Chapter financial-statements-of-a-company: Financial Statements of a Company Assertion-Reason Questions | accountancy Class 12 CBSE

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 1

Logic Check

Assertion (A): Financial statements are prepared on the basis of historical cost and do not show the current financial condition of a concern. Reason (R): The original or historical cost is the basis of recording transactions, and assets purchased at different prices are shown at cost, not at market prices.

Reasoning Options

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Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 2

Logic Check

Assertion (A): Proposed dividend is shown directly as a liability in the balance sheet. Reason (R): Proposed dividend is contingent upon the approval of shareholders in the Annual General Meeting.

Reasoning Options

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Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 3

Logic Check

Assertion (A): Deferred tax assets and deferred tax liabilities are always classified as non-current. Reason (R): This is in accordance with Schedule III of the Companies Act, 2013.

Reasoning Options

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Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 4

Logic Check

Assertion (A): Financial statements contain qualitative information about labour relations and employee satisfaction. Reason (R): Financial statements only capture monetary transactions and cannot measure qualitative aspects of business performance.

Reasoning Options

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Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 5

Logic Check

Assertion (A): Inventories are always classified as current assets in the balance sheet. Reason (R): All inventories are involved in the operating cycle and are expected to be consumed or sold within the operating period.

Reasoning Options

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Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 6

Logic Check

Assertion (A): Accounting standards shall prevail over Schedule III of the Companies Act, 2013 in case of conflict. Reason (R): Schedule III mandates that terms shall carry the meaning as defined by applicable accounting standards.

Reasoning Options

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Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 7

Logic Check

Assertion (A): Preliminary expenses are shown as a non-current asset in the balance sheet indefinitely. Reason (R): Preliminary expenses are to be written off completely in the year in which they are incurred, first from Securities Premium and then from Statement of Profit and Loss.

Reasoning Options

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Assertion-Reason

Hard difficulty • Check the statement and reason

Hard

Question 8

Logic Check

Assertion (A): A fixed asset with a useful life of less than 12 months is still classified as a non-current asset. Reason (R): Fixed assets are always non-current irrespective of their remaining useful life as per Schedule III.

Reasoning Options

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Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 9

Logic Check

Assertion (A): Bank charges are classified under Finance Costs in the Statement of Profit and Loss. Reason (R): Finance Costs include all financial expenses incurred by a company including bank charges and interest.

Reasoning Options

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Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 10

Logic Check

Assertion (A): The balance sheet shows the financial position of a company at a specific date. Reason (R): The balance sheet is a position statement reflecting assets, liabilities, and shareholders' equity as at the end of the accounting period.

Reasoning Options

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Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 11

Logic Check

Assertion (A): Revenue from operations for a finance company includes revenue from interest and dividend. Reason (R): For a finance company, financial services income constitutes its primary business operations and is therefore part of revenue from operations.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 12

Logic Check

Assertion (A): Personal judgements play no role in the preparation of financial statements. Reason (R): Financial statements are prepared strictly on the basis of recorded facts and objective accounting standards only.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 13

Logic Check

Assertion (A): 'Sundry Creditors' has been replaced by 'Trade Payables' under Schedule III of the Companies Act, 2013. Reason (R): Schedule III introduced uniform terminology to harmonise disclosures with accounting standards.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 14

Logic Check

Assertion (A): The Statement of Profit and Loss gives a clear picture of a company's earning capacity over a long period of time. Reason (R): The Statement of Profit and Loss only discloses profit or loss for a specified period and does not depict likely future earnings.

Reasoning Options

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Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 15

Logic Check

Assertion (A): Money received against share warrants is disclosed as a separate line item under Shareholders' Funds. Reason (R): It represents amounts received by the company that will be converted into shares at a specified date and rate.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 16

Logic Check

Assertion (A): Investments expected to realise within twelve months are classified as non-current investments. Reason (R): All investments, regardless of maturity, are always classified under non-current assets.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 17

Logic Check

Assertion (A): Financial statements are only useful for shareholders and have limited relevance for other stakeholders. Reason (R): Financial statements provide information useful for decision-making to a wide range of users including management, investors, creditors, government, bankers, employees, and the public.

Reasoning Options

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Assertion-Reason

Hard difficulty • Check the statement and reason

Hard

Question 18

Logic Check

Assertion (A): The debit balance of the Statement of Profit and Loss must be shown as a negative figure under the head 'Surplus' within Reserves and Surplus. Reason (R): Schedule III requires that even a negative balance in Reserve and Surplus must be shown under the same head.

Reasoning Options

ByteNotes

Assertion-Reason

Hard difficulty • Check the statement and reason

Hard

Question 19

Logic Check

Assertion (A): Cash and cash equivalents are always classified as current assets. Reason (R): Cash and cash equivalents are classified as per AS-3, and AS has supremacy over Schedule III.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 20

Logic Check

Assertion (A): The use of accounting conventions makes financial statements comparable, simple, and realistic. Reason (R): Conventions like valuing inventory at cost or market price whichever is lower, and valuing assets at cost less depreciation, provide consistency in preparation.

Reasoning Options

ByteNotes

Chapter sections

Chapter financial-statements-of-a-company: Financial Statements of a Company | Assertion-Reason

Assertion (A): Proposed dividend is shown directly as a liability in the balance sheet. Reason (R): Proposed dividend is contingent upon the approval of shareholders in the Annual General Meeting.

Assertion (A): Deferred tax assets and deferred tax liabilities are always classified as non-current. Reason (R): This is in accordance with Schedule III of the Companies Act, 2013.

Assertion (A): Financial statements contain qualitative information about labour relations and employee satisfaction. Reason (R): Financial statements only capture monetary transactions and cannot measure qualitative aspects of business performance.

Assertion (A): Inventories are always classified as current assets in the balance sheet. Reason (R): All inventories are involved in the operating cycle and are expected to be consumed or sold within the operating period.

Assertion (A): Accounting standards shall prevail over Schedule III of the Companies Act, 2013 in case of conflict. Reason (R): Schedule III mandates that terms shall carry the meaning as defined by applicable accounting standards.

Assertion (A): Preliminary expenses are shown as a non-current asset in the balance sheet indefinitely. Reason (R): Preliminary expenses are to be written off completely in the year in which they are incurred, first from Securities Premium and then from Statement of Profit and Loss.

Assertion (A): A fixed asset with a useful life of less than 12 months is still classified as a non-current asset. Reason (R): Fixed assets are always non-current irrespective of their remaining useful life as per Schedule III.

Assertion (A): Bank charges are classified under Finance Costs in the Statement of Profit and Loss. Reason (R): Finance Costs include all financial expenses incurred by a company including bank charges and interest.

Assertion (A): The balance sheet shows the financial position of a company at a specific date. Reason (R): The balance sheet is a position statement reflecting assets, liabilities, and shareholders' equity as at the end of the accounting period.

Assertion (A): Revenue from operations for a finance company includes revenue from interest and dividend. Reason (R): For a finance company, financial services income constitutes its primary business operations and is therefore part of revenue from operations.

Assertion (A): Personal judgements play no role in the preparation of financial statements. Reason (R): Financial statements are prepared strictly on the basis of recorded facts and objective accounting standards only.

Assertion (A): 'Sundry Creditors' has been replaced by 'Trade Payables' under Schedule III of the Companies Act, 2013. Reason (R): Schedule III introduced uniform terminology to harmonise disclosures with accounting standards.

Assertion (A): The Statement of Profit and Loss gives a clear picture of a company's earning capacity over a long period of time. Reason (R): The Statement of Profit and Loss only discloses profit or loss for a specified period and does not depict likely future earnings.

Assertion (A): Money received against share warrants is disclosed as a separate line item under Shareholders' Funds. Reason (R): It represents amounts received by the company that will be converted into shares at a specified date and rate.

Assertion (A): Investments expected to realise within twelve months are classified as non-current investments. Reason (R): All investments, regardless of maturity, are always classified under non-current assets.

Assertion (A): The debit balance of the Statement of Profit and Loss must be shown as a negative figure under the head 'Surplus' within Reserves and Surplus. Reason (R): Schedule III requires that even a negative balance in Reserve and Surplus must be shown under the same head.

Assertion (A): Cash and cash equivalents are always classified as current assets. Reason (R): Cash and cash equivalents are classified as per AS-3, and AS has supremacy over Schedule III.

Assertion (A): The use of accounting conventions makes financial statements comparable, simple, and realistic. Reason (R): Conventions like valuing inventory at cost or market price whichever is lower, and valuing assets at cost less depreciation, provide consistency in preparation.

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