Questions and Answers of Corporate Accounting

True and False. Expenses such as director’s fees, discount on issue of shares, underwriting commission, interest on debentures, etc., are to be charged fully to postincorporation period.
Preliminary expenses written off are debited to ____________ period.
You are required to calculate the time ratio for the pre- and post-incorporation periods from the following particulars:(a). Date of incorporation: 1st June 1999.(b). Period of financial Accounts:
Enumerate the expenses, which are exclusively charged to post-incorporation period?
Audit fees should be divided between pre- and post-incorporation periods in: (a). Time ratio (b). Time ratio or posted only in post-incorporation period (c). Sales ratio (d).
True and False. Pre-incorporation loss may be treated as deferred revenue expenditure and written off out of the profits of the company over a period of time.
Salary is divided in ____________ ratio while calculating pre-incorporation profit.
Give some examples of expenses, which are to be divided on ‘Time basis’ while computing profit prior to incorporation.
The salary paid to Manager, for a period before acquisition of business, should be: (a). Divided in time ratio (b). Posted in pre-incorporation period (c). Posted in post-incorporation
True and False. Advertisement expenses to be paid on monthly basis are to be apportioned on time ratio to the pre- and post-incorporation periods.
The profits acquired from the date of business purchase till the date of incorporation is called ____________.
Write a note on Pre-incorporation Profit.
Adjusted time ratio is used for: (a). Salaries (b). Interest paid to vendors (c). Directors’ fees (d). None of the above
Capital reserve account has to be shown in the liabilities side of the balance sheet under the heading ____________.
Ramki Ltd. was formed on 1st May 2008 to purchase the business of Mr. Ram, with effect from 1st January 2008. While preparing the final accounts on 31th December 2008, it was assumed that:(a). The
How do you calculate Adjusted Time Ratio and when?
Purchase ratio is used for:(a). Discount received (b). Discount allowed (c). Wages (d). None of the above.
Loss prior to incorporation is to be shown in the assets side of the balance sheet under the heading _________.
RMK Ltd. was registered as company on 1st July 2007 to take over the running business of Kumar, with effect from 1st April 2007. The Profit & Loss A/c account was finalised on 31st March
How do you calculate Time Ratio and Sales Ratio?
CMS Ltd. was incorporated on 1st July 1999 to take over the running business of Selvam, with effect from 1st April 1999. The profit and loss account was prepared on 31st March 2000. Bad debts debited
How do you treat Interest on Purchase Consideration and Salary Paid to Partners, while ascertaining Profit Prior to Incorporation?
Z Ltd. was formed on 1st May 2000 and it obtained the certificate of commencement of business on 1st June 2000. It acquired a running business, with effect from 1st January 2000. Books were closed on
Own debenture account (at the time of purchase of own debentures) is always to be debited with:(a). The fair value (b). The cum-interest price (c). The ex-interest price (d). None of
When debenture are to be repaid _______, an equal amount is transferred to debenture redemption reserve account.
True or False. Own debentures can be cancelled only on dates when interest becomes payable on debentures.
True or False. Interest on debentures cannot be paid if the company does not earn profit.
In the absence of an agreement, which of the following is taken over by the purchasing company, at the time of acquisition of a business: (a). Share Capital (b). External
True and False. Miscellaneous expenses are also taken over by the purchasing company, in the absence of a contract to the contrary.
____________ assets are not taken over by the purchasing company.
Anita Co., Ltd. was formed for taking over the business of Mr. Ganapathi. The purchase consideration was ₹1,92,000 which will be settled by issue of 960 shares of ₹100 each at a discount of 5%
How do you determine capital reserve?
Payment of purchase consideration can be in the form of: (a). Shares (b). Debentures (c). Cash (d). All of the above
True and False. The difference has to be credited to goodwill A/c, when the value of net assets is less than the purchase price.
Pass journal entries to record the following transactions in the books of XY Ltd. Name of the Purchasing Company: Name of the Vendor: Purchase price: Mode of payment of purchase price: Value of
All ____________ liabilities are taken over by the purchasing company.
What is vendor’s suspense A/c?
True and False. Profit on acquisition has to be credited to capital reserve A/c.
The selling company is called as ____________ company in the acquisition of a business.
C Ltd. does not want to take over debtors and creditors of vendor. However, it agreed to collect from debtors and pay to creditors for a commission of 4% on amount collected and 2% on amount paid.
The excess of net assets over the purchase consideration is called as:(a). Goodwill (b). Net Loss (c). Capital Reserve (d). Balance in Suspense A/c
True and False. Interest account is debited when the interest is paid on purchase price.
When the value of net assets is less than the purchase price, the difference is debited to ____________ A/c.
A Ltd. agreed to collect the debts and pay the creditors on behalf of Senthil from whom the company had acquired a running business. The firm’s debtors and creditors totaled ₹1,50,000 and
When the debtors and creditors are taken over by the purchasing company on behalf of: vendors, then the purchasing company opens an A/c called as:(a). Debtor’s Suspense A/c (b). Creditor’s
True and False. The vendor company pay commission to the purchasing company for realising book debts and making payment to the creditors.
When the value of net assets is more than the purchase price, the difference is credited to ____________ A/c.
AK Ltd. purchased the business of Anish Kanth & Brothers and decided to continue the same set of books. The company decided to make the following revaluations:(a). Buildings to be appreciated by
Any profit or loss arising on account of realising book debts and discharging creditors will be borne by: (a). The purchasing company (b). The vendor (c). (a) and (b) (d). None of
True and False. The purchasing company has to bear any profit or loss that arises in collecting debts and paying creditors.
When the purchasing company takes over debtors and creditors on behalf of the vendor’s then, ____________ A/c has to be opened.
Shalini Ltd. purchased the business of Mr. Venkat. Shalini Ltd. did not take over the debtors and creditors of Mr. Venkat amounted to ₹65,000 and ₹40,000 respectively, but it promised to collect
Capital Reserve A/c is credited with the difference amount: (a). When the value of net assets is less than the purchase price (b). When the value of net assets is greater than the purchase
True and False. Realisation account has to be opened when the same set of books is continued by the purchasing company.
Ashish Ltd. was formed with an authorised capital of ₹48,00,000, divided into equity shares of ₹10 each, to acquire the business of Mr. Gupta, whose balance sheet on the date of acquisition was
When the same set of books is continued, a separate account for debtors should be opened under the ____________ A/c.
When the purchasing company maintains the same set of books, then the amount realised from the proceeds of assets taken over by the partners will be distributed in the ratio of:(a).
Swami Ltd. was formed with an authorised capital of ₹20,00,000, divided into equity shares of ₹10 each, to acquired the business of P&M, whose balance sheet on the date of acquisition was as
True and False. When discount is received from vendor’s creditors, then it will be credited to Vendor’s suspense account.
When shares of debentures are issued at a premium, ____________ A/c has to be credited with premium amount.
Karan Limited purchases the business of Mr. Karthick. Karan Limited did not take over the debtors and creditors of Mr. Karthick, amounting to ₹25,000 and ₹15,000 respectively, but it promised to
True or False. Those debentures, which are repaid before other debentures are paid out, are known as first debentures.
Zebra Ltd., redeemed ₹10,000 12% Debentures, out of capital by drawing a lot and it has also redeemed ₹20,000. 10% Debentures out of profit by drawing a lot. Journalise the transactions.
TTK Ltd. redeemed 4,000 15% Debentures of ₹100 each which were issued at a discount of 5% by converting them into equity shares of ₹10 each issued at a premium of 25%. Journalise the transactions.
Explain the accounting treatment of Premium on Redemption of Debenture.
The balance of sinking fund investment account, after the realisation of investment, is transferred to:(a). Profit & Loss A/c (b). Debentures A/c (c). Sinking Fund A/c (d). None of
Profit on sale of sinking fund investment is to be credited to ______________ account.
True or False. When debenture are repaid out of capital, entry for the transfer of profits to debentures redemption reserve account is passed in the books.
Babu Ltd., redeemed ₹2,88,000 15% Debentures of ₹100 each at 102% by converting them into 16% Debentures at 96%. Journalise the transactions.
After redemption of debentures, the balance in the sinking fund account is transferred to:(a). Debenture development reserve.(b). General reserve (c). Profit & Loss A/c.(d). Shares forfeited
A company issued at par 1,000 6% debentures of ₹1,000 each. Interest is payable half yearly on 30th September and 31st March.On 01.02.1983, the company purchased 20 of its own debentures as
KK Ltd. has ₹2,00,000 6% debentures outstanding on 31st March 2007. The company redeemed the debentures on that date out of capital. Pass the necessary journal entry.
Write short notes on Redemption of Debentures out of Capital.
Amount needed after 5 years for debenture redemption: ₹60,00,000. Rate of Interest on investments expected: 5% Annual investment needed to get 15 after 5 years, *2.71462. Ascertain the annual
SS Ltd. purchased its 200 10% own debentures in the open market at ₹99 exinterest on 1.7.99. Later, these debentures were resold on 1.1.2000 at ₹98 exinterest. Interest is payable on 31st March
AB Ltd. has ₹5,00,000, 9% debentures outstanding on 1st January 2006. The company has been redeeming every year on 1st January ₹1,00,000 debentures by drawings by lot, at par. Pass necessary
AXE Co. Ltd. issued ₹4,00,000, 10% debentures of ₹100 each, at a discount of 5%, which are repayable after 10 years, at a premium of 15%. Pass journal entry for the issue.
On 1st January 2000, Exe Ltd. issued ₹2,20,000, 9% debentures at a discount of 5% repayable as follows:Calculate the amount of discount to be written off in each of the three years. On
Pass journal entries for the following transactions: (a). Issue of debenture at a discount and redeemable at par.(b). Issue of debenture at a premium and redeemable at par. (c). Issue of
Anil Ltd. issued 5,000, 5% debenture of ₹100 each, at a premium of 10%, payable ₹30 on application and balance with premium on allotment. Pass journal entries in the books of Anil Ltd.
A company authorised ₹2,20,000 debenture holders to convert their debentures into preference shares. Pass necessary journal entry, if.(a). Debentures were converted into 10% preference shares of
Gowtham Ltd. issued 6,000 12% debentures of ₹100 each, at a discount of 5%, repayable after 5 years at a premium of 5%. Give journal entries both at the time of issue and redemption of debentures.
Amount needed after 5 years for debenture redemption: ₹60,00,000.Rate of interest on investments expected: 5% Annual investment needed to get ₹15 after 5 years: ₹2.71462.Ascertain the
Pradeep Ltd. has taken over the business of Mr. Sandeep and agreed to pay the purchase price as given below: (a) 2,800 shares of ₹50 each fully paid at ₹60 per share. (b) ₹25,000 in
What do you mean by “acquisition of business”?
Explain the steps to be taken by a purchasing company when new set of books are opened to record the transactions.
The purchasing company can record the transactions in their books as:(a). New set of books opened (b). To continue the same set of books (c). Any of the above two (d). None of these
A Ltd. purchased business of A & Co., and agreed to settle purchase consideration by the allotment of: 2,000 Equity shares of 10 each at 10% premium to partners. 1,000 10% Debentures of 100
True and False. Purchase consideration must be paid only in cash.
The purchase price paid by the purchasing company to the selling company is called as ____________.
What are the two accounting approaches that can be adopted by the purchasing Company?
Explain the steps to be taken by a purchasing company when same set of books are Continued to record the transactions.
In the absence of a contract, which of the following item is not taken over by the purchasing company at the time of acquisition of business:(a). Profit and Loss Debit Balance (b). Cash
True and False. Purchase consideration is always given in the problems, so it need not be computed.
The newly formed limited companies purchase the business of ____________ or ____________ form of business concern.
How is Goodwill calculated?
State the accounting treatment to be adopted when the debtors and creditors are not taken over by the purchasing company when new set of books are opened.
X Ltd. issued 10,000 shares of ₹100 each at a premium of ₹15 each. Of the issue, 90% was underwritten by M/s. Broker & Co. at commission of 1% on the nominal face value.Applications were
The rate of ____________ payable on debentures is always stated at the time of issue of debenture.
M Ltd. issued 40,000 10% debentures of ₹10 each to the public at par, to be paid ₹3 on application and the balance on allotment. Applications were received for 35,000 debentures. Allotment was

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