Answers - Acct Acct 1

FILL IN THE BLANKS : 1. The holding company and the subsidiary company may have a number of inter-company transactions which may be       while preparing the consolidated balance sheet. 2. If the price paid by the holding company for the shares acquired in the subsidiary company is more than the intrinsic value of the shares acquired, the difference is treated as      . 3.      is equal to the paid-up value of shares held by minority shareholders plus proportionate share of the company’s profits and reserves plus proportionate shares of profits on revaluation of assets of the company minus proportionate share of company’s losses minus proportionate share of loss on revaluation of assets of the company. 4. If fixed assets of the subsidiary company are      at the time of acquisition of shares by the holding company without any alteration in book-values, the excess or short depreciation should be adjusted by debiting or crediting the Consolidated Profit and Loss Account and crediting or debiting the respective Asset Account. 5. Companies declaring distributing or paying dividends are liable to pay tax on the same at prescribed rate which is known tax on      . 6. Profit and Loss Appropriation Account shows the      of the net profit as disclosed by the Profit and Loss Account proper. 7. Balance sheet of a company shall be prepared in the form set out in Part      and profit and loss account of a company shall comply with the requirements of Part       of Schedule       of the Companies Act, 1956. 8. Which of these are advantages of declaring bonus shares to the shareholders: As the bonus is not paid in cash, the liquid resources of the company are not disturbed. a. more realistic picture of the company’s capital structure is displayed in the Balance Sheet. b. With the issue of bonus shares, the overall market capitalization will increase c. This is the cheapest method of increasing capital which is necessary in case of expansion of business. (However, in effect it

does not increase the total resources at the disposal of the company). d. Bonus issue will increase the market value of the company e. Bonus issue help in utilization of provisions. f.

Abnormally high rate of dividend can be reduced by increasing capital.

g. As the profit is permanently ploughed back into the company, its credit worthiness increases. h. From the view point of the shareholders i. If the shareholder requires cash, they can easily convert the bonus shares into cash. j. These bonus shares become a permanent source of income to the shareholders, if the rate of dividend is maintained or not reduced proportionately. k. Although the rate of dividend falls, the total amount of dividend may increase as the shareholders get dividend on a larger number of shares. 9. Which of these about bonus issue is incorrect : a. The bonus issue shall be made out of free reserves built out of the genuine profits or share premium collected in cash only. b. Reserves created by revaluation of fixed assets can be used for issue of bonus shares. c. The declaration of bonus issue, in lieu of dividend, is allowed d. The bonus issue is not made unless the party-paid shares, if any existing, are made fully paid-up. e.

the company has to ensure that it has not defaulted in payment of interest or principal in respect of fixed deposits and interest on existing debentures or principal on redemption thereof; and

f.

The company has to ensure that it has sufficient reason to believe that it has not defaulted in respect of the payment of statutory dues of the employees such as contribution to provident fund, gratuity, bonus etc.

10. Articles of the company normally provide that dividends, may be paid in      to the amount paid-up on each share.

11. The rule regarding issue of dividend out of previous year profit is : the total amount to be drawn from the accumulated profits earned in previous year(s) transferred to the reserves shall not exceed an amount equal to      of the sum of its paid-up capital and free reserves and the amount so drawn shall first be utilised to set-off the losses incurred in the financial year before any dividend in respect of preference or equity shares is declared; and the balance of reserves after such draw shall not fall below      of its paid-up share capital. 12. In marginal costing      are taken into account for computing the value of stocks of work-in-progress and finished products. 13. In marginal costing the unit cost of a product means the average      cost of manufacturing the product. 14. In absorption costing the effects of sales and production are combined, in marginal costing on the other hand, the emphasis is placed on     . 15. When output is less than sales i.e. closing stock is less than opening stock, the profit under marginal costing is      than the profit under absorption costing; 16. Marginal costing is also known as      costing. 17. In case the company goes into liquidation, the amount paid as calls-in-advance shall not be refundable except after the payment in full to the       18. If forfeited shares are re-issued at a discount, the amount of discount can, in no case, exceed the amount credited to     . 19. On re-issue of forfeited shares which were originally issued at a discount, Discount on Issue of Share Account should be reinstated with the proportionate amount to the shares re-issued so that the discount on issue of shares may be      to the shares issued. 20. Those share holders who don’t pay on calls, have to be given at least       day notice to the defaulting shareholder calling upon him to pay the amount due from him together with interest before a specified date Answers :

1.eliminated / removed 2.Goodwill 3. Minority Interest 4. revalued. 5.Distributed profits. 6. disposal 7. I, II, VI 8. B,D,E are incorrect, rest are all correct. 9. B and C are incorrect. 10. proportion 11. one-tenth, 15% 12. Only variable costs 13. variable 14. sales 15. greater 16. variable 17. ordinary creditors. 18. Shares Forfeited Account 19. proportionate 20. 14 days.