Accountancy: CUET Mock Test - 2 - CUET MCQ

The correct answer is (B), (A), (C), (D), (E)

Key Points

• Issue of Prospectus (B)
  • This is the first step in the process of issuing shares to the public.
  • A prospectus is an official document that companies must publish when they are offering their shares to the public for the first time. It contains details about the company, its financial status, and the shares being offered.
  • This step is correctly placed as the first step in the sequence, making statement B correct in its position.
• Receipt of Applications (A)
  • After the prospectus is issued, interested investors apply for shares. This is the next logical step in the process.
  • The receipt of applications indicates the interest of investors in purchasing the company's shares.
  • Placing this step after issuing the prospectus is correct, making statement A correctly sequenced.
• Allotment of Shares (C)
  • Once applications are received, the company proceeds to allot shares to applicants based on certain criteria and availability.
  • This step involves the actual distribution of shares to investors who applied for them.
  • Placing allotment of shares after receiving applications is the correct sequence, making statement C accurately placed.
• Making Call Money Due (D)
  • After shares are allotted, companies may require investors to pay the remaining amount (if shares are issued at a premium or in installments) known as call money.
  • This step is correctly sequenced after the allotment of shares.
  • Statement D is therefore correctly positioned in the sequence.
• Receiving Call Money (E)
  • The final step involves the actual payment of call money by the investors to the company.
  • This completes the share issuance process.
  • Placing this step at the end of the sequence is correct, making statement E accurately placed.

Hence, the sequence (B), (A), (C), (D), (E) is correct, making option 2 the right answer.

The correct answer is Key fields.

Key Points

• Key fields:
  • Key fields, often referred to as "primary keys" in one table and "foreign keys" in another, serve to establish a connection between two tables in a database.
  • They are crucial for maintaining the integrity of the database and ensuring that data between related tables stays consistent.
  • By using key fields, databases can enforce referential integrity, preventing orphan records and ensuring that relationships between tables are logically maintained.

Additional Information

• Table fields:
  • While "Table fields" can refer to any column within a table, not all table fields serve as key fields for relationships between tables.
• Joint fields:
  • The term "Joint fields" is not a standard term in database terminology for describing the common fields used in table relationships.
• Main fields:
  • "Main fields" may refer to important fields within a table but do not specifically denote the fields used to link tables together in a database.

The correct answer is The income and expenditure account lists both the revenue and capital receipts and payments (for past, current, and future periods).

• "The income and expenditure account lists both the revenue and capital receipts and payments (for past, current, and future periods)" is INCORRECT in the context of not-for-profit organizations.
• In the context of Not-for-profit organizations, the income and expenditure account typically focuses on revenue receipts and revenue payments related to the organization's ongoing activities and operations. It does not include capital receipts or capital payments.

Here's the correct breakdown:

1. Income and Expenditure Account: This account records revenue income (such as donations, membership fees, and grants) and revenue expenses (such as salaries, rent, and utility bills) that relate to the organization's day-to-day operations during the specific accounting period (usually a year). It reflects the surplus or deficit generated from regular activities.
2. Balance Sheet: Capital receipts and payments, as well as assets and liabilities, are typically recorded in the organization's balance sheet. Capital receipts may include funds raised for long-term purposes like acquiring assets or expanding facilities. Capital payments may involve significant investments or repayments of long-term debt.

So, the income and expenditure account is primarily concerned with the revenue aspect of the organization's finances for the current period, while capital transactions are recorded in the balance sheet to provide a broader financial picture.

• Distinguishing Between Revenue and Capital: Not-for-profit organizations need to carefully distinguish between revenue and capital transactions. Revenue transactions are related to ongoing operations, while capital transactions involve long-term investments, acquisitions, or financial activities that affect the organization's financial structure.
• Purpose of Financial Reporting: The primary purpose of financial reporting for not-for-profit organizations is to provide transparency to stakeholders, donors, members, and regulatory authorities. It helps in demonstrating how funds are utilized to further the organization's mission.
• Compliance and Accountability: Not-for-profits often have to adhere to specific accounting and reporting standards mandated by regulatory bodies or funding agencies. This ensures compliance and enhances accountability.
• Donor Expectations: Donors and grant-making entities often have specific expectations regarding how their contributions will be utilized. Accurate financial reporting helps in maintaining donor trust and demonstrating responsible stewardship of funds.
• Fund Accounting: Many not-for-profit organizations use fund accounting to segregate funds based on their intended use. This allows for better tracking of restricted funds, such as donations designated for specific programs or projects.
• Transparency in Fund Usage: The income and expenditure account provides a breakdown of how funds were spent on various program activities and administrative expenses during the accounting period. It allows stakeholders to assess the efficiency and effectiveness of the organization's operations.
• Tax-Exempt Status: Not-for-profit organizations often enjoy tax-exempt status, which comes with specific reporting requirements to maintain their tax-exempt standing.

In summary, financial reporting for not-for-profit organizations is a crucial aspect of their operations. It serves multiple purposes, including transparency, compliance, donor relations, and accountability. Properly distinguishing between revenue and capital transactions and following accounting standards are essential for accurate financial reporting.​

The incorrect option is At the end of the period, the income and expenditure account balances are transferred to receipts and payments accounts.

• In the receipts and payments account, both capital and revenue receipts and payments are recorded. So, option 2 is contextually correct.
• Since the receipts and payments account is nothing but a cashbook without a date column, its balance denotes the difference between the cash received and the amount paid. So, option 3 is also contextually correct.
• Income and expenses, in the case of not for profit organization, is prepared the same way as to profit and loss accounts in a firm. The expenses are debited and incomes are credited. Therefore, option 4 is also contextually correct.
• At the end of the period, the income and expenditure account balances are transferred to the Balance sheet and not in receipts and payments. Therefore, option 1 is incorrect.

The correct answer is Comparative analysis.

• Comparative analysis is done to compare the financial data of two or more accounting periods.
• Comparative statements can be used to compare two companies over different periods.
• Comparative statements can be done by preparing comparative income statement and comparative balance sheet.
• Comparative statements are used to compare the financial performance and financial position of a company at different periods.

A) Sacrificing Ratio: This is the ratio in which existing (old) partners surrender a portion of their profit share to accommodate the new partner. It’s calculated as the difference between their old and new profit-sharing ratios. Matches (I) "The ratio in which old partners give up their share for the new partner."
B) New Partner's Capital: This refers to the amount of money or assets the incoming partner brings into the firm as their contribution for acquiring a share in the partnership. Matches (II) "The amount contributed by the new partner for their share of the partnership."
C) Goodwill: Goodwill is an intangible asset representing the firm’s reputation, customer base, or earning capacity, often valued when a new partner is admitted to determine the compensation owed to old partners. Matches (III) "The intangible asset that is often valued at the time of a new partner's admission."
D) Revaluation of Assets: At the time of reconstitution (e.g., admission of a partner), assets and liabilities are revalued to reflect their current market value, with gains or losses shared among old partners. Matches (IV) "Adjustments made in the value of assets and liabilities at the time of reconstitution."

Sacrificing Ratio (A) → Allocation of profits among partners (III) The sacrificing ratio refers to the ratio in which existing partners agree to sacrifice their share of profit in favor of a new partner. It helps determine how much profit each partner gives up for the new partner.
Capital Adjustment (B) → The process of determining how much capital each partner contributes (II) When a new partner is admitted, or when there is a reconstitution of the partnership, the capital accounts of partners may need adjustments to align with their new profit-sharing ratio. This ensures fair capital contribution by all partners.
Profit Sharing Ratio (C) → The amount of profit a new partner shares (I) The profit-sharing ratio is the proportion in which partners share the profits or losses of the firm. When a new partner joins, they receive a specific percentage of profit as agreed upon in the partnership deed.
Premium for Goodwill (D) → The amount paid by a new partner to compensate the existing partners for their share in excess profits (IV) When a new partner joins an existing partnership, they may pay a premium for goodwill to compensate the existing partners for their sacrificed share of profits. Goodwill represents the firm's reputation and future earning potential.

A) New Profit Sharing Ratio: This is the revised ratio after the new partner’s admission, often based on their capital or agreed terms. Matches (I) "Determined based on the contribution of the new partner."
B) Capital Adjustment: Adjustments to capital accounts are calculated considering the new partner’s capital contribution to maintain proportionality. Matches (II) "Calculated by considering the capital introduced by the new partner."
C) Goodwill Valuation: This involves methods (e.g., average profits, super profits) to determine the firm’s goodwill value. Matches (III) "Valuation method used to assess the value of the firm's goodwill."
D) Sacrificing Ratio: The share old partners give up for the new partner. Matches (IV) "The proportion in which the old partners give up their share of profits to the new partner."

A) Revaluation Account: Used to record gains or losses from revaluing assets and liabilities during admission.
B) Sacrificing Ratio: The share old partners sacrifice for the new partner.
C) Partner's Capital: The contribution made by the new partner upon admission.
D) Goodwill for Admission: Compensation paid by the new partner to old partners for goodwill.

A) Profit Sharing Ratio: Defines how profits/losses are allocated among partners.
B) Goodwill: Intangible value based on reputation or earning capacity.
C) Capital Account: Records each partner’s financial stake in the firm.
D) Partner's Share of Profit: The specific profit portion a partner receives per the agreement.

The word "debenture" is derived from the Latin word "debere," which means "to borrow," indicating that a debenture is a borrowed amount or debt.

A debenture is a written instrument acknowledging a debt and is sealed by the company, indicating the company's obligation to repay the borrowed amount.

The interest on debentures is typically paid half-yearly or yearly, depending on the terms mentioned in the debenture agreement.

The principal amount of a debenture is repaid according to the terms of the debenture, which could be after a specified period or at intervals.

It is the company that has the option to repay the principal amount of the debenture, either after a specified period or at intervals.

Secured debentures are backed by a charge on the company’s assets, ensuring repayment in case of default.

A fixed charge is tied to a specific asset, while a floating charge applies to all the general assets of the company, except those specifically assigned to secured creditors.

The charge on assets ensures that in the event of a default, the company’s assets can be sold or used to pay back the debenture holders.

A fixed charge is created on a specific asset, making that asset liable for payment in case of default.

Secured debentures are more secure for the lender because they are backed by a charge on the company’s assets, offering more assurance of repayment.

At the time a new partner is admitted, it is assumed they acquire their share of profits from the existing partners in the old profit-sharing ratio.

The share of premium for goodwill brought in by a new partner is divided in the sacrificing ratio.

• The sacrificing ratio shows how much each existing partner gives up from their original share.
• This ensures that the partners who lose part of their share are compensated.
• The goodwill premium is distributed according to how much each partner sacrifices.

Hidden goodwill refers to the excess of the desired total capital of a firm over the actual combined capital of all partners.

• It represents the extra value that is not recorded on the books.
• This value is usually recognised during business transactions like mergers or when a new partner joins.
• Understanding hidden goodwill helps in accurately assessing the firm's value.

Z’s share = 1/5;
X’s share = 3/5 - 1/5 = 2/5;
Y’s share = 2/5;
New profit sharing ratio of X : Y : Z = 2 : 2 :1.

A newly admitted partner typically has the following rights:

• Right to share profits of the firm.
• Right to inspect the books of accounts.
• Right to participate in the business affairs.

Therefore, option D, "None of these," is correct because all listed rights apply to a newly admitted partner.

Taxation fund is neither profits nor free reserves, so it is not distributed.

Old partnership comes to an end and new partnership comes into existence and the firm continues.

The given statement is true only if the new partner is not able to bring his share of goodwill in money or money’s worth.

Existing goodwill is written-off in old ratio by debiting old partners’ capital accounts.

Deferred revenue expenditure account is debited.