All Exams >
B Com >
Auditing and Secretarial Practice >
All Questions
All questions of Audit of Depreciation for B Com Exam
What is the primary reason for creating general reserves?- a)To distribute dividends among shareholders
- b)To meet specific future liabilities
- c)To increase working capital
- d)To strengthen the financial position of the company
Correct answer is option 'D'. Can you explain this answer?
a)
To distribute dividends among shareholders
b)
To meet specific future liabilities
c)
To increase working capital
d)
To strengthen the financial position of the company
|
Universal Academy answered |
General reserves are created to strengthen the financial position of the company and increase its working capital. They provide a cushion for future contingencies and expansion.
Can a company declare dividends out of profits earned prior to its incorporation? Provide a legal perspective.- a)Yes, as these profits are part of the company's overall capital.
- b)Yes, since these profits were earned by the business entity.
- c)No, as the company did not exist during the period these profits were earned.
- d)No, unless these profits are categorized as capital profits.
Correct answer is option 'C'. Can you explain this answer?
a)
Yes, as these profits are part of the company's overall capital.
b)
Yes, since these profits were earned by the business entity.
c)
No, as the company did not exist during the period these profits were earned.
d)
No, unless these profits are categorized as capital profits.
|
|
Universal Academy answered |
No, a company cannot declare dividends out of profits earned prior to its incorporation. This is because the company did not exist during the period when these profits were earned. Dividends can only be declared out of profits earned after the company's incorporation, ensuring that shareholders benefit from the company's post-incorporation operations.
Why might a company create secret reserves?- a)To reduce its tax liability
- b)To show higher profits to shareholders
- c)To strengthen its financial position
- d)To fund expansion projects
Correct answer is option 'B'. Can you explain this answer?
a)
To reduce its tax liability
b)
To show higher profits to shareholders
c)
To strengthen its financial position
d)
To fund expansion projects
|
|
Universal Academy answered |
Companies, particularly those needing public confidence, might create secret reserves by undervaluing assets or creating excessive provisions. This allows them to show higher profits to shareholders while maintaining hidden financial strength.
What is the key factor that distinguishes 'interim dividend' from 'final dividend'?- a)Interim dividend is paid to shareholders before the annual general meeting, while final dividend is paid after the meeting.
- b)Interim dividend is always higher than final dividend.
- c)Interim dividend is paid out of capital profits, while final dividend is paid out of revenue profits.
- d)Interim dividend is mandatory, while final dividend is optional.
Correct answer is option 'A'. Can you explain this answer?
a)
Interim dividend is paid to shareholders before the annual general meeting, while final dividend is paid after the meeting.
b)
Interim dividend is always higher than final dividend.
c)
Interim dividend is paid out of capital profits, while final dividend is paid out of revenue profits.
d)
Interim dividend is mandatory, while final dividend is optional.
|
|
Universal Academy answered |
The key factor that distinguishes 'interim dividend' from 'final dividend' is the timing of payment. Interim dividend is paid to shareholders before the annual general meeting, based on the company's interim financial performance. Final dividend, on the other hand, is recommended by the directors and approved by shareholders at the annual general meeting, after considering the company's full-year financial results.
Which type of reserve is specifically created for a particular purpose, such as dividend equalization or debenture redemption?- a)General Reserve
- b)Revenue Reserve
- c)Capital Reserve
- d)Specific Reserve
Correct answer is option 'D'. Can you explain this answer?
a)
General Reserve
b)
Revenue Reserve
c)
Capital Reserve
d)
Specific Reserve
|
|
Universal Academy answered |
Specific reserves are created for specific purposes, such as dividend equalization reserve or debenture redemption reserve. These reserves are utilized only for their designated purposes.
What is the purpose of calculating 'divisible profits' in a company's financial context?- a)To determine the amount of losses that need to be set off against current year's profits.
- b)To ascertain the amount of profits that can be distributed as dividends to shareholders.
- c)To calculate the total capital investments made by shareholders.
- d)To assess the company's total revenue before tax deductions.
Correct answer is option 'B'. Can you explain this answer?
a)
To determine the amount of losses that need to be set off against current year's profits.
b)
To ascertain the amount of profits that can be distributed as dividends to shareholders.
c)
To calculate the total capital investments made by shareholders.
d)
To assess the company's total revenue before tax deductions.
|
|
Universal Academy answered |
'Divisible profits' refer to the portion of profits available for distribution as dividends to shareholders. It is crucial to calculate this amount to ensure that the company does not distribute more than what is legally and financially permissible. Dividends should only be paid out of actual profits, and calculating 'divisible profits' helps in determining the accurate amount available for distribution.
According to the Companies Act, 1956, how should a company handle losses incurred in previous financial years before declaring dividends?- a)The losses should be ignored if the company has adequate revenue reserves.
- b)The losses should be set off against current year's profits before declaring dividends.
- c)The losses should be shared equally among shareholders before declaring dividends.
- d)The losses should be recovered from the company's debtors before declaring dividends.
Correct answer is option 'B'. Can you explain this answer?
a)
The losses should be ignored if the company has adequate revenue reserves.
b)
The losses should be set off against current year's profits before declaring dividends.
c)
The losses should be shared equally among shareholders before declaring dividends.
d)
The losses should be recovered from the company's debtors before declaring dividends.
|
|
Universal Academy answered |
As per the Companies Act, 1956, losses incurred in previous financial years should be set off against current year's profits before declaring dividends. This ensures that dividends are distributed only from actual profits and not by neglecting accumulated losses.
What is the purpose of a sinking fund?- a)To invest in outside securities for high returns
- b)To create secret reserves for public confidence
- c)To meet known liabilities or replace fixed assets
- d)To distribute dividends among shareholders
Correct answer is option 'C'. Can you explain this answer?
a)
To invest in outside securities for high returns
b)
To create secret reserves for public confidence
c)
To meet known liabilities or replace fixed assets
d)
To distribute dividends among shareholders
|
|
Universal Academy answered |
A sinking fund is created to systematically set aside funds from profits in order to meet known liabilities, such as repayment of debts or replacement of fixed assets, when they become due.
Which type of depreciation method charges a fixed percentage on the written down value of an asset?- a)Straight Line Method
- b)Written Down Value Method
- c)Annuity Method
- d)Insurance Policy Method
Correct answer is option 'B'. Can you explain this answer?
a)
Straight Line Method
b)
Written Down Value Method
c)
Annuity Method
d)
Insurance Policy Method
|
|
Universal Academy answered |
The Written Down Value Method, also known as the Diminishing Balance Method, charges a fixed percentage of depreciation on the written down value of an asset each year.
What is the primary purpose of a 'Development Rebate Reserve'?- a)To distribute profits as dividends to shareholders.
- b)To create a reserve for potential future losses.
- c)To provide for depreciation on fixed assets.
- d)To utilize a portion of profits for business development purposes.
Correct answer is option 'D'. Can you explain this answer?
a)
To distribute profits as dividends to shareholders.
b)
To create a reserve for potential future losses.
c)
To provide for depreciation on fixed assets.
d)
To utilize a portion of profits for business development purposes.
|
|
Universal Academy answered |
The primary purpose of a 'Development Rebate Reserve' is to utilize a portion of profits for business development purposes. This reserve is created by debiting the Profit and Loss Account to set aside funds that can be used for specific business-related activities, ensuring the company's growth and expansion.
Which method of depreciation charges a fixed amount of depreciation every year?- a)Written Down Value Method
- b)Annuity Method
- c)Straight Line Method
- d)Insurance Policy Method
Correct answer is option 'C'. Can you explain this answer?
a)
Written Down Value Method
b)
Annuity Method
c)
Straight Line Method
d)
Insurance Policy Method
|
|
Universal Academy answered |
The Straight Line Method charges a fixed amount of depreciation every year throughout the estimated life of the asset. This method is simpler to calculate and provides uniform depreciation over time.
How does the declaration of 'interim dividend' differ from 'final dividend' in terms of timing?- a)Interim dividend is declared after the annual general meeting, while final dividend is declared before the meeting.
- b)Interim dividend is declared before the company's financial results are known, while final dividend is declared after assessing the company's full-year financial performance.
- c)Interim dividend is declared only if the company is incurring losses, while final dividend is declared in profitable years.
- d)Interim dividend and final dividend are declared simultaneously during the annual general meeting.
Correct answer is option 'B'. Can you explain this answer?
a)
Interim dividend is declared after the annual general meeting, while final dividend is declared before the meeting.
b)
Interim dividend is declared before the company's financial results are known, while final dividend is declared after assessing the company's full-year financial performance.
c)
Interim dividend is declared only if the company is incurring losses, while final dividend is declared in profitable years.
d)
Interim dividend and final dividend are declared simultaneously during the annual general meeting.
|
|
Universal Academy answered |
Interim dividend is declared before the company's financial results for the full year are known, based on the company's interim performance. Final dividend, however, is declared after assessing the company's complete financial performance for the year, ensuring that the declared amount is in line with the company's overall profitability.
What is the main reason for depreciation in the value of fixed assets?- a)Obsolescence
- b)Accidents
- c)Market fluctuations
- d)Increased usage
Correct answer is option 'D'. Can you explain this answer?
a)
Obsolescence
b)
Accidents
c)
Market fluctuations
d)
Increased usage
|
|
Universal Academy answered |
Depreciation in the value of fixed assets occurs mainly due to increased usage and wear and tear over time. The more an asset is used, the greater the wear and tear it experiences, leading to a reduction in its value.
Under what circumstances can a company distribute dividends out of capital profits?- a)If the company has no outstanding debts.
- b)If such distribution is authorized by the Articles of Association.
- c)If the company's current profits are significantly higher than the previous year's profits.
- d)If the company has excess cash reserves.
Correct answer is option 'B'. Can you explain this answer?
a)
If the company has no outstanding debts.
b)
If such distribution is authorized by the Articles of Association.
c)
If the company's current profits are significantly higher than the previous year's profits.
d)
If the company has excess cash reserves.
|
|
Universal Academy answered |
Capital profits can be distributed as dividends only if such distribution is authorized by the company's Articles of Association. This means that the company's internal regulations must explicitly allow for the distribution of capital profits as dividends to shareholders.
What is the key difference between provisions and reserves?- a)Provisions are created out of capital profits, while reserves come from revenue earnings.
- b)Provisions are meant to strengthen the financial position, while reserves are for specific liabilities.
- c)Provisions are charges against profit, while reserves are appropriations of profit.
- d)Provisions reduce divisible profits, while reserves increase the working capital.
Correct answer is option 'C'. Can you explain this answer?
a)
Provisions are created out of capital profits, while reserves come from revenue earnings.
b)
Provisions are meant to strengthen the financial position, while reserves are for specific liabilities.
c)
Provisions are charges against profit, while reserves are appropriations of profit.
d)
Provisions reduce divisible profits, while reserves increase the working capital.
|
|
Universal Academy answered |
Provisions are charges against profit, created to meet specific liabilities or losses. Reserves, on the other hand, are appropriations of profit that strengthen the company's financial position or are set aside for future use.
According to the Companies Act, 1956, what conditions must be fulfilled before a company can declare a dividend for a financial year?- a)The company must have zero accumulated losses.
- b)The company must provide for depreciation for the current financial year.
- c)The company must have no outstanding debts.
- d)The company's profits should be higher than the previous year's profits.
Correct answer is option 'B'. Can you explain this answer?
a)
The company must have zero accumulated losses.
b)
The company must provide for depreciation for the current financial year.
c)
The company must have no outstanding debts.
d)
The company's profits should be higher than the previous year's profits.
|
|
Universal Academy answered |
As per the Companies Act, 1956, before declaring a dividend for a financial year, the company must provide for depreciation for the current financial year. This provision ensures that the company sets aside an amount to cover the wear and tear of its assets, thereby safeguarding the interests of shareholders.
What is the key purpose of creating provisions?- a)To strengthen the financial position
- b)To distribute dividends among shareholders
- c)To increase the working capital
- d)To fund expansion projects
Correct answer is option 'A'. Can you explain this answer?
a)
To strengthen the financial position
b)
To distribute dividends among shareholders
c)
To increase the working capital
d)
To fund expansion projects
|
|
Universal Academy answered |
The main purpose of creating provisions is to strengthen the financial position of a company by setting aside funds for known liabilities or potential losses. This helps the company manage its financial stability and meet its obligations.
What legal requirements must be met before a company can pay dividends?- a)The company must have zero accumulated losses.
- b)The company must have provided for all depreciation.
- c)The company must ensure that the dividend is paid out of profits and not out of capital.
- d)The company must have a surplus of assets over liabilities.
Correct answer is option 'C'. Can you explain this answer?
a)
The company must have zero accumulated losses.
b)
The company must have provided for all depreciation.
c)
The company must ensure that the dividend is paid out of profits and not out of capital.
d)
The company must have a surplus of assets over liabilities.
|
|
Universal Academy answered |
Before paying dividends, a company must ensure that the dividend is paid out of profits and not out of capital. This ensures the financial sustainability of the company and protects the interests of shareholders. Dividends should only be distributed from actual earnings and not by depleting the company's capital investments.
What is the primary purpose of the Central Government's involvement in allowing a company to declare or pay dividend without providing for depreciation?- a)To boost the company's reputation among shareholders.
- b)To encourage companies to invest in research and development.
- c)To protect the interest of the public and ensure fair dividend distribution.
- d)To promote healthy competition among companies.
Correct answer is option 'C'. Can you explain this answer?
a)
To boost the company's reputation among shareholders.
b)
To encourage companies to invest in research and development.
c)
To protect the interest of the public and ensure fair dividend distribution.
d)
To promote healthy competition among companies.
|
|
Universal Academy answered |
The Central Government's involvement in allowing a company to declare or pay dividend without providing for depreciation is primarily to protect the interest of the public. It ensures that companies do not distribute dividends that are not backed by actual profits, maintaining transparency and fairness in dividend distribution.
What is the key difference between capital reserves and revenue reserves?- a)Capital reserves can be distributed as dividends, while revenue reserves cannot.
- b)Capital reserves are created out of capital profits, while revenue reserves come from revenue earnings.
- c)Capital reserves are meant for contingencies, while revenue reserves are for specific liabilities.
- d)Capital reserves increase working capital, while revenue reserves are used for capital investments.
Correct answer is option 'B'. Can you explain this answer?
a)
Capital reserves can be distributed as dividends, while revenue reserves cannot.
b)
Capital reserves are created out of capital profits, while revenue reserves come from revenue earnings.
c)
Capital reserves are meant for contingencies, while revenue reserves are for specific liabilities.
d)
Capital reserves increase working capital, while revenue reserves are used for capital investments.
|
|
Universal Academy answered |
Capital reserves are created out of capital profits of the company, such as premiums on share or debenture issuance and profits prior to incorporation. Revenue reserves, on the other hand, come from revenue earnings and are available for distribution as dividends among shareholders.
Chapter doubts & questions for Audit of Depreciation - Auditing and Secretarial Practice 2025 is part of B Com exam preparation. The chapters have been prepared according to the B Com exam syllabus. The Chapter doubts & questions, notes, tests & MCQs are made for B Com 2025 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests here.
Chapter doubts & questions of Audit of Depreciation - Auditing and Secretarial Practice in English & Hindi are available as part of B Com exam.
Download more important topics, notes, lectures and mock test series for B Com Exam by signing up for free.
Auditing and Secretarial Practice
54 videos|65 docs|22 tests
|
|
© EduRev
|
Education Revolution
|
|
Signup to see your scores
go up within 7 days!
Access 1000+ FREE Docs, Videos and Tests
Takes less than 10 seconds to signup