ADVANCED FINANCIAL ACCOUNTING MULTIPLE CHOICE QUESTIONS FOR UPCOMING EXAM

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 31^st 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.