All questions are based on examination for practice by the students to prepare for final exams. Note your speed and accuracy to score high in board exam.

Financial Statements and Financial Analysis MCQs

1. In the balance sheet of a company, preliminary expenses are shown under:

a) Shareholders Fund

b) Non –current Liabilities

c) Current Liabilities

d) None of the above

2. ‘Freedom to Choose method of depreciation’ refers to which limitation of financial statement analysis.

a) Historical analysis

b) Qualitative aspect ignored.

c) Not free from bias.

d) Ignore Price level Changes.

3. Which of the following is not an objective of Analysis of financial statements?

a) To judge the financial health of the firm

b) To judge the short term and long-term liquidity position of the firm

c) To judge the reason for change in the profitability of the firm

d) To judge the variations in the accounting practices of the business followed by different enterprises

4. Financial statements are prepared on certain basic assumptions like:

a) Postulates

b) Provision of Companies Act, 2013

c) Accounting Standards

d) Basis of Accounting

5. Bank overdraft and Cash Credit are shown under which head in the company's Balance Sheet:

a) Current Assets

b) Non-current Liabilities

c) Short-term Borrowings

d) Cash Equivalents

6. Which of the following objective of Financial Analysis indicates the efficiency with which Resources are utilised in generating revenue:

a) To determine Liquidity

b) To determine Long-term Solvency

c) To determine Profitability

d) To determine Operating Efficiency

7. Which of the following is not a limitation of analysis of financial statements?

a) Price level changes ignored

b) Subjectivity

c) Intra firm comparison possible

d) Window Dressing

8. A statement of Assets (Current and Non-Current), Liabilities (Current and Non- current) and Equity indicating the financial position of an enterprise at a given date is known as:

a) Income Statement

b) Balance Sheet

c) Cash Flow Statement

d) Funds Flow Statement

9. Which analysis is considered as dynamic?

a) Horizontal Analysis

b) Vertical Analysis

c) Internal Analysis

d) External Analysis

10. Which Analysis is based on one year’s data?

a) Horizontal Analysis

b) Vertical Analysis

c) Cash Flow Statement

d) Dividend Analysis

Class 12 Accountancy MCQs Financial Statements Analysis

11. Which of the following is tool of financial analysis?

a) Comparative statement

b) Common size statements

c) Cash flow statement

d) All of these

12. Assertion - Financial statement analysis is Undertaker by investors, landers and creditors for assessing the safety of the amount invested in the company.

Reason - investors, landers and creditors Undertaker the financial statement analysis because they have invested their money in the company and have either indirect control or no control on the affair of the company.

In the context of above two statements which of the following is correct?

a) Assertion and reason are correct but the reason is not the correct explanation of Assertion

b) Both Assertion and reason are correct and the reason is the correct explanation of Assertion.

c) Only Assertion is correct.

d) Assertion is not correct but the reason is the correct.

More questions will be added from time to time...

Class 12 Accountancy MCQs Financial Statements Analysis - Answers

1. d) None of the above
2. c) Not free from bias.
3. d) To judge the variations in the accounting practices of the business followed by different enterprises
4. a) Postulates
5. c) Short-term Borrowings
6. d) To determine Operating Efficiency
7. c) Intra firm comparison possible
8. b) Balance Sheet
9. a) Horizontal Analysis
10. b) vertical Analysis
11. d) All of these
12. b) Both Assertion and reason are correct and the reason is the correct explanation of Assertion

Class 12 Accountancy MCQs Debentures

Class 12 Accountancy MCQs Comparative Statements

Learning Games and Activities in Accountancy – Class 12

MCQs on Analysis of Financial Statements

The post Class 12 Accountancy MCQs Financial Statements Analysis appeared first on Commerceatease - Website for 11th & 12th Commerce.

Schedule III to the Companies Act, 2013 deals with the form of Balance Sheet and Profit and Loss Account and classified disclosure to be made therein and it applies to all the companies registered under the Companies Act, 1956.

Proforma of Balance Sheet

Name of the Company ……………………………………..

Balance Sheet as at……………………………………..

(in ₹)

Balance Sheet as per Schedule III of Companies Act, 2013

How to learn the Major Heads of the Balance Sheet?

The major heads of Balance Sheet can be learnt with the help of following sentence, taking the first alphabet of the first word of each item:

Shor Shraba Nahi Chlega, Nahi Chlega.

The subheads should be learnt taking exactly the first alphabet of each item instead of learning by making acronyms, else you may end up weaving the story and find yourself lost in it.

Just focus on the first word of the item in the Balance Sheet and write the alphabet:

Shor: -   SRM

Shraba

Nahi:-  LDOL

Chlega:-  STOS

Nahi:-  PNDLO (P- PICI)

Chlega:-  CITCSO

Sub items included in various heads, if any:

1. Share capital:

1. Authorized capital.

2. Paid up Share Capital

3. Shares allotted or fully paid up for consideration other than cash.

4. Shares allotted as fully paid up by way of bonus shares.

5. Calls unpaid by directors and officers.

6. Share forfeited amount.

2. Reserves and Surplus: 

1. Capital Reserve.

2. Securities Premium (Reserve).

3. Capital Redemption Reserve.

4. Debenture Redemption Reserve.

5. Revaluation Reserve*.

6. Share Options Outstanding Account*.

7. Other reserves (a) General Reserve (b) Tax Reserve* (c) Subsidy Reserve*

(d) Amalgamation Reserve*.

8. Surplus i.e., balance in Statement of Profit and Loss.

Note-The Debit balance of Statement of profit and loss should be shown as deduction from the totals of reserves.

3. Share application money pending allotment*: It will be shown as:

1. Share application money (not refundable).

2. Share application money (refundable).

4. Non-current liabilities:

(a) Long Terms borrowings: Debentures, Long Term Loans etc.

(b) Deferred Tax Liabilities* (Net).

(c) Other Long-Term Liabilities*: Trade Payables on account of purchase of Fixed Assets and interest accrued there on, Provisional Fund contribution.

(d) Long Term provisions: Provision for employee benefits, Provision for Warranties.

5. Current Liabilities:

(a) Short term borrowings: Loans repayable on demand from banks and other parties, Deposits, Loans and advances from related parties.

(b) Trade Payables

(c) Other Current Liabilities: Unpaid dividends, Interest accrued and due/ not due on borrowings, income received in advance, Calls in advance and interest thereon.

(d) Short Term Provisions: Provision for doubtful debts, Provision for tax, proposed dividend.

6. Property, Plant and Equipment and Intangible Assets

(i) Property, Plant and Equipment: Land, Building, Plant and Equipment, Furniture & Fixture, Vehicles, Office Equipment, Others.

(ii) Intangible Assets: Goodwill, Brands/trademarks, Computer Software, Mastheads and Publishing Titles*, Mining Right, Copyrights and patents and other intellectual property rights, Recipes, formulae, models, designs, Licenses and franchise*, others.

(iii) Capital Work in Progress*.

(iv) Intangible Assets under Development*: patents, intellectual property rights, etc. which are being developed by the company

7. Non-Current Investments: Investment property, Equity Instrument, Preference shares, Government Securities, Debentures, and Mutual Funds etc.

8. Long-term Loans and Advances: Capital Advances, Security Deposits, etc.

9. Current Investments – Investments in Equity Instrument, Preference shares, Government Securities, Debentures, Mutual Funds etc.

10. Inventories: (a) Raw material (b) Work-in-progress. (c) Finished goods. (d) Goods acquired for trading (e) Stores and spares (f) Loose tools.

11. Other Current Assets: Prepaid expenses, and advance taxes.

12. Contingent Liabilities- Claims against the company not acknowledged as debts, Guarantees, Other money for which the company is contingently liable.

13. Capital Commitments – Uncalled Liability.

NOTE: ACCOUNTING TREATMENT OF ITEMS MARKED WITH * IS NOT TO BE EVALUATED IN EXAMINATION, ONLY ENTRY IN THE ITEM LIST IS TO BE CHECKED.

Test Your Understanding

Main Terms used in Balance Sheet

Terms used in Balance Sheet

Annual Reports of 20 Companies for Project Work

7 Tips to Attempt MCQs

The post Balance Sheet as per Schedule III of Companies Act, 2013 appeared first on Commerceatease - Website for 11th & 12th Commerce.

1. A share warrant is a financial instrument which gives the holder the right to acquire equity shares.

2. If company has issued shares but date of allotment falls after the balance sheet date, such application money pending allotment will be shown in Balance Sheet.

3. A non-current Liability is a liability which is not classified as current liability. A liability is classified as current when it satisfies any one of the following conditions:

a. It is expected to be settled in the company’s normal operating cycle.

b. It is held for the purpose of being traded.

c. It is due to be settled within 12 months after the reporting date.

d. The company does not have an unconditional right to offer settlement of the liability for at least 12 months after the reporting date.

4. Long Term provisions are provisions for which the related claims are expected to be settled beyond 12 months after the reporting date are classified as non-current provisions.

5. A trade payable refers to the amount due on account of goods purchased or services received in the normal course of business.

6. Short Term Provisions are provisions for which the related claim is expected to be settled within 12 months after the reporting period.

7. Tangible assets are assets which can be physically seen and touched.

8. Non-Current Investments are Investments which are not held for purpose of resale.

9. An operating cycle is the time between the acquisition of assets for processing and their realization in cash and cash equivalents. Where the normal operating cycle cannot be identified, it is assumed to have duration of 12 months.

10. Current Asset: An asset shall be classified as current when it satisfies any of the

following criteria:

(a) It is expected to be realized in or is intended for sale or consumption in the company’s normal operating cycle.

(b) It is held primarily for the purpose of being traded.

(c) It is expected to be realized within twelve months after the reporting date; or

(d) It is cash or cash equivalents unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date.

11. Current Investments – Investment which are held to be converted into cash within a short period i.e., within 12 months.

12. Trade receivables refer to the amount due on account of goods sold or services rendered in the normal course of business.

13. Contingent Liabilities are those liabilities which may or may not arise because they are dependent on a happening in future. It is not recorded in the books of accounts but is disclosed in the Notes to Accounts for the information of the users.

14. Capital Commitments – Financial commitments due to activities agreed by the company to be undertaken by it in future.

15. Operating cycle means the time between the acquisition of assets for processing and their realization in cash or cash equivalents. It may vary from few days to few years. Where the operating cycle cannot be identified, it is assumed to have duration of 12 months.

Balance Sheet as per Schedule III of Companies Act, 2013

Terms used in Balance Sheet

The post Main Terms used in Balance Sheet appeared first on Commerceatease - Website for 11th & 12th Commerce.

Share Capital

Both Equity Share Capital and Preference Share Capital are shown under this head.

Information to be disclosed for

a) Authorized Share Capital;

b) Issued Share Capital;

c) Subscribed, Called – up and Paid – up Share Capital.

(i) Fully Paid-up (ii) Not Fully Paid-up

Cash and Cash Equivalents is classified into:

a) Balance with Bank, Unpaid Dividend (and other earmarked balances), Margin money or security against borrowings, guarantees and other commitments etc., Bank Deposits with more than 12 months maturity.

b) Cheques, drafts on hand.

c) Cash in Hand.

d) Others (specify nature).

Deferred Tax Liability or Deferred Tax Asset

1. It is merely a book entry, neither an actual liability nor an actual asset.

2. In a Balance Sheet, either Deferred Tax Liability or Deferred Tax Asset will appear.

Deferred tax

Deferred Tax Liability or Deferred Tax Asset is the amount of tax on difference between Accounting Income and Taxable Income.

Accounting Income is calculated according to the Accounting Concepts and Principles.

Taxable income is determined on the basis of provisions of Income Tax Act.

Deferred Tax Liability:

If Accounting Income is more than the Taxable Income

Lower Taxable Income means lower payment of income tax. At a later date, more income tax will be paid. It means payment of income tax is deferred i.e. a liability will arise. Thus, an entry for Deferred Tax Liability will be passed as follows:

Profit and Loss                Dr.

To Deferred Tax Liability

Deferred Tax Asset:

If Accounting Income is less than the Taxable Income

Higher Taxable Income means higher payment of income taxes. At a later date, less income tax will be paid. Thus, an entry for Deferred Tax Asset will be passed as follows:

Deferred Tax Asset       Dr.

To Profit and Loss

Effect of Deferred Tax Liability on Calculating Capital Employed

Deferred Tax Liability should be added to Reserves and Surplus because it is not an actual liability but only a notional liability created out of Reserves and Surplus.

On the other hand, Deferred Tax Asset should be deducted from Reserves and Surplus because it is not an actual asset. It has been created by increasing Reserves and Surplus.

Balance Sheet as per Schedule III of Companies Act, 2013

Main Terms used in Balance Sheet

The post Terms used in Balance Sheet appeared first on Commerceatease - Website for 11th & 12th Commerce.

A format for Statement of Profit and Loss is prescribed for the first time, where revenue from Operations and Other Income is shown separately and Expenses on business operations are shown on the basis of nature and not function.

The Form specified in Part II of Schedule - III of the Companies Act, 2013 is as follows:

Modified for Board Examination

Name of the Company………………….

Statement of Profit and Loss for the year ended :………in ₹………………

NOTE:

If provision for tax is given, the format may be extended accordingly.

Subtract provision for tax then show Profit after Tax.

Company's Statement of Profit and Loss:

How to learn the Items?

The items of expenses in Statement of Profit and Loss can be learnt by taking the first alphabet of the first word of each item instead of learning by making acronyms to avoid ending up weaving the story only and get lost in that story.

Just focus on the first word of the expenses in Statement of Profit and Loss and write the alphabet:

CPC, EFDO (comma has been used to learn the code easily)

Revenue from Operations means revenue earned from its business operations.

For a manufacturing or trading company these are:

1. Sale of Products.

2. Sale of Services; and

3. Other Operating Revenues

For a finance company it is

1. Interest.

2. Dividend.

3. Profit from sale of shares; and

4. Income from Other Financial Services.

Other Income means revenue that is not revenue from operations.

This is classified into:

1. Interest income (in case of a company other than finance company);

2. Dividend income.

3. Net gain/loss on sale of investments; and

4. Other non-operating income.

Expenses are shown under the following heads:

Cost of Materials Consumed: It relates to manufacturing companies.

Purchase of stock-in-trade: It relates to trading companies.

Changes in inventories: of finished goods, Work-in-progress and stock-in-trade.

The above three components of Statement of Profit and Loss determines the cost of goods sold, manufactured and traded.

Employees benefit expenses: Salary and Wages, Leave Encashment, Staff Welfare expenses, Retirement Benefits etc.

Finance Cost Interest expense whether on Long – term borrowings or short – term borrowings.

Depreciation and Amortization expenses

Debit Balance (Loss) in Statement of Profit and Loss

If there is loss in the Statement of Profit and Loss, it will be shown under Reserves and Surplus as a negative amount.

Preliminary Expenses (including Deferred Revenue Expenditure)

Preliminary expenses would be written off in the year in which they are incurred. The expenditure on preliminary expenses shall not be carried forward in the balance sheet to be written off in subsequent accounting periods.

Loss on issue of Debentures

In the absence of information, it is better to write off and not to amortise this in the same year.

Share issue expenses

There are two views to deal with writing off Share Issue expenses and other costs:

1.They should be written off in the same manner as preliminary expenses.

2. ICAI suggests that the companies can write it off in 3 to 5 years.

(Since, the site is non-profit, professional touch is lacking. Please! bear with us)

Comparative Financial Statements

Accounting Synonyms:

The post Company’s Statement of Profit and Loss appeared first on Commerceatease - Website for 11th & 12th Commerce.