CUET UG Accountancy Booster Test 3 -

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CUET UG Accountancy Booster Test 2 Provisions of Partnership Act & Accounting Basics

⏱️ 30 Minutes

❓ 20 Questions

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Accountancy Booster Test 2 Provisions of Partnership Act & Accounting Basics

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QUESTION 1 OF 20

Match the stage of business evolution with the entity type based on text implication:

List 1	List 2
1. Sole Proprietorship	a. Simplest business form
2. Partnership	b. Association of two or more persons
3. Company form of organization	c. Third stage in evolution
4. One Person Company	d. Has only one person as a member

Answer Review

1 Match the stage of business evolution with the entity type based on text implication:

List 1	List 2
1. Sole Proprietorship	a. Simplest business form
2. Partnership	b. Association of two or more persons
3. Company form of organization	c. Third stage in evolution
4. One Person Company	d. Has only one person as a member

A 1-a, 2-b, 3-c, 4-d

B 1-d, 2-c, 3-b, 4-a

C 1-c, 2-d, 3-a, 4-b

D 1-b, 2-a, 3-c, 4-d

💡 Short Explanation

Sole proprietorship is the simplest form. Partnership involves two or more persons. OPC has only one member.

✅ Correct Answer Explanation

Correct matching: 1. Sole Proprietorship → c. Simplest business form 2. Partnership → d. Association of two or more persons 3. Company form of organization → a. Third stage in evolution 4. One Person Company → b. Has only one person as a member Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect matching of sole proprietorship.
Option B → OPC incorrectly matched.
Option D → Multiple mismatches occur.

🎯 Strategy

Used

Option Grouping

Application:

Each business form was linked with its defining feature.

Final Logic:

Only Option C matches all correctly.

🧠 Memory Trick

"Simple–Partnership–Company–OPC"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Meaning of Company – Page X

2 Assertion (A): A company possesses all the natural properties of a human being.
Reason (R): A company is a mere creation of law and possesses only those properties which the charter of its creation confers upon it.

A Both A and R are true.

B Both A and R are false.

C A is true, but R is false.

D A is false, but R is true.

💡 Short Explanation

Company is an artificial person. It does not possess natural human properties. Its powers arise from law.

✅ Correct Answer Explanation

Assertion is false because a company is not a natural human being. Reason is true because a company is created by law and possesses only those powers granted through its charter and legal framework. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Assertion is false.
Option B → Reason is true.
Option C → Reason is not false.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

The artificial legal nature of company was evaluated.

Final Logic:

Company is a legal creation, not a natural person.

🧠 Memory Trick

"Company Exists Through Law"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Artificial Legal Person – Page X

3 A company issues a prospectus to raise funds but fails to receive the minimum subscription within 120 days. According to the text, what legally must happen next in the incorporation/issue process?

A The company cannot proceed with allotment and must return the application money within 130 days.

B The company can allot shares pro-rata.

C The directors must personally buy the remaining shares.

D The company can extend the timeline by 60 days.

💡 Short Explanation

Minimum subscription is compulsory. Allotment cannot proceed without it. Refund must be made within 130 days.

✅ Correct Answer Explanation

If minimum subscription is not received within 120 days: allotment cannot proceed, and the company must refund application money within 130 days. Thus, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Allotment cannot proceed legally.
Option C → Directors are not personally required to subscribe.
Option D → No such automatic extension exists.

🎯 Strategy

Used

Legal Recall

Application:

SEBI minimum subscription rules were applied.

Final Logic:

Failure of minimum subscription stops allotment.

🧠 Memory Trick

"120 Days Subscribe, 130 Days Refund"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Minimum Subscription – Page X

4 Under which of the following conditions can a One Person Company (OPC) NOT carry out business under the Companies (Incorporation) Rules, 2014?

A If it operates a manufacturing plant.

B If it carries out non-banking financial investment activities.

C If its paid-up share capital is Rs. 30 Lakhs.

D If it is formed by an Indian citizen resident in India.

💡 Short Explanation

OPC restrictions apply to NBFC-type activities. Non-banking investment activities are prohibited. Other listed activities are permissible.

✅ Correct Answer Explanation

Under the Companies (Incorporation) Rules, 2014, an OPC cannot carry out non-banking financial investment activities. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Manufacturing activity is allowed.
Option C → Rs. 30 Lakhs capital is within limit.
Option D → Resident Indian citizen may form OPC.

🎯 Strategy

Used

Conceptual Elimination

Application:

Restricted OPC activities were identified.

Final Logic:

Financial investment activities are restricted.

🧠 Memory Trick

"OPC ≠ NBFC"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: OPC Restrictions – Page X

5 What is the fundamental reason stated in the text why shareholders do not participate in the daily management of a large company?

A They lack the technical knowledge to run the business.

B It is neither possible nor considered desirable due to their large numbers.

C The Companies Act legally bars them from entering the company premises.

D They are only interested in capital appreciation, not management.

💡 Short Explanation

Large companies have many shareholders. Direct participation becomes impractical. Directors manage on shareholders' behalf.

✅ Correct Answer Explanation

Shareholders in large companies are numerous, making direct management impractical and undesirable. Therefore, management responsibility is delegated to directors. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Technical knowledge is not the main reason.
Option C → No such legal prohibition exists.
Option D → Shareholders may still care about management.

🎯 Strategy

Used

Conceptual Understanding

Application:

Ownership-management separation was analyzed.

Final Logic:

Large numbers prevent direct management.

🧠 Memory Trick

"Too Many Owners, Few Managers"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Shareholders' Role – Page X

6 Consider the following statements regarding control:
(I) Directors are elected by shareholders as their representatives.
(II) Directors are the real owners of the company.

A Only (I) is correct

B Only (II) is correct

C Both (I) and (II) are correct

D Neither (I) nor (II) is correct

💡 Short Explanation

Shareholders elect directors. Shareholders remain actual owners. Directors are representatives, not owners.

✅ Correct Answer Explanation

Statement I is correct because shareholders elect directors. Statement II is incorrect because shareholders are the real owners of the company. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Directors are not owners.
Option C → Statement II is false.
Option D → Statement I is true.

🎯 Strategy

Used

Statement Verification

Application:

Ownership and management distinctions were evaluated.

Final Logic:

Directors manage; shareholders own.

🧠 Memory Trick

"Owners Elect Directors"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Board of Directors – Page X

7 Arrange the logical sequence establishing a company's legal status:
(i) Members contribute capital
(ii) Company acquires separate legal entity distinct from members
(iii) Company is incorporated under the Act

A (i), (ii), (iii)

B (ii), (iii), (i)

C (iii), (ii), (i)

D (i), (iii), (ii)

💡 Short Explanation

Members contribute first. Incorporation follows legal process. Separate legal entity arises afterward.

✅ Correct Answer Explanation

Correct sequence: 1. Members contribute capital 2. Company is incorporated 3. Company acquires separate legal identity Thus, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Separate legal identity arises after incorporation.
Option B → Incorporation cannot occur after legal identity.
Option C → Capital contribution logically occurs first.

🎯 Strategy

Used

Sequential Logic

Application:

The legal formation process was arranged step-by-step.

Final Logic:

Contribution → Incorporation → Legal Identity.

🧠 Memory Trick

"Invest, Incorporate, Identity"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Separate Legal Entity – Page X

8 If a company breaches a contract, who is sued based on the principle of corporate personality?

A The shareholders individually

B The Board of Directors personally

C The company in its own name

D The Promoters

💡 Short Explanation

Company has separate legal personality. It can sue and be sued independently. Liability belongs to company itself.

✅ Correct Answer Explanation

Due to separate legal entity status, the company itself is sued in its own name for contractual breaches. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Shareholders are distinct from company.
Option B → Directors are not automatically personally liable.
Option D → Promoters are unrelated after incorporation.

🎯 Strategy

Used

Conceptual Understanding

Application:

Corporate personality principle was applied.

Final Logic:

Company is legally separate from members.

🧠 Memory Trick

"Company Answers for Company"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Corporate Personality – Page X

9 An investor holds 1000 shares of Rs. 10 each in an unlimited company. He has paid Rs. 10 per share. The company owes Rs. 50,000 to creditors and has no assets left. What is his potential liability?

A His private property can be used to pay off the debts, so it is unlimited.

B Rs. 0, as he has paid the face value.

C Rs. 10,000 only.

D Rs. 50,000 strictly divided by 1000.

💡 Short Explanation

Unlimited companies have unlimited liability. Members' private assets remain exposed. Liability is not restricted to share value.

✅ Correct Answer Explanation

In an unlimited company, members' liability is not limited to unpaid share value. Their personal assets may be used to settle company debts. Therefore, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Unlimited liability overrides full payment of shares.
Option C → Liability is not capped at share capital.
Option D → Liability is not proportionately fixed.

🎯 Strategy

Used

Conceptual Application

Application:

Unlimited liability principle was directly applied.

Final Logic:

Unlimited company = Unlimited personal exposure.

🧠 Memory Trick

"Unlimited Means No Ceiling"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Unlimited Company – Page X

10 In a company limited by guarantee, when does the member's liability to pay the guaranteed amount strictly arise?

A During the active existence of the company to meet working capital needs.

B Only in the event of the company being wound up.

C When the company decides to issue debentures.

D At the time of incorporation.

💡 Short Explanation

Guarantee liability is conditional. It becomes enforceable during winding up. Members contribute only then.

✅ Correct Answer Explanation

In companies limited by guarantee, members become liable to contribute the guaranteed amount only when the company is wound up. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Liability does not arise during normal operations.
Option C → Debenture issue is unrelated.
Option D → Liability is contingent, not immediate.

🎯 Strategy

Used

Conceptual Understanding

Application:

Timing of guarantee liability was examined.

Final Logic:

Guarantee liability activates on winding up.

🧠 Memory Trick

"Guarantee Pays at Closure"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Guarantee Liability – Page X

11 Assertion (A): The insolvency of a majority shareholder terminates the company.
Reason (R): A company enjoys perpetual succession and continues irrespective of changes in membership.

A Both A and R are true.

B Both A and R are false.

C A is false, but R is true.

D A is true, but R is false.

💡 Short Explanation

Company survives membership changes. Insolvency of members does not end company. Perpetual succession continues existence.

✅ Correct Answer Explanation

Assertion is false because insolvency of shareholders does not terminate the company. Reason is true because a company enjoys perpetual succession and continues regardless of changes in membership. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Assertion is false.
Option B → Reason is true.
Option D → Reason is not false.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

Perpetual succession principle was applied.

Final Logic:

Company existence is independent of members.

🧠 Memory Trick

"Members Change, Company Continues"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Perpetual Succession – Page X

12 Match the terms with the conceptual outcome regarding company existence.

List 1	List 2
1. Law	a. Terminates company
2. Insanity of member	b. No effect on company
3. Perpetual Succession	c. Maintains company continuity
4. Death of member	d. No effect on company

A 1-b, 2-c, 3-a, 4-d

B 1-c, 2-a, 3-d, 4-b

C 1-d, 2-b, 3-c, 4-a

D 1-a, 2-c, 3-b, 4-d

💡 Short Explanation

Only law can terminate company. Insanity or death has no effect. Perpetual succession maintains continuity.

✅ Correct Answer Explanation

Correct matching: 1. Law → a. Terminates company 2. Insanity of member → c. No effect on company 3. Perpetual Succession → b. Maintains company continuity 4. Death of member → d. No effect on company Thus, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Perpetual succession incorrectly matched.
Option B → Law does not merely have no effect.
Option C → Death does not terminate company.

🎯 Strategy

Used

Option Grouping

Application:

Each concept was matched with its outcome.

Final Logic:

Only law ends company existence.

🧠 Memory Trick

"Law Ends, Succession Continues"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Continuity – Page X

13 A company has Subscribed Capital of Rs. 16,00,000 (2,00,000 shares, Rs. 8 called up) and Calls in Arrears of Rs. 6,000. What is the exact calculation for Paid-up Capital?

A Rs. 20,00,000

B Rs. 16,06,000

C Rs. 40,00,000

D Rs. 15,94,000

💡 Short Explanation

Paid-up capital equals called-up less arrears. Calls in arrears remain unpaid. Deduction must be made.

✅ Correct Answer Explanation

Paid-up Capital calculation: 1600000 - 6000 = 1594000 Thus, Paid-up Capital = Rs. 15,94,000. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect figure.
Option B → Arrears wrongly added.
Option C → Excessively overstated.

🎯 Strategy

Used

Substitution

Application:

Calls in arrears deducted from called-up capital.

Final Logic:

Paid-up = Called-up – Arrears.

🧠 Memory Trick

"Paid-up Reduces by Arrears"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Paid-up Capital – Page X

14 While share capital represents ownership, what financial concept does 'debenture capital' formally represent in the company's capital structure?

A Reserve Capital

B Unissued Capital

C Debt Capital

D Subscribed Capital

💡 Short Explanation

Debentures are borrowings. They create creditor relationship. Hence classified as debt capital.

✅ Correct Answer Explanation

Debenture capital represents borrowed funds and therefore forms part of the company's debt capital. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Reserve capital is unrelated.
Option B → Unissued capital concerns shares.
Option D → Subscribed capital relates to ownership shares.

🎯 Strategy

Used

Conceptual Identification

Application:

Nature of debentures was identified.

Final Logic:

Debentures = Borrowed Capital.

🧠 Memory Trick

"Debenture = Debt"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Debenture Capital – Page X

15 (I) Shareholders participate directly in management.
(II) Board of Directors govern all affairs according to the Companies Act.
Which statement is correct?

A Both (I) and (II)

B Only (II)

C Only (I)

D Neither (I) nor (II)

💡 Short Explanation

Shareholders generally do not manage daily affairs. Directors govern company operations. Companies Act regulates governance.

✅ Correct Answer Explanation

Statement I is false because shareholders do not directly manage company affairs. Statement II is true because the Board of Directors governs the company under the Companies Act. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Statement I is false.
Option C → Statement II is true.
Option D → Statement II is correct.

🎯 Strategy

Used

Statement Verification

Application:

Management authority structure was analyzed.

Final Logic:

Directors manage; shareholders own.

🧠 Memory Trick

"Board Governs Company"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Management Structure – Page X

16 A shareholder owning 10 shares tries to sign a business contract on behalf of the company to purchase inventory. Is this action legally valid based on decision authority?

A No, only the Board of Directors or authorized officials can act for the company.

B Yes, as an owner, the shareholder has full decision authority.

C Yes, provided he uses the common seal.

D No, because he needs to own at least 51% of shares to sign contracts.

💡 Short Explanation

Shareholders are owners, not agents. Directors or authorized officials represent company. Ownership alone gives no contract authority.

✅ Correct Answer Explanation

A shareholder cannot independently bind the company legally unless properly authorized. Only directors or authorized officials may act for the company. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Ownership does not create agency authority.
Option C → Common seal alone is insufficient.
Option D → Majority ownership is irrelevant here.

🎯 Strategy

Used

Conceptual Understanding

Application:

Authority and ownership distinction was applied.

Final Logic:

Only authorized representatives can contract.

🧠 Memory Trick

"Ownership ≠ Authority"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Decision Authority – Page X

17 What is the alternative legal name for the "Authorised Capital" specified in the Memorandum of Association?

A Paid-up Capital

B Reserve Capital

C Nominal or Registered Capital

D Issued Capital

💡 Short Explanation

Authorised capital has alternative names. Nominal and registered capital are synonyms. It represents maximum issue limit.

✅ Correct Answer Explanation

Authorised Capital is also known as: Nominal Capital Registered Capital Thus, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Paid-up capital is amount received.
Option B → Reserve capital is reserved for winding up.
Option D → Issued capital is part of authorised capital.

🎯 Strategy

Used

Terminology Recall

Application:

Alternative names for authorised capital were identified.

Final Logic:

Authorised = Nominal/Registered.

🧠 Memory Trick

"Authorised Means Registered"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Memorandum Role – Page X

18 If Articles are silent, arrange the rules from Table A logically regarding the flow of calls:
(i) Ensure call amount doesn't exceed 25% of face value
(ii) Check that one month has elapsed since the last call
(iii) Send a minimum 14 days' notice to shareholders

A (iii), (ii), (i)

B (ii), (i), (iii)

C (i), (ii), (iii)

D (i), (ii), (iii) (Chronologically planning the call, checking time gap, then notifying)

💡 Short Explanation

Call amount must first be determined. Time gap between calls is checked. Notice is then issued to shareholders.

✅ Correct Answer Explanation

Correct sequence: 1. Ensure call does not exceed 25% 2. Verify one-month interval since last call 3. Send 14 days' notice Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Notice cannot precede planning.
Option B → Call amount must be checked first.
Option C → Option D provides the complete contextual sequence.

🎯 Strategy

Used

Sequential Logic

Application:

Procedural rules for calls were arranged chronologically.

Final Logic:

Plan → Verify → Notify.

🧠 Memory Trick

"Fix, Wait, Notify"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Calls on Shares – Page X

19 Passage Q19: The company being an artificial person, cannot sign its name by itself. Therefore, every company is required to have its own seal which acts as official signatures of the company. Any document which does not carry the common seal of the company is not binding on the company. The shares of a public limited company are freely transferable. The permission of the company or the consent of any member of the company is not necessary for the transfer of shares. But the Articles of the company can prescribe the manner in which the transfer of shares will be made.
Based on the passage:
Assertion (A): A company signs its documents independently using its physical hand.
Reason (R): A company is an artificial person.

A A is false, but R is true.

B Both A and R are true.

C A is true, but R is false.

D Both A and R are false.

💡 Short Explanation

Company has no physical existence. Artificial persons cannot sign physically. Common seal acts as signature.

✅ Correct Answer Explanation

Assertion is false because a company cannot physically sign documents. Reason is true because a company is an artificial legal person. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Assertion is false.
Option C → Reason is true.
Option D → Reason is not false.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

Artificial legal personality concept was applied.

Final Logic:

Artificial persons cannot physically sign.

🧠 Memory Trick

"Artificial Person Uses Seal"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Common Seal – Page X

20 Passage Q20: The company, being an artificial person, cannot sign its name by itself. Therefore, every company is required to have its own seal which acts as official signatures of the company. Any document which does not carry the common seal of the company is not binding on the company. The shares of a public limited company are freely transferable. The permission of the company or the consent of any member of the company is not necessary for the transfer of shares. But the Articles of the company can prescribe the manner in which the transfer of shares will be made.
If Shareholder X wants to sell his public company shares to Y, what mathematical percentage of consent does he need from the company or other members according to the passage?

A 51% consent

B 0% consent (No permission is necessary)

C 100% consent

D 75% consent

💡 Short Explanation

Public company shares are freely transferable. No permission is needed. Transfer occurs independently.

✅ Correct Answer Explanation

The passage clearly states that no permission from the company or other members is required for transfer of public company shares. Therefore, consent required = 0%. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → No majority approval is needed.
Option C → Unanimous approval is unnecessary.
Option D → No special resolution applies.

🎯 Strategy

Used

Passage-Based Identification

Application:

The transferability rule was directly applied.

Final Logic:

Public shares transfer freely.

🧠 Memory Trick

"Public Shares Move Freely"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Transferability – Page X

CUET UG Accountancy Booster Test 2 Provisions of Partnership Act & Accounting Basics

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