial statements
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8. Which of the following statements is not true with respect to management representations
obtained as per AAS-11?
a) Authenticated copy of relevant minutes of meetings may be regarded as management
representation
b) It should always be in working
c) It may be dated prior to the report date
or
d) It should be addressed to the auditor
sc
9. What would most appropriately describe the risk of incorrect rejection in terms of
substantive testing?
a) The auditor concludes balance is materially correct when in actual fact it is not
ee
b) The auditor concludes that the balance is materially misstated when in actual fact it not
c) The auditor has rejected an item for sample which was material
d) None of the above
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10.Which of the following affects audit effectiveness?

a) Risk of over reliance b) Risk of incorrect rejection
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c) Risk of incorrect acceptance d) Both (a) and (c)
11. What would most effectively describe the risk of incorrect acceptance in terms of substantive
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audit testing?
a) The auditor has ascertained that the balance is materially correct when in actual fact it is
.e
not
b) The auditor concludes the balance is materially misstated when in actual fact is not
c) The auditor has rejected an item from sample which was not supported by documentary
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evidence
d) He applies random sampling on data which is inaccurate and inconsistent
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AUDIT PREPARATION
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1. Which of the following Auditing Assurance Standard deals with Audit Planning?
a) AAS-7 b) AAS-8 c) AAS-9 d) AAS-3
2. Audit programme is prepared by-

a) the auditor b) the client c) the audit assistants
d) the auditor and his audit assistants
AUDITING MCQS_______________________6
Faisal Qureshi
3. The working papers which auditor prepares for financial statements audit are : _
a) evidence for audit conclusions b) owned by the client
c) owned by the auditor d) retained in auditor’s office until a change in auditors
4. The quantity of audit working papers complied on engagement would most be affected by-
a) management’s integrity b) auditor’s experience and professional judgment
c) auditor’s qualification d) control risk
5. Which of the following best describes the primary purpose of audit programme preparation?
a) To detect errors or fraud. b) To comply with GAAP
c) To gather sufficient appropriate evidence d) To assess audit risk
6. Which of the following is not an advantage of the preparation of working paper?

a) To provide a basis for review of audit work
b) To provide a basis for subsequent audits
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c) To ensure audit work is being carried out as per programme
d) To provide a guide for advising another client on similar issues
in
7. The auditor’s permanent working paper file should not normally, include
a) extracts from client’s bank statements b) past year’s financial statements
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c) attorney’s letters b) debt agreements
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8. For what minimum period should audit working papers be retained by audit firm?
a) For the time period the entity remains a client of the audit firm.
b) For a period of ten years
c) For a period auditor opines them to be useful in servicing the client
d) For the period the audit firm is in existence.
or
sc
9. Which of the following factors would least likely affect the quantity and content of an
auditor’s working papers
a) The assessed level of control risk b) The possibility of peer review
c) The nature of auditor’s report d) The content of management representation letter
ee
10. Which of the following statement is true regarding an auditor’s working

papers? a) They document the level of independence maintained by the auditor
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b) They should be considered as the principle support for the auditor’s report
c) They should not contain details regarding weaknesses in the internal control system
d) They help the auditor to monitor the effectiveness of the audit firm’s quality control
pl
11. Which of the following statement best describes the understanding with respect to
ownership and custody of working papers prepared by an auditor?
m
a) The working papers may be obtained by third parties when they appear to be relevant to
issues raised in litigation
.e
b) The safe custody of working papers is the responsibility of client, if kept at his premises
c) The working papers must be retained by an audit firm for a period of 10 years
d) Successor auditors may have access to working papers of the predecessor auditors. The
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approval of client is not required.

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12. The current file of the auditor’s working papers, generally, should include
a) a flowchart of the internal controls b) Organisation charts
c) a copy of financial statements d) copies of bond and debentures
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13.Knowledge of the entity’s business does not help the auditor to-
a) reduce inherent risk b) identify problem areas
c) evaluate reasonableness of estimates d) evaluate appropriates of GAAP.
14.The main advantage of using statistical sampling techniques is that such techniques:
a) mathematically measure risk b) eliminate the need for judgmental sampling
c) defines the values of tolerable error d) all of the them.
AUDITING MCQS________________________7
Faisal Qureshi
WWW.COMMERCEPK.COM
15. Which of the following methods of sample selection is least suitable for extrapolating results
to the population?
a) Systematic sampling b) Random sampling c) Haphazard sampling d) None
16. Which of the following statements is correct?

a) Lower the sampling risk greater the sample size
b) Smaller the tolerable error, greater the sample size
c) Lower the expected error, smaller the sample size d) All are correct
17. Which of the following features is most important for random-based selection?
a) Sample should be drawn form population
b) Every strata of population should be represented in the sample
c) Every item in the population has an equal chance of being selected in the sample
d) Items should be selected at ‘n’ th interval
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18. Risk of under reliance is the risk that the sample selected to test controls___
a) Does not support the auditor’s planned assessed level of control risk when the true
operating effectiveness of the control structure justifies such an assessment
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b) Supports the auditor’s planned assessed level of control risk when the actual position
does not warrant such reliance
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c) Is not supported by adequate documents d) both (a) & (c)
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19. Which of the following factors is (are) considered in determining the sample size for tests of
control?
a) Projected error b) Tolerable error c) Expected error d) Both (b) and (c)
or
20.Tolerable error, is the maximum monetary error that the auditor is prepared to accept in the
population and still conclude that audit objective has been achieved, is directly related to
sc
a) Sample size b) Audit risk c) Materiality d) Expected error
CAPTIAL AND REVENUE EXPENDITURE

ee
1. Which of the following expenses should not be treated as capital expenditure?

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a) Expenses paid on installation of a plant.

b) Cost of dismantling a building in case a new building is to be constructed on the land
c) Legal expenses incurred to defend a suit related to title of patent. The suit has been lost
pl
d) The fees paid to engineer who constructed the plant.
2. Which of the following is not a revenue expense?

m
a) Cost of raising a loan

b) Cost of accessories of motor vehicles spent at the time of purchase
c) Expenses incurred for laying of sewers on land purchased
.e
d) Insurance premium paid at the time of registration of the ship

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3. Depreciation does not arise form _______

a) effluxion of time b) use
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c) obsolescence through technology be market changes d) remarket expectation
4. Which of the following Schedule of the Companies Act, 1956 deals with depreciations?
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a) Schedule XIV b) Schedule V c) Schedule XIII d) Schedule X
5. Schedule XIV has prescribed rates of depreciation for double shift and triple shift working
for which one of the following assets?
a) Building b) Plant and Machinery c) Furniture and fittings d) Ships
6. If the book value of an asset stands at ……..per cent of the original cost, a company need not
provide depreciation on it.
a) two b) fifteen c) five d) ten
AUDITING MCQS_______________________8
Faisal Qureshi
7. A company has bought patents. Which of the following methods is most suitable for
providing depreciation on them?
a) SLM b) WDV c) Sum-of year digits d) Any of the above
8. Which of the following is a revenue reserve?

a) Capital redemption reserve b) Security premium account
c) Debenture redemption reserve d) Capital reserve
9. Which of the following will not lead to creation of secret reserve?

a) Undervaluation of closing stock b) Charging capital expenditure to revenue
c) Goods sent on consignment being shown as actual sales
d) Charging higher rates of depreciation on fixed assets than actually required
COMPANY AUDITOR
fo
1. Who is responsible for the appointment of statutory auditor of a limited company ?
a) Directors of the company b) Members of the company
in
c) The Central Government d) All of the above
2. Which of the following sections deal with qualifications of the auditor ?
r.
a) Section 226 (1) and section 226(2) b) Section 224 (1) and section 224 (2)
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c) Section 226 (3) and section 226(4) d) Section 224(3) & Sec.224
3. Which of the following statement is not true?

a) A partnership firm can be appointed as a statutory auditor of limited company
b) Appointment can be made in the name of the firm or
c) Majority of the partners should be practicing in India
d) All partners should be chartered accountants
sc
4. As per the requirements of section 226(3) and 226(4) a person is disqualified from being
appointed as a statutory auditor if he holds-
ee
a) Equity shares or debentures of the company

b) Equity shares carrying voting of the company
c) Shares carrying voting rights of the company
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d) Security carrying voting rights of the company
5. The board of directors shall appoint first auditor of a company

a) With in one month of completion of capital subscription state of the company
pl
b) With in one month of the promotion of the company

c) With in one month of the commencement of the business of the company
m
d) With in one month of incorporation of the company
6. The term of the auditor ship of first auditor would be from the date of appointment till__
.e
a) the conclusion of statutory meeting

b) the conclusion of first annual general meeting
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c) the conclusion of next annual general meeting d) the date of removal
7. In case the directions fail to appoint first auditor (s), the shareholders shall appoint them
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at…..by passing a resolution

a) a general meeting b) first annual general meeting
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c) statutory meeting d) annual general meeting
8. Life Insurance Corporation of India holds twenty five percent of subscribed capital of XYZ
Ltd. The appointment of statutory auditor in XYZ Ltd. Would be by__
a) ordinary resolution b) special resolution c) (a) or (b) d) none of the above
9. ICICI prudential, a life insurance company, holds thirty-two percent of subscribed share
capital of Delta Ltd. The statutory auditor of Delta Ltd. would be appointed by__
a) ordinary resolution b) Special resolution c) either of the above d) none
AUDITING MCQS________________________9
Faisal Qureshi
WWW.COMMERCEPK.COM
10. Which of the following statement is not true regarding appointment of statutory auditor by
the Central Government?
a) Such powers have been conferred upon it by section 224(3)
b) If a company fails to appoint an auditor at a general meeting
c) If an auditor refuses to accept appointment, the powers of the Central Government can be
exercised.
d) None of the above
11. If a casual vacancy in the office of auditor arises by his resignation it should only be filled by
the company in a……..
a) Board meeting b) extraordinary general meeting
c) General meeting d) annual general meeting
12. For the purposes of section 224(IB) the number of partners of a firm which shall be taken
into account would be as on the date of _
fo
a) completion of audit b) auditor’s report
c) acceptance of audit d) Starting of audit work
in
13. Which of the following is counted for the purposes of section 224(IB) the number of partners
of a firm which shall be taken into account would be as on the data of ___
r.
a) Joint audit b) Audit to non-profit companies
c) Audit of unlimited companies d) All of the above e) (a) and (b) only
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14. Mr. Narayan, a Charted Accountant, has nineteen audits, Out of following audits which
audits should he accept to ensure he doesn’t violate provisions of section 224(IB) __
a) Audit of Zeba Ltd. a private company
b) Audit of branch of Pointec Ltd. a foreign company
or
c) Audit of two branches of Virtue Ltd. an Indian company d) All of them
sc
15.Which audit out of the following would not be regarded as one audit for the purposes of
section 224(IB)?
a) Audit of one branch each of two different companies
ee
b) Joint audit c) Audit head office & branches

d) Audit of one or more branches of a company
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16. The auditor of a Government company is appointed by the C & AG. His remuneration is
fixed by__
a) the C & AG b) the shareholders
pl
c) the shareholders at an annual general meeting d) the board of directors
17.The section which contains provisions regarding remuneration of the auditor is_
m
a) Section 224(9) b) Section224(7) c) Section224(8) d) Section224(6)

.e
18.The authority to remove the first auditor before the expiry of term is with_
a) the shareholders in a general meeting
b) the shareholders in the first annual General meeting
w
c) the board of directors d) the Central Government

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19. Which of the following statements is not correct regarding removal of first auditor before
expiry of the term?
a) He is removed at a general meeting
w
b) The shareholders are authorized to do so

c) The approval of the Central Government is required for such removal
d) The provisions for such removal are contained in section 224(7)
20. The retiring auditor does not have a right to___

a) make written representations b) get his representations circulated.
c) be heard at the meeting d) speak as a member of the company
AUDITING MCQS_______________________10
Faisal Qureshi
21.Who out of the following cannot be appointed as a statutory auditor of the company?
a) Erstwhile director b) Internal auditor c) Relative of a director d) Only (b) and (c)
22.A statutory auditor has a right of access at all times to

a) Books and accounts of a company b) Books, accounts and documents of the company c)
Books, accounts and vouchers of the company
d) Notices and documents of the company
23. The auditor has a right to-

a) Obtain information and explanation
b) Obtain information and explanation from the employees and officers
c) Obtain information and explanation necessary for the purpose of audit
d) Both (b) and (c)
24. The principal auditor, as per clarification issued by the ICAI, does not have any right to-
fo
a) Inspect working papers of the branch auditor b) Visit branches
c) Seek information necessary for audit purposes
d) Incorporate the branch audit report in his audit report
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25. Under which of the following section auditor has a duty to enquire into six specified matters
r.
and report by exception?
a) Section 227(4A) b) Section 227 (IA) c) Section 227 (2) d) Section 227(3)
ne
26. The auditor has to enquire, under section 227 (IA) into different aspects, related to shares
allotted for cash for the purpose of auditor include-
a) Shares against whose allotment cash has actually been received
c) Shares allotted against a debt payable

or
b) Shares allotted for consideration other than cash
d) All of them
sc
27.Right to visit branches has been given to the auditor under which section?
a) Section 222(3) b) Section 228(2) c) Section 228(4) d) Section 228(3)
ee
28. Which of the following statements with regard to rules regarding exemption from branch
audit is not true?
a) A branch office of a company can be granted exemption on the basis of quantum of
oy
activity criterion
b) If a satisfactory arrangement of scrutiny check of the books of account of a branch office
of a manufacturing company has been made, it can be exempted form branch audit
pl
c) Cost consideration should be considered as an important factor/ground for exemption

from branch audit
d) The auditor should state in his audit report that branch office is exempted by virtue of
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quantum of activity or any other basis

.e
29. The branch auditor is appointed by –

a) Shareholders in an annual general meeting b) Shareholders in general meeting
c) Board of directors in board meeting d) Any of the above
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30.Auditor of a ……company does not have right to visit foreign branches of the company
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a) Unlimited liability b) Manufacturing c) Banking d) Non-profit making
31.Special audit is conducted at the order of the Central Government. Which section gives such
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powers?
a) Section 233(A) b) Section 233A c) Section 242(A) d) Section 242A
32.Who among the following can be appointed as special auditor by the Central Government?
a) The statutory auditor b) chartered accountant in practice
c) Any chartered accounted who is not in practice d) Both (a) and (b)
33. The scope of the audit including reference to the pronouncements of the ICAI, which the
auditor adheres to, generally is communicated to the client in the ____
AUDITING MCQS________________________11
Faisal Qureshi
WWW.COMMERCEPK.COM
i) auditor’s report ii) engagement letter iii) representation letter

a) i) only b) Both (i) and (ii) c) Both (i) and (iii) d) All the above
34. If any director is disqualified from being appointed under section 274(1) (g), the auditor
should mention this fact in his audit report. For this purpose, how does he determine their
eligibility :
a) He obtains a representation from each director
b) He obtains a management representation
c) He enquiries from Registrar of Companies d) Any one of the above
35. As per the ‘Statement on Qualification in Auditor’s Report’s issued by the ICAI, the auditor,
Under section 227(3) has to gave a statement of fact on_
a) proper books of account b) accounting standards
c) cess payable under section 441A d) None of the above
fo
36. The date on auditor’s report should not be__
a) the data of AGM
in
b) later than the date on which the accounts are approved in board’s meeting
c) earlier than the date on which the accounts are approved by the management
d) Both (a) and (b)
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37. Section 227(2) of the Companies Act, requires the auditor to give his report to the members
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of the company on certain matters. Which of the following is not included in the above?
a) Accounts examined by him
b) Every balance sheet and profit and loss account laid before a general meeting during his
tenure or
c) Every document that is a part of or ‘annexed to’ the balance sheet
d) Every document which is attached to the profit and loss account
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38.When restrictions that significantly affect the scope of the audit are imposed by the client,
the auditor generally should issue which of the following opinion?
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a) Qualified opinion b) Disclaimer of opinion c) Adverse opinion

d) Unqualified report with ‘an emphasis of matter’ paragraph;
39. Which of the following report not result in qualification of the auditor’s opinion due to a
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scope limitation?
a) Restrictions the client imposed b) Reliance on the report of other auditor
c) Inability to obtain sufficient appropriate evidential matter
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d) Inadequacy of accounting records

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40. The inventory consists of about one per cent of all assets. The client has imposed restriction
on auditor to prohibit observation of stock take. The auditor cannot apply alternate audit
procedures.
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a) unqualified opinion b) qualified opinion c) disclaimer of opinion d) adverse opinion

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41.If in the above question, the inventory consisted of about ten per cent of total assets, other
conditions remaining same, the auditor should issue __
a) unqualified opinion b) qualified opinion c) disclaimer of opinion d) adverse opinion
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42. The auditor has serious concern about the going concern of the company. It is dependent on
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company’s obtaining a working capital loan from a bank which has been applied for. The
management of the company has made full disclosure of these facts in the notes to the
balance sheet. The auditor is satisfied with the level of disclosure. He should issue_
a) unqualified opinion b) unqualified opinion with reference to notes to the accounts
c) qualified opinion d) disclaimer of opinion
43.Which of the following is true about explanatory notes?

a) These are given by the directors of the company
b) These are given to adhere to requirements of section 211.
c) These are given by auditors of the company in auditor’s report d) All of the above
AUDITING MCQS_______________________12
Faisal Qureshi
44. The client changed method of depreciation from straight line to written down value method.
This has been disclosed as a note to the financial statements. It has an immaterial effect on
the current financial statements. It is expected, however, that the change will have a
significant effect on future periods. Which of the following option should the auditor
express?
a) Unqualified opinion b) Qualified opinion c) Disclaimer of opinion d) Adverse opinion
45. Which of the following is not true regarding requirements under section 227(3) (f) of the
Companies Act, 1956?
a) The auditor has to satisfy himself whether any of the directors of the company, whether
public or private, are disqualified from being appointed as directors as per section 274(1) (g).
b) Section 274(1) (g) is applicable to appointment of directors both in public and private
companies but reporting is limited to only those directors of a company who are also
directors of a public company
c) The auditor requires every director to submit a written representation in respect of each
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public company, of which the is a director, as to whether such company has defaulted in
terms of provisions of sections 274(1) (g)
d) The disqualification should be considered on the date of audit report.
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46. The management of a company, to which AS-3. is not applicable, does not include statement
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of cash flows in its annual report. The auditor should express-
a) Unqualified opinion b) Qualified opinion c) Adverse opinion
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d) Any of these depending upon materiality and pervasiveness and adequacy of disclosure
47. In case the auditor gives a disclaimer of opinion in the audit report which of the following
paragraph(s) of a standard unqualified audit report are modified?
a) Scope paragraph
c) Scope and opinion paragraphs
or
b) Opinion paragraph
d) Introductory, scope and opinion paragraph
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48.A departure from recognized accounting principle is disclosed in a note to the financial
statements. The auditor should
a) issue a standard unqualified audit report b) issue a qualified report
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c) issue an unqualified report with ‘emphasis of matter’ paragraph d) disclaim opinion
49. AB & Co, chartered accountant, have been requested by their client XYZ Ltd. not to confirm
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accounts receivables because of concerns about creasing conflicts with customers over
amounts owed. The auditors were satisfied concerning receivables after applying alternative
audit procedures AB & Co.’s auditors report likely contained
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a) Qualified opinion b) Disclaimer of opinion

c) Unqualified I opinion with an explanatory paragraph d) Unqualified opinion
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50.The auditor should state the reasons for his reservations in audit report and should try to
quantify the effect on them. This should be done in case he has expressed _
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i) a qualified opinion ii) an unqualified opinion with emphasis of matter paragraph

iii) an adverse opinion iv) a disclaimer of opinion
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a) i) only b) i) and (iv) only c) i), iii) and (iv) only d) All of the above
51.Companies exempted from application of CARO, 2003 does not include_

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a) a banking company b) an insurance company

c) a private limited company with paid up capital and reserves not more than fifty five lakh
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d) a licensed company
52. Under CARO, 2003, the auditor’s report should include report about maintenance of proper
recording relating to____
a) Fixed assets and cost b) Fixed assets, cost and investments
c) Fixed assets , cost investments and inventories d) Fixed assets, cost and inventory
AUDITING MCQS________________________13
Faisal Qureshi
WWW.COMMERCEPK.COM
53. Under CARO, 2003 the auditor is required to report on __

a) arrears of cumulative preference dividends
b) Preferential allotment of shares to related party
c) disposal of fixed assets and its effect on going concern.
d) unsecured loans granted to related party.
GOVERNMENT AUDIT
1. As per C & AG Act, 1971 the tenure of the Comptroller and Auditor General is …….Years
a) Four b) five c) six d) seven
2. The part of Government Audit which is concerned with examining whether the money has
been spent for the purpose specified in Appropriation Act is called.
a) audit of sanctions b) audit of provision of funds
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c) audit of rules and orders d) audit of financial propriety
3. Audit of transaction does not include –
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a) Propriety audit b) efficiency –cum performance audit
c) audit of receipts d) audit of expenditure
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4. The income Tax Department has sent Mr. X double refund of advance tax. The Government
Auditor detected this while conducting
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a) audit of expenditure b) performance audit
c) audit of stores and stock d) audit of receipts
a) audit of borrowings
or
5. Audit of debt, deposits and remittances does not cover-
b) audit of amortization of debt
c) audit of sanctions d) remittance audit
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6. A state Government spent rupees fifty lakhs on renovation of Raj Bhavan’ for its Governor.
In the C & AG’s opinion, this expenditure was more than what occasion demanded? It is an
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exampled of –
a) Propriety audit b) Performance audit
c) Audit against provision of funds d) None of the above
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7. Audit reports on PSU are

a) submitted to the President/Governor for being laid before the parliament
b) sent to concerned ministries/departments
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c) Submitted to BOD of concerned PSU d) Any of the above

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8. The C & AG, some years ago, gave adverse comments on expenditure incurred on buying
coffins for soldiers killed in a war. In his opinion, the coffins cases imported could have been
replace with less expensive, domestically produced ones. This is an aspect of –
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a) Audit of sanctions b) Audit of stores and stocks c) Propriety audit d) Both (b) and (c)
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9. Who among the following is eligible to be appointed as an audit of Government Company?

a) A chartered accountant in practice b) A chartered accountant whether in practice or not
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c) An auditor appointed by the C & AG d) Any of the above
10.The statutory auditor of a Government Company submits his report to_

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a) the BODs of the company b) the C & AG

c) the Legislature d) the company secretary
AUDITING MCQS_______________________14
Faisal Qureshi
EDP AUDIT
1. Which of the following statement is not distinguishing feature for computer based processing
and manual processing?
a) Errors in a CIS environment are less systemic as compared to errors in manual
processing
b) The potential for human error in the CIS environment is greater as compared to manual
system
c) In a computer based accounting system, audit trail is in electronic form
d) Computer processing offers management a variety of analytical tools.
2. To avoid invalid data input, a bank added an extra number at the end of each account
number and subjected the new number to an algoritham. This techniques is known as
a) Dual read b) Test for reasonableness c) Check digit d) Occurrence correction
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3. When computer programme or files can be accessed from terminals, access can be limited to
authorized individuals by__
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a) appointing a librarian b) controlling passwords
c) appointing EDP auditor d) Both (a) and (b)
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4. Erroneous data has been detected by computer program controls. It has been excluded from
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processing and printed separately “Error Report”. Who should most probability by review
and follow up on this report?
a) system, analyst b) Data control group c) Programmer d) Computer operator
or
5. General controls will be ineffective when EDP department-
a) Participates in computer software acquisition decisions
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b) Design Documentation for computerized operations.
c) Originate changes in master files. d) Provide physical security for programme files.
6. Which of the following activities would most likely be performed by EDP department?
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a) Authorising transactions b) Parity checks

c) Distributing output d) Correction of transactional errors
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7. The completeness of “wages” figure can be tested by comparing the number of time cards to
be processed with transaction on wages sheet. This type of control technique is called
a) check total b) control total c) occurrence correction d) check digit
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8. Which of following will not affect audit in a CIS environment?

a) The objective of expression of opinion on financial statements
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b) Compliance procedures adopted by the auditor

c) Performance of substantive procedures
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d) Evaluation of inherent risk and control risk
9. Which of the following statements is not true of the test data approach in a test of
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computerised accounting system?

a) Test data tests only those controls which the auditor wishes to rely
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b) Test data should consist of data related to all controls prevalent in the organization
c) The result of test data indicates that all the application and general controls are
functioning properly
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d) Test data processed by the client’s computer programme under the auditor’s control
10. Which of the following CAATs allow fictitious transactions planted by the auditor to be
processed along with real ones on client’s system?
a) Integrated test facility b) Test data approach
c) Generalised audit software d) Parallel simulation
11.An auditor is least likely to use computer software to-
a) access client data files b) assess control risk
c) performing analytical producers d) None of the above
AUDITING MCQS________________________15
Faisal Qureshi
WWW.COMMERCEPK.COM
AUDIT OF CASH TRANSACTION

1. Which of the following documents is not relevant for vouching cash sales?
a) Daily cash sales summary b) Salesmen’s summary
c) Monthly statements sent to customers d) Bank statement
2. The auditor should examine subsequent realization of revenue such as dividends, interest,
commission, etc to-
a) identify cases of unrecorded revenue
b) ensure proper disclosure in the balance sheet
c) recompute accrued income on the data of balance sheet d) Any of these
3. To test whether sales have been recorded, the auditor should draw a sample from a file of
a) purchase orders b) sales orders c) sales invoices d) bill of loading
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4. For vouching of which item, the auditor is most likely to examine cost records?
a) Commission earned b) Bad debts recorded c) Credit sales d) Sale of scrap
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5. The “Guidance Note on Revenue” issued by the ICAI does not deal with
a) Sales revenue b) Revenue rendering service
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c) Revenue from sale of fixed assets d) Income from interest, dividend
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6. An auditor conducts a surprise check on the pay day (i.e) the day wages and salaries are
paid. The primary purpose of this audit procedures is
a) to ensure that there are no ghost workers
or
b) to ensure the casual workers employed are authorized by the supervisor
c) to test procedures for distributing pay cheques
d) to obtain understanding of internal control system
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7. Which of the following would prevent double payment of the same voucher?
a) The person signing the cheque should cancel the supporting documents
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b) Cheques should be signed by at best two persons

c) The data of payment of vouchers of similar nature should be the same or close to each
other
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d) All of the above
8. In case of unclaimed wages, the auditor should examine whether-

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a) the amount has been deposited in a separate bank account

b) deposited with the cashier c) held in a safe deposit box d) All of these
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9. While vouching wages, auditor should examine whether there is proper segregation of
duties. Which of the following activities should not be done by same department?
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a) Maintaining personnel records and approving changing in wages rates

b) Proposing pay roll summary and disbursement of wages
c) Making salary statements and filing tax returns
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d) Comparing time clock records with time reports prepared by supervisors and preparing
list of workers employed along with the units of production for each one of them
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10. In order to vouch, which of the expenses, the auditor will examine Bill of Entry?
a) Custom b) Excise duties c) Sales tax d) Income tax
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11. While vouching, how will the auditor ensure himself that all credit sales transactions have
been recorded by the entity?
a) Examining cut-off points
b) Matching entries in the sales book against renumbered sales invoices and goods outward notes
c) Counting the number of invoices and matching the number with entries on sales book
d) Both (a) and (b)
AUDITING MCQS_______________________16
Faisal Qureshi
12. In case of sales return, the auditor should examine which documents?
a) Credit notes, advice notes and inward return notes
b) Debit notes, advice notes and inward return notes
c) Purchase invoices, advice notes and inward return notes
d) Credit notes, inspection report and inward return notes
13. An internal auditor discovered that fictitious purchases have been recorded by the purchase
clerk. This indicates absence of which control?
a) Purchase invoices are independently matched with purchase orders and goods received
notes
b) Goods received notes requires the signature of individual who authorized the purchase
c) Routine checks are performed by internal auditor fortnightly.
d) Purchase function and production function are clubbed in one department
14. Which of the following is most crucial to a purchase department?
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a) Reducing the cost of acquisition b) Selecting supplies
c) Authorizing the acquisition of goods d) Assuring the quality of goods
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15. The auditor is most likely to examine related party transactions very carefully while
vouching
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a) credit sales b) sales returns c) credit purchases d) cash purchases
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16. In order to vouch bought ledger, the auditor obtain confirmations from creditors. The
principal reason for the auditor to examine suppliers statements at balance sheet date is to
obtain evidence that
a) the supplier exist
c) recorded purchases actually occurred
or
b) there are no unrecorded liabilities
d) to link creditors with cash book entries
17.The creditors accounts, generally, have credit balance. Debit balance may be due to-
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a) advance paid against an order b) goods returned
c) wrong debit to supplier account d) Any of these
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18.In case of vouching, the auditor is least likely to examine authorization by appropriate
authority in case of –
a) bad bads written off b) sales return c) purchase return d) discount
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allowed to customers as per organizational policy
19. Vendors should be approved by Management before purchase department executes an

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order. If this is not done, then which of the following situations may arise-
a) purchases could be made from vendors whose product quality may not be good
b) Purchases may be made from related parties without management’s knowledge
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c) Purchases could be made from vendors who may have offered price to vice-president
purchases d) Any of these
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VERIFICATION & VALUATION OF ASSETS

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1. Which of the following is not true with regard to verification of assets?

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a) It invoices substantiation of occurrence of transactions

b) Its objective is to establish existence, ownership, possession, valuation and disclosure of
assets
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c) The auditor has to form an opinion on different aspects d) All are true
2. Which of the following statements is not true ?

a) Valuation of assets is the responsibility of management
b) The auditor can rely on a certificate issued by an authorized valuationer as to the
valuation of assets in the balance sheet
c) The auditor should value the asset as per generally accepted accounting principle
d) Valuation is no part of auditor’s duty
AUDITING MCQS________________________17
Faisal Qureshi
WWW.COMMERCEPK.COM
3. An auditor is verifying valuation of building which has been self-constructed by the client.
Which of the following documents is least relevant to the auditor for verification purposes?
a) Bills of contractor b) Minutes of meeting of board of directors
c) Certificates of engineer and architect d) Loan agreement
4. Which of the following assets is least likely to be subjected to lien?

a) Freehold land b) Plant and machinery c) Leasehold property d) Motor vehicles
5. An analysis of fixed assets account has revealed possibility of unrecorded sale of plant and
machinery. Which of the following audit procedures may be adopted to discover it?
a) Examination of property tax files b) Inquiry of plant manager
c) Examination of debits to accumulated depreciation d) All of the above
6. The auditor has noticed existence of recurring losses sale of fixed assets this
indicates a) Depreciation charges are insufficient
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b) Policy of sale or disposal of fixed assets needs to be reviewed
c) The sale of assets have not been properly authorized d) Accounting errors
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7. Which of the following financial statements assertions are addressed by testing the cut off
for plant asset addition
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a) Existence and ownership b) Valuation and disclosure
c) Possession and ownership d) Completeness and valuation
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8. The auditor while verifying prepaid insurance has concluded that there is inadequate
insurance of building He should__
a) Modify his audit report
c) Write it in letter of weakness

or
b) Insist it should be disclosed in the notes to financial statements
d) Both (b) and (c)
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9. While verifying intangible assets, an auditor would recompute amortization charges and
determine whether amortization period is reasonable. The auditor tries to establish ….by
doing it
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a) valuation b) existence c) disclosure d) possession
10. When auditing prepaid insurance, an auditor discovers that the insurance policy bond on
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building is not available for inspection. This may indicate__

a) No insurance has been undertaken for building b) Lien on building
c) Insurance premium has not been paid d) Insurance premium paid but not recorded
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11. Equity shares of XY Ltd. held by ABC Ltd. are in the custody of Stock Holding Corporation of
India Limited. The auditor many verify this investment by -
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a) Reviewing last year’s working papers.

b) Obtaining a certificate from a responsible official of the ABC Ltd.
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c) Obtaining a certificate from SHCIL d) Obtaining a certificate from xy ltd.
12. Which of the following controls would ensure that securities are not lost, stolen or diverted?
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a) Establish physical barriers over investment securities

b) Maintain files of authorized signatures
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c) Segregate investment approval form accounting and from custody of securities

d) All of the above
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13.Which of the following is not a proper third party to hold investments on behalf of the client?
a) Regional level custodian b) National level custodian
c) India trills – National level stock broking firm d) AEZ Securities Ltd. a stock broking firm
14. Which of the following would give the assurance that debtors mentioned on the date of
balance sheet actually exist?
a) Sending debtor’s confirmation letters b) Reviewing subsequent collection
c) Verify debtors against sales document d) Both (a) and (b)
AUDITING MCQS_______________________18
Faisal Qureshi
15.Analytical procedures are least likely to be use in the audit of –

a) cash balance b) investments c) bills receivables d) debtors
16. Which of the following statements is not true with regard to teeming and lading ?
a) It results in the deliberate misappropriation of cash receipts
b) It is associated with cash receipts
c) If same individual maintains cash receipts and cash payments teeming and lading is likely
to exist
d) To conceal the shortage, the defraud, usually, tries to keep bank and book amounts in
daily agreement so that a bank reconciliation will not detect the irregularity.
17. The balance of cash in often between one to five percent of total assets. Tick the most
appropriate statement with regard to verification of cash in context of this
a) Cash in always material as materiality is qualitative concept
b) No audit of cash is needed when, in auditor’s opinion, cash is immaterial. Materiality is a
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relative concept
c) The cash balance need only be audited if the balance is in overdraft
d) Cash is to be verified if control risk is assessed as high
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18. When counting cash on hand the auditor should ___
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a) ensure presence of somebody from management
b) obtain a receipt from custodian as to its return
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c) ensure postage and revenue stamps are not counted in physical count
d) temporary advances to employees are counted to calculate balance of cash in hand
19. Which of the following statement is not true regard to auditor’s attendance at stock taking?
or
a) Auditor should attend physical stock taking only if inventory is material
b) Auditor may not attend physical verification of stock by management, if he does not find it
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appropriate to rely on it
c) If inventory is material, even when the auditor is not placing reliance on the physical
verification by the management, he should attend it
d) The primary objective of an auditor’s observation of an entity’s observation of an entity’s
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stock take is to obtain direct knowledge that the stock and has been property counted
20. While observing a client’s annual physical inventory, an auditor conducted test counts for
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certain test counts were higher than the recorded quantities in the client’s perpetual
records. This situation could be the result of the client’s failure to record –
a) purchase returns b) sales returns c) goods with consignor d) purchase discounts
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21.Inspection report/receiving report supports entries in

a) sales book and sales return book b) purchase book and sales return book
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c) cash book and purchase book d) Sales book and purchase return book
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INTERNAL CONTROL
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1. Tests of control are not concerned with_

a) Existence of controls b) Effectiveness of controls
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c) Continuity of controls d) Designing of controls
2. The sequence of steps in the auditor’s consideration of internal control is as follows –

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a) Obtain an understanding, design substantive test, perform tests of control, make a

preliminary assessment of control risk
b) Design substantive tests, obtain an understanding, perform tests of control, make a
preliminary assessment of control risk
c) Obtain an understanding, make a preliminary assessment of control risk, perform tests of
control, design substantive procedures.
d) Perform tests of control, obtain and understanding, make a preliminary assessment of
control risk, design
AUDITING MCQS________________________19
Faisal Qureshi
WWW.COMMERCEPK.COM
3. Which of the following is not an inherent limitation of internal control system?

a) Management override b) Collusion among employees
c) Inefficiency of internal auditor d) Abuse of authority
4. An auditor should study and evaluate internal controls to-

a) determine whether assets are safeguarded b) Suggest improvements in internal control
c) Plan audit procedures d) express and opinion
5. XYZ Ltd. Conducts quarterly review of operations. It discovers that unrest in a south east
Asian country may affect the supply of raw materials to it the next quarter. This is an
example of :
a) risk assessment b) control procedure c) supervision d) control environment
6. The primary purpose of performing tests of control is to provide reasonable assurance that_
a) there are no material misstatements due to fraud or error in financial statement
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b) accounting system is well documented
c) Written evidence is there to support transactions
d) if internal control is effective
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7. If the auditor assesses control risk as high….
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a) Document the conclusions b) documents the reasons along with conclusions
c) perform tests of control d) perform walk through tests
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8. The overall attitude and awareness of an entity’s board of directors concerning the
importance of internal control is reflected in-
a) accounting controls b) control environment c) control procedures d) supervision
or
9. Which of the following are included in test of control?
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a) Reperformance and observation b) Inquiry and analytical procedures
c) Comparison and conformation d) Inspection and verification
10.Control risk is assessed at-

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a) Overall financial statements level b) Fraud risk factor level

c) Financial statement assertion level d) Control environment level
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11. Which of the following is not an example of a circumstance, in which additional tests of
control will not be performed after obtaining an understanding to plan the audit?
a) Controls are known to be cost ineffective
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b) Controls are effective but auditor opines that performing tests of control and reduced
substantive tests would not be cost effective
c) Controls are effective and evidence already obtained is adequate to support a planned
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assessed level of control risk which is less than high

d) Performing extensive substantive testing would not lead to efficiency
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12. An auditor assesses control risk because it-

a) affects the audit risk b) affects the level of detection risk that auditor may accept c) helps
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him to fix materiality level for each financial assertion

d) is directly related to inherent risk
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13. A flow chart, made by the auditor, of an entity’s internal control system is a graphic
representation that depicts the auditor’s.
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a) understanding of the system b) understanding of fraud risk factors

c) documentation of assessment of control risk d) Both (a) and (c)
14.The performance of tests of control is documented in-

a) audit programme b) flow charts c) working papers d) any of the above
15. Which of the following statements is not correct?

a) Intern risk and control risk cannot be controlled by the management i.e are
uncontrollable
AUDITING MCQS_______________________20
Faisal Qureshi
b) Detection risk is related directly to they effectiveness of the auditor prosecutor

c) Detection risk related inversely to control risk
d) Internet risk and control risk are highly interrelated
16.The independence of an internal auditor will most likely be assured if he reports to the
a) President Finance b) President System c) Managing Director d) CEO
17. In comparison to the independent auditor, an internal auditor is more likely to be concerned with-
a) cost accounting system b) internal control system
c) legal compliance d) accounting system
18. When an independent auditor decides that the work performed by internal auditors may
have bearing on the nature, timing and extent of planned audit procedures, the independent
auditor should evaluate objectivity of the internal auditor. The most important factor
influencing it would be-
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a) organizational level to which he reports b) qualification of internal auditor
c) system of quality control of his work d) all of the above
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19. When an independent auditor relies on the work of an internal auditor, he or she should-
a) examine the scope of internal auditor’s work
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b) examine the system of supervising review and documentation of internal auditor’s work
c) adequacy of related audit programme d) all of the above
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20.Proper segregation of duties reduces the opportunities in which a person would both-
a) establish controls and executes them b) records cash receipts and cash payments c)
perpetuate errors and frauds and conceals them
d) record the transaction in journal and ledger.
or
INTRODUCTION TO AUDITING
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1. d 2. b 3. c 4. b 5. a
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6. b 7. d 8. a 9. a 10. b
11. d 12. b 13. a 14. d 15. b
16. a 17. c 18. b 19. a 20. d
21. c 22. d 23. b 24. b 25. b
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26. c 27. c
CONCEPTS OF AUDITING
pl
1. e 2. c 3. a 4. d 5. d
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6. c 7. c 8. d 9. d 10. d
11. d 12. a 13. b 14. b 15. d
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16. d 17. a 18. b 19. c 20. a

21. d 22. a
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AUDIT EVIDENCE
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1. c 2. b 3. d 4. c 5. a
6. b 7. d 8. b 9. b 10. d
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11. a
AUDIT PREPARATION
1. b 2. d 3. c 4. b 5. c
6. d 7. a 8. c 9. d 10. b
11. a 12. c 13. a 14. a 15. c
16. d 17. c 18. a 19. d 20. c
AUDITING MCQS________________________21
Faisal Qureshi
WWW.COMMERCEPK.COM
CAPTIAL AND REVENUE EXPENDITURE
1. b 2. d 3. c 4. b 5. c
6. d 7. a 8. c 9. d 10. b
COMPANY AUDITOR
1. b 2. a 3. c 4. d 5. d
6. b 7. a 8. b 9. a 10. b
11. c 12. c 13. e 14. d 15. a
16. b 17. c 18. a 19. c 20. d
21. b 22. c 23. d 24. a 25. b
26. d 27. c 28. b 29. b 30. b
31. c 32. b 33. b 34. a 35. c
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36. c 37. d 38. a 39. b 40. a
41. c 42. b 43. a 44. a 45. d
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46. a 47. c 48. b 49. c 50. a
51. c 52. c 53. a
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GOVERNMENT AUDIT
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1. c 2. b 3. b 4. d 5. c
6. a 7. b 8. d 9. a 10. b
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EDP AUDIT
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1. a 2. c 3. d 4. a 5. c
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6. c 7. d 8. a
9. b 10. a 11. d
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AUDIT OF CASHTRANSACTION
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AUDITING MCQS_______________________22
Faisal Qureshi

MCQS (F. Accounting)

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MCQS (F. Accounting)

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A Key to Success

For All Audit & Accounts Related Tests of

FPSC Senior Auditor

Prepare by Mr. Arsalan Chuhdry

(2) Credit Transaction:-

make the payment in some future time, against such transaction.

is known as business. e.g. banking business, an insurance business,

He is owner of a business. He invests capital in it,

 Drawing:- The amounts of cash or goods taken away by

payment is not made to him at the same time, rather the

purchases are known as ―credit purchases‖ or ―purchases on

Purchases Return or Returns Outwards:- Goods once

certain reasons, i.e. goods are defective, not according to

specification, damaged or below standard. Such return of

Purchases Discount:- The concession given by the supplier

 Sales: - When goods of the business are sale out to someone

Credit Sales:-If goods are sold to customers and he does not

have to repay. We stand as debtor to Mr. Amir for Rs. 5000/ it is

 Creditors/Accounts Payable:-A person who pays out

something or to whom money owing is a creditor. It is also

 Commission:-It is form of remuneration for services rendered

by one person to another.

 Expenses:-Expenses are the cost of the goods and services used

up in the process of obtaining revenue. e.g. Salaries, Insurance,

 Goods merchandise:-It includes all merchandise commodities,

 Stock Inventory:-(List of Goods)

Goods or merchandise on hand that is goods

remaining unsold is called stock in trader inventory.

irrecoverable from debtors, are called ―bad debts‖

 Depreciation:- Gradual decrease in the machinery value

of an asset due to usage in business is known as depreciation.

Fluctuation:- The decrease or increase in value of an asset not

 Assets:- These are the things of value possessed by a trader

circulatory or floating assets.

Tangible Assets:-Assets which have physical existence and

Intangible Assets:- Assets which have no Physical

existence and which cannot be seen, touched or felt are

called intangible assets e.g Good will, patent right, Trade

Liquid or Quick Assets:- Assets which can be converted

Wasting Assets:-Those assets whose value gradually

Fixed liabilities:- Fixed liabilities, which are repayable after

 Accounting:-Accounting is the art of recording, classifying and

summarizing in a significant manner and in terms of money,

 Book Keeping:-Bookkeeping is the art of recording monetary

transactions in the books of accounts in a proper manner.

 Accounting & Accountancy:-The two words ―Accounting‖ and

branches. The word ―Accountancy‖ is for wide and extensive

compared to Accounting. It covers the entire body of theory and

 Management Accounting:- It is accounting for the management

 Cash System of Accounting:-Under this system of accounting,

of revenues and expenses relating to the current accounting period

while determing the profit or loss of the business, is called accrual

 Accrual Revenues:- The revenue, which we have been earned in

e.g. accrued commission (CR), Rent receivables etc.

 Accrual Expenses or Outstanding Expenses:-

The expenses which have been incurred during the current

outstanding expenses payablee.g. Wages Payable, accrued Salaries etc.

It is prepared to determine the profit and loss of the business

2. TRADING & PROFIT & LOSS ACCOUNT/ INCOME

trading account and profit & loss account. Trading Account in

prepared to determine the gross profit or gross loss of a trader

or net loss of a trader.

profit or net income of the business.