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Department of Accounting and Finance
Model exit exam for Accounting and finance 4th year regular 2017 E.C
1. Which one of the following is not an accounting equation?
A. Liabilities = Assets – Owner’s equities
B. Owner’s equities = Assets –Liabilities
C. Assets = Liabilities + Owner’s equities
D. Assets = Owner’s equities + Labilities
2. Which of the following is not Human Resource Controls that increases the chances
of detecting the fraud before it happened?
A. Bond employees who handle cash
B. Using prenumbered documents
C. Rotate employees’ duties and require vacations
D. Conduct background checks
3. In a perpetual inventory system, a return of defective merchandise by a purchaser is
recorded by crediting:
A. Purchases
B. Purchase Returns
C. Purchase Allowance
D. Inventory
4. Which one of the following is true about debit? Debits:
A. Increase both assets and liabilities
B. Decrease both assets and liabilities
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C. Increase assets and decrease liabilities
D. Decrease assets and increase liabilities
5. Posting as one step in the accounting cycle:
A. normally occurs before journalizing
B. transfers ledger transaction data to the journal
C. is an optional step in the recording process
D. transfers journal entries to ledger accounts
6. Which one of the following has an increasing effect on owner’s equity?
A. Rent Expense
B. Service Revenue
C. Dividends
D. Salaries and Wages Expense
7. Assume that ABC Co. on January 1, 2025, sells merchandise on account to XZY
Company for ETB1, 000 terms 2/10, n/30. Which one of the following is not an
appropriate journal entry to record this transaction on the books of ABC if received
payment on January 11, 2025?
A. Debited Accounts Receivable with ETB1,00 and credited Sales Revenue with
ETB1,000
B. Debited Cash ETB882
C. Debited Sales Discounts with ETB18
D. Credited Accounts Receivable with ETB900
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8. If an employee's basic salary is 30,000 ETB and the pension contribution rate is 7%, how much will
be contributed to the pension fund?
A. 2,100 ETB B. 2,000 ETB C. 2,500 ETB D. 3,000 ET
9. An employee has a gross pay of 20,000 ETB and total deductions (including tax and other
contributions) of 5,000 ETB. What is the net pay for the employee?
A. 15,000 ETB B. 18,000 ETB C. 20,000 ETB D. 25,000 ETB
10. What is the primary purpose of Government-Owned Enterprises in Ethiopia?
A) To operate as private businesses for profit
B) To provide public services and promote economic development
C) To offer shares to the public through an initial public offering (IPO)
D) To focus on generating high returns for private investors
11. What is the minimum number of shareholders required to form a Public Limited Company (PLC)?
A) 1 B) 2 C) 5 D) 10
12. Which of the following is a key characteristic of a Sole Proprietorship in Ethiopia?
A) Owned and operated by a single individual B) Shareholders have limited liability
C) Shares are publicly traded D) requires a minimum of 5 shareholders
13. What are Extraordinary General Meetings (EGMs) held for in Ethiopia?
A) To review the company’s financial performance over the past year
B) To discuss and approve major issues like mergers, capital changes, and director appointments
C) To elect board members for the upcoming financial year
D) To approve the company’s annual budget
14. Which of the following is a component of the financial position of an entity?
A) Revenue B) Expenses C) Assets D) Profit or Loss
15. Which accounting standard does Ethiopia require large companies and publicly listed
entities to adopt?
A) Ethiopian Accounting Standards (EAS)
B) Generally Accepted Accounting Principles (GAAP)
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C) International Financial Reporting Standards (IFRS)
D) Ethiopian Financial Reporting Framework (EFRF)
16. What type of asset is classified as a biological asset under IFRS?
A) Finished goods
B) Raw materials
C) A living animal or plant
D) Inventory held for resale
17. What is the most liquid of all assets?
A) Real estate B) Cash C) Stocks D) Inventory
18. When is land considered part of property, plant, and equipment?
A) WHEN it is purchased for resale
B) when it is used in the production of goods or services
C) When it is held for future capital appreciation
D) when it is rented to others
19. What is the main difference between a deferred tax asset and a deferred tax liability?
A). A deferred tax asset arises from taxable temporary differences, and a deferred tax liability
arises from deductible temporary differences.
B) A deferred tax asset results in higher taxes payable in the future, while a deferred tax liability
results in a tax refund.
C) A deferred tax asset arises from deductible temporary differences, and a deferred tax liability
arises from taxable temporary differences.
D) A deferred tax asset is recorded only when taxes are paid in advance.
20. Under IFRS 2, when should share-based payments be recognized?
A) Only when the payment is settled
B) at the time the transaction is agreed
C) At the time the goods or services are received
D) when the shares are sold
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21. The valuation of biological assets, such as crops and livestock, requires specialized
accounting techniques. Which of the following is commonly used for this valuation?
A) Historical cost method
B) Market-based cost method
C) Fair value method
D) Nominal value method
22. If a policyholder has multiple insurance policies for the same risk, which principle
determines how the insurer will pay the claim?
A) Indemnity B) Subrogation C) Contribution D) Insurable interest
23. What is the primary purpose of agricultural accounting?
A) To manage agricultural operations and monitor weather patterns
B) To ensure legal compliance and track farm resources, costs, and profits
C) To manage farm inventories and predict crop yields
D) To optimize farm machinery operations
24. Which of the following is NOT a type of insurance contract mentioned in the text?
A) Health Insurance B) Life Insurance C) Property Insurance D) Capital Investment Insurance
25. Which one of the following is not true about Sales Agencies?
A. Sales Agencies have high degree of autonomy
B. Sale agencies Accounting Entity
C. Sale agencies Legal Entity
D. Sale agencies Economic Entity
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26. .Which one of the following alternatives is not correct Equity Method?
A. equity method embraces full accrual accounting in maintaining the investment
account and related income over time
B. the equity method is especially popular in companies where management
periodically
C. equity method uses the cash basis for income recognition
D. in equity method, unrealized gains on intra-entity transactions are deferred
27. An entity that is controlled by another entity is referred to as
A. Parent
B. Subsidiary
C. Business combination
D. Consolidation
28. A business combination where two combined companies resulted in formation of new
company is referred to as
A. Statutory Consolidation
B. Statutory Merger
C. Stock Acquisition
D. Horizontal Integration
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29. Suppose ABC branch ships merchandise to XYZ Branch. How can ABC make a
necessary journal entry for this transaction?
A. Debiting Home office and Inventory
B. Crediting both Home office and Inventory
C. Debiting Home of and crediting Inventory
D. Debiting Inventory and Debiting Home office
30. A tactual arrangement established to allocation the revenue and expense on the base of
relative performance to each party of joint arrangement is referred to as
A. Joint venture
B. Joint operation
C. Joint control
D. Separate Vehicle
31. Which one of the following is not correct about the consolidated financial statement?
A. consolidated financial statements are required when the business combination is
stock acquisition
B. consolidated financial statements are prepared by the parent company
C. consolidated financial statements are needed when companies continue as
separate legal entities
D. consolidated financial statements are needed when two entities operate as a
family companies
32. What is the primary purpose of a compliance audit?
a. To assess the efficiency and effectiveness of operational policies
b. To determine whether financial statements are presented fairly
c. To verify compliance with regulations and policies
d. To investigate fraud and financial crimes
33. Which type of auditor is primarily concerned with investigating fraud and may testify
in court?
a. Internal Auditor
b. External Auditor
c. Forensic Auditor
d. Government Auditor
34. What is the primary purpose of professional ethics in a profession?
a. To define the legal obligations of professionals
b. To provide guidelines for maintaining a professional attitude
c. To establish financial standards for accounting practices
d. To promote competition among professionals
35. Which of the following principles is included in the AICPA code of professional
conduct?
a. Profit maximization
b. Confidentiality of information
c. Aggressive advertising tactics
d. Personal interests before client interests
36. What are the two components that make up audit risk?
a. Inherent risk and analytical risk
b. Risk of material misstatement and detection risk
c. Control risk and observation risk
d. Financial statement risk and operational risk
37. What is one of the primary reasons auditors must plan engagements properly?
a. To increase the firm's litigation risk
b. To ensure they can charge higher fees
c. To obtain sufficient appropriate audit evidence
d. To minimize communication with the client
38. Which of the following is NOT one of the categories of financial statement assertions?
a. Transaction-level assertions
b. Measurement assertions
c. Account balance assertions
d. Presentation & disclosure assertions
39. What is the foundation of an internal control system known as?
a. Risk assessment
b. Control activities
c. Control environment
d. Monitoring
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40. What type of audit report indicates that the auditor is satisfied with the findings and
contains no adverse comments?
a. Qualified Opinion
b. Adverse Opinion
c. Unqualified Opinion
d. Denial (Disclaimer) Opinion
41. Which characteristic of auditing evidence refers to the adequacy of quantity needed for
accurate judgment?
a. Reliability
b. Source
c. Nature
d. Sufficiency
42. Which method of audit sampling ensures that all items within a population have an
equal chance of selection?
a. Systematic selection
b. Haphazard sampling
c. Random selection
d. Block selection
43. What is the primary objective of monetary unit sampling (MUS)?
a. To select samples randomly from a non-structured approach
b. To determine the accuracy of financial accounts in monetary amounts
c. To evaluate all contiguous items in a population
d. To minimize sampling risk through block selection
44. What is the primary purpose of substantive testing in an audit?
a. To evaluate the effectiveness of internal controls
b. To identify material misstatements in financial records
c. To assess compliance with regulatory standards
d. To establish the company's profitability
45. Which type of control test involves looking for evidence of the consistent application of
control policies throughout the audited period?
a. Concurrent test
b. Planned test of control
c. Substantive test of details
d. Analytical procedures
46. In a case where there is no beginning or ending work-in-process inventory, how is the
cost per unit determined?
A) Using the weighted average method
B) Dividing total costs by the total units completed during the period
C) Only considering direct material costs for calculation
D) Estimating costs based on previous periods
47. Which type of costing is suitable for industries where production is continuous, and
products are standardized?
A) Activity-based costing B) Process costing C) Job costing D) standard costing
48. What is the point at which joint products become distinct goods in a production
process?
A) Separable point B) Split-off point C) Production point D) Distribution point
49. What is the primary advantage of using Activity-Based Costing (ABC)?
A) It simplifies cost allocation by using a single cost driver.
B) It improves the accuracy of cost allocation by linking costs to activities.
C) It reduces the overhead costs in the production process.
D) It eliminates the need for cost pools and cost drivers.
50. In which of the following purchasing methods does a single department handle all
purchases across an organization?
A) Decentralized Purchasing
B) Centralized Purchasing
C) Collaborative Purchasing
D) Outsourced Purchasing
51. What document is used to authorize the withdrawal of materials from the storeroom?
A) Purchase order B) Materials requisition form C) Sales order D) Job cost sheet
52. When raw materials are used in production, which of the following accounts is debited?
A) Work-in-Process Inventory
B) Finished Goods Inventory
C) Manufacturing Overhead Control
D) Raw Materials Inventory
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53. Why is the breakeven point important to managers?
A) It helps managers determine the level of sales needed to avoid losses.
B) It measures the efficiency of production processes.
C) It indicates the maximum profit a company can achieve.
D) It identifies the most profitable product in a company’s portfolio.
54. Which of the following is NOT an assumption of CVP analysis?
A) Costs are classified as either fixed or variable.
B) Total cost and revenue behave linearly within the relevant range.
C) The time value of money is considered in CVP calculations.
D) The unit selling price and variable costs remain constant
55. What is the primary purpose of budgeting in an organization?
A) To eliminate all financial risks
B) To coordinate and control business activities
C) To maximize tax savings
D) To record historical financial transactions
56. Which of the following is NOT included in the financial budget?
A) Capital budget
B) Cash budget
C) Budgeted income statement
D) Budgeted balance sheet
57. Management by exception is a principle used in budgeting and performance evaluation.
It refers to:
A) Managing all activities equally.
B) Focusing on significant budget variances while ignoring minor differences.
C) Setting a budget that remains unchanged.
D) Managing operations without analyzing variances.
58. What does the Sales Price Variance (SPV) measure?
A) The difference between budgeted and actual profit
B) The difference between standard and actual price of actual quantity sold
C) The difference between standard and actual quantity sold
D) The difference between revised standard sales and actual sales
59. Which of the following is NOT a component of sales margin variance?
A) Sales margin price variance
B) Sales margin volume variance
C) Sales margin mix variance
D) Sales production variance
60. Which of the following is not an example of financial intermediation?
A. An Internet Company issues shares by selling shares directly to buyers.
B. A woman opening a new business borrows funds from her uncle.
C. A professor purchases shares directly from a share company.
D. A bank extends a mortgage loan to a household.
61. Suppose the interest rate on short term bonds will rise by 4% next year and the current
interest rate on short term bonds is 8%. If the interest rate on two year bonds is 9.5%,
which bonds would you prefer to have been holding based on pure expectations theory?
A. Short term bonds
B. Two year bonds
C. Either short term bonds or two year bonds
D. Insufficient data to make choice
[Link] market interest rates are 10%, the market price of a 9%, 4-months CD for Br100,000
with 73 days to maturity is:
A. Br103,000
B. Br100,980
C. Br103,333
D. None of the above
63. Which of the following is a goal of financial regulation?
A. Facilitating progress
B. Ensuring that investors never suffer losses
C. Making companies more efficient
D. Providing information to investors
64. The Ethiopia Commodity Exchange (ECX) is a ______ exchange established in Addis
Ababa.
A. Forward
B. Spot
C. Both
D. None of the above
65. The money market is the market in which _________ are traded.
A. new issues of securities
B. previously issued securities
C. short-term debt instruments
D. long-term debt and equity instruments
66. In which types of securities that life insurance companies mostly invest?
A. Commercial papers
B. Treasury bills
C. Long-term corporate bonds
D. A and B
67. Which of the following is a characteristic of financial assets?
A. Their physical condition or form determines their market value.
B. They can easily be substituted for other assets
C. They depreciate through use
D. All of the above
68. one of the following securities, which one will most likely have higher interest rate than
the others?
A. Commercial papers
B. Non-callable bonds
C. Callable bonds
D. Convertible bonds
69. Which of the following could result in an enhancement of the strength of a home
currency against a foreign currency?
A. Increase in interest rates
B. Increase in trade deficit
C. Increase in domestic inflation
D. All of the above
E. None of the above
70. _______. Which of the following governmental unit uses modified accrual basis of
accounting?
A. Debt service funds
B. Pension trust funds
C. Enterprise funds
D. Internal service funds
71. All of the following are deficit financing methods except?
A. Sale of public Property
B. Borrowing from central bank
C. Use from available accumulated cash balance
D. Issuing new currency
72. Which of the following is not the common identification for both recurrent & capital
budget?
A. Expenditure budget
B. Covered by domestic revenue
C. Prepared by line item budget
D. All
73. Which of the following funds would be used to account for an activity that provides
centralized purchasing and sales of goods or services to other departments or agencies of
the government on a cost-reimbursement basis?
A. Permanent fund.
B. Internal service fund.
C. Fiduciary fund.
D. Enterprise fund.
74. Detail information about financial reports of the governmental entities overall
Performance should be provided by:
A. GAS
B. FASB
C. CAFR
D. All
E. None
75. Which of the following is common to both governments and not-for-profit entities but
distinguishes these entities from for-profit entities?
A. The budget is a legal, financial document.
B. Revenues are usually indicative of demand for goods or services.
C. There is direct matching of revenues and expenses.
D. There are no defined ownership interests.
76. The classification of NGO provides service to the general Public.
A. Private organizations B. Religious organizations. C. Charitable organizations D. All
77. Which of the following is not one of the primary categories of lessors in the leasing market?
A) Banks B) Captive leasing companies C) Independent leasing firms D) Government agencies
78. Which of the following statements is correct regarding the accounting for equity securities?
A) Investments in equity securities with holdings of less than 20% are always accounted for using the
equity method.
B) When an investor holds between 20% and 50% of the voting stock in another company, the investment
is accounted for using the fair value method.
C) Investments in equity securities with holdings of more than 50% require consolidation of the financial
statements.
D) Unrealized holding gains or losses for equity securities with holdings of less than 20% are recognized
in other comprehensive income.
79. What must a construction contract include to be considered legally binding?
A) A scope of work and time frame B) Agreement on a contract price only
C) Approval by the project engineer only D) Terms for dispute resolution
80. Which of the following is a condition that must be met for a company to recognize revenue
under the Revenue Recognition Framework?
A) The product must be delivered to the customer before revenue can be recognized.
B) The transaction must involve a fixed amount of consideration.
C) The contract must have commercial substance and be probable that the company will collect the
consideration.
D) The customer must have made the payment in full before revenue is recognized.
81. Assume ABC Company issued €120,000 of 8 percent term bonds on January 1, 2012
due on January 1, 2017, with interest payable each July 1 and January 1. Because the
investors required an effective-interest rate of 10 percent, the interest payable
semiannually.
A. 92,278 B. 110,734 C. 110,902 D. 9097 E. 9266
82. ________is Bonds issued in the name of the owner.
A. Deep-discount bonds B. Registered C. Coupon Bonds D. Junk bond
83. ____________ does not explicitly state an interest rate on the face of the note.
A Interest-Bearing Note B. market rate C. zero interest-bearing note D. deep-discount
bonds,
84. What is the primary purpose of taxation?
A) To reduce government expenditure B) To raise government revenue
C) To increase private sector investment D) To encourage the consumption of harmful
goods
85. Which of the following is a non-tax source of government revenue?
A) Value Added Tax (VAT)
B) Income tax
C) Charges and fees
D) Corporate tax
86. ______is an attempt to reduce tax liability by legal means, for example, by
exploiting loopholes.
A. Tax avoidance B. Tax Evasion C. Tax Delinquency D. None of the above
87. Which type of tax is imposed on the wealth or assets accumulated by an individual?
A) Income tax B) Estate tax C) Wealth tax D) Corporate tax
88. What is the main difference between direct and indirect taxes?
A) Direct taxes are collected from businesses, while indirect taxes are collected from
individuals
B) Direct taxes and indirect taxes are both paid by individuals directly to the government
C) Direct taxes are paid by the same person on whom the tax burden falls, while indirect
taxes shift the burden to another person
D) There is no difference between direct and indirect taxes
89. One of the following is not under the Economic Services.
A) Agriculture, B) Education C) transport D) Finance E) All are correct answers
90. What is the primary focus of financial management?
a) Marketing strategies
b) Production processes
c) Human resource management
d) Management of capital sources and uses
91. What is the formula for future value (FV) of a lump sum?
a) FV = PV / (1 + i)^n
b) FV = PV * (1 + i)^n
c) FV = PV + (1 + i)^n
d) FV = PV - (1 + i)^n
92. What is the cost of capital?
a) The minimum rate of return a firm must earn
b) The maximum rate of return a firm must earn
c) The average rate of return a firm must earn
d) The standard rate of return a firm must earn
93. What does the standard deviation measure in finance?
a) The average return of an investment
b) the risk or volatility of an investment
c) The total return of an investment
d) the liquidity of an investment
94. What is the weighted average cost of capital (WACC)?
a) The average cost of all sources of capital
b) the cost of debt only
c) The cost of equity only
d) The cost of preferred stock only
95. Which of the following is NOT a step in the capital budgeting process?
a) Project generation
b) Project evaluation
c) Project selection
d) Marketing analysis
96. What does capital structure refer to?
a) The mix of different sources of long-term funds
b) The mix of short-term funds
c) The mix of equity and debt
d) The mix of assets and liabilities
97. What is a cash dividend?
a) Dividend paid in the form of cash
b) Dividend paid in the form of shares
c) Dividend paid in the form of bonds
d) Dividend paid in the form of assets
98. What is the primary purpose of financial forecasting?
a) To plan for raising and utilizing funds
b) To record financial transactions
c) To audit financial statements
d) To budget financial resources
99. What is the formula for calculating net working capital?
a) Net Working Capital = Current Assets - Current Liabilities
b) Net Working Capital = Current Liabilities - Current Assets
c) Net Working Capital = Fixed Assets - Current Liabilities
d) Net Working Capital = Fixed Assets - Current Assets
[Link] main advantage of an aggressive financing policy is:
a) High liquidity
b) Reduced reliance on debt financing
c) Maximized profitability due to lower financing costs
d) Increased market stability