FREE Bachelor of Commerce: Financial Accounting Questions and Answers

Question 1

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

Accepted Answer

secured creditors

Answer

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.

Accepted Answer

insufficient

Answer

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...

Accepted Answer

net assets method

Answer

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...

Accepted Answer

absorption

Answer

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...

Accepted Answer

limited

Answer

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.

Bcom Bachelor of Commerce Practice Test

Bcom Bachelor of Commerce Practice Test

FREE Bachelor of Commerce: Financial Accounting Questions and Answers