# Company Financial Statements MCQ

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Company Financial Statements MCQ

1. The commission is to be allowed at the following rates.
First Rs.10,000 of the Net profit NIL
Next Rs.20,000 of the Net profit @10%
Next Rs.30,000 of the Net profit @15%
Next Rs.60,000 of the Net profit @20%
Balance of the profit @30%
The net profit before charging the manager’s commission is Rs.1, 58,000. The net profit after charging commission would be
a. Rs.1, 58,000
b. Rs.1, 28,100
c. Rs.1, 33,500
d. None of the above.
Commission = on first 10000@NIl=0, on next 20000@10%=2,000, on next 30000@15%=4,500, on next 60000@20%=12,000, on Balance 38000@30%=11,400 = 2000+4500+12000+11400=29900. Net profit after charging commission = 1, 58,000 – 29,900 = Rs.1, 28,100.. So, option (b) is correct.
2. The managing director of a company is to be paid a commission of 15% on profit after charging Manager’s commission of Rs 29,900. The following details are available.
Rs.
Gross Profit 34,17,000
Audit fees 8,500
Depreciation 18,18,000
Salaries 5,37,000
Directors’ fees 1,500
The commission payable is
(a) Rs.50, 000
(b) Rs.50, 119
(c) Rs.51, 995
(d) None of the above.
Net profit = gross profit (34,17,000) – All the operating expenses (8500+2000+18,18,000+ 5,37,000 + 1500= 23,67,000) = Rs.10,50,000. Commission = Rs.10,50,000 x 5/105 = Rs.50, 000.
So, option (a) is correct.
3. During a given period, the assets of a company increased by Rs.28,000 and liabilities decreased by Rs.75,000. During that period, dividends declared and paid amounted to Rs.25,000. The company’s net income (I) or net loss (L) for the period was
(a) Rs.28, 000 (L)
(b) Rs.75, 000 (I)
(c) Rs.1, 03,000 (L)
(d) Rs.1, 28,000 (I)
Net profit = increase in assets + Decrease in liabilities + Dividends declared and paid = Rs.28, 000 + 75,000+Rs.25, 000 = Rs.1, 28,000. So, option (d) is correct.
4. The profit of a company is Rs.55, 000. If the manager’s commission is 10% an profit after charging his commission, his to total amount of commission will be
(a) Rs.5, 555
(b) Rs.5, 500
(c) Rs.5, 000
(d) None of the above.
Managers’ commission = (% of commission /100 + % of commission) x Net profit = 10/100 x 55,000 = 5,000. So, option (c) is correct.
5. Smita Company’s balance sheet accounts as at March 31st, 2008 increased by the following amounts compared with those at the end of the prior year: Assets-Rs.1,16,000; liabilities – Rs.70, 000; Capital Account – Rs.50, 000. The only change to retained earnings during 2007-2008 was for a dividend payment of Rs.10, 000. Net income for 2007-08 amounted to
a. Rs.14, 000
b. Rs.10, 000
c. Rs.8, 000
d. Rs.6, 000.
Net Income = Increase in assets + Dividend payment – Increase in Liabilities + Increase in capital = 1, 16,000+10,000-(70,000+50,000) = Rs.6,000.
So, option (d) is correct.
6. The books maintained compulsorily by a company are
(a) Cash books and ledger
(b) Sales and purchases books
(c) Journal
(d) All of (a), (b) and (c) above.
The company has to maintain all the records cited in options (a), (b) & (c). So, option (d) is correct.
7. Which of the following items can be shown as reserves?
a. Capital reserve.
c. Sinking fund.
d. All of the above.
Items cited in options (a), (b) & (c) are shown as Reserves in Balance Sheet. So, option (d) is correct.
8. The following items is/are not taken in P& L appropriation account.
a. Proposed dividend.
b. Provision for taxation.
c. Transfer to general reserve.
d. Both (a) and (b) above.
Provision for Taxation is made out of Net Profit after transfer to P L Appropriation Account. So, Provision for Taxation does not appear in P L Appropriation Account. So, option (b) is correct.
9. Dividend can be paid out of
a. Profit for the year.
b. Undistributed profits of previous year.
c. Monies provided by Central Government in pursuance of a guarantee given by concerned government.
d. All of the above.
Ans: (d). Dividend can be paid out of all the Items cited in options (a), (b) & (c). . So, option (d) is correct.
10. Find the correct statements-
a. Shareholders can enhance the dividends recommended by the board of directors by passing a special resolution.
b. Proposed dividend becomes declared dividend on its adoption by the shareholders in the A.G.M.
c. The declared dividend must be paid within 42 days of its declaration.
d. Both (a) and (b) above.
The proposed dividend becomes declared dividend on its adoption by the shareholders in the Annual General Meeting. The company must pay the dividend to the shareholders within 30 days from the date of announcement of the dividend (earlier 42 days). So, option (b) is correct.
11. When the proposed dividend is 14% the amount to be transferred to reserve is
a. 2.5% of current profits
b. 5% of current profits
c. 7.5% of current profits
d. 10% of current profits.
Where the dividend proposed exceeds 12.5% but does not exceed 15% of the paid-up capital, the amount to be transferred to the reserve shall not to be less than 5% of the current profits. So, option (b) is correct.
12. The rate of interest in case interest is paid out of capital should not exceed.
a. 4% p.a.
b. 5% p.a.
c. 10% p.a.
d. None of the above.
In case interest is paid out of capital, the rate of interest should not exceed 4% pa. So, option (a) is correct.
13. The remuneration of Whole time director (in case of 2 MDs) is limited to
d. None of the above.
The maximum remuneration payable to whole-time directions is limited to 10% of net adjusted profits. So, option (a) is correct.
14. The provisions for bad debts and cash discounts which appear as a deduction from sundry debtors in the balance sheet is due to the application of
a. Consistency principle
b. Conservation principle
c. Materiality principle
d. Revenue recognition principle.
Provisions for bad debts and cash discounts are made in accordance of Conservation principle. So, option (b) is correct.
15. The proposed dividend of 18% of the paid-up capital declared by the directors. The percentage of profits which will have to be compulsorily transferred to reserve is
a. 2.5%
b. 5.0%
c. 7.5%
d. None of the above.
Where the dividend proposed exceeds 15% but does not exceed 20% of the paid-up capital, the amount to be transferred to the reserve shall not be less than 7.5% of the current profits. So, option (c) is correct.
16. Which of the following statement is true?
a. Dividend is payable on the calls paid in advance by the shareholder.
b. Profit on cancellation of debenture is to be transferred to general reserve.
c. Any dividend unpaid since after 3 years from the date on which it become due can be transferred to capital reserve.
d. When the proposed dividend does not exceed 10%, it is not obligatory on the company to transfer any profits to its reserve.
When the proposed dividend does not exceed 10%, it is not obligatory on the company to transfer any profits to its reserve. So, option (d) is correct.
17. The amount of capital which can be called up only at the time of winding up of the company is called
a. Authorized Capital
b. Capital reserve
c. Reserve capital
d. Share reserve
The amount of capital which can be called up only at the time of winding up of the company is called Reserve Capital. So, option (c) is correct.
18. Dividends are paid on
a. Authorized capital
b. Subscribed capital
c. Called up capital
d. Paid up capital
Dividends are paid only on paid-up capital. So, option (d) is correct.
19. Unclaimed dividends are to be shown as
a. Reserve and surplus
b. Secured loans
c. Unsecured loans
d. Current liabilities.
Unclaimed dividends are to be shown as Current liabilities. So, option (d) is correct.
20. The treatment of interim dividend in the financial statements:-
a. It is debited to the profit and loss appropriation account.
b. It is debited to the profit and loss account.
c. It is shown under the head provisions in the balance sheet.
d. Both (a) and (d) above.
Interim dividend is shown in profit and loss appropriation account. So, option (a) is correct.
21. In Balance Sheet, the treatment of calls-in-arrears in the Final Account of a Company –
a. The amount will be shown under the head ‘current assets’ on the assets side of the balance sheet.
b. The amount will be deducted from the share capital in the balance sheet.
c. The amount will be shown under the head ‘current liabilities’.
d. The amount will be shown in the profit and loss account as a loss without showing it in the balance sheet.
The amount of calls-in-arrears should be shown as deducted from the share capital in the balance sheet. So, option (b) is correct.
22. If the dividend is not claimed within 7 years from the date of its transfer to a special bank account –
a. The amount is distributed to the remaining shareholders.
b. The amount is transferred to the Registrar of Companies under its general revenue account.
c. The amount is transferred to the Revenue account of the company law Board.
d. The amount is transferred to the Investor Education and Protection Fund.
According to the Companies Amendment Act, 1999, if the dividend is not claimed within 7 years from the date of its transfer, the amount must be transferred to the Investor Education and Protection Fund. So, option (d) is correct.
23. Find out the correct statement.
a. Dividend and interest can be paid out of capital.
b. Premium on issue of debentures can be utilized for paying dividends.
c. Capital profit realized in cash can be used for paying dividends.
d. Capital profit transferred to capital reserve can be used for paying dividends.
Dividend and interest can not be paid out of capital; premium on issue of debentures as in the nature of a capital profit can not be utilized for paying dividends. But Capital profit realised on Cash may be used for paying dividend. So, option (c) is correct.
24. A shareholder can claim the dividends
a. When they are proposed by the directors
b. Only after 42 days of proposal
c. Only after the approval of proposed dividend at the Annual General Meeting
d. Only after the approval of the Registrar of Companies.
A shareholder becomes entitled to dividends Only after the approval of proposed dividend at the Annual General Meeting. So, option (c) is correct.
25. Which of the following items is not under the heading ‘Provision’ with respect to balance sheet under the Companies Act?
a. Provisions for taxation.
b. Proposed dividends.
c. Unclaimed dividends.
d. Provisions for insurance, pension and similar staff benefit schemes.

Unclaimed dividends do not appear under the head ‘Provision’ in Balance Sheet. So, option (c) is correct.

1. Which of the following items is not considered for deduction from profit in respect of calculation of managerial remuneration?
a. Director’s remuneration.
b. Interest on mortgages executed by the company and loans and advances secured by a charge on its fixed or floating assets.
c. Any compensation or damage to be paid by virtue of any legal liability, including a liability arising from a breach of contract.
d. Loss of capital nature including loss on sale of the undertaking or any the undertakings of the company or any part thereof.

Loss of capital nature including loss on sale of the undertaking or any the undertakings of the company or any part thereof, is not considered for the purpose of Computation of Managerial Remuneration. So, option (d) is correct.

1. Managerial remuneration payable to directors, manager, and managing director is based on net profit. Find the wrong statement in respect of calculation of net profit for managerial remuneration?
a. Credit shall be given for any subsidy received from Central Government.
b. Credit shall be given for profit on sale by the company of forfeited shares.
c. Credit shall be given for revenue profit, i.e. difference between original cost and WDV, on sale of fixed assets.
d. Debit shall be given for any compensation or damage to be paid in virtue of any legal liability, including a liability arising from a branch of contract.

For the purpose of computation of Managerial Remuneration, no Credit to be allowed for profit on sale of forfeited shares by the company. So, option (b) is correct.

1. Which of the following items cannot be shown as reserve?
a. Capital reserves.
c. Capital redemption reserve.
d. Profit and loss account at the beginning of the year.

Balance of Profit and loss account at the beginning of the year cannot be shown under the Head Reserve in Balance Sheet. So, option (d) is correct.

1. Which of the following is not an item under Current Assets, Loans and Advances
a. Interest accrued on investment.
b. Bill of exchange.
c. Balance with customers, port trust, etc.
Development expenditure to the extent not adjusted is not shown under Current Assets, Loans and Advances in Balance Sheet. So, option (d) is correct.
2. The term ‘Divisible Profits’ means
a. Profit disclosed by P&L A/c minus corporate tax.
b. Profit disclosed by P&L A/c minus corporate tax minus dividend.
c. Profit available to shareholders for distribution as dividend.
d. Profit disclosed by P&L A/c minus corporate tax plus depreciation and provisions.
Divisible Profits means Profit available to shareholders for distribution as Dividend. So, option (c) is correct.
3. The term ‘net assets’ represents
a. Current assets less current liabilities.
b. Total assets less tangible assets.
c. Total assets less outside liabilities.
d. Total paid-in capital of a business.
Net Assets represents Total assets less outside liabilities. So, option (c) is correct.
4. Which of the following statements is false?
a. One of the few assets that is usually not depreciated is goodwill.
b. Future bad debts are usually projected as a %of debtors.
c. Goods spoiled and lost by fire are credited to trading account.
d. Appreciation of the market value of assets must be taken into account if the correct profit of the year is to be determined.
Appreciation of the market value of assets cannot be taken into account to arrive at correct profit of the year is to be determined. So, option (d) is correct.
5. Which of the following will appear in the “profit and loss appropriation account”?
a. Provision for taxation for current year.
b. Director’s fees.
c. Auditor’s fees.
d. Proposed dividend.

Proposed dividend appears under profit and loss appropriation account. So, option (d) is correct.

1. The different between a reserve and a provision is that the
a. Reserve is fund set aside for a specified purpose, whereas a provision is created for a known liability of which the amount cannot be determined with substantial accuracy
b. Reserve is created for a known liability of which the amount cannot be determined with substantial accuracy and provision is created for an unforeseen event
c. Reserve is created for a contingent liability and provision is created for an unforeseen event
d. Reserve is created for an unforeseen event and provision is created for a contingent liability
Reserve is fund set aside a specified purpose, whereas a provision is created for a known liability of which the amount cannot be determined with substantial accuracy. So, option (a) is correct.
2. Advance tax that appears in the trial balance is shown
a. As an expenses in the profit and loss account
b. As a current liability in the balance sheet