M.

COM SEM IV/PAPER CODE - 67501/CORPORATE FINANCIAL ACCOUNTING

QUESTION BANK
SR. CORRECT
QUESTION OPTION_1 OPTION_2 OPTION_3 OPTION_4 SOLUTION
NO ANSWER

Your cumulative arrears of preference dividend are ₹100 m, including for

the current year preference dividends of ₹20 m. During the year, you have Nothing, as no
The entire cumulative
1 not declared any dividends either on equity shares or on preference ₹20 m dividend has been ₹100 m 2 ₹20 m
arrears of 100 m
shares. In calculating the EPS, you should reduce from the profits for the declared by the entity
year:

Any change in the

The weighted average number of shares outstanding during the period for Any convertible Any change in the number of
Any new issue of shares Any prior-year number of ordinary
2 all periods (other than the conversion of potential ordinary shares) should instruments 3 ordinary shares without a
for cash adjustment shares without a
be adjusted for settled in cash change in resources
change in resources

The weighted
The weighted average The weighted average
Number of ordinary Number of ordinary average number of
Basic earnings per share should be calculated by dividing the profit or loss number of shares number of shares
3 shares outstanding at shares outstanding at shares outstanding 3
for the period by the outstanding during the outstanding during the
the start of the period the end of the period at the start of the
period period
period

Shares, that will be issued upon the conversion of a mandatorily

The date that the new The date the contract The date of The date the contract is
4 convertible instrument, are included in the calculation of basic earnings The date of conversion 3
shares are registered is entered into redemption entered into
per share from

From the date when all From the date when all
Contingently issuable shares are treated as outstanding, and are included The date the contract The date that the new At the end of the
5 necessary conditions are 1 necessary conditions are
in the calculation of basic earnings per share is entered into shares are registered current period
satisfied satisfied
 M.COM SEM IV/PAPER CODE - 67501/CORPORATE FINANCIAL ACCOUNTING
QUESTION BANK
SR. CORRECT
QUESTION OPTION_1 OPTION_2 OPTION_3 OPTION_4 SOLUTION
NO ANSWER

As if the event had

In a bonus issue, the number of shares, outstanding before the event, is As if the event had occurred
At the start of the At the date of the occurred at the start of At the end of the
6 adjusted for the proportionate change in the number of shares 3 at the start of the earliest
current period capitalisation issue the earliest period current period
outstanding period presented
presented

Earnings per share is calculated before accounting for which of the Preference dividend
7 Ordinary Dividend Taxation Minority Interest 1 Ordinary Dividend
following items for the period

More than the

Less than the average More than the average The average market Less than the average
Options and warrants are dilutive, when they would result in the issue of average face value
8 market price of shares market price of shares price of shares during 1 market price of shares
shares for of shares during
during the period during the period the period during the period
the period

At the start of the At the end of the

Staff share options with fixed terms are treated as options in the
9 On the exercise date On the grant date earliest period earliest period 2 On the grant date
calculation of diluted earnings per share. They are treated as outstanding
presented presented.

When an undertaking has issued a contract that may be settled in shares,

The more dilutive of
10 or for cash, at the undertaking's option, the undertaking should presume Shares Cash Average of the two 1 Shares
the two
that the contract will be settled in
 M.COM SEM IV/PAPER CODE - 67501/CORPORATE FINANCIAL ACCOUNTING
QUESTION BANK
SR. CORRECT
QUESTION OPTION_1 OPTION_2 OPTION_3 OPTION_4 SOLUTION
NO ANSWER
An decrease in An decrease in
An increase in earnings
An increase in earnings earnings per share earnings per share An decrease in earnings per
per share when
per share when ordinary when convertible when ordinary share when convertible
11 Dilution is convertible insruments 2
shares are converted to insruments are shares are insruments are converted to
are converted to
convertible instruments converted to ordinary converted to ordinary shares
ordinary shares
shares convertible

The previous
The previous year's EPS Only the diluted EPS Only a note of the
When an enterprise makes a bonus issue / stock split / stock dividend or a year's EPS is The previous year's EPS is
12 is not adjusted for the for the previous year is effect on the previous 4
rights issue, then adjusted for the adjusted for the issue
issue adjusted year's EPS is made
issue

ABC Ltd. is having Issued Share Capital of 40,00,000 shares on 01.01.2013.

13 It issued further 20,00,000 shares for cash on 01.10.2013. Its weighted 42,50,000 shares 45,00,000 shares 50,00,000 shares 60,00,000 shares 2 45,00,000 shares
average number of shares will be

Both Profit from

Profit from Average Profit
A company uses _______ as the control number, to establish whether Profit from continuing continuing and Profit from continuing
14 discontinuing from continuing 1
potential shares are dilutive, or anti-dilutive. operations discontinuing operations
operations operations
operations

Either in
consolidated or
When an undertaking presents both consolidated and separate financial Only for the
For both sets of Only for the separate separate financial Only for the consolidated
15 statements, the disclosures required by IND-AS 33 required to be consolidated 2
statements financial statements statements as information
presented mandatorily information
elected by the
entity
 M.COM SEM IV/PAPER CODE - 67501/CORPORATE FINANCIAL ACCOUNTING
QUESTION BANK
SR. CORRECT
QUESTION OPTION_1 OPTION_2 OPTION_3 OPTION_4 SOLUTION
NO ANSWER

As a fraction of an
In the same way as ordinary share to As a fraction of an ordinary
Are ignored for the
Where ordinary shares are issued but not fully paid, then the ordinary In the same way as fully warrants or options the extent that share to the extent that they
16 purposes of basic and 4
shares are treated in the calculation of basic EPS paid ordinary shares and are included only they are entitled are entitled to participate in
diluted EPS
in diluted EPS to participate in dividends
dividends

It is probable that The timing difference

It is virtually It is probable that taxable
There is a reasonable taxable profit will be arises except when the
Under IND-AS 12 Income Taxes, deferred tax assets arising from certain that the profit will be available
17 expectation of available against which carrying amount and 2
deductible temporary differences are recognised when timing difference against which the deferred
realisation the deferred tax asset tax base differs at
will be realised tax asset can be utilized
can be utilized initial recognition
Warranty costs
Revenue from Depreciation used for recognised for
installment sales Recognition of goodwill accounting purposes accounting
Which of the following examples would not give rise to a temporary Recognition of goodwill in a
18 recognised under the in a business whilst an accelerated purposes but not 2
difference? business combination
installment method for combination. method is used for tax recognized for tax
taxation. purposes. purposes until
paid.
When two companies A Ltd. and B Ltd. amalgamate into, say AB Ltd., it is
19 the hope that the Value of AB Ltd. will be more than the sum of values of Goodwill Economic Value Synergy Present Value 3 Synergy
A Ltd. and B Ltd. This is known as
Which is the best method among these for valuation of a firm where not
Net Asset Based
20 much data about is profit is available and its shares are not actively Market Value Discounted Cash Flow Both a & b 3 Net Asset Based Approach
Approach
traded?
 M.COM SEM IV/PAPER CODE - 67501/CORPORATE FINANCIAL ACCOUNTING
QUESTION BANK
SR. CORRECT
QUESTION OPTION_1 OPTION_2 OPTION_3 OPTION_4 SOLUTION
NO ANSWER

N Ltd. values goodwill as 2 year's purchase of super profit. The normal

earning in its line of business is 12% on capital employed. Its Balance
sheet shows fixed Assets ₹ 2,10,000, Current Assets ₹ 1,40,000 and
21 37,800 70,200 1,40,400 1,08,000 3 1,40,400
Current liabilities ₹ 35,000. The trading profits of last four years are 2014 -
₹ 1,24,000, 2013 - ₹ 98,000 2012 - ₹ 1,00,000, 2011 - ₹ 1,10,000
Goodwill under Super profit method
The profits and losses were: 2011 - Profit ₹20,000; 2012 - Loss ₹34,000;
2013 – Profit ₹1,00,000; 2014 - Profit ₹1,50,000. The average capital
employed in the business is ₹4,00,000. The rate of interest expected from
22 capital invested in that class of business is 10%. The remuneration of 60,000 50,000 20,000 40,000 4 40,000
directors is estimated to be ₹12,000 p.a. Calculate the value of goodwill
on the basis of 2 years' purchase of Super Profit based on the average of 3
years.

On 1st April 2014, an existing company had assets of ₹1,50,000, including

cash of ₹10,000. Its creditors amounted to ₹10,000 on that date. The
company had a Reserve Fund of ₹20,000 while Capital account showed a
23 60,000 40,000 50,000 48,000 2 40,000
balance of ₹1,20,000. If the normal rate of return is 20% and the goodwill
of the company is valued at 48,000 at four years' purchase of super
profits, find the average profits per year of the existing company.

A company earns profit of ₹2,00,000. The normal rate of return in the

similar type of business is 10%. The value of total assets (excluding
24 goodwill) and total outside liabilities as on the date of valuation of 2000000 164000 1640000 360000 4 360000
goodwill are ₹22,00,000 and ₹5,60,000 respectively. Calculate the value
of goodwill according to Capitalization of Super Profits Method.
Calculate the value of Goodwill according to 10 years Purchase of Super
25 3,60,000 20,00,000 16,40,000 1,64,000 1 3,60,000
Profits method in the previous question.
 M.COM SEM IV/PAPER CODE - 67501/CORPORATE FINANCIAL ACCOUNTING
QUESTION BANK
SR. CORRECT
QUESTION OPTION_1 OPTION_2 OPTION_3 OPTION_4 SOLUTION
NO ANSWER

Calculate goodwill if in the company average capital employed is ₹60,000

and normal rate of return is 10%, the average profit for last 5 years is
26 6,000 36,000 12,000 9,000 4 9,000
₹12,000 and goodwill is estimated at 3 years' purchase of super profits,
remuneration to director’s ₹3,000.

Goodwill is to be valued at 3 years purchased of Average profit of last 5

years. Profit for the last five years are given below:
Profit ₹16,000
27 Profit ₹15,000 ₹ 24,000 ₹ 33,600 ₹ 30,000 ₹ 35,000 1 ₹ 24,000
Loss ₹8,000
Profit ₹7,000
Profit ₹10,000
You are asked to calculate the amount of goodwill
Goodwill should be valued on the basis of 2 years purchase of last 4 years'
average profit. The profits were:
Year Profit (₹)
28 2010-11 1,24,000 ₹ 4,54,000 ₹ 2,27,000 ₹ 3,02,667 ₹ 3,05,800 2 ₹ 2,27,000
2011-12 1,20,000
2012-13 80,000
2013-14 1,30,000
Calculate value of goodwill.
The profit for the four years from 2010 to 2013 ₹40,000, ₹45,000,
29 ₹55,000, ₹53,000. Calculate the goodwill at 2.5 years purchase of the 1,20,625 96,500 12,06,250 1,93,000 1 1,20,625
average profit for last 3 years.
M/s Tirupati Traders Ltd. capital employed is ₹1,00,000. The normal rate
of return in similar type of business is 10%.
30 The last three years profits of M/s Tirupati Traders Ltd. are ₹20,000, ₹ 20,000 ₹ 26,667 ₹ 30,000 ₹ 37,000 1 ₹ 20,000
₹18,000 and ₹22,000 respectively.
The Goodwill is to be valued at 2 years purchase of super profit.
 M.COM SEM IV/PAPER CODE - 67501/CORPORATE FINANCIAL ACCOUNTING
QUESTION BANK
SR. CORRECT
QUESTION OPTION_1 OPTION_2 OPTION_3 OPTION_4 SOLUTION
NO ANSWER

The Capital employed is ₹1,50,000. The average profit for last 3 years is
31 ₹22,000 and the normal rate of return in the business is 8%. Calculate 22,000 66,000 20,000 30,000 4 30,000
Goodwill at 3 years purchase of the Super profit.

K Ltd. announced a rights issue of four shares of 100 each at a premium of

32 160% for every five share held by the existing shareholders. The market 124 352 80 110 3 80
value of the share at the time of rights issue is 440. The value of right is

The equity share capital of W Ltd. consists of 1,50,000 equity shares of

₹10 each fully paid-up. The net profits for the past three years are:
₹2,52,500, ₹3,10,000 and ₹4,50,000. Out of these profits, 20% is
33 ₹ 15.00 ₹ 8.33 ₹ 6.67 ₹ 12.00 4 ₹ 12.00
transferred to general reserve.
If the normal rate of return is 15%, the value of share under the yield
method is
Determine the market price per share of a firm having equity capital of
34 ₹1,00,000 (face value of ₹50 per share) the profit after taxes is ₹12,000 30 60 50 20 1 30
and P/E ratio is 5.
The entity should
A manufacturing group has just acquired a controlling interest in a Royal The entity should be The entity should not The entity should be
The entity should not not be
Knights - T20 entity that is listed on a stock exchange. The management of consolidated as there is be consolidated using consolidated as there is no
be consolidated and consolidated;
the manufacturing group wishes to exclude the Royal Knights - T20 entity no exemption from the purchase method exemption from
35 should appear as an details should be 1
from the consolidated financial statements on the grounds that its consolidation on the but should be consolidation on the
investment in the disclosed in the
activities are dissimilar. How should the Royal Knights - T20 entity be grounds of dissimilar consolidated using grounds of dissimilar
group accounts financial
accounted for? activities equity accounting activities
statements
XYZ Company purchased ABC Company. If the purchase consideration
Debited to Capital Credited to Goodwill Credited to Capital
36 paid by XYZ. Company exceeds the value of net assets of ABC Company, Debited to Goodwill A/C 1 Debited to Goodwill A/C
Reserve A/C A/C Reserve A/c
the balance is
 M.COM SEM IV/PAPER CODE - 67501/CORPORATE FINANCIAL ACCOUNTING
QUESTION BANK
SR. CORRECT
QUESTION OPTION_1 OPTION_2 OPTION_3 OPTION_4 SOLUTION
NO ANSWER

In the year to 31March 2010, F Acquired 75% of the share capital of S Ltd.
For Rs 360000. At the date of the acquisition, S had 25000 shares of Rs 10
37 40000 60000 127500 290000 2 60000
each and retained profit of Rs 150000, What is the value of Goodwill
arising on the acquisition?
Profits earned by the Profits earned by the
subsidiary company up Post-acquisition profits Post-acquisition profits Pre-acquisition subsidiary company up to
38 Capital profits are to the date of of the subsidiary of the holding profits of the 1 the date of acquisition of
acquisition of shares by company company holding company shares by the holding
the holding company company
The profits after the The profits earned
The post-acquisition The post-acquisition financial year but by the holding
Revenue profits for consolidation of balance sheet of holding company The post-acquisition profits
39 profits of holding profits of subsidiary before the date of company from 2
and subsidiary company are of subsidiary company
company company acquisition of regular
subsidiary company transactions
Inter-company
Inter-company profit Inter-company profit on
In the process of preparing consolidated financial statements, which of Inter-company profit in Inter-company profit in profit on inventory
40 on inter-company sale 4 inventory sold to a non-
the following items need not to be eliminated? the beginning inventory ending inventory sold to a non-
of a fixed asset affiliated company
affiliated company
A decrease in
A 70% owned subsidiary company declares and pays a cash dividend. No effect on either No effect on reserves Decreases in both
reserves and no No effect on reserves and a
41 What effect does the dividend have on the reserves and minority interest reserves or minority and a decrease in reserves and minority 2
effect on minority decrease in minority interest
balances in the parent company's consolidated balance sheet? interest minority interest interest
interest
According to which of the following accounting concepts consolidated
42 financial statements are prepared when a parent-subsidiary relationship Going concern Business entity Materiality Cost 2 Business entity
exists?
 M.COM SEM IV/PAPER CODE - 67501/CORPORATE FINANCIAL ACCOUNTING
QUESTION BANK
SR. CORRECT
QUESTION OPTION_1 OPTION_2 OPTION_3 OPTION_4 SOLUTION
NO ANSWER

Should be
Should be eliminated
eliminated to the
Should be eliminated in to the extent of Need not be
43 Intra group balances and transactions resulting in unrealized profits extent the 1 Should be eliminated in full
full holding company's eliminated
management
share
thinks appropriate

The shares of subsidiary company held by outsiders other than the Share capital of Share capital of holding
44 Minority Interest Owner's Equity 1 Minority Interest
holding company are in aggregate called as subsidiary company company
On March 1, 2010, H Ltd. drew two bills on S Ltd. its subsidiary, for 10,000
each. On the same day, H Ltd. discounted one bill with a bank @ 8%. On
March 31, 2010, the balances of bills receivable account of H Ltd. and S
45 80000 40000 70000 60000 4 60000
Ltd. were ₹30,000 and ₹40,000 respectively. The amount of bills
receivable shown in the Consolidated Balance Sheet as on March 31, 2010
was
H Ltd. acquired 75% shares in S Ltd. S Ltd. supplied to H Ltd. goods of the
Reduce ₹4,500
invoice value of ₹50,000 of which 60% of the goods were still in stock of H Reduce ₹5,625 from Reduce ₹5,625 from Reduce ₹4,500 from Reduce ₹4,500 from Profit &
46 from Stock 3
Ltd. S Ltd. made a total profit of ₹10,000 on goods sold to H Ltd. At the Stock account Profit & Loss account Profit & Loss account Loss account
account
time of preparation of consolidation of balance sheet, the adjustment will

W ltd owns 80% Of the Equity Shares of F Ltd. On December 31, 2009, F
W Ltd.'s original
Ltd. sold equipment to W Ltd. at a price in excess of F Ltd.'s carrying W Ltd.'s original cost
cost less 80% of F W Ltd.'s original cost less F
47 amount, but less than its original cost. On a consolidated balance sheet at W Ltd.'s original cost F Ltd.'s original cost less F Ltd.'s recorded 3
Ltd.'s recorded Ltd.'s recorded gain
December 31, 2009, the carrying amount of the (cost less accumulated gain
gain
depreciation) equipment should be reported at:
 M.COM SEM IV/PAPER CODE - 67501/CORPORATE FINANCIAL ACCOUNTING
QUESTION BANK
SR. CORRECT
QUESTION OPTION_1 OPTION_2 OPTION_3 OPTION_4 SOLUTION
NO ANSWER

H Ltd. purchased 70% shares of S Ltd. at ₹1,40,000. S Ltd. has the capital of
₹1,00,000 in shares of 100 each. At the time of purchase of shares by H Ltd. the
₹7,000 (Capital
48 profit of s Ltd. was ₹90,000. S Ltd. decided to make a bonus issue out of pre- ₹70,000 (Goodwill) ₹77,000 (Goodwill ₹7,000 (Goodwill) 3 ₹7,000 (Goodwill)
reserve)
acquisition profit of one share of ₹100 each fully paid for every four shares held.

Goodwill or capital reserve before issue of bonus shares is

Holding company acquired 70% of its subsidiary company shares of
November 1, 2009. The profit and loss account of the subsidiary company
49 showed a debit balance of 50,000 on April 1, 2009 and a credit balance of ₹ 50,000 ₹ 43,750 ₹ 35,000 ₹ 30,625 4 ₹ 30,625
₹25,000 on March 31, 2010. The share of capital profit of holding
company is
P Ltd. owns 100% of S Ltd. On January 1, 2010, P Ltd. sold S Ltd. delivery
equipment at a gain. P Ltd. had owned the equipment for two years and
used a five-year straight-line depreciation rate with no residual value. S
33 1/3% of the gain on 100% of the gain
50 Ltd. is using a three-year straight-line depreciation rate with no residual 20% of the gain on sale 50% of the gain on sale 2 33 1/3% of the gain on sale
sale on sale
value for the equipment. In the consolidated income statement, S Ltd.'s
recorded depreciation expense on the equipment for 2010 will be
decreased by: