1. The auditor wants to examine whether shipping documents are properly billed.

He selected 100
shipping documents from a population of 1,000 shipping documents and performed
examination. 5 unbilled shipping documents were found. If the tolerable deviation rate is 4%,
which one of the following is FALSE?
A. The auditor needs to extend sample size
B. The auditor needs to extend substantive procedures
C. The auditor needs to modify audit opinion
D. The auditor needs to test alternative controls to achieve the objective
2. Western PLC uses periodic inventory system. The following balances were taken from its
accounting record;
-Merchandise inventory balance as of March 1, 2023............. Birr 400,000
-Merchandise inventory balance as of March 31, 2023..............Bir 150,000
-Purchase during the period........... ...........Birr 510,000
- Purchase discount........Birr 10,000
-Freight out.............. ... Birr 5,000
The cost of merchandise sold is:
A. Birr 250,000
B. Birr 745,000
C. Birr 760,000
D. Birr 750,000
3. Which of the following procedures is not performed as a part of planning an audit engagement?
A. Designing an audit program
B. Performing analytical procedures
C. Reviewing the working papers of the prior year
D. Confirmation of all major accounts
4. Typically, borrowers have superior information relative to lenders about the potential returns
and risks associated with an investment project. The difference in information is called:
A. Moral selection.
B. Risk sharing.
C. Asymmetric information.
D. Adverse hazard.
5. Which of the following statement is correct?
 A. When sales journal is used, daily posting is made to control account and monthly posting of
total is made to subsidiary ledger
B. General journals are designed to record a single kind of transaction that occurs frequently.
C. The combined balance of every account in credit customer's subsidiary ledger equals the
balance of accounts Payable in the general ledger.
D. Companies create subsidiary ledgers whenever they need to monitor the individual
components of a controlling general ledger account.

6. The auditor tests entity’s policy of obtaining credit approval before shipping goods to customers
to support which of the following management assertions?
A. Completeness
B. Rights and obligations
C. Existence or occurrence
D. Valuation or allocation
7. At the end of the year, after adjusting and closing entries, the Overvaluation of Branch Inventory
account on the home office books will contain:
A. The markup on the branch's ending inventory less the markup on the branch's beginning
inventory.
B. The markup on the branch's ending inventory.
C. The markup on the branch's beginning inventory plus the markup on this year's shipments to
the branch.
D. The unrealized profit on branch sales for the year.
8. Which of the following transactions involving the issuance of shares does not come within the
definition of a share-based payment?
A. Employee share purchase plans.
B. Share appreciation rights.
C. Employee share option plans.
D. Share-based payment relating to an acquisition of a subsidiary.
9. Which of the following is FALSE about public debt
A. Public debt may be raised to meet the normal current expenditure, exigencies like war,
finance productive government enterprise, finance public social welfare and economic
development
B. Public debt raised for productive purpose will not be a burden on the economy.
C. It is one source of financing budget deficit
D. It can only be used to promote economic development not to finance wars.
10. X has control over the composition of Y's board of directors. X owns 49% of Y and is the largest
shareholder. X has an agreement with Z, which owns 10% of Y, whereby Z will always vote in the
same way as X. Can X exercise control over Y?
A. X can exercise control because it controls more than 50% of the voting power, and it can
govern the financial and operating policies of Y.
B. X cannot exercise control because it can control only the makeup of the board and not
necessarily the way the directors' vote.
C. X cannot exercise control because it owns only 49% of the voting rights.
D. X can exercise control solely because it has an agreement with Z for the voting rights to
be used in whatever manner X wishes.
11. The amortized cost method of accounting for investments is not applicable to:
A. Trading debt instruments.
B. Available-for-sale debt instruments.
C. Trading equity instruments.
D. Held-to-maturity debt instruments.

12. A products standard cost card specifies that a unit of the product requires 4 direct labor-hours.
During September, 3,350 units were made, which was 150 units less than budgeted. The total
budgeted direct labor cost for September was Birr 117,600. The direct labor cost incurred during
September was Birr 111,850 and 13,450 direct labor-hours were worked. The direct labor
efficiency variance for the month was:
A. Birr 420.00 Unfavorable
B. Birr 415.80 Unfavorable
C. Birr 420.00 Favorable
 D. Birr 415.80 Favorable
13. The primary purpose of deposit insurance is to
A. Protect bank shareholders against losses.
B. Improve the flow of information to investors.
C. Prevent banking panics.
D. Protect bank employees from unemployment.
14. HH Company uses process costing system in weighted average method. Records for department
1 shows the following for March 2022:

Beginning Work in process, 80% complete as to Conversion cost.....5,000 units

Units stared in March..........25,000

Ending work in process, 25% complete as to Conversion cost.......8,000

Beginning work in process inventory cost:

Material... Birr 20,000

Conversion cost....60,000

Costs in March:

Material..............Birr 34,000

Conversion cost... 72,000

All material is added at the start of the process and all finished products are transferred out. What is the
cost per equivalent unit of production for material and conversion cost?

A. Birr 1.70 and 5.30 respectively

B. Birr 1.80 and Br 5.50 respectively
C. Birr 2.70 and 6.6 respectively
D. Birr 2.20 and 5.40 respectively
15. Which of the following adjustments do not occur in the consolidating process?
A. Elimination of parent's retained earnings.
B. Allocations of difference between implied and book values.
C. Elimination of the investment account.
D. Elimination of intra-company balances.
16. Which of the following is not a legal requirement on Category "B" tax payers:
A. Submit the Tax Declaration Form to the tax authority within 2 months from the end of the
tax year.
B. Maintain accounting records
C. Submit Balance sheet and a profit & loss statement
D. Use registered vouchers
17. Which of the following is not a revenue source for the Regional Governments of Ethiopia
A. Profit and sales tax collected from individual traders.
B. Taxes collected on income from air, train and marine transport activities.
C. Rural land use fee.
D. Tax on income from inland water transportation.
18. Central City was awarded two state grants during its fiscal year ending September 30, 2020: a
Birr 2 million block grant that can be used to cover any operating expenses incurred during fiscal
2021, and a Birr 1 million grant that can be used any time to acquire equipment for its police
department. For the year ending September 30, 2020, Central City should recognize in grant
revenue in its fund financial statements (in millions):
A. Birr 0
B. Birr 1 million
C. Birr 2 million
D. Birr 3 million
19. Which one of the following is FALSE about perpetual inventory system?
A. Cost of goods sold is determined after each sale.
B. Average costs are computed as a simple average of unit costs incurred.
C. Inventory records continuously show balances that should be on hand.
D. FIFO cost of goods sold will be the same as in a periodic inventory system.
20. Substantive procedures to examine the cut off assertion for accounts payable include
A. Re-computing the mathematical accuracy of a sample of vendor invoices
B. Selecting a sample of receiving reports around year-end and comparing dates on related
vouchers to dates in the purchases journal
C. Selecting a sample of vouchers and agreeing them to authorized purchase orders
D. Selecting a sample of vouchers and agreeing them to the purchases journal
 21. Slick Co. had a Swiss franc receivable resulting from exports to Switzerland and a Mexican peso
payable resulting from imports from Mexico. Slick recorded foreign exchange gains related to
both its franc receivable and peso payable. How did the foreign currencies increase or decrease
in Birr vade from the date of the transaction to the settlement date?
A. Decrease Franc, Increase Peso
B. Increase Franc, Decrease Peso
C. Decrease Franc Decrease Peso
D. Increase Franc, Increase Peso

22. Rice Industries owns a manufacturing plant in a foreign country. Political unrest in the country
indicates that Rice should investigate for possible impairment. Below is information related to
the plant's assets (Birr in millions):

Book value…….Birr 190

Undiscounted sum of future estimated cash flows………210

Present value of future cash flows…………….175

Fair value less cost to sell (determined by appraisal) …………..180

The amount of impairment loss that Rice should recognize is:

A. Birr 20 million
B. There is no impairment.
C. Birr 10 million
D. Birr 15 million
23. According to the acquisition method of accounting for business combinations, costs paid to
attorneys and accountants for services in arranging a merger should be:
A. Included in recognized goodwill.
B. Recorded as an expense in the period the merger takes place.
C. Capitalized as part of the overall fair value acquired in the merger.
D. Written off over a 5-year maximum useful life.
 24. Parent Inc. and Sub Inc. had the following balance sheets on July 31, 2022:

Parent Inc. Sub Inc. Sub Inc.

(carrying value in Birr) (carrying value in Birr) (fair value in Birr)

Cash 180,000 36,000 36,000

Accounts Receivable 100,000 40,000 40,000
Inventory 60.000 24,000 27,000
Plant and Equipment 200,000 80,000 93,000
(net)
Goodwill 8,000
Trademark 12.000 15,000
Total Assets 540,000 200,000
Current Liabilities 80,000 50,000 50,000
Bonds Payable 320,000 20,000 24,000
Ordinary Shares 90,000 80,000
Retained Earnings 50,000 50.000
Total Liabilities and 540,000 200,000
Equity

Assuming that Parent Inc. acquires 100% of Sub Inc. on August 1, 2022 for cash of Birr 135,000, what
would be the amount of goodwill or (a gain from bargain purchase or negative goodwill) appearing on
the Consolidated financial statements on the date of acquisition if the identifiable net assets (INA) or
partial goodwill method were used?

A. Birr2,000
B. (Birr2,000)
C. Birr7,000
D. (Birr7,000)
25. Which of the following is commonly traded in the money market
A. Treasury note
 B. Preferred shares
C. Government bond
D. Treasury bill
26. The accounting equation shows
A. The equality of asset with owner's equity
B. The equality of resources with sources
C. The equality of revenue with expense
D. The equality of net income with net loss
27. Elizabeth, a public limited company, has granted 100 share appreciation rights to each of its
1,000 employees in January 20X4. The management feels that as of December 31, 20X4, 90% of
the awards will vest on December 31, 20X6. The fair value of each share appreciation right on
December 31, 20X4, is Birr 10. What is the fair value of the liability to be recorded in the
financial statements for the year ended December 31, 20X4?
A. Birr 90,000
B. Birr 300,000
C. Birr 100,000
D. Birr 10 million
28. Which of the following items should be accounted for in an Agency Fund when a special
assessment project is financed by issuing special assessment debt for which the government is
not obligated in any manner?
A. The capital assets constructed or acquired.
B. The debt service transactions.
C. The long-term debt issued.
D. The bond proceeds and construction costs.
29. At the beginning of the year, a company purchases a patent for Birr 2,400,000. The remaining
legal life of the patent is 12 years, but management estimates that the patent will generate
additional revenue for the next 16 years because there are currently no known competitors. At
the end of the first year, management calculates straight-line amortization to be Birr 150,000.
Which of the following statements is correct?
A. Management should amortize the asset over 20 years.
B. Management's calculation is correct.
C. Management should not amortize the asset until its useful life becomes more evident.
 D. Management should amortize the asset over 12 years.
30. Hope Bank purchased a special Copier machine. The machine, costs Birr 340,000, and was
estimated to have a useful life of 10 years. The estimated residual value is Birr 40,000. After two
years of service it became evident that the copier machine's total useful life is 7 years instead of
10 years. Depreciation was recorded for two years based on straight line method. There is no
change on estimated residual value. Based on this information, what is the new annual
depreciation charge on the basis of the revised estimated useful life?
A. Birr 42,500
B. Birr 56,000
C. Birr 30,000
D. Birr 52,000

31. M&M Proposition I with taxes is based on the concept that:

A. The optimal capital structure is the one that is totally financed with equity.
B. The value of the firm increases as total debt increases because of the interest tax shield.
C. The capital structure of the firm does not matter because investors can use homemade
leverage.
D. The weighted average cost of capital increases as the debt-equity ratio of a firm increases.
32. The basic principle used to value an asset acquired in a nonmonetary exchange is to value it at:
A. Fair value or book value, whichever is smaller.
B. Fair value of the asset(s) given up.
C. Book value of the asset given.
D. The book value of the asset given plus any cash or other monetary consideration received.
33. The principal lender-savers in a financial system are:
A. Businesses.
B. Governments
C. Foreigners.
D. Households
34. What is the major source of revenue for an insurance company?
A. Insurance premiums
B. Salvage
 C. Interest income
D. Rental income
35. The main purpose for establishing a code of conduct for professionals is to:
A. Guarantee that all members of the profession perform at the same level of competence
B. Protect members of the profession from being sued for substandard work
C. Enable users to evaluate by themselves the quality of professional services
D. Demonstrate acceptance of responsibility to the interests of those served by the profession
36. The additional incentive that a buyer of a Treasury security requires to buy a long-term security
rather than a short-term security is called:
A. Tax premium.
B. Market premium.
C. Term premium.
D. Risk premium.
37. Lower-of-cost-or-net realizable value as it applies to inventory is best described as:
A. The assumption to determine inventory flow.
B. The method of determining cost of goods sold.
C. The change in inventory value to net realizable value.
D. The reporting of a loss when there is a decrease in the future utility below the original cost
38. Sharp Company uses specific identification method to value its inventory. It purchases
Communication Radio on different dates at different costs as follows:

January 5: 2units at a cost of Birr 2,000

February 8: 3 units at a cost of Birr 3,000

June 10: 5 units at a cost of Birr 4,000

On June 25, 6 units are sold at Birr 5,000 each. From the items sold, 3 units are from February 8's
purchase and 3 units are from June 10th purchase. The amount of cost of goods sold and ending
inventory as of June 30 are……………. And…………… respectively:

A. Birr 17,000 and Birr 16,000

B. Birr 12,000 and Birr 21,000
C. Birr 30,000 and Birr 20,000
D. Birr 21,000 and Birr 12,000
39. Which of the following is correct?
A. Shareholders' equity account is credited by authorized shares multiplied by par value.
B. Declaration of all types of dividend reduces cash balance.
C. Dividend payable is recorded on the date of declaration of dividend.
D. As compared to other form of businesses it is difficult to raise funds in share companies
40. Which of the following statements is true for both governmental organizations and for-profit
organizations?
A. Revenue may be earned through exchange transactions.
B. Lack of a profit motive.
C. Absence of owners.
D. Resources are provided by individuals and entities that may not directly benefit from the use
of the resources.
41. Which of the following is FALSE?
A. Audit is classified as internal & external based on the type of information audited
B. Internal auditors independence is maintained by organizational structure
C. The value of assurance depends on the independence of the assurance provider
D. Organizations use audited financial statement to reduce information risk
42. The City of Turkana arranged for a 10-year, Birr 40 million loan to finance construction of a toll
bridge. If the toll bridge is accounted for as an Enterprise Fund activity and a certain portion of
the tolls collected is required to be set aside for maintaining the bridge, these resources should
be accounted for in
A. a Capital Projects Fund
B. the General Fund
C. a Debt Service Fund
D. the Toll Bridge Enterprise Fund
43. When agricultural produce is harvested, the harvest should be accounted for by using IAS 2,
Inventories, or another applicable International Accounting Standard. For the purposes of that
Standard, cost at the date of harvest is deemed to be
A. Its fair value less estimated point-of-sale costs at point of harvest.
B. The historical cost less accumulated impairment losses.
C. The historical cost of the harvest.
D. Market value.
 44. Which of the following is least likely to cause uncertainty about the ability of an entity to
continue as a going concern?
A. The entity has a court case with competitor for a minor patent infringement
B. The entity has working capital deficiencies
C. The entity has lost a major customer
D. The entity has significant recurring operating losses
45. On January 1, 2022, Bright light Hotel purchased a walking machine for Birr 30,000. The machine
has estimated useful life of five years and has a residual value of Birr 5,000. The company uses
double declining balance method. What will be the amount of depreciation expense for the year
ending December 31, 2022?
A. Birr 10,000
B. Birr 25,000
C. Birr 5,000
D. Birr 12,000
46. Refer to the following lease amortization schedule. The five payments are made annually starting
with the beginning of the lease. A Birr2,000 purchase option is reasonably certain to be
exercised at the end of the five-year lease. The asset has an expected economic life of eight
years.

Lease Payment Cash Effective Decrease in Outstanding

Payment (in birr) Interest (in birr) Balance (in birr) Balance (in birr)
34,600
1 8,000 ?? ?? 26,600
2 8,000 2,660 5,340 21,260
3 8,000 2,126 5,874 15,386
4 8,000 1,539 6,461 8,925
5 8,000 ?? ?? ??
6 2,000 182 1,818 0
What would be the amount of interest expense recorded with payment 5?

A. Birr 893
B. Birr 7.107.
C. Birr 2,000.
 D. Birr 1.107.
47. ABC Company is considering replacing a machine. The following data are available:

Old Machine Replacement Machine

Original cost Birr 45,000 Birr 35,000

Useful life in years 10 5

Current age in years 5 0

Book value Birr 25,000

Disposal value now Birr 8,000

Disposal value in 5 years 0 0

Annual cash operating costs Birr 7,000 Birr 4,000

The difference between keeping the old machine and replacing the old machine is:

A. Birr 37,000 in favour of keeping the old machine

B. Birr 37,000 in favour of replacing the old machine
C. Birr 12,000 in favour of keeping the old machine
D. Birr 12,000 in favour of replacing the old machine
48. A competitor has an entity for unauthorized use of its patented technology. The amount that the
entity may be required to pay to the competitor if the competitor succeeds in the lawsuit is
determinable with reliability, and according to the legal counsel it is less than probable (but
more than remote) that an outflow of the resources would be needed to meet the obligation.
The entity that was sued should at year-end
A. Make no provision or disclosure and wait until the lawsuit is finally decided and then
expense the amount paid on settlement, if any.
B. Set aside, as an appropriation, a contingency reserve, an amount based on the best estimate
of the possible liability.
C. Make a disclosure of the possible obligation in the footnotes to the financial statements.
 D. Recognize a provision for this possible obligation

49. In 2021, Cupid Construction Co. (CCC) began work on a two-year fixed price contract project. CCC
recognizes revenue over time according to percentage of completion for this contract, and
provides the following information (birr in millions):

Accounts receivable, 12/31/2021 (from construction progress billings) Birr 75

Actual construction costs incurred in 2021 Birr 270

Cash collected on project during 2021 Birr 210

Construction in progress, 12/31/2021 Birr 414

Estimated percentage of completion during 2021 60%

How much cash remains to be collected by CCC on the project?

A. Birr 140 million.

B. Birr 405 million.
C. Birr 480 million.
D. Cannot be determined from the given information.
50. JJ manufacturing uses process costing system with two departments: Department A and It uses
weighted average method. Which of the following is correct to compute cost per equivalent unit
for a given cost component?
A. Current period cost plus the cost of beginning inventory divided by EUP
B. Current period cost divided by EUP
C. Current period cost less the cost of beginning inventory divided by EUP
D. Current period cost plus the cost of ending inventory divided by EUP
51. Which of the following is not one of the five classes of transactions included in the sales and
collection cycle?
A. Write off of uncollectible accounts
B. Sales returns and allowances
C. Interest income
D. Bad debt expense
 52. A business has acquired a special purpose machine at a cost of Birr 100,000. After it is purchased
it is known that it was unwise to buy this item. No amount of regret can relieve the firm from
this decision and there is no any future decision that can avoid this cost. What is the appropriate
classification for this cost?
A. Sunk cost
B. Period cost
C. Uncontrollable cost
D. Management cost
53. A corporation acquires new funds only when its securities are sold in the
A. Secondary market by a securities dealer.
B. Primary market by a stock exchange broker.
C. Primary market by an investment bank.
D. Secondary market by a commercial bank.
54. Which of the measurement bases identified in the Conceptual Framework of IPSASB for liabilities
will often be the relevant measurement basis for liabilities?
A. Cost of fulfillment
B. Cost of release
C. Assumption price
D. Historical cost
55. The following cost information is taken from Chereka textile firm:

Cost of Cotton used in production during the period……………. 600,000

Factory supervisors salary..........................................................100,000

Cost incurred for factory labour converting cotton in to tape.... 300,000

Factory overhead cost other than indirect labour......................... 80,000

Based on the above information, what is the amount of prime cost?

A. Birr 600,000
B. Birr 900,000
C. Birr 480,000
D. Birr 400,000
56. On March 31, Bora Company has the following information about cash at bank:
Cash balance per bank statement Birr 10,500

Credit memo Birr 4,000

Bank debit memo Birr 300.

Outstanding checks Birr 1,500

Deposits in transit Birr 1,200

Based on the above information, what is the amount of the adjusted cash balance per bank statement at
March 31?

A. Birr 14,500
B. Birr 10,200
C. Birr 10,800
D. Birr 11,700
57. Last year a small-firm had sales of Birr 205,000, assets of Birr 127,500, a profit margin of 5.3%,
and an equity multiplier of 1.2. The finance manager believes that the company could reduce its
assets by Birr 21,000 without affecting its profit margin. Had it reduced its assets in this amount,
and had the debt ratio, sales, and profit margin remained constant, by how much would the ROE
have changed?
A. а. 1.81%
B. b. 2.44%
C. c. 2.22%
D. d. 2.02%
58. Creditors and investors would generally find the statement of cash flows least useful for
assessing the:
A. Ability to generate future cash flows.
B. Ability to pay dividends.
C. Financial position at a point in time.
D. Quality of earnings
59. Assume that two parties structure a joint arrangement in an incorporated entity (entity C) in
which each party has a 50 per cent ownership interest. The purpose of the arrangement is to
manufacture materials required by the parties for their own, individual manufacturing
processes. The arrangement ensures that the parties operate the facility that produces the
 materials to the quantity and quality specifications of the parties. Assessment of the relevant
facts and circumstances indicate that the arrangement is a:
A. Joint vehicle,
B. Joint operation.
C. Joint venture.
D. Joint structure.
60. On January 1, 2022, Star Ethiopian coffee exporter, shipped $120,000 worth of inventory to its
main U.S. distributor, with full payment of these goods due by February 28, 2022. Star has a
January 31 year end. A list of significant dates and exchange rates is shown below. Transaction
Date: January 1, 2022 US $1 = Birr 59.332Year-End Date: January 31, 2022 US S1 Birr
59.384Settlement Date: February 28, 2022 US $1 = Birr 59.540The invoice price billed by Star
was US $120,000. What is the amount of Star's foreign exchange gain or loss at year-end?
A. Birr 24,960 gain
B. Birr 6,240 gain
C. Nil: foreign exchange gains or losses are deferred to settlement
D. Birr 6.240 loss
61. All of the following are examples of temporary book-tax differences except:
A. Payment of premiums for life insurance
B. Contingent liabilities
C. Depreciation
D. Product warranty costs
62. High dividends may increase stock values due to all of the following reasons except:
A. dividends are more certain than capital gains
B. higher dividends are used to signal higher expected future earnings
C. higher dividends allow companies to increase their proportion of external equity financing
D. dividends are used as a tool to minimize agency costs
63. A company purchases a one year insurance policy on June 1 for Birr 5,520. The adjusting entry
on December 31 is:
A. debit Insurance Expense, Birr 2,300, and credit Prepaid Insurance, Birr 2,300
B. debit Prepaid Insurance, Birr 5,520, and credit Cash, Birr 5,520
C. debit Insurance Expense, Birr 2,760, and credit Prepaid Insurance, Birr 2,760
D. debit Insurance Expense, Birr 3,220, and credit Prepaid Insurance, Birr 3,220
64. Which of the following principle may reduce or entirely eliminate auditor liability to a client?
A. Client constructive negligence
B. Auditor ordinary negligence
C. Auditor gross negligence
D. Client contributory negligence
65. You own two annuities that will each pay Birr 500 a month for the next 12 years. One payment is
received at the beginning of each month while the other is received at the end of each month.
At a discount rate of 7.25%, compounded monthly, what is the difference in the present values
of these annuities?
A. Birr 265.42
B. Birr 308.00
C. Birr 289.98
D. Birr 299.01
66. An impairment loss is
A. The amount by which the carrying amount of an asset exceeds its market value.
B. The amount by which the recoverable amount of an asset exceeds its written down value
C. The amount by which the recoverable amount of an asset exceeds its carrying amount.
D. The amount by which the carrying amount of an asset exceeds its recoverable amount.
67. On November 30, year 1. Star, Inc. purchased for cash at Birr 15 per share all 250,000 shares of
the outstanding common stock of Green Co. At November 30, year 1, Green's statement of
financial position showed a carrying amount of net assets of Birr 3,000,000. At that date, the fair
value of Green's property. plant and equipment exceeded its carrying amount by Birr 400,000. In
its November 30, year 1 consolidated statement of financial position, what amount should Star
report as goodwill?
A. Birr 750,000
B. Birr 350,000
C. Birr 400,000
D. Birr 0
68. The function of buying securities from a corporation at a predetermined price and then reselling
them in the market by an investment bank is called:
A. Distributing.
B. Advising.
 C. Undertaking
D. Underwriting.
69. Which of the following may be used by managers to discourage unnecessary use of service of a
support department by user departments?
A. Allocate a fixed amount of support department costs to each department regardless of use
B. Allocate support department costs based upon user department usage
C. Not allocate any support department costs to user departments
D. Prohibiting user departments from using service of support departments
70. Which of the following is part of the analytical procedures applied to assess the likelihood of
material misstatements in depreciation expense and accumulated depreciation?
A. Perform physical inventory of fixed assets
B. Examine for classification errors such as expensing assets
C. Examine vendor invoice for additions
D. Compare depreciation expense divided by gross equipment cost with previous years
71. Which one of the following is not an insurance risk?
A. A possible change in a non-financial variable that is specific to a party to the contract
B. Loss of property due to damage or theft.
C. Failure of a debtor to make a payment when it is due.
D. A possible change in a non-financial variable that is not specific to a party to the contract.
72. Which of the following actions would be likely to shorten the cash conversion cycle?
A. Begin to take discounts on inventory purchases we buy on terms of 2/10 net 30.
B. Adopt a new manufacturing process that saves some labor costs but slows down the
conversion of raw materials to finished goods from 10 days to 20 days.
C. Change the credit terms offered to customers from 3/10 net 30 to 1/10 net 50.
D. Adopt a new manufacturing process that speeds up the conversion of raw materials to
finished goods from 20 days to 10 days.
73. The "excess of the acquirer's interest in the net fair value of acquiree's identifiable assets,
liabilities, and contingent liabilities over cost" (formerly known as negative goodwill) should be:
A. Carried as a capital reserve indefinitely.
B. Recognized immediately in profit or loss.
C. Amortized over the life of the assets acquired
D. Recognized in retained earnings.
74. Assume that the sales revenue of ABC Share Company is Birr 10,000,000 during Tax Year ended
Sene 30, 2014. Cost of goods sold was Birr 4,000,000 (determined on the basis of the average
cost method) and expenses were Birr 1,000,000. The operating expenses comprises of salary
expense of Birr 270,000, store rent expense of Birr 100,000, a 5% depreciation expense on a not
fully depreciated Building with a cost of Birr 4,000,000, a penalty of Birr 40,000, an interest
expense of Birr 190,000 on Birr 1,000,000 principal amount of loan where the interest rate
between National Bank of Ethiopia and Commercial Banks was 10%, and a donation of Birr
200,000 to help its sister Company recover from the fire damage on its working infrastructures.
What is the amount of business tax liability of the Share Company?
A. Birr 1,533,000
B. Birr 1,593,000
C. Birr 1,629,000
D. Birr 1,500,000
75. Abebu is an employee in one of the factory owned by the government in Ethiopia. Her monthly
salary is Birr 2.600. She has a taxable allowance of Birr 300 and a non-taxable allowance of Birr
200. She earned an overtime of Birr 100. What is the amount of tax deducted from Abebu's
earning?
A. Birr 277.50
B. Birr 307.50
C. Birr 300
D. Birr 247.50
76. In case of property held under an operating lease and classified as investment property:
A. The entity has to use the fair value model only.
B. The entity has to account for the investment property under the cost model only.
C. The entity has the choice between the cost model and the fair value model.
D. The entity needs only to disclose the fair value and can use the cost model.
77. A Company is planning its operations for the coming year, and the CEO wants you to forecast the
firm's additional funds needed (AFN). The firm is operating at full capacity. Data for use in the
forecast are shown below. However, the CEO is concerned about the impact of a change in the
pay-out ratio from the 10% that was used in the past to 50%, which the firm's investment
bankers have recommended. Based on the AFN equation, by how much would the AFN for the
 coming year change if the Company increased the pay out from 10% to the new and higher
level? All Birrs are in millions.

Last year's sales (So) Birr 300.0

Sales growth rate (g) 40%

Last year's total assets (A.") Birr 500.0

Last year's profit margin (PM) 20.0%

Last year's accounts payable Birr 50.0

Last year's notes payable Birr 15.0

Last year's accruals Birr 20.0

Initial pay-out ratio 10.0%

A. Birr 31.9
B. Birr 33.6
C. Birr 35,3
D. Birr 37.0
78. Which of the following is not among the responsibilities of an auditor?
A. Detecting direct-effect illegal acts
B. Detecting material misstatements in the financial statement
C. Performing an audit with an attitude of professional skepticism
D. Maintaining adequate internal control system
79. Bonds are sold to finance the construction of a new public safety station. Bond proceeds equal
to the face value of the bonds are reported in a Capital Projects Fund as:
A. deferred inflow of resources
B. other financing use
C. a revenue
D. other financing source
80. Which of the following is not true about maturity matching financing approach:
A. It matches asset and liability maturities.
B. Maturity matching seeks to avoid financing long-term assets with long-term borrowing.
 C. Exact maturity matching is difficult as there is uncertainty about the lives of assets and as
some common equity must be used.
D. It minimizes the risk that the firm will be unable to pay off its maturing obligations.
81. For which of the following funds, would a government be least likely to record its annual budget
and thereby integrate it into its accounting system?
A. Enterprise fund
B. Capital project fund
C. General fund
D. Special revenue fund
82. Which of the following statements is FALSE about a partnership business?
A. A partnership business is similar to a sole proprietorship business except in the number of
owners.
B. When a partnership is not solvent, creditors can claim recovery from personal assets of
partners.
C. In a general partnership there should be at least one limited partner.
D. In a partnership business, an asset contributed by one partner is jointly owned by all.
83. Your firm is considering investing in one of two mutually exclusive projects. Project A requires an
initial outlay of Birr 3,500 with expected future cash flows of Birr 2,000 per year for the next
three years. Project B requires an initial outlay of Birr 2,500 with expected future cash flows of
Birr 1,500 per year for the next two years. The appropriate discount rate for your firm is 12% and
it is not subject to capital rationing. Assuming both projects can be replaced with a similar
investment at the end of their respective lives, compute the NPV of the two chain cycle for
Project A and three chain cycle for Project B.
A. Birr 5,000 and Birr 1,500
B. Birr 3,528 and Birr136
C. Birr 2,232 and Birr 85
D. Birr2,865 and Birr 94
84. Before 3 years, HH Company issued 10,000, Birr 100 par value ordinary shares at Birr 120 per
share. The following transactions occurred during the current year:

October 1: Purchased 2,000 shares for the treasury at Birr 90 per share.

December 5: Sold 1,000 treasury shares at Birr 95 per share.

December 31: Dividend of Birr 45.000 is declared.

Based on the above information, which of the following is correct?

A. Dividend per share is Birr 4.5

B. Cash is debited by Birr 120,000.
C. Dividend per share is Birr 5
D. Treasury stock account is credited for Birr 120,000
85. The repayment of bond principal should be reported in the fund statements of a debt service
fund as
A. An "other financing use
B. An expenditure
C. A reduction of bonds payable
D. A direct charge to fund balance
86. Which of the following method can help the auditor to reduce non-sampling risk?
A. Careful design of audit procedure
B. Increasing sample size
C. Reducing supervision
D. Using a representative sample
87. The variance that is BEST for measuring operating performance is the
A. selling price variance
B. sales-volume variance
C. flexible-budget variance
D. static-budget variance
88. Which of the following statements is correct?
A. A firm's cost of retained earnings is the rate of return stockholders require on a firm's
common stock.
B. We should use historical measures of the component costs from prior financings that are still
outstanding when estimating a company's WACC for capital budgeting purposes.
C. The cost of new equity (Re) could possibly be lower than the cost of retained earnings (Rs) if
the market-risk premium, risk free rate, and the company's beta all decline by a sufficiently
large amount.
D. In the WACC calculation, we must adjust the cost of preferred stock for tax.
89. The contribution margin ratio always increases when the:
A. Variable expenses as a percentage of net sales increase.
B. Variable expenses as a percentage of net sales decrease.
C. Break-even point increases.
D. Break-even point decreases.
90. Which of the following is correct about activity based costing?
A. Assign costs to a product on the basis of the product's consumption of the activities
B. It assume that all products consume all resources in proportion to their production volumes
C. It tends to allocate too great a proportion of overheads to high volume products
D. It allocates equal amount of overheads to all products
91. Which one of the following tasks in NOT part of the recording process?
A. Preparing an income statement
B. Analysing transactions
C. Posting journal entries
D. Entering transactions in a journal
92. All of the following are advantages of indirect tax over direct tax except:
A. Tax evasion is relatively difficult in the case of indirect tax as taxes are included in the prices
of commodities.
B. Indirect taxes are more convenient to the taxpayers than direct tax.
C. Indirect tax has wider scope than direct tax.
D. In the case of indirect tax, the tax burden is distributed on different sections of the society in
a just and equitable manner.
93. Assuming that the ideal measure of short-term receivables in the statement of financial position
is the discounted value of the cash to be received in the future, failure to follow this practice
usually does not make the statement of financial position misleading because:
A. The amount of the discount is not material.
B. Most short-term receivables are not interest-bearing.
C. The allowance for uncollectible accounts includes a discount element.
D. Most receivables can be sold to a bank or factor.
94. If one is able to fully diversify, what is the appropriate measure of risk to use?
A. Expected Return
B. Standard Deviation
 C. Risk-free Rate of Return
D. Beta
95. Accounts and notes receivable are reported in the current assets section of the statement of
financial position at:
A. Lower-of-cost-or-net realizable value
B. Net book value
C. Net realizable value
D. Invoice cost
96. Which of the following is a characteristic of a joint venture?
A. The partners can be individuals, but cannot be businesses.
B. The partners all jointly share in managing and controlling the venture.
C. Debt incurred by the venture is reported on the venturers' statement of financial position
D. The initial carrying value reported must equal the book value of resources contributed
97. Hubo Company manufactures card tables. The company has a policy of maintaining a finished
goods inventory equal to 40% of the next month's planned sales. Each card table requires 3
hours of labor. The budgeted labor rate for the coming year is Birr 13 per hour. Planned sales for
the months of April, May. and June are respectively 4,000, 5,000; and 3,000 units. The budgeted
direct labor cost for June for Hubo Company is Birr 136,500. What are budgeted sales for July for
Hubo Company?
A. 4,250 units
B. 3,750 units
C. 3,500 units
D. 4,000 units
98. Relevant costs of a make-or-buy decision include all of the following EXCEPT:
A. Material-handling costs that can be eliminated.
B. Special machinery for the part that has no resale value.
C. Fixed salaries that will not be incurred if the part is outsourced.
D. Current direct material costs of the part.
99. Which one of the following is most apt to align management's priorities with shareholders'
interests?
A. Paying a special management bonus on every fifth year of employment
 B. Holding corporate and shareholder meetings at high-end resort-type locations preferred by
managers
C. Compensating managers with company shares that must be held for a minimum of three
years
D. Increasing the number of paid holidays that long-term employees are entitled to receive
100. A Company issues its annual financial reports within one month of the end of the year.
This is an example of which enhancing quality of accounting information?
A. Confirmatory value
B. Timeliness
C. Relevance
D. Verifiability