Accountancy: CUET Mock Test - 10 - CUET MCQ

The correct answer is option D: Rs. 6,00,000.
- A and B are partners, and C is admitted with a 1/5th share.
- C brings Rs. 1,20,000 as his share towards capital.
- This means the total capital of the firm is 1,20,000 / (1/5) = Rs. 6,00,000.
- Therefore, the total net worth of the firm is Rs. 6,00,000.

(A) Correct: The liability of shareholders in a company is limited to the unpaid amount on their shares.
(B) Incorrect: Preference shareholders may have the right to participate in surpluses, depending on the type of preference share.
(C) Incorrect: Shares can be issued at par, at a premium, or at a discount, as per the company's decision.
(D) Correct: Equity shareholders are entitled to profits after the payment of dividends to preference shareholders.
(E) Correct: A company is a legal person, distinct from its members, and can sue or be sued in its name.

(A) Correct: A public company must have at least two members to be legally formed.
(B) Incorrect: A private company restricts the transfer of shares, but it does not completely prohibit it.
(C) Correct: The capital of a company is often collected from shareholders in installments (application, allotment, calls).
(D) Incorrect: A private company has a maximum of 200 members excluding employees, not counting the directors.
(E) Correct: A company is formed under the Companies Act, 2013 or any prior versions.

(A) Correct: A company can only raise capital up to the authorised limit specified in its Memorandum of Association.
(B) Correct: Issued capital is the amount actually raised from the public.
(C) Incorrect: Subscribed capital may be less than issued capital if the public doesn’t subscribe to the full issue.
(D) Correct: Reserve capital is set aside for payment to creditors during winding up.
(E) Incorrect: Increasing the authorised capital requires legal procedures to amend the Memorandum of Association.

A) Liquidity Ratios: These ratios (e.g., Current Ratio, Quick Ratio) measure a company’s ability to meet its short-term obligations using liquid assets. Matches (I) "Measures the ability of a business to pay its short-term obligations" as it directly addresses short-term debt repayment capacity.
B) Solvency Ratios: These ratios (e.g., Debt-Equity Ratio) assess a company’s long-term financial stability by evaluating its ability to meet long-term obligations. Matches (II) "Evaluates the long-term financial stability of a company" because it focuses on long-term solvency.
C) Profitability Ratios: These ratios (e.g., Net Profit Ratio) evaluate how effectively a business generates profits from its operations or resources. Matches (III) "Assesses the earning capacity of the business" as it’s about profit generation.
D) Activity Ratios: Also called efficiency ratios (e.g., Inventory Turnover), these measure how efficiently a company uses its assets or manages operations. Matches (IV) "Analyzes the efficiency of a business's operations" because it reflects operational efficiency.

A) Gross Profit Ratio: Shows the gross profit margin (gross profit ÷ revenue) as a percentage, reflecting profitability before operating expenses. Matches (III) "Reflects gross margin on products sold" because it focuses on gross profitability.
B) Operating Profit Ratio: Measures profitability after deducting operating expenses (e.g., wages, rent) but before interest and taxes. Matches (II) "Indicates the profitability after accounting for operating expenses" as it’s the exact significance.
C) Net Profit Ratio: Represents overall profitability (net profit ÷ revenue) after all expenses, indicating business efficiency. Matches (I) "Measures the overall efficiency of the business" because it reflects net earnings efficiency.
D) Return on Capital Employed (ROCE): Assesses profitability relative to total capital employed (profit before interest and tax ÷ capital employed). Matches (IV) "Shows the profitability concerning the capital employed in the business" as it’s the precise definition.

The correct answer is Spreadsheets.

Key Points

• A spreadsheet is a file that exists of cells in rows and columns and can help arrange, calculate, and sort data.
• It used for accounting and recording data.
• Data in a spreadsheet can be numeric values, as well as text, formulas, references, and functions.
• Microsoft Excel, a program in which you enter data into columns, is an example of a spreadsheet program.
• Common characteristics of spreadsheet software include built-in support for complex mathematical calculations and formulas, the ability to generate graphs and summary "pivot tables" from data, and the ability to customize what types of data are stored in which rows and columns.

The correct answer is Operating System.

Key Points

• Operating System acts as an interface connecting the computer user to the computer hardware.
• It is system software that manages computer hardware, software resources, and provides common services for computer programs.
• It sits in between the applications you run and the hardware, using the hardware drivers as the interface between the two.
• For example, when an application wants to print something, it hands that task off to the operating system.
• Following are some of the important functions of an operating System: Memory Management, Processor Management, Device Management, File Management, Security, Control over system performance, Job accounting, Error detecting aids, Coordination between other software and users.
• Some of the commonly used Operating Systems-
  • Microsoft Windows
  • Apple macOS
  • Linux
  • Android
  • Apple's iOS
  • UNIX

The correct answer is 11.

Key Points

• Eleven data formats are available in Microsoft Excel for data Storage.
• Some of them are Accounting, Date, Time, Currency, Percentage, Text, etc.
• Data is one of the information types that are accessible in dominate, which we utilize for the most part in our everyday dominant information works.
• A date can be shown in more than one way in dominant according to the prerequisite.
• A date has various quantities of configurations in light of topographical districts.
• Since various topographical locales utilize a date in various ways, Excel accompanies numerous quantities of arrangements to show dates.

Important Points

• Microsoft Excel:
  • MS Excel is a commonly used Microsoft Office application.
  • It is a spreadsheet program that is used to save and analyze numerical data.
  • MS Excel is a spreadsheet program where one can record data in the form of tables.
  • It is easy to analyze data in an Excel spreadsheet.

Concept:

• A database is a systematic collection of data. They support electronic storage and manipulation of data.
• Databases make data management easy.
• Database Management System (DBMS) is a collection of programs which enables its users to access database, manipulate data, reporting and representation of data. It also helps to control access to the database.
• Database Management Systems are not a new concept and as such, had been first implemented in the 1960s.

Advantages of Database Management System (DBMS)

1. Improved data sharing

• An advantage of the database management approach is, the DBMS helps to create an environment in which end users have better access to more and better-managed data.
• Such access makes it possible for end-users to respond quickly to changes in their environment.

2. Improved data security

• The more users access the data, the greater the risks of data security breaches. Corporations invest considerable amounts of time, effort, and money to ensure that corporate data are used properly.
• A DBMS provides a framework for better enforcement of data privacy and security policies.

3. Better data integration

• Wider access to well-managed data promotes an integrated view of the organization’s operations and a clearer view of the big picture.
• It becomes much easier to see how actions in one segment of the company affect other segments.

4. Minimized data inconsistency

• Data inconsistency exists when different versions of the same data appear in different places.
• For example, data inconsistency exists when a company’s sales department stores a sales representative’s name as “Bill Brown” and the company’s personnel department stores that same person’s name as “William G. Brown,” or when the company’s regional sales office shows the price of a product as $45.95 and its national sales office shows the same product’s price as $43.95.
• The probability of data inconsistency is greatly reduced in a properly designed database.

The correct answer is Charles Bachman.

Important Points

• The first database management system, Integrated Data Store, was created by Charles Bachman and his colleagues (IDS).
• A database management system, sometimes known as a DBMS, is nothing more than an electronic data storage system.
• Users of the system are provided with the ability to carry out various types of operations on such a system for either manipulating the database's data or managing the database structure itself.

Key Points

• The database management system was developed in order to store enormous amounts of data, which can take any form, including images, text, audio files, and video files.
• Users of DBMS can store and access data in any format.
• The fundamental tenet of this system is that each image is handled as a data element, much like a number, with "image" being one of the data types.

Redeemable and Irredeemable (Perpetual) Debentures:

• Redeemable Debentures: These are issued for a specific period. The issuing company is obligated to repay the principal amount on a fixed date or upon demand after the expiry of that period.
• Irredeemable Debentures (Perpetual): There is no fixed date of redemption for these debentures. They are redeemable only on the winding up of the company or on the happening of certain events specified in the terms of the issue.

Additional Information
The other types debentures are the following:
Secured and Unsecured Debentures:

• Secured Debentures: These are backed by assets of the company, meaning that if the company fails to repay the debt, the assets pledged as security can be sold to repay debenture holders. The security offered makes these less risky for investors.
• Unsecured Debentures: Also known as naked debentures, these are not secured by any asset. They are issued solely based on the creditworthiness of the issuer. The risk for investors is higher, which generally results in a higher interest rate for these debentures.

Convertible and Non-Convertible Debentures:

• Convertible Debentures: These can be converted into equity shares of the issuing company after a specific period of time, as per the terms of the issue. This feature is attractive to investors who expect the share price to rise in the future.
• Non-Convertible Debentures (NCDs): These cannot be converted into equity shares of the company. They are usually redeemed at the end of their term. Investors prefer NCDs for the regular income they provide through interest payments.

Registered and Bearer Debentures:

• Registered Debentures: These are recorded in the register of debenture holders maintained by the issuing company. The interest and principal are paid only to the registered holder. They are transferable, but the transfer needs to be registered with the company.
• Bearer Debentures: These are not recorded in the company’s register and are transferable by mere delivery. The possessor of the bearer debentures is considered the owner. Interest and principal are paid to the bearer or holder of the instrument.

Fixed and Floating Rate Debentures:

• Fixed Rate Debentures: The interest rate on these debentures remains constant throughout the term of the debenture.
• Floating Rate Debentures: The interest rate on these debentures is linked to a benchmark rate (like the bank rate) and varies with it over the term of the debenture.

Zero-Coupon Debentures: These are issued at a discount to their face value and do not carry any stated rate of interest. The difference between the issue price and the redemption price represents the return to the investor.

The correct answer is Irredeemable Debentures.

Key PointsRedeemable and Irredeemable (Perpetual) Debentures:

• Redeemable Debentures: These are issued for a specific period. The issuing company is obligated to repay the principal amount on a fixed date or upon demand after the expiry of that period.
• Irredeemable Debentures (Perpetual): There is no fixed date of redemption for these debentures. They are redeemable only on the winding up of the company or on the happening of certain events specified in the terms of the issue.

Additional Information The other types debentures are the following:

Secured and Unsecured Debentures:

• Secured Debentures: These are backed by assets of the company, meaning that if the company fails to repay the debt, the assets pledged as security can be sold to repay debenture holders. The security offered makes these less risky for investors.
• Unsecured Debentures: Also known as naked debentures, these are not secured by any asset. They are issued solely based on the creditworthiness of the issuer. The risk for investors is higher, which generally results in a higher interest rate for these debentures.

Convertible and Non-Convertible Debentures:

• Convertible Debentures: These can be converted into equity shares of the issuing company after a specific period of time, as per the terms of the issue. This feature is attractive to investors who expect the share price to rise in the future.
• Non-Convertible Debentures (NCDs): These cannot be converted into equity shares of the company. They are usually redeemed at the end of their term. Investors prefer NCDs for the regular income they provide through interest payments.

Registered and Bearer Debentures:

• Registered Debentures: These are recorded in the register of debenture holders maintained by the issuing company. The interest and principal are paid only to the registered holder. They are transferable, but the transfer needs to be registered with the company.
• Bearer Debentures: These are not recorded in the company’s register and are transferable by mere delivery. The possessor of the bearer debentures is considered the owner. Interest and principal are paid to the bearer or holder of the instrument.

Fixed and Floating Rate Debentures:

• Fixed Rate Debentures: The interest rate on these debentures remains constant throughout the term of the debenture.
• Floating Rate Debentures: The interest rate on these debentures is linked to a benchmark rate (like the bank rate) and varies with it over the term of the debenture.

Zero-Coupon Debentures: These are issued at a discount to their face value and do not carry any stated rate of interest. The difference between the issue price and the redemption price represents the return to the investor.

The correct answer is ₹1,20,000.

Key Points

• The discount on issue of debentures is calculated as 10% of the face value of debentures issued.
• So, for debentures worth ₹12,00,000, the discount is: = 10% of ₹12,00,000 = ₹1,20,000.
• This is the amount by which the received funds are less than the nominal value of the debentures, representing an expense to the company over the life of the debentures. Correct answer: 3) ₹1,20,000

The correct answer is ₹1,20,000.

Key Points

• For debentures issued at a premium, the premium amount is credited to the "Securities Premium Account".
• The premium is 15% of the face value of the debentures issued.
• So, for ₹8,00,000 face value of debentures, the premium would be: = 15% of ₹8,00,000 = ₹1,20,000 Correct answer: 1) ₹1,20,000

The correct answer is ₹8,00,000.

Key Points

Scenario Given:

• Company raises a loan of ₹5,00,000 from PNB using 5% debentures of ₹8,00,000 as collateral.
• Collateral: The debentures valued at ₹8,00,000 are used as security for the loan.
• Debenture Suspense Account: This account is implicated when debentures are involved in transactions not directly affecting their face value but indicating a specific status or earmarking.

Explanation:

• Purpose of Debenture Suspense Account:
  • It is used to indicate the reserved or earmarked status of debentures used as collateral.
  • Does not alter the financial value of debentures in the company’s balance sheet but signifies their encumbrance.
• Debit to Debenture Suspense Account:
  • Reflecting the entire face value (₹8,00,000) of the debentures as being pledged for the loan.
  • Indicates the specific allocation or reservation of these debentures against the obtained loan.
• Accounting Implication:
  • Demonstrates transparency in the company's financial documentation by clearly earmarking assets (debentures in this case) tied to specific liabilities.
  • Ensures accuracy in depicting the company's financial position, specifically the relationship between pledged assets and associated liabilities.

Conclusion:

• Debiting the Debenture Suspense Account with ₹8,00,000 serves as an accounting maneuver to clearly showcase the transaction's nature where debentures are used as collateral for a loan, without altering their value on the balance sheet but earmarking them as committed for the duration of the loan.

A Cash Flow Statement shows how cash is generated and used, covering inflows and outflows over a period, and is vital for understanding the liquidity of a business.

Operating activities include cash inflows from the core business activities like the sale of goods or services, representing the day-to-day running of the business

The purchase of fixed assets is classified as an investing activity, as it involves cash outflows to acquire long-term assets.

Depreciation is a non-cash item, which is deducted in the Profit and Loss statement but does not affect the cash position of the company.

The Cash Flow Statement provides critical insights into how the company is managing its cash, helping stakeholders assess the company’s future cash flow potential.

A) Horizontal Analysis: Compares financial data across periods (e.g., year-to-year % changes). Matches (I) "Analyzing financial statements over a period to observe the percentage changes" as it describes the time-based comparison.
B) Vertical Analysis: Expresses each item as a % of a base (e.g., total sales) within one period. Matches (II) "Expressing financial items as a percentage of a common base for comparison" because it’s the core method.
C) Trend Analysis: Examines data over multiple periods to spot patterns (e.g., sales growth). Matches (IV) "Analyzing financial data over different periods to identify trends and patterns" as it focuses on trends.
D) Ratio Analysis: Uses ratios (e.g., profit margin) to analyze relationships and profitability. Matches (III) "Analyzing the relationship between different financial items to assess profitability" because ratios assess such links.

A) Profit and Loss Statement: Summarizes revenues, expenses, and profits/losses over a period. Matches (IV) "Provides a summary of company’s profits or losses over a period" as it’s the primary purpose.
B) Balance Sheet: Shows assets, liabilities, and equity at a specific date. Matches (I) "Shows the financial position of a company at a given point in time" because it’s a snapshot.
C) Cash Flow Statement: Tracks cash inflows and outflows over a period. Matches (II) "Shows the movement of cash into and out of the company" as it’s the exact function.
D) Comparative Statement: Presents financial data (e.g., balance sheets) side-by-side for multiple periods. Matches (III) "Compares the financial position over different periods" because it’s comparative.

A) Common Size Analysis: Converts items to % of a base (e.g., total assets) for comparison. Matches (II) "Shows financial items as a percentage of a common base" as it’s the defining trait.
B) Ratio Analysis: Calculates ratios (e.g., current ratio) to analyze relationships. Matches (I) "Focuses on calculating financial ratios between different accounts" because it’s ratio-focused.
C) Trend Analysis: Assesses data over time to identify trends (e.g., revenue growth). Matches (III) "Compares financial data across multiple periods to assess trends" as it’s time-based.
D) Comparative Statements: Compares performance over time or with peers/industry. Matches (IV) "Provides a comparison of a company's performance over time or against industry standards" as it’s broad and comparative.

A) Finance Manager: Oversees overall financial health, including performance and strategy. Matches (IV) "Interested in analyzing managerial performance and the financial health of the company" as it fits their broad role.
B) Trade Payables: Suppliers/creditors focus on liquidity to ensure short-term payment. Matches (II) "Interested in understanding the liquidity position of the company" because liquidity ensures they get paid.
C) Lenders: Concerned with cash flow and long-term repayment ability (solvency). Matches (I) "Concerned with the company's ability to generate cash and meet long-term obligations" as it aligns with lending risks.
D) Investors: Focus on profitability and capital structure for returns and value. Matches (III) "Interested in profitability and capital structure to evaluate the business value" because it drives investment decisions.

A) Profitability: Assesses earnings generation (e.g., net profit margin). Matches (I) "Measures the ability of a firm to generate earnings relative to its revenue" as it’s the core of profitability.
B) Liquidity: Measures ability to pay short-term debts (e.g., current ratio). Matches (II) "Refers to the firm’s capacity to meet its short-term obligations" because it’s about short-term liquidity.
C) Solvency: Assesses long-term debt repayment capacity (e.g., debt-to-equity ratio). Matches (III) "Refers to the firm's ability to meet long-term debts and obligations" as it defines solvency.
D) Efficiency: Measures asset utilization (e.g., asset turnover ratio). Matches (IV) "Refers to the effectiveness of a company in using its assets to generate revenue" because it’s about operational efficiency.

(A) Correct: The dissolution of a partnership firm means that the firm ceases its business activities.
(B) Incorrect: The dissolution of a partnership involves ending the partnership, but the firm may continue its business if some partners stay on.
(C) Correct: Realisation expenses are generally borne by the firm unless the agreement specifies otherwise.
(D) Incorrect: While misconduct can lead to dissolution, it is not the only reason for court involvement.
Court orders are needed for cases like a partner’s insanity.
(E) Correct: A partner's loan to the firm is treated as a liability and settled during dissolution.

(A) Correct: The dissolution of a partnership involves ending the partnership relationship, while the dissolution of a firm ends the firm’s business activities.
(B) Correct: During the dissolution process, all assets and liabilities are transferred to the Realisation Account.
(C) Incorrect: The firm’s liabilities are paid before the settlement of partners’ capital accounts.
(D) Correct: Unrecorded liabilities are paid using the firm’s assets or the partners' contributions if the firm’s assets are insufficient.
(E) Incorrect: While misconduct can lead to dissolution, court involvement is usually for cases like insanity or when the business cannot continue.

(A) Incorrect: A partner may take over the firm's assets, but this is recorded in the partner’s capital account, not in exchange for creditor payment.
(B) Correct: The Realisation Account records liabilities and any changes in asset values during dissolution.
(C) Correct: Realisation expenses, including legal fees, are recorded in the Realisation Account.
(D) Incorrect: Creditors are paid first, but after all assets are realised, the balance is paid to the partners, not profits first.
(E) Correct: Any profit or loss from the dissolution process is shared among the partners according to their profit-sharing ratio.

(A) Correct: The Realisation Account reflects the firm’s assets and liabilities during dissolution to determine the profit or loss.
(B) Correct: Unrecorded liabilities are shown in the Realisation Account as they are recognised and paid.
(C) Incorrect: The dissolution process includes the settlement of all accounts, but the final settlement involves distributing profits and handling capital accounts.
(D) Correct: The Realisation Account is crucial to calculate the profit or loss from asset sales and liability payments.
(E) Incorrect: While assets taken over by a partner are recorded in their capital account, this is not the only factor for concluding the process.