CoC Exam Practice Questions with Answers

(For BA in Accounting and Finance Students)

Part A: Multiple Choice Questions (MCQs)

1. Which of the following is NOT a financial statement prepared under IFRS?

a) Statement of Profit or Loss
b) Statement of Financial Position
c) Statement of Cost of Goods Manufactured

✅
d) Statement of Cash Flows
Answer: c) Statement of Cost of Goods Manufactured

2. The fundamental accounting equation is:

a) Assets = Liabilities – Equity
b) Assets = Liabilities + Equity
c) Assets – Liabilities = Expenses

✅
d) Assets = Income + Expenses
Answer: b) Assets = Liabilities + Equity

3. Which depreciation method results in higher depreciation expense in early years?

a) Straight-line
b) Units of production
c) Declining balance

✅
d) Sum-of-the-years’-digits
Answer: c) Declining balance

4. Which concept states that business transactions should be recorded in the currency of the
country where the business operates?
a) Going concern
b) Monetary unit
c) Historical cost

✅
d) Matching
Answer: b) Monetary unit

5. Under accrual basis accounting, revenue is recognized when:

a) Cash is received
b) Invoice is sent
c) It is earned, regardless of cash collection
✅
d) Expenses are paid
Answer: c) It is earned, regardless of cash collection

6. Which of the following is an example of a capital expenditure?

a) Salaries expense
b) Electricity expense
c) Purchase of machinery

✅
d) Stationery purchase
Answer: c) Purchase of machinery

7. Bank reconciliation is prepared to:

a) Detect bank fraud
b) Match bank balance with cashbook balance
c) Calculate profit

✅
d) Prepare income statement
Answer: b) Match bank balance with cashbook balance

8. Which one is a financing activity in cash flow statement?

a) Purchase of equipment
b) Payment of dividends
c) Collection from customers

✅
d) Purchase of raw materials
Answer: b) Payment of dividends

9. Which of the following accounts has a normal debit balance?

a) Accounts Payable
b) Revenues
c) Retained Earnings

✅
d) Accounts Receivable
Answer: d) Accounts Receivable

10. The formula for Return on Assets (ROA) is:

a) Net Profit ÷ Equity
b) Net Profit ÷ Total Assets
c) Net Profit ÷ Current Liabilities

✅
d) Gross Profit ÷ Sales
Answer: b) Net Profit ÷ Total Assets

Part B: True/False
✅
11. IFRS is mandatory for all businesses in Ethiopia.
Answer: False (It is mandatory for public interest entities, others may use simplified
standards.)

✅
12. Prepaid rent is considered a current asset.
Answer: True

✅
13. Trade discount is recorded in the books of accounts.
Answer: False (It is not recorded; only cash/credit discounts are recorded.)

✅
14. Partnership profits are distributed according to capital contribution, unless otherwise agreed.
Answer: True

✅
15. Depreciation is a cash expense.
Answer: False

Part C: Short Answer Questions

✅
16. Define “Working Capital.”
Answer: Working Capital = Current Assets – Current Liabilities; it measures liquidity.

✅
17. State two limitations of financial statements.
Answer: (i) Based on historical cost, not current value. (ii) Ignore non-financial information.

✅
18. What is the difference between finance lease and operating lease?
Answer: Finance lease transfers risks and rewards of ownership; operating lease does not.

✅
19. What is the purpose of trial balance?
Answer: To test arithmetic accuracy of ledger postings.

✅
20. Mention two examples of intangible assets.
Answer: Patents, trademarks, goodwill, copyrights.

Part D: Problem Solving

21. A company bought equipment for 120,000 ETB. Useful life = 5 years. Residual value =
20,000 ETB. Calculate annual depreciation using straight-line method.
✅ Answer: (120,000 – 20,000) ÷ 5 = 20,000 ETB per year.
22. If Sales = 500,000 ETB, Cost of Goods Sold = 300,000 ETB, and Operating Expenses =

✅
120,000 ETB, calculate Net Profit.
Answer: Gross Profit = 200,000; Net Profit = 200,000 – 120,000 = 80,000 ETB.

23. Cash in hand = 25,000 ETB, Bank overdraft = 15,000 ETB, Accounts Receivable = 20,000

✅
ETB, Accounts Payable = 30,000 ETB. Compute working capital.
Answer: Current Assets = 45,000; Current Liabilities = 45,000; Working Capital = 0.

24. A business purchased goods on credit 10,000 ETB, with 2/10, n/30 discount terms. If

✅
payment is made within 10 days, what is the cash paid?
Answer: 10,000 – (2% of 10,000) = 9,800 ETB.

✅
25. A firm’s current ratio is 2:1. Current liabilities = 50,000 ETB. Find current assets.
Answer: Current Assets = 2 × 50,000 = 100,000 ETB.

Part E: Corporate Finance & Auditing

✅
26. What is the main objective of financial management?
Answer: Maximization of shareholders’ wealth.

✅
27. Define “Cost of Capital.”
Answer: Minimum return required to justify investment, representing opportunity cost of
funds.

✅
28. Which audit opinion is issued when financial statements are fairly presented?
Answer: Unqualified (clean) opinion.

✅
29. Name two internal control procedures for cash.
Answer: Bank reconciliation, segregation of duties, authorization of payments.

✅
30. List three sources of long-term financing.
Answer: Equity shares, debentures, long-term loans.

Part F: Advanced Accounting & Finance

✅
31. What is the difference between capital reserve and revenue reserve?
Answer: Capital reserve is created from capital profits (not for dividend); revenue reserve
from business profits (available for dividend).
✅
32. Define “Consolidated Financial Statements.”
Answer: Statements combining parent and subsidiaries as a single entity.

✅
33. Which method is used to value inventory under IAS 2?
Answer: FIFO or Weighted Average (LIFO not permitted under IFRS).

✅
34. What is “Time Value of Money”?
Answer: A principle stating money today is worth more than the same amount in the future
due to earning potential.

✅
35. If Present Value (PV) = 10,000, r = 10%, n = 2 years, find Future Value (FV).
Answer: FV = PV × (1+r)^n = 10,000 × 1.21 = 12,100.

Part G: Taxation & Ethiopian Context

✅
36. What is VAT rate in Ethiopia (2025)?
Answer: 15% (standard rate).

✅
37. Which tax is levied on company profits in Ethiopia?
Answer: Corporate Income Tax.

✅
38. Mention two indirect taxes.
Answer: VAT, Excise duty, Customs duty.

✅
39. Which expenses are non-deductible for income tax purposes?
Answer: Personal expenses, penalties, fines.

✅
40. What is withholding tax?
Answer: Tax deducted at source before payment is made to the payee.

Part H: Ethics & Professionalism

✅
41. List the five principles of accounting ethics (IFAC Code).
Answer: Integrity, Objectivity, Professional Competence & Due Care, Confidentiality,
Professional Behavior.
✅
42. Is insider trading ethical?
Answer: No, it is illegal and unethical.

✅
43. What does “independence of auditor” mean?
Answer: Auditor should not have bias or conflict of interest in audit work.

✅
44. Give an example of professional misconduct in accounting.
Answer: Falsifying financial statements, breach of confidentiality.

✅
45. Why is corporate governance important?
Answer: Ensures transparency, accountability, and protects stakeholders.

Part I: Miscellaneous Applied Questions

✅
46. What does EPS (Earnings Per Share) indicate?
Answer: Profit attributable to each ordinary share.

✅
47. List two limitations of ratio analysis.
Answer: Ignores qualitative factors, depends on historical data.

✅
48. Differentiate between capital market and money market.
Answer: Capital market = long-term funds; Money market = short-term funds.

✅
49. If contribution margin ratio = 40% and sales = 200,000 ETB, calculate contribution.
Answer: 200,000 × 40% = 80,000 ETB.

✅
50. What is the break-even point formula (in units)?
Answer: Fixed Costs ÷ Contribution per Unit.