Tag: book keeping and accountancy

Quizzes (126) Questions (1524)

Questions Related to book keeping and accountancy

Multiple choice book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

Dividend equalization reserve is an example of general reserve.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

This statement is false. General Reserves are not kept aside for any particular purpose but for strengthening financial position of the company. Dividend Equalization reserve is a distributable reserve which is specifically set up to  ensure that dividends remain stable for despite being changes in earnings. Dividend equalization reserve is a specific reserve.

Multiple choice book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

Making excessive provision for doubtful debits builds up the secret reserve in the business.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

This statement is true. Secret reserves refers to a reserve the existence of which is not disclosed in the balance sheet. Secret reserves are also called as hidden reserve or internal reserve. When excess provision is created it reduces the profits of the company and create secret reserve. Such a reserve is not disclosed in the balance sheet. 

Multiple choice book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

Under purchase method of amalgamation, _______ of the transferor company continues to appear in the balance sheet of the transferee company. 

  1. Capital reserve

  2. General reserve

  3. Statutory reserve

  4. Specific reserve
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation
Ans:
Amalgamation in the nature of Purchase -
It is done as follows :- 
Amalgamation Adjustment A/c Dr. 
Statutory Reserve A/c Cr

Multiple choice book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

Redeemable Preference Shares of Rs. 1,00,000 are redeemed at a premium of $5\%$ for which purpose fresh equity capital of Rs. 40,000 is issued at par. What amount should be transferred to Capital Redemption Reserve account?

  1. Rs. 40,000

  2. Rs. 1,05,000

  3. Rs. 65,000

  4. Rs. 60,000
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

It is clear that if the preference shares are redeemed out of accumulated profit it will be necessary to transfer an amount equal to the amount repaid on redemption to capital redemption reserve account. if the company issues any fresh shares for redemption purpose the transferred amount will be the difference between nominal value of hare redeemed and the nominal value of share issued.

CRR = Nominal value of share redeemed - Nominal value of share issued

Therefore, in the given question amount should be transferred to capital redemption reserve account is :

Rs. 100000 - Rs. 40000 = Rs. 60000

(Rs. 100000 = Nominal value of share redeemed)

(Rs. 40000 = Nominal value of share issued)

(Rs. 60000 = Capital redemption reserve)

Multiple choice book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

Which of the following may be utilized by a limited company for the redemption of redeemable preference shares?

  1. General Reserve

  2. Dividend Equalisation Fund

  3. Profit and Loss account balance

  4. Workmen Compensation Fund

  5. <span>All of these</span>
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

The redempton of preference shares is subject to the following restrictions :

  1. Fully paid - Such shares can be redeem only if these are fully  paid.
  2. Two sources of redeeming such shares - Such shares can be redeem only out of the following two surces:
(a) Divisible profits, i.e., profits available for distribution as dividend. Some examples of divisible profit are as under -
  • General reseerve
  • Reserve fund
  • Dividend equalisation fund
  • Insurance fund
  • Workmen compensation fund
  • Workmen accident fund
  • Profit and loss account
(b) Proceeds of fresh issue of shares made for the pourpose of redeption.

Multiple choice book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

If preference share are redeemed at premium then such premium may be provided out of the __________.

  1. Securities premium account

  2. Proceeds of fresh issue of shares

  3. Share forfeiture account

  4. Capital Reserve account
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Redeemable Preference Shares: A company may issue this type of shares on the condition that the company will repay the amount of share capital to the holders of this category of shares after the fixed period or even earlier at the discretion of the company. Section 80 of the Companies Act, 1956 deals with the redemption of preference shares.

Before going to redeem the preference shares as per section 80 of the Companies Act, 1956, a company should have to follow the conditions: i) There must be a provision in the Articles of Association regarding the redemption of preference shares.

 ii) The redeemable preference shares must be fully paid up. If there is any partly paid share, it should be converted in to fully paid shares before redemption.

iii) The redeemable preference shareholders should be paid out of undistributed profit/ distributable profit or out of fresh issue of shares for the purpose of redemption.

 iv) If the shares are redeemed at a premium, it should be should be provided out of securities premium or profit and loss account or general reserve account.

 v) The proceeds from fresh issue of debentures cannot be utilized for redemption.

vi) The amount of capital reserve cannot be used for redemption of preference shares.

vii) If the shares are redeemed out of undistributed profit , the nominal value of share capital, so redeemed should be transferred to Capital Redemption Reserve Account. This is also known as capitalization profit.

Multiple choice book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

Secret reserve can be created by way of _________________.

  1. Undervaluation of asset

  2. Charging capital expenditure as revenue expenditure

  3. Making excessive provisions for doubtful debts

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Secret Reserves are created for contingency's, to avoid competitions, to provide additional working capital and to strengthen the financial position of the business firm.

Multiple choice book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

Any reserve which is not apparent on the face of the balance sheet is known as _____________.

  1. Secret reserve

  2. Hidden reserve

  3. Inner reserve

  4. Any of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

"A reserve which is not visible on the balance sheet is called secret reserves."  It is also known as "Hidden reserve" or "Inner reserve".
It is a surplus concealed. In case of a secret reserve existence the actual financial position of the business is better than shown in the balance sheet. In case of bank, insurance companies and financial institutions secret reserves are justified.