CA Inter P1 · Chapter 9
Financial Statements of Companies MCQs with Answers
10 multiple-choice questions on Financial Statements of Companies for CA Inter P1 Advanced Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Under Schedule III to the Companies Act, 2013, where the normal operating cycle of a company cannot be identified, it is assumed to have a duration of:
- A) 12 months
- B) 24 months
- C) The duration of the company's longest customer contract
- D) 6 months
Show answer & explanation
Answer: A) 12 months
Schedule III states that where the normal operating cycle cannot be identified, it is assumed to have a duration of 12 months. The operating cycle is used to classify assets and liabilities as current or non-current.
Question 2
Case: Ashwin Motors Ltd has issued 5,00,000 equity shares of ₹10 each, fully called up. Calls of ₹3 per share are unpaid on 10,000 shares. The paid-up equity share capital to be shown in the notes on Share Capital as per Schedule III is:
- A) ₹50,30,000
- B) ₹50,00,000
- C) ₹49,00,000
- D) ₹49,70,000
Show answer & explanation
Answer: D) ₹49,70,000
Subscribed capital = 5,00,000 x 10 = 50,00,000. Calls in arrears = 10,000 x 3 = 30,000, which Schedule III requires to be deducted to arrive at paid-up capital (subscribed but not fully paid). Paid-up = ₹49,70,000. Calls in arrears are not shown as an asset.
Question 3
Under Division I of Schedule III, the balance in the Securities Premium account is presented under:
- A) Non-current liabilities
- B) Other current liabilities
- C) Reserves and Surplus within Shareholders' Funds
- D) Share Capital
Show answer & explanation
Answer: C) Reserves and Surplus within Shareholders' Funds
Securities premium is a reserve and is shown as a separate item under 'Reserves and Surplus' within Shareholders' Funds. It does not form part of share capital, which shows only the nominal value of shares, and it is not a liability.
Question 4
Case: Bhumi Paints Ltd has a General Reserve of ₹6,00,000 and a debit balance of ₹9,00,000 in the Statement of Profit and Loss. As per Schedule III, the debit balance should be:
- A) Shown on the assets side as a miscellaneous non-current asset
- B) Shown as a negative figure under 'Surplus' in Reserves and Surplus, even if the total of Reserves and Surplus becomes negative
- C) Set off against share capital
- D) Shown as a current asset under 'Other current assets'
Show answer & explanation
Answer: B) Shown as a negative figure under 'Surplus' in Reserves and Surplus, even if the total of Reserves and Surplus becomes negative
Schedule III requires a debit balance of the statement of profit and loss to be shown as a negative figure under the head 'Surplus'. The aggregate of Reserves and Surplus is shown after this adjustment even if the resulting figure is negative (here 6,00,000 - 9,00,000 = negative 3,00,000). It cannot be presented as an asset.
Question 5
Under Division I of Schedule III, 'Share application money pending allotment' (to the extent not refundable) is presented:
- A) As a separate line item on the face of the balance sheet between Shareholders' Funds and Non-current Liabilities
- B) Under Other Current Liabilities
- C) Under Share Capital as part of subscribed capital
- D) Under Long-term Borrowings
Show answer & explanation
Answer: A) As a separate line item on the face of the balance sheet between Shareholders' Funds and Non-current Liabilities
Schedule III requires share application money pending allotment to be shown as a separate line item on the face of the balance sheet, between 'Shareholders' Funds' and 'Non-current Liabilities'. Only the portion that is refundable (for example, in excess of the amount to be allotted) is shown under other current liabilities.
Question 6
Case: Charu Steels Ltd, a public company, has no managing director but has two whole-time directors. Its net profit computed under section 198 of the Companies Act, 2013 is ₹3,00,00,000. Without approval of the company in general meeting for a higher amount, the maximum aggregate remuneration payable to both whole-time directors together is:
- A) ₹33,00,000
- B) ₹15,00,000
- C) ₹3,00,000
- D) ₹30,00,000
Show answer & explanation
Answer: D) ₹30,00,000
Section 197 limits remuneration to a managing director, whole-time director or manager to 5% of net profits where there is one such director, and 10% for all of them together where there is more than one. With two whole-time directors, the limit is 10% x 3,00,00,000 = ₹30,00,000. The 11% figure is the overall ceiling for all directors and the manager, and 1% relates to non-executive directors where there is an MD or WTD.
Question 7
Case: The profit before tax of Devika Pharma Ltd as per its statement of profit and loss is ₹1,50,00,000. This is after charging managerial remuneration of ₹12,00,000 and includes a profit of ₹2,00,000 on sale of a plot of freehold land held as a fixed asset; the land had never been depreciated, so the whole profit is the excess of the sale price over its original cost. The company does not deal in land. Applying section 198, the overall maximum managerial remuneration (11% of net profit) is:
- A) ₹17,82,000
- B) ₹16,50,000
- C) ₹16,28,000
- D) ₹17,60,000
Show answer & explanation
Answer: D) ₹17,60,000
Net profit under section 198 is computed before managerial remuneration, so it is added back: 1,50,00,000 + 12,00,000 = 1,62,00,000. Under section 198(3), profit on sale of a fixed asset is credited only to the extent of the difference between original cost and written-down value; the excess of sale price over original cost is a capital profit and is not credited. Here the land's written-down value equals its original cost, so the entire 2,00,000 is excluded: 1,62,00,000 - 2,00,000 = 1,60,00,000. Maximum remuneration = 11% x 1,60,00,000 = ₹17,60,000.
Question 8
Case: At the balance sheet date, Eshan Foods Ltd has dividend declared in an earlier year that remains unclaimed by shareholders and is held in its unpaid dividend bank account. Under Schedule III, unclaimed dividend is shown under:
- A) Reserves and Surplus
- B) Long-term Borrowings
- C) Short-term Provisions
- D) Other Current Liabilities
Show answer & explanation
Answer: D) Other Current Liabilities
Once a dividend is declared, it becomes a debt owed to shareholders. The unclaimed amount continues to be a liability and Schedule III requires it to be disclosed under 'Other Current Liabilities'. It is not a provision, since the amount is certain, and it is not a reserve.
Question 9
Under Schedule III, a company whose turnover is less than ₹100 crore may round off the figures in its financial statements to the nearest:
- A) Hundreds, thousands, lakhs or millions, or decimals thereof
- B) Crores only
- C) Lakhs or crores, or decimals thereof
- D) Rupees only, with no rounding permitted
Show answer & explanation
Answer: A) Hundreds, thousands, lakhs or millions, or decimals thereof
Schedule III allows a company with turnover of less than ₹100 crore to round off figures to the nearest hundreds, thousands, lakhs or millions, or decimals thereof. Rounding to crores is permitted only for companies with turnover of ₹100 crore or more, which may round to lakhs, millions or crores.
Question 10
Case: For the current year, Falguni Textiles Ltd has a profit before depreciation of ₹50,00,000. Depreciation for the year as required by Schedule II is ₹12,00,000. It also has accumulated losses of earlier years of ₹8,00,000. Ignoring any transfer to reserves, the maximum dividend it can declare out of the current year's profit under section 123 is:
- A) ₹30,00,000
- B) ₹38,00,000
- C) ₹42,00,000
- D) ₹50,00,000
Show answer & explanation
Answer: A) ₹30,00,000
Section 123 requires dividend out of current year profits to be declared only after providing for depreciation and after setting off previous losses (and depreciation not provided) of earlier years against the current profit. Available profit = 50,00,000 - 12,00,000 - 8,00,000 = ₹30,00,000.