Accountancy for the APFC Exam 2026: Notes, Concepts, PYQs & MCQs
- Accountancy is ~10–12 questions in recent APFC papers and rising — with no UPSC overlap.
- The accounting equation is Assets = Liabilities + Capital; the AS-1 assumptions are going concern, consistency and accrual.
- The trial balance does not catch errors of omission, commission, principle or compensating errors.
- A provision is a charge against profit; a reserve is an appropriation of profit. Inventory is valued at the lower of cost or NRV.
- Recurring calculations: inventory (FIFO/LIFO), provision for doubtful debts, and overhead absorption rate — all worked below.
Accountancy is one of the most reliable scoring blocks in the EPFO Assistant Provident Fund Commissioner (APFC) exam, and none of it appears in UPSC preparation. It is finite and rule-based: get the concepts and conventions, the golden rules, and a few standard calculations right, and the marks follow. This guide covers accounting concepts, trial-balance errors, capital versus revenue, inventory valuation, provisions and final accounts — with solved previous-year questions and 40 practice MCQs.
Why accountancy is a scoring block in the APFC exam
The papers test accountancy two ways: definition questions (which convention, which type of account, which error) and calculation questions (inventory valuation, provision for doubtful debts, overhead rates). This guide drills both, with a worked past question for every calculation type that has appeared.
Accounting concepts and conventions
The accounting equation underlies everything: Assets = Liabilities + Capital. The three fundamental assumptions under AS-1 are going concern, consistency and accrual — tested verbatim in 2023.
- Business entity: the business is separate from its owner.
- Money measurement: only transactions expressible in money are recorded.
- Cost (historical cost): assets are recorded at acquisition price.
- Dual aspect: every transaction has a debit and a credit.
- Matching: expenses are set against the revenues of the same period.
- Conservatism / prudence: anticipate losses, never profits — the basis for valuing stock at the lower of cost or NRV.
- Plus materiality, full disclosure and substance over form.
The golden rules of accounting
| Type of account | Golden rule | Example |
|---|---|---|
| Personal (persons, firms) | Debit the receiver, credit the giver | Ramesh A/c, Bank A/c |
| Real (assets) | Debit what comes in, credit what goes out | Cash, Machinery |
| Nominal (expenses, incomes) | Debit expenses/losses, credit incomes/gains | Rent, Salaries |
Goodwill is standardly an intangible real asset. Note the trap: the 2023 APFC key classified the Goodwill Account as a personal account — know both framings and answer to the options given.
The accounting cycle and errors
The cycle runs Journal → Ledger → Trial Balance → Final Accounts. The examiner’s favourite point is which errors the trial balance does NOT detect: errors of omission (complete), commission (wrong account, correct side), principle (capital vs revenue mis-post), and compensating errors. A one-sided error or a wrong total does unbalance it, and is parked in a suspense account until rectified.
Capital versus revenue
| Item | Nature | Example |
|---|---|---|
| Capital expenditure | benefit over many years; on an asset | buying/installing machinery; a new engine |
| Revenue expenditure | current-year running cost | repairs, rent, wages |
| Deferred revenue expenditure | revenue in nature, benefit spread over years | heavy launch advertising |
| Capital receipt | not from normal operations | sale of a fixed asset; insurance claim for an asset destroyed by fire |
Inventory valuation (FIFO, LIFO and weighted average)
Inventory is valued at the lower of cost or net realisable value. Under FIFO, closing stock is valued at the most recent prices; under LIFO, at the oldest prices. Be ready to value under the perpetual system, where each issue is priced as it happens.
Inventory: Jan 1 opening 200 @ ₹7; Jan 6 issue 100; Jan 8 purchase 1,100 @ ₹8; Jan 9 issue 200; Jan 25 purchase 300 @ ₹9. Value of stock on Jan 31 under perpetual LIFO?
Jan 6 issue → 100 @ 7 (100 @ 7 left). Jan 8 add 1,100 @ 8. Jan 9 issue → 200 @ 8, leaving 100 @ 7 + 900 @ 8. Jan 25 add 300 @ 9. Closing = 100×7 + 900×8 + 300×9.
Answer — ₹10,600
Reserves, provisions and bad debts
A provision is a charge against profit; a reserve is an appropriation of profit. Capital reserve is not normally available for dividend; a revenue reserve is. For bad debts, write off actual bad debts first, then create a provision as a percentage of the remaining receivables — both debited to the Profit & Loss account.
Trade receivables ₹25,00,000; existing provision ₹1,40,000; bad debts in the books ₹40,000; additional bad debts ₹2,00,000; keep a provision of 10% of receivables. Amount charged to P&L?
Receivables after further bad debts = 25,00,000 − 2,00,000 = 23,00,000; new provision = 10% × 23,00,000 = 2,30,000. Charge = 40,000 + 2,00,000 + 2,30,000 − 1,40,000.
Answer — ₹3,30,000
Final accounts and cost basics
The Trading Account gives gross profit, the Profit & Loss Account gives net profit, and the Balance Sheet shows financial position on a date. Cost of goods sold = opening stock + purchases + direct expenses − closing stock. Know fixed vs variable cost, the overhead absorption rate, and basic ratios (current ratio, quick ratio).
Budgeted monthly fixed cost ₹2,20,000; normal monthly output 12,000 standard labour hours; standard variable overhead rate ₹25 per labour hour. Total factory overhead rate?
Fixed rate = 2,20,000 ÷ 12,000 = 18.33 per hour; add the variable rate 25.
Answer — ₹43.33 per labour hour
Quick-reference: accounting formulas & rules
| Item | Rule / formula |
|---|---|
| Accounting equation | Assets = Liabilities + Capital |
| AS-1 fundamental assumptions | Going Concern, Consistency, Accrual |
| Cost of goods sold | Opening stock + Purchases + Direct exp. − Closing stock |
| Gross profit | Net sales − Cost of goods sold |
| Inventory valuation | lower of cost or net realisable value |
| Provision for doubtful debts | % × (Debtors − further bad debts) |
| Depreciation (SLM) | (Cost − Scrap) ÷ Useful life |
| Current ratio / Quick ratio | CA ÷ CL / (CA − stock) ÷ CL |
Practice MCQs on accountancy for the APFC exam
Forty practice questions covering concepts, the golden rules, errors, capital versus revenue, inventory, provisions and final accounts. Answers follow the set.
1-b 2-a 3-b 4-c 5-b 6-b 7-a 8-b 9-b 10-b 11-c 12-b 13-b 14-c 15-b 16-b 17-b 18-c 19-b 20-b
21-c 22-b 23-b 24-b 25-b 26-b 27-b 28-c 29-b 30-b 31-b 32-b 33-b 34-b 35-c 36-c 37-b 38-b 39-b 40-a
Frequently asked questions
What are the fundamental accounting assumptions under AS-1?
The three fundamental accounting assumptions under AS-1 are going concern, consistency and accrual. They need no separate disclosure unless they are not followed.
What is the accounting equation?
The accounting equation is Assets = Liabilities + Capital. Every transaction keeps this equation in balance, which is the dual-aspect concept.
Which errors are not disclosed by the trial balance?
The trial balance does not disclose errors of omission, errors of commission, errors of principle, and compensating errors. One-sided errors and wrong totals do unbalance it.
What is the difference between a provision and a reserve?
A provision is a charge against profit and is made whether or not there is a profit (for example, depreciation or provision for doubtful debts). A reserve is an appropriation of profit, made only out of profit (for example, a general reserve).
How is inventory valued in accounting?
Inventory is valued at the lower of cost or net realisable value, following the prudence convention. Cost may be measured using FIFO, LIFO or the weighted-average method.
Is goodwill a real account or a personal account?
Goodwill is standardly classified as an intangible real asset. Note the trap: the APFC 2023 answer key marked the Goodwill Account as a personal account, so answer according to the options given.
Is an insurance claim for a fixed asset a capital or revenue receipt?
An insurance claim received for a fixed asset completely destroyed by fire is a capital receipt, because it replaces a capital asset.
How many accountancy questions appear in the APFC exam?
Accountancy accounts for roughly 10 to 12 questions in the recent APFC papers, and the number has been rising. It carries no overlap with UPSC preparation.
