Aspirant Academy

Society, Management and Accounting

Predicted Questions with Model Answers

Financial Statements, Analysis Techniques, Cash Flow, Responsibility Accounting & Social Accounting

Paper I · Unit 3 Section 9 of 11 0 PYQs 23 min
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Predicted Questions with Model Answers

Q1 (5-mark, 50 words): Explain any five techniques of financial statement analysis.

(Directly asked in 2023 — very high repeat probability in 2026)

Model Answer (50 words):
Five techniques of financial statement analysis are: (i) Comparative statements — year-on-year change in absolute and percentage terms; (ii) Common-size statements — each item as a percentage of net sales or total assets; (iii) Trend analysis — base year indexed at 100; (iv) Ratio analysis — mathematical relationships between accounting figures; (v) Cash flow analysis — classification of cash into operating, investing and financing activities.

(Word count: 55 — trim to 50 by removing "accounting" and "mathematical")

Revised 50-word answer:
Five techniques: (i) Comparative statements — year-on-year absolute and percentage change; (ii) Common-size statements — each item as % of net sales or total assets; (iii) Trend analysis — base year = 100; (iv) Ratio analysis — relationships between figures (current ratio, ROE, etc.); (v) Cash flow analysis — classifies cash into operating, investing, financing activities.

Q2 (5-mark, 50 words): What are the four types of responsibility centres? Explain briefly.

(Asked in 2021 as 2-mark list — expect 5-mark elaboration in 2026)

Model Answer (50 words):
Four responsibility centres: (i) Cost Centre — responsible only for costs (e.g., production dept.); (ii) Revenue Centre — responsible only for revenues (e.g., sales dept.); (iii) Profit Centre — responsible for both revenues and costs (e.g., product division); (iv) Investment Centre — responsible for profits and capital employed, measured by ROI (e.g., subsidiary company).

Q3 (5-mark, 50 words): Explain the classification of activities in a Cash Flow Statement as per AS-3.

Model Answer (50 words):
AS-3 classifies Cash Flow into three activities: (i) Operating Activities — cash from core business (receipts from customers, payments to suppliers and employees); (ii) Investing Activities — cash from purchase/sale of long-term assets and investments; (iii) Financing Activities — cash from raising or repaying capital (shares, debentures, loans, dividends). Net change equals closing minus opening cash balance.

Q4 (5-mark, 50 words): What is Human Resource Accounting (HRA)? Explain its main approaches.

Model Answer (50 words):
Human Resource Accounting (HRA) quantifies the monetary value of human capital in an organisation. Introduced by Rensis Likert (1960s), it treats employees as assets, not merely costs. Main approaches: (i) Historical Cost — actual recruitment and training costs; (ii) Replacement Cost — cost of replacing current employees; (iii) Economic Value — present value of employees' future earnings.

Q5 (5-mark, 50 words): What is Social Accounting? Explain its significance for corporate governance.

Model Answer (50 words):
Social Accounting measures a firm's social costs (pollution, resource depletion) and social benefits (employment, community development) alongside financial performance. Significance: (i) promotes corporate accountability to stakeholders; (ii) enables ESG investing decisions; (iii) satisfies SEBI's BRSR mandate (top 1,000 listed companies, from FY 2022-23); (iv) aligns corporations with SDGs; (v) supports Green GDP and environmental accountability frameworks.

Q6 (5-mark, 50 words): Distinguish between Current Ratio and Quick Ratio. What do they measure?

Model Answer (52 words — trim by 2):
Current Ratio = Current Assets ÷ Current Liabilities (ideal: 2:1). Measures short-term liquidity — ability to pay current obligations from all current assets. Quick Ratio (Acid Test) = (Current Assets − Inventory − Prepaid Expenses) ÷ Current Liabilities (ideal: 1:1). Measures immediate liquidity by excluding less liquid assets. Both assess short-term solvency but Quick Ratio is more stringent.

Trimmed to 50 words:
Current Ratio = Current Assets ÷ Current Liabilities (ideal: 2:1) — measures ability to pay current obligations. Quick Ratio = (Current Assets − Inventory − Prepaid) ÷ Current Liabilities (ideal: 1:1) — measures immediate liquidity, excluding less liquid assets. Both assess short-term solvency; Quick Ratio is more stringent and reliable for day-to-day cash management.