CUET UG Accountancy Booster Test 2 Types & Forms of Financial Statements -

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CUET UG Accountancy Booster Test 1 Types & Forms of Financial Statements

⏱️ 30 Minutes

❓ 20 Questions

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

CUET UG Accountancy Booster Test 1 Types & Forms of Financial Statements

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QUESTION 1 OF 20

If a company has unpaid calls of Rs 6,000 and forfeited shares amounting to Rs 16,000 originally paid up, how are these treated in the Notes to Accounts for Share Capital?

Answer Review

1 If a company has unpaid calls of Rs 6,000 and forfeited shares amounting to Rs 16,000 originally paid up, how are these treated in the Notes to Accounts for Share Capital?

A Both are added to subscribed capital.

B Both are deducted from subscribed capital.

C Calls unpaid are deducted and forfeited shares are added to subscribed capital.

D Calls unpaid are added and forfeited shares are deducted from subscribed capital.

💡 Short Explanation

�� Calls unpaid reduce subscribed capital. �� Forfeited shares originally paid up are added back. �� Both are disclosed in Notes to Accounts.

✅ Correct Answer Explanation

Subscribed capital is disclosed after adjusting calls unpaid, which represent amounts not received from shareholders. Therefore, calls unpaid are deducted. Amounts already paid on forfeited shares remain part of the company's capital and are added to subscribed capital. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

�� Option A → Calls unpaid cannot increase subscribed capital.
�� Option B → Forfeited shares paid-up amount is not deducted.
�� Option D → Treatment is reversed.

🎯 Strategy

Used: Direct Concept Recall

Application: Recall Schedule III disclosure requirements for Share Capital.

Final Logic: Calls unpaid reduce capital; forfeited share amounts increase paid-up capital.

🧠 Memory Trick

Unpaid ↓ Capital, Forfeited Paid-Up ↑ Capital

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Share Capital Disclosure – Page X

2 Under which sub-head of 'Shareholders' Funds' does a debit balance of the Statement of Profit and Loss appear?

A Reserves and Surplus as a negative figure

B Share Capital as a deduction

C Other long-term liabilities

D It is shown on the asset side

💡 Short Explanation

�� Debit balance indicates accumulated loss. �� Displayed under Reserves and Surplus. �� Shown as a negative figure.

✅ Correct Answer Explanation

A debit balance in the Statement of Profit and Loss represents accumulated losses. Under Schedule III, it is disclosed under Reserves and Surplus as a negative amount, reducing shareholders' funds.

❓ Why Other Options Are Incorrect

�� Option B → Share capital remains unaffected.
�� Option C → It is not a liability.
�� Option D → It is not shown as an asset.

🎯 Strategy

Used: Direct Concept Recall

Application: Recall presentation rules under Shareholders' Funds.

Final Logic: Losses are reflected as negative surplus.

🧠 Memory Trick

Loss = Negative Surplus

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Reserves and Surplus – Page X

3 A company classifies an item as a non-current asset. Which of the following criteria prevents an asset from being classified as current?

A It is expected to be realized within twelve months.

B It is involved in the entity's normal operating cycle.

C It is cash and cash equivalent.

D It is expected to be realized after 18 months and is outside the normal operating cycle.

💡 Short Explanation

�� Current assets are realized within the operating cycle or 12 months. �� Cash equivalents are current assets. �� Assets realized after 18 months are generally non-current.

✅ Correct Answer Explanation

An asset is classified as current if it is expected to be realized within the operating cycle, held for trading, expected to be realized within 12 months, or is cash/cash equivalent. An asset expected to be realized after 18 months and outside the operating cycle does not satisfy current asset criteria and is therefore non-current.

❓ Why Other Options Are Incorrect

�� Option A → Meets current asset criteria.
�� Option B → Meets current asset criteria.
�� Option C → Cash equivalents are current assets.

🎯 Strategy

Used: Elimination

Application: Identify which criterion does not meet current asset classification.

Final Logic: Realization after 18 months indicates non-current status.

🧠 Memory Trick

Beyond 12 Months = Usually Non-Current

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Asset Classification – Page X

4 Assertion (A): All inventories are always treated as current assets.
Reason (R): Inventories are only classified as current if they are expected to be realized within exactly 6 months.

A A is false but R is true.

B A is true but R is false.

C Both A and R are true and R is the correct explanation.

D Both A and R are false.

💡 Short Explanation

�� Inventories are normally current assets. �� No 6-month rule exists. �� Operating cycle concept applies.

✅ Correct Answer Explanation

Inventories are generally classified as current assets because they are expected to be sold or consumed during the normal operating cycle. The reason is incorrect because accounting standards do not require realization within exactly six months.

❓ Why Other Options Are Incorrect

�� Option A → Assertion is true.
�� Option C → Reason is false.
�� Option D → Assertion is not false.

🎯 Strategy

Used: Contextual/Tonal Matching

Application: Evaluate both assertion and reason independently.

Final Logic: Inventory is current, but the six-month condition is incorrect.

🧠 Memory Trick

Inventory = Current Asset

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Current Assets – Page X

5 A bank loan of Rs 10,00,000 is repayable after 5 years. Under which sub-head will this appear in the Balance Sheet?

A Short-term borrowings

B Other long-term liabilities

C Long-term borrowings

D Short-term provisions

💡 Short Explanation

�� Repayment after 5 years. �� Long-term financing source. �� Classified as long-term borrowing.

✅ Correct Answer Explanation

Loans repayable after more than twelve months from the reporting date are classified as long-term borrowings. Since the loan matures after five years, it is disclosed under Long-term Borrowings.

❓ Why Other Options Are Incorrect

�� Option A → Applicable only for short-term debt.
�� Option B → Borrowings have a separate classification.
�� Option D → Not a provision.

🎯 Strategy

Used: Direct Concept Recall

Application: Recall liability classification rules.

Final Logic: Repayment period exceeds one year.

🧠 Memory Trick

More than 1 Year = Long-Term

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Long-Term Borrowings – Page X

6 Match the items in List 1 with their correct classifications in List 2:

List 1	List 2
1. Proposed dividend of current year	a. Other current liabilities
2. Trade payables settled beyond operating cycle	b. Short-term provisions
3. Provision for tax	c. Contingent liability
4. Unclaimed dividend	d. Other long-term liabilities

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

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

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

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

💡 Short Explanation

�� Proposed dividend → contingent liability disclosure. �� Long settlement period → long-term liability. �� Tax provision → short-term provision. �� Unclaimed dividend → other current liability.

✅ Correct Answer Explanation

Trade payables beyond the operating cycle are classified as long-term liabilities. Provision for tax is a short-term provision. Unclaimed dividends are current liabilities. Proposed dividend is disclosed according to AS-4 in Notes to Accounts and treated as a contingent disclosure.

❓ Why Other Options Are Incorrect

�� Options A, B, and C contain incorrect classifications.

🎯 Strategy

Used: Option Grouping

Application: Match each liability item to its proper Schedule III category.

Final Logic: Only Option D correctly matches all items.

🧠 Memory Trick

Tax = Provision, Unclaimed Dividend = Current Liability

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Current and Non-Current Liabilities – Page X

7 For how many preceding years must a company disclose the aggregate number of shares allotted as fully paid up by way of bonus shares?

A 3 years

B 5 years

C 7 years

D 10 years

💡 Short Explanation

�� Schedule III disclosure requirement. �� Five-year reporting period. �� Improves transparency.

✅ Correct Answer Explanation

Companies are required to disclose the aggregate number and class of shares allotted as fully paid bonus shares during the preceding five years to ensure adequate disclosure and comparability.

❓ Why Other Options Are Incorrect

�� Option A → Insufficient disclosure period.
�� Option C → Not prescribed.
�� Option D → Not required.

🎯 Strategy

Used: Direct Concept Recall

Application: Recall Schedule III note disclosure requirements.

Final Logic: Five-year disclosure is mandatory.

🧠 Memory Trick

Bonus Shares → Last 5 Years

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Share Capital Notes – Page X

8 Calculate the final balance of Reserves and Surplus:
General Reserve (1 April) = Rs 5,00,000
Statement of P&L (Debit balance) = Rs (3,00,000)

A Rs 2,00,000

B Rs 8,00,000

C Rs (2,00,000)

D Rs 3,00,000

💡 Short Explanation

�� General Reserve = Rs 5,00,000 �� Less Debit Balance = Rs 3,00,000 �� Net Reserve = Rs 2,00,000

✅ Correct Answer Explanation

Reserves and Surplus are calculated after adjusting accumulated losses. Rs 5,00,000 − Rs 3,00,000 = Rs 2,00,000 Therefore, the final balance equals Rs 2,00,000.

❓ Why Other Options Are Incorrect

�� Option B → Adds instead of deducting.
�� Option C → Wrong sign.
�� Option D → Incorrect calculation.

🎯 Strategy

Used: Substitution

Application: Deduct debit balance from reserve.

Final Logic: 5,00,000 − 3,00,000 = 2,00,000.

🧠 Memory Trick

Reserve − Loss = Net Reserve

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Reserves and Surplus – Page X

9 If a company issues 5,000, 10% debentures of Rs 100 each redeemable at a premium of 5% after 5 years, where is the 'Premium on Redemption of Debentures' shown?

A Short-term borrowings

B Long-term provisions

C Other long-term liabilities

D Reserves and Surplus

💡 Short Explanation

�� Redemption premium is a future obligation. �� Payable after five years. �� Classified as long-term liability.

✅ Correct Answer Explanation

Premium payable on redemption represents an additional liability that will arise at the time of redemption. Since redemption occurs after five years, the obligation is classified under Other Long-Term Liabilities.

❓ Why Other Options Are Incorrect

�� Option A → Not short-term.
�� Option B → Not a provision.
�� Option D → Not part of reserves.

🎯 Strategy

Used: Direct Concept Recall

Application: Identify the nature of redemption premium.

Final Logic: Future long-term obligation = Other Long-Term Liability.

🧠 Memory Trick

Redemption Premium = Future Liability

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Long-Term Borrowings – Page X

10 Consider the following statements:
1. Loans repayable on demand are classified as short-term borrowings.
2. Public deposits are classified as short-term borrowings.

A Only 1 is correct

B Only 2 is correct

C Both 1 and 2 are correct

D Neither 1 nor 2 is correct

💡 Short Explanation

�� Demand loans are short-term borrowings. �� Public deposits are not automatically classified as short-term borrowings. �� Statement 2 is incorrect.

✅ Correct Answer Explanation

Loans repayable on demand are classified as short-term borrowings because repayment can be required immediately. Public deposits may be long-term or short-term depending on maturity and therefore cannot always be classified as short-term borrowings.

❓ Why Other Options Are Incorrect

�� Option B → Statement 1 is true.
�� Option C → Statement 2 is not universally true.
�� Option D → Statement 1 is correct.

🎯 Strategy

Used: Elimination

Application: Identify the universally correct statement.

Final Logic: Only demand loans clearly qualify as short-term borrowings.

🧠 Memory Trick

Demand Loan = Short-Term

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Short-Term Borrowings – Page X

📄 Passage

"Expenses incurred to earn the income are shown under various heads. Cost of Materials consumed consists of raw materials and other materials consumed in manufacturing of goods. Purchase of Stock-in-trade means purchases of goods for the purpose of trading. Changes in inventories of finished goods, WIP and stock-in-trade is the difference between opening inventory and closing inventory."

Based on the broader context of the passage and P&L format, how is "Total Revenue" calculated for a non-finance company?

A Interest income + Dividend income

B Only Sale of services

C Sale of products + Other non-operating income

D Revenue from operations + Other income

💡 Short Explanation

�� Revenue from operations is the primary income source. �� Other income is added separately. �� Together they form Total Revenue.

✅ Correct Answer Explanation

According to Schedule III, Total Revenue in the Statement of Profit and Loss is calculated by adding Revenue from Operations and Other Income. Revenue from Operations includes sales of goods and services, while Other Income includes interest, dividend income, gains on investments, and similar items.

❓ Why Other Options Are Incorrect

�� Option A → Includes only some components of other income.
�� Option B → Ignores other operating revenue and other income.
�� Option C → Revenue from operations is broader than product sales alone.

🎯 Strategy

Used: Direct Concept Recall

Application: Recall the standard Statement of Profit and Loss format.

Final Logic: Total Revenue = Revenue from Operations + Other Income.

🧠 Memory Trick

TR = RFO + OI

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Statement of Profit and Loss – Revenue – Page X

📄 Passage

According to the passage, what does "Changes in inventories" formally represent?

A Closing inventory minus Opening inventory

B Opening inventory minus Closing inventory

C Purchases of stock-in-trade minus Cost of materials

D Finished goods minus Work-in-progress

💡 Short Explanation

�� Inventory movement is measured through opening and closing balances. �� The difference is recognized in P&L. �� Opening inventory minus closing inventory is used.

✅ Correct Answer Explanation

The Statement of Profit and Loss records changes in inventories as the difference between opening inventory and closing inventory. This adjustment helps determine the actual cost associated with goods sold or manufactured during the period.

❓ Why Other Options Are Incorrect

�� Option A → Reverses the prescribed treatment.
�� Option C → Not the definition of inventory change.
�� Option D → Ignores inventory balances.

🎯 Strategy

Used: Direct Concept Recall

Application: Recall the inventory adjustment method used in P&L.

Final Logic: Inventory change = Opening Inventory − Closing Inventory.

🧠 Memory Trick

OI − CI = Inventory Change

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Changes in Inventories – Page X

13 Arrange the following items to compute 'Profit before tax' down the income statement:
1. Total Revenue
2. Profit before extraordinary items and tax
3. Total Expenses
4. Exceptional items

A 1 minus 3 equals 2; then 2 minus 4

B 3 minus 1 equals 2; then 2 plus 4

C 1 plus 3 equals 2; then 2 minus 4

D 1 minus 4 equals 3; then 3 minus 2

💡 Short Explanation

�� Begin with Total Revenue. �� Deduct Total Expenses. �� Adjust for Exceptional Items.

✅ Correct Answer Explanation

Profit before Extraordinary Items and Tax is obtained by deducting Total Expenses from Total Revenue. Exceptional Items are then adjusted to arrive at Profit Before Tax according to the prescribed format.

❓ Why Other Options Are Incorrect

�� Option B → Reverses the calculation.
�� Option C → Expenses cannot be added.
�� Option D → Incorrect sequencing.

🎯 Strategy

Used: Arrange in Sequence

Application: Follow the Statement of Profit and Loss format.

Final Logic: Revenue → Expenses → Exceptional Items → PBT.

🧠 Memory Trick

Revenue − Expense = Profit

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Profit Before Tax – Page X

14 Which of the following is NOT classified under 'Other Income'?

A Dividend income

B Interest income for a trading company

C Sale of products

D Net gain on sale of investments

💡 Short Explanation

�� Sale of products is operating income. �� Other income includes incidental earnings. �� Product sales belong to Revenue from Operations.

✅ Correct Answer Explanation

Revenue generated from the sale of products forms part of Revenue from Operations. Other Income includes items such as dividend income, gains on sale of investments, and interest income that do not arise from the primary operating activities of the business.

❓ Why Other Options Are Incorrect

�� Option A → Typical Other Income item.
�� Option B → Classified as Other Income for most trading entities.
�� Option D → Included under Other Income.

🎯 Strategy

Used: Odd One Out

Application: Identify the item belonging to Revenue from Operations.

Final Logic: Product sales are operating revenue, not Other Income.

🧠 Memory Trick

Sales = Operations

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Other Income – Page X

15 Under which head are wages paid to factory workers formally classified in the Statement of Profit and Loss?

A Cost of materials consumed

B Employees Benefit Expenses

C Other Expenses

D Finance Costs

💡 Short Explanation

�� Wages are employee-related costs. �� Classified under employee benefits. �� Not material consumption.

✅ Correct Answer Explanation

Factory workers' wages are payments made to employees and therefore fall under Employees Benefit Expenses. This category includes salaries, wages, bonus, provident fund contributions, and other employee-related costs.

❓ Why Other Options Are Incorrect

�� Option A → Covers material consumption only.
�� Option C → General operating expenses.
�� Option D → Relates to borrowing costs.

🎯 Strategy

Used: Direct Concept Recall

Application: Recall the classification of labor costs.

Final Logic: Wages = Employee Benefit Expense.

🧠 Memory Trick

Workers = Employees

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Employee Benefit Expenses – Page X

16 Which of the following falls under 'Other Expenses' as an indirect expense rather than Finance Costs?

A Raw materials consumed

B Salary paid to office staff

C Interest on debentures

D Bank charges

💡 Short Explanation

�� Bank charges are operating expenses. �� Interest on debentures is a finance cost. �� Raw materials are direct costs.

✅ Correct Answer Explanation

Bank charges are generally classified under Other Expenses because they relate to routine banking operations. Interest on debentures represents the cost of borrowing and is classified under Finance Costs.

❓ Why Other Options Are Incorrect

�� Option A → Direct manufacturing cost.
�� Option B → Employee Benefit Expense.
�� Option C → Finance Cost.

🎯 Strategy

Used: Elimination

Application: Identify the indirect operating expense.

Final Logic: Bank charges are neither direct costs nor finance costs.

🧠 Memory Trick

Bank Charges = Other Expense

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Other Expenses – Page X

17 If Total Revenue is Rs 16,00,000, Cost of Materials Consumed is Rs 4,00,000, Employee Benefits Rs 2,00,000, and Finance Costs Rs 10,000, calculate the Profit Before Tax (assuming no other items).

A Rs 9,90,000

B Rs 10,00,000

C Rs 16,00,000

D Rs 6,10,000

💡 Short Explanation

�� Total Expenses = Rs 6,10,000. �� Profit = Revenue − Expenses. �� Result = Rs 9,90,000.

✅ Correct Answer Explanation

Total Expenses: = 4,00,000 + 2,00,000 + 10,000 = Rs 6,10,000 Profit Before Tax: = Rs 16,00,000 − Rs 6,10,000 = Rs 9,90,000

❓ Why Other Options Are Incorrect

�� Option B → Calculation error.
�� Option C → Ignores expenses.
�� Option D → Represents total expenses.

🎯 Strategy

Used: Substitution

Application: Apply PBT formula directly.

Final Logic: Revenue − Expenses = PBT.

🧠 Memory Trick

PBT = Revenue − Expenses

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Profit Before Tax – Page X

18 In the Statement of P&L, how is 'Profit/(Loss) for the Period' (Item XV) calculated?

A Profit before tax minus current tax

B Profit from continuing operations minus extraordinary items

C Profit/(Loss) for the period from continuing operations plus Profit/(Loss) from discontinuing operations (after tax)

D Total Revenue minus Tax Expense

💡 Short Explanation

�� Includes continuing operations. �� Includes discontinuing operations. �� Calculated after tax adjustments.

✅ Correct Answer Explanation

According to the prescribed format, Profit/(Loss) for the Period includes the results from continuing operations as well as discontinuing operations after considering tax effects. Therefore, Option C correctly reflects the computation.

❓ Why Other Options Are Incorrect

�� Option A → Incomplete calculation.
�� Option B → Omits continuing operation adjustment.
�� Option D → Oversimplified.

🎯 Strategy

Used: Direct Concept Recall

Application: Recall the final profit computation format.

Final Logic: Both continuing and discontinuing operations are included.

🧠 Memory Trick

Final Profit = Continuing + Discontinuing

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Net Profit Calculation – Page X

19 Which types of companies are exempted from preparing their Balance Sheet precisely as per Schedule III of the Companies Act, 2013?

A Manufacturing companies

B Trading companies

C Finance companies

D Insurance or Banking companies

💡 Short Explanation

�� Banking and insurance companies follow separate regulations. �� Special statutes govern their reporting. �� Schedule III does not fully apply.

✅ Correct Answer Explanation

Banking and insurance companies prepare financial statements according to the formats prescribed by their respective regulatory laws and authorities. Therefore, they are exempt from preparing statements strictly according to Schedule III.

❓ Why Other Options Are Incorrect

�� Option A → Schedule III applies.
�� Option B → Schedule III applies.
�� Option C → Generally covered unless separately regulated.

🎯 Strategy

Used: Direct Concept Recall

Application: Recall exemptions under the Companies Act.

Final Logic: Banking and insurance entities have separate formats.

🧠 Memory Trick

Banks & Insurance = Special Format

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Schedule III – Page X

20 Where should the 'Proposed Dividend' for the current year be disclosed according to AS-4 Contingencies and Events Occurring after the Balance Sheet Date?

A On the face of the Balance Sheet under Short-term Provisions

B In the Notes to Accounts

C Under Other Current Liabilities

D Under Reserves and Surplus

💡 Short Explanation

�� AS-4 requires disclosure. �� Not recognized as a liability on the Balance Sheet date. �� Disclosed in Notes.

✅ Correct Answer Explanation

According to AS-4, a proposed dividend declared after the Balance Sheet date is not recognized as a liability in the Balance Sheet. Instead, it is disclosed in the Notes to Accounts to provide relevant information to users.

❓ Why Other Options Are Incorrect

�� Option A → Not shown as a provision.
�� Option C → Not an Other Current Liability.
�� Option D → Not part of Reserves and Surplus.

🎯 Strategy

Used: Direct Concept Recall

Application: Recall AS-4 disclosure requirements.

Final Logic: Proposed dividend is disclosed in Notes to Accounts.

🧠 Memory Trick

Proposed Dividend → Notes Only

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Disclosure Requirements – Page X

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