Company Accounts Objective Type Q&A_June 2013 Attempt

CS EXECUTIVE - COMPANY ACCOUNTS

Past Examinations Objective Type Questions & Answers

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1 SANGEET KEDIA CLASSES ABHISHEK MITTAL [B.Com, ACS, MBA (Finance)]

2008 Dec [1] {C} (a) State, with reasons in brief, whether the following statements are

correct or incorrect:

(i). The bonus share issue cannot be made unless the existing partly paid shares are fully

paid-up.

(ii). In India, corporate financial statements in general do not include a cash flow statement to

explain movement of cash during the accounting period.

(iii). A company is not under any legal obligation to make good its past losses before

distributing its current profits as dividends.

(iv). The Accounting Standard 21 mandates an Indian company to present consolidates

financial statement.

(v). In India, corporate financial statements are prepared recognizing legal forms of the

transaction and ignoring the substance. (2 marks each)

Answer

(i). Correct: The bonus shares are always fully paid-up and issued to existing shareholders

on a pro-rata basis. Bonus issue is not made unless the partly paid shares, if any, existing

are made fully paid up.

(ii). Correct: The preparation and presentation of cash flow statement in India is not

mandatory for all types of corporate enterprises. However the companies which are

required to prepare and present such statements should prepare and present cash flow

statements as per revised Accounting Standard (AS) 3.

(iii). Incorrect: In general a company is under no legal obligation to make good a debit

balance in its profit and loss account resulting from past losses before disturbing its

current profits. But so much of the loss sustained by a company in the past years as is

attributable to the amount of provisions made for depreciation must be set off against the

current profit of the company before a dividend is declared. But from the view point of

sound commercial policy, it is desirable to apply current profits in making good lost

capital before distribution of dividends.

(iv). Incorrect: The Companies Act, 1956 does not make it obligatory on the part of the

holding company to prepare group accounts or consolidated accounts. In case, if a

holding company prepares and present consolidated financial statements, it has to follow

the principles and procedures as laid down under Accounting Standard (AS) 21.



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(v). Incorrect: Transactions and other events are accounted for and presented in accordance

with their substance and financial reality and not merely with their legal form. While the

legal form of a lease agreement is that the lessee may acquire no legal title to the leased

asset, in the case of financial leases, the substance and financial reality are that the lessee

acquires the economic benefits of the use of the leased assets for the major part of its

economic life. Therefore, a financial lease is recognized in the lessees balance sheet both

as an asset and as an obligation to pay future lease payments.

2008 Dec [1] {C} (b) Choose the most appropriate answer from the given options in

respect of the following:

(i). Securities premium money can be used for

(a) Payment of dividend

(b) Writing off goodwill

(c) Issuance of fully paid bonus shares

(d) None of the above.

(ii). Loss suffered from the date of acquisition of business of the date of incorporation should

be debited to

(a) Goodwill account

(b) Profit and loss account

(c) Capital reserve account

(d) Capital reduction account.

(iii). Pre-paid expenses are shown in balance sheet as

(a) Current assets

(b) Intangible assets

(c) Wasting assets

(d) Fixed assets.

(iv). The balance of forfeited shares after reissue of the same transferred to

(a) Capital reserve account

(b) Share capital account

(c) Profit and loss account

(d) Debenture redemption fund account.

(v). Divisible profits include

(a) General reserves



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(b) Profit on revaluation of assets

(c) Profit prior to incorporation period

(d) Capital reserve. (1 mark each)

Answer:

(i). (c) Issuance of fully paid bonus shares;

(ii). (a) Goodwill account;

(iii). (a) Current assets;

(iv). (a) Capital reserve account;

(v). (a) General reserves;

2008 Dec [1] {C} (c) Re-write the following sentences after filling up the blank spaces

with appropriate word (s)/ figure (s):

(i). Accounting as a language of business communicates the financial results of corporate

enterprise to various ____________ by means of financial statements.

(ii). If a company offers to its equity shareholders the right to buy one equity share of Rs. 100

each at Rs. 120 for every 4 equity share of Rs. 100 each and the market value of the right

is Rs. _______________.

(iii). The bonus share can be issued only if ___________ of the company permits such an

issue.

(iv). Accounting Standard 17: Segment reporting is mandatory for all commercial industrial

and business reporting corporate enterprises, whose turnover for the accounting period

exceeds Rs. _________.

(v). Consolidated financial statements are presented by a ___________ company to provide

financial information about the economic activities of the group.

(1 mark each)

Answer:

(i). Interested parties / stakeholders

(ii). Rs. 12

(iii). Articles of Association

(iv). 50 crores

(v). Holding



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2009 June [1] {C} (a) State, with reasons in brief, whether the following statements are


(i). Accounting Standards (AS) are formulated by International Accounting Standard Board.

(ii). A joint stock company cannot purchase its own shares.

(iii). If the rate of dividend declared by a company is 22%, then under the Companies (transfer

of Profits to reserve) Rules, 1975 the percentage of profits to be transferred to reserves

should be 10%.

(iv). The law limits the commission in case of issue of shares to 10% of the issue price of

shares and in case of debentures to 5 % or such lower sate as is provided in the articles of

association.

(v). Contingent liabilities relating to outsiders must be shown on the liability side of the

consolidated balance sheet. (2 marks each)

(b) Re-write the following sentences after filling-in the blank spaces with appropriate

word(s)/figure (s):

(i). According to the provisions of Section 198 of the Companies Act, 1956 maximum limit

on the total managerial remuneration payable by public company is _________ of net

profits.

(ii). A company must pay the dividends within ____________ days of its declaration.

(iii). Preliminary expense is a __________ asset.

(iv). Discount on the issue of debenture is a ____________ loss.

(v). If the purchase price of the debenture includes the interest for the expired period. It is

known as ___________.

Answer (a)

(i). Incorrect: The Institute of Chartered Accountants of India constituted the Accounting

Standard Board (ASB) in April 1977. The central Government in consultation with the

National Advisory committee on Accounting standard, issues accounting Standards under

Companies (Accounting Standard) Rules 2006.

(ii). Incorrect: Section 77A of the Companies (Amendment) Act, 1999 has empowered

Companies to purchase their own shares or other specified securities subject to the certain

condition.



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(iii). Correct: Under the Companies (Transfer of Profit to Reserve) Rules, 1975 as amended,

if the rate of proposed dividend is more than 20%, then 10% of current profit is to be

transferred to reserve.

(iv). Incorrect: The Companies Act, 1956 limits the Commission in case of issue of shares to

5 percent of the issue Price of Shares and in case of debentures to 2.5 percent of such

lower rate mentioned in the Articles of Association.

(v). Incorrect: Contingent liabilities relating to outsiders are not shown on the liability size

of the consolidated balance sheet. It will be shown as contingent liability by way of

not/footnote.

Answer (b)

(i). 11%

(ii). 30 days

(iii). Fictitious asset.

(iv). Capital

(v). Cum-interest purchase/quotation

2009 Dec [1] {C} (a) State, with reasons in brief, whether the following statements are


(i). Interest on debentures is payable only when there is profit.

(ii). An underwriter while entering into a contract for issue of shares should be a company.

(iii). Partly paid-up preference shares can be redeemed.

(iv). Dividend can be paid on calls-in advance.

(v). Interest cannot be paid out of capital during construction period. (2 marks each)

(b) Choose the most appropriate answer from the given options in respect of the following:

(i). As per the provisions laid down in Table-A of Schedule-I of the Companies Act, 1956,

the amount of call as the percentage of the face value of shares should not exceed

(a) 10%

(b) 25%

(c) 20%




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(ii). The minimum percentage of the face value of shares that should be called for as

application money is

(a) 5

(b) 10

(c) 15

(d) 20.

(iii). Debentures issued as collateral security will be debited to

(a) Bank account

(b) Debentures suspense account

(c) Debentures account

(d) Collateral security account.

(iv). Preliminary expenses are

(a) Current liability

(b) Current assets

(c) Fictitious assets

(d) Contingent liability.

(v). As per Section 77A of the Companies Act, 1956 every buy-back should be completed

within a period of

(a) 3 months from the date of passing special resolution.

(b) 12 months from the date of passing special resolution

(c) 6 months from the date of passing special resolution

(d) 1 month from the date of passing special resolution. (1 mark each)

(c) Re-write the following sentences after filling-in the blank spaces with appropriate word

(s)/figure (s):

(i). Issue of debentures to vendors is known as issue of debentures ___________.

(ii). Profit prior to incorporation should be credited to _____________ account.

(iii). If forfeited shares are re-issued at a discount, the amount of discount should in no case

exceed the amount credited to __________.

(iv). Accounting standards are formulated under the authority of the ____________.

(v). Yield basis valuation of shares may take the form of valuation based on rate of return

and ____________. (1 mark each)



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Answer (a)

(i). Incorrect: Interest on debenture is obligatory and it must be payable to the debenture

holder whether the company carries profit or not. It is a charge against profit. Hence,

company is liable to pay interest on debenture even if no profit earned.

(ii). Incorrect: The underwriters may be individual/partnership or joint Stock companies.

(iii). Incorrect: According to Section 80 of the Companies Act, 1956 unless the partly paid

preference shares are fully paid-up they cannot be redeemed.

(iv). Incorrect: Calls in advance is not to be treated as part of the paid-up capital and as such

they cannot rank for payment of dividend.

(v). Incorrect: Section 208 of the Companies Act provides that payment of interest during

the period of construction should be charged to capital and the amount of interest,

therefore paid should be added to the cost or respective asset as part of the cost of

construction.

Answer (b)

(i). (b) 25%

(ii). (a) 5

(iii). (b) Debentures suspense account

(iv). (c) Fictitious assets

(v). (b) 12 months from the date of passing special resolution

Answer (c)

(i). For consideration other than cash

(ii). Capital reserve

(iii). Shares of forfeited account.

(iv). Council of the Institute of Chartered Accountants of India

(v). Productivity factor.



(i). Accounting policies vary from enterprise to enterprise.



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(ii). In the absence of declaration of dividend, there no need to provide for depreciation in the

accounts of companies.

(iii). Securities premium money can be distributed as dividend.

(iv). For calculating minority interest, there is a need to distinguish between capital and

revenue profits of the subsidiary.

(v). While preparing the consolidated balance sheet, a contingent liability in respect of a

transaction between the holding and the subsidiary companies is disappeared from the

foot note. (2 marks each)


(i). Indian accounting standards are formulated under the authority of the

(a) Council of the Institute of Chartered Accountants of India

(b) National Advisory Committee on Accounting Standards

(c) International Accounting Standard Board

(d) Account Standard Board.

(ii). As per Section 79 of the Companies Act, 1956 from the date of receiving the sanction of

the Central Government, a company must issue shares at discount within a period of

(a) One month

(b) Two months

(c) Three months

(d) Six months.

(iii). As per Section 387 of the Companies Act, 1956, total remuneration to manager should

not exceed the rate of net profit of the company except with approval of the Central

Government

(a) 5%

(b) 2%

(c) 11%

(d) 10%.

(iv). Profit on cancellation of own debentures should be transferred to

(a) Profit and loss account

(b) Profit and loss appropriation account


(d) Reserve capital account.



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(v). Profit prior to incorporation is transferred to

(a) General reserve

(b) Capital reserve

(c) Goodwill account

(d) Profit and loss account.

(c) Re-write the following sentences after filling-in the blank spaces with appropriate

word(s)/figure(s):

(i). Goodwill is ________ asset.

(ii). Preliminary expenses being of capital nature may be written-off against _____________.

(iii). Collateral security implies _____________ security given for a loan.

(iv). Interim dividend is a dividend declared at any time between the ___________ where the

final dividend is declared.

(v). Stock reserve for unrealized profit in respect of inter-company transactions should be

created by debiting _____________ and crediting __________ while preparing

consolidated profit and loss account. (1 mark each)

Answer (a):

(i). This statement is correct: Reason:- Accounting policies differ from enterprise to

enterprise based on the circumstances of the industry. All significant accounting policies

adopted in the preparation and presentation of financial statements should be disclosed.

Variation may be in the following areas such as

(a) Method of depreciation:

(b) Depletion:

(c) Valuation of inventories

(d) Valuation of investment

(e) Expenditure during construction.

(ii). This statement is incorrect : Reason :- Depreciation represents wear and tear of assets

due to stable use unless, depreciation is provide for, the accounts will not reflect a true

and fair view of the state of affairs of the company.

Therefore, even if no dividend is declared depreciation is to be provided in the accounts

of companies.



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(iii). This statement is incorrect : Reason :- According to Section 78 of the Companies Act,

1956, Securities premium can not be treated as profit and hence, cannot be distributed as

dividend. Securities premium may be utilized, in paying up unissued shares as

(a) Fully paid bonus shares;

(b) Writing off preliminary expenses;

(c) Writing off expenses, or commission paid and

(d) Providing for premium on redemption of redeemable preference shares/debentures

(iv). This statement is incorrect : Reason :- The shares of shareholders other than holding

company in the share capital, reserve and profit of subsidiary company. In order to

ascertain minority interest, capital profit and revenue profit need not be distinguished.

(v). This statement is correct : Reason :- If the contingent liabilities relate to outsider. It

must be shown by way a foot note in the consolidated balance sheet. But a contingent

liability in respect of a transaction between holding companies and subsidiary companies

will disappear from the foot note as they appear as actual liability in the consolidated

balance sheet.

Answer (b)

(i). (a) Council of the Institute of Chartered Accountants of India

(ii). (b) Two months

(iii). (a) 5%

(iv). (c) Capital reserve account

(v). (b) Capital reserve

Answer (c)

(i). Intangible

(ii). Capital profit.

(iii). Additional

(iv). Two annual general meeting

(v). Consolidated Profit and Loss Account and Stock Reserve Account.

2010 Dec [1] {C} (a) State, with reasons in brief, whether the following statements are true

or false:

(i). Accounting Standard 15 deals with earnings per share.



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(ii). Premium on issue of debentures shall be credited to debentures account along with

nominal value of debentures.

(iii). As per Accounting Standard 26, intangible asset arising from research should not be

recognized as an asset.

(iv). No buy-back of partly-paid shares is allowed.

(v). An underwriter while entering into a contract for issue of shares should be a registered

company. (2 marks each)


(i). In case of part redemption of debentures, the balance in sinking fund is equal to

(a) 50% of the amount of debentures issued till that date

(b) 75% of the amount of debentures issued till that date

(c) In proportion to the issue of debentures till that date

(d) No limit.

(ii). The International Financial reporting standard 4 deals with

(a) Share based payments

(b) Financial investments

(c) Insurance contracts

(d) Evaluation of mineral resources.

(iii). Which one is not a statistical book

(a) Shares calls book

(b) Register of share warrants

(c) Register of power of attorneys

(d) Register of directors shareholdings.

(iv). Securities premium account is shown on the liability side under the heading

(a) Share capital

(b) Reserves and surplus

(c) Current liabilities and provisions


(v). Loss suffered from the date of acquisition of business to the date of incorporation should

be debited to

(a) Goodwill account

(b) Profit and loss account



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(d) Capital reduction account (1 mark each)

(c) Re-write the following sentences after filling-in the blank spaces with appropriate word

(s)/figure(s):

(i). The applications bearing the stamp of the respective underwriters are called__________.

(ii). The debentures issued as collateral security has to be mentioned by way of a note in the

balance sheet under ______________.

(iii). The International Financial Reporting Standard-8 deals with __________.

(iv). ____________ advises the Central Government on the formulation and implementation

of accounting Standards in India.

(v). The voluntary return of shares by a shareholder to the company for cancellation is called

__________. (1 mark each)

Answer (a)

(i). False: Accounting Standard (AS) 15 deals with Employee Benefits while Accounting

Standard (AS) -20 deals with Earning Per Share.

(ii). False: Premium on issue of debentures shall be credited to Securities Premium Account.

(iii). True: Intangible assets arising from research is recognized as an expense when it is

incurred as per Accounting Standard (AS) 26, hence it is not an intangible asset.

(iv). True: Buy-back of shares is allowed only in case of fully paid-up existing shares in

accordance with Section 77A of the Companies Act, 1956.

(v). False: The underwriter need not be a registered company, it can be an individual or

partnership firm also.

Answer (b)

(i). (a) 50% of the debentures issued till date.

(ii). (c) Insurance contracts

(iii). (d) Register of directors shareholdings

(iv). (b) Reserve and surplus

(v). (a) Goodwill account.



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Answer (c)

(i). The applications bearing the stamp of the respective underwriters are called marked

applications.

(ii). The debentures issued as collateral security has to be mentioned by way of a note in the

balance sheet under specific loan account.

(iii). The International Financial Reporting Standard 8 deals with Operating Segments,

(iv). National Advisory Committee on Accounting Standards (NACAS) advises the Central

Government on the formulation and implementation of Accounting Standards in India.

(v). The voluntary return of shares by a shareholder to the company for cancellation is called

surrender of shares.

2011 June [1] {C} (a) Write the most appropriate answer from the given options in respect

of the following:

(i). As per Section 77A(4) of the Companies Act, 1956 from the date of passing the special

resolution, every buy-back should be completed within

(a) 12 Months

(b) 3 Months

(c) 6 Months

(d) 9 Months

(ii). Profit prior to incorporation is transferred to

(a) General reserve

(b) Capital reserve



(iii). Dividends are usually paid on

(a) Paid-up capital

(b) Authorized capital

(c) Called up capital

(d) Subscribed capital.

(iv). Sinking fund for the redemption of debentures is an instance of

(a) Reserve

(b) Provision

(c) Reserve fund



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(d) Reserves and surplus.

(v). At the time of issuance, shares can be underwritten by

(a) Only one underwriter

(b) At least 2 or more persons jointly

(c) Any number of underwriters

(d) None of the above. (1 mark each)


word(s)/figure(s):

(i). Preliminary expenses being of capital nature may be written-off against _____________.

(ii). Companies declaring, distributing or paying dividends are liable t pay tax on the same at

prescribed rate which is known as ____________.

(iii). An intangible asset should be ____________ on disposal or when no future economic

benefits are expected from its use and subsequent disposal.

(iv). The value of the right is the difference between ____________ and the __________ of

the share.

(v). The fair value of a share is the average of the value of the share obtained by the

__________ method and ________ method.

(c) State, with reasons in brief, whether the following statements are true or false:

(i). According to Section 80 of the Companies Act, 1956, the redemption of preference

shares by a company shall be taken as reducing the amount of its authorized share capital.

(ii). A profit and loss account is a point statement whereas a balance sheet is a period

statement.

(iii). Internally generated goodwill should not be recognized as an asset.

(iv). A company can enforce its lien by forfeiting the shares.

(v). A limited company can retain excess application money as calls-in-advance even if there

is no provision in the articles of association. (2 marks each)

Answer (a)

(i). (a) 12 Months

(ii). (b) Capital reserve

(iii). (a) paid up capital

(iv). (c) Reserve fund

(v). (c) Any number of underwriters



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Answer (b)

(i). Capital Profits

(ii). Tax on distributed Profits

(iii). Derecognized or eliminated from balance sheet

(iv). Market value; Average price

(v). Net assets; Yield

Answer (c)

(i). False: According to Section 80 of the Companies Act, the redemption of preference

shares shall not be taken as reducing the amount of its authorized capital. The main object

of Section 80 is to protect the interests of the creditors of the company. As such the

capital structure of the company will remain unaffected even after the Redemption of

Preference Shares.

(ii). False: A Profit & Loss account is a periodic statement and a balance sheet is a point

statement. Balance sheet is prepared at the end of the financial year whereas profit and

loss account is prepared for the financial year.

(iii). True: An internally generated goodwill should not be recognized as an asset. However,

intangible assets arising from development phase should be recognized only if certain

conditions are fulfilled.

(iv). False: A company cannot enforce its lien by forfeiting the shares because by virtue of

lien, the company has prior right to the shares over any creditor to whom they are given

as security for a loan unless the company was given prior notice of an existing mortgage

or pledge of these shares.

(v). False: A limited company can retain excess application as calls in advance when the

following two conditions are satisfied:

(a) The Articles of the company provide for the acceptance of calls in advance.

(b) The consent of the applicant has been taken either by a separate letter or by inserting

a clause in the companys prospectus or application form.



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2011 Dec [1] {C} (a) State, with reasons in brief, whether the following statements are true

or false:

(i). The term distributable profits means profits which would otherwise be available for

dividends.

(ii). The logic behind the creation of the capital redemption reserve is to maintain the capital

structure of the company intact after redemption.

(iii). Underwriting commission and brokerage both cannot be provided to any individual

underwriter.

(iv). A debenture issued at a discount cannot be redeemed at a premium.

(v). International Accounting Standard 1 deals with valuation of inventories.

(2 marks each)

(b) Write the most appropriate answer from the given options in the respect of the following:

(i). The balance sinking fund account is transferred to

(a) Share capital account

(b) General reserve account


(d) Sinking fund investment account.

(ii). When interest on own debentures becomes due, it will be credited to

(a) Profit and loss account

(b) Own debentures account

(c) Debentures interest account

(d) Interest on own debentures account.

(iii). Expenses incidental to the creation and floatation of a company are called

(a) Current assets, loans and advances

(b) Reserves and surplus

(c) Secured loans

(d) Current liabilities and provisions.

(iv). Premium on issue of shares can be used for

(a) Issue of bonus shares

(b) Distribution of profit

(c) Meeting loss on sale of a fixed asset

(d) None of the above. (1 mark each)



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word(s)/figure(s):

(i). Shares forfeited account is to be shown in the balance sheet by way of __________ to the

paid-up share capital on the liabilities side until the concerned shares are re-issued.

(ii). International Accounting Standards (IAS)/ International Financial Reporting Standards

(IFRS) are issued by the ___________.

(iii). Unless loss prior to incorporation is completely written off, it must be shown as an asset

in the assets side of the balance sheet under the heading ____________.

(iv). According to section 209(4A) of the Companies Act, 1956, a company must preserve its

books of account and its relevant vouchers for a minimum period of ___________.

(v). A company cannot issue redeemable preference shares for a period exceeding

_______________. (1 mark each)

Answer (a)

(i). True: Profits which are available legally for distribution of dividends are called

distributable profits. The term dividend refers to that part of the profits of a company

which is distributed by the company among its shareholders. In other words, dividend is

nothing but the distribution of divisible or distributable profits of a company among its

shareholders.

(ii). True: The most important purpose for the creation of capital redemption reserve is to

maintain the capital intact. The capital structure of the company will remain unaffected

even after the redemption of redeemable preference shares. It is because capital

redemption reserve can be used only for issue of bonus shares; otherwise its amount has

to be kept intact.

(iii). False: Underwriting commission may be paid in addition to brokerage. Underwriting

commission is the consideration payable to the underwriters for under writing the issue of

shares or debentures of a company. Whereas brokerage is paid to the brokers who try to

procure subscriptions to the shares or debentures issued but they do not take any

responsibility of subscribing to the shares or debentures of the company.

(iv). False: The debentures issued at a discount can be redeemed at a premium. The loss to be

recognized at the time of the issue of such debentures will be equal to the total of the

amount of discount on issue and the amount of premium on redemption.



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(v). False: International Accounting Standard 1 deals with the Presentation of Financial

Statements. The standard prescribes the minimum structure and content of the basic

financial statements.

Answer (b)

(i). (b) General reserve Account

(ii). (d) Interest on Own Debentures account

(iii). (b) Preliminary Expenses

(iv). (d) Current Liabilities and Provisions

(v). (a) Issue of bonus shares

Answer (c)

(i). Addition

(ii). International Accounting Standards Board

(iii). Miscellaneous expenditure

(iv). Eight years

(v). Twenty years


true or false :

(i). A company can issue debentures with voting rights.

(ii). The apportionment of profit or loss of the business between pre-incorporation and post-

incorporation periods can be done on time basis only.

(iii). Contingent liability in respect of a transaction between holding and subsidiary companies

must be shown by way of a footnote in the consolidated balance sheet.

(iv). Debentureholders are not the members of the company.

(v). No dividend is paid on calls-in-advance. (2 marks each)


word(s)/figure(s):

(i). Interest on debentures is a _____________ against the profits of the company.

(ii). The market value of a share is the product of price-earnings ratio and ______________.

(iii). Partly paid-up preference shares cannot be ____________.

(iv). International financial reporting Standards are issued by _____________.



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(v). Bonus shares are issued by a company free of charge to its existing shareholders on

_________ basis. (1 mark each)

(c) Write the most appropriate answer from the given options in respect of the following :

(i). A company cannot issue redeemable preference shares for a period exceeding

(a) 5 Years

(b) 10 Years

(c) 15 Years

(d) 20 Years.

(ii). Which one of the following should be deducted from the share capital to find out paid-up

share capital

(a) Share forfeiture

(b) Discount on issue of shares

(c) Calls-in-arrears

(d) Calls-in-advance.

(iii). At the time of conversion of debentures redeemable at par into equity shares to be issued

at discount, the amount to be credited in the equity share capital account shall be

(a) Nominal value of debentures only

(b) Nominal value of debentures plus discount on issue of shares

(c) Nominal value of debentures minus discount on issue of shares


(iv). In case a company intends to declare dividend @ 20%, it is required to transfer an

amount to general reserve

(a) Not less than 10% of current profit

(b) Not less than 7 % of current profit

(c) Not less than 5% of current profit.

(d) Not less than 2 % of current profit.

(v). Accounting Standards

(a) Harmonize accounting policies

(b) Eliminate the non-comparability of financial statements

(c) Improve the reliability of financial statements

(d) All of the above (1 mark each)



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Answer (a)

(i). False: The company can not issue debentures with voting rights. Debentures holders can

not vote in the companys general meetings, but where there is a change in the rights

attached to the debentures they can vote in that case.

(ii). False: Time basis apportionment of expenses principle is based on the assumption that

profits are carved by the business evenly throughout the year. But in reality, since no

business can be expected to earn its profit evenly throughout the year, apportionment of

profit or loss solely on the basis of time is not at all satisfactory. Therefore

Apportionment of Profit and Loss of the business between pre incorporation and post

incorporation should be done on equitable basis i.e. time basis or turnover basis

depending on the nature of each particular item.

(iii). False: Contingent liabilities relate to the outsiders must be shown by way of a footnote in

the consolidated balance sheet. But a Contingent Liability in respect of a transaction

between holding and subsidiary companies will disappear from the footnote.

(iv). True: Debenture holders are long term loan providers. They are not owners and members

of the company. Only the share holders are the members of the company.

(v). True: The dividend is paid-up capital only. Such capital does not include money received

on calls-in-advance.

Answer (b)

(i). Charge

(ii). Earning per share

(iii). Redeemed

(iv). International Accounting Standard Board/IASB.

(v). Pro-rata

Answer (c)

(i). (d) 20 Years

(ii). (c) Calls-in-Arrears

(iii). (b) Nominal Value of Debentures plus discount on issue of shares

(iv). (b) Not less than 7 % of Current Profit

(v). (d) All of the above



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2012 December [1] {C}(a) State, with reasons in brief, whether the following statements

are true or false:

(i). Rights shares mean the shares which are issued to promoters for their services.

(ii). Both underwriting commission and brokerage cannot be provided to an individual

underwriter.

(iii). As per SEBI guidelines, an amount equal to 50% of the debenture issued must be

transferred to debenture redemption reserve before redemption begins.

(iv). Preliminary expenses is an example of intangible asset.

(v). Interim dividend paid is a charge against the profits.

(b) Write the most appropriate answer from the given options in respect of the following:

(i) Under section 205C of the Companies Act, 1956, the amount in the unpaid dividend

account is transferred to the Investor Education and Protection Fund after the lapse of

(a) 3 Years

(b) 5 Years

(c) 7 Years

(d) 10 Years

(ii) Discount allowed on the re-issue of forfeited shares cannot exceed

(a) 10% of the paid-up capital

(b) 10% of the capital re-issued

(c) The amount received on forfeited shares.

(d) The amount not received on forfeited shares.

(iii)Redemption of preference shares of a company is

(a) Compulsory

(b) Optional

(c) Conditional


(iv) Which mentioned is legally allowed for redemption of preference shares

(a) Issue of fresh equity shares

(b) Sale of assets of the company

(c) Issue of debentures

(d) Loan from the bank

(v) Profit prior to incorporation of a company is transferred to

(a) General reserve

(b) Capital reserve

(c) Goodwill reserve

(d) Statement of profit and loss.



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word(s)/figures(s):

(i) Section 349 and 350 of the Companies Act, 1956 contain the provisions relating to

the manner of determination of net profits for the purpose of calculating the

.

(ii) A company may allot fully paid-up shares to promoters or any other party for the

services rendered by them without payment is known as issue of shares

(iii)To determine whether an intangible asset is impaired, an enterprise applies

Accounting Standard on

(iv) International Accounting Standards (IAS)/International Financial Reporting

Standards (IFRS) are issued by the .

(v) Deferred tax assets are shown under the head in the balance sheet of a

company.

Answer (a)

(i) False

When a company which has already issued shares wants to raise capital through the

further issue of shares, it is under a legal obligation to first other the fresh shares to its

existing shareholders unless the company has resolved otherwise by a special resolution.

Because of the right of existing shareholders to apply for the shares on priority basis, the

issue is known as right issue. So, Right shares are not issued to promoter for their

services.

(ii) False

Both underwriting commission and brokerage can be paid to an individual underwriting

as underwriting commission is paid to an underwriter in addition to brokerage for taking

the responsibility to get full subscription to the shares and debentures of the company.

(iii)True

The company shall create Debenture Redemption Reserve equivalent to at-least 50% of

the amount of debentures issued before starting the redemption of debentures.

(iv) False

Preliminary expenses is an example of fictitious asset (miscellaneous expenditure) and

not of an intangible assets.

(v) False

Interim Dividend thus paid is an appropriation of profit and not a charge against the

profit.



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Answer (b)

(i). (c)7 Years

(ii). (c)The amount received on forfeited shares

(iii). (a)Compulsory

(iv). (a)Issue of fresh equity shares

(v). (b)Capital reserve

Answer (c)

(i). Managerial Remuneration

(ii). Consideration other than cash

(iii). Impairment of assets

(iv). International Accounting Standard Board/IASB.

(v). Non-current assets

Documents

Company Accounts Objective Type Q&A_June 2013 Attempt