CBSE Class 12 Accountancy Financial Statement Of Companies MCQs Set 03

Question. The assets held by a business which can be converted in the form of cash, without disturbing the normal operations of a business
a) Current assets
b) Tangible assets
c) Intangible assets
d) Fixed assets

Answer : A

Question. Reliability of financial analysis depends upon the
a) Reliability of Customer
b) Reliability of financial data
c) Reliability of financial data and Reliability of Customer
d) None of the options

Answer : B

Question. Calls in advance is to be shown under the heading of
a) Current Liabilities
b) Current Assets
c) Current Liabilities and Current Assets
d) None of the options

Answer : A

Question. Which of the following is not required to be prepared under the Companies Act
a) Statement of Profit and Loss
b) Balance Sheet
c) Report of Director’s and Auditor’s
d) Funds Flow Statement

Answer : D

Question. Those liabilities which may or may not arise as they are dependent on happening in future.
a) Contingent Liability
b) Current Liability
c) Provisions
d) Reserve & surplus

Answer : A

Question. Mining Rights are
a) Tangible Fixed Assets.
b) Other Current Liabilities.
c) Intangible Assets Under Development.
d) Short-term Borrowings.

Answer : B

Question. Which are written off every year from the profits earned by the business.
a) Preliminary Expenses
b) Liabilities
c) Preliminary Expenses and Liabilities
d) None of the options

Answer : A

Question. Current Liabilities are those liabilities which are liable to pay with in an operating cycle generally one year
a) Current Liabilities
b) Current Assets
c) Reserves and Surplus
d) None of the options

Answer : A

Question. Inventories include the following are
a) Goods acquired for trading
b) Raw Material
c) Work in progress
d) All of the options

Answer : D

Question. Which are the determinants of dividend policy
a) Legal Requirement
b) Working Capital Requirement
c) Liquidity Position
d) All of the options

Answer : D

Question. Which of the following is not a Short-term Borrowing?
a) Deposits
b) Loans repayable on demand
c) Bank Overdraft
d) Trade Receivables

Answer : D

Question. ___________ is conducted by the management
a) Internal Analysis
b) External Analysis
c) Internal Analysis and External Analysis
d) None of the options

Answer : A

Question. The accounting equation is
a) Assets= capital + Liabilities
b) Assets= capital – Liabilities
c) Assets= capital + Liabilities and Assets= capital- Liabilities
d) None of the options

Answer : A

Question. In a company’s Balance Sheet Provision for Employees Benefits to be settled within 12 months is shown under
a) Non-current Liabilities.
b) Current Liabilities.
c) Non-current Assets.
d) Current Assets.

Answer : D

Question. Salaries outstanding Rs 50,000 will be record in the balance sheet under
a) Other Current Liabilities
b) Other Current Assets
c) Non-current Liabilities
d) All of the options

Answer : A

Question. Sinking Fund is shown under which subheading
a) Reserve and Surplus
b) Trade Payable
c) Non Current Liabilities
d) None of the options

Answer : A

Question. Miscellaneous Expenditure are
a) Development expenditure not adjusted
b) Preliminary Expenses
c) Discount allowed on the issue of shares/deb
d) All of the options

Answer : D

Question. Any difference in trial balance transferred to
a) Suspense A/c
b) Capital A/c
c) Current A/c
d) None of the options

Answer : A

Question. The term current asset doesn t cover
a) Car
b) Debtors
c) Stock
d) Prepaid expenses

Answer : A

Question. There are various external parties who are interested in financial statements
a) Creditors and Investors and Potential Investors
b) Creditors
c) Investors and Potential Investors
d) None of the options

Answer : A

Question. While preparing the Balance Sheet of a Company which item is shown under the head ‘Long term Borrowings’?
a) 6% Debentures
b) Security Premium Reserve
c) Trade Payables
d) None of the above

Answer : A

Question. Record all the debit balances of real and personal accounts in the
a) Assets side of the balance sheet
b) Liability side of the balance sheet
c) Assets side of the balance sheet and Liability side of the balance sheet
d) None of the options

Answer : A

Question. Statement of Profit & Loss – Negative Balance is shown as a minus item under
a) Reserve and Surplus
b) Shareholders Fund
c) Short-term Loan
d) None of the options

Answer : A

Question. Which item is not part of Reserve and Surplus
a) Accumulated Depreciation
b) Capital Reserves
c) General Reserve
d) All of the options

Answer : A

Question. Financial Statement also called
a) Final Accounts
b) Profit & Loss A/c
c) Trading A/c
d) None of the options

Answer : A

Question. Closing stock is recorded in the
a) Balance sheet
b) Profit and loss account
c) Trial balance
d) None of the options

Answer : A

Question. Bills Receivables appear in a Company Balance Sheet under the Sub-head
a) Current Investments
b) Cash Equivalents
c) Trade Receivables
d) Short term Loans and Advances

Answer : D

Question. The profit & loss statement is also known as the
a) Statement of Operation
b) Income Statement
c) Statement of Earning
d) All of the options

Answer : D

Question. Short-term Borrowings appear in a Company’s Balance Sheet under the head
a) Current Assets
b) Current Liabilities
c) Non-Current Liabilities
d) Non-Current Assets

Answer : B

Question 1. The prescribed form of Balance Sheet for the companies has been given in the Schedule:
(a) III, Part I
(b) VI, Part I
(c) VI, Part II
(d) None of these
Answer: (a) III, Part I
In simple words: The Companies Act, 2013 specifies that Balance Sheet must follow the layout given in Schedule III, Part I of the Act.

Exam Tip: Remember the schedule and part number precisely — this is a direct statutory requirement question often asked in exams.

Question 2. The maximum amount of capital mentioned in the Memorandum of Association is known as:
(a) Subscribed Capital
(b) Authorised Capital
(c) Called-up Capital
(d) Paid-up Capital
Answer: (b) Authorised Capital
In simple words: The Memorandum of Association states the maximum amount of share capital a company is permitted to raise. This maximum limit is called Authorised Capital.

Exam Tip: Do not confuse Authorised Capital with Subscribed, Called-up, or Paid-up Capital — each is a distinct concept.

Question 3. The shares on which the company has made final call but not received final call will be shown in Notes to Accounts as:
(a) Subscribed Capital and fully paid
(b) Subscribed but not fully paid
(c) Paid-up Capital
(d) None of the above
Answer: (b) Subscribed but not fully paid
In simple words: When a call has been made on shares but the amount has not yet been received from shareholders, those shares are shown as "Subscribed but not fully paid" in the Notes to Accounts.

Exam Tip: The key phrase is "made final call but not received" — this indicates an amount due from shareholders, classifying shares as subscribed but unpaid.

Question 4. 15,000, 6% Debentures issued on 1st April, 2016 and redeemable on 31st March, 2022 will be shown under:
(a) Long-term Borrowings
(b) Other Long-term Liabilities
(c) Current Liabilities
(d) Other Current Liabilities
Answer: (a) Long-term Borrowings
In simple words: Debentures are debt instruments that mature more than one year from the reporting date. These go under Long-term Borrowings in the Balance Sheet.

Exam Tip: If debentures were redeemable within 12 months of the Balance Sheet date, they would shift to Current Liabilities — always check the maturity period.

Question 5. Profit earned during the year by the company is shown under:
(a) Share Capital
(b) Reserves and Surplus
(c) Current Liabilities
(d) Current Assets
Answer: (b) Reserves and Surplus
In simple words: Profit made by the company during the year becomes part of Reserves and Surplus, which is shown as part of Equity and Liabilities in the Balance Sheet.

Exam Tip: Current period profit is allocated to Reserves and Surplus unless distributed as dividend — this is a key feature of owner's equity.

Question 6. "Trade Payables" include:
(a) Creditors
(b) Bills Payable
(c) Both of the above
(d) None of the above
Answer: (c) Both of the above
In simple words: Trade Payables refer to amounts owed to suppliers and include both creditors (suppliers) and bills payable (formal notes of debt).

Exam Tip: Trade Payables is an umbrella term covering all amounts due to suppliers — remember to include both informal (creditors) and formal (bills payable) obligations.

Question 7. Which of the following is not included in Short-term Borrowings?
(a) Loans repayable on demand
(b) Bank Overdraft
(c) Retirement benefits to employees
(d) Cash Credit from Banks
Answer: (c) Retirement benefits to employees
In simple words: Retirement benefits to workers are employee benefit expenses or provisions, not borrowings. They do not form part of Short-term Borrowings in the Balance Sheet.

Exam Tip: Distinguish between borrowings (money borrowed from external sources) and provisions (amounts set aside for future liabilities) — retirement benefits are provisions.

Question 8. Which of the following is added to 'Subscribed Share Capital'?
(a) Calls-in-Advance
(b) Calls-in-Arrears
(c) Forfeited Share Account
(d) All of the above
Answer: (a) Calls-in-Advance
In simple words: When shareholders pay a call before it is due, that advance payment is added to the Subscribed Share Capital. Calls-in-Arrears and Forfeited Shares are deducted, not added.

Exam Tip: Remember: Calls-in-Advance are added; Calls-in-Arrears are deducted; Forfeited Shares are also deducted from Subscribed Capital.

Question 9. In the Balance Sheet 'Unclaimed dividend' is shown as:
(a) Share Capital
(b) Other Current Liability
(c) Short term Provisions
(d) Short-term Borrowings
Answer: (b) Other Current Liability
In simple words: Unclaimed dividend is money that was declared and due to be paid to shareholders but has not yet been collected. It is classified as a current liability of the company.

Exam Tip: Dividends declared become a liability of the company — unpaid dividends go to Other Current Liabilities, not Share Capital.

Question 10. Which of the following is not classified as 'Non-current Assets'?
(a) Vehicles
(b) Trade Receivables
(c) Investments in Property
(d) Patents
Answer: (b) Trade Receivables
In simple words: Trade Receivables are amounts customers owe for goods sold and are usually collected within 12 months, making them Current Assets, not Non-current Assets.

Exam Tip: Non-current Assets have a life exceeding 12 months and are held long-term. Trade Receivables are collected short-term, so they are Current Assets.

Question 11. Provision for Provident Fund is shown in the Balance Sheet of a company under the head:
(a) Reserves and Surplus
(b) Non-current Liabilities
(c) Short-term Provisions
(d) Contingent Liabilities
Answer: (b) Non-current Liabilities
In simple words: Provident Fund provision is money set aside by the company for future settlement of employee benefits, which typically extends beyond 12 months and falls under Non-current Liabilities.

Exam Tip: Long-term employee benefit provisions like Provident Fund go to Non-current Liabilities, while short-term provisions go to Current Liabilities.

Question 12. Proposed Dividend of a current year is as:
(a) Contingent Liability
(b) Surplus
(c) Non-current Liability
(d) Long-term Loan
Answer: (a) Contingent Liability
In simple words: A dividend proposed by the Board is disclosed in Notes to Accounts as a Contingent Liability because it becomes a confirmed liability only after shareholder approval.

Exam Tip: Proposed dividend is not yet approved by shareholders, so it is treated as contingent. Once approved, it becomes a definite Current Liability.

Question 13. Goodwill is shown under the sub-head:
(a) Fixed Assets
(b) Investments
(c) Current Assets
(d) Reserves and Surplus
Answer: (a) Fixed Assets
In simple words: Goodwill is an intangible fixed asset representing the excess of purchase price over the fair value of identifiable assets, and is shown under Fixed Assets in the Balance Sheet.

Exam Tip: Goodwill arises from acquisition and is a long-term asset — it falls under Fixed Assets (or Non-current Assets) in the Balance Sheet.

Question 14. Calls-in-Arrears are deducted from:
(a) Authorised capital
(b) Issued capital
(c) Subscribed capital
(d) All of the above
Answer: (c) Subscribed capital
In simple words: Calls-in-Arrears represent calls made on shares but not yet received from shareholders. These amounts are deducted from Subscribed Capital to show the actual amount received.

Exam Tip: Only Subscribed Capital is adjusted for Calls-in-Arrears — Authorised and Issued Capital remain unchanged as they represent different concepts.

Question 15. Stores and Spares are classified in Balance Sheet under:
(a) Intangible Assets
(b) Current Investments
(c) Inventories
(d) Cash and cash equivalents
Answer: (c) Inventories
In simple words: Stores and Spares are materials and parts kept by the company for use in operations. They are classified as Inventories in the Balance Sheet since they will be used within 12 months.

Exam Tip: Inventories include finished goods, raw materials, work-in-progress, and stores/spares held for operational use.

Question 16. Cash and Cash equivalents do not include:
(a) Cheques, draft on hand
(b) Bank Deposits
(c) Bank Overdraft
(d) None of the above
Answer: (c) Bank Overdraft
In simple words: Bank Overdraft is a negative balance (money owed to the bank), not cash or a cash equivalent. It is classified as a Current Liability, not Cash and Cash Equivalents.

Exam Tip: Cash equivalents are highly liquid assets easily convertible to cash — overdrafts are liabilities, not assets.

Question 17. Revenue earned from the sale of 'Stock-in-trade' is shown in the Statement of Profit and Loss as:
(a) Revenue from Operations
(b) Other Incomes
(c) Any of the above
(d) None of the above
Answer: (a) Revenue from Operations
In simple words: Revenue from the sale of stock-in-trade (goods held for resale) is the core operating revenue of the business and is shown under Revenue from Operations in the Statement of Profit and Loss.

Exam Tip: Revenue from the main business activity always goes to Revenue from Operations — Other Incomes are from non-operating sources.

Question 18. Interest earned on bank deposits by a company engaged in manufacturing electronic appliances is shown in the Statement of Profit and Loss as:
(a) Revenue from operations
(b) Other Incomes
(c) All of the above
(d) None of the above
Answer: (b) Other Incomes
In simple words: Interest on bank deposits is earned from investments of surplus funds, not from core manufacturing operations. This is classified as Other Incomes in the Statement of Profit and Loss.

Exam Tip: For a manufacturing company, interest on deposits is secondary income — only income from core operations (manufacturing and sales) goes to Revenue from Operations.

Question 19. Interest received on investments by a financing company will be classified in Statement of Profit and Loss as:
(a) Revenue from operations
(b) Other Income
(c) All of the above
(d) None of the above
Answer: (a) Revenue from operations
In simple words: For a finance company, lending money and earning interest is the main business operation. Interest income is therefore classified as Revenue from Operations, not Other Income.

Exam Tip: The classification depends on the type of company — interest is operating revenue for finance companies but other income for manufacturing companies.

Question 20. Electricity and Telephone Expenses paid by the company are shown in Statement of Profit and Loss as:
(a) Cost of Materials Consumed
(b) Employees Benefit Expenses
(c) Other Expenses
(d) Finance Cost
Answer: (c) Other Expenses
In simple words: Electricity and Telephone are utility expenses that do not fit into specific expense categories like materials, employee benefits, or finance costs. They are classified as Other Expenses.

Exam Tip: Utilities and general administrative expenses that don't fall into defined categories go to Other Expenses in the Statement of Profit and Loss.

Question 21. Authorised Capital is authorised by the Memorandum of Association of a company. — True

Exam Tip: The Memorandum of Association sets the maximum limit of share capital a company can raise, known as Authorised Capital.

Question 22. Paid-up share capital is credited to Share Capital Account. — True

Exam Tip: Paid-up Capital represents the amount actually received from shareholders and is credited (added) to the Share Capital Account in the Balance Sheet.

Question 23. Loose Tools and Stores and Spares are shown as Inventories in the Balance Sheet. — True

Exam Tip: Tools, stores, and spares held for use in operations and consumed within a year are shown as Inventories, not as Fixed Assets.

Question 24. Uncalled liability on partly paid shares is a contingent liability. — True

Exam Tip: Uncalled liability is the amount not yet demanded on partly paid shares — it may or may not arise depending on company policy, making it contingent.

Question 25. Interest paid on bank overdraft is shown as Notes to Accounts on Employees Benefit Expenses. — False

Exam Tip: Interest on overdraft is a Finance Cost, not an Employee Benefit Expense. Employee benefits relate to costs incurred for employees, not financing costs.

Question 26. Shares on which a company has called total nominal value and has also received the amount are shown in the Notes to Accounts on Share Capital under Subscribed Capital as "Subscribed and fully paid up".
Answer: Subscribed and fully paid up

Exam Tip: This is the standard terminology used in Notes to Accounts for shares where both the call has been made and the full amount has been received from shareholders.

Question 27. When Accounting Income is more than taxable income. It is known as "Deferred Tax Liability".
Answer: Deferred Tax Liability

Exam Tip: When financial accounting profit exceeds taxable income, a deferred tax liability arises because the company will pay more tax in future periods.

Question 28. Proposed dividend of current year is shown in "Contingent Liability" in the Notes to Accounts.
Answer: Contingent Liability

Exam Tip: Proposed dividends are conditional liabilities disclosed in Notes because they require Board approval and shareholder ratification before they become definite obligations.

Question 29. Premium on Redemption of Debentures is shown as "Other Long Term Liability".
Answer: Other Long Term Liability

Exam Tip: Premium payable on redemption of debentures at a later date is a non-current liability and is shown as Other Long Term Liability in the Balance Sheet.

Question 30. Tax Reserves are shown on "Equity and Liabilities, Shareholders' Funds" side under main head "Reserves and Surplus".
Answer: Equity and Liabilities, Shareholders' Funds

Exam Tip: Tax Reserves are part of a company's reserves created to meet future tax obligations and are reported as part of Shareholders' Funds under Reserves and Surplus.