Thursday, October 29, 2015

Dibrugarh University (3rd Semester) - Advanced Financial Accounting Selected Questions for Nov' 2015 Exam

Unit – 1: Accounts of Banking Companies
Q. List out the form of business in which Banking Company may engage as detailed in Section 6 of the Banking Regulations Act. Or Mention the features of a banking company.
Q. Explain the following in relation to the Banking Company:
a)      Slip system of posting
b)      Rebate on Bills Discounted and its treatment
c)       NPA
d)      Non-banking Assets
e)      From B of the Banking Company
f)       Books maintained by banking companies
g)      Money at call and short notice (Schedule 7)
Q. Write a brief note on various types of advances provided by bank. (Cash Credit, Overdraft, Loan, Discounting)
Q. Write a brief note on various classes of advances (Standard assets, sub-standard assets, doubtful assets, loss assets. Also mention % of provision required in these classes.
Q. Give in brief the various provisions of the Banking Regulation Act, 1949 relating to the annual accounts of the banking company.

Multiple choice questions:
1. A banking company cannot grant loan to any of its directors.
2. Banking companies are governed by the Banking Realisations Act, 1949.

3. The maximum number of Partners in a banking business is 10.
4. Rebate on Bills Discounted for a banking company is not an income.
5. No banking company share pay any dividend unless its capital expenses and fictitious assets are written off.
6. Statutory reserve required = 25%
7. Cash reserve with RBI = 3% of its time and demand liabilities.
8. Limit on investments in shares of other companies: 30% of paid up capital and reserves.
9. Rebate on bills discounted is shown under the head “other liabilities” of the balance sheet as unexpired discounts.
10. Paid up capital of a banking company must be at least one-half of the subscribed capital of a banking company.
11. The accounting year of a banking company ends on 31st march of every year.
12. Provision for bad and doubtful debts cannot be shown as deduction from interest earned in the profit and loss account of banking companies.
13. Bills for collection at the end of the year are not shown in any schedule. They appear at the foot of the balance sheet.
14. Contingent liabilities are shown under schedule 12.

Practical problems:
Jain and Narang Book: Illustration – 1, 2, 3, 4, 5, 7, 8,9
Exercise – 1, 2, 3, 4, 5, 6, 7, 8, 29, 31

Questions which are asked in previous exams before Nov’ 2012
1. From the following information, prepare the Profit & Loss Account of Adarsh Bank Ltd. For the year ended 31st March 2005:
Interest on Loan
5180
Interest on over draft
3080
Interest on fixed deposits
6340
Director’s fees
60
Commission
164
Auditors’ fees
24
Payments to employees
1080
Interest on savings deposits
1360
Discount on bills discounted
2120
Postage, telegrams and telephone exp
28
Interest on cash credit
4460
Printing and stationery
58
Rent, tax and lighting expenses
360
Sundry exp
34
Additional information
(I)     Provide for contingencies Rs. 400000
(II)   Transfer Rs. 3000000 to Reserve
(III) Transfer Rs. 4000000 to Central Govt 

2. From the following information prepare the Profit & Loss Account with necessary schedules of the Trinity Bank Ltd. For the year ended 31st March 2003.
Interest on Loan
Interest on Deposits
Rebate on Bills Discounted
Commission
 Discount on Bills Discounted(Net)
Interest on cash credit
Rent and Taxes
Interest on overdraft
Director’s fees
Auditors Fees
Postal Expenses
Printing and Stationery
Sundry Exp.
Other information’s:-
(i). Bad Debts
(ii). Provision for income tax
2590000
3850000
490000
540000
1460000
2230000
180000
1540000
30000
12000
14000
29000
17000

400000
1000000

  
Unit – 2: Accounts of Life insurance companies
Theoretical Questions
1.       What do you understand by Life Fund? Where does it appears in the final accounts?
2.       Explain revenue account of life insurance companies. How it is prepared? Give a Proforma with imaginary figures.
3.       What is valuation balance sheet? How it is prepared. Distinguish between valuation balance sheet and general balance sheet.
4.       Explain the method followed for assessing the profit in the life insurance business.
5.       Distinguish between life insurance and general insurance, cash bonus and reversionary bonus, life policy and endowment policy.
6.       Mention the statutory and statistical books maintained by life insurance companies.
7.       Point out the general instruction on preparation of financial statements.
8.       Explain various items of revenue account of life insurance companies. VVVI (Page no: 99 – 100)

Multiple choice questions:
1. Revenue account of insurance companies are prepared under the provisions of IRDA Regulation’ 2002.
2. Valuation balance sheet is prepared in case of life assurance business only to ascertain surplus or deficit.
3. Annuity is an expense and it is shown under the head benefits paid (Schedule 4).
4. Revenue account of Life Insurance companies: Form A - RA
5. Profit and loss account of Life Insurance companies: Form A – PL
6. Balance sheet of Life Insurance companies: Form A – BS.
7. Reinsurance premium whether ceded or accepted has been shown on gross basis before deducting commission.
8. Liabilities under existing policies are determined by actuarial valuation.
9. Life insurance is more appropriate to be called life assurance.
10. Bonus in reduction of premium is both at expense and income in revenue account.

Practical Problems:
Jain and Narang book: Problems – 3, 4, 6, 7, 8
Illustrations – 1, 2, 3, 6, 8, 9, 10, 11

Questions which are asked in previous exams before Nov’ 2012
Q. The following Trial Balance was extracted from the books of the Life Insurance Corporation as on 31st March, 2007:


Rs (in ‘000)

Dr.
Cr.
Paid-up Share Capital :


10000000 shares of Rs 10 each

1,00,000
Life Assurance Fund as on 1.4.2006

29,72,300
Bonus to policyholders
31,500

Premium received

1,61,500
Claims paid
1,97,000

Commission paid
9,300

Management expenses
32,300

Mortgages in India
4,92,200

Interest and dividend received

1,12,700
Agent’s balances
9,300

Freehold premises
40,000

Investments
23,05,000

Loans on company’s policies
1,73,600

Cash on deposits
27,000

Cash in hand and Current Account
7,300

Surrenders
7,000

Dividend paid
15,000


33,46,500
33,46,500
You are required to prepare the Corporation’s Revenue A/c for the year as on 31st March, 2007 and its Balance sheet as on that date after taking the following matter into consideration:
(i)      Claims admitted but not paid Rs 90,00,000
(ii)    Management expenses due – Rs 2,00,000
(iii)   Interest accrued – Rs 1,93,00,000
(iv)  Premium outstanding – Rs 1,00,00,000
(v)    Bonus utilized in reduction of premium for Rs 20,00,000
(vi)  Claims covered under reinsurance Rs 23,00,000

Q. The following was the Trail balance was extracted from the books of the books of Jivanjyoti Life Assurance Co. Ltd as on 31st March 2006:
Particulars
Rs              
Particulars
Rs
Bonus to policy holders
Claims paid
Commission Paid
Management Exp.
Mortgages in India
Agent’s Balance
Freehold Premises
Investments
Loan on Companies Policies
Cash and Bank Balance
Surrenders
Dividend Paid
31500
197000
9300
32300
492200
9300
40000
2305000
173600
34300
7000
15000
Paid-up Share Capital(Rs. 10 each)
Life Assurance Fund(on 1.4.2005)
Premium Received
Interest and Dividend Received

100000
2972300

161500
112700
3346500

3346500
Taking into consideration the following items, prepared the Revenue Account and Balance Sheet of the company for the year as on 31st March, 2006:
(i)      Claim admitted but not paid     9000
(ii)    Management Exp due               200
(iii)   Premium outstanding               10000
(iv)  Interest Accrued                       19300

Q. The following information have been supplied relating to Jai Bharat Life Insurance Company for the year ending on 31st March, 2004:
Life Assurance Fund
Premium
Interesr,Dividend and Rent received
Fines and Fees
Bonus in cash
Income tax
Management Exp.
Bonus in reduction premium
Commission
Surrender
Surplus on revaluation of reversion purchased
Reassurance balance irrecoverable
Claims
Consideration of annuities granted
245000
1380000
150000
720
158400
118500
175000
1976
54000
85200
4800
125000
890000
45000
According to actuarial valuation, the net liability on the policies of the company including the annuity transactions amounted to Rs. 2250000. The surplus is to be allocated as 25% to shareholders 70% to policyholders and the balance to be carried forward to the next period. The company also paid interest bonus amounting to Rs. 103806. Prepare the Revenue Account on the basis of the above information and also show the valuation balance sheet.

Unit – 3: Accounts of General Insurance Companies
Theoretical Questions:
Q. Point out the main features of accounts of General Insurance Companies. Explain the Purpose of creating reserve for unexpired risk in insurance business. State its accounting treatment.
Q. Explain how the pro fit or loss from general insurance business is ascertained and prepare a fire revenue account with imaginary figures.
Q. What important points should be kept in mind in preparing the annual accounts of general insurance companies?
Q. What statutory books are required to be maintained by a general insurance company under the Insurance Act?
Q. How profit is determined in fire insurance business?

Multiple Choice Questions:
1. General insurance includes all types of insurance except life insurance.
2. IRDA was set up in the year 1996.
3. Revenue account of insurance companies are prepared under the provisions of IRDA Regulation’ 2002.
4. Provisions for unexpired risk in respect of marine business = 100%
5. Provisions for unexpired risk in respect of fire business = 50%
6. Partly paid investments, guarantee, reinsurance obligations not provided in accounts are contingent liabilities.
7. Income from rent include only the realised rent. It does not include any notional rent.
8. Commission on reinsurance ceded is an income and commission on reinsurance accepted is an expense.
9. FORM B – RA: Revenue account of general insurance companies.
10. FORM B – PL: Profit and loss account of general insurance companies.
11. FORM B – BS: Balance sheet of general insurance companies.

Practical Problems:
Jain and Narang book: Problems - 9, 10, 11, 12, 13, 15, 17
Illustration – 12, 13, 14, 15, 16
Follow Question papers

Questions which are asked in previous exams before Nov’ 2012:
From the following particulars prepared the Fire Revenue Account of Eastern India Fire Insurance Com Ltd. For the year ended 31st March, 2003:
Reserve for unexpired risk as on 1st April, 2002
Additional Reserve as on 1st April, 2002
Claim paid
Management Exp.
Insurance Premium
Interest and Dividends
Income Tax on Interest and Dividends
Reinsurance Premium
Profit on Sale of Investments
Legal charges regarding claims
Reinsurance claim recoveries
Commission on direct business
Commission on reinsurance ceded
Commission on reinsurance accepted
Outstanding Claims:
On 31st March 2003
On 31st March 2002
52000
12000
65000
28250
114000
6400
800
7000
1600
400
2800
11200
600
400

7000
9000
The company calculates its Reserve for unexpired risks at 50% of the net premium each year and increases additional reserve by 5% of net premium annually.

Unit 4 – Investments accounts
Theoretical Questions:
Q. What is an Investment account? Mention its nature. What purpose does investment account served?
Q. Distinguish between:
Ø  Contango and Backwardation
Ø  Jobbers and Brokers
Ø  Cum-dividend and ex-dividend
Ø  Cum-interest and ex-interest
Q. How investment accounts are prepared when there is issue of bonus shares and rights shares by the company?

Multiple Choice Questions:
1. Investments hold for more than one year to earn continuous income or to control business is called trade investments.
2. Investment held with a view to buy or sale is know as temporary investments or current investments or marketable securities.
3. Current investments are valued at cost or fair value whichever is lower and fixed investments are valued at cost.
4. Investment account is real account.
5. Sale of right is a capital receipt in case of right issue.
6. Brokerage is included in the cost of investment in case of purchase and investments are deducted with the cost of investment in case of sale.
7. FIFO and average cost method is used to calculate cost of closing balance of investment.
8. Cost of Bonus shares is nil.
9. Accounting for investments: AS – 13
10. In case of cum-interest, interest is included in quoted price and in case of ex-interest, interest is excluded form quoted price.
11. Real price of investment is Ex-interest/dividend price.

Practical problems:
Jain and Narang book: Problems – 3, 4, 5, 7, 8, Additional problems: 1 and 2
Illustrations – 3, 4, 5, 6, 7, 12

Follow Question papers

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