MULTIPLE
CHOICE QUESTIONS FOR NOVEMBER’ 2018 EXAM
1.
A banking company cannot grant loan to any of
its directors.
2.
Banking companies are governed by the Banking
Realisations Act, 1949.
3.
The maximum number of Partners in a banking
business is 10.
4.
Rebate on Bills Discounted for a banking company
is not an income.
5.
No banking company shares pay any dividend
unless its capital expenses and fictitious assets are written off.
6.
Statutory reserve required = 25%
7.
Cash reserve with RBI = 3% of its time and
demand liabilities.
8.
Limit on investments in shares of other
companies: 30% of paid up capital and reserves.
9.
Rebate on bills discounted is shown under the
head “other liabilities” of the balance sheet as unexpired discounts.
10.
Paid up capital of a banking company must be at
least one-half of the subscribed capital of a banking company.
11.
The accounting year of a banking company ends on
31st march of every year.
12.
Provision for bad and doubtful debts cannot be
shown as deduction from interest earned in the profit and loss account of
banking companies.
13.
Bills for collection at the end of the year are
not shown in any schedule. They appear at the foot of the balance sheet.
14.
Contingent liabilities are shown under schedule
12.
15.
Revenue accounts of insurance companies are
prepared under the provisions of IRDA Regulation’ 2002.
16.
Valuation balance sheet is prepared in case of
life assurance business only to ascertain surplus or deficit.
17.
Annuity is an expense and it is shown under the
head benefits paid (Schedule 4).
18.
Revenue account of Life Insurance companies:
Form A - RA
19.
Profit and loss account of Life Insurance
companies: Form A – PL
20.
Balance sheet of Life Insurance companies: Form
A – BS.
21.
Reinsurance premium whether ceded or accepted
has been shown on gross basis before deducting commission.
22.
Liabilities under existing policies are
determined by actuarial valuation.
23.
Life insurance is more appropriate to be called
life assurance.
24.
Bonus in reduction of premium is both at expense
and income in revenue account.
25.
General insurance includes all types of
insurance except life insurance.
26.
IRDA was set up in the year 1996.
27.
Revenue accounts of insurance companies are
prepared under the provisions of IRDA Regulation’ 2002.
28.
Provisions for unexpired risk in respect of
marine business = 100%
29.
Provisions for unexpired risk in respect of fire
business = 50%
30.
Partly paid investments, guarantee, reinsurance
obligations not provided in accounts are contingent liabilities.
31.
Income from rent includes only the realised rent.
It does not include any notional rent.
32.
Commission on reinsurance ceded is an income and
commission on reinsurance accepted is an expense.
33.
FORM B – RA: Revenue account of general
insurance companies.
34.
FORM B – PL: Profit and loss account of general
insurance companies.
35.
FORM B – BS: Balance sheet of general insurance
companies.
36.
Investments hold for more than one year to
earn continuous income or to control business is called trade investments.
37.
Investment held with a view to buy or sale is known
as temporary investments or current investments or marketable securities.
38.
Current investments are valued at cost or fair
value whichever is lower and fixed investments are valued at cost.
39.
Investment account is real account.
40.
Sale of right is a capital receipt in case of
right issue.
41.
Brokerage is included in the cost of
investment in case of purchase and investments are deducted with the cost of
investment in case of sale.
42.
FIFO and average cost method is used to
calculate cost of closing balance of investment.
43.
Cost of Bonus shares is nil.
44.
Accounting for investments: AS – 13
45.
In case of cum-interest, interest is included
in quoted price and in case of ex-interest, interest is excluded from quoted
price.
46.
Real price of investment is
Ex-interest/dividend price.
1. State whether
the following statements are ‘TRUE’ or ‘FALSE’:
1. Subscribed
capital of a banking company should not exceed half of the authorized capital
and the paid-up capital should not exceed half of the subscribed capital. [True]
2. A
banking company should transfer 20% of its profits to a statutory reserve, only
till such reserve together with share premium account balance equals the
paid-up capital. [False]
3. A
banking company cannot pay dividend on its shares until it writes off all
capitalized expenses such an preliminary expenses, brokerage and commission on
issue of shares, etc. [True]
4. A
banking company cannot grant any loans or advances on the security of its own
shares. [True]
5. The
total of bank’s advances comprises loans, cash credits, overdrafts and money at
call and short notice. [False]
6. In
a bank’s balance sheet gold is shown under ‘Other assets’ whereas silver is
shown under ‘Investments’. [False]
7. Banks
do not make a provision for bad debts, as they secure or insure all their
advances. [False]
8. ‘Rebate
on bills discounted’ is a liability and is, therefore, shown under the heading
‘Other liabilities’ by banks. [False]
9. Life
insurance is more appropriate to be called life assurance. [True]
10. All
insurance contracts are contracts of indemnity. [False]
11. There
is no difference between a wagering contract and contract of insurance. [True]
12. Bonus
payable on maturity of the policy is called reversionary bonus. [False]
13. A
life insurance business is said to have earned profit only if its life
assurance fund exceeds its net liability on all outstanding policies. [False]
14. A
balance sheet of a life insurance company is called a ‘Valuation balance
sheet’. [False]
15. Life
insurance contract is a contract of indemnity. [False]
B. Fill in the blanks:
1. When
interest on doubtful debts is realised the amount is debited to Interest suspense account and credited
to Interest account.
2. The
bases for recording bank transactions are the Slips prepared by customers and sometimes bank staff.
3. Liability
on account of bills rediscounted will appear under Contingent Liabilities of the bank’s balance sheet.
4. Banks
are required to transfer 25% of
their profits to a statutory reserve.
1) The
excess of net liability over the ‘Life Assurance Fund’ represents the Deficiency for the inter-valuation
period.
2) The
concept of surrender value of a policy is peculiar to Life insurance.
3) When
an insurance company finds the risk heavy, part of the risk is insured with
another company. Such a procedure is known as Reinsurance.
4) The
purpose of preparing the valuation balance sheet is to ascertain the Profit or loss made by life insurance
business.
5) Valuation
balance sheet is prepared once in every Two
years in the case of life insurance business.
6) In
the case of marine insurance the provision against unexpired risk should be 100% of the net premiums.
C. Indicate the correct answer:
1. Banks
prepare the accounts for
a) Calendar
year.
b)
Financial
year.
c) Cooperative
year.
d) Diwali
year.
2. Banks show
the provision for income-tax under the head
a) Contingency
accounts.
b) Contingent
liabilities.
c)
Other
liabilities and provisions.
d) Borrowings.
3. The
heading other assets does not include
a) Silver.
b) Interest
accrued.
c) Inter-office
adjustment (Dr.)
d)
Gold.
4. Rebate on
bills discounted is
a) An item of
income.
b) A
liability.
c)
Income
received in advance.
d) Income
outstanding.
5. A
non-banking asset is
a) An item of
office equipment.
b)
Any asset
acquired from the debtors in satisfaction of claim.
c) Money at
call and short notice.
d) Furniture
and fixtures.
6. A
non-performing asset is
a) Money at
call and short notice.
b)
An asset
that ceases to generate income.
c) Cash
balance in nil.
d) Cash
balance with RBI.
7. When
income is to be recognized on cash basis, a distinction should be made between
a)
Performing
and non-performing assets.
b) Banking
and non-banking assets.
c) Monetary
and non-monetary assets.
d) Current
and non-current assets.
8. A
valuation balance sheet is prepared by
a) A trading
company.
b) A banking
company.
c)
A life
insurance company.
9. A general
insurance business carrying on more than one type of insurance business
prepares
a) A separate revenue account for each type of
business.
b) A separate
profit and loss account for each type of business.
c) A separate
revenue account and a combined profit and loss account.
10. Survey expenses
for marine insurance claims must be
a)
Added to
claims.
b) Added to
law charges.
c) Shown as a
separate item.
11. Income-tax
on interest, dividends and rent should be
a) Debited to
provision for taxation.
b) Credited
to provision for taxation.
c)
Deducted
from interest, dividends and rents.
12. Cash at
call and short notice will appear in balance sheet
a) As a
separate item.
b)
Under the
heading ‘Cash’.
c) Under the
heading ‘Other Accounts’.
13. Valuation
balance sheet is
a) A
statement of assets and liabilities on a particular date.
b)
Prepared
to determine profit by comparing Life Assurance Fund with net liability.
c) A
statement of all assets and liabilities as market value.
