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The bonus share issue cannot be made unless the existing partly paid shares are fully
paid-up.
In India, corporate financial statements in general do not include a cash flow statement to
explain movement of cash during the accounting period.
A company is not under any legal obligation to make good its past losses before
distributing its current profits as dividends.
The Accounting Standard 21 mandates an Indian company to present consolidates
financial statement.
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).
(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.
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).
(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).
(iv).
(v).
(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).
(iv).
(v).
(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.
A company must pay the dividends within ____________ days of its declaration.
Preliminary expense is a __________ asset.
Discount on the issue of debenture is a ____________ loss.
If the purchase price of the debenture includes the interest for the expired period. It is
known as ___________.
(ii).
(iii).
(iv).
(v).
Answer (a)
(i).
(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.
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).
(ii).
(iii).
(iv).
(v).
11%
30 days
Fictitious asset.
Capital
Cum-interest purchase/quotation
2009 Dec [1] {C} (a) State, with reasons in brief, whether the following statements are
correct or incorrect:
(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)
(i).
Choose the most appropriate answer from the given options in respect of the following:
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%
(d) None of the above.
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).
(iv).
(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)
(i).
(ii).
(iii).
(iv).
(v).
Re-write the following sentences after filling-in the blank spaces with appropriate word
(s)/figure (s):
Issue of debentures to vendors is known as issue of debentures ___________.
Profit prior to incorporation should be credited to _____________ account.
If forfeited shares are re-issued at a discount, the amount of discount should in no case
exceed the amount credited to __________.
Accounting standards are formulated under the authority of the ____________.
Yield basis valuation of shares may take the form of valuation based on rate of return
and ____________.
(1 mark each)
(ii).
(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).
(ii).
(iii).
(iv).
(v).
(b) 25%
(a) 5
(b) Debentures suspense account
(c) Fictitious assets
(b) 12 months from the date of passing special resolution
Answer (c)
(i).
(ii).
(iii).
(iv).
(v).
2010 June [1] {C} (a) State, with reasons in brief, whether the following statements are
correct or incorrect:
(i).
(b)
In the absence of declaration of dividend, there no need to provide for depreciation in the
accounts of companies.
Securities premium money can be distributed as dividend.
For calculating minority interest, there is a need to distinguish between capital and
revenue profits of the subsidiary.
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)
Choose the most appropriate answer from the given options in respect of the following:
(i).
(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).
(c)
Re-write the following sentences after filling-in the blank spaces with appropriate
word(s)/figure(s):
(i).
(ii).
(iii).
(iv).
(v).
Answer (a):
(i).
(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.
(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).
Answer (b)
(i).
(ii).
(iii).
(iv).
(v).
Answer (c)
(i).
(ii).
(iii).
(iv).
(v).
Intangible
Capital profit.
Additional
Two annual general meeting
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).
(b)
(i).
(ii).
(iii).
(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
(d) None of the above.
(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
11 SANGEET KEDIA CLASSES
(1 mark each)
(c)
Re-write the following sentences after filling-in the blank spaces with appropriate word
(s)/figure(s):
(i).
(ii).
The applications bearing the stamp of the respective underwriters are called__________.
The debentures issued as collateral security has to be mentioned by way of a note in the
balance sheet under ______________.
The International Financial Reporting Standard-8 deals with __________.
____________ advises the Central Government on the formulation and implementation
of accounting Standards in India.
The voluntary return of shares by a shareholder to the company for cancellation is called
__________.
(1 mark each)
(iii).
(iv).
(v).
Answer (a)
(i).
False: Accounting Standard (AS) 15 deals with Employee Benefits while Accounting
Standard (AS) -20 deals with Earning Per Share.
(ii).
(iii).
(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).
Answer (b)
(i).
(ii).
(iii).
(iv).
(v).
The applications bearing the stamp of the respective underwriters are called marked
applications.
The debentures issued as collateral security has to be mentioned by way of a note in the
balance sheet under specific loan account.
The International Financial Reporting Standard 8 deals with Operating Segments,
National Advisory Committee on Accounting Standards (NACAS) advises the Central
Government on the formulation and implementation of Accounting Standards in India.
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).
(iii).
(iv).
(1 mark each)
(b)
Re-write the following sentences after filling-in the blank spaces with appropriate
word(s)/figure(s):
(i).
(ii).
(iii).
(iv).
(v).
(c)
(i).
(ii).
(iii).
(iv).
(v).
State, with reasons in brief, whether the following statements are true or false:
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.
A profit and loss account is a point statement whereas a balance sheet is a period
statement.
Internally generated goodwill should not be recognized as an asset.
A company can enforce its lien by forfeiting the shares.
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).
(ii).
(iii).
(iv).
(v).
(a) 12 Months
(b) Capital reserve
(a) paid up capital
(c) Reserve fund
(c) Any number of underwriters
14 SANGEET KEDIA CLASSES
Capital Profits
Tax on distributed Profits
Derecognized or eliminated from balance sheet
Market value; Average price
Net assets; Yield
Answer (c)
(i).
(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).
(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.
(b)
The term distributable profits means profits which would otherwise be available for
dividends.
The logic behind the creation of the capital redemption reserve is to maintain the capital
structure of the company intact after redemption.
Underwriting commission and brokerage both cannot be provided to any individual
underwriter.
A debenture issued at a discount cannot be redeemed at a premium.
International Accounting Standard 1 deals with valuation of inventories.
(2 marks each)
Write the most appropriate answer from the given options in the respect of the following:
(i).
(ii).
(iii).
(iv).
(1 mark each)
(i).
(ii).
(iii).
(iv).
(v).
Re-write the following sentences after filling-in the blank spaces with appropriate
word(s)/figure(s):
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.
International Accounting Standards (IAS)/ International Financial Reporting Standards
(IFRS) are issued by the ___________.
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 ____________.
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 ___________.
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).
(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.
Answer (b)
(i).
(ii).
(iii).
(iv).
(v).
Answer (c)
(i).
(ii).
(iii).
(iv).
(v).
Addition
International Accounting Standards Board
Miscellaneous expenditure
Eight years
Twenty years
2012 June [1] {C} (a) State, with reasons in brief, whether the following statements are
true or false :
(i).
(ii).
(iii).
(iv).
(v).
(b)
Re-write the following sentences after filling-in the blank spaces with appropriate
word(s)/figure(s):
(i).
(ii).
(iii).
(iv).
(c)
Bonus shares are issued by a company free of charge to its existing shareholders on
_________ basis.
(1 mark each)
Write the most appropriate answer from the given options in respect of the following :
(i).
(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
(d) None of the above.
(iv).
(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)
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
Rights shares mean the shares which are issued to promoters for their services.
Both underwriting commission and brokerage cannot be provided to an individual
underwriter.
As per SEBI guidelines, an amount equal to 50% of the debenture issued must be
transferred to debenture redemption reserve before redemption begins.
Preliminary expenses is an example of intangible asset.
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
(d) None of the above.
(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.
21 SANGEET KEDIA CLASSES