Tag: reserves

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

Which of the following cannot be used for the purpose of creation of capital redemption reserve account?

  1. Profit and loss account (credit balance).

  2. General reserve account.

  3. Dividend equalisation reserve account.

  4. Unclaimed dividends account.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

As per the Companies Act 2013, CRR is created from the Profits of the company which only includes the Free Reserves.

Hence, Free Reserve includes following items:

1. Profit and loss accounts

2. General Reserve funds

3. Contingency reserve

4. Dividend equalisation reserve

5. Workmen compensation fund

6.  Workmen accident fund

Therefore, CRR can be created from the above mentioned accounts in the same order of preference.

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

The Books of Accounts of Z Ltd. shows that the balance of sundry debtors is. 50,000 and reserve for doubtful debts is 2,000. Later the management of the company released that debts to the extent of 1,000 will become bad. It was decided to create a reserve at 5% on debtors. The amount of reserve for doubtful debts to be shown in profit and loss account is ________.

  1. 2,500

  2. 2,350

  3. 2,450

  4. 2,400

  5. 450
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

Initial debtors = 50,000. Bad debts = 1,000. New debtors = 49,000. Required reserve at 5% = 2,450. Existing reserve = 2,000. Amount to be charged to P&L = 2,450 - 2,000 = 450.

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

_________ is a secret reserve usually created to, provide for the lose by way of fluctuation in the value of investment.

  1. Investment Fluctuation Reserve

  2. Foreign Exchange Fluctuation Fund

  3. General Reserve

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

An Investment Fluctuation Reserve is specifically created to absorb potential losses arising from the volatility in the market value of investments.

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

______ is a secret reserve usually created to provide for the loss by way of fluctuation in the value of investment.

  1. Investment Fluctuation Reserve

  2. Foreign Exchange Fluctuation Fund

  3. General Reserve

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

Investment Fluctuation Reserve: To bear any loss in case of decrease in value of such investments, business enterprises sets aside a part of profit in Investment Fluctuation Reserve, so that any loss arising on account of decrease in value of such investment can be met from this reserve.

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

The Reserve which is credited for a particular purpose and which is a charge against revenue is called___________.

  1. Capital Reserve

  2. General Reserve

  3. Secret Reserve

  4. Specific Reserve
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A specific reserve is one, which is created for some specific purpose by debiting Profit and Loss Appropriation Account. Normally, it is available for the purpose for which it has been created.

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

In case of issue of shares amount received above par value is credited to which account?

  1. Security Premium A/c

  2. Discount A/c

  3. Share forfeiture A/c

  4. None of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The issue of shares at par implies that the shares have been issued for an amount exactly equal to their face or nominal value. 

In case shares are issued at a premium, i.e. at an amount more than the nominal or par value of shares, the amount of premium is credited to a separate account called ‘Securities Premium Reserve Account’ under the head Reserves and surplus in the balance sheet.

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

Securities Premium can be used by the company :

  1. To adjust Loss on revaluation of Assets

  2. To Issue fully paid Bonus shares

  3. To Pay dividend

  4. To Adjust trading Loss
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The issue of shares at par implies that the shares have been issued for an amount exactly equal to their face or nominal value. In case shares are issued at a premium, i.e. at an amount more than the nominal or par value of shares, the amount of premium is credited to a separate account called ‘Securities Premium Reserve Account’ under the head Reserves and surplus in the balance sheet.

It can be used only for the following five purposes:-

(a) To issue fully paid bonus shares to the extent not exceeding un-issued share capital of the company;

(b) To write-off preliminary expenses of the company;

(c) To write-off the expenses of, or commission paid, or discount allowed on any securities of the company; and

(d) To pay premium on the redemption of preference shares or debentures of the company.

(e) Purchase of its own shares (i.e., buy back of shares).

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

According to Section 78 of the companies Act, the amount in the Securities Premium A/c cannot be used for the purpose of __________.

  1. Issues of fully paid bonus shares

  2. Writing off losses of the company

  3. Writing of preliminary expenses

  4. Writing off commission or discount on issues of shares
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The issue of shares at par implies that the shares have been issued for an amount exactly equal to their face or nominal value. In case shares are issued at a premium, i.e. at an amount more than the nominal or par value of shares, the amount of premium is credited to a separate account called ‘Securities Premium Reserve Account’ under the head Reserves and surplus in the balance sheet.

It can be used only for the following five purposes:

(a) To issue fully paid bonus shares to the extent not exceeding unissued share capital of the company;

(b) To write-off preliminary expenses of the company;

(c) To write-off the expenses of, or commission paid, or discount allowed on any securities of the company; and

(d) To pay premium on the redemption of preference shares or debentures of the company.

(e) Purchase of its own shares (i.e., buy back of shares).

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

A Ltd., Had $3,000$, $12\%$ Redeemable preference shares of Rs. $100$ each, fully paid up. The company issued $25,000$ equity shares of Rs. $10$ each at par and $1,000$ $14\%$ Debentures of $100$ each. All amounts were received in full. The payment was made in full. The amount to be transferred to capital Redemption Reserve Account Rs _________.

  1. Nil

  2. Rs. $2,00,000$

  3. Rs. $3,00,000$

  4. Rs. $50,000$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
Value to be transferred to CRR account :-
= Value of preference shares redeemed - new shares issued
= (3,000 shares x RS-100each) - (25,000 shares x RS-10 each)
= 3,00,000 - 2,50,000
= RS-50,000.