Important Questions for CBSE Class 12 Accountancy Financial Statements of a company

1.Financial Statements The statements which are prepared to ascertain the profit earned or loss suffered and position of assets and liabilities at a particular date are known as financial statements. These are the final product of accounting process.
A set of financial statements as per Section 2(40) of the Companies Act, 2013 include
(i) Balance sheet i.e. position statement
(ii)Statement of profit and loss i.e. income statement
(iii)Notes to accounts
(iv)Cash flow statement
Section 129 of the Companies Act, 2013 requires the company to prepare its financial statements every year in prescribed form i.e. Schedule III of the Companies Act, 2013.

2.Characteristics of Financial Statements
(i)Financial statements are historical documents as they relate to past period.
(ii)Financial statements are prepared in monetary terms.
(iii)Balance sheet reveals the financial position and statement of profit and loss shows the profitability of the business organisation.

3.Nature of Financial Statements
(i)Recorded facts
(ii)Accounting conventions
(iii)Postulates

4.Objectives of Financial Statements
(i) Financial statements provide the information about the earning capacity of the business.
(ii) Financial statements provide the information about the economic resources and obligation of an enterprise.
(iii)Financial statements also provide the information about the cash flows.
(iv)Financial statements supply the information useful for judging the management’s ability to utilise the resources of business effectively.
(v)Financial statements have to report the activities of the business organisation affecting the society, which are important in its social environment.

5.Essentials of Financial Statements
(i)Accurate information
(ii)Understandability
(iii)Comparable
(iv)Verifiable
(v)Relevant
(vi)Timeliness

6.Uses and Importance of Financial Statements
(i)Report on stewardship function
(ii)Basis for fiscal policies
(iii)Basis of granting of credit
(iv)Basis for prospective investors
(v)Guide to the value of the investment already made
(vi)Aids trade associations in helping their members

7.Limitations of Financial Statements
(i)Accounting concepts and conventions involve personal judgement, so these statements are not free from bias.
(ii)Qualitative aspects of financial statements are ignored.
(iii)The present value of assets and liabilities and price-level changes are ignored.
(iv)Financial statements are historical in nature and relate to past period only.

8.Users of Financial Statements
(i)Owners including shareholders and investors
(ii)Debentureholders and financial institutions (bankers)
(iii)Creditors
(iv)Management
(v) Employees
(vi)Government, tax authorities and regulators

9.Balance Sheet
It may be defined as a statement of assets and liabilities of the company, at a particular date. It must exhibit a true and fair view of the financial position at the close of the year. It is prepared and presented in the form prescribed in Schedule III Part I of the Companies Act, 2013, and is broadly divided into two parts, (i) Equity and liabilities (ii) Assets.

Previous Years’Examination Questions

3 Marks Questions

1. Under which major sub-headings, the following items will be placed in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013.
(i)Accrued incomes
(ii)Loose tools
(iii)Provision for employees benefits
(iv)Unpaid dividend
(v)Short-term loans
(vi) Long-term loans (Delhi 2014; Modified)
Ans.

2.Under which sub-headings will the following items be placed in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013.
(i)Capital reserves
(ii)Bonds
(iii)Loans repayable on demand
(iv)Vehicles
(v)Goodwill
(vi)Loose tools (All India 2014; Modified)
Ans.

3.State under which major headings the following items will be presented in the balance sheet of a company as per Schedule III Part I of the Companies Act, 2013.
(i)Long-term borrowings (ii) Trade payables
(iii) Provision for tax (iv) Securities premium reserve
(v) Patents (vi)Accrued incomes (Compartment 2014; Modified)
Ans.

4.State under which major headings the following items will be presented in the balance sheet of a company as per Schedule III Part I of the Companies Act, 2013.
(i)Trade marks
(ii)Capital redemption reserves
(iii)Income received in advance
(iv)Stores and spares
(v)Office equipments
(vi)Current investments (Compartment 2014; Modified)
Ans.

5.Under what heads and sub-heads, will the following items appear in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013.
(i) Stores and spares (ii) Proposed dividend
(iii) Computer software (All India 2013; Modified)
Ans.

6.Under what heads and sub-heads, will the following items appear in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013
(i)Debentures
(ii) Loose tools
(iii) Calls-in-advance(All India 2013)
Ans.

7.Under what heads and sub-heads, will the following items appear in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013
(i)Mining rights
(ii)Encashment of employees earned leave payable on retirement
(iii)Vehicles (Delhi 2013)
Ans.

NOTE ‘Encashment of employees earned leave payable on retirement’ is not a balance sheet item. It starts with the words ‘encashment of’ which implies that this is a transaction and balance sheet does not record transactions.

8.Under what heads and sub-heads, the following items will appear in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013
(i)Tax reserve
(ii)Interest on calls-in-advance
(iii)Stores and spares (Delhi 2013)
Ans.

9.Under what heads and sub-heads, the following items will appear in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013.
(i)Premium on redemption of debentures
(ii)Loose tools
(iii) Balances with banks (Delhi 2013; Modified)
Ans.

10.Under what heads and sub-heads, will the following items appear in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013.
(i)Subsidy reserve
(ii)Mining rights
(iii) Provision for doubtful debts (All India 2013; Modified)
Ans.

11.State the major headings under which the following items will be put as per Schedule III, Part I of the Companies Act, 2013.
(i) Long-term investments (ii) Bills of exchange
(iii)Motor car (iv) Discount on issue of shares
(v)Securities premium reserve (vi) Unclaimed dividend (All India 2011; Modified)
Ans.

12.Give the major headings under which the following items will be shown in a company’s balance sheet as per Schedule III, Part I of the Companies Act, 2013.
(i)Sundry creditors
(ii)Provision for tax
(iii)Preliminary expenses
(iv)Loose tools
(v)Interest accrued on investments
(vi)Goodwill (All India 2011; Modified)
Ans.

13.List the items which are shown under the heading ‘current assets’ as per Schedule III, Part I of the Companies Act, 2013. (Delhi 2011; Modified)
Ans. Current Assets
(i) Current investments
(ii)Inventories
(iii)Trade receivables
(iv) Cash and cash equivalents
(v) Short-term loans and advances
(vi) Other current assets

14.List the items which are shown under the heading ‘current liabilities’ as per Schedule III, Part I of the Companies Act, 2013. (Delhi 2011; Modified)
Ans. Current Liabilities
(i) Short-term borrowings
(ii)Trade payables
(iii)Other current liabilities
(iv)Short-term provisions

15.Show the major headings into which the liabilities side of a company’s balance sheet is organised and presented as per Schedule III, Part I of the Companies Act, 2013. (All India 2008; Modified)
Ans. Liabilities side of the company’s balance sheet as per Schedule III, Part I of the Companies Act, 2013
Name of the Company…………..
Balance Sheet
as at………… (Rs in…… )

16.Show the major headings into which the assets side of a company’s balance sheet is organised and presented as per Schedule III, Part I of the Companies Act, 2013.(Delhi; All India 2008; Modified)
Ans. Assets side of the company’s balance sheet as per Schedule III of Part I of the Companies Act, 2013.
Name of the Company……….
Balance Sheet
as at…………. (Rs in…… )

Important Questions for Class 12 Accountancy Class 12 Accountancy NCERT Solutions Home Page