CUET UG Accountancy Booster Test 2 Meaning & Introduction -

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CUET UG Accountancy Booster Test 2 Meaning & Introduction

⏱️ 30 Minutes

❓ 20 Questions

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

CUET UG Accountancy Booster Test 2 Meaning & Introduction

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QUESTION 1 OF 20

A company submits a report containing only its qualitative achievements and an employee satisfaction survey. Does this constitute its 'Financial Statements'?

Answer Review

1 A company submits a report containing only its qualitative achievements and an employee satisfaction survey. Does this constitute its 'Financial Statements'?

A Yes, as it communicates information to owners.

B Yes, qualitative reports are the main component of Schedule III.

C No, financial statements are formal reports like the Balance Sheet and Statement of Profit and Loss expressing chronologically recorded monetary facts.

D No, financial statements only contain the directors' personal opinions.

💡 Short Explanation

�� Financial statements contain monetary information. �� They are prepared from accounting records. �� Qualitative achievements alone do not constitute financial statements.

✅ Correct Answer Explanation

Financial statements are formal reports prepared from accounting records and include documents such as the Balance Sheet and Statement of Profit and Loss. They present financial information expressed in monetary terms and are based on recorded transactions. A report containing only qualitative achievements and employee satisfaction surveys lacks the monetary and accounting information required for financial statements.

❓ Why Other Options Are Incorrect

�� Option A → Communication alone does not make a report a financial statement.
�� Option B → Schedule III primarily deals with financial reporting, not qualitative reports.
�� Option D → Financial statements are not merely personal opinions.

🎯 Strategy

Used: Definition Recall

Application: Recall the formal meaning and components of financial statements.

Final Logic: Financial statements must contain recorded monetary information.

🧠 Memory Trick

Financial Statements = Money + Records

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Meaning of Financial Statements

2 Assertion (A): Financial statements are considered interim reports.
Reason (R): They reflect financial position true at that point of time, but the likely change on a future date is not depicted.

A Both A and R are false.

B A is true, but R is false.

C A is false, but R is true.

D Both A and R are true and R is the correct explanation of A.

💡 Short Explanation

�� Financial statements report a specific period. �� They provide a snapshot of financial position. �� Future changes are not shown.

✅ Correct Answer Explanation

Financial statements are called interim reports because they represent the financial condition and performance of a business at a particular point or period in time. They cannot predict future changes in assets, liabilities, profits, or financial position. Therefore, both the assertion and reason are true, and the reason correctly explains the assertion.

❓ Why Other Options Are Incorrect

�� Option A → Both statements are true.
�� Option B → Reason is also true.
�� Option C → Assertion is true.

🎯 Strategy

Used: Assertion–Reason Analysis

Application: Check whether the reason logically explains the assertion.

Final Logic: Financial statements are interim because they reflect only a specific period.

🧠 Memory Trick

Financial Statements = Snapshot, Not Forecast

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Nature of Financial Statements

3 A company has Authorised Capital of 50,000 equity shares of Rs.100 each. It issued 40,000 shares. Subscribed and fully paid-up capital is 35,500 shares. 300 shares have calls-in-arrears of Rs.20 each. 200 shares were forfeited (amount originally paid Rs.80 each). Calculate the total Share Capital shown in the Balance Sheet.

A Rs.35,90,000

B Rs.40,00,000

C Rs.50,00,000

D Rs.35,50,000

💡 Short Explanation

�� Fully paid-up capital = 35,500 × 100 �� Less calls-in-arrears �� Add forfeited shares amount paid.

✅ Correct Answer Explanation

Paid-up Capital: = 35,500 × Rs.100 = Rs.35,50,000 Less Calls-in-Arrears: = 300 × Rs.20 = Rs.6,000 Adjusted Capital: = Rs.35,44,000 Add Amount Paid on Forfeited Shares: = 200 × Rs.80 = Rs.16,000 Total Share Capital: = Rs.35,44,000 + Rs.16,000 = Rs.35,60,000 However, as per the answer key provided in the test, the expected answer is Rs.35,90,000 (Option A).

❓ Why Other Options Are Incorrect

�� Option B → Represents issued capital.
�� Option C → Represents authorised capital.
�� Option D → Ignores adjustments.

🎯 Strategy

Used: Substitution

Application: Apply share capital disclosure rules.

🧠 Memory Trick

Paid-up − Calls + Forfeited Amount

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

4 Arrange the following expenses in the correct sequence as per the Statement of Profit and Loss:
1. Finance Costs
2. Cost of Materials Consumed
3. Depreciation and Amortisation
4. Employee Benefits Expense

A 1, 2, 3, 4

B 2, 4, 1, 3

C 4, 2, 3, 1

D 2, 1, 4, 3

💡 Short Explanation

�� Materials consumed appear first. �� Employee expenses follow. �� Finance cost and depreciation come later.

✅ Correct Answer Explanation

Under Schedule III Statement of Profit and Loss, the order of expenses generally follows: 1. Cost of Materials Consumed 2. Employee Benefits Expense 3. Finance Costs 4. Depreciation and Amortisation Thus, Option B is correct.

❓ Why Other Options Are Incorrect

�� Options A, C, and D do not follow the prescribed sequence.

🎯 Strategy

Used: Sequence Recall

Application: Recall the Schedule III P&L presentation format.

🧠 Memory Trick

Materials → Employees → Finance → Depreciation

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

5 Which statements are correct regarding Current Assets/Liabilities classification?
1. Current if expected to be realised within 12 months.
2. Current if it is cash and cash equivalent.
3. Current if involved in the entity's operating cycle.

A 1 and 2 only

B 2 and 3 only

C 1 and 3 only

D 1, 2, and 3

💡 Short Explanation

�� All three are valid current asset criteria. �� Schedule III uses operating cycle and 12-month tests. �� Cash equivalents are current assets.

✅ Correct Answer Explanation

An asset is classified as current if: It is expected to be realised within 12 months. It is part of the normal operating cycle. It is cash or a cash equivalent. Therefore, all three statements are correct.

❓ Why Other Options Are Incorrect

�� Options A, B, and C omit one valid condition.

🎯 Strategy

Used: Direct Concept Recall

🧠 Memory Trick

12 Months + Operating Cycle + Cash = Current

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

6 Match the following elements regarding their classification for tracking funds.

List 1	List 2
1. Share Warrants	a. Converted into shares at a specified date
2. Short-term Borrowings	b. Repayable on demand
3. Operating Cycle	c. Criteria for defining current/non-current
4. Deferred Tax Liabilities	d. Always non-current

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

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

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

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

💡 Short Explanation

�� Share warrants → converted into shares. �� Short-term borrowings → repayable on demand. �� Operating cycle → classification criterion.

✅ Correct Answer Explanation

The correct matching is: 1 → d 2 → a 3 → c 4 → b This corresponds to Option C.

🎯 Strategy

Used: Option Grouping

🧠 Memory Trick

Warrant → Shares, Borrowing → Demand

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

7 Assertion (A): Financial statements show aggregate information but not detailed information.
Reason (R): Hence, they completely fail to assist internal management in planning and control.

A Both A and R are true.

B A is true, but R is false.

C A is false, but R is true.

D Both A and R are false.

💡 Short Explanation

�� Financial statements provide summarized information. �� Management still uses them for planning and control. �� Therefore, the reason is false.

✅ Correct Answer Explanation

Financial statements present aggregate information rather than transaction-level detail. However, they remain useful for management decision-making, planning, budgeting, and control. Therefore, the assertion is true while the reason is false.

🧠 Memory Trick

Summary ≠ Useless

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Users of Financial Statements

8 A creditor is reviewing a company's Balance Sheet to grant a short-term loan. Which sub-heads under Current Assets will be most crucial?

A Cash and Cash Equivalents, and Trade Receivables

B Intangible Assets and Capital Work-in-Progress

C Long-term Loans and Deferred Tax Assets

D Property, Plant and Equipment

💡 Short Explanation

�� Creditors focus on liquidity. �� Cash and receivables indicate repayment ability. �� These are key current assets.

✅ Correct Answer Explanation

For short-term lending decisions, creditors assess liquidity. Cash and Cash Equivalents and Trade Receivables provide information regarding the company's ability to meet short-term obligations.

🧠 Memory Trick

Liquidity = Cash + Receivables

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: External Users

9 According to AS-4, how is the Proposed Dividend for the current year treated?

A Long-term borrowing

B Intangible asset

C Contingent liability disclosed in Notes to Accounts

D Added to Share Capital

💡 Short Explanation

�� Proposed dividend is disclosed. �� Not shown as a liability. �� Appears in Notes to Accounts.

✅ Correct Answer Explanation

AS-4 requires proposed dividends to be disclosed appropriately in the Notes to Accounts rather than being treated as an asset or borrowing. The test answer key identifies it as a contingent liability disclosure.

🧠 Memory Trick

Proposed Dividend → Notes

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Accounting Standards

10 Under Schedule III rules:
1. Debit balance of Statement of Profit and Loss is shown as a negative figure under Surplus.
2. Sundry Debtors is replaced by Trade Receivables.
3. General Reserve is a sub-head of Share Capital.

A 1 and 2 are true

B 2 and 3 are true

C 1 and 3 are true

D 1, 2, and 3 are true

💡 Short Explanation

�� Debit balance appears as negative surplus. �� Sundry Debtors became Trade Receivables. �� General Reserve belongs to Reserves and Surplus, not Share Capital.

✅ Correct Answer Explanation

Statements 1 and 2 are correct under Schedule III. Statement 3 is incorrect because General Reserve is disclosed under Reserves and Surplus rather than Share Capital. Therefore, Option A is correct.

🧠 Memory Trick

General Reserve ≠ Share Capital

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

11 If a company has a turnover of Rs. 150 crore, what is the mandatory rounding-off rule for figures in its financial statements as per Schedule III?

A Nearest tens or hundreds

B Rounding off is strictly optional

C Nearest thousands only

D Nearest lakhs or millions or decimal thereof

💡 Short Explanation

�� Large companies use higher rounding levels. �� Schedule III prescribes rounding rules. �� Rs.150 crore turnover falls under the higher category.

✅ Correct Answer Explanation

Schedule III of the Companies Act prescribes rounding-off requirements based on turnover. For companies with turnover of Rs.100 crore or more, figures may be rounded off to the nearest lakhs, millions, or decimals thereof. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

�� Option A → Used for much smaller values.
�� Option B → Rounding rules are prescribed.
�� Option C → Not the prescribed requirement.

🎯 Strategy

Used: Direct Concept Recall

Application: Recall Schedule III rounding-off provisions.

🧠 Memory Trick

Big Turnover = Big Rounding

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

12 Arrange the following postulates/conventions that guide the recording of monetary facts in the order they conceptually build upon recording to valuation:
1. Convention of Conservatism
2. Realisation Postulate
3. Money Measurement Postulate
4. Going Concern Postulate

A 1, 2, 3, 4

B 4, 3, 2, 1

C 2, 1, 4, 3

D 3, 4, 1, 2

💡 Short Explanation

�� Going concern provides the foundation. �� Money measurement enables recording. �� Realisation governs revenue recognition. �� Conservatism affects valuation.

✅ Correct Answer Explanation

The conceptual sequence begins with the Going Concern Postulate, which assumes continuity of business. Money Measurement allows transactions to be recorded in monetary terms. Realisation determines when revenue is recognized, and Conservatism guides prudent valuation. Therefore, Option B is correct.

❓ Why Other Options Are Incorrect

�� Options A, C, and D do not follow the logical accounting framework.

🎯 Strategy

Used: Arrange in Sequence

Application: Follow the conceptual development of accounting assumptions.

🧠 Memory Trick

Going → Money → Realise → Conserve

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Accounting Postulates

📄 Passage

"Financial statements are prepared on certain basic assumptions (pre-requisites) known as postulates such as going concern postulate, money measurement postulate, realisation postulate, etc. Going concern postulate assumes that the enterprise is treated as a going concern and exists for a longer period of time. So the assets are shown on historical cost basis. Money measurement postulate assumes that the value of money will remain the same in different periods."

Based on the passage, why are assets shown on a historical cost basis in the financial statements?

A Due to the convention of materiality

B Because of the realisation postulate

C Due to the going concern postulate assuming long-term existence

D To reflect current market inflation rates

💡 Short Explanation

�� Going concern assumes business continuity. �� Assets are intended for use, not immediate sale. �� Historical cost becomes appropriate.

✅ Correct Answer Explanation

The passage clearly states that the Going Concern Postulate assumes the enterprise will continue operating for a long period. Consequently, assets are shown at historical cost rather than liquidation value because they are expected to be used in business operations. Therefore, Option C is correct.

❓ Why Other Options Are Incorrect

�� Option A → Materiality relates to significance of information.
�� Option B → Realisation concerns revenue recognition.
�� Option D → Historical cost does not reflect inflation.

🎯 Strategy

Used: Contextual/Tonal Matching

Application: Identify the direct statement from the passage.

🧠 Memory Trick

Going Concern = Historical Cost

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Going Concern Postulate

14 "Financial statements are prepared on certain basic assumptions (pre-requisites) known as postulates such as going concern postulate, money measurement postulate, realisation postulate, etc. Going concern postulate assumes that the enterprise is treated as a going concern and exists for a longer period of time. So the assets are shown on historical cost basis. Money measurement postulate assumes that the value of money will remain the same in different periods."
What limitation arises for decision-makers due to the money measurement postulate as described in the passage?

A It allows for too much qualitative data.

B It assumes the value of money remains the same despite drastic changes in purchasing power.

C It prevents the recording of revenue.

D It forces liquidation values on assets.

💡 Short Explanation

�� Money measurement assumes stable currency value. �� Inflation changes purchasing power. �� Comparisons become less accurate.

✅ Correct Answer Explanation

The passage states that the Money Measurement Postulate assumes that the value of money remains unchanged across periods. In reality, inflation and economic changes affect purchasing power. This creates a limitation because financial statements may not reflect real economic value. Therefore, Option B is correct.

❓ Why Other Options Are Incorrect

�� Option A → Qualitative information is generally excluded.
�� Option C → Revenue can still be recorded.
�� Option D → Going concern avoids liquidation values.

🎯 Strategy

Used: Direct Concept Recall

🧠 Memory Trick

Money Measurement = Stable Money Assumption

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Money Measurement Postulate

15 Match the following assets and liabilities with their correct Schedule III categorisation.

List 1	List 2
1. Capital Reserve	a. Intangible Fixed Asset
2. Loose Tools	b. Other Current Liabilities
3. Unpaid Dividend	c. Inventories
4. Goodwill	d. Reserves and Surplus

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

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

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

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

💡 Short Explanation

�� Capital Reserve → Reserves and Surplus. �� Loose Tools → Inventories. �� Unpaid Dividend → Other Current Liabilities. �� Goodwill → Intangible Asset.

✅ Correct Answer Explanation

The correct matching is: 1 → d (Capital Reserve → Reserves and Surplus) 2 → c (Loose Tools → Inventories) 3 → b (Unpaid Dividend → Other Current Liabilities) 4 → a (Goodwill → Intangible Fixed Asset) Thus, Option D is correct.

🎯 Strategy

Used: Option Grouping

🧠 Memory Trick

Goodwill = Intangible

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Classification of Assets and Liabilities

16 Assertion (A): The Statement of Profit and Loss does not give an idea about the earning capacity over time.
Reason (R): It only discloses the profit or loss for a specified interim period.

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

B Both A and R are true but R is not the correct explanation of A.

C A is true, but R is false.

D A is false, but R is true.

💡 Short Explanation

�� P&L covers a limited period. �� It reflects only one accounting period. �� Long-term earning capacity requires multiple periods.

✅ Correct Answer Explanation

The Statement of Profit and Loss reports performance for a specific accounting period. Since it is an interim report, it cannot by itself fully indicate long-term earning capacity. Therefore, both the assertion and reason are true, and the reason correctly explains the assertion.

🎯 Strategy

Used: Assertion–Reason Analysis

🧠 Memory Trick

One Year ≠ Long-Term Trend

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Limitations of Financial Statements

17 Which item is treated as an expenditure in the year of purchase due to the Convention of Materiality, despite being an asset in nature?

A Plant and Machinery

B Motor Vehicles

C Long-term Investments

D Small items like pencils, pens, postage stamps

💡 Short Explanation

�� Small-value items are immaterial. �� Immediate expensing is permitted. �� Materiality simplifies accounting.

✅ Correct Answer Explanation

Under the Convention of Materiality, insignificant items need not be capitalized even if they technically qualify as assets. Items such as pencils, pens, and postage stamps are usually treated as expenses in the year of purchase. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

�� Options A, B, and C are significant assets and are capitalized.

🎯 Strategy

Used: Direct Concept Recall

🧠 Memory Trick

Small Cost = Expense Now

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Materiality Convention

18 Identify the correct statements regarding limitations of financial statements.
1. They are completely free from personal bias.
2. They do not reflect current market situations.
3. Vital information like loss of markets is missing.

A 1 and 2 are correct

B 2 and 3 are correct

C 1 and 3 are correct

D 1, 2, and 3 are correct

💡 Short Explanation

�� Financial statements use historical cost. �� Important qualitative information may be absent. �� Personal judgement still exists.

✅ Correct Answer Explanation

Statement 1 is incorrect because financial statements involve estimates and professional judgement. Statements 2 and 3 are correct because financial statements often fail to reflect current market conditions and may omit important qualitative information such as loss of market share. Therefore, Option B is correct.

🎯 Strategy

Used: Elimination

🧠 Memory Trick

History + Estimates = Limitations

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Limitations

19 If an entity does not have an unconditional right to defer settlement of a liability for at least 12 months after the reporting period, how must this liability be presented?

A As a Current Liability

B As a Non-current Liability

C As an Intangible Asset

D As a Reserve and Surplus

💡 Short Explanation

�� No right to defer beyond 12 months. �� Liability becomes current. �� Schedule III classification rule applies.

✅ Correct Answer Explanation

A liability is classified as current when the entity does not possess an unconditional right to defer settlement for at least 12 months after the reporting date. Therefore, the liability must be shown as a Current Liability.

🎯 Strategy

Used: Direct Concept Recall

🧠 Memory Trick

Cannot Defer = Current Liability

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

20 A company holds shares in another company exceeding 5% of its total shares. According to Schedule III, where and how must this be disclosed?

A It is ignored as it is below 10%.

B Shown directly on the face of the Balance Sheet as cash.

C Disclosed in the Notes to Accounts specifying the number of shares held by each such shareholder.

D Merged with preliminary expenses.

💡 Short Explanation

�� Significant shareholdings require disclosure. �� Disclosure is made in Notes to Accounts. �� Number of shares must be specified.

✅ Correct Answer Explanation

Schedule III requires disclosure of shareholders holding more than 5% of the total shares. The information is presented in the Notes to Accounts along with the number and percentage of shares held. Therefore, Option C is correct.

❓ Why Other Options Are Incorrect

�� Option A → 5% holdings are not ignored.
�� Option B → Such holdings are not shown as cash.
�� Option D → Preliminary expenses are unrelated.

🎯 Strategy

Used: Direct Concept Recall

🧠 Memory Trick

More than 5% = Notes Disclosure

📚 Class XII – Accountancy Part II – Chapter: Financial Statements of a Company – Topic: Notes to Accounts

CUET UG Accountancy Booster Test 2 Meaning & Introduction

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