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.

In financial statement analysis, common size analysis is a useful method. It involves:

• Expressing each item on a financial statement as a percentage of a base figure.
• Allowing easy comparison of financial data across different time periods or companies.
• Helping to identify trends and evaluate a company's performance.

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 (III) "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 (I) "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 (II) "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 (I) "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 (IV) "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 (III) "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.

A partner acts as an agent for a firm.

A partner is defined as an agent of the firm, as stated in Section 18 of the relevant legislation.

Key points about partnerships include:

• A partnership is a relationship where partners agree to share the profits of a business.
• The business can be conducted by all partners or any one of them acting on behalf of all.
• This means that each partner can act as an agent for the others.

The main purpose of admission of a new partner is to increase the capital of the firm. When old partners feel that the capital they have employed in the business is not enough for the future growth of the business. They may admit a new partner to maintain or to build up the financial strength of the business.

Calculation of gaining ratio 

Old ratio (A, B and C) = 4 : 3 : 2

B retires from the firm

New artio (A and C ) = 5 : 3

Gaining ratio = New ratio - Old ratio

A's new share = (5/8) - (4/9) = (45 - 32) /72 = 13/72

C's new share = (3/8) - (2/9) = (27 - 16) / 36 = 11/72

gaining ratio = 13 : 11

2. Adjustment of goodwill 

C's share of goodwill = (10800 * 3) / 9 = 3600

This share of goodwill is to be debited to remaining partners' capital account in their gaining ratio (i.e., 13 : 11 )

Journal entry for the above will be:

A's capital A/c                    Dr.          1950

C's capital A/c                    Dr.          1650

          To B's capital A/c                          3600

Shares Applied = 6000

Shares  Allotted = 5000

Ratio = 5000:6000 = 5:6

Shyam applied for = 180 shares

Shares allotted to Shyam = 180 x 5/6 =150

Titles and Mastheads are shown under the heading of Intangible assets.

1. Section 129 of companies act 2013, provides for preparation of financial statements. 
2. 2(40) to include balance sheet, profit and loss account/income and expenditure account, cash flow statement, statement of changes in equity and any explanatory note annexed to the above.

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.