CA Inter P2 · Chapter 8
Accounts of Companies MCQs with Answers
10 multiple-choice questions on Accounts of Companies for CA Inter P2 Corporate and Other Laws. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Under section 128(5), a company must preserve its books of account, together with relevant vouchers, in good order for a period of not less than:
- A) Eight financial years immediately preceding a financial year
- B) Six financial years immediately preceding a financial year
- C) Ten financial years immediately preceding a financial year
- D) Five financial years immediately preceding a financial year
Show answer & explanation
Answer: A) Eight financial years immediately preceding a financial year
Section 128(5) requires the books of account of every company relating to a period of not less than eight financial years immediately preceding a financial year to be kept in good order. Where an investigation has been ordered, the Central Government may direct that they be kept for a longer period.
Question 2
Under section 128(1), the Board of Rose Ltd decides to keep the books of account at a place in India other than the registered office. The company must:
- A) Obtain the approval of the Central Government
- B) Obtain a special resolution of members before shifting the books
- C) File with the Registrar a notice in writing giving the full address of that place within seven days of the Board's decision
- D) Keep the books outside the registered office only in electronic form
Show answer & explanation
Answer: C) File with the Registrar a notice in writing giving the full address of that place within seven days of the Board's decision
The proviso to section 128(1) allows the Board to decide that the books of account be kept at another place in India. The company must file a notice in writing with the Registrar giving the full address of that place within seven days of the decision. The books must be kept on an accrual basis and according to the double entry system.
Question 3
Under section 2(40), which of the following companies may exclude the cash flow statement from its financial statements?
- A) A company that has issued debentures to the public
- B) A public company with net worth above the threshold under section 135
- C) A listed company
- D) A small company
Show answer & explanation
Answer: D) A small company
The proviso to section 2(40) permits a One Person Company, a small company, a dormant company and a private company that is a start-up to omit the cash flow statement. A listed company or a large public company must include it.
Question 4
Under section 129(3), a company must prepare consolidated financial statements in addition to its own financial statements where it has:
- A) Borrowings from banks and financial institutions
- B) More than two hundred members
- C) One or more subsidiaries or associate companies
- D) Branches located outside India
Show answer & explanation
Answer: C) One or more subsidiaries or associate companies
Section 129(3) requires a company with one or more subsidiaries or associate companies to prepare a consolidated financial statement of the company and all its subsidiaries and associates in the same form and manner as its own. The Explanation clarifies that 'subsidiary' includes associate company and joint venture.
Question 5
The directors of Iris Ltd discover that its financial statements for one of the three preceding financial years did not comply with section 129. Under section 131, they may prepare revised financial statements:
- A) Without any approval, as often as necessary
- B) Only on an order of the Central Government, for any of the last eight years
- C) After passing a special resolution, for any earlier financial year
- D) After obtaining the approval of the Tribunal, and not more than once in a financial year
Show answer & explanation
Answer: D) After obtaining the approval of the Tribunal, and not more than once in a financial year
Section 131(1) allows directors to prepare revised financial statements or a revised Board's report for any of the three preceding financial years where they do not comply with section 129 or 134. This requires the Tribunal's approval on an application in the prescribed form. The proviso limits revision to once in a financial year. Reopening of accounts on the application of authorities is dealt with separately under section 130.
Question 6
Under section 130, the books of account of a company can be reopened and its financial statements recast:
- A) By a special resolution of members, for any period
- B) By the Board of directors on discovering any arithmetical error
- C) Only on an order of the Registrar, for the last three financial years
- D) Only on an order of a court of competent jurisdiction or the Tribunal, and not for a period earlier than eight financial years immediately preceding the current year
Show answer & explanation
Answer: D) Only on an order of a court of competent jurisdiction or the Tribunal, and not for a period earlier than eight financial years immediately preceding the current year
Section 130(1) allows reopening only on an order of a court or the Tribunal. The application may be made by the Central Government, the income-tax authorities, SEBI, any other statutory regulatory body or any person concerned. It must show that the accounts were prepared fraudulently or that the affairs were mismanaged, casting doubt on the reliability of the statements. Section 130(2) bars reopening for a period earlier than eight financial years preceding the current year.
Question 7
As per section 134(1), the financial statements of a company that has a managing director, CFO and company secretary (and no Board-authorised chairperson) must be approved by the Board and signed by:
- A) The company secretary alone
- B) Any one director and the statutory auditor
- C) All the directors and the CFO
- D) Two directors, one of whom is the managing director, and the CFO and the company secretary
Show answer & explanation
Answer: D) Two directors, one of whom is the managing director, and the CFO and the company secretary
Section 134(1) requires the financial statements to be approved by the Board before they are signed. They are signed at least by the chairperson, where authorised by the Board, or by two directors of whom one is the managing director, if any. The CEO, CFO and company secretary also sign, wherever appointed. For an OPC, one director signs. The auditor signs his own report, not the statements.
Question 8
Verdant Ltd is required to comply with section 135. Its net profits computed under section 198 for the three immediately preceding financial years were ₹12 crore, ₹15 crore and ₹18 crore. What is the minimum CSR expenditure for the current financial year?
- A) ₹24 lakh
- B) ₹90 lakh
- C) ₹30 lakh
- D) ₹36 lakh
Show answer & explanation
Answer: C) ₹30 lakh
Section 135(5) requires the Board to ensure that the company spends at least two per cent of its average net profits made during the three immediately preceding financial years. Average = (12 + 15 + 18) / 3 = ₹15 crore. CSR obligation = 2% x ₹15 crore = ₹0.30 crore = ₹30 lakh. Using only the latest year's profit would give ₹36 lakh, which is wrong.
Question 9
Under section 137(1), a company must file a copy of its adopted financial statements with the Registrar within:
- A) Seven days of the date of the Board meeting
- B) Six months from the close of the financial year
- C) Thirty days of the date of the annual general meeting
- D) Sixty days of the date of the annual general meeting
Show answer & explanation
Answer: C) Thirty days of the date of the annual general meeting
Section 137(1) requires a copy of the financial statements, including consolidated statements, adopted at the AGM to be filed with the Registrar within thirty days of the date of the AGM. A One Person Company files within 180 days from the close of the financial year. Note the difference from the annual return, which is filed within sixty days of the AGM.
Question 10
Under section 136(1), a copy of the financial statements with the auditor's report must be sent to every member at least ______ before the date of the general meeting at which they are to be laid.
- A) Seven days
- B) Thirty days
- C) Twenty-one days
- D) Fourteen days
Show answer & explanation
Answer: C) Twenty-one days
Section 136(1) requires a copy of the financial statements, including consolidated statements, the auditor's report and every other document required to be attached, to be sent to every member, trustee for debenture-holders and other persons entitled. They must be sent not less than twenty-one days before the meeting. Under the proviso, copies sent less than twenty-one days before the meeting are deemed duly sent if members holding a majority in number of those entitled to vote and representing not less than ninety-five per cent of the paid-up voting share capital so agree.