Chapter Exam

Chapter 6: Verification of Liabilities — Online MCQ Test

Q: Which of the following is a contingent liability?

Answer: C. Bill discounted but not matured — A bill discounted but not yet matured may become a liability only if it is dishonoured, so it is treated as a contingent liability.

Q: An auditor finds that a company has a long-term loan from a bank. Which of the following should be examined first?

Answer: A. Loan agreement and security documents — Loan agreements and security documents help confirm the existence, terms, repayment conditions, and charge created over assets.

AUDITING · CLASS 12th · Tamil Nadu State Board

Practice Chapter 6: Verification of Liabilities with a free chapter-wise online MCQ test for Tamil Nadu State Board CLASS 12th AUDITING. This chapter covers: This chapter outlines audit procedures for validating business obligations. Students learn verification techniques for share capital debentures long term loans current liabilities.... AI-generated questions from basic to board-exam level, with instant results and explanations.

Questions

20m

Time Limit

Attempts Left

10 random questions from this chapter (mixed difficulty)
Questions you've seen before won't repeat until the pool resets
You have 20 minutes — exam auto-submits when time is up
Maximum 3 attempts per chapter
Results and explanations shown immediately after submission

New here? Register free — includes 3 free chapter exams.

Chapter 6: Verification of Liabilities — Important Questions & Answers (FAQ)

Frequently asked questions from Tamil Nadu State Board CLASS 12th AUDITING — Chapter 6: Verification of Liabilities, with answers and explanations. These are sample questions; the exam has its own separate question set.

What is the main objective of verification of liabilities in auditing?

A. To confirm that liabilities are overstated for safety
B. To ensure all liabilities are properly recorded and disclosed ✓
C. To calculate the profit of the business
D. To value fixed assets at market price

Answer: B. To ensure all liabilities are properly recorded and disclosed
Verification of liabilities aims to ensure that all obligations of the business are complete, accurate, and properly shown in the balance sheet.

Which of the following is a contingent liability?

A. Trade creditors
B. Outstanding salaries
C. Bill discounted but not matured ✓
D. Bank overdraft

Answer: C. Bill discounted but not matured
A bill discounted but not yet matured may become a liability only if it is dishonoured, so it is treated as a contingent liability.

An auditor finds that a company has a long-term loan from a bank. Which of the following should be examined first?

A. Loan agreement and security documents ✓
B. Stock register
C. Sales journal
D. Wage sheet

Answer: A. Loan agreement and security documents
Loan agreements and security documents help confirm the existence, terms, repayment conditions, and charge created over assets.

A company has failed to disclose a disputed legal claim in its balance sheet notes. What is the auditor’s main concern?

A. The claim should be treated as fixed capital
B. The liability may be understated by non-disclosure ✓
C. The claim should be shown as revenue income
D. The claim should be ignored if unpaid

Answer: B. The liability may be understated by non-disclosure
A disputed legal claim is a contingent liability and should be disclosed. Non-disclosure can lead to understatement of liabilities.

Which of the following is the most appropriate treatment for a contingent liability in the balance sheet?

A. Shown as a secured loan under liabilities
B. Added to share capital
C. Disclosed by way of note, not included as an actual liability ✓
D. Ignored completely if the amount is uncertain

Answer: C. Disclosed by way of note, not included as an actual liability
Contingent liabilities are not recognized as actual liabilities unless they become certain; they are disclosed in the notes to accounts.