Tag: reserves

Questions Related to reserves

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.

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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.

The Books of Accounts of Z Ltd. shows that the balance of sundry debtors is. 50,000 and reserve for doubtful debts is 2,000. Later the management of the company released that debts to the extent of 1,000 will become bad. It was decided to create a reserve at 5% on debtors. The amount of reserve for doubtful debts to be shown in profit and loss account is ________.

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

  1. 2,500

  2. 2,350

  3. 2,450

  4. 2,400

  5. 450

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Correct Option: E

Which of these are allowed to create secret reserves in their books of account?

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

  1. Banking Companies

  2. Insurance Companies

  3. Electricity Companies

  4. All the three

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Correct Option: D

_________ is a secret reserve usually created to, provide for the lose by way of fluctuation in the value of investment.

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

  1. Investment Fluctuation Reserve

  2. Foreign Exchange Fluctuation Fund

  3. General Reserve

  4. Capital Reserve

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Correct Option: A

______ is a secret reserve usually created to provide for the loss by way of fluctuation in the value of investment.

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

  1. Investment Fluctuation Reserve

  2. Foreign Exchange Fluctuation Fund

  3. General Reserve

  4. Capital Reserve

Show answer
Correct Option: A
Explanation:

Investment Fluctuation Reserve: To bear any loss in case of decrease in value of such investments, business enterprises sets aside a part of profit in Investment Fluctuation Reserve, so that any loss arising on account of decrease in value of such investment can be met from this reserve.

The Reserve which is credited for a particular purpose and which is a charge against revenue is called___________.

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

  1. Capital Reserve

  2. General Reserve

  3. Secret Reserve

  4. Specific Reserve

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Correct Option: D
Explanation:

A specific reserve is one, which is created for some specific purpose by debiting Profit and Loss Appropriation Account. Normally, it is available for the purpose for which it has been created.

In case of issue of shares amount received above par value is credited to which account?

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

  1. Security Premium A/c

  2. Discount A/c

  3. Share forfeiture A/c

  4. None of these

Show answer
Correct Option: A
Explanation:

The issue of shares at par implies that the shares have been issued for an amount exactly equal to their face or nominal value. 

In case shares are issued at a premium, i.e. at an amount more than the nominal or par value of shares, the amount of premium is credited to a separate account called ‘Securities Premium Reserve Account’ under the head Reserves and surplus in the balance sheet.

Securities Premium can be used by the company :

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

  1. To adjust Loss on revaluation of Assets

  2. To Issue fully paid Bonus shares

  3. To Pay dividend

  4. To Adjust trading Loss

Show answer
Correct Option: B
Explanation:

The issue of shares at par implies that the shares have been issued for an amount exactly equal to their face or nominal value. In case shares are issued at a premium, i.e. at an amount more than the nominal or par value of shares, the amount of premium is credited to a separate account called ‘Securities Premium Reserve Account’ under the head Reserves and surplus in the balance sheet.

It can be used only for the following five purposes:-

(a) To issue fully paid bonus shares to the extent not exceeding un-issued share capital of the company;

(b) To write-off preliminary expenses of the company;

(c) To write-off the expenses of, or commission paid, or discount allowed on any securities of the company; and

(d) To pay premium on the redemption of preference shares or debentures of the company.

(e) Purchase of its own shares (i.e., buy back of shares).

According to Section 78 of the companies Act, the amount in the Securities Premium A/c cannot be used for the purpose of __________.

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

  1. Issues of fully paid bonus shares

  2. Writing off losses of the company

  3. Writing of preliminary expenses

  4. Writing off commission or discount on issues of shares

Show answer
Correct Option: B
Explanation:

The issue of shares at par implies that the shares have been issued for an amount exactly equal to their face or nominal value. In case shares are issued at a premium, i.e. at an amount more than the nominal or par value of shares, the amount of premium is credited to a separate account called ‘Securities Premium Reserve Account’ under the head Reserves and surplus in the balance sheet.

It can be used only for the following five purposes:

(a) To issue fully paid bonus shares to the extent not exceeding unissued share capital of the company;

(b) To write-off preliminary expenses of the company;

(c) To write-off the expenses of, or commission paid, or discount allowed on any securities of the company; and

(d) To pay premium on the redemption of preference shares or debentures of the company.

(e) Purchase of its own shares (i.e., buy back of shares).

A Ltd., Had $3,000$, $12\%$ Redeemable preference shares of Rs. $100$ each, fully paid up. The company issued $25,000$ equity shares of Rs. $10$ each at par and $1,000$ $14\%$ Debentures of $100$ each. All amounts were received in full. The payment was made in full. The amount to be transferred to capital Redemption Reserve Account Rs _________.

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

  1. Nil

  2. Rs. $2,00,000$

  3. Rs. $3,00,000$

  4. Rs. $50,000$

Show answer
Correct Option: D
Explanation:
Value to be transferred to CRR account :-
= Value of preference shares redeemed - new shares issued
= (3,000 shares x RS-100each) - (25,000 shares x RS-10 each)
= 3,00,000 - 2,50,000
= RS-50,000.