Auditing and Accounting Past Paper 2025 PDF
Federal Public Service Commission (FPSC)
Competitive Examination for Recruitment to BPS-17 Posts under the Federal Government
Paper: Auditing & Accounting
Time Allowed: 3 Hours
PART-I(Objective) 20 Marks
PART-I (MCQs) (COMPULSORY)
Q.1. Select the best option. ✔ indicates the correct answer.
-
In financial accounting, goodwill is classified as:
(A) Tangible asset
(B) Intangible asset ✔
(C) Current liability
(D) Contra asset
-
Which of the following statement about the accounting cycle is TRUE?
(A) The cycle begins with financial statement preparation.
(B) Adjusting entries are optional.
(C) Closing entries transfer balances from temporary accounts to retained earnings. ✔
(D) The post-closing trial balance includes temporary accounts.
-
The purpose of reversing entries is:
(A) To correct errors in the trial balance
(B) To simplify recording certain transactions in the next period ✔
(C) To adjust financial statements
(D) To close permanent accounts
-
Accounting information is said to be relevant when it:
(A) Is free from material error.
(B) Influences the decision-making of users. ✔
(C) Can be compared across entities.
(D) Is supported by evidence from independent sources.
-
The predictive value of accounting information refers to its ability to:
(A) Validate past decisions.
(B) Highlight errors in accounting practices.
(C) Influence future investment decisions. ✔
(D) Support regulatory compliance.
-
If two companies in the same industry use different depreciation methods, comparability may be compromised unless:
(A) The companies belong to the same regulatory framework.
(B) They operate in similar markets.
(C) The companies use IFRS standards.
(D) Full disclosure of the methods is provided. ✔
-
Which financial statement in a sole proprietorship reflects the owner’s withdrawals for personal use?
(A) Income Statement
(B) Statement of Financial Position
(C) Statement of Cash Flows
(D) Statement of Owner’s Equity ✔
-
When a corporation issues shares above their par value, the excess amount is credited to:
(A) Retained Earnings
(B) Share Premium Account ✔
(C) Capital Account
(D) Revenue Account
-
A partnership decides to incorporate into a private company. What happens to the partners’ equity accounts?
(A) They are closed and converted into common stock. ✔
(B) They are retained in the company’s balance sheet.
(C) They are written off as expenses.
(D) They are transferred into the retained earnings account.
-
Which of the following is a financial statement prepared specifically by not-for-profit organizations?
(A) Statement of Comprehensive Income
(B) Statement of Profit and Loss
(C) Receipts and Payments Account ✔
(D) Statement of Changes in Equity
-
Which financial statement is unique to public sector accounting?
(A) Statement of Financial Performance
(B) Statement of Cash Flows
(C) Appropriation Account ✔
(D) Statement of Changes in Equity
-
A not-for-profit organization’s annual report emphasizes the use of funds to achieve its mission rather than profitability. This highlights:
(A) Faithful representation in financial reporting.
(B) The focus on accountability over profitability. ✔
(C) Compliance with government regulations.
(D) The reliance on accrual accounting.
-
Which costing method is most suitable for industries where products are unique and produced to customer specifications?
(A) Process costing
(B) Activity-based costing
(C) Job order costing ✔
(D) Marginal costing
-
Marginal costing is primarily used for:
(A) Financial reporting.
(B) Decision-making related to fixed costs.
(C) Short-term decision-making. ✔
(D) Preparing budgets for external stakeholders.
-
Over-applied overhead means:
(A) Actual overheads are less than applied overheads. ✔
(B) Actual overheads are greater than applied overheads.
(C) Fixed costs were not allocated properly.
(D) Direct labor costs were overstated.
-
A manufacturing company is considering whether to produce in-house or outsource production. Relevant costs include:
(A) Fixed costs of the company.
(B) Historical costs of production.
(C) Direct variable costs and outsourcing costs. ✔
(D) Total costs incurred in the prior year.
-
Zero-based budgeting (ZBB) requires managers to:
(A) Justify only incremental changes in budgeted amounts.
(B) Prepare budgets based on historical costs.
(C) Justify all budgeted expenditures from scratch. ✔
(D) Ignore past costs entirely.
-
In responsibility accounting, costs that a manager can directly influence are called:
(A) Uncontrollable costs.
(B) Fixed costs.
(C) Indirect costs.
(D) Controllable costs ✔
-
A company has annual fixed costs of $200,000, variable cost of $20 per unit, and selling price of $50 per unit. Break-even units are:
Contribution per unit = 50 − 20 = 30
Break-even = 200,000 ÷ 30 ≈ 6,667 units
Closest option:
(A) 8,000
(B) 7,000 ✔
(C) 6,000
(D) 10,000
-
In a sales mix decision, the product with the highest contribution margin per unit should be:
(A) Sold exclusively, regardless of customer demand.
(B) Prioritized when resources are constrained.
(C) Avoided to reduce risk.
(D) Discounted to maximize revenue.
PART-II(Subjective) 80 Marks
Attempt ONLY FOUR questions from Paper-I PART-II by selecting TWO questions from EACH SECTION. (20×4)
SECTION – I (AUDITING)
Q.2 ABC Traders is a sole proprietorship owned by Mr. Ali. The following financial information relates to the business as of December 31, 2024:
| Particulars | Amount (PKR) |
|---|---|
| Cash in Hand | 50,000 |
| Accounts Receivable | 80,000 |
| Inventory | 120,000 |
| Office Equipment (at Cost) | 200,000 |
| Accumulated Depreciation – Office Equipment | 40,000 |
| Accounts Payable | 60,000 |
| Loan Payable (Bank) | 100,000 |
| Owner’s Capital (1 January 2024) | 300,000 |
| Owner’s Drawings | 30,000 |
| Net Income for the Year | 90,000 |
Required:
(a) Categorize the above items under the appropriate heads of the accounting equation. (5 Marks)
(b) Prepare the Balance Sheet of ABC Traders as at December 31, 2024 using the above information. (15 Marks)
Q.3 Using the information given in Question No. 2, the following adjustments are required as of December 31, 2024:
(a) Accrued salaries of PKR 10,000 remain unpaid and unrecorded.
(b) Depreciation on office equipment is to be charged using the straight-line method over 5 years, with no residual value.
(c) Unearned revenue of PKR 15,000 was incorrectly recorded as sales revenue.
(d) Supplies expense of PKR 5,000 is to be recognized for supplies used during the year.
(e) Accrued interest on the bank loan of PKR 4,000 remains unpaid and unrecorded.
Required:
(a) Prepare the necessary adjusting journal entries. (6 Marks)
(b) Prepare the Income Statement for the year ended December 31, 2024. (7 Marks)
(c) Prepare the updated Balance Sheet after incorporating the above adjustments. (7 Marks)
Q.4 XYZ Corporation, a merchandising company, is preparing its financial records for the year ended December 31, 2024.
The following balances have been extracted from the General Ledger:
Balances of the Items |
Amount (PKR) |
|---|---|
Cash |
70,000 |
Accounts Receivable |
200,000 |
Inventory (Beginning) |
150,000 |
Purchases |
500,000 |
Purchase Returns and Allowances |
30,000 |
Sales Revenue |
900,000 |
Sales Returns and Allowances |
20,000 |
Office Supplies |
10,000 |
Prepaid Insurance |
24,000 |
Office Equipment |
300,000 |
Accumulated Depreciation – Office Equipment |
80,000 |
Accounts Payable |
90,000 |
Salaries Payable |
12,000 |
Bank Loan Payable (Non-Current) |
150,000 |
Salaries Expense |
100,000 |
Utilities Expense |
45,000 |
Rent Expense |
60,000 |
Depreciation Expense |
30,000 |
Owner’s Capital (January 1, 2024) |
400,000 |
Owner’s Drawings |
50,000 |
Additional Information for Adjustments
i. Inventory at the end of the year is PKR 120,000.
ii. Office supplies used during the year are PKR 6,000.
iii. Insurance expired during the year amounts to PKR 8,000.
iv. Accrued salaries at year-end are PKR 15,000.
v. Depreciation on office equipment is recorded using the straight-line method over 10 years (no residual value).
Required:
a) Prepare the Unadjusted Trial Balance as of December 31, 2024. (10 Marks)
b) Incorporate the above adjustments and prepare the Adjusted Trial Balance. (10 Marks)
Q. 5 Ali, Bilal, and Sara formed a partnership business on January 1, 2024, under the name ABS Traders. The partners agreed to share profits and losses in the ratio of 3:2:1, respectively.
The following balances were provided at the end of the first year, December 31, 2024:
Particulars |
Amount (PKR) |
|---|---|
Cash |
80,000 |
Accounts Receivable |
150,000 |
Inventory |
200,000 |
Furniture & Fixtures |
100,000 |
Accounts Payable |
90,000 |
Loan Payable |
110,000 |
Ali’s Capital (Jan 1, 2024) |
200,000 |
Bilal’s Capital (Jan 1, 2024) |
150,000 |
Sara’s Capital (Jan 1, 2024) |
100,000 |
Ali’s Drawings |
30,000 |
Bilal’s Drawings |
20,000 |
Sara’s Drawings |
10,000 |
Net Income for the Year |
120,000 |
PART-II(Subjective) 80 Marks
Attempt ONLY FOUR questions from Paper-I PART-II by selecting TWO questions from EACH SECTION. (20×4)
SECTION – I AUDITING & ACCOUNTANCY, PAPER-1
Required:
i. Using the data provided, prepare the Unadjusted Trial Balance as of December 31, 2024. (5 Marks)
ii. Distribute the Net Income of PKR 120,000 among the partners (Ali, Bilal, and Sara) according to the agreed profit-sharing ratio of 3:2:1. (5 Marks)
iii. Calculate the adjusted capital balances of each partner after incorporating their respective share of profit. (5 Marks)
iv. Prepare the Capital Accounts of Ali, Bilal, and Sara in either T-account format or statement form. (5 Marks)
SECTION – II
Q. 6 ABC Manufacturing produces custom furniture. The following information relates to the month of November 2024:
Accounting Activities / Items |
Amount (PKR) |
|---|---|
Raw Materials Inventory (Nov. 1, 2024) |
120,000 |
Work-in-Process (WIP) Inventory (Nov. 1, 2024) |
80,000 |
Finished Goods Inventory (Nov. 1, 2024) |
150,000 |
Raw Materials Purchased (Paid in Cash) |
350,000 |
Direct Materials Issued to Production |
280,000 |
Indirect Materials Issued |
50,000 |
Direct Labor Incurred (80% Paid in Cash, 20% Accrued) |
200,000 |
Indirect Labor Incurred (Paid in Cash) |
60,000 |
Factory Overhead Incurred (Depreciation, Utilities & Other Factory Expenses) |
250,000 |
Manufacturing Overhead Applied to Production (120% of Direct Labor Cost) |
120% of Direct Labor Cost |
Raw Materials Inventory (Nov. 30, 2024) |
140,000 |
Work-in-Process (WIP) Inventory (Nov. 30, 2024) |
100,000 |
Finished Goods Inventory (Nov. 30, 2024) |
180,000 |
Finished Goods Transferred to Cost of Goods Sold |
650,000 |
Total Sales for November (80% Cash, 20% Credit) |
800,000 |
Required:
a) Prepare the Raw Materials Inventory T-account, including purchases, usage, and ending balance. (7)
b) Calculate the total manufacturing costs added to production during November. (7)
c) Prepare the Work-in-Process (WIP) Inventory T-account, including beginning balance, costs added, and ending balance. (6)
SECTION – II
Q. 7. XYZ Furniture Ltd. manufactures wooden chairs. The following standard costs were established for producing one chair:
Cost Component |
Standard Rate |
Standard Quantity per Chair |
|---|---|---|
Direct Materials |
PKR 500 per unit |
2 units |
Direct Labor |
PKR 300 per hour |
4 hours |
Factory Overhead |
PKR 100 per direct labor hour |
Applied at a rate of 50% of direct labor cost |
During November 2024, the company produced 1,000 chairs. The following actual data was recorded:
i. Materials:
a. 2,100 units of direct materials were purchased and used.
b. Total cost of direct materials: PKR 1,120,000.
ii. Labor:
a. 3,800 direct labor hours were worked.
b. Total direct labor cost: PKR 1,160,000.
iii. Factory Overhead:
a. Actual factory overhead incurred: PKR 200,000.
b. Factory overhead was applied at the standard rate based on actual direct labor hours.
Required:
i. Calculate the Material Price Variance and Material Quantity Variance. (7)
ii. Calculate the Labor Rate Variance and Labor Efficiency Variance. (7)
iii. Calculate the Overhead Spending Variance and Overhead Efficiency Variance. (6)
Q. 8. ABC Café operates a specialty coffee shop that sells handcrafted beverages and desserts. The café incurs total fixed costs of PKR 1,000,000, including:
-
Monthly Rent: PKR 500,000
-
Salaries: PKR 300,000
-
Utilities and Miscellaneous Expenses: PKR 200,000
The owner wants to determine the break-even point to plan for future growth. The following data is provided:
Product Line |
Information |
|---|---|
Coffee Drinks (Regular) |
Selling Price: PKR 400 per cup |
Variable Cost: PKR 180 per cup |
|
Current Sales Mix: 70% |
|
Desserts (Premium) |
Selling Price: PKR 600 per item |
Variable Cost: PKR 280 per item |
|
Current Sales Mix: 30% |
Required:
i. Calculate the contribution margin for both coffee drinks and desserts.
ii. Calculate the weighted average contribution margin (WACM) based on the given sales mix.
iii. Calculate the café’s break-even point in units.
PART-I (MCQs) (COMPULSORY)
Q.1. (i) Select the best option/answer and fill in the appropriate box on the OMR Answer Sheet. (20×1=20)
(ii) Answers given anywhere else, other than the OMR Answer Sheet, will not be considered.
PART– I Compulsory
-
____________ is a systematic examination of the books and records of a business.
-
(A) Auditing ✓
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(B) Vouching
-
(C) Verification
-
(D) Checking
-
An auditor is like a:
-
(A) Blood hound
-
(B) Watch dog
-
(C) May both (A) & (B) according to situation ✓
-
(D) None of these
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The fundamental objective of the audit of a company is to:
-
(A) Protect the interests of the minority shareholders
-
(B) Detect and prevent errors and fraud
-
(C) Assess the effectiveness of the company’s performance
-
(D) Attest to the credibility of the company’s accounts ✓
-
Internal check is carried on by:
-
(A) Staff specially appointed for the purpose
-
(B) Internal auditor
-
(C) Supervisor of the staff
-
(D) Members of the staff✓
-
When issuing an unqualified opinion, the auditor should be satisfied that:
-
(A) Amount of known misstatement is documented in working papers
-
(B) Estimates of the total likely misstatement is less than materiality level ✓
-
(C) Estimates of the total likely misstatement is more than materiality level
-
(D) Estimates of the total likely misstatement cannot be made
-
An auditor should not accept a loan on favourable commercial terms from an audit client because of the threat to independence. This is a:
-
(A) Self-interest threat ✓
-
(B) Self-review threat
-
(C) Advocacy threat
-
(D) Familiarity threat
-
Which of the following statement is generally correct about the reliability of audit evidence?
-
(A) To be reliable, evidence should be conclusive rather than persuasive
-
(B) An effective internal control system provides reliable audit evidence
-
(C) Evidence obtained from outside sources routed through the client
-
(D) All of these ✓
-
The authority to remove the first auditor before the expiry of the term is with:
-
(A) The shareholders in a general meeting
-
(B) The shareholders in the first annual general meeting
-
(C) The Board of Directors
-
(D) The Central Government ✓
-
A progressive tax system is one where:
-
(A) Marginal tax rates are high
-
(B) Higher income taxpayers pay more taxes than lower income taxpayers
-
(C) Marginal tax rates are low
-
(D) Higher income taxpayers pay a greater percentage of their income in taxes than lower income taxpayers ✓
-
If a tax on a good is doubled, the deadweight loss from the tax:
-
(A) Doubles
-
(B) Stays the same
-
(C) Increases by a factor of four ✓
-
(D) Could rise or fall
-
When tax on a good starts small and is gradually increased, tax revenue:
-
(A) Will fall
-
(B) Will rise
-
(C) Will first rise and then fall ✓
-
(D) Will first fall and then rise
-
In normal circumstances, taxes are charged on:
-
(A) Gross Receipt
-
(B) Total Income
-
(C) Taxable Income ✓
-
(D) Gross Income
-
Which of the following is the main tool of Fiscal Policy?
-
(A) Deficit Financing
-
(B) Subsidies
-
(C) Transfer Payments
-
(D) Taxes ✓
-
Taxes are an important instrument of:
-
(A) Monetary Policy
-
(B) Fiscal Policy ✓
-
(C) Trade Policy
-
(D) Economic Policy
-
Which of the following enjoys limited liability?
-
(A) A general partnership
-
(B) A corporation ✓
-
(C) A sole proprietorship
-
(D) None of these
-
A project’s profitability index is equal to the ratio of a project’s future cash flows to the project’s:
-
(A) Present value; initial cash outlay ✓
-
(B) Net present value; initial cash outlay
-
(C) Present value; depreciable basis
-
(D) Net present value; depreciable basis
-
The discount rate at which two projects have identical _________ is referred to as Fisher’s rate of intersection.
-
(A) Present values
-
(B) Net present values ✓
-
(C) IRRs
-
(D) Profitability indexes
-
You are considering investing in a zero-coupon bond that sells for $250. At maturity in 16 years, it will be redeemed for $1,000. What approximate annual rate of growth does this represent?
-
(A) 8%
-
(B) 9% ✓
-
(C) 12%
-
(D) 25%
-
When the market’s required rate of return for a particular bond is much less than its coupon rate, the bond is selling at:
-
(A) A premium ✓
-
(B) A discount
-
(C) Cannot be determined without more information
-
(D) Face value
-
The trade terms “2/15, net 30” indicates that:
-
-
(A) A 2% discount is offered if payment is made within 15 days. ✓
-
(B) A 15% discount is offered if payment is made within 30 days.
-
(C) A 2% discount is offered if payment is made within 30 days.
-
(D) A 30% discount is offered if payment is made within 15 days.
-
PART – II
SECTION – I AUDITING
Q. 2. What are the different types of financial audit? Discuss the situations where each type of audit is applicable. (20)
Q. 3. What are audit working papers? Why should they be carefully preserved by the auditor? (20)
Q. 4. Differentiate between the following audit terms: (5 marks each)
a. Internal Audit and External Audit
b. Vouching and Verification
c. Qualified Audit Report and Unqualified Audit Report
d. Disclaimer of Opinion and Adverse Opinion
SECTION – II BUSINESS TAXATION
Q. 5. Mr. Usman Kabir is a registered manufacturer. From the following data, compute the Sales Tax payable for August 2021.
-
Taxable supplies at 15% discount (discount is not the normal practice): 2,300,000
-
Taxable supplies to an associated person (Open Market Price: 350,000): 300,000
-
Supplies to consumers (inclusive of Sales Tax): 200,000
-
Supplies to employees: 100,000
-
Taxable purchases from a registered person (original invoices available): 1,400,000
-
Input tax not claimed in the relevant period (claimed in the fifth succeeding period): 15,000
-
Fixed asset purchased during August 2021 from a non-registered person: 1,500,000
-
Furniture, furnishings and office equipment purchased: 200,000
-
Electrical appliances purchased for non-business (personal) use: 100,000
-
Purchase of diaries for valued customers (at the start of the new financial year): 60,000
-
Withholding tax deducted as withholding agent: 50,000
-
Withholding tax deducted by withholding agent: 70,000
-
Mobile phone sets purchased by marketing staff: 150,000
-
Goods purchased through auction (Treasury Challan not available): 400,000
-
Unconsumed stock at the time of filing the return (purchased 30 days before filing the return): 250,000
-
Imported taxable goods (Bill of Entry not available): 500,000
-
Sales Tax paid on electricity bill: 30,000
(20)
Q. 6. What are the inadmissible deductions under the head “Income from Other Sources”? Explain in detail. (20)
SECTION – III BUSINESS STUDIES & FINANCE
Q. 7. Why are financial markets important to the health of the economy? Explain in the context of Pakistan. (20)
Q. 8.
(a) ABC is evaluating a capital investment project. The after-tax cash flows for the project are given below:
| Year | Expected Cash Flow |
|---|---|
| 0 | (400,000) |
| 1 | 50,000 |
| 2 | 50,000 |
| 3 | 150,000 |
| 4 | 350,000 |
The risk-free rate is 8%, the firm’s weighted average cost of capital (WACC) is 10%, and the management-determined risk-adjusted discount rate for this project is 15%.
Required:
-
Determine whether the project should be accepted.
-
Support your answer with appropriate calculations and reasoning.
(b) Explain the concept of the Time Value of Money (TVM).
-
Why is “a bird in the hand worth two in the bush” in financial decision-making?
-
Which capital budgeting technique ignores the Time Value of Money?
-
Is that approach considered optimal? Give reasons.
