Sebi Grade A Exam: Paper 2 Questions With Solutions

SEBI GRADE A
EXAM
Paper 2 Questions with
Solutions
Multiple Choice Questions of Paper 2 SEBI Grade A Exam
Multiple Choice Questions of Paper 2 – SEBI Grade A Exam

Costing
1. Direct Expenses are also known as:
a) Major Expenses
b) Chargeable expenses
c) Overhead expenses
d) Sundry expenses
e) None of the above
Answer: b) Chargeable expenses
Solution:
Direct expenses are also called chargeable expenses.

Direct expenses include direct material cost, direct labour cost & all those
direct expenses that are directly identifiable with the manufacturing of a
product/service.
Direct material cost includes the cost of raw materials/material inputs, direct
labour is the labour involved in the direct production i.e., the line men & direct
expenses are those which are incurred while manufacturing the goods which
include freight inward, factory rent & so on. These expenses are incidental for
the production.
2. Calculate the Prime cost: Raw materials ₹50,000; Labour: 60,000, Direct expenses
₹10,000, Indirect expenses ₹5,000
a) ₹1,25,000
b) ₹1,20,000
c) ₹60,000
d) ₹1,10,000
e) ₹50,000
Answer: b) ₹1,20,000
Solution:
Prime cost is the total of direct material + direct labour + direct expenses
= 50,000 + 60,000 + 10,000
‘Prime’ means ‘of importance’ or ‘main’.
In a manufacturing process, out of the total product cost, direct costs account
for the maximum share. Hence, these 3 costs are regarded as the ‘Prime cost’.
‘Prime cost’ is also referred to as ‘direct cost’, because it is directly attributable

to the production process.
3. Calculate the overheads: Raw material cost ₹20,000; Rent ₹2,000; Admin expenses
₹10,000; telephone expenses ₹1,000; Security salaries ₹1,000;
a) ₹13,000
b) ₹12,000
c) ₹14,000
d) ₹34,000
e) ₹22,000
Answer: c) ₹14,000
Solution:
All the indirect costs are collectively called as overheads.

‘Overhead’ literally means ‘above the level of head’ that means costs incurred
over & above the costs required for manufacturing. Hence, they are not directly
attributable to the manufacturing costs.
Raw material cost is a direct cost related to production. Hence, it is a direct cost
& not ‘indirect cost’. Therefore, it is excluded in the overhead but will be
included in the Prime cost calculation.
Indirect material + indirect labour + indirect expenses = Overheads
= Rent ₹2,000 + Admin expenses ₹10,000 + telephone expenses ₹1,000 +
Security salaries ₹1,000 = ₹14,000
4. Calculate the value of closing stock

Opening stock = ₹3,000, Purchases = ₹10,000, Sales ₹ 8,000
a) ₹21,000
b) ₹3,000
c) ₹5,000
d) ₹13,000
e) ₹8,000
Answer: c) ₹5,000
Solution:
Closing stock is the amount of inventory that a business still has on hand at the
end of a reporting period.
Opening stock + Purchases – Closing stock = Sales

Therefore, Opening stock + Purchases – Sales = Closing stock
=3,000+10,000-8,000 = ₹5000
Closing Stock is an amount of unsold stock lying in the business on a given date.
In simple words, it’s the inventory which is still in the business waiting to be
sold for a given period. The closing stock can be in various forms such as raw
materials, in-process goods (WIP) or finished goods.
This includes raw materials, work-in-process, and finished goods inventory.
The amount of closing stock can be ascertained with a physical count of the
inventory
5. Batch costing is similar to job costing except with the difference that
a) Job becomes a cost unit
b) Batch becomes a cost unit instead of job
c) Process becomes a cost unit instead of job
d) Time becomes a cost unit
e) Cost units remain the same
Answer: b) Batch becomes a cost unit instead of job
Solution:
The key difference between job costing and batch costing is that job costing is
a system used for completion of specific customer orders where each unit
produced is considered a job whereas batch costing is a method of costing
when a number of identical units are produced in a batch, but each batch is
different.
Job costing involves the accumulation of the costs of materials, labor, and
overhead for a specific job. For example, job costing is appropriate for deriving
the cost of constructing a custom machine, designing a software program,
constructing a building, or manufacturing a small batch of products.
Batch costing is another form of job costing. Under this method, homogeneous
products are taken as cost unit. A batch consists of a specific number of
products or units or articles. The number varies from one batch to another.
Hence, batch cost is used to determine the cost per unit or article per unit.
6. Tonne-km. is an example of:

a) Composite cost unit
b) Homogenous cost unit
c) Uniform cost unit
d) All of the above
Answer: a) Composite cost unit
Solution:
Composite Cost Unit is where two measurement units are combined together
to know the cost of service or operation.
It is typically used in Service costing
For example, a public transportation undertaking would measure the
operating cost per passenger per kilometre.
Examples of Composite units are Ton- km., Quintal- km, Passenger-km.,
Patient- day etc.
7. Under a Standard Costing system, the cost of the product determined at the
beginning of the production is its:
a) Direct Cost
b) Pre-determined cost
c) Historical cost
d) Actual cost
e) Selling cost
Answer: b) Pre-determined cost
Solution:
A standard costing system is a tool for planning budgets, managing and

controlling costs, and evaluating cost management performance.
A standard costing system involves estimating the required costs of a
production process.
Predetermined cost means that estimation which is made by a manufacturing
company in advance; it is done even before the production of a product starts.
The calculation for predetermined cost is done on the basis of various variables
affecting the production like raw material, labor, factory expense and so on.
8. Profit Volume ratio is used to determine the relationship between:

a) Contribution & sales
b) Profit & selling expenses
c) Cost of sales & admin expenses
d) (a) & (b)
e) (a) & (c)
Answer: a) Contribution & sales
Solution:
P/V Ratio (Profit Volume Ratio) is the ratio of contribution to sales which
indicates the contribution earned with respect to one rupee of sales. It also
measures the rate of change of profit due to change in volume of sales.
Specifically, the profit/volume ratio expresses the gross profit made on a unit
of production as a fraction or percentage of its selling price. It has a limited use
on its own and is a component of a number of other cost calculations, such as
the analysis of a company's break-even point.
Contribution= Sales – Variable Cost
‘Contribution’ represents the portion of sales revenue that is not consumed by
variable costs and so contributes to the coverage of fixed costs.
9. A budget report is prepared on the principle of exception & thus:

a) Only favourable variances should be shown
b) Only unfavourable variances should be shown
c) Both favourable & unfavourable variances should be shown
d) No variances should be shown
e) Variances should be modified
Answer: c) Both favourable & unfavourable variances should be shown
Solution:
A budget is an estimation of revenue and expenses over a specified future

period of time and is usually compiled and re-evaluated on a periodic basis.
A budget report is a comparison of the actual results of a business to a pre-
established budget, whereby it shows the deviations.
A budget report is prepared on the principle of exception - practice whereby
only the information that indicates a significant deviation of actual results from
the budgeted or planned results is brought to the management's notice. As
such, both favourable variances (indicating best performance segments) &
unfavourable variances (indicating worst performance segments) are reported

as minor variations are obvious and hence not reported.
10. Business Process Re-engineering focuses on:

a) Business process redesign
b) Business transformation
c) Improve customer service
d) All of the above
e) (a) & (c) only
Answer: d) All of the above
Solution:
Business process re-engineering (BPR) is a business management strategy,

focusing on the analysis and design of workflows and business processes within
an organization.
BPR is aimed to help organizations fundamentally rethink how they do their
work in order to improve customer service, cut operational costs, and become
world-class competitors.
BPR seeks to help companies radically restructure their organizations by
focusing on the ground-up design of their business processes.
Business process reengineering is also known as business process redesign,
business transformation, or business process change management.
Commerce & Accountancy
1. Which of the following is a function of an Accounting Information System?

a) Reducing the need to identify a strategy and strategic position
b) Transforming data into useful information
c) Allocating organisational resources
d) Automating all Decision making
e) All the above
Answer: b
An accounting information system takes all the data and figures from an
organization's financial records and arranges them into an orderly structure. The
accounting information system serves three basic functions:
a. To collect and process data,

b. To provide information to decision-makers within the organization and
c. To see that accounting personnel records information accurately and protects the
data.
2. Accounting Information System is most likely applicable to which area of accounting?

a) Tax Accounting
b) Public Accounting
c) Management Consulting
d) All of the above are applicable to AIS
e) None of the Above
Answer: d
• An accounting information system (AIS) involves the collection, storage, and

processing of financial and accounting data used by internal users to report
information to investors, creditors, and tax authorities.
• It is generally a computer-based method for tracking accounting activity in
conjunction with information technology resources.
• An AIS combines traditional accounting practices, such as the use of Generally
Accepted Accounting Principles (GAAP), with modern information technology
resources. Therefore, AIS is applicable in all areas of accounting.
3. Which of the following accurately depicts the components of an accounting

information system?
a) People, Forms and Reports
b) People, Procedure and Information Technology
C) People, Procedure and Paper
d) Procedure, Paper and Information Technology
e) People, Paper and Information Technology
Answer: b
Accounting information systems generally consist of six primary components:

a. People,
b. Procedures and instructions,
c. Data,
d. Software,
e. Information technology infrastructure, and
f. Internal controls
4. The International Accounting Standards Committee was set up in

a) 1973
b) 2009
c) 1976
d) 1982
e) 2004
Answer: a
The IASC was formed in 1973 through an agreement made by professional

accountancy bodies from Australia, Canada, France, Germany, Ireland, Japan,
Mexico, the Netherlands, the UK and the USA.
5. The accounting process in which the financial statements of a parent company and
its subsidiaries are added together to yield a unified set of financial statements is
called
a) Amortization
b) Amalgamation
c) Consolidation
d) Translation
Answer: d
Financial statement translation is a corporate accounting process by which a parent

company converts a foreign entity's financial statements into its reporting currency
to prepare consolidated financial statements.
Amortization refers to the process of allocating the cost of an intangible asset over
a period of time. It also refers to the repayment of loan principal over time.
An amalgamation is a combination of two or more companies into a new entity.
Consolidation accounting is the process of combining the financial results of several
subsidiary companies into the combined financial results of the parent company
6. Accounting Standards – 9 deals with

a) Leases
b) Accounting for Fixed Assets
c) Revenue Recognition
d) Foreign Exchange Transactions
e) Inventories
Answer: C
7. The Gross Profit Ratio is the ratio of Gross Profit to

a) Net Total Sales
b) Net Cash Sales
c) Net Credit Sales
d) Closing Stock
e) Cost of Goods Sold
Answer: a
Gross profit ratio = (Gross Profit / Net Total Sales) x 100
Gross Profit = Sales – Cost of Goods sold

Net Total Sales = (Cash sales + credit sales) – Sales Returns
8. Match List-I with List-II and select the correct answer using the codes given below the
lists
List-I List-II
1. Leverage Ratio a. Liquidity position
2. Acid test b. Efficiency of assets management
3. Turnover Ratio c. Management of working Capital
4. Current Ratio d. Debt and equity relationship
a) 1 - d, 2 - a, 3 - c, 4 -b
b) 1- b, 2- d, 3 - a, 4- c
c) 1 - b, 2 - c, 3 - a, 4 - d
d) 1-d, 2 -a, 3 – b, 4 - c
e) 1-d, 2-b, 3-c, 4-a
Answer: d
List-I List-II
1. Leverage Ratio d. Debt and equity relationship
2. Acid test a. Liquidity position
3. Turnover Ratio b. Efficiency of assets management
4. Current Ratio c. Management of working Capital
9. Acid test ratio should normally be?
a) 2:1
b) 1:1
c) 1:2
d) 2:2
Answer: b
• The acid-test, or quick ratio, compares a company's most short-term assets to its most
short-term liabilities to see if a company has enough cash to pay its immediate
liabilities, such as short-term debt.
• The acid-test ratio disregards current assets that are difficult to liquidate quickly such
as inventory
• Generally, the acid test ratio should be 1:1 or higher; however, this varies widely by
industry.
• In general, higher the ratio, greater the company's liquidity.
10. Which item comes under financial activities in cash flow?

a) Redemption of Preference Share
b) Issue of Preference Share
c) Interest Paid
d) All the above
d) None of the above
Answer: d
Cash flow from financing activities refers to inflow and the outflow of cash from the
financing activities of the company like change in capital from the issuance of
securities like equity share, preference shares, issuing debt, debentures and from
the redemption of securities or repayment of a long term or short term debt,
payment of dividend or interest on securities.
Economics:
1. Which among this is an assumption of law of demand
a) Price of the commodity should not change
b) Quantity should not change
c) Supply should not change
d) Income of consumer should not change
Answer: d) Income of consumer should not change
Solution:
The Law of Demand states that as the price increases, the demand for a
quantity decreases & hence, Price & Demand are inversely related.
One of the factor that determines quantity demanded is the level of
income.
If the income level increases, quantity demanded also increases and vice
versa.
The assumption of income level being constant means that the
purchasing power of a customer remains constant due to his level of
income. For example, if the annual income of a consumer is Rs.5 Lakhs
per annum, say, he spends 30% of his annual income on consumption
i.e., Rs.1.5 lakhs. So, in this case, he has to manage all his consumption
expenditure within this budget limit. Assuming, his increment for the
upcoming financial year is 25% which translates to Rs.6,25,000 annual
income, his consumption expenditure if assumed to increase by 5% to

35%, then the amount of consumption expenditure is 2.2 lakhs. When
such an increase in income is the case, the consumption pattern cannot
be defined and as such the operation of law of demand cannot be
identified. Hence, this assumption is necessary.
2. Which of the following is not a feature of monopolistic competition?

a) Numerous Sellers
b) Product differentiation
c) Numerous buyers
d) Homogenous products
e) All of the above
Answer: d) Homogenous products
Solution:
Homogenous product means that which cannot be distinguished from
competing products from different suppliers. The product has
essentially the same physical characteristics and quality as similar
products from other suppliers. One product can easily be substituted
for the other.
The key area is product differentiation in a monopolistic competitive
market. Although the firms are competing against each other, in
monopolistic competition there is sufficient differentiation so as to view
each firm as almost a monopoly for their own product.
All other features given in the options are a feature of a Monopolistic
competitive market.
3. What is deducted from GDP to get NDP?

a) Indirect taxes
b) Direct taxes
c) Depreciation
d) Transfer payment
e) Net income from abroad
Answer: c) Depreciation
Solution:
GDP (Gross National Product) refers to the monetary value of all final
goods & services produced in a country within a period of one year.
Depreciation is a part of this calculation & is included by default.
Depreciation being an expenditure on a capital asset, it is a capital
expenditure & hence to be deducted from GDP to arrive at NDP, which
in turn will give a correct picture of a Nation’s production.
4. In classical theory, interest rates are determined by

a) The price level and unemployment
b) Strictly by the money supply
c) The supply and demand for money
d) Saving and investment
e) All of the above
Answer: d) Saving and investment
Solution:
As per the Classical theory of Income & employment (&output), interest

rates are purely determined by the operating forces of Savings schedule
& the investments schedule. The point of intersection is regarded as the
equilibrium rate of interest. At Equilibrium rate of interest,
Savings=Investments
The relationship of price level, money supply, real wage &
unemployment were propounded by Keynes, which is a part of
Keynesian Theory of income &
employment (&output).
5. Which three of the following are

characteristics of the ‘Keynesian
Consumption Function’?
i) The main influence on consumption in
the short-run is current disposable income
ii) The marginal propensity to consume
(MPC) is greater than one
iii) The marginal propensity to consume (MPC) is less than one
iv) The average propensity to consumer (APC) will tend to fall as income increases
v) The average propensity to consume (APC) will tend to rise as income increases
a) i), iii) and v)

b) i), ii) and iv)
c) i), ii) and v)

d) i), iii) and iv)
e) ii) and v)
Answer: d) i), iii) and iv)
Solution:
Marginal propensity to consume (MPC) is less than one implies that if

income increases, the increase in consumption level will not be equal to the
increase in the level of income but less than that.
6. Balance in capital account refers to the

a) Nation’s net exports of goods and services
b) Nation’s net exports of financial claims
c) Nation’s net exports of international official reserve assets
d) Nation’s sum of net exports of goods, services and financial claims
e) All of the above
Answer: b) Nation’s net exports of financial claims
Solution:
The balance of payments (BOP) is a statement of all transactions made

between entities in one country and the rest of the world over a defined
period of time, such as a quarter or a year
The balance of payments include both the current account and capital
account.
The current account includes a nation's net trade in goods and services, its
net earnings on cross-border investments, and its net transfer payments.
The capital account consists of a nation's imports and exports of capital and
foreign aid.
7. Which are the objectives of monetary policy?

a) Maintaining price stability
b) Debt management
c) External balance of payments equilibrium
d) Rapid economic growth
e) All of the above
Answer: e) All of the above
Solution:
Monetary policy is the policy adopted by the monetary authority of a

country that controls either the interest rate payable on very short-term
borrowing or the money supply, often targeting inflation or the interest
rate to ensure price stability and general trust in the currency.
The main objectives of monetary policy are controlling inflation,
managing employment levels, and maintaining long term interest rates.
Apart from this, the other objectives are Debt management, External
balance of payments equilibrium.
8. Demand-pull inflation may be caused by

a) An increase in costs
b) A reduction in interest rates
c) A reduction in government spending
d) An outward shift in aggregate supply
e) Reduced purchasing power
Answer: b) A reduction in interest rates
Solution:
Lower interest rates are likely to encourage spending and this can cause
demand-pull inflation.
Demand-pull inflation is a tenet of Keynesian economics that describes
the effects of an imbalance in aggregate supply and demand. When the
aggregate demand in an economy strongly outweighs the aggregate
supply, prices go up.
This is the most common cause of inflation.
The term demand-pull inflation usually describes a widespread
phenomenon. That is, when consumer demand outpaces the available
supply of many types of consumer goods, demand-pull inflation sets in,

forcing an overall increase in the cost of living.
9. Speculative demand for money depends upon

a) Income
b) Investment
c) Rate of interest
d) Central bank
e) All of the above
Answer: c) Rate of interest
Solution:
Keynes propounded that people hold money/demand money for 3

purposes – Transaction motive, Precautionary motive & Speculative
motive.
While the first two depends upon the level of income, the third depends
on the rate of interest prevailing in the economy. Higher the rate of
interest, lesser would be the demand for money as the same if
deposited in the banks would fetch a return.
10. In which of the below cases would a producer like to invest?

a) MEC > r
b) MEC < r
c) MEC ≠ r
d) MEC > r > 1
e) MEC > 1
Answer: a) MEC > r
Solution:
MEC stands for Marginal Efficiency of Capital which means the expected
rate of return on investment by the entrepreneurs.
If investment is to be profitable then the MEC or the expected
profitability must be greater than the current market interest rate. This
situation encourages entrepreneur to continue with the new
investment.
On the contrary, if expected profit on investment is less than the market

interest rate the entrepreneur is discouraged and he will not continue
with a new investments.
The third possibility is the equality between the profitability and the
market interest rate. In this situation the entrepreneur will be
indifferent and he is reluctant to either raise or to curb down his
investment. Thus, the relationship between interest rate and expected
profitability together will determine the investment. In a nutshell it can
be expressed as.
MEC > r → I↑
MEC < r → I↓
MEC = r → I
Management:
Q.1) Which of the following is not a characteristic of management?
A) Management is a process and not just a body of individuals.
B) Management and ownership are usually the same
C) Management is result oriented and action based
D) Management is a group activity directed towards a common goal
E) Management is both art as well as science
Answer: Option B) Management and ownership are usually the same
Explanation:
The characteristics of management are –
• Management is a process and not just a body of individuals
• Management takes place through people, hence it is a social process
• Management is result-oriented and action-based
• Management is a group activity directed toward a common goal.
• Management is intangible invisible government or spirit which functions & guides
people
• Management is integrating financial, physical and human resources and getting
the best output
• It is both Art as well as Science – What to achieve (Science) and how to accomplish
(Art)
• Management can be defined as a process, discipline, activity, group, profession,
art and science
• Management is pervasive, universal and comprehensive and is present at all levels
• Management is innovative, dynamic and situational.
• Management and ownership are not same, Managers manage on behalf of owners
• Management is dynamic and influenced by economic, social, political and human
resource
Q.2) Which of the following concept identify deviation from set practices and standards
which have an impact on organizational performance and focussing on correcting those
actions?
A) Management by Exception
B) Management by Objectives
C) Classical Management
D) Management by Rules
E) None of the above
Answer: Option A) Management by Exception
Explanation:
• Management by Exception looks for deviation from best practices and focusses on
core responsibilities.
Q.3) There is a coach of school cricket team. The coach has set the target for the team’s
practice session. He told all his players that they have to work towards achieving team
goal. These targets need to be achieved and against which actual performance will be
measured.
Which of the following functions of management has been used by cricket coach?
A) Planning
B) Staffing
C) Organizing
D) Directing
E) Controlling
Answer: Option A) Planning
Explanation:
• Planning is the basic function of management.
• It deals with chalking out a future course of action & deciding in advance the most
appropriate course of actions for achievement of pre-determined goals.
• In above case study, the cricket coach has used Planning.
Q.4) A manufacturing company based in Noida is planning to increase its production by

40% in the next year. Which of the following characteristics of management is highlighted
in the above case?
A) Management is a goal-oriented process
B) Management is innovative, dynamic and situational
C) Management is a group activity directed toward a common goal

D) Management is a process
Answer: Option A) Management is a goal-oriented process
Explanation:
• In above case, the manufacturing company has set a goal to increase its production
by 40%.
• This highlights that management is a goal-oriented process.
Q.5) Read the following statement:
1. Analyse the business environment and its implications for the survival of the business.
2. Ensure the quality of the output.
3. They strive to reduce the wastage of the resources.
4. They ensure that safety standards are maintained within the organization.
Which of the following statements is true for lower level of management?

A) 1 & 4
B) 1, 3 & 4
C) 2, 3 & 4
D) 1, 2 & 3
E) All of the above
Answer: Option C) 2, 3 & 4
Explanation:
• Statement 1 is the function of top management.
• Statement 2, 3 & 4 are the function of lower level management.
Q.6) Which of the following level of management has main task to determine the overall
organizational objectives and strategies for the realisation?
A) Top level Management
B) Middle level Management
C) Lower level Management
D) Both A & B
Answer: Option A) Top level Management
Explanation:
• Top level Management has main task to determine the overall organizational
objectives and strategies for the realisation.
Q.7) Ms. Sheela has been given the responsibility of managing school fete. To make the
event successful she divided the whole activity into task group each dealing with a specific
area. After giving each task to an individual she kept overall supervision in her own hands
and made sure that there should be coordination among all the activities.
Which of the following functions of management has been described in the above case
study?
A) Planning
B) Directing
C) Staffing
D) Organizing
E) Controlling
Answer: Option D) Organizing
Explanation:
• Organizing is the process of bringing together physical, financial and human
resources and developing productive relationship amongst them for achievement
of organizational goals.
• In above case study, Ms. Sheela has used organizing function of management.
Q.8) Read the following statement:
1. Maximizing output and minimizing costs and efforts through optimum utilization of
resources.
2. Mutual Benefits for Employers and Employees through smooth and coordinated
functioning.
3. Ensuring Social Equality and Justice through improved productivity and employment
management.
4. Increasing Effectiveness available resources through best combination and application.
5. Minimizing Risk through forecasting, communication and flexibility.
6. Future Planning through evaluating present performance, vision and improvisation.
Which of the following is the objectives of management?

A) Except 2
B) Except 3
C) Except 2 & 3
D) Except 4
E) All are the objectives of management.
Answer: Option E) All are the objectives of management.
Explanation:
All given statements describe the objective of management.
• Maximizing output and minimizing costs and efforts through optimum utilization
of resources.
• Mutual Benefits for Employers and Employees through smooth and coordinated
functioning.
• Ensuring Social Equality and Justice through improved productivity and
employment management.
• Increasing Effectiveness available resources through best combination and
application.
• Minimizing Risk through forecasting, communication and flexibility.
• Future Planning through evaluating present performance, vision and
improvisation.
Q.9) There is a publishing company based in New Delhi. Its book on Business Studies for
class XII is in great demand. As a result, the employees in the marketing department are
always racing against time. The employees have to work overtime and on holidays to cater
to the demand.
So, in above case which of the following functions of management should be used by
company to solve the problem of the employees?
A) Planning
B) Directing
C) Staffing
D) Organizing
E) Controlling
Answer: Option C) Staffing
Explanation:
• Staffing is the function of manning the organization structure and keeping it
manned.
• So, in above case study company should use the staffing process and recruit more
employees. This will help in reducing the working hours of the employees.
Q.10) Which of the following approach of planning is also refers as ‘Stepwise Design’?
A) Top Down Approach
B) Bottom Up Approach
C) Matrix Approach
D) Circular Approach
E) Linear Approach
Answer: Option A) Top Down Approach
Explanation:
• Top-Down Planning is a method of planning, defining objectives and ways to
achieve them through the top down.
• First, global (framework) goals are set, and ways how to achieve them.
• They are gradually moved to lower and lower levels of the organizational hierarchy
to be developed and specified.
• It is therefore a divergent approach.
• Top Down Planning is also known as ‘Reverse Engineering Approach’ or ‘Stepwise
Design’.
Companies Act
1. The Registrar shall register any alteration of the memorandum with respect to the
objects of the company and certify the registration within a period of how many
days from the date of filing the special resolution?
a) 7 days
b) 15 days
c) 30 days
d) 45 days
e) 60 days
Answer: c) 30 days
Solution:
As provided in section 61, a company may, by a special resolution and
after complying with the procedure specified in this section, alter the
provisions of its memorandum.
As provided in section 64, a company shall, in relation to any alteration
of its memorandum, file with the Registrar— (a) the special resolution
passed by the company under sub-section (1);
A company, which has raised money from public through prospectus
and still has any unutilised amount out of the money so raised, shall not
change its objects for which it raised the money through prospectus
unless a special resolution is passed by the company and—
1. The details, as may be prescribed, in respect of such resolution shall
also be published in the newspapers (one in English and one in
vernacular language) which is in circulation at the place where the
registered office of the company is situated and shall also be placed
on the website of the company, if any, indicating therein the
justification for such change;
2. The dissenting shareholders shall be given an opportunity to exit by
the promoters and shareholders having control in accordance with
regulations to be specified by the Securities and Exchange Board.
The Registrar shall register any alteration of the memorandum with

respect to the objects of the company and certify the registration
within a period of thirty days from the date of filing of the special
resolution in accordance with clause (a) of sub-section (6) of this
section 61.
2. Which of the share type below can be issued at a discount?

a) Bonus shares
b) Equity shares
c) Preference shares
d) Sweat Equity shares
e) All of the above
Answer: d) Sweat Equity Shares
Solution:
According to section 53, a company shall not issue shares at a discount,
except in the case of an issue of sweat equity shares given under section
54 of the Companies Act, 2013 (subsection 1).
Any share issued by a company at a discount shall be void. (sub section
2)
Exception: Notwithstanding anything contained in sub-sections (1) &
(2), a company may issue shares at a discount to its creditors when its
debt is converted into shares in pursuance of any guidelines or
directions or regulations specified by the Reserve Bank of India under
the Reserve Bank of India Act, 1934 or the Banking (Regulation) Act,
1949.
Where any company fails to comply with the provisions of this section,
such company and every officer who is in default shall be liable to a
penalty which may extend to an amount equal to the amount raised
through the issue of shares at a discount or five lakh rupees, whichever
is less, and the company shall also be liable to refund all monies received
with interest at the rate of 12% p.a. from the date of issue of such shares
to the persons to whom such shares have been issued.
Sections 52 & 53 imply that these restrictions are only on the issue of
shares but not on debt related products like bonds or debentures.
3. An LLP firm can be an auditor of the company

a) No
b) Yes. There are no conditions
c) Only qualified Charted Accountants are authorised
d) Qualified Charted Accountant can act on behalf of the firm

e) (c)& (d)
Answer: e) (c) & (d)
Solution:
As per Section 141(1) & (2) which states about the Qualifications of an
auditor,
Where a firm including limited liability partnership is appointed as an
auditor of a company, only the partners who are chartered accountants
shall be authorised to act and sign on behalf of the firm.
4. As per the Provisions on the declaration of dividend, dividends can be declared

a) Only out of current year profit
b) Only out of previous year profit
c) Partly out of current year profit & partly out of previous year/(s) profit
d) Out of share capital
e) Out of Securities premium reserve
Answer: c) Partly out of current year profit & partly out of previous year/(s)
profit
Solution:
As per section 123(1), the dividend for any financial year shall be
declared or paid from the following sources:
(a) Profits of the current financial year: profits arrived at after providing
for depreciation in accordance with Schedule II
(b) Profits of any previous financial year or years: after providing for
depreciation in accordance with Schedule II and remaining
undistributed balance in P&L account and free reserves.
(c) Both (a) & (b)
For the purpose of declaring dividend, carried over previous losses and
depreciation not provided in the previous year/s are required to be set
off against the profit of the company for the current year. At the same
time, unrealised gains, notional gains or revaluation of assets and any
change in carrying amount of an asset or of a liability on measurement
of the asset or the liability on measurement of the asset or the liability
at fair value shall be excluded.
5. Tedocks Ltd. has earned a profit of Rs.1000 crores for the year 2018-19.
It has a proposed dividend @ 8.75% but does not intend to transfer any amount to
its reserves out of the profits earned. Can the company do so?
a) No. 50% of the profits earned should be transferred to Reserves
b) No. 25% of the profits earned should be transferred to Reserves
c) No. 60% of the profits earned should be transferred to Reserves
d) No. at least 10% of the profits earned should be transferred to Reserves
e) No restrictions on transfer to reserves
Answer: e) No restrictions on transfer to reserves
Solution:
The amount to be transferred to reserves out of profits for any financial
year is at the discretion of the company. As such, the company is free to
transfer any part/ no part of its profits to reserves as it may deem fit but
before the declaration of the dividend.
6. Audit committee constitution is compulsory in which of the below cases?

a) Listed companies
b) Public companies with a paid up capital of Rs.10 crore or more
c) Public companies with a turnover of Rs.100 crore or more
d) Public companies with an outstanding debts of Rs.50 crore or more
e) All of the above
Answer: e) All of the above
Solution:
As per section 177 of the Companies Act, provides that The Board of
Directors of all listed companies & following classes of companies shall
constitute the audit committee.
Public companies with a paid up capital of Rs.10 crore or more
Public companies with a turnover of Rs.100 crore or more
o Public companies with an aggregate, outstanding loans or
borrowings or debentures or deposits of Rs.50 crore or more.
The Audit committee so formed shall take into consideration the

qualifications and experience of the individual or the firm proposed to
be considered for appointment as auditor and whether such
qualifications and experience are commensurate with the size and the
requirements of the company.
7. What is the minimum number of directors in the case of a public company?

a) 7
b) 10
c) 3
d) 2
e) 15
Answer: c) 3
Solution:
As per Chapter XI of the Companies Act, 2013—
(1) Every company shall have a Board of Directors consisting of
individuals as directors and shall have—
(a) a minimum number of three directors in the case of a public
company, two directors in the case of a private company, and one
director in the case of a One Person Company; and
(b) a maximum of fifteen directors:
Provided that a company may appoint more than fifteen directors after
passing a special resolution: Provided further that such class or classes
of companies as may be prescribed, shall have at least one woman
director.
8. The conditions for the appointment of an alternate director is/are:

a) He should not be an alternate director for any other director
b) The Director’s absence period should be at least 3 months
c) The Director’s absence period should be at least 6 months
d) (a) & (b)
e) (a) & (c)
Answer: e) (a) & (c)
Solution:
The Board of Directors of a company may, if so authorised by its articles
or by a resolution passed by the company in general meeting, appoint a
person, not being a person holding any alternate directorship for any
other director in the company, to act as an alternate director for a
director during his absence for a period of not less than three months
from India.
Provided further that an alternate director shall not hold office for a
period longer than that permissible to the director in whose place he
has been appointed and shall vacate the office if and when the director
in whose place he has been appointed returns to India.
Automatic re-appointment of retiring directors in default of another

appointment shall apply to the original, and not to the alternate
director.
9. The Appellate Tribunal is constituted by

a) The Central Government
b) The State government
c) The High Court
d) The Supreme Court
e) The President of India
Answer: a) The Central Government
Solution:
The Central Government shall, by notification, constitute, with effect
from such date as may be specified therein, an Appellate Tribunal to be
known as the National Company Law Appellate Tribunal consisting of a
chairperson and such number of Judicial and Technical Members, not
exceeding eleven, as the Central Government may deem fit, to be
appointed by it by notification, for hearing appeals against the orders of
the Tribunal.
10. An invitation issued prior to the issue of a company’s Prospectus is:

a) Blow herring Prospectus
b) Priority Prospectus
c) Red herring Prospectus
d) Sample Prospectus
e) BOD Prospectus
Answer: c) Red herring Prospectus
Solution:
A company proposing to make an offer of securities may issue a red
herring prospectus prior to the issue of a prospectus.
This prospectus does not include complete particulars of the quantum
or price of the securities included therein.
A company proposing to issue a red herring prospectus under sub-
section (1) shall file it with the Registrar at least three days prior to the
opening of the subscription list and the offer.
A red herring prospectus shall carry the same obligations as are
applicable to a prospectus and any variation between the red herring
prospectus and a prospectus shall be highlighted as variations in the

prospectus.
Upon the closing of the offer of securities under this section, the
prospectus stating therein the total capital raised, whether by way of
debt or share capital, and the closing price of the securities and any
other details as are not included in the red herring prospectus shall be
filed with the Registrar and the Securities and Exchange Board.
Finance:
1. Which of the following is not a function of SEBI?
a) Regulation of stock market
b) Regulation of money market
c) Regulation of Mutual funds
d) Both b and c
e) All are functions of SEBI
Answer: b
Solution: Money market is regulated by RBI.
The various functions of SEBI are:
• To protect the interests of investors in securities market
• To promote the development of securities market
• To regulate the business in stock exchanges and any other securities markets
• To register and regulate the working of stock brokers, sub-
brokers, share transfer
agents, bankers to an issue, trustees of trust deeds, registrars to an issue,
merchant
bankers, underwriters, portfolio managers, investment advisers and such
other intermediaries who may be associated with securities markets in any
manner
• To register and regulate the working of the depositories, participants, custodians
of securities, foreign institutional investors, credit rating agencies
• To register and regulate the working of
venture capital funds and collective investment schemes including mutual
funds
• To promote and regulate self-regulatory organizations
• To prohibit fraudulent and unfair trade practices relating to securities markets

• To promote investors‘ education and training of intermediaries of securities
markets
• To prohibit insider trading in securities
• To regulate substantial acquisition of shares and take over of companies
• To conducting research for efficient working and development of securities market
2. Which of the following is the regulator of housing finance companies?
a) National Housing Bank
b) SEBI
c) RBI
d) NABARD
Answer: c
Solution: The government has taken away the powers of the National Housing Bank (NHB)
to regulate housing finance companies (HFCs) and handed them to the Reserve Bank of
India (RBI). NHB will continue to supervise housing finance companies.
3. Primary market is also known as

a) Money market
b) New issue market
c) Commodity market
d) Both a and b
Answer: b
Solution: Primary markets create long term instruments through which corporate entities
raise funds from the capital market. It is also known as the New Issue Market (NIM).
4. Which of the following issues Treasury bills for Government of India?

a) State Bank of India
b) Department of economic affairs
c) Department of Expenditure under fin ministry

d) Niti Aayog
Answer: e
Solution: RBI issues T bills for government of India. RBI is the debt manager of government
of India.
5. When interest rate increases, price of bond will

a) Rise
b) Fall
c) not change
d) Either a or c
Answer: b
Solution: Market interest rate and price of bond are inversely related. Thus, increase in
interest rate will result in fall of bond price
6. Derivative instrument in which holder have rights and no obligations is

a. Options
b. Forwards
c. Futures
d. All of the above
e. None of the above
Answer key: (a).
Options are derivative instruments, in which buyer have rights to enforce the trade, but
under no obligations to do so. Future holders have right as well as obligations. Forward
holders have no rights and no obligations. Forwards are non-standardised derivatives.
7. When derivatives are traded off the exchange, it is called

a) Private settlement
b) Informal settlement
c) Over the counter trade
d) Both a and b

Answer key: c
Solution: Derivatives can be traded either on a regulated exchange, such as the NSE or off
the exchanges, i.e., directly between the different parties, which is called “over-the-
counter” (OTC) trading.
Derivatives like forwards are generally traded Over the counter route, while futures and
options are traded on the stock exchange
8. What is the Priority sector lending (PSL) target for Indian banks?
a) 40%
b) 32%
c) 38%
d) 42%
Answer key: a
Solution: Indian banks and foreign banks in India having 20 or more branches have to lend
40 % of their adjusted net bank credit to priority sectors like agriculture, education,
housing, exports, weaker sections, micro industries, renewable energy and social
infrastructures. Within PSL target, 18% is allotted for agriculture, 7.5% for micro
enterprise and 10% for weaker sections.
9. TLTRO was in news recently. What is the full form of TLTRO?

a) Targeted Long Term Resilience Operation
b) Targeted Long Tenure Repo Operations
c) Targeted Long Term Reverse Repo Operation
d) Targeted Long Term Repo Operation
e) None
Answer: d
Solution: The Reserve Bank of India (RBI) on March 27 2020 introduced the Targeted Long
Term Repo Operations (TLTROs) as a tool to enhance liquidity in the system, particularly
the corporate bond market, in the wake of the COVID-19 crisis. LTRO is a tool that lets
banks borrow one to three-year funds from the central bank at the repo rate, by providing
government securities with similar or higher tenure as collateral. It is called 'Targeted'

LTRO as in this case, the central bank wants banks opting for funds under this option to
be specifically invested in investment-grade corporate debt.
10. . Electronic waybill (E-WAY bill) is mandatory for movement of goods exceeding value
of,
a) 1 lakh
b) 2 lakhs
c) 50000 rupees
d) 75000 rupees
Answer key: c
Solution: E-Way Bill is the short form of Electronic Waybill. It is a unique document/bill,
which is electronically generated for the specific consignment/movement of goods from
one place to another, either inter-state or intra-state and of value more than INR 50,000,
required under the current GST regime.
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SEBI GRADE A

Multiple Choice Questions of Paper 2 – SEBI Grade A Exam

Answer: b) Chargeable expenses

Direct expenses are also called chargeable expenses.

‘Prime cost’ is also referred to as ‘direct cost’, because it is directly attributable

All the indirect costs are collectively called as overheads.

4. Calculate the value of closing stock

Opening stock + Purchases – Closing stock = Sales

Answer: b) Batch becomes a cost unit instead of job

6. Tonne-km. is an example of:

Answer: a) Composite cost unit

Answer: b) Pre-determined cost

A standard costing system is a tool for planning budgets, managing and

8. Profit Volume ratio is used to determine the relationship between:

Answer: a) Contribution & sales

9. A budget report is prepared on the principle of exception & thus:

Answer: c) Both favourable & unfavourable variances should be shown

A budget is an estimation of revenue and expenses over a specified future

unfavourable variances (indicating worst performance segments) are reported

10. Business Process Re-engineering focuses on:

Answer: d) All of the above

Business process re-engineering (BPR) is a business management strategy,

Commerce & Accountancy

1. Which of the following is a function of an Accounting Information System?

a. To collect and process data,

2. Accounting Information System is most likely applicable to which area of accounting?

• An accounting information system (AIS) involves the collection, storage, and

3. Which of the following accurately depicts the components of an accounting

Accounting information systems generally consist of six primary components:

4. The International Accounting Standards Committee was set up in

The IASC was formed in 1973 through an agreement made by professional

Financial statement translation is a corporate accounting process by which a parent

6. Accounting Standards – 9 deals with

7. The Gross Profit Ratio is the ratio of Gross Profit to

Gross profit ratio = (Gross Profit / Net Total Sales) x 100

Gross Profit = Sales – Cost of Goods sold

9. Acid test ratio should normally be?

• In general, higher the ratio, greater the company's liquidity.

10. Which item comes under financial activities in cash flow?

Answer: d) Income of consumer should not change

income, his consumption expenditure if assumed to increase by 5% to

2. Which of the following is not a feature of monopolistic competition?

Answer: d) Homogenous products

3. What is deducted from GDP to get NDP?

4. In classical theory, interest rates are determined by

Answer: d) Saving and investment

As per the Classical theory of Income & employment (&output), interest

5. Which three of the following are

a) i), iii) and v)

c) i), ii) and v)

Answer: d) i), iii) and iv)

Marginal propensity to consume (MPC) is less than one implies that if

6. Balance in capital account refers to the

Answer: b) Nation’s net exports of financial claims

The balance of payments (BOP) is a statement of all transactions made

7. Which are the objectives of monetary policy?

Answer: e) All of the above

Monetary policy is the policy adopted by the monetary authority of a

8. Demand-pull inflation may be caused by