Financial Statements of a Company Test 2

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Financial Statements of a Company Test 2

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Weekly Quiz Competition

Question 1
1 / -0

Pooling of interest method is applicable for amalgamation in the nature of _____.

A
Merger

B
Consolidation

C
Reconstruction

D
Realization

Solution

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.
Question 2
1 / -0

Financial statement in relation to a company includes __________.

A
Balance Sheet

B
Statement of Profit & Loss

C
Cash Flow Statement

D
All of the Above

Solution

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.
Question 3
1 / -0

Which of the following reserve does not appear in the balance sheet of a company?

A
Secret reserve

B
General reserve

C
Capital reserve

D
Specific reserve

Solution

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.
Question 4
1 / -0

The amount set aside to meet the loss of bad debt is __________.

A
Liability

B
Reserve

C
Provision

D
Contingent Liability

Solution

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.
Question 5
1 / -0

Which of the following is not a long-term borrowing of a company?

A
Debentures.

B
Term loans.

C
Loans repayable on demand from banks.

D
Long-term finance lease obligations.

Solution

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.
Question 6
1 / -0

According to schedule VI Companies Act which of the following items is not shown on asset side of balance sheet?

A
Investment

B
Current loan & advances

C
Provision

D
Lease holds

Solution

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".
Question 7
1 / -0

Sale of land is a __________.

A
Revenue receipt

B
Capital receipt

C
Capital expenditure

D
Revenue expenditure

Solution

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.
Question 8
1 / -0

Floating assets are valued at

A
Cost

B
Market price

C
Cost or market price whichever is lower

D
Cost less depreciation

Solution

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.
Question 9
1 / -0

Which of the following is not true and opinion on financial statements?

A
The auditor should express an opinion on financial statements

B
His opinion is no guarantee to future viability of business

C
He is responsible for detection and prevention of frauds and errors in financial statements

D
He should examine whether recognised accounting principle have been consistenly
Question 10
1 / -0

Dividend capitalization method was developed by _________________.

A
Ezra Solomon

B
Myron J. Gordon

C
James E. Walter

D
Merton H. Miller and Franco Modigliani

Solution

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.

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Financial Statements of a Company Test 2

Result

Financial Statements of a Company Test 2

Score

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Rank

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SHARING IS CARING

Question 1

Merger

Consolidation

Reconstruction

Realization

Solution

Question 2

Balance Sheet

Statement of Profit & Loss

Cash Flow Statement

All of the Above

Solution

Question 3

Secret reserve

General reserve

Capital reserve

Specific reserve

Solution

Question 4

Liability

Reserve

Provision

Contingent Liability

Solution

Question 5

Debentures.

Term loans.

Loans repayable on demand from banks.

Long-term finance lease obligations.

Solution

Question 6

Investment

Current loan & advances

Provision

Lease holds

Solution

Question 7

Revenue receipt

Capital receipt

Capital expenditure

Revenue expenditure

Solution

Question 8

Cost

Market price

Cost or market price whichever is lower

Cost less depreciation

Solution

Question 9

The auditor should express an opinion on financial statements

His opinion is no guarantee to future viability of business

He is responsible for detection and prevention of frauds and errors in financial statements

He should examine whether recognised accounting principle have been consistenly

Question 10

Ezra Solomon

Myron J. Gordon

James E. Walter

Merton H. Miller and Franco Modigliani

Solution

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