Accounting Principles and Practices

Capital Redemption Reserve is created when a company redeems shares out of capital (to maintain capital intact). The primary and most important use of this reserve is to declare bonus issues (fully paid bonus shares) to shareholders. While it can also be used to write off fictitious assets like preliminary expenses or underwriting commission in some cases, the main statutory purpose is bonus issue declaration. It cannot be directly transferred to general reserve - it must first be utilized for its intended purpose.

In insurance company accounting, Policyholders' Account is termed as the 'Technical Account'. This is because insurance operations involve technical calculations of premiums, claims, reserves, and actuarial valuations specific to insurance business. Shareholders' Account is the non-technical or general account dealing with investments, income, and expenses not directly related to insurance operations. The technical account focuses on the core insurance business - underwriting income, claims settlement, and policyholder reserves.

Banking companies prepare balance sheets with 12 schedules as per Banking Regulation Act norms. Schedules 1-11 cover various assets and liabilities. However, Schedule 12 contains 'Contingent Liabilities, Commitments, and Others' which includes items like guarantees, letters of credit, acceptances, and forwards. These are NOT added to the balance sheet total because they are contingent (may or may not crystallize into actual liabilities) and are disclosed separately for information purposes. The total is computed from Schedules 1-11 only.

At the time of amalgamation (merger), the difference between the net assets taken over and the purchase consideration paid is calculated. If the purchase consideration is more than the net assets, the difference is debited to Goodwill Account. If the net assets are more, the difference is credited to Capital Reserve Account. This account (either Capital Reserve or Goodwill, whichever arises) is opened in the books of the Transferee Company (the absorbing company), not the Transferor Company (which ceases to exist after amalgamation). The transferee records the acquired assets, liabilities, and the resulting goodwill or capital reserve.

This is the correct answer as a discrepancy indicates an inconsistency.

Explanation: Trial balance is a test to see the arithmetical accuracy in the various books of accounts. However, errors are likely to happen. There are different types of errors. The errors are to be located and rectification entries are to be passed. When the trial balance does not tally, the error is evident. Sometimes, if there are compensating errors in the primary or subsidiary books of accounts, then trial balance may tally. The accountant should be intelligent to locate such an error.

Explanation:—The correct answer is “Matching concept”. An Accountant needs to be thinking how rupee comes and goes and how each input is spent. The revenue is matched with the expenses or expenses is limited to the revenue.

Explanation: When a Balance sheet does not tally, the accountant makes all out efforts to locate the errors and correct the same. If the difference could not be located after all the efforts are made, then the accountant takes permission of the decision making authority and transfers the difference to the suspense account which has to be wiped by locating the difference or as a business loss.

Explanation: These are different names, Income and expenditure is used in non-profit organizations ( or non-trading organisations). The net income or profit is shown in this account. Hence the name is Income statement. The account reflects the company's operations and hence the phrase “statement of operations”

Explanation: All direct expenses are debited to the Trading or manufacturing account. All indirect expenses are debited to the P & L Account. (here direct expenses means the expenditure directly connected with the purchase or manufacture of the goods like carriage inwards, Fuel, etc)

Explanation: Balance Sheet show the true and fair view of the statement of liabilities and assets as on a given date. Any liability which may arise on the happening of an event or contingent upon something is not a liability on that date. Hence the contingent liability is not to be shown inside the balance sheet.

Explanation: Financial accounting measures only quantitative (monetary) terms. Qualitative terms like quality of employees, honesty of the employees cannot be depicted by the financial accounting. However, HR accounting has been the practice among leading companies where HR are considered as Assets.

Explanation: In fact, this is the general and/or statutory requirement of banking and insurance companies.

Explanation: Balance sheet is a statement of account as on a particular date (it is a position as on a given date). A Ledger account shows transactions over a period of time.

A range check can verify that a value falls within a predetermined acceptable set of limits, such as checking that an invoice date does not fall prior to the system date or preparation date.