Commerce MCQs
Topic Notes: Commerce
MCQs and preparation resources for competitive exams, covering important concepts, past papers, and detailed explanations.
Plato
- Biography: Ancient Greek philosopher (427–347 BCE), student of Socrates and teacher of Aristotle, founder of the Academy in Athens.
- Important Ideas:
- Theory of Forms
- Philosopher-King
- Ideal State
31
In the context of life insurance, how is the nature of the insured risk characterized?
Answer:
not certain to occur and also the timming of its occurrence is not known
Life insurance covers the risk of death. While death is certain to occur eventually, the timing is uncertain. However, the provided answer C suggests the event is not certain to occur, which is factually debatable in insurance theory. We retain the provided answer as per instructions.
32
Which of the following items must be disclosed as contingent liabilities in the notes to an Indian company's financial statements?
Answer:
Claims against the company not acknowledged by as debts
Under standard accounting disclosure requirements, contingent liabilities are potential obligations that depend on the outcome of uncertain future events. While 'Claims against the company not acknowledged as debts' is a classic example of a contingent liability, the other options listed (uncalled liability and dividend arrears) are also typically disclosed as notes. The provided answer 'A' is technically incomplete as all options represent valid disclosures.
33
How should a company account for profits earned during the period prior to receiving its Certificate to Commence Business?
Answer:
Capital Reserve Account
Profits earned by a company prior to its incorporation or before it is entitled to commence business are considered capital profits. These are not generated from normal trading operations and therefore cannot be distributed as dividends. Such profits are credited to a Capital Reserve Account, as they represent capital gains rather than revenue profits.
34
Under which heading should an unrealized dividend be classified in a company's balance sheet?
Answer:
Current liabilities
An unrealized or unclaimed dividend represents an amount that has been declared but not yet paid to the shareholders. Since it is an obligation of the company to pay this amount, it is classified as a current liability until it is claimed or paid out.
35
According to the Indian Companies Act, 1956, what is the required order for listing provisions in the Balance Sheet?
Answer:
3, 2, 1, 4
The Companies Act, 1956, Schedule VI, prescribed specific disclosure requirements for provisions. Based on the historical regulatory framework, the order of presentation for these items was Provision for taxation, Proposed dividends, Provision for contingencies, and Provision for Provident Fund scheme.
36
Under which heading is 'Proposed Dividend' presented in a company's balance sheet?
Answer:
Provision
Under traditional accounting practices and specific regulatory frameworks, proposed dividends are treated as a provision because they represent an appropriation of profit that the directors intend to pay, subject to shareholder approval at the Annual General Meeting.
37
Arrange the following liabilities in the standard order of liquidity as typically presented in a company balance sheet: i. Bank Overdraft, ii. Bank Loan, iii. Share Capital, iv. Provision for Taxation.
Answer:
iii, ii, iv, i
In a balance sheet, liabilities are generally arranged by their permanence or maturity. Share capital is the most permanent (equity), followed by long-term debt (Bank Loan), then current liabilities like provisions (Provision for Taxation), and finally the most liquid/short-term obligations like Bank Overdraft.
38
To which account is the profit earned prior to the incorporation of a company credited?
Answer:
Capital reserve a/c
Profit earned before the date of incorporation is considered a capital profit because it is earned before the company legally exists. Since it is not a trading profit, it cannot be distributed as dividends and is therefore transferred to the Capital Reserve account.
39
Calculate the total common equity if there are 50,000,000 common shares outstanding and the book value per share is Rs 19.92.
Answer:
Rs 996,000,000.00
To determine the total common equity, multiply the number of outstanding common shares by the book value per share. In this case, 50,000,000 shares multiplied by Rs 19.92 per share equals Rs 996,000,000.00. This calculation represents the total accounting value of the common shareholders' interest in the company as reported on the balance sheet.
40
Why does company accounting strictly adhere to the dual aspect concept rather than incomplete records?
Answer:
I, II and III
Companies are legally required to maintain double-entry records to ensure transparency and compliance with statutory regulations like the Companies Act. This system is essential for preparing accurate financial statements, such as the Balance Sheet, which must provide a true and fair view of the company's financial position to stakeholders.