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CBSE Questions for Class 12 Commerce Accountancy Financial Statements Of A Company Quiz 1 - MCQExams.com
CBSE
Class 12 Commerce Accountancy
Financial Statements Of A Company
Quiz 1
Financial statements does not provide _____information.
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monetary
0%
qualitative
0%
both
0%
none
Explanation
The financial statements show only the monetary/quantitative information and ignores the impact of a qualitative information on the financial statements. Qualitative information like efficiency of the management, employer employee relationship, customer satisfaction, loyalty of customers etc. are ignored by the financial statements. However, these are equally important to understand the financial position of an organisation.
Financial statements contain only_____information.
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0%
monetary
0%
non-monetary
0%
qualitative
0%
all of the above
Explanation
The financial statements show only the monetary/quantitative information and ignores the impact of a qualitative information on the financial statements. Qualitative information like efficiency of the management, employer employee relationship, customer satisfaction, loyalty of customers etc. are ignored by the financial statements. However, these are equally important to understand the financial position of an organisation.
The financial statements generally include _____statement.
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three
0%
five
0%
two
0%
four
Explanation
The Financial Statements of a company generally includes three statement namely Income statement, Balance sheet and cash flow statement.
Income statement shows the profit earned or loss incurred by the company during the financial year.
Balance sheet shows the balances of assets and liabilities at the end of the year and cash flow statements show the inflow and outflow of cash in the business.
State with reasons, whether the following statement is True or False.
In the balance sheet of X Limited, preliminary expenses amounting to $$Rs. 5$$ lakhs and securities premium account of $$Rs. 35$$ lakhs are appearing. The accountant can use the balance in
securities premium account to write off preliminary expenses.
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0%
True
0%
False
Explanation
According to the provision of Section 52 of Companies Act 2013, the amount of securities premium can be utilise in writting off preliminary expenses. In the given situation company has sufficient fund in securities premium account to write off preliminary expenses.
Hence, the above mentioned statement is
True
.
Balance sheet does not disclose information relating to ___________.
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asset
0%
loss of markets
0%
liabilties
0%
investment
Explanation
Financial statements of the company record the assets at historical cost and not at market price. They fail to record the profit/loss that arise from the fluctuations in the market price of the assets. Hence, we can say that the financial statements do not show the complete picture of the business.
Statements included in financial statements are________.
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Profit and loss account
0%
Balance sheet
0%
Cash flow
0%
All of the above
Explanation
The Financial Statements of a company generally includes three statement namely Income statement.
Balance sheet and cash flow statement. Income statement shows the profit earned or loss incurred by the company during the financial year.
Balance sheet shows the balances of assets and liabilities at the end of the year and cash flow statements show the inflow and outflow of cash in the business.
Unclaimed dividend is shown on the liability side of the balance sheet of a company as ___________.
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Share Capital
0%
Current Liabilities
0%
Reserves & Surplus
0%
Non-Current Liability
Explanation
Share capital is reported by a company on its balance sheet in the shareholder's equity section.
Unclaimed dividend is a short term liability which need to be paid in the next years. This has to be shown as current liability in balance sheet.
Unclaimed dividend is shown on the liability side of a balance sheet under the head “Reserves and Surplus” along with capital. If a company incurs losses then it is not created.
Non-current liabilities are reported on a company's balance sheet along with current liabilities, assets, and equity.
Pooling of interest method is applicable for amalgamation in the nature of _____.
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Merger
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Consolidation
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Reconstruction
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Realization
Explanation
Pooling of interest method is applicable for amalgamation in nature of merger, because Amalgamation in nature of merger is the former method where the two balance sheets are consolidated and a new balance sheet is made. Thereby said as in nature of merger. This method considers historical costs and doesn't take into account intangible assets like Goodwill.
Financial statement in relation to a company includes __________.
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Balance Sheet
0%
Statement of Profit & Loss
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Cash Flow Statement
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All of the Above
Explanation
Financial statements are written records of a business's financial situation. They include standard reports like the balance sheet, income or profit and loss statements, and cash flow statement.
Which of the following reserve does not appear in the balance sheet of a company?
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Secret reserve
0%
General reserve
0%
Capital reserve
0%
Specific reserve
Explanation
Secret reserves are created by the companies to strengthen the financial position of the company without disclosing in books of account. This reserve is a hidden reserve and not shown in the balance sheet. It is created by showing the lesser net profit than the actual.
The secret reserve can be created by the following ways:
1) By charging excess rates of depreciation
2) By undervaluing the current assets.
3) By overvaluing the current liabilities.
4) By not recording of any assets at all.
5) By showing contingent liability as actual liability.
The difference between gross dividend receivable and dividend received is debited to _________.
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interim dividend
0%
tax deducted at source
0%
net dividend
0%
difference adjustment
Explanation
Dividend is a taxable item. When the company is paying a dividend, it is subject to tax deduction. Hence difference between dividend receivable and dividend received is the amount of tax deduction.
Advance payment of tax is a _______.
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0%
Prepaid Expense
0%
General Reserve
0%
Interim Dividend
0%
Provision for Taxation
Explanation
An amount paid in advance against which the services are yet to receive is a prepaid expenses and shown in balance sheet as other current assets.
Which of the following does not represent application of fund of a company?
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Fixed Asset.
0%
Goodwill.
0%
Debentures.
0%
Repayment of loan.
Explanation
Debenture is like a debt which is a source of fund not the application of fund. If debentures are issued, this will increase the sources. When debenture are paid off, its an application of fund.
Which of the following is not shown on the liability side of a balance sheet of a company?
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Authorised capital
0%
Issued capital
0%
Paid up capital
0%
Reserve capital
Explanation
Reserve capital is part of the authorized capital of the company which is not called by the company. It is available for the company in case of need.
Which of the following is not a long-term borrowing of a company?
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Debentures.
0%
Term loans.
0%
Loans repayable on demand from banks.
0%
Long-term finance lease obligations.
Explanation
Long term liability is the liability which is for more than a year in the business. Loans such as debentures, term loans and finance lease are always for a period of more than 1 year. Therefore, they are considered as long term borrowing of a company.
Loan repayable on demand is a short term borrowing and hence is not a long term borrowing of a company.
The amount set aside to meet the loss of bad debt is __________.
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Liability
0%
Reserve
0%
Provision
0%
Contingent Liability
Explanation
Financial accounting is based on certain concept and convention. Conservatism concept is one of these which signifies "playing safe". On this basis, all future losses are recorded in books of account. Accordingly, when the amount of bad debts is not accurately ascertainable, a provision for bad & doubtful debt is created.
According to schedule VI Companies Act which of the following items is not shown on asset side of balance sheet?
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Investment
0%
Current loan & advances
0%
Provision
0%
Lease holds
Explanation
Schedule VI of the companies act stipulate the format in which a company should prepare and present the balance sheet and profit & loss account.
According to schedule VI of the companies act, provisions are shown in the liability side under the heading "Current liabilities & provisions".
Sale of land is a __________.
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Revenue receipt
0%
Capital receipt
0%
Capital expenditure
0%
Revenue expenditure
Explanation
Capital receipts are funds received by a business that are not revenue in nature & lead to an overall increase in the total capital of a company. These are funds generated from non-operating activities of a business hence are not shown inside the income statement instead they are shown inside a balance sheet. For example:- Cash received from the sale of fixed assets, Amount received from Shareholders and debenture holders. Borrowings include loans, disinvestment, insurance claims, etc.
Therefore, B is the correct option.
Floating assets are valued at
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0%
Cost
0%
Market price
0%
Cost or market price whichever is lower
0%
Cost less depreciation
Explanation
Floating assets are the assets that are continually changing in quantity and/or value, such as amount of accounts receivable, cash, inventory, outstanding shares. Floating assets are valued at cost or market value whichever is lower because of prudence principle.
Therefore, C is the correct option.
Which of the following is not true and opinion on financial statements?
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The auditor should express an opinion on financial statements
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His opinion is no guarantee to future viability of business
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He is responsible for detection and prevention of frauds and errors in financial statements
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He should examine whether recognised accounting principle have been consistenly
Dividend capitalization method was developed by _________________.
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Ezra Solomon
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Myron J. Gordon
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James E. Walter
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Merton H. Miller and Franco Modigliani
Explanation
The method of Dividend capitalisation reserve was developed by Myron J. Gordon. According to Gordon, the market value of shares is equal to the present value of future payments of dividends. This means that the market price of shares are affected by the payments of dividend and more the dividend better the market price of the dividend.
Owners equity or net worth is __________.
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0%
Liability
0%
Assets
0%
Revenue
0%
Capital
Explanation
Capital is the amount invested by a business man in his business to start it. It is nothing but the net worth of the business. Hence, Owner's equity or net worth is the capital.
Valuation balance sheet is prepared by a life insurance company to find out _______________.
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Profit of loss
0%
Financial position
0%
Surplus or deficiency
0%
Net liability
Explanation
Valuation balance sheet is prepared by the life insurance company, or it is prepared by the actuary for the life insurance company. An Actuary is a person who evaluates risk in an insurance given by an insurance company. Valuation balance sheet is prepared by the life insurance company to evaluate the surplus or deficiency.
Preliminary expenses are recorded in
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Equity and liabilities - Liability side of B/S
0%
Current liabilities - Liability side of B/S
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Fixed assets - Asset side of B/S
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Asset side of B/S
Explanation
Preliminary expenses are incurred before the incorporation, initial stage, and commencement of the business. The expenses incidental to the formation of a company also regarded as a preliminary expense. These are considered deferred revenue expenditure. A part of these expenses is debited every year to the profit and loss account. Preliminary expenses are shown on the assets side of the balance sheet under the heading other assets.
Therefore, D is the correct option.
Section $$3$$ of the companies Act $$2013$$ allows the formation of a _________.
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one person company
0%
private
company
0%
public
company
0%
none of the above
Explanation
To encourage the self employment in India, Companies Act 2013 introduced the formation one person company (OPC).
There are certain guidelines issued for formation of OPC:
1) There will be only one promoter/founder of the company
2) There should be one nominee in case of death or any other incapacity of the promoter/founder.
3) Only natural person who is resident of India in the preceding financial year can form the OPC.
4) A person can not form more than one OPC, or can not be nominee of more than one OPC.
5) Rules of OPC do not permit Non Banking Financial Institution.
Statement - I : Capital structure refers to composition of long-term funds.
Statement - II : These include equity share capital, preference share capital, debentures, all debts and all reserves.
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Both Statements I and II are correct
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Statement I is correct but Statement II is incorrect
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Statement I is incorrect but Statement II is correct
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Both statements are incorrect
Explanation
Capital structure refers but to composition of long term funds that include debts, share capital and preference share capital, Capital structure doesn't include all reserves. Hence, the first and second statement is incorrect.
Which among the following is not a category of Non-Performing Assets?
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Substandard Assets
0%
Doubtful Debts
0%
Loss Assets
0%
Devaluated Assets
Minimum Alternate Tax (MAT) is imposed on
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0%
All companies
0%
Public Limited Companies only
0%
Private Limited Companies only
0%
Partnership Firms and Companies
Explanation
MAT is applicable to all companies, including foreign companies. MAT is calculated under Section 115JB of the Income-tax Act.
Therefore, A is the correct option.
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Both Assertion and Reason are correct and Reason is the correct explanation for Assertion
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Both Assertion and Reason are correct but Reason is not the correct explanation for Assertion
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Assertion is correct but Reason is incorrect
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Both Assertion and Reason are incorrect
Explanation
In the given question both the reason and the assertion are correct and the reason is the correct explanation for the assertion. Accounting information refers only to the events which are concerned with the business firm and accounting information is presented in the financial statements. The Financial statements include the transactions that are related only to the business.
Which of the followings are accumulated profits?
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General Reserve
0%
Revenue Reserve
0%
Profit and Loss (cr)
0%
All of the above
Explanation
The profit earned by business through business operations is available for distribution. Hence, it is termed divisible profit. However, sometimes a sum of such divisible profit is kept aside for future discrepancies under the name general reserve, revenue reserve, profit and loss account (cr. balance), etc, resulting in accumulation of profits.
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Practice Class 12 Commerce Accountancy Quiz Questions and Answers
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