Test Your Accounting Knowledge - Financial Accounting - 13

1. Manasa Ltd. offers 5 right shares to its existing shareholders for every 3 shares held by them. If the price of right issue is Rs.150 per share and its market value is Rs.220 per share, then the value of a right is
[A]Rs. 26.25
[B]Rs. 40.00
[C]Rs. 43.50
[D]Rs. 43.75


2. Which of the following statements pertaining to revaluation of assets of the subsidiary company revalued at the time of acquisition of shares in the subsidiary is false?
[A]The upwards revaluation of the asset will be treated as pre acquisition profit and treated accordingly
[B]The downward revaluation of the asset will be treated as pre acquisition loss and treated accordingly
[C]Share of minority shareholders is added or deducted to the minority interest depending on whether there is an upward or downward revaluation
[D]The depreciation in respect of the revalued asset is treated as pre acquisition expense and adjusted in the pre acquisition profits or losses


3. If the holding company receives dividend out of pre-acquisition profits of the subsidiary company it will be
[A]Credited to the investment account
[B]Debited to the investment account
[C]Credited to the consolidated profit and loss account
[D]Debited to the consolidated profit and loss account


4. Mitra and Mayura, two underwriters, underwrite 10,000 shares and 15,000 shares of a company. The company received applications for 12,000 equity shares of which marked applications were as follows:
Mitra –– applications in respect of 4,000 shares
Mayura –– applications in respect of 6,000 shares
The liability of the two underwriters for unsubscribed shares were
[A]Mitra 6,000 shares and Mayura 9,000 shares
[B]Mitra 9,000 shares and Mayura 6,000 shares
[C]Mitra 5,200 shares and Mayura 7,800 shares
[D]Mitra 7,800 shares and Mayura 5,200 shares


5. If machinery account is debited with the amount of repairs incurred on the machine, this is an example of
[A]Compensating error
[B]Error of principle
[C]Error of commission
[D]Error of omission


6. Mishra Ltd. has furnished the following data for the month of September 2003:
Credit purchases Rs.3,00,000
Opening balance of sundry creditors Rs. 75,000
Closing balance of sundry creditors Rs. 50,000
Discount received Rs. 5,000
Cash paid to creditors by Mishra Ltd. during the month was
[A]Rs.3,30,000
[B]Rs.3,25,000
[C]Rs.3,20,000
[D]Rs.3,00,000


7. Maple Ltd. has furnished the following data for the year 2010-2011:
Salary for the year Rs.2,90,000
Salary outstanding on March 31, 2002 Rs. 40,000
Salary outstanding on March 31, 2003 Rs. 20,000
Salary paid in advance on March 31, 2003 Rs. 15,000
The amount of salary paid during the year 2002-2003 was
[A]Rs.3,65,000
[B]Rs.3,25,000
[C]Rs.3,10,000
[D]Rs.2,85,000


8. The starting point of the financial forecasting exercise is the
[A]Sales forecast
[B]Forecast of labor cost
[C]Forecast of material cost
[D]Forecast of operating expenses


9. Which of the following appears under the head ‘Miscellaneous expenditure’ on the assets side of Balance Sheet of a company?
[A]Bills discounted from bank
[B]Prepaid insurance
[C]Directors’ remuneration
[D]Discount allowed on issue of shares


10. Dividends are usually paid on
[A]Authorized capital
[B]Issued capital
[C]Called-up capital
[D]Paid-up capital


11. Which of the following can be utilized for redemption of preference shares?
[A]The proceeds from fresh issue of equity shares
[B]The proceeds from issue of debentures
[C]The proceeds from issue of fixed deposit
[D]The sale proceeds of investments


12. Which of the following costs is not categorized as Research and Development Costs?
[A]Cost of materials consumed in the process of research and development
[B]Amortization of patents and licenses related to research and development
[C]Depreciation of premises that is used for carrying the work of research
[D]Promotional expenses on market research for existing products


13. The maximum amount beyond which a company is not allowed to raise funds by issue of shares is
[A]Issued capital
[B]Reserve capital
[C]Nominal capital
[D]Subscribed capital


14. According to which of the following accounting concepts, are consolidated financial statements prepared when a parent-subsidiary relationship exists?
[A]Going concern
[B]Business entity
[C]Materiality
[D]Cost


15. Which of the following data is essential for calculation of value of an equity share under the intrinsic value method?
[A]Normal rate of return
[B]Expected rate of return
[C]Market value per share
[D]Net equity