Free Bachelor of Commerce: Financial Accounting Questions and Answers — Questions and Answers

Question 1: The first external liabilities to be paid in a piecemeal transfer of cash are ______

secured creditors (Correct answer)
government dues
partners\ loans
preferential creditors

Correct answer: secured creditors

In the event of a firm's dissolution and piecemeal distribution of cash, secured creditors are typically paid first among external liabilities. This is because their debts are backed by specific assets of the firm, giving them priority over unsecured creditors and other liabilities. This ensures that their claims against the pledged assets are satisfied before other general creditors.

Question 2: When the cash available for competing liabilities of the same class is insufficient, pro-rata payment is applicable.

paid to partners
reserved
adequate
insufficient (Correct answer)

Correct answer: insufficient

Pro-rata payment is a method of distribution where available funds are divided among claimants in proportion to their respective claims. This method is specifically applied when the cash available is 'insufficient' to fully satisfy all liabilities belonging to the same class. If the cash were adequate, each liability would be paid in full.

Question 3: Consideration for purchases can be determined by...

balance sheet method
net assets method (Correct answer)
book value method
market value method

Correct answer: net assets method

The 'net assets method' is a common approach to determine the purchase consideration when one business acquires another. Under this method, the purchase consideration is calculated by taking the agreed value of assets acquired and deducting the agreed value of liabilities assumed. This method provides a direct valuation of the net worth being transferred.

Question 4: PQR & Co.'s operating company is taken over by ABC & Co. It is known as...

external reconstruction
pouncing
absorption (Correct answer)
internal reconstruction

Correct answer: absorption

Absorption occurs when an existing company takes over the business of another existing company, and the acquiring company continues to operate. In this scenario, PQR & Co. is taken over by ABC & Co., implying that ABC & Co. absorbs PQR & Co.'s operations. Amalgamation involves two or more companies merging to form a new company, while external reconstruction involves a company being wound up and a new company formed to take over its business.

Question 5: A limited company's members are liable for...

limited (Correct answer)
unlimited
restricted
as per the articles of association

Correct answer: limited

The defining characteristic of a limited company is that the liability of its members (shareholders) is 'limited' to the unpaid amount on the shares they hold. This means that in the event of the company's winding up, shareholders are only responsible for any outstanding amount on their shares and their personal assets are protected from the company's debts.

Question 6: At year's end, foreign debts are listed on...

agreed value
original value
fair value
the balance sheet rate of exchange (Correct answer)

Correct answer: the balance sheet rate of exchange

According to Accounting Standard 11 (AS 11) in India, which deals with the effects of changes in foreign exchange rates, foreign currency monetary items (like foreign debts) outstanding at the balance sheet date should be reported using the closing rate of exchange. This means they are translated into the reporting currency at the exchange rate prevailing on the balance sheet date.

Question 7: The ________ prescribes Accounting Standard 11 (AS 11).

the government of india
institute of chartered accountants of india (Correct answer)
the companies\ act
international financial reporting standards

Correct answer: institute of chartered accountants of india

In India, Accounting Standards (AS) are primarily issued by the Institute of Chartered Accountants of India (ICAI). While the Ministry of Corporate Affairs (MCA) notifies these standards under the Companies Act, the ICAI is the body responsible for formulating and prescribing them. AS 11 specifically deals with the effects of changes in foreign exchange rates.

Question 8: Under the, a partnership firm is created.

the indian association act 1955
the association of persons act 1932
indian partnership act 1955
indian partnership act 1932 (Correct answer)

Correct answer: indian partnership act 1932

Partnership firms in India are governed by the provisions of the Indian Partnership Act, 1932. This Act defines what constitutes a partnership, outlines the rights and duties of partners, and provides regulations for the formation, dissolution, and management of partnership firms. It is the foundational legal framework for partnerships in the country.

Question 9: The most partners who can be accepted into a firm as partners are...

25
30
20 (Correct answer)
40

Correct answer: 20

According to Section 11 of the Companies Act, 1956, the maximum number of partners in a partnership firm was limited to 20 for any business other than banking, where the limit was 10. While the Companies Act, 2013, read with relevant rules, has since increased this limit to 50 for any association or partnership, the figure of 20 is a historically significant and commonly tested limit in Bcom curricula, especially when referring to general partnership firms.

Question 10: Indirectly, the number of partners is limited by ______ .

the companie\s act (Correct answer)
the partnership act
the corporate associations act
the association of persons act

Correct answer: the companie\s act

Although partnership firms are governed by the Indian Partnership Act, 1932, the maximum number of partners is actually prescribed by the Companies Act. Section 464 of the Companies Act, 2013 (read with Rule 10 of the Companies (Miscellaneous) Rules, 2014) prohibits any association or partnership consisting of more than 50 persons from carrying on business unless it is registered as a company. This indirectly limits the size of unregistered partnerships.

Question 11: According to the Companies Act, the underwriting commission for debentures should not be more than .

5% of the price at which debentures are issued
4% of the price at which debentures are issued
3% of the price at which the debentures are issued
2.5% of the price at which debenture are issued (Correct answer)

Correct answer: 2.5% of the price at which debenture are issued

As per Section 40(6) of the Companies Act, 2013 (and previously Section 76 of the Companies Act, 1956), the underwriting commission payable for debentures cannot exceed 2.5% of the issue price of the debentures. This statutory limit is set to regulate the expenses incurred in issuing debentures and protect the company's financial interests.

Question 12: Regulations governing the buyback of equity shares are found in the Companies Act

section 80
section 68 (Correct answer)
section 117 c
section 100 to 104

Correct answer: section 68

Section 68 of the Companies Act, 2013, specifically deals with the power of a company to purchase its own shares, commonly known as a buyback. This section lays down the conditions, restrictions, and procedures that a company must follow when undertaking a buyback of its equity shares. It is a crucial provision for corporate finance and capital restructuring.

Question 13: A characteristic that exists in every merger situation __________ .

formation of at least one new company
liquidation of at least two companies
purchase of one comapany by another company (Correct answer)
liquidation at least one existing company & formation of another company

Correct answer: purchase of one comapany by another company

A merger fundamentally involves the absorption of one company by another, where the acquired entity ceases to exist independently and its assets and liabilities are integrated into the acquiring firm. While other outcomes like new company formation or liquidation might occur in specific restructuring, the core characteristic common to *every* merger is the purchase and subsequent integration of one company into another existing company. This results in a single, larger surviving entity.

Question 14: Changes in the rate of the preference dividend due in the future without a change in the capital are referred to as .

alteration of share capital
reduction of share capital
compromise/ arrangement
variation of shareholders rights (Correct answer)

Correct answer: variation of shareholders rights

Changes to the dividend rate of preference shares directly alter the financial entitlements and privileges of those specific shareholders. Since the total capital amount remains unchanged, this action is categorized as a 'variation of shareholders' rights.' This distinguishes it from broader alterations or reductions of the company's overall share capital, which would affect the total equity structure.

Question 15: When members voluntarily wind up, ____________ appoints a liquidator.

the central government
the board of directors
the registrar of companies
the company in general meeting (Correct answer)

Correct answer: the company in general meeting

In a members' voluntary winding up, the decision to liquidate the company is initiated by the shareholders themselves. Therefore, it is the company, acting through its members assembled in a general meeting, that passes the special resolution to commence winding up and subsequently appoints the liquidator. The liquidator then manages the orderly dissolution of the company's affairs.

Question 16: R LTD. issued a 100-rupee debenture at 90 rupees apiece. On __________, the underwriting commission will be paid.

rs.100
rs.105
rs.90 (Correct answer)
rs.95

Correct answer: rs.90

Underwriting commission is typically calculated on the actual issue price of the securities, not their face value or par value. In this scenario, the debentures were issued at 90 rupees apiece, meaning this is the price at which they were offered to the public and underwritten. Therefore, the commission would be based on this specific issue price of Rs. 90.

Free Bachelor of Commerce: Financial Accounting Questions and Answers

The first external liabilities to be paid in a piecemeal transfer of cash are ______