Auditing & Accounting Past Paper 2026 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)
A company has a Rs. 200,000 inventory sale, how would this transaction appear if the business uses accrual accounting?
(A) Rs. 200,000 would show up on the balance sheet as a sale.
(B) Rs. 200,000 would show up on the income statement as a sale.
(C) Rs. 200,000 would show up in the statement of cash flows as a cash inflow.
(D) The transaction would not be reported because the cash was not exchanged.
Which of the following is an example of capital expenditure?
(A) Paying for establishment expenses of opening a building.
(B) Paying carriage expenses on import of machinery.
(C) Paying legal fees in order to increase valuation.
(D) Paying wages to productive workers.
Balance sheets bear what into two horizons. Which parts of the business’ accounting equation will change?
(A) Capital and liabilities
(B) Capital and assets
(C) Liabilities and assets
(D) Assets and capital
Which of the following errors would be found by extracting a trial balance?
(A) A transaction has been completely omitted from the books.
(B) The trial balance have been made the wrong way round.
(C) Different figures have been recorded for the debit and credit entries.
(D) An expense item has been posted to a non-correct asset account.
Working capital is an indicator of the firm’s:
(A) Asset utilization
(B) Investment-retention variables
(C) Amount of non-current assets
(D) Liquidity
Which of the following principles matches expenses with generated revenues in the period in which the revenues were generated?
(A) Revenue recognition principle
(B) Matching principle
(C) Cost principle
(D) Disclosure principle
If the existing current ratio of a company is more than 1, what would be the impact of a credit purchase of inventory on the current ratio?
(A) Current ratio would decrease.
(B) Current ratio would remain higher than 1.
(C) Current ratio would increase.
(D) Current ratio would become zero.
Which financial statement represents the accounting equation?
(A) Income Statement
(B) Statement of Cash Flows
(C) Balance Sheet
(D) Statement of Changes in Equity
The original cost of the machine is Rs. 150,000, machine installation charges are Rs. 10,000, working life of the machine is 5 years and residual value is Rs. 10,000. If the depreciation is charged on Straight Line basis then 6th year’s depreciation will be:
(A) 30,000
(B) 40,000
(C) 30,000 (Nil)
(D) 32,000
Amount set apart to meet doubtful debt is a:
(A) Provision
(B) Appropriation
(C) Reserve
(D) Commission
House Building advance of Rs. 2 Million paid to employees, it is a:
(A) Asset
(B) Revenue Expenditure
(C) Capital Expenditure
(D) Deferred Revenue Expenditure
The total of all store items which can be directly charged to productive cost:
(A) The sum of all direct materials and labor cost excluding all other cost
(B) The total cost incurred in producing a finished unit
(C) The sum of the target cost is product
(D) None of these
The units are differentiated between fixed and variable costs using:
(A) Absorption Costing
(B) Activity Based Costing
(C) Standard Costing
(D) Marginal Costing
From the following information, find out purchases when raw material consumed is Rs. 34,500, Closing stock Rs. 4,500, and opening stock Rs. 2,000:
(A) Rs. 32,000
(B) Rs. 27,000
(C) Rs. 35,000
(D) Rs. 36,500
When adjustment includes an entry to Accumulated Depreciation, which type of adjustment is it?
(A) Deferral
(B) Accrual
(C) Reversing
A company’s statement of profit or loss for the year ended 31 December 2025 showed a net profit of Rs. 65,000…
(Options: (A) Rs. 70,100, (B) Rs. 78,500, (C) Rs. 67,100, (D) None of these)
At 30 June 2025 a company’s allowance for receivables was Rs. 38,000 to 30 June 2025 trade receivables at Rs. 547,000…
(Options: (A) Rs. 40,100, (B) Rs. 53,000, (C) Rs. 32,200, (D) Rs. 37,200)
Nishat Textiles computed the following items from its financial records for the current year: Current ratio = 2 to 1; Average age of inventory = 60 days; Average collection period = 30 days; Average payable period = 40 days…
(Options: (A) 64, (B) 70, (C) 78, (D) 82)
Which of these values will indicate the highest returns for a terminal flow?
(Options: (A) Return on capital employed, (B) Return on investment spread, (C) Return on Capital Employed, (D) Return on average equity)
Given a quick yield-half ratio of 2.6, current assets of Rs. 7,000, inventory of Rs. 3,500, prepaid expenses of Rs. 500…
(Options: (A) Rs. 1,500, (B) Rs. 2,500, (C) Rs. 1,300, (D) Rs. 4,500)
PART-II(Subjective) 80 Marks
Attempt ONLY FOUR questions from Paper-I PART-II by selecting TWO questions from EACH SECTION. All questions carry Equal marks. (20×4)
SECTION – I (AUDITING)
Q. 2.
Shakil formed a business entity to provide services for a fee to public and private schools as the Walnut Creek Arm. The business is organized as a sole proprietorship, called Walnut Creek Transportation Services. The transactions during July, which the new business was being organized, are listed below:
July 1. Shakil opened a bank account in the name of the business with a deposit of Rs. 50,000 cash.
July 3. The new company purchased land and a building at a cost of Rs. 120,000, of which Rs. 30,000 was regarded as applicable to the land and Rs. 90,000 to the building. The transaction involved a cash payment of Rs. 40,000 and the issuance of a note payable for the balance of the purchase price.
July 5. Equipment was bought on credit from First Sales Company. Total Rs. 74,500, and agreed to pay Rs. 40,000 by July 21 and the remaining balance by August 15. The bill is not showed as an account payable.
July 7. Paid one-of-the-month’s rent of store to Young Camping Ventures. The buyer paid Rs. 15,000 in cash and participated in the balance within 30 days.
July 15. Upon inspection, one of the tires was found to be defective and was returned to First Sales Company. The account payable balance was altered/reduced by Rs. 27,500.
July 20. Purchased office equipment at a cost of Rs. 42,400-
July 21. Issued a check for Rs. 40,000 in partial payment of the liability to First Sales Company — Repaid.
July 25. Recorded the M.I. transactions.
July 30. Paid for wages expense…
July 31. Prepare a trial balance of July 31, 2025.
Q. 3.
On April 1, 2025, Hamid Hassan, an attorney, opened his own legal practice to be known as the Law Office of Hamid Hassan. The business adjusts its accounts at the end of each month. The following trial balance was prepared on April 30, 2025, after one month of operation:
LAW OFFICE OF HAMID HASSAN
Trial Balance (April 30, 2025)
Particulars | Debit (Rs.) | Credit (Rs.) |
Cash | 10,000 | – |
Accounts Receivable | 2,000 | – |
Prepaid Insurance | 3,600 | – |
Unexpired Office Rent | 6,000 | – |
Office Supplies | 1,400 | – |
Office Equipment | 50,400 | – |
Accumulated Dep/Office Equipment | – | 0 |
Notes Payable | – | 14,000 |
Interest Payable | – | 0 |
Salaries Payable | – | 0 |
Unearned Legal Fees | – | 14,000 |
Hamid Hassan’s Capital | – | 20,000 |
Hamid Hassan’s Drawing | 2,000 | – |
Legal Fee Earned | – | 13,000 |
Salaries Expenses | 2,600 | – |
Misc. Expenses | 1,500 | – |
Office Rent Expense | 0 | – |
Utilities Expense | 0 | – |
Depreciation Expense | 0 | – |
Supplies Expense | 0 | – |
Interest Expense | 0 | – |
Insurance Expense | 0 | – |
Total | 81,500 | 81,500 |
Other Information:
i. Hamid has just been paid on the note payable. Accrued interest at April 30 amounts to Rs. 190.
ii. Utilities earned by the office staff but not yet recorded or paid amounted to Rs. 3,470 at April 30.
iii. Many clients are asked to make an advance payment for the legal services to be rendered in future months. These advance payments are credited to the Unearned Retainer Fees account. During April, 3.5% of these advances were earned by the business.
iv. Some clients are not billed until all services relating to their matter have been rendered. As of April 30, services provided of Rs. 700 had been rendered to these clients but had not been recorded in the accounting records.
v. A professional liability insurance policy was purchased on April 1. The premium of Rs. 3,600 for the six months was paid and recorded as Unexpired Insurance.
vi. The business rents an office at a monthly rate of Rs. 2,000. On April 1, three months’ rent was paid in advance and charged to the Prepaid Office Rent accounts.
vii. Office supplies on hand at April 30 amounted to Rs. 1,000.
viii. The office equipment was purchased on April 1 and is being depreciated over an estimated useful life of 10 years.
Required:
(a) Prepare the adjusting entries required at April 30. (10)
(b) Determine the amount of net income to be reported in the company’s income statement for the month ended April 30, 2025. (10)
Q. 4.
(a) June 2025 at Elegant Textiles, following errors were highlighted. You are required to prepare journal entries to correct the below errors:
i. Sales included an outstanding balance of Rs. 500,000 for which a customer would need to pay Rs. 450,000 only if payment is made within 30 days. The customer is expected to pay within 30 days.
ii. An item was included in closing inventory at its net realizable value of Rs. 400,000. However, the cost basis cost of Rs. 450,000. Periodic inventory method is used to record the inventory transaction.
iii. A subtotal of Rs. 450,000 was carried forward to the purchase day book as Rs. 435,000. Correct account was not maintained by debtors and creditors.
iv. A purchase return to a creditor of Rs. 10,000 was recorded as cash return received from supplier.
v. An office machine costing Rs. 1,500,000 with a carrying value of Rs. 1,000,000 as on 1 July 2021 was disposed off on 1 February 2024 for Rs. 1,000,000. The sale proceeds were credited to accumulated depreciation account and full year’s depreciation was provided on the machine. Office machines are depreciated at 10% per annum using reducing balance method. (10)
(b) Compare and contrast the “Incurred Loss Model” (CECL model) and the “Expected Credit Loss (ECL) Model” (IFRS 9). How do the units with ECL model consider recovery by remediation following the IFRS financial crisis? (10)
SECTION – II
Q. 5.
(a) Explain how a cash flow statement can reveal earnings quality and liquidity risk. Identify at least four diagnostic indicators from cash flows that analysts monitor and what each one implies. (10)
(b) Following is the statement of financial position of Sparkle Limited (Rs. in 000) at 30 June 2025:
Assets | 2024 | 2025 | Equity & Liabilities | 2024 | 2025 |
Share capital | 500 | 700 | Land and building | Rs. 750M | Rs. 850M |
Revaluation surplus | 100 | 120 | Plant | 350 | 380 |
Retained earnings | 320 | 450 | Inventory | 200 | 240 |
Long-term loans | 400 | 300 | Trade receivables | 150 | 180 |
Trade payables | 180 | 140 | Short term investment | 50 | 70 |
Accrued taxes | 40 | 50 | Cash and bank | 50 | 30 |
Total | 1,540 | 1,760 | Total | 1,540 | 1,760 |
Additional Information:
i. During the year, land and building were revalued for the first time, resulting in a surplus of Rs. 20 million, and incremental depreciation of Rs. 15 million.
ii. Depreciation on buildings charged to profit or loss amounted to Rs. 70 million.
iii. During the year, vehicle having book value of Rs. 4 million was sold for Rs. 6 million.
iv. Interest on loan for the year amounted to Rs. 80 million. All adoption of dividend was 54 million.
Required:
Prepare CI. statement of cash flows for the year ended 30 June 2025. (10)
Q. 6.
National Limited is engaged in the production of a single product. Series 1 and standard absorption costing system. National Limited operates a 60% capacity of 5,000 units. Following information is presented for the month of August 2025:
Standard cost per unit (Rs.):
Direct material (10kg @ Rs. 45/kg) = 450
Direct labor (5 hours @ Rs. 25/hour) = 125
Overheads (5 per labor hour) = 100
Units and production data:
Budgeted selling price per unit: …
Actual production units: …
Budgeted capacity: 5000 units.
Variance information:
i. There was no inventory at the beginning of the month.
ii. Direct material purchased and used is 51,250 kg at a total cost of Rs. 2,331,875.
iii. Actual labor hours are 25,500 hours at the budgeted rate of 4.5%.
iv. Workers’ wages were increased by 10% effective from 1 August 2025 due to providing high inflation. Two realized worker efficiency by 3% as compared to the budget.
v. Actual overheads (both fixed and variable) amounted to Rs. 570,000. Fixed overhead costs were absorbed at Rs. 50/hour.
Required:
Compute the following variances for the month of August 2025:
a. Sales volume variance
b. Material price and usage variances
c. Labor rate and efficiency variances
d. Fixed overhead expenditure variance
e. Variable overhead expenditure and efficiency variances
Q. 7.
(a) There are two plants manufacturing the same product under one corporate management which decides to merge them. Following past cost and production regarding the two plants:
Particulars | Plant I | Plant II |
Capacity operation | 100% | 100% |
Sales in Rs. | 50,000 | 30,000 |
Variable costs in Rs. | 44,000 | 20,000 |
Fixed costs in Rs. | 5,000 | 4,000 |
You are required to calculate for the consideration of the Board of Directors:
i. What would be the capacity of merged plant to be operated by minimum of break-even?
ii. What would be the profitability on working at 75 per cent of the merged capacity?
(b) Target Costing reverses the traditional pricing equation. Explain the sources of Target Costing. How does the approach encourage “Value Engineering” and cost reduction during the design phase rather than the production phase? (10)
Q. 8.
Metal Venture (M/V) is engaged in the production of three products X, Y and Z which it sells in the local market. Presently, M/V manufacturing plant is operating at 80% of its capacity. Following has been extracted from the accounts for the year ended 31 August 2025:
Particulars | X | Y | Z |
Production/sales units | 1,000 | 3,000 | 2,000 |
Machine hour per unit (hours) | 4 | 2 | 3 |
Selling price per unit (Rs.) | 4,000 | 5,000 | 7,000 |
Variable cost per unit (Rs.) | |||
Direct material | 700 (7kg) | 600 (5kg) | 1,600 (8kg) |
Direct labor | 800 | 750 | 900 |
Variable overheads | 400 (4hrs) | 200 (2hrs) | 300 (3hrs) |
Fixed overheads | 1,500,000 |
In order to enter into the international market, on 1 August 2025, M/V has the service of an export house to distribute products, at monthly payment of Rs. 150,000. It recently receives firm export order from a USA based company, material Limited. Details of the export order are as follows:
Product | Units | Selling price per unit in Rs. |
W | 1,500 | 4,500 |
X | 1,200 | 5,200 |
Y | 2,000 | 7,500 |
Z | 1,500 | 7,800 |
