Tag: book keeping and accountancy

Questions Related to book keeping and accountancy

___________ is Created to stabilise or maintain dividend rate.

book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

  1. Dividend Equalisation Reserve

  2. Proposed Dividend

  3. General Dividend

  4. None

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Correct Option: A
Explanation:

An amount retained from earnings to provide for  distribution of a minimum dividend in subsequent business periods.

Dividend equalisation reserve is a revenue reserve that serves as a buffer between a certain dividend level and profit available. Sums are transferrred to this reserve account in good years, and withdrawn from in poor years to maintain the dividend rate.

____________ is created to provide for claims of the workers due to accident, etc.

book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

  1. General Reserve

  2. Worksmen Compensation Fund

  3. Investment Fund

  4. None

Show answer
Correct Option: B
Explanation:

Workmen Compensation is a type of insurance policy that safeguards an employee against any injury or death during the job time. The total cost of medical treatment and low wages are covered under Workmen Compensation Insurance Policy, in case the injury is caused during or due to employment. Workmen Compensation Fund is mandatory under the Workmen's Compensation Act, 1923 in India.

___________ is created to provide funds for redemption of debentures.

book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

  1. Dividend Equalisation Reserve

  2. Debenture Redemption Reserve

  3. Redemption Fund

  4. None

Show answer
Correct Option: B
Explanation:

According to the amendments in Indian Companies Act, 1956 in 2000, it is stated that Indian corporation who issue debentures must maintain a reserve to protect the investors against possible default  by the company. This reserve is  known as debenture redemption reserve. It states that an adequate amount must be transferred from profits every year to this reserve until issued debentures are redeemed. 

A specific reserve can be created for specific purpose.

book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

  1. True

  2. False

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Correct Option: A
Explanation:

Specific reserve is that reserve which is created for a specific purpose and can be utilized only for that purpose. For example, Dividend Equalization Reserve is a specific reserve, because it is created to maintain a steady rate of dividend flow. Debenture redemption reserve, Capital redemption reserve, Investment fluctuation reserve etc. are the example of specific reserve.

__________ may be defined as a sum set aside out of divisible profits ad retained in order to provide for unexpected or unknown contingencies or loss or to equalize dividends or to strengthen the financial condition of the business.

book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

  1. Provisions

  2. Reserve Fund

  3. Fund

  4. Specific Reserve

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Correct Option: B
Explanation:

A reserve fund is a saving account or other highly liquid asset set aside by an individual or business to meet any future costs or financial obligations, especially those arising unexpectedly. 

Under sinking fund method of depreciation any surplus in sinking fund A/c is transferred to ____________.

book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

  1. Capital Reserve A/c

  2. General Reserve A/c

  3. Reserve Capital A/c

  4. Profit and loss A/c

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Correct Option: B
Explanation:

Any surplus in Sinking fund account may be transferred to general reserve account. If any deficit, that may be transferred to profit and loss account. The journal entry for this transaction is:

For Profit:

Sinking fund A/c ------Dr.
   To General reserve A/c

For Deficit:

Profit and loss A/c----- Dr. 
   To Sinking fund A/c

Under sinking fund method of depreciation any deficit in sinking fund A/c is transferred to ____________.

book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

  1. Capital Reserve A/c

  2. General Reserve A/c

  3. Reserve Capital A/c

  4. Profit and loss A/c

Show answer
Correct Option: D
Explanation:

Any surplus in Sinking fund account may be transferred to general reserve account. If any deficit, that may be transferred to profit and loss account. The journal entry for this transaction is:

For Profit:

Sinking fund A/c ------Dr.
   To General reserve A/c

For Deficit:

Profit and loss A/c----- Dr. 
   To Sinking fund A/c

Capital Redemption Reserve can be used for _______________.

book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

  1. Issue of fully paid up Bonus Shares

  2. Payment of Dividend

  3. Both (a) and (b)

  4. Writing off losses

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Correct Option: A

Which of the following statements is false?

book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

  1. Capital redemption reserve cannot be used for writing off miscellaneous expenses and losses.

  2. Capital profit realised in cash can be used for payment of dividend.

  3. Reserves created by revaluation of fixed assets are not used for issue of bonus shares.

  4. Dividend is payable on the calls paid in advance by shareholders.

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Correct Option: D
Explanation:

   Option D is the correct one.

Disclosure in Balance Sheet Calls in advance is shown separately, in the Balance Sheet as a liability of the company under the heading 'Current Liabilities' until the calls are made and the amount actually becomes payable by the shareholder. 
A company may pay interest on such amount received in advance at the rate of 12% p.a. No dividend is payable on this amount. It adjusts the amount of calls-in-advance for the payment of calls when they become due. Interest payable on Calls-in- Advance is a liability against the profits of the company.

Which of the following cannot be used for the purpose of creation of capital redemption reserve account?

book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

  1. Profit and loss account (credit balance).

  2. General reserve account.

  3. Dividend equalisation reserve account.

  4. Unclaimed dividends account.

Show answer
Correct Option: D
Explanation:

As per the Companies Act 2013, CRR is created from the Profits of the company which only includes the Free Reserves.

Hence, Free Reserve includes following items:

1. Profit and loss accounts

2. General Reserve funds

3. Contingency reserve

4. Dividend equalisation reserve

5. Workmen compensation fund

6.  Workmen accident fund

Therefore, CRR can be created from the above mentioned accounts in the same order of preference.