Financial Statements and Analysis Test - 1

Explanation:

Classification of items:

Preliminary Expense --- Fictitious Asset

The expenses incurred when a company is formed and before the start of any business operations are termed as preliminary expenses, they are a good example of fictitious assets which are written off every year from the profits earned by the business.

Preliminary expenses include Legal cost, Professional fees, Stamp duty, Printing fees, etc.

Preliminary expenses are shown on the Assets side of the balance sheet.

Explanation:

 Companies Act 2013 is in force these days. Earlier Companies Act 1956 was in force.

Explanation:

Securities premium reserve is shown under the heading Shareholders funds and sub heading Reserves and Surplus.

Explanation:

Goodwill is an intangible asset which comes under the heading of fixed assets. It is not a fictitious asset (for more detail see ultimate book of accountancy).

Explanation:

All assets are shown in the order of permanence i.e. Fixed Assets will come first,then investments , then current assets and liquid assets.

Explanation:

A company can obtain special permission form registrar to extend the accounting period which can be up to 18 months.The Registrar has power to extend a financial year up to eighteen months in terms of the proviso under section 210(4) of the Companies Act.In order that the public record of a company’s accounts is regularly updated, an accounting period cannot be extended to longer than 18 months, and in most cases, the accounting period cannot be extended more than once every 5 years. 

Explanation:

Balance Sheet of a company is prepared as per the Schedule III of the Indian Companies Act, 2013.

Explanation:

Office building under construction is shown under fixed assets i.e. Capital work in progress.This account is shown separately in the balance sheet below the fixed asset. Capital work in progress account contains all expenses incurred on the asset until it is converted into working condition. All these expenses will become part of the cost of that asset.

Explanation:

Claim against the company not acknowledged as debt is shown as contingent liability after preparing the balance sheet. It is shown as a footnote to the balance sheet. Contingent liabilities are those which may or may not arise as they are dependent on happening in future.

Explanation:

Bills of exchange is not shown under the heading Reserves and surplus but following items will be shown under this heading:

•Securities Premium Reserve

•Statement of profit and loss

•Capital Reserve

Bills of Exchange come as trade payables in current liabilities.