CA-CMA-bits-for-j-2010

1. State, with reasons in brief, whether the following statements are correct or incorrect.


1. Accounting Standards (AS) are formulated by IASB.
Answer:

Incorrect: Accounting Standards (AS) are formulated by Accounting Standards Board (ASB)which has been constituted by Council of the Institute of Chartered Accountants of India. The Central Government, in consultation with the National Advisory Committee on Accounting Standards,(NACAS) issues Accounting Standards under Companies (Accounting Standards) Rules, 2006.

2. International Accounting Standards are issued by ASB.
Answer:
Incorrect: International Accounting Standards are issued by IASB.

3. IFRS issued by ICAI.
Answer:
Incorrect: International Accounting Standards are issued by IASB.

4. The accounting standards override the local regulations.
Answer:
Incorrect: The accounting standards cannot and do not override the local regulations which govern the preparation and presentation of the financial statements in our country.

5. Accounting Standards are not mandatory to every company.
Answer:
Incorrect: Accounting Standards are mandatory to every company.

6. Dividend tax on equity shares should be deducted from earnings, however tax on income should not be deducted.
Answer:
Incorrect: As per AS-20 Dividend tax on equity shares should not be deducted from earnings, however tax on income should be deducted.

7.








[June 2007]

8. Double entry system is also known as double account system.
Answer:
Incorrect: while double entry system is a system of keeping record of the two fold aspects of every transactions, double account system refers to a system of preparation and presentation of final accounts. Up to the preparation of trial balance there is no deference between double entry system and double account system. But in the presentation of final accounts there is deference between double entry system and double account system.

9. Goodwill is a fictitious asset.
Answer:
Incorrect: Goodwill is intangible but a valuable asset which cannot be seen or touched or felt and not a fictitious asset.
Fictitious assets are valueless assets but shown in as assets in the financial statements or expenses treated as assets.

10. A company cannot purchase its own equity shares.
Answer:
Incorrect: According to Section 77A of the Companies (Amendment) Act, 1999 a company may purchases its own equity shares subject to conditions laid down in Section 77A (2). A company may purchase its own shares out of its free reserves or/and the proceeds of any shares or other specified securities.

11. A debenture holder is entitled to receive interest only in the event of profits.
Answer:
Incorrect: The payment of interest on debentures is obligatory for companies irrespective of the fact whether the company earns profit or not. Hence, debenture holders are entitled to receive interest even if there is no profit.

12. The share capital of a banking company consists only of ordinary or equity shares.
Answer:
Correct: Section 12 of the Banking Regulation Act, 1949 inter-alia provides that the share capital of a banking company consists only of ordinary or equity shares.

13. Interim dividend is declared after the closure of the accounting year, but before the annual general meeting of the shareholders is held.
Answer:
Incorrect: Interim dividend is declared during the currency of the accounting year for which it is declared. It is declared in anticipation of profits of a period before the accounts of the company for that period have been prepared.

14. In the final accounts of a joint-stock company, provision for income-tax for the current year is shown as a charge against revenue and not as an appropriation of profits.
Answer:
Correct: Provision for Income tax for the current year is shown above the line, i.e., in the profit and loss account and not below the line, i.e., Profit & Loss Appropriation Account.

15. The bonus share issue cannot be made unless the existing partly-paid shares are fully paid-up.
Answer:
Correct:
Bonus issue is not made unless the partly paid shares (if any existing) are made fully paid up.
The bonus shares are always fully paid-up and issued to existing shareholders on a pro-rata basis.


16. In India, corporate financial statements in general do not include a cash flow statement to explain movement of cash during the accounting period.
Answer:


17. A company is not under any legal obligation to make good its past losses before distributing its current profits as dividends.
Answer:







18. The Accounting Standard-21 mandates an Indian company to present consolidated financial statements.
Answer:

19. In India, corporate financial statements are prepared recognizing legal forms of the transaction and ignoring the substance.
Answer:


20. The forfeited shares can be re-issued at a discount, but it cannot exceed the amount already realized at the time of forfeiture on such shares.


21. Cumulative preference shareholders can have the voting rights only, if the dividend has not been paid for more than three years.
Answer:

Incorrect: Preference share holders do not have any voting right
except when dividend is outstanding for ..
.. more than two years in case of cumulative preference shares and
for more than three years in the case of Non-cumulative preference shares.

But they have right to vote on any resolution
for winding up of the company or
for the reduction or
for the repayment of share capital.





22. Profit prior to incorporation can be used by the company for payment of dividend.


23. It is legally compulsory for every company registered under the Companies Act, 1956 to maintain its financial accounts on the basis of double account system.


24. In case of firm underwriting, the underwriter has a right to get the allotment of that number of shares which has been firmly underwritten by him, though the issue has been oversubscribed by the public.




1. Accounting has become a pre-requisite for the preparation of financial statements.

2. Preparation and presentation of corporate financial statements are governed by the Companies Act,1956 and accounting standards.

3. Earning per share should be calculated by dividing the net profit or loss for the period attributable to equity shareholders.

4. According to section 209(4A) of the Companies Act, 1956, the books of account and relevant vouchers must be preserved for a minimum period of Eight Years.

5. Profit prior to incorporation is treated as Capital profit.

6. According to Table-A, Schedule-I of the Companies Act, 1956, interest on calls in advance may be paid at 6% per annum.

7. Register of Members is a Statutory book.

8. In case of marine insurance, the minimum amount of reserve to be kept against the unexpired risks is 100% of net premium income.

9. In the balance sheet of a joint-stock company, the item ‘Loose Tools’ appear under the head Current Assets/Current Assets. Loans and Advances on the assets side.

10. Accounting as a ‘language of business’ communicates the financial results of corporate enterprise to various Interested parties/stakeholders by means of financial statements.

11. If a company offers to its equity shareholders the right to buy one equity share of Rs.100 each at Rs.120 for every 4 equity share of Rs.100 each and the market value of a share is Rs.180, then the value of the right is Rs.12.

12. The bonus share can be issued only if Articles of Association of the company permits such an issue.

13. Accounting Standard-17: Segment reporting is mandatory for all commercial, industrial and business reporting corporate enterprises, whose turnover for the accounting period exceeds Rs.50 Crore.

14. Consolidated financial statements are presented by a Holding company to provide financial information about the economic activities of its group.

15. Securities premium money can be used for Issuance of fully paid bonus shares

16. Loss suffered from the date of acquisition of business to the date of incorporation should be debited to Goodwill account

17. Pre-paid expenses are shown in balance sheet as Current Assets

18. The balance of forfeited shares after reissue of the same is transferred to Capital reserve account

19. Divisible profits include General reserves

20. Subject to the permission of the Central Government, the maximum allowable discount on equity shares is :

21. Profit on cancellation of own debentures is transferred to :

22. Interim dividend is always shown in :

23. When shares are forfeited, the share capital account is debited by :

24. The balance of sinking fund investment account after the realization of investment is transferred to :

25. The person who failed to pay the call-money is liable to pay the interest on calls-in-arrears at a rate not exceeding ________ per annum from the due date money called for payment upto the date of actual payment.

26. The maximum rate of commission to underwriters for underwriting the shares is ________ for amounts upto Rs.5 lakh.

27. The maximum limit for managerial remuneration for all managerial personnel in a public limited company (except the fees for attending the meetings) is 11% per cent of net profit.

28. It is obligatory on the part of company to transfer to reserves of the company not less than _________ of current profit, if the proposed dividend exceeds 20% of paid-up capital.

29. In case of fire insurance ________ of net premium is to be kept as minimum reserve against unexpired risk.



























































































COSTING BITS

State, with reasons in brief, whether the following statements are correct or incorrect.


1. Standard cost is also known as pre-determined cost of production.

2. Production cost of goods sold and cost of goods sold are synonyms.

3. The ABC analysis is based upon the money value in the total investment of material.

4. Budgeting and forecasting are used inter-changeably, as such there is no difference between the two.

5. The break-even point is calculated after adding the profit to fixed cost.