Accountancy: CUET Mock Test - 4 - CUET MCQ

The item that is not classified as a non-current asset is:

• Trade receivables

These are considered current assets because they are expected to be converted into cash within a year. In contrast, non-current assets include:

• Fixed assets
• Non-current investments
• Long-term loans and advances

The correct answer is Rs. 12000

Important Points A : B : Reserve = 1/2 : 1/3 : 1/6 = 3 : 2 : 1

Profit sharing Ratio A : B = 3 : 2

Balance of reserve on the date of death = Rs. 30000

At the time of retirement or death of the partner, the Balance in reserves and other accumulated profit is distributed among partners in old ratio.

B's share in Reserve = 30000 x 2/5 = Rs. 12000.

The correct answer is ₹7000 on the receipts side.

Key Points

• The receipts and payments account is a summary of actual cash receipts and payments of a non-profit organization over a specific period, typically a year.
• It records transactions on a cash basis, meaning it only includes transactions where cash has actually been received or paid, regardless of when the transaction was initiated or completed.
• In the context of the sale of furniture, the amount to be recorded in the receipts and payments account is the actual cash received from the sale, which is ₹7000.
• The book value of the furniture (₹10,000) and the loss on sale (₹3000) are accounting figures relevant for preparing the income and expenditure account and the balance sheet but do not affect the cash-based accounting of the receipts and payments account.
• Therefore, the sale of furniture will be shown as ₹7000 on the receipts side of the receipts and payments account, reflecting the actual cash inflow from the transaction.

Additional Information

• The difference between the book value of an asset and the amount received from its sale is recognized as a gain or loss in the income and expenditure account, not in the receipts and payments account.
• The receipts and payments account provides a straightforward view of the organization's cash flow, which is crucial for assessing its immediate financial health and cash management.

The correct answer is Reserve and Surplus.

Key Points

• Reserve and Surplus:
  • Security Premium is shown under the head 'Reserve and Surplus' in the Balance Sheet as per accounting standards.
  • This amount is considered a part of the shareholders' equity, representing extra money paid by shareholders above the nominal value of the shares issued.
  • It is used for purposes specified by the company's articles of association or as prescribed by law, such as issuing fully paid bonus shares to shareholders or writing off preliminary expenses.

Additional Information

• Share Capital:
  • This includes the nominal value of shares and is not the correct head for showing Security Premium as it strictly represents the capital raised by issuing shares at their face value.
• Equity Share Capital:
  • Refers specifically to the funds raised through the issuance of equity shares. While Security Premium is related to equity, it is not shown under this head but rather under reserves and surplus.
• Shares and Liabilities:
  • This is a broader category in the Balance Sheet that encompasses all shares, debts, and other liabilities but does not specifically account for Security Premium, which has its designated place under reserves and surplus.

Answer: b) Long-term Debt

In a company's balance sheet, liabilities represent obligations that the company must settle in the future. Here are some key points regarding liabilities:

• Long-term Debt is a liability because it involves borrowing that must be repaid over a period exceeding one year.
• Other items, such as cash and inventory, are classified as assets, not liabilities.
• Accounts Receivable also fall under assets, as they represent money owed to the company.

Thus, the correct classification of a liability in this context is Long-term Debt.

Answer:
b) Long-term Debt

The correct answer is I - (c); II - (a); III - (b).

The correct answer is a-(iv); b-(i); c-(ii); d-(iii).

Explanation:
- Discount on issue of shares (a) is shown under 'Miscellaneous Expenditure' (iv) on the Assets side.
- Unclaimed dividend (b) is a short-term liability shown under 'Other Current Liabilities' (i).
- Forfeited share account balance (c) is part of 'Share Capital' (ii).
- Work in progress (d) is a 'Current Asset' (iii).

Definitions:
- Miscellaneous expenditure: Expenditure not written off in the current year.
- Current liabilities: Short-term obligations due within a year.
- Subscribed capital: Part of issued capital subscribed by shareholders.
- Current assets: Assets convertible to cash within a year.

The correct answer is a - 2, b - 4, c - 1, d - 3.
 The correct matching is:

Here is the explanation for each of the matches:

• Buy back of shares is a financing activity because it involves a company raising money by issuing new shares or by buying back existing shares.
• Interest received on long term investment is an investing activity because it involves a company earning income from its investments.
• Cash payment of suppliers is an operating activity because it involves a company paying for goods or services that it has purchased.
• Purchase and sale of goods is an operating activity because it involves a company buying and selling goods as part of its normal business operations.

A) Amount Due to Retiring Partner: The total amount owed (capital, goodwill, profits) is credited to the retiring partner’s capital account before settlement. Matches (I) "Credited to Partner's Capital Account."
B) Gaining Partner’s Capital Account: The remaining partners who gain profit share debit their capital accounts to compensate the retiring partner for goodwill. Matches (II) "Debited for Goodwill Adjustment."
C) Loan to Retiring Partner: If the firm cannot pay the retiring partner immediately, the amount due is transferred to a loan account. Matches (IV) "Alternative to Immediate Cash Payment."
D) Profit & Loss Adjustment: Revaluation profits or losses are distributed among all partners (including the retiring one) in their old ratio. Matches (III) "Distributed in Old Ratio."

A partnership deed is a written agreement between the partners that specifies various terms such as capital contributions, profit-sharing ratio, interest on capital, and other responsibilities

The Indian Partnership Act does not require the partnership agreement to be in writing. It can also be oral, although a written deed is preferred.

The partnership deed includes important details such as the objective of the business, capital contributions, profit-sharing ratio, and the terms regarding interest on capital and loans.

The clauses of the partnership deed can be altered with the mutual consent of all the partners.

If the partnership agreement does not address a particular issue, the relevant provisions of the Indian Partnership Act, 1932 apply.

A partnership is formed when individuals come together with the intention of conducting business for profit, not merely for co-ownership of a property.

Joint ownership of land does not create a partnership unless the parties are involved in the business of buying and selling land for profit.

To be considered a partner, individuals must agree to share both the profits and losses of a business, not just co-own property.

A partnership specifically involves carrying on a business for profit, not just ownership of assets like land.

If Rohit and Sachin are engaged in the business of buying and selling land for profit, they are considered partners, as they are conducting a business together.

Financial statements help the investors to assess long-term and short-term solvency as well as the profitability of the concern.

The fiscal policies, particularly taxation policies of the government, are related with the financial performance of corporate undertakings. The financial statements provide basic input for industrial, taxation and other economic policies of the government.

Current assets = Inventories + Trade receivables + Cash and cash equivalents + Current investments
Current assets = 50,000 + 70,000 + 50,000 + 2,30,000 = ₹ 4,00,000

Public deposits are long-term borrowings and are non-current liabilities, hence not shown on the assets side of the balance sheet.

The general reserve is a type of reserve in a company's financial records.

• It can be used for any purpose that the company decides, such as expansion or settling debts.
• This flexibility makes the general reserve a useful tool for financial planning.
• Unlike other reserves, it does not have specific restrictions or earmarked uses.

It is included in ‘other incomes’ in the statement of profit and loss.

Lending is an operating activity for financial companies, so interest on loans is an operating income for them, hence included under revenue from operations.

Financial statements are crucial for several reasons:

• They serve as a basis for granting credit. Lenders use them to assess a company's ability to repay loans.
• They provide a basis for prospective investors to evaluate potential investments, helping them make informed decisions.
• They act as a guide to the value of investments already made, offering insights into a company's financial health and performance.

Therefore, financial statements are important for all of the above reasons.

Assertion (A) is true, but Reason (R) is false.Management does use accounting information for pricing, cost control and investment decisions, but the stated Reason incorrectly refers to “customer’s investment” rather than the shareholders’/owners’ investment responsibility. Hence, the correct choice is D.

The objectives of financial statements include:

• Providing information about the economic resources and obligations of a business, such as assets and liabilities.
• Offering insights into the earning capacity of the business, helping stakeholders understand its profitability.
• Supplying details about cash flows, which are crucial for assessing liquidity and financial health.
• Allowing assessment of the effectiveness of management in utilising resources efficiently and effectively.

Bank overdraft and cash credit are indeed classified as short-term borrowings in a company's balance sheet. This classification is due to their nature as financial tools that provide immediate funds for a short period, typically less than one year.

• These facilities allow companies to access funds quickly and manage cash flow.
• Since they are expected to be repaid within a short timeframe, they fall under current liabilities.
• This categorisation is standard practice in financial accounting.