BLDEA’S COMMERCE, BHS, ARTS & TGP SCIENCE

COLLEGE JAMKHANDI [PROF: R.H.SHIROL]

CORPORATE ACCOUNTING-II BCOM4THSEM

2MARKS QUESTIONS WITH ANSWERS

1. What are the types of amalgamation as per As-14? (2013,16 ,17 & 18)

Ans: a) Amalgamation in the nature of purchase.

b) Amalgamation in the nature of merger.

2. What are methods of calculation of purchase consideration (2013 & 16)

Ans: a) Net payment method

b) Net Asset method

c) Lumpsum method

d) Intrensic worth method

e) Exchange ratio method

3. What is the method of accounting in case of pooling interest as per AS-14? (2013)

Ans: a) Apply only in case of amalgamation in nature of merger.

b) Reserve of vendor company are recorded in the books of transfree company.

c) All assets and liabilities are recorded at book values.

4. What is accounting entry when capital reduction is utilised? (2013 & 18)

Ans: Capital Reduction A/c....................Dr.

To Profit and Loss A/c

To Preliminary expenses A/c

To Goodwill expenses A/c

To Depreciation on Assets A/c.

5. What is internal reconstruction? (2013, 14 & 15)

Ans: Internal reconstruction means “reorganisation of the affairs of the company by

revaluation of its assets, ascertaining the correct amount of liabilities or writing of the
accumulated losses by reducing the shares capital of the company with or without varying
the rights of the share holders but without liquidation of the company existing company.

6. Write any two features of amalgamation. (2013)

Ans: a) Amalgamation is process of combining two or more existing companies into a new
company.

b) All the property of amalgamating company becomes the property of amalgamated

company.

7. Define Parent and Subsidiary Company as per AS-21. (2013)

Ans: Accounting Standard-21 specifies the meaning of parent company is one which as
acquired the controlling interest in full to the extent of majority in the affairs of the
company.

Subsidiary company as per AS-21: Subsidiary company is one which the other company
controls the composition of its board of direction or held more than half in normal value.

8. What is minority interest? (2013, 14)

Ans: Minority Interest is the portion of a subsidiary companies stock which is not owned by
parent company.

9. What is partly owned and wholly owned subsidiary? (2013)

Ans: the partly owned subsidiary is one in which more than half the value of the equity
shares are owned by the holding company and remaining are held by the share holders.

Wholly owned subsidiary: When holding company acquires all the shares of subsidiary
company it is called fully owned subsidiary company.

10. What is Amalgamation of companies? (2014)

Ans: It is the process of transferring the business of two or more companies to a newly
formed company for some consideration.

11. State two objectives of Amalgamation of companies. (2014)

Ans: a) To avoid competition c) To gain financially

b) To reduce cost d) To achieve growth

12. What is purchase consideration? (2013 & 14)

Ans: It means the price payable by transferee company to the transferrer company for
taking over the business.

13. State two differences between Amalgamation and Absorption. (2014, 15, 17)

Ans: Amalgamation

a) In case of amalgamation new company is formed.

b) In amalgamation all existing companies go into liquidation

Absorption

a) No formation of new company in case of absorption

b) In absorption all except one of the existing companies go into liquidation

14. State to conditions to be satisfied for reduction of share capital of a public company.
(2014)

Ans: a) The articles of association should permit the reduction of share capital.

b) Company should pass a special resolution for reducing share capital.

c) Writing off the paid up capital of a company.

15. What is cost of control in holding company? (2014, 15 ,16 ,17)

Ans: Cost of contol is the amount paid by holding company for shares in its subsidiary
company over and above the value they would command as an investment. It also called as
goodwill.

16. Give the meaning of a Consolidated Balance Sheet of Holding Company. (2014)

Ans: Consolidated balance sheet is a single statement of assets and liabilities for holding
and subsidiary company.

17. What is meant by amalgamation in the nature of merger? (2015, 17)

Ans: Amalgamation in the nature of merger means, all the assets and liabilities of
transferor company becomes assets of transferee company and purchase consideration will
be discharged in equity share only and business of transferor company shall be carried by
the transferee company after amalgamation.

18. What is purchase consideration? (2014, 15)

Ans: Purchase consideration means, price payable by transferee company to the transferor
company for taking over the business.
19. Give the journal entry for reduction of share capital? (2015)

Ans: Journal Entry for reduction of share capital:

Share capital A/c....................Dr.

To Capital Reduction A/c.

20. What is Consolidated Balance Sheet? When it is prepared? (2015, 16, 17)

Ans: Consolidated Balance Sheet is a single balance sheet for holding and subsidiary.
Consolidated balance sheet is prepared once holding company acquires controlling interest
of subsidiary company.

21. What is unrealised profit? How do you treat it in consolidated balance sheet? (2015)

Ans: Unrealised profit included in the closing stock on the date of consolidated balance
sheet is known unrealised profit.

Treatment URP in consolidated balance sheet: Unrealised profit is fully deducted from the
total profit on the liability side and also from the total stock on the asset side while
preparing consolidated balance sheet.

22. Give the meaning of absorption of company. (2016)

Ans: Meaning of absorption of company: It is the process of taking over of an existing

company by another existing company for an agreed consideration. Example: A Ltd. taken
over all the assets and liabilities of B Ltd. then B Ltd is called “Transferor” (Selling) Co. and A
Ltd is called “Transferce” (Buying) Co.

23. Give the journal entry for realisation expenses paid by Vendor company. (2016, 18)

Ans: Journal entry for Realisation Expenses paid by Vendor Company:

Realisation A/c........................Dr.

To Bank or Cash A/c

(Being: realisation expenses paid by vendor’s company).

24. What are the kinds of reconstruction? (2016, 17)

Ans: Kinds of Reconstruction: a) Internal Reconstruction,

b) External Reconstruction.
25. How do treat bills drawn and accepted mutually between holding and subsidiary
company? (2016)

Ans: Bills drawn and accepted mutually between Holding and Subsidiary company are
treated as “Inter company bills or transactions” and are deducted from trade receivable and
payable while preparing consolidated balance sheet.

26. What is creative accounting? (2018)

Ans: Creative accounting is also called as earning management and it refers to accounting
that follow the letter of rules of standard accounting practices but certainly deviates from
the spirit and intent of those rules.

27. What are the motivations of creative accounting? (LAST CHAPTER)

Ans: The motivations of creative accounting:

a) Personal incentives

b) Bonus related pay.

c) Benefits from shares and share options.

d) Job security.

e) Personal satisfaction.

f) Cover-up fraud

g) Tax management

28. Define forensic accounting? (LAST CHAPTER)

Ans: According to George A. Mannie defines, “Forensic accounting is the science of

gathering and presenting financial information in a form of that will be accepted by a court
of jurisprudence against perpetrators of economic crimes”.

29. Mention the areas of practice of forensic accounting. (LAST CHAPTER)

Ans: There are two major aspects within forensic accounting practice. They are-

a) Ligtigation support services

b) Investigative services.

30. State the steps in accounting for amalgamation? (2018)

Ans: a) Amalgamation in the nature of purchase

 b) Amalgamation in the nature of merger.

31. What is wholly owned subsidiary company? (2018)

Ans: When holding company acquires all the shares of subsidiary company it is called fully
owned subsidiary company.

32. What is holding company? (2018)

Ans: Which company acquired more than 50% of shares is known as Holding company
another company is called subsidiary company.

33. What is Forensic accounting? (2018)

Ans: Forensic accounting utilises accounting, auditing and investigative skills to conduct an
examination into companies financial statement.

34. State any two example of creative accounting? (2018)

Ans: a) Selling assets with a low cost basis,

b) Failure to write down inventories that have decline in value

c) Selling assets at the end of the year to create a profit that offsets a loss.

35. What is External Reconstruction of a company? (2016)

Ans: It means the winding up of an existing company and transfer of assets and liabilities to
a new company which is formed to take over the business of an existing company.

36. Give the meaning of alteration of share capital?

Ans: A change in the number of authorised shares a company may issue, authorised shares
are the total shares a company is permitted by its charter to issue, as opposed to the
number it actually has issued.

EXTRA QUESTIONS: