CBSE Questions for Class 12 Commerce Accountancy Financial Statements Of A Company Quiz 9 - MCQExams.com

There are four main types of financial statements, which are as follows:

Income statement is report that reveals the financial performance of an organisation for the entire reporting period.

Balance sheet is report that shows the financial position of a business as of the report date (so it covers a specific point in time).The information is aggregated into the general classifications of assets, liabilities, and equity.

Statement of cash flows is report that reveals the cash inflows and outflows experienced by an organisation during the reporting period.

A financial statement is a collection of data organised according to logical and consistent accounting procedures. Its purpose is to convey an understanding of some financial aspects of a business firm. The financial statements are comprised of four basic reports, which are Income statement, Balance sheet, Statement of cash flows, Statement of retained earnings.

Shares which do not enjoy any preferential right in the payment of dividend or repayment of capital, are termed as equity/ordinary shares.

The equity shareholders are entitled to share the distributable profits as reward the for their investment in the company after satisfying the dividend rights of the preference shareholders. The dividend on equity shares is not fixed and it may vary from year to year.

Misstatement refers to error in the financial statement and there can be different types of misstatement. An inaccuracy in processing data, misapplication of accounting principles and difference between the classification of a reported financial statement element and the classification according to generally accepted accounting principles are all the example of misstatement. But difference between management and the auditor's judgment regarding estimates is not covered under misstatement. It’s just a difference in view on future projection based on current evidence.

Under the accrual basis of accounting, expenses are matched with the related revenues and/or are reported when the expense occurs, not when the cash is paid. The result of accrual accounting is an income statement that better measures the profitability of a company during a specific time period.

In the given question Rs. 2400 paid for the year ended on 30th September 2012 in which 9 months belongs to the accounting period ended on 2012 and Rs. 3200 for 30th September 2013 in which 3 months belongs to the accounting period ended on 2012.

Hence insurance premium shown in P&L account would be as under:

=2400 X 9/12 + 3200 X 3/12

=2600

Opening stock is the stock of goods in hand at the beginning of the accounting year. This is the stock of goods which has been carried forward from the previous year and remains unchanged during the year and appears in the trial balance. In the trading account it appears on the debit side because it forms the part of cost of goods sold for the current accounting year.

The Balance sheet is the statement which shows the assets, equity and liabilities of the company. It is divided under Assets and equity & liabilities heads. It shows balances of Personal and real account.

Irrespective of the fact that shares have been issued for consideration other than cash, they can be issued either at par or at premium. The issue of shares at par implies that the shares have been issued for an amount exactly equal to their face or nominal value.

 In case shares are issued at a premium, i.e. at an amount more than the nominal or par value of shares, the amount of premium is credited to a separate account called ‘Securities Premium Reserve Account’ under the head Reserves and surplus in the balance sheet.