Wednesday, November 27, 2024

Accountancy HS 2nd Year Chapter B 2: Issue and Redemption of Debentures

 

MCQs: Issue and Redemption of Debentures

1. What does the term "debenture" primarily signify?

a) Ownership of a company
b) Borrowed capital of a company
c) A type of share
d) Short-term loan

Answer: b) Borrowed capital of a company

2. How is the return on debentures classified?

a) Dividend
b) Interest
c) Profit
d) Capital gain

Answer: b) Interest

3. What type of debentures are repaid on the expiry of a specified period?

a) Irredeemable debentures
b) Secured debentures
c) Redeemable debentures
d) Convertible debentures

Answer: c) Redeemable debentures

4. Which type of debentures can be converted into shares?

a) Bearer debentures
b) Secured debentures
c) Non-convertible debentures
d) Convertible debentures

Answer: d) Convertible debentures

5. In terms of registration, debentures that can be transferred by delivery are called:

a) Registered debentures
b) Convertible debentures
c) Bearer debentures
d) Secured debentures

Answer: c) Bearer debentures

6. What does "zero coupon rate debentures" mean?

a) They carry no interest but are issued at a discount.
b) They have a fixed interest rate.
c) They are redeemable at premium only.
d) They have a floating interest rate.

Answer: a) They carry no interest but are issued at a discount.

7. What is the journal entry for debentures issued at par?

a) Dr. Bank, Cr. Discount on issue of debentures
b) Dr. Bank, Cr. Debentures
c) Dr. Bank, Cr. Securities Premium Reserve
d) Dr. Bank, Cr. Profit and Loss

Answer: b) Dr. Bank, Cr. Debentures

8. What are "collateral security debentures"?

a) Debentures secured by primary assets only
b) Debentures issued in addition to primary security
c) Redeemable debentures
d) Convertible debentures

Answer: b) Debentures issued in addition to primary security

9. How are debentures recorded in a company's balance sheet when issued as collateral security?

a) As an expense under current liabilities
b) As a note under long-term borrowings
c) Under short-term liabilities
d) As a deduction from reserves

Answer: b) As a note under long-term borrowings

10. Which of the following statements is FALSE regarding debentures?

a) Debentureholders do not have voting rights.
b) Debentures represent a charge on profits.
c) Debentures can be converted into equity shares.
d) Debenture interest is paid only when the company earns a profit.

Answer: d) Debenture interest is paid only when the company earns a profit.

11. What is the main distinction between shares and debentures?

a) Debentures represent ownership, shares do not.
b) Shares represent ownership, debentures are a loan.
c) Shares have a fixed return, debentures do not.
d) Both represent ownership in the company.

Answer: b) Shares represent ownership, debentures are a loan.

12. Which type of debenture has a charge on the company’s assets?

a) Convertible debentures
b) Unsecured debentures
c) Secured debentures
d) Bearer debentures

Answer: c) Secured debentures

13. Debentures repayable only at the time of company winding up are called:

a) Convertible debentures
b) Zero coupon rate debentures
c) Redeemable debentures
d) Irredeemable debentures

Answer: d) Irredeemable debentures

14. What type of debentures does not require the maintenance of a register of holders?

a) Registered debentures
b) Bearer debentures
c) Secured debentures
d) Convertible debentures

Answer: b) Bearer debentures

15. What does a "floating charge" on assets signify?

a) A specific charge on a single asset
b) A charge on assets excluding those already secured
c) No charge on any asset
d) A charge on cash flow only

Answer: b) A charge on assets excluding those already secured

16. How is interest on debentures treated in company accounts?

a) As an appropriation of profit
b) As a charge on profits
c) As an expense for tax purposes
d) Both b and c

Answer: d) Both b and c

17. What happens to the excess application money in the case of oversubscription?

a) It is refunded.
b) It is retained for future calls.
c) It is adjusted towards allotment money.
d) All of the above.

Answer: d) All of the above.

18. When debentures are issued at a price higher than the face value, it is termed as:

a) Discount on issue of debentures
b) Premium on issue of debentures
c) Redeemable debentures
d) Collateral security

Answer: b) Premium on issue of debentures

19. Which account is credited when debentures are issued at a premium?

a) Premium on Redemption Account
b) Securities Premium Reserve Account
c) Discount on Debentures Account
d) Share Capital Account

Answer: b) Securities Premium Reserve Account

20. What entry is passed when debentures are issued as collateral security?

a) No entry is passed.
b) Dr. Debenture Suspense, Cr. Debentures Account
c) Dr. Bank, Cr. Debenture Suspense
d) Dr. Debentures Account, Cr. Securities Premium Reserve

Answer: b) Dr. Debenture Suspense, Cr. Debentures Account

21. A company must deduct TDS on debenture interest if the amount exceeds:

a) ₹5,000
b) ₹10,000
c) ₹1,000
d) ₹50,000

Answer: b) ₹10,000

22. Redemption of debentures by converting them into equity shares is called:

a) Redemption by purchase
b) Conversion method
c) Lump sum repayment
d) Amortization

Answer: b) Conversion method

23. What journal entry is passed to record the issue of debentures for cash at a discount?

a) Dr. Bank, Dr. Discount on Issue, Cr. Debenture Account
b) Dr. Bank, Cr. Debenture Account, Cr. Discount on Issue
c) Dr. Debenture Account, Cr. Bank, Cr. Discount on Issue
d) Dr. Securities Premium, Cr. Discount on Issue

Answer: a) Dr. Bank, Dr. Discount on Issue, Cr. Debenture Account

24. What is the purpose of a sinking fund?

a) To pay interest on debentures
b) To manage working capital
c) To ensure redemption of debentures
d) To pay dividends

Answer: c) To ensure redemption of debentures

25. Which section of the Companies Act defines "debenture"?

a) Section 2(12)
b) Section 2(30)
c) Section 52
d) Section 61

Answer: b) Section 2(30)

26. Debentures issued at ₹95 for a face value of ₹100 indicate:

a) Issued at par
b) Issued at premium
c) Issued at discount
d) Convertible debentures

Answer: c) Issued at discount

27. The accounting entry to record debenture interest due is:

a) Dr. Debentureholders Account, Cr. Debenture Interest Account
b) Dr. Debenture Interest Account, Cr. Debentureholders Account, Cr. Income Tax Payable
c) Dr. Bank, Cr. Debenture Interest Account
d) Dr. Debenture Suspense Account, Cr. Bank

Answer: b) Dr. Debenture Interest Account, Cr. Debentureholders Account, Cr. Income Tax Payable

28. Loss on the issue of debentures is written off against:

a) Securities Premium Reserve
b) Profit and Loss Account
c) Both a and b
d) Capital Reserve

Answer: c) Both a and b

29. Which of the following is NOT a method of redemption of debentures?

a) Payment in lump sum
b) Conversion into equity
c) Payment through dividend
d) Purchase in the open market

Answer: c) Payment through dividend

30. The repayment of debentures is shown under which liability in the balance sheet?

a) Current liabilities
b) Non-current liabilities
c) Contingent liabilities
d) Reserves and surplus

Answer: b) Non-current liabilities

31. What type of debentures are secured by a charge on specific assets of the company?

a) Naked debentures
b) Secured debentures
c) Bearer debentures
d) Convertible debentures

Answer: b) Secured debentures

32. Which debentures are considered unsecured?

a) Redeemable debentures
b) Naked debentures
c) Convertible debentures
d) Bearer debentures

Answer: b) Naked debentures

33. Convertible debentures are those that:

a) Can be converted into secured loans.
b) Can be converted into shares or other securities.
c) Cannot be transferred.
d) Must be redeemed at premium.

Answer: b) Can be converted into shares or other securities.

34. Zero coupon rate debentures compensate investors by:

a) Providing interest periodically.
b) Offering them shares instead of debentures.
c) Being issued at a substantial discount.
d) Redeeming at a premium.

Answer: c) Being issued at a substantial discount.

35. Which document records the details of debentureholders?

a) Share Certificate
b) Register of Debentureholders
c) Memorandum of Association
d) Debenture Bond

Answer: b) Register of Debentureholders

36. Bearer debentures are transferred by:

a) Delivery
b) Deed
c) Registering in the company's records
d) Filing a transfer request

Answer: a) Delivery

37. What is the impact of issuing debentures at a premium?

a) It decreases liabilities.
b) It increases the company's reserves.
c) It is treated as a loss.
d) It has no financial impact.

Answer: b) It increases the company's reserves.

38. Debentures issued for consideration other than cash are accounted for by:

a) Dr. Sundry Assets, Cr. Vendor Account
b) Dr. Sundry Assets, Cr. Bank Account
c) Dr. Vendor Account, Cr. Debenture Account
d) Both a and c

Answer: d) Both a and c

39. A company purchasing assets worth ₹1,00,000 and issuing debentures at par for payment would record:

a) Dr. Bank, Cr. Debentures
b) Dr. Vendor, Cr. Debentures
c) Dr. Sundry Assets, Cr. Vendor
d) Dr. Vendor, Cr. Bank

Answer: c) Dr. Sundry Assets, Cr. Vendor

40. Which journal entry is passed when debentures are issued at a discount and redeemable at premium?

a) Dr. Bank, Dr. Discount on Issue, Cr. Premium on Redemption, Cr. Debentures
b) Dr. Bank, Cr. Premium on Redemption, Cr. Debentures
c) Dr. Securities Premium Reserve, Cr. Bank
d) Dr. Discount on Issue, Cr. Bank

Answer: a) Dr. Bank, Dr. Discount on Issue, Cr. Premium on Redemption, Cr. Debentures

41. Which account reflects the premium amount on redemption of debentures?

a) Discount on Issue of Debentures
b) Premium on Redemption of Debentures
c) Securities Premium Reserve
d) Debenture Suspense Account

Answer: b) Premium on Redemption of Debentures

42. When a company redeems debentures by conversion into shares, it is termed:

a) Lump sum redemption
b) Conversion method
c) Amortization
d) Installment payment

Answer: b) Conversion method

43. A company issuing debentures at a discount of ₹10 per ₹100 face value records the discount as:

a) Loss in the profit and loss account.
b) A liability in the balance sheet.
c) A capital loss written off over time.
d) A gain in the securities premium reserve.

Answer: c) A capital loss written off over time.

44. How is the interest on debentures recorded when it becomes due?

a) Dr. Debenture Interest, Cr. Profit and Loss
b) Dr. Debentureholders, Cr. Debenture Interest
c) Dr. Debenture Interest, Cr. Debentureholders, Cr. Income Tax Payable
d) Dr. Profit and Loss, Cr. Bank

Answer: c) Dr. Debenture Interest, Cr. Debentureholders, Cr. Income Tax Payable

45. What type of debenture can be sold in the open market by a lender?

a) Convertible debentures
b) Secured debentures
c) Collateral security debentures
d) Zero coupon debentures

Answer: c) Collateral security debentures

46. What is shown in the company's financial statements as "Non-Current Liabilities"?

a) Debenture Interest
b) Debenture Redemption Reserve
c) Outstanding Debentures
d) Premium on Redemption

Answer: c) Outstanding Debentures

47. Which section of a balance sheet shows debentures issued as a collateral security under the first method?

a) Non-Current Liabilities
b) Current Liabilities
c) Notes to Accounts
d) Equity

Answer: c) Notes to Accounts

48. Which term describes debentures repayable over a series of payments?

a) Installment debentures
b) Zero coupon debentures
c) Irredeemable debentures
d) Convertible debentures

Answer: a) Installment debentures

49. Loss on issue of debentures is:

a) An operational loss
b) A capital loss
c) A financing expense
d) A contingent liability

Answer: b) A capital loss

50. What are the two ways debentures as collateral security are treated in accounts?

a) Capitalization or depreciation
b) Premium or discount entry
c) Journal entry or note in the balance sheet
d) Immediate expense or deferred expense

Answer: c) Journal entry or note in the balance sheet

51. The interest on debentures is calculated based on:

a) Market value of debentures
b) Face value of debentures
c) Discounted value of debentures
d) Premium on redemption

Answer: b) Face value of debentures

52. What type of liability is "premium on redemption of debentures"?

a) Contingent liability
b) Current liability
c) Non-current liability
d) No liability

Answer: c) Non-current liability

53. When debentures are issued at a discount, the discount is recorded as:

a) An immediate expense
b) A loss to be written off over the debenture's life
c) A liability in the balance sheet
d) Part of securities premium reserve

Answer: b) A loss to be written off over the debenture's life

54. Which term refers to debentures that do not have a specific repayment schedule?

a) Perpetual debentures
b) Zero coupon debentures
c) Redeemable debentures
d) Floating rate debentures

Answer: a) Perpetual debentures

55. When debentures are redeemed at a premium, the premium is recorded as:

a) An expense in profit and loss
b) An increase in securities premium reserve
c) A liability in the balance sheet
d) A loss written off immediately

Answer: c) A liability in the balance sheet

56. A debenture issued for ₹100 at a premium of ₹10 is recorded as:

a) ₹100 in debentures account and ₹10 in securities premium reserve
b) ₹90 in debentures account and ₹10 in securities premium reserve
c) ₹110 in debentures account
d) ₹10 in profit and loss account

Answer: a) ₹100 in debentures account and ₹10 in securities premium reserve

57. What happens if a company fails to repay debentures issued as collateral security?

a) Debentureholders lose their investment.
b) The collateral security is redeemed by the lender.
c) The company is dissolved.
d) The debentures are converted into shares.

Answer: b) The collateral security is redeemed by the lender.

58. Redemption of debentures through a sinking fund ensures:

a) Regular interest payment
b) A provision for repayment of principal
c) Conversion into equity shares
d) Reduction in premium on redemption

Answer: b) A provision for repayment of principal

59. Tax Deducted at Source (TDS) on debenture interest is recorded as:

a) Dr. Bank, Cr. TDS
b) Dr. Debenture Interest, Cr. TDS Payable
c) Dr. TDS Payable, Cr. Debentureholders
d) Dr. Debentureholders, Cr. Bank

Answer: b) Dr. Debenture Interest, Cr. TDS Payable

60. The issue of debentures at par with a premium on redemption results in:

a) Dr. Debentures, Cr. Premium on Redemption
b) Dr. Loss on Issue, Cr. Premium on Redemption and Debentures
c) Dr. Bank, Cr. Debentures and Premium on Redemption
d) Dr. Securities Premium, Cr. Debentures

Answer: b) Dr. Loss on Issue, Cr. Premium on Redemption and Debentures

61. In case of an oversubscription of debentures, the excess application money is:

a) Fully refunded
b) Transferred to debentureholders' accounts
c) Retained for future calls or refunded
d) Recorded as premium

Answer: c) Retained for future calls or refunded

62. If debentures are issued for a consideration other than cash, the entry includes:

a) Dr. Cash, Cr. Debentures
b) Dr. Assets, Cr. Vendor Account
c) Dr. Vendor, Cr. Securities Premium Reserve
d) Dr. Discount on Issue, Cr. Bank

Answer: b) Dr. Assets, Cr. Vendor Account

63. The repayment of debentures in installments is commonly referred to as:

a) Lump sum repayment
b) Redemption by purchase
c) Amortized repayment
d) Conversion method

Answer: c) Amortized repayment

64. The issuance of zero-coupon debentures compensates the investor through:

a) Interest payments
b) A discounted issue price
c) Higher face value
d) Convertible options

Answer: b) A discounted issue price

65. Which type of debenture offers no voting rights?

a) Convertible debentures
b) Secured debentures
c) Non-convertible debentures
d) All debentures

Answer: d) All debentures

66. Which statement is TRUE about the interest on debentures?

a) It is paid only when the company makes a profit.
b) It is a mandatory expense, irrespective of profit.
c) It is classified as an appropriation of profit.
d) It is deducted from securities premium reserve.

Answer: b) It is a mandatory expense, irrespective of profit.

67. What is the accounting treatment for debenture interest paid?

a) Dr. Profit and Loss, Cr. Debenture Interest
b) Dr. Debenture Interest, Cr. Bank
c) Dr. Bank, Cr. Debentureholders
d) Dr. Debentureholders, Cr. Bank

Answer: d) Dr. Debentureholders, Cr. Bank

68. Loss on issue of debentures is recorded as:

a) Dr. Securities Premium, Cr. Discount on Issue
b) Dr. Profit and Loss, Cr. Debentures
c) Dr. Securities Premium and Profit and Loss, Cr. Loss on Issue
d) Dr. Discount on Issue, Cr. Securities Premium Reserve

Answer: c) Dr. Securities Premium and Profit and Loss, Cr. Loss on Issue

69. In the event of redemption at premium, the "Premium on Redemption" account is classified as:

a) Current liability
b) Non-current liability
c) Revenue reserve
d) Deferred liability

Answer: b) Non-current liability

70. The process of gradually writing off loss on issue of debentures is termed:

a) Depreciation
b) Amortization
c) Appreciation
d) Consolidation

Answer: b) Amortization

71. When debentures are issued at a discount and redeemed at par, the difference is treated as:

a) Profit on issue
b) Revenue expenditure
c) Capital loss
d) Non-current liability

Answer: c) Capital loss

72. Which of the following debentures cannot be converted into shares?

a) Convertible debentures
b) Secured debentures
c) Non-convertible debentures
d) Zero coupon debentures

Answer: c) Non-convertible debentures

73. When a company issues debentures at premium and redeems them at premium, the accounting entry includes:

a) Dr. Bank, Cr. Securities Premium Reserve and Premium on Redemption
b) Dr. Loss on Issue, Cr. Debentures and Premium on Redemption
c) Dr. Bank, Cr. Debentures, Securities Premium Reserve, and Premium on Redemption
d) Dr. Debentures, Cr. Premium on Redemption

Answer: c) Dr. Bank, Cr. Debentures, Securities Premium Reserve, and Premium on Redemption

74. What is the purpose of creating a Debenture Redemption Reserve (DRR)?

a) To ensure funds for interest payments
b) To provide security for the redemption of debentures
c) To write off loss on issue of debentures
d) To repay loans

Answer: b) To provide security for the redemption of debentures

75. What is the key feature of redeemable debentures?

a) They carry no repayment obligation.
b) They must be repaid after a specific time.
c) They are always convertible into shares.
d) They provide no interest payments.

Answer: b) They must be repaid after a specific time.

76. Which type of debenture offers a fixed or floating charge over the company’s assets?

a) Unsecured debentures
b) Secured debentures
c) Perpetual debentures
d) Zero coupon rate debentures

Answer: b) Secured debentures

77. Bearer debentures are also known as:

a) Registered debentures
b) Coupon debentures
c) Convertible debentures
d) Collateral security debentures

Answer: b) Coupon debentures

78. What is the accounting treatment for a company purchasing assets and issuing debentures at a discount?

a) Dr. Assets, Cr. Debenture Account and Discount on Issue
b) Dr. Vendor, Cr. Debenture Account and Discount on Issue
c) Dr. Bank, Cr. Debenture Account
d) Dr. Securities Premium, Cr. Assets

Answer: a) Dr. Assets, Cr. Debenture Account and Discount on Issue

79. If debentures are redeemed at premium, the premium is:

a) Transferred to securities premium reserve
b) Charged to profit and loss account
c) Recorded as a provision until repayment
d) Deducted from liabilities

Answer: c) Recorded as a provision until repayment

80. Which method of redemption involves repurchasing debentures from the open market?

a) Lump sum payment
b) Sinking fund method
c) Purchase in the open market
d) Amortization

Answer: c) Purchase in the open market

81. Debentures issued as collateral security are reflected in the balance sheet as:

a) A note below the principal liability
b) A part of current liabilities
c) An addition to fixed assets
d) A deduction from cash reserves

Answer: a) A note below the principal liability

82. The term "non-convertible debentures" means:

a) They cannot be redeemed before maturity.
b) They do not carry interest.
c) They cannot be converted into shares.
d) They cannot be issued at a discount.

Answer: c) They cannot be converted into shares.

83. Interest on debentures is classified as:

a) Operating expense
b) Financing expense
c) Non-operating income
d) Provision expense

Answer: b) Financing expense

84. In the case of oversubscription, how is excess money received handled for applicants not allotted debentures?

a) Adjusted to future allotments
b) Refunded to applicants
c) Transferred to securities premium reserve
d) Retained indefinitely

Answer: b) Refunded to applicants

85. Loss on issue of debentures is shown in the balance sheet under:

a) Current liabilities
b) Non-current assets
c) Other current assets
d) Reserves and surplus

Answer: c) Other current assets

86. Which of these is NOT a type of debenture based on registration?

a) Registered debentures
b) Coupon debentures
c) Secured debentures
d) Bearer debentures

Answer: c) Secured debentures

87. Which of the following represents borrowed capital for a company?

a) Equity shares
b) Debentures
c) Retained earnings
d) Share premium

Answer: b) Debentures

88. Redemption of debentures at par means:

a) Repayment at face value
b) Repayment at a premium
c) Repayment at a discount
d) Repayment in installments

Answer: a) Repayment at face value

89. The issue of debentures at a premium benefits a company by:

a) Increasing cash reserves
b) Reducing the liability of repayment
c) Creating additional reserves
d) Reducing interest payment obligations

Answer: c) Creating additional reserves

90. What entry is passed to record debenture interest paid to debentureholders?

a) Dr. Profit and Loss, Cr. Debenture Interest
b) Dr. Debenture Interest, Cr. Debentureholders
c) Dr. Debentureholders, Cr. Bank
d) Dr. Bank, Cr. Debentureholders

Answer: c) Dr. Debentureholders, Cr. Bank

91. The journal entry for TDS payment to the government is:

a) Dr. Bank, Cr. Income Tax Payable
b) Dr. Income Tax Payable, Cr. Bank
c) Dr. Debenture Interest, Cr. Bank
d) Dr. Securities Premium, Cr. Income Tax Payable

Answer: b) Dr. Income Tax Payable, Cr. Bank

92. Which of the following is NOT a feature of zero-coupon debentures?

a) Issued at a discount
b) No periodic interest payments
c) Redeemed at face value
d) Carry a fixed interest rate

Answer: d) Carry a fixed interest rate

93. The liability for premium on redemption is classified as:

a) Deferred liability
b) Long-term borrowing
c) Provision
d) Contingent liability

Answer: c) Provision

94. What is the primary reason for creating a sinking fund?

a) To secure loans
b) To ensure timely redemption of debentures
c) To pay dividends
d) To account for premium on redemption

Answer: b) To ensure timely redemption of debentures

95. Interest on debentures is calculated based on:

a) Market price
b) Nominal value
c) Redemption value
d) Discounted value

Answer: b) Nominal value

96. Which type of debenture cannot be transferred without execution of a transfer deed?

a) Bearer debentures
b) Registered debentures
c) Coupon debentures
d) Convertible debentures

Answer: b) Registered debentures

97. How is a debenture suspense account treated in the balance sheet?

a) Added to securities premium reserve
b) Deducted from long-term borrowings
c) Recorded as a current liability
d) Not shown in the balance sheet

Answer: b) Deducted from long-term borrowings

98. Which of these is TRUE about collateral security debentures?

a) They are redeemable only on maturity.
b) They serve as additional security for loans.
c) They do not carry interest.
d) They cannot be transferred.

Answer: b) They serve as additional security for loans.

99. When a company purchases assets by issuing debentures, it:

a) Pays in cash and debits the asset account.
b) Credits the vendor and issues debentures.
c) Debits the vendor and credits cash.
d) Debits securities premium and credits debentures.

Answer: b) Credits the vendor and issues debentures.

100. The primary advantage of issuing debentures is:

a) They provide ownership rights.
b) They ensure flexible financing options.
c) They are not subject to repayment.
d) They do not require periodic interest payments.

Answer: b) They ensure flexible financing options.

at No comments:

Accountancy HS 2nd Year Chapter B 1: Accounting for Share Capital

 1. What is the primary governing legislation for companies in India?

A. The Banking Regulation Act
B. The Companies Act, 2013
C. The Insurance Act
D. The SEBI Guidelines

Answer: B. The Companies Act, 2013

2. Which of the following features distinguishes a company from other forms of organization?
A. Unlimited Liability
B. Perpetual Succession
C. Limited Capital
D. Unregulated Operations

Answer: B. Perpetual Succession

3. What is the minimum percentage of issued capital that must be subscribed to consider an issue successful according to SEBI guidelines?
A. 50%
B. 75%
C. 90%
D. 100%

Answer: C. 90%

4. A company with liability limited to unpaid amounts on shares is known as a:
A. Company Limited by Shares
B. Company Limited by Guarantee
C. Unlimited Company
D. Sole Proprietorship

Answer: A. Company Limited by Shares

5. What is the term used for the amount of share capital that a company is authorized to issue?
A. Issued Capital
B. Subscribed Capital
C. Paid-up Capital
D. Authorised Capital

Answer: D. Authorised Capital

MCQs from the Document

6. Who are the real owners of a company?
A. Directors
B. Shareholders
C. Employees
D. Creditors

Answer: B. Shareholders

7. A company’s liability that extends only to the extent of unpaid amounts on shares is termed as:
A. Limited Liability
B. Unlimited Liability
C. Contingent Liability
D. Absolute Liability

Answer: A. Limited Liability

8. Which feature of a company allows it to exist regardless of changes in membership?
A. Separate Legal Entity
B. Limited Liability
C. Common Seal
D. Perpetual Succession

Answer: D. Perpetual Succession

9. The official signature of a company is represented by its:
A. Common Seal
B. Articles of Association
C. Share Certificate
D. Prospectus

Answer: A. Common Seal

10. What is the legal status of a company in the eyes of the law?
A. A living person
B. A natural person
C. An artificial person
D. A citizen

Answer: C. An artificial person

11. Companies that are formed and registered under specific laws for banking or insurance are exceptions to:
A. The Companies Act, 2013
B. SEBI Guidelines
C. Reserve Bank of India Act
D. FEMA Regulations

Answer: A. The Companies Act, 2013

12. What type of shares carry preferential rights regarding dividend payment and capital repayment?
A. Equity Shares
B. Preference Shares
C. Debenture Shares
D. Ordinary Shares

Answer: B. Preference Shares

13. The amount of capital stated in a company's Memorandum of Association is known as:
A. Paid-up Capital
B. Issued Capital
C. Authorised Capital
D. Subscribed Capital

Answer: C. Authorised Capital

14. A shareholder who pays the amount on shares before it is called is said to have made a payment towards:
A. Calls in Advance
B. Calls in Arrears
C. Issued Capital
D. Subscribed Capital

Answer: A. Calls in Advance

15. What is the percentage of shares that can be issued as bonus shares from the securities premium account?
A. 50%
B. 75%
C. 100%
D. Not exceeding unissued share capital

Answer: D. Not exceeding unissued share capital

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16. The liability of members in a company limited by shares is restricted to:
A. The face value of shares held
B. The nominal value of shares held
C. The unpaid value of shares held
D. Their personal assets

Answer: C. The unpaid value of shares held

17. A company with only one person as its member is classified as:
A. Public Company
B. Private Company
C. One Person Company (OPC)
D. Unlimited Company

Answer: C. One Person Company (OPC)

18. The capital that a company raises from the public is termed as:
A. Paid-up Capital
B. Issued Capital
C. Authorised Capital
D. Reserve Capital

Answer: B. Issued Capital

19. Which type of shares are not entitled to preferential rights?
A. Equity Shares
B. Redeemable Preference Shares
C. Cumulative Preference Shares
D. Participating Preference Shares

Answer: A. Equity Shares

20. In the event of winding up, the capital that cannot be called except to pay creditors is termed as:
A. Reserve Capital
B. Paid-up Capital
C. Authorised Capital
D. Called-up Capital

Answer: A. Reserve Capital

21. What is the minimum subscription percentage required for a company to proceed with share allotment?
A. 80%
B. 85%
C. 90%
D. 95%

Answer: C. 90%

22. Which statement about equity shareholders is correct?
A. They receive a fixed rate of dividend.
B. They are creditors of the company.
C. They are entitled to residual profits after paying preference shareholders.
D. Their shares are non-transferable.

Answer: C. They are entitled to residual profits after paying preference shareholders.

23. When shares are issued at a price higher than their nominal value, the excess amount is credited to:
A. Reserve Fund
B. Securities Premium Account
C. Capital Reserve
D. Profit and Loss Account

Answer: B. Securities Premium Account

24. In the case of forfeiture of shares, the amount received up to forfeiture is transferred to:
A. Share Capital Account
B. Forfeited Shares Account
C. Reserve Capital Account
D. Profit and Loss Account

Answer: B. Forfeited Shares Account

25. What does the term "perpetual succession" signify in the context of a company?
A. Continuity of management
B. Indefinite existence irrespective of changes in membership
C. Regular issuance of shares
D. Annual renewal of the company’s registration

Answer: B. Indefinite existence irrespective of changes in membership

26. A shareholder who fails to pay the amount due on calls is said to have:
A. Calls in Advance
B. Calls in Arrears
C. Subscribed Excessively
D. Paid Fully

Answer: B. Calls in Arrears

27. What is the term for a document inviting the public to subscribe to shares of a company?
A. Memorandum of Association
B. Articles of Association
C. Prospectus
D. Share Certificate

Answer: C. Prospectus

28. What is the maximum rate of interest on calls in arrears as per Table F of the Companies Act?
A. 10% per annum
B. 8% per annum
C. 12% per annum
D. 6% per annum

Answer: A. 10% per annum

29. The shares issued to vendors as payment for purchase of assets are termed as:
A. Preference Shares
B. Bonus Shares
C. Shares issued for consideration other than cash
D. Right Shares

Answer: C. Shares issued for consideration other than cash

30. The interest payable on calls in advance cannot exceed which rate per annum?
A. 6%
B. 8%
C. 10%
D. 12%

Answer: D. 12%

31. What is the primary purpose of a company’s Memorandum of Association?
A. To outline the internal management rules
B. To define the scope of the company's operations
C. To regulate the company's accounting procedures
D. To determine the dividend payout policy

Answer: B. To define the scope of the company's operations

32. In the context of company law, a "separate legal entity" means:
A. The company operates independently from its shareholders.
B. Shareholders must actively manage the company.
C. The company cannot sue or be sued.
D. The company does not require a Board of Directors.

Answer: A. The company operates independently from its shareholders.

33. Which account is credited when a company receives application money for shares?
A. Share Capital Account
B. Bank Account
C. Share Application Account
D. Securities Premium Account

Answer: C. Share Application Account

34. What is the term used for the maximum amount of share capital a company can issue?
A. Issued Capital
B. Authorised Capital
C. Paid-up Capital
D. Subscribed Capital

Answer: B. Authorised Capital

35. What happens to the excess application money received in the event of oversubscription?
A. It is refunded or adjusted.
B. It is added to the paid-up capital.
C. It is transferred to the profit and loss account.
D. It is kept as reserve capital.

Answer: A. It is refunded or adjusted.

36. In which account is the unpaid call amount of a shareholder recorded?
A. Calls in Arrears Account
B. Calls in Advance Account
C. Forfeited Shares Account
D. Share Capital Account

Answer: A. Calls in Arrears Account

37. What is the liability of shareholders in a company limited by guarantee?
A. The amount unpaid on their shares
B. The amount they agree to contribute in case of winding up
C. Unlimited liability
D. Their entire personal assets

Answer: B. The amount they agree to contribute in case of winding up

38. The shares issued to employees as a reward for their contribution are known as:
A. Equity Shares
B. Bonus Shares
C. Sweat Equity Shares
D. Right Shares

Answer: C. Sweat Equity Shares

39. What is the term used for the share capital that is actually subscribed by the public?
A. Issued Capital
B. Paid-up Capital
C. Subscribed Capital
D. Reserve Capital

Answer: C. Subscribed Capital

40. What is the typical interval between two calls as per Table A of the Companies Act?
A. 7 days
B. 14 days
C. 21 days
D. 30 days

Answer: D. 30 days

41. The excess amount received when shares are issued at a price higher than their face value is credited to which account?
A. Share Capital Account
B. Securities Premium Account
C. Calls in Advance Account
D. Reserve Account

Answer: B. Securities Premium Account

42. What is the minimum percentage of the face value that must be paid as application money?
A. 3%
B. 5%
C. 10%
D. 12%

Answer: B. 5%

43. When shares are forfeited, the balance of unpaid calls is:
A. Refunded to shareholders
B. Credited to the Securities Premium Account
C. Transferred to the Forfeited Shares Account
D. Written off as a loss

Answer: C. Transferred to the Forfeited Shares Account

44. Which document specifies the rules and regulations for the internal management of a company?
A. Prospectus
B. Memorandum of Association
C. Articles of Association
D. Certificate of Incorporation

Answer: C. Articles of Association

45. What is the rate of interest payable by the company on calls in arrears, as per Table F?
A. 6%
B. 8%
C. 10%
D. 12%

Answer: C. 10%

46. When a company does not call the entire amount of a share, the remaining unpaid portion is termed as:
A. Reserve Capital
B. Called-up Capital
C. Paid-up Capital
D. Uncalled Capital

Answer: D. Uncalled Capital

47. The liability of members in an unlimited company is:
A. Restricted to the nominal value of their shares
B. Restricted to the amount guaranteed by them
C. Unlimited and can extend to their personal assets
D. Equal to the company’s losses

Answer: C. Unlimited and can extend to their personal assets

48. Which type of share provides fixed dividends but does not carry voting rights?
A. Equity Shares
B. Redeemable Preference Shares
C. Ordinary Shares
D. Preference Shares

Answer: D. Preference Shares

49. The total amount received by a company on shares is recorded in which account?
A. Calls in Advance Account
B. Share Capital Account
C. Securities Premium Account
D. Reserve Capital Account

Answer: B. Share Capital Account

50. The minimum number of members required to form a public company is:
A. 1
B. 2
C. 5
D. 7

Answer: D. 7

51. A shareholder who pays money for future calls before they are due makes payment toward:
A. Forfeited Shares
B. Calls in Advance
C. Unpaid Calls
D. Reserve Capital

Answer: B. Calls in Advance

52. A company must return application money to investors if the minimum subscription is not received within:
A. 120 days of issue
B. 90 days of issue
C. 60 days of issue
D. 30 days of issue

Answer: A. 120 days of issue

53. A share is said to be issued at par when:
A. Its issue price is equal to its nominal value
B. Its issue price is more than its nominal value
C. Its issue price is less than its nominal value
D. No amount is received on the share

Answer: A. Its issue price is equal to its nominal value

54. Under which category does the Securities Premium Account appear in a company's balance sheet?
A. Reserves and Surpluses
B. Share Capital
C. Current Liabilities
D. Fixed Assets

Answer: A. Reserves and Surpluses

55. What is the name given to shares issued free of charge to existing shareholders from the company’s reserves?
A. Right Shares
B. Sweat Equity Shares
C. Bonus Shares
D. Preference Shares

Answer: C. Bonus Shares

56. Which of the following cannot be used to issue fully paid bonus shares?
A. Securities Premium Account
B. Capital Redemption Reserve
C. General Reserve
D. Calls in Arrears

Answer: D. Calls in Arrears

57. Shares that are issued at a discount are usually:
A. Equity Shares
B. Right Shares
C. Bonus Shares
D. Forfeited Shares

Answer: D. Forfeited Shares

58. If a company issues 5,000 shares of ₹10 each at ₹12, what is the total securities premium collected?
A. ₹10,000
B. ₹50,000
C. ₹60,000
D. ₹70,000

Answer: A. ₹10,000

59. What is the term for the minimum subscription amount that must be raised for a valid share issue?
A. Reserve Capital
B. Nominal Capital
C. Minimum Subscription
D. Subscribed Capital

Answer: C. Minimum Subscription

60. In case of over-subscription, the excess money received on rejected applications is:
A. Refunded to applicants
B. Credited to share capital
C. Added to securities premium
D. Adjusted against reserve capital

Answer: A. Refunded to applicants

61. What is the name of the document issued to inform the public about the offer of shares?
A. Articles of Association
B. Memorandum of Association
C. Prospectus
D. Share Certificate

Answer: C. Prospectus

62. A company may raise funds by issuing shares and:
A. Loans
B. Debentures
C. Dividends
D. Retained Earnings

Answer: B. Debentures

63. The portion of share capital which has been called up but remains unpaid is termed as:
A. Subscribed Capital
B. Calls in Arrears
C. Reserve Capital
D. Paid-up Capital

Answer: B. Calls in Arrears

64. A company that restricts the transfer of its shares and limits its members to 200 is a:
A. Public Company
B. One Person Company
C. Private Company
D. Unlimited Company

Answer: C. Private Company

65. What is the maximum number of members allowed in a private company (excluding employees)?
A. 50
B. 100
C. 200
D. Unlimited

Answer: C. 200

66. When a shareholder fails to pay the amount due on shares, the company may take what action?
A. Issue bonus shares
B. Convert shares to preference shares
C. Forfeit the shares
D. Pay dividends

Answer: C. Forfeit the shares

67. The amount received by a company for shares issued but not fully paid up is referred to as:
A. Issued Capital
B. Paid-up Capital
C. Reserve Capital
D. Subscribed Capital

Answer: B. Paid-up Capital

68. The capital that a company cannot call except during winding up is called:
A. Uncalled Capital
B. Reserve Capital
C. Paid-up Capital
D. Issued Capital

Answer: B. Reserve Capital

69. Which of the following is an artificial person in the eyes of the law?
A. Sole Proprietorship
B. Partnership
C. Company
D. Cooperative Society

Answer: C. Company

70. What is the portion of the issued capital that is subscribed by the public known as?
A. Subscribed Capital
B. Reserve Capital
C. Paid-up Capital
D. Authorised Capital

Answer: A. Subscribed Capital

71. Equity shareholders are entitled to:
A. Fixed dividends
B. Residual profits after preference dividends
C. First claim on assets during liquidation
D. A guaranteed return on investment

Answer: B. Residual profits after preference dividends

72. The minimum subscription amount must cover which of the following expenses?
A. Dividend payments
B. Preliminary expenses and working capital
C. Preference share repayments
D. Securities premium

Answer: B. Preliminary expenses and working capital

73. The part of the capital that has been issued and fully paid is referred to as:
A. Subscribed Capital
B. Issued Capital
C. Paid-up Capital
D. Called-up Capital

Answer: C. Paid-up Capital

74. A company issuing shares to the public at a price lower than their nominal value violates:
A. The Companies Act
B. SEBI Guidelines
C. Reserve Bank of India Regulations
D. Both A and B

Answer: D. Both A and B

75. Shares issued to existing shareholders in proportion to their current holdings are called:
A. Bonus Shares
B. Right Shares
C. Preference Shares
D. Sweat Equity Shares

Answer: B. Right Shares

76. A shareholder paying more than the amount called on their shares is recorded as:
A. Paid-up Capital
B. Securities Premium
C. Calls in Advance
D. Calls in Arrears

Answer: C. Calls in Advance

77. The legal status of a company ensures it has which characteristic?
A. Limited liability
B. Perpetual succession
C. Separate legal entity
D. All of the above

Answer: D. All of the above

78. What type of liability applies to the members of a company limited by guarantee?
A. Limited to unpaid shares
B. Unlimited liability
C. Limited to the amount guaranteed in the Memorandum
D. Liability ceases after share allotment

Answer: C. Limited to the amount guaranteed in the Memorandum

79. What is the primary purpose of issuing shares at a premium?
A. To increase shareholder liability
B. To raise additional funds for the company
C. To reduce authorised capital
D. To bypass SEBI regulations

Answer: B. To raise additional funds for the company

80. The company's common seal serves as:
A. Its official signature
B. A record of dividends paid
C. Proof of shareholder meetings
D. Authorization for directors’ decisions

Answer: A. Its official signature

81. The liability of shareholders in a company limited by shares is restricted to:
A. Their personal assets
B. The unpaid value of their shares
C. The company's total losses
D. The company’s authorized capital

Answer: B. The unpaid value of their shares

82. What type of share gives its holder the right to participate in surplus profits after a fixed dividend has been paid?
A. Equity Shares
B. Participating Preference Shares
C. Redeemable Preference Shares
D. Non-Participating Preference Shares

Answer: B. Participating Preference Shares

83. What happens to the forfeited shares if they are later reissued?
A. The proceeds are credited to a new issue account
B. They are treated as a loss in the profit and loss account
C. The amount received is transferred to the Capital Reserve Account
D. They are refunded to the original shareholder

Answer: C. The amount received is transferred to the Capital Reserve Account

84. When shares are issued at a premium, the premium amount is recorded under which account?
A. Share Capital Account
B. Securities Premium Account
C. Calls in Advance Account
D. Forfeited Shares Account

Answer: B. Securities Premium Account

85. The process of returning the application money of rejected applicants in the event of over-subscription is termed as:
A. Refund of Calls
B. Return of Subscriptions
C. Refund of Application Money
D. Adjustment of Excess Applications

Answer: C. Refund of Application Money

86. A company that has only one person as its member is classified as a:
A. Private Company
B. Unlimited Company
C. One Person Company (OPC)
D. Sole Proprietorship

Answer: C. One Person Company (OPC)

87. A company’s Articles of Association govern its:
A. Relationship with shareholders and creditors
B. Internal management and operations
C. Financial statements preparation
D. Issuance of securities in the stock market

Answer: B. Internal management and operations

88. The maximum permissible rate of securities premium charged by a company is governed by:
A. The Companies Act, 2013
B. SEBI Guidelines
C. RBI Regulations
D. Ministry of Corporate Affairs

Answer: B. SEBI Guidelines

89. The company capital that is not offered for public subscription is called:
A. Reserve Capital
B. Unissued Capital
C. Paid-up Capital
D. Uncalled Capital

Answer: B. Unissued Capital

90. The amount called by the company for the first time after the application and allotment is referred to as:
A. First Call Money
B. Subscribed Capital
C. Paid-up Capital
D. Reserve Capital

Answer: A. First Call Money

91. The amount of application money to be received per share should be at least:
A. 2% of the nominal value
B. 3% of the nominal value
C. 5% of the nominal value
D. 10% of the nominal value

Answer: C. 5% of the nominal value

92. In a pro-rata allotment, excess application money is generally adjusted against:
A. Calls in Advance
B. Securities Premium
C. Calls Due on Allotment
D. Paid-up Capital

Answer: C. Calls Due on Allotment

93. Equity shares with differential rights may differ in terms of:
A. Voting rights and dividend payments
B. Redemption options
C. Face value
D. Eligibility for preference dividends

Answer: A. Voting rights and dividend payments

94. According to the Companies Act, 2013, a public company must have at least how many directors?
A. 2
B. 3
C. 5
D. 7

Answer: B. 3

95. What is the typical notice period required for calls as per Table F of the Companies Act?
A. 7 days
B. 14 days
C. 21 days
D. 30 days

Answer: B. 14 days

96. When shares are issued at a premium, the premium amount cannot be used for:
A. Writing off preliminary expenses
B. Paying dividends to shareholders
C. Issuing bonus shares
D. Writing off commission paid for raising shares

Answer: B. Paying dividends to shareholders

97. If the company receives more applications than the number of shares issued, this situation is called:
A. Under Subscription
B. Over Subscription
C. Full Subscription
D. Premium Subscription

Answer: B. Over Subscription

98. The repayment of borrowed funds using premium collected on shares is termed as:
A. Dividend Distribution
B. Redemption of Debentures
C. Payment of Arrears
D. Reserve Creation

Answer: B. Redemption of Debentures

99. What is the document issued to prove ownership of shares called?
A. Prospectus
B. Share Certificate
C. Share Warrant
D. Articles of Association

Answer: B. Share Certificate

100. If shares are issued at a discount, the discount must be shown as a:
A. Profit in the income statement
B. Loss in the income statement
C. Deduction from the share capital
D. Debit to a special discount account

Answer: D. Debit to a special discount account

at No comments:

Accountancy HS 2nd Year Chapter 4: Dissolution of Partnership Firm

 

MCQs on Dissolution of Partnership Firm

  1. What is the primary difference between dissolution of partnership and dissolution of a firm?

    • (A) Business continues in both cases
    • (B) Business is terminated in dissolution of the firm
    • (C) Economic relationship among partners continues in both cases
    • (D) Court involvement is mandatory in both cases
      Answer: (B)

  2. Which section of the Partnership Act, 1932, defines the dissolution of a firm?

    • (A) Section 39
    • (B) Section 48
    • (C) Section 44
    • (D) Section 49
      Answer: (A)

  3. Dissolution by mutual agreement of all partners is known as:

    • (A) Dissolution by court
    • (B) Compulsory dissolution
    • (C) Dissolution by agreement
    • (D) Dissolution by notice
      Answer: (C)

  4. When does a firm undergo compulsory dissolution?

    • (A) When one partner retires
    • (B) When all partners become insolvent
    • (C) When a partner gives a notice
    • (D) Upon revaluation of assets
      Answer: (B)

  5. A firm constituted for a specific venture dissolves when:

    • (A) The venture is incomplete
    • (B) The venture is completed
    • (C) A partner retires
    • (D) The firm faces losses
      Answer: (B)

  6. When can a court order the dissolution of a firm?

    • (A) A partner transfers his entire interest to a third party
    • (B) A partner becomes incapable of performing duties
    • (C) The firm incurs continuous losses
    • (D) All of the above
      Answer: (D)

  7. What is a Realisation Account used for in the dissolution of a firm?

    • (A) Managing day-to-day expenses
    • (B) Recording sale of assets and settlement of liabilities
    • (C) Preparing new balance sheet
    • (D) Estimating future profits
      Answer: (B)

  8. In case of a loss during dissolution, the loss is borne by partners:

    • (A) Equally
    • (B) According to their capital ratio
    • (C) According to profit-sharing ratio
    • (D) By the solvent partner only
      Answer: (C)

  9. What happens to unrecorded assets during dissolution?

    • (A) They are written off as a loss
    • (B) They are transferred to Realisation Account
    • (C) They are distributed equally among partners
    • (D) They are ignored
      Answer: (B)

  10. Which of the following is true for partner's private debts in relation to firm debts during dissolution?

    • (A) Firm debts have priority over private debts
    • (B) Private debts have priority over firm debts
    • (C) Both have equal priority
    • (D) Private debts are irrelevant
      Answer: (A)

  11. What happens to the books of the firm upon dissolution?

    • (A) They are updated for future operations
    • (B) They are kept open for legal purposes
    • (C) They are closed permanently
    • (D) They are transferred to the new firm
      Answer: (C)

  12. On dissolution, partner's loan account is transferred to:

    • (A) Realisation Account
    • (B) Partner's Capital Account
    • (C) Bank Account
    • (D) It remains unaffected
      Answer: (D)

  13. If a liability is assumed by a partner, the journal entry is:

    • (A) Debit Partner’s Capital Account
    • (B) Credit Realisation Account
    • (C) Debit Realisation Account
    • (D) Credit Partner’s Capital Account
      Answer: (D)

  14. Which of the following is not transferred to the Realisation Account?

    • (A) Creditors
    • (B) Fixed assets
    • (C) Partner’s loan
    • (D) Stock
      Answer: (C)

  15. Who bears the loss when a partner becomes insolvent?

    • (A) All partners equally
    • (B) The insolvent partner's family
    • (C) Solvent partners in capital ratio
    • (D) Solvent partners in profit-sharing ratio
      Answer: (C)

  16. In the absence of any agreement, the loss on realisation is borne by partners:

    • (A) Equally
    • (B) Based on capital ratio
    • (C) Based on their profit-sharing ratio
    • (D) None of the above
      Answer: (C)

  17. What happens when a partner takes over an asset during dissolution?

    • (A) Debit Realisation Account and Credit Partner’s Capital Account
    • (B) Debit Partner’s Capital Account and Credit Realisation Account
    • (C) Debit Asset Account and Credit Partner’s Capital Account
    • (D) Debit Partner’s Current Account and Credit Bank Account
      Answer: (B)

  18. Which account is credited when unrecorded liabilities are paid?

    • (A) Realisation Account
    • (B) Bank Account
    • (C) Partner’s Capital Account
    • (D) None of the above
      Answer: (A)

  19. What is the sequence of payment in case of dissolution?

    • (A) Partner's private debts → Firm's debts → Partner's loans
    • (B) Firm's debts → Partner's loans → Capital accounts
    • (C) Firm's debts → Capital accounts → Partner's loans
    • (D) Partner's loans → Firm's debts → Capital accounts
      Answer: (B)

  20. Which of these methods requires court intervention?

    • (A) Dissolution by notice
    • (B) Compulsory dissolution
    • (C) Dissolution by court
    • (D) Dissolution by agreement
      Answer: (C)

Additional MCQs on Dissolution of Partnership Firm

  1. Dissolution by mutual consent of partners requires the consent of:

    • (A) Majority of partners
    • (B) All partners
    • (C) At least two partners
    • (D) None of the above
      Answer: (B)

  2. Which of the following is not a mode of dissolution of a firm?

    • (A) Dissolution by notice
    • (B) Change in profit-sharing ratio
    • (C) Compulsory dissolution
    • (D) Dissolution by agreement
      Answer: (B)

  3. In a partnership at will, the firm is dissolved by notice if:

    • (A) All partners sign the notice
    • (B) A single partner gives notice in writing
    • (C) Majority of partners vote in favor of dissolution
    • (D) A court intervenes
      Answer: (B)

  4. The Garner vs. Murray rule is applicable when:

    • (A) All partners are solvent
    • (B) A partner is insolvent
    • (C) The partnership is reconstituted
    • (D) The firm faces legal issues
      Answer: (B)

  5. On dissolution, after paying liabilities to external parties, the balance of assets is used to pay:

    • (A) Partners' capital accounts
    • (B) Partners' loans
    • (C) General reserve
    • (D) Realisation expenses
      Answer: (B)

  6. Which of the following liabilities are paid first during dissolution?

    • (A) Partner's loans
    • (B) Secured external liabilities
    • (C) Partner's capital
    • (D) Unsecured liabilities
      Answer: (B)

  7. Which of the following statements is true?

    • (A) Dissolution of a firm always leads to dissolution of partnership
    • (B) Dissolution of partnership always leads to dissolution of a firm
    • (C) Partnership continues even after firm dissolution
    • (D) Both partnership and firm dissolution are the same
      Answer: (A)

  8. Unrecorded liabilities are accounted for during dissolution by:

    • (A) Ignoring them
    • (B) Recording them in the Realisation Account
    • (C) Adding them to partner's capital
    • (D) Writing them off as a loss
      Answer: (B)

  9. When assets are sold during dissolution, the amount received is credited to:

    • (A) Realisation Account
    • (B) Partner's Capital Account
    • (C) Profit and Loss Account
    • (D) Bank Account
      Answer: (D)

  10. Which account is prepared to ascertain the profit or loss on dissolution?

    • (A) Profit and Loss Account
    • (B) Realisation Account
    • (C) Cash Flow Statement
    • (D) Balance Sheet
      Answer: (B)

  11. Which of these is transferred to the debit side of Realisation Account?

    • (A) Partner’s capital
    • (B) Assets (except cash/bank)
    • (C) External liabilities
    • (D) General reserve
      Answer: (B)

  12. Who bears the realisation expenses if not specified otherwise?

    • (A) All partners equally
    • (B) A designated partner
    • (C) The firm
    • (D) Paid by the creditors
      Answer: (C)

  13. Accumulated profits and reserves during dissolution are:

    • (A) Credited to Realisation Account
    • (B) Credited to Partner’s Capital Account
    • (C) Credited to Bank Account
    • (D) Credited to General Reserve
      Answer: (B)

  14. An unrecorded asset taken over by a partner is:

    • (A) Debited to Realisation Account
    • (B) Debited to Partner’s Capital Account
    • (C) Credited to Partner’s Capital Account
    • (D) Credited to Realisation Account
      Answer: (D)

  15. If a creditor accepts an asset in full settlement of their account, the journal entry includes:

    • (A) Debit Partner’s Capital Account
    • (B) Credit Realisation Account
    • (C) Debit Realisation Account
    • (D) No entry is made
      Answer: (D)

  16. What happens if a partner is unable to pay their share of the firm’s loss?

    • (A) The loss is written off
    • (B) Other partners bear the loss in their capital ratio
    • (C) The loss is distributed equally
    • (D) It is ignored in the accounts
      Answer: (B)

  17. What is credited when a partner pays a liability directly on behalf of the firm?

    • (A) Realisation Account
    • (B) Partner’s Capital Account
    • (C) Bank Account
    • (D) Liability Account
      Answer: (B)

  18. Which of the following is shown on the credit side of Realisation Account?

    • (A) Assets taken over by partners
    • (B) External liabilities
    • (C) Bank overdraft
    • (D) Dissolution expenses
      Answer: (A)

  19. When a firm’s liabilities exceed its assets, the deficiency is:

    • (A) Shared equally among partners
    • (B) Paid by the solvent partners in profit-sharing ratio
    • (C) Paid by all partners equally
    • (D) Ignored as a loss
      Answer: (B)

  20. If realisation expenses exceed the agreed amount, the excess is:

    • (A) Paid by the partner responsible
    • (B) Paid by the firm
    • (C) Added to the loss on realisation
    • (D) Ignored in accounts
      Answer: (A)

  1. If a partner agrees to bear realisation expenses, the firm:

    • (A) Pays the partner the agreed amount
    • (B) Bears the entire cost itself
    • (C) Distributes the cost among partners
    • (D) Does not record the expenses
      Answer: (A)

  2. In a Realisation Account, liabilities transferred are shown on the:

    • (A) Debit side
    • (B) Credit side
    • (C) Both debit and credit side
    • (D) Bank Account
      Answer: (B)

  3. If a liability is settled by handing over an asset, the entry for cash payment includes:

    • (A) Only the cash paid
    • (B) The full liability value
    • (C) The asset’s book value
    • (D) No entry is made
      Answer: (A)

  4. Assets realized at values higher than their book value result in:

    • (A) Profit on realisation
    • (B) Loss on realisation
    • (C) Adjustment in Capital Account
    • (D) No effect on realisation
      Answer: (A)

  5. Loss on dissolution is transferred to:

    • (A) Realisation Account
    • (B) Partner’s Capital Account
    • (C) Profit and Loss Account
    • (D) None of the above
      Answer: (B)

  6. How is an insolvent partner’s capital deficiency treated?

    • (A) Written off as a loss
    • (B) Recovered from creditors
    • (C) Borne by solvent partners in their capital ratio
    • (D) Ignored
      Answer: (C)

  7. If a partner takes over a liability, the Realisation Account is:

    • (A) Debited
    • (B) Credited
    • (C) Adjusted in the Partner’s Loan Account
    • (D) Ignored
      Answer: (A)

  8. When the firm is dissolved, the amount left after paying all liabilities is distributed:

    • (A) Equally among partners
    • (B) As per capital balances
    • (C) In profit-sharing ratio
    • (D) As decided by the court
      Answer: (C)

  9. A partner’s loan appearing on the liabilities side of the balance sheet is settled by:

    • (A) Crediting the loan account
    • (B) Paying through Realisation Account
    • (C) Direct payment from Bank Account
    • (D) Transferring to Capital Account
      Answer: (C)

  10. When creditors accept an asset in full settlement, the Realisation Account is:

    • (A) Credited with the asset value
    • (B) Debited with the asset value
    • (C) Credited with the liability amount
    • (D) Ignored
      Answer: (C)

  11. What is the treatment of goodwill during dissolution if not recorded earlier?

    • (A) It is written off
    • (B) It is realised and transferred to Realisation Account
    • (C) It is credited to Profit and Loss Account
    • (D) It is distributed among partners
      Answer: (B)

  12. Which of the following is prepared to show the effect of dissolution?

    • (A) Realisation Account
    • (B) Profit and Loss Account
    • (C) Balance Sheet
    • (D) Cash Flow Statement
      Answer: (A)

  13. Unrecorded liabilities settled during dissolution are:

    • (A) Credited to Partner’s Capital Account
    • (B) Debited to Realisation Account
    • (C) Debited to Profit and Loss Account
    • (D) Ignored
      Answer: (B)

  14. Who bears the realisation expenses if the agreement is silent?

    • (A) The firm
    • (B) Solvent partners
    • (C) Partners in profit-sharing ratio
    • (D) The court appoints a responsible partner
      Answer: (A)

  15. Realisation expenses paid by a partner are:

    • (A) Debited to Partner’s Capital Account
    • (B) Credited to Realisation Account
    • (C) Debited to Realisation Account
    • (D) Credited to Partner’s Loan Account
      Answer: (A)

  16. When unrecorded assets are realised, they are:

    • (A) Debited to Realisation Account
    • (B) Credited to Bank Account
    • (C) Credited to Realisation Account
    • (D) Ignored
      Answer: (C)

  17. When a firm’s debts are more than the firm's assets, the partner's private property is used:

    • (A) To pay the firm’s debts only after settling private debts
    • (B) To pay firm debts directly
    • (C) To pay both debts equally
    • (D) Only for private debts
      Answer: (A)

  18. When a partner agrees to complete the dissolution work for a fee, the fee is:

    • (A) Debited to Realisation Account
    • (B) Credited to Realisation Account
    • (C) Debited to Partner’s Capital Account
    • (D) Ignored in accounting
      Answer: (A)

  19. If a partner’s capital account shows a debit balance on dissolution, the partner:

    • (A) Pays the deficit in cash
    • (B) Contributes through unrecorded assets
    • (C) Recovers it from solvent partners
    • (D) Does not pay anything
      Answer: (A)

  20. Which account is used to pay external liabilities after dissolution?

    • (A) Realisation Account
    • (B) Bank Account
    • (C) Partner’s Capital Account
    • (D) Partner’s Loan Account
      Answer: (B)
    

  1. Which of the following is transferred to the credit side of the Realisation Account?

    • (A) All assets
    • (B) All liabilities
    • (C) Proceeds from the sale of assets
    • (D) Capital balances
      Answer: (C)

  2. When a partner takes over stock during dissolution, the journal entry includes:

    • (A) Debit Realisation Account and Credit Partner’s Capital Account
    • (B) Debit Partner’s Capital Account and Credit Realisation Account
    • (C) Debit Stock Account and Credit Partner’s Capital Account
    • (D) Debit Stock Account and Credit Bank Account
      Answer: (B)

  3. The balance in Realisation Account represents:

    • (A) Net profit/loss on realisation
    • (B) Capital balances of partners
    • (C) Partner’s personal liabilities
    • (D) Bank overdraft
      Answer: (A)

  4. On dissolution, goodwill not shown in the books is:

    • (A) Written off as a loss
    • (B) Sold and transferred to Realisation Account
    • (C) Distributed among partners equally
    • (D) Ignored
      Answer: (B)

  5. If a liability is settled for less than its book value, the difference is treated as:

    • (A) A profit on realisation
    • (B) A loss on realisation
    • (C) Capital adjustment
    • (D) Realisation expenses
      Answer: (A)

  6. Assets taken over by creditors in full settlement are:

    • (A) Debited to Partner’s Capital Account
    • (B) Credited to Realisation Account
    • (C) Debited to Realisation Account
    • (D) Ignored in accounting
      Answer: (B)

  7. What happens to the balance of General Reserve on dissolution?

    • (A) Transferred to Realisation Account
    • (B) Shared among partners in profit-sharing ratio
    • (C) Credited to Bank Account
    • (D) Used to pay liabilities
      Answer: (B)

  8. On dissolution, unrecorded assets are:

    • (A) Distributed among partners
    • (B) Sold and credited to Realisation Account
    • (C) Transferred to Capital Account
    • (D) Ignored
      Answer: (B)

  9. Which account records the payment of liabilities during dissolution?

    • (A) Realisation Account
    • (B) Profit and Loss Account
    • (C) Bank Account
    • (D) Capital Account
      Answer: (C)

  10. When a firm is dissolved, the firm's debts are settled:

    • (A) After settling partners' private debts
    • (B) Before partners' private debts
    • (C) Simultaneously with private debts
    • (D) Only if the firm has sufficient assets
      Answer: (B)

  11. When is a Realisation Account debited during dissolution?

    • (A) When assets are sold
    • (B) When liabilities are paid
    • (C) When partners take over liabilities
    • (D) All of the above
      Answer: (D)

  12. The payment to creditors during dissolution is made through:

    • (A) Bank Account
    • (B) Realisation Account
    • (C) Partner’s Capital Account
    • (D) None of the above
      Answer: (A)

  13. Which of the following expenses is recorded in Realisation Account?

    • (A) Day-to-day operational expenses
    • (B) Realisation expenses
    • (C) Personal expenses of partners
    • (D) Office renovation expenses
      Answer: (B)

  14. What is transferred to the credit side of the Partner’s Capital Account on dissolution?

    • (A) Realisation profits
    • (B) Accumulated losses
    • (C) Liabilities taken over
    • (D) None of the above
      Answer: (A)

  15. If assets are realised at less than book value, it results in:

    • (A) Profit on realisation
    • (B) Loss on realisation
    • (C) No effect on accounts
    • (D) A gain for creditors
      Answer: (B)

  16. When a partner’s loan appears on the asset side of the balance sheet, it is:

    • (A) Settled through Realisation Account
    • (B) Paid through Bank Account
    • (C) Adjusted with Capital Account
    • (D) Ignored during dissolution
      Answer: (C)

  17. Who is paid first during dissolution?

    • (A) Partners’ private creditors
    • (B) Firm’s external creditors
    • (C) Partners’ capital balances
    • (D) Solvent partners
      Answer: (B)

  18. What is the nature of Realisation Account?

    • (A) Personal account
    • (B) Nominal account
    • (C) Real account
    • (D) None of the above
      Answer: (B)

  19. What happens to fictitious assets during dissolution?

    • (A) Written off against Capital Account
    • (B) Credited to Realisation Account
    • (C) Sold like other assets
    • (D) Ignored
      Answer: (A)

  20. Which of the following is not closed on dissolution?

    • (A) Realisation Account
    • (B) Partner’s Capital Account
    • (C) Partner’s Loan Account
    • (D) Bank Account
      Answer: (D)

  21. What is transferred to the debit side of Realisation Account?

    • (A) Assets and liabilities
    • (B) Assets only
    • (C) Liabilities only
    • (D) None of the above
      Answer: (B)

  22. Accumulated losses on dissolution are:

    • (A) Transferred to Realisation Account
    • (B) Shared among partners in profit-sharing ratio
    • (C) Ignored as they are already written off
    • (D) Written off using bank balance
      Answer: (B)

  23. Which of the following is true for contingent liabilities during dissolution?

    • (A) They are ignored
    • (B) They are settled if they materialize
    • (C) They are shown in the Balance Sheet
    • (D) They are transferred to Capital Account
      Answer: (B)

  24. If a partner takes over an asset, the corresponding entry is made in:

    • (A) Realisation Account and Partner’s Capital Account
    • (B) Bank Account and Partner’s Capital Account
    • (C) Profit and Loss Account and Realisation Account
    • (D) None of the above
      Answer: (A)

  25. On dissolution, who settles the firm’s debts first?

    • (A) Partners
    • (B) External creditors
    • (C) Employees
    • (D) The court
      Answer: (B)

  26. When an unrecorded liability is identified during dissolution, it is:

    • (A) Paid and debited to Realisation Account
    • (B) Transferred to Partner’s Loan Account
    • (C) Shared among partners equally
    • (D) Ignored
      Answer: (A)

  27. Which of the following is credited to the Partner’s Capital Account during dissolution?

    • (A) Realisation profit
    • (B) Accumulated losses
    • (C) Fictitious assets
    • (D) None of the above
      Answer: (A)

  28. Realisation expenses agreed upon with a partner are:

    • (A) Credited to Realisation Account
    • (B) Debited to Partner’s Capital Account
    • (C) Paid directly by Bank Account
    • (D) Debited to Realisation Account
      Answer: (D)

  29. Unrealized assets during dissolution are:

    • (A) Written off as a loss
    • (B) Transferred to Partner’s Capital Account
    • (C) Adjusted with creditors’ payments
    • (D) Ignored
      Answer: (A)

  30. Realisation Account is finally closed by transferring its balance to:

    • (A) Bank Account
    • (B) Partner’s Capital Accounts
    • (C) Partner’s Current Accounts
    • (D) Profit and Loss Account
      Answer: (B)

  31. Who bears the loss of a partner unable to contribute due to insolvency?

    • (A) Remaining solvent partners in their profit-sharing ratio
    • (B) Creditors of the firm
    • (C) The court-appointed arbitrator
    • (D) Firm’s bank account
      Answer: (A)

  32. If dissolution expenses exceed the agreed amount, the excess is borne by:

    • (A) The partner managing dissolution
    • (B) All partners in profit-sharing ratio
    • (C) Credited to Realisation Account
    • (D) Written off
      Answer: (A)

  33. Which type of liability is settled after external creditors?

    • (A) Partners’ loans
    • (B) Bank overdrafts
    • (C) Contingent liabilities
    • (D) Partner’s private debts
      Answer: (A)

  34. If creditors accept an asset valued more than the debt, the excess is:

    • (A) Credited to Realisation Account
    • (B) Credited to Bank Account
    • (C) Written off as a loss
    • (D) Paid back to the firm
      Answer: (D)

  35. When partners agree to dissolve the firm, the mode is called:

    • (A) Dissolution by court
    • (B) Dissolution by agreement
    • (C) Compulsory dissolution
    • (D) Dissolution by contingency
      Answer: (B)

  36. When unrecorded assets are realized, they are:

    • (A) Credited to Realisation Account
    • (B) Debited to Partner’s Capital Account
    • (C) Debited to Bank Account
    • (D) Written off
      Answer: (A)

  37. The Realisation Account is credited when:

    • (A) Assets are realized
    • (B) Liabilities are transferred
    • (C) Partners take over liabilities
    • (D) Realisation expenses are incurred
      Answer: (A)

  38. The last payment in dissolution is made to:

    • (A) External creditors
    • (B) Partners' loan accounts
    • (C) Partners' capital accounts
    • (D) Unrecorded liabilities
      Answer: (C)

  39. Realisation profit or loss is divided among partners based on:

    • (A) Capital ratio
    • (B) Profit-sharing ratio
    • (C) Equal ratio
    • (D) Solvent partner’s ratio
      Answer: (B)

  40. What is the key objective of Realisation Account?
    - (A) Prepare a new balance sheet
    - (B) Record profit-sharing changes
    - (C) Ascertain profit or loss on dissolution
    - (D) Record liabilities taken over by partners
    Answer: (C)

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