# Bihar Board 12th Accountancy Important Questions Short Answer Type Part 1 in English

BSEB Bihar Board 12th Accountancy Important Questions Short Answer Type Part 1 are the best resource for students which helps in revision.

## Bihar Board 12th Accountancy Important Questions Short Answer Type Part 1 in English

Question 1.
What is current assets?
Current assets are cash and other such assets which can be converted into cash within a short period (Normally within one year). Thus current assets = Cash + Cash at Bank + Bills Receivable + Closing Stock + Short term Investment + Sundry Debtors + Prepaid Expenses.

Question 2.
Define Sinking fund.
A Sinking fund is a fund which is created out of profit every year and invested in marketable securities carrying fixed rate of interest. Interest earned on the investment is also invested in such securities. On the date of redemption, investments so made are sold in the market.

Question 3.
Distinguish between Current Ratio and Quick Ratio.
Difference between Current Ratio and Quick Ratio :

 Current Ratio Quick Ratio (i) Current Ratio show the relationship between Current Assets (C.A) and Current Liabilities (C.L.) (i) Quick Ratio shows the relationship between Liquid Assets (L. A.) and Current Liabilities (C.L.) (ii) Current Ratio = $$\frac{\text { Current Assets }}{\text { Current Liabilities }}$$ (ii) Quick Ratio = $$\frac{\text { Liquid Assets }}{\text { Current Liabilities }}$$ (iii) The objective of the current ratio is whether an organisation can pay off its current liabilities out of its current assets within a short time i.e., a year or not. (iii) Current Liabilities The objective of quick ratio is to ascertain whether the firm shall be able to discharge its current liabilities quickly, that is within a month or immediately. (iv) The ideal current ratio is 2 : 1. (iv) The ideal Quick Ratio is 1 : 1.

Question 4.
Explain four characteristics of a partnership.
For characteristics of partnership are as follows :

1. Two or more persons: The minimum number of partners in a firm can be two but there should be not more than 10 persons in the case of banking business and 20 in the case of any other business.
2. Agreement: There should be an agreement between the partners. This agreement may be oral, written or implied.
3. Profit-sharing: The agreement between the partners must be with the objects of sharing profits among all the partners. An agreement to share losses is not essential.
4. Mutual Agency: Business of the partnership must be carried on by all the partners or by one of them acting for all, that is, there must be mutual agency. Thus, every partner is both an agent and the principal for himself and other partners.

Question 5.
What is super profit?
Super profit is the excess of average profit of the business Over the normal profit.
Super profit = Average Actual Profit – Normal Profit.

Question 6.
What is Financial statements ?
Financial statements are those statements of a company that depict the financial position and result of business activities at the end of the accounting period. The financial statements of a company are also called annual Reports, Anual Accounts or published Accounts. Ex-Balance sheet, statement of profit & Loss, Cash Flow statements.

Question 7.
What is Revaluation Account?
Revaluation Account is prepared to find out profit or loss on revaluation of assets and re-assessment of liabilities at the time of reconstitution of partnership firm. Profit or loss arising from revaluation is shared by the old partners in their old profit-sharing ratio.

Question 8.
What is Receipts and Payments Account?
Receipts and Payments Account is a summary of Cash Book. All cash receipts and payments are recorded in this account. Receipts and Payments recorded in this account may be either of revenue nature or capital nature.

Question 9.
What is meant by Income and Expenditure Account?
Income and Expenditure Account is a summary of revenue income and expenses and losses of a not for profit organisation for a particular period. The balance of this account shows either ‘Surplus’ or ‘Deficit’.

Question 10.
What is sacrificing ratio?
The ratio in which the old partners have agreed to sacrifice their shares in profit in favour of a new partner is known as sacrificing ratio.

Question 11.
How is goodwill recorded at the time of retirement of a partner?
The retiring partner’s share of goodwill is credited to his account and debited to remaining Partners’ Capital Accounts in gaining ratio.
Remaining Partner’s Capital A/c Dr. (in Gaining Ratio)
To Retiring Partner’s Capital A/c

Question 12.
What is Surrender Value?
Surrender value is the value which insurance company will pay, if the policy is discontinued and surrendered to the company before the date of maturity.

Question 13.
State any two circumstances under which partnership is deemed to have been dissolved.

• On the expiry of the period of partnership
• On admission, retirement or death of a partner.

Question 14.
What is Realisation Account?
Realisation Account is a nominal account. It is prepared to find out profit or loss on realisation of assets and payment of liabilities. The profit (or loss) on realisation is transferred to Partners’ Capital Accounts in their profit-sharing ratio.

Question 15.
What do you mean by Preference Shares?
Preference Shares are those shares which have the following two preferential rights:

1. Right to receive divided at a fixed rate.
2. Right to the repayment of capital on the winding up of the company.

Question 16.
According to Section 78 of the Companies Act, 1956 a company issuing securities (shares, bonds or debentures) at a premium whether for cash or for a consideration other than cash, should credit a sum equal to the aggregate amount of the premium on the securities, to a separate account called ‘Securities Premium Account’.

Question 17.
Buy-back of shares implies purchasing of its own shares by a company It may be made out of the (i) free reserves, (ii) securities premium, or (iii) proceeds if any shares or securities.

Question 18.
What is Right Issue of Shares?
Or, What do you mean by Right Issues of Shares?
Under section 81 of the Companies Act, 1956, the existing shareholders have a right to subscribe in their existing proportion to the fresh issue of capital.

Shareholders may accept this offer or reject the offer or sell their rights. Such issues are called Right Issues of Shares.

Question 19.
What is meant by authorised capital of a company?
Authorised capital is the capital stated in the Memorandum of Association (MOA). It is the maximum amount of capital which a company can raise during its life time.

Question 20.
What is minimum subscription?
Minimum subscription means the minimum amount that must be received by the company stated in the prospectus otherwise shares cannot be allotted. In general, it is 90% of the issued amount.

Question 21.
What is meant by forfeiture of shares?
When shareholders fail to pay allotment or instalment money on shares allotted to them, the company has authority to forfeit shares of the defaulters. This is called ‘forfeiture of shares’. In case of forfeiture of shares, the amount already paid by defaulting shareholder is forfeited by the company.

Question 22.
What is meant by debenture?
Debenture is a written instrument (document) issued by a company acknowledging a debt. It contains provision as regards the repayment of principal and the payment of interest at a fixed rate. Debentures include “debenture stock, bonds and other securities”.

Question 23.
What is meant by redemption out of capital?
When adequate profits are not transferred from Profit & Loss Appropriation Account to the Debenture Redemption Reserve Account, at the time of redemption of debentures, such redemption is said to be out of capital.

Question 24.
State in brief, SEBI guidelines relating to creation of ‘Debenture Redemption Reserve Account’.
As per SEBI guidelines, a company is required to create a Debentures Redemption Reserve Account equivalent to 50% of the amount of debenture issued before redemption of debentures Commences.

Question 25.
What is meant by financial statement?
Financial statements are the annual reports which present financial information about the performance and financial position of a business enterprise.

Question 26.
State any three qualities of good financial statements.

• Comparative Study.
• Knowledge about Future Earning Capacity.
• Information regarding Important Activities.

Question 27.
What is Income Statement?
Or, What is Profit & Loss Account?
Income Statement (or Profit & Loss Account) is the accounting report which shows the revenues and expenses and ascertains the profit/loss for a specified accounting period.

Question 28.
What is meant by Financial (Statement) Analysis?
Or, Explain the meaning of Analysis of Financial Statements.
Analysis of financial statements is a systematic study of the information contained in the financial statements of the business enterprise in order to assess its financial health and future prospects.

Question 29.
What is meant by horizontal analysis?
When the financial statements of a number of years are to be analysed, horizontal analysis is made. Under this type of analysis, the items of current year are compared with the items of the previous years. Comparative statements are the example of horizontal analysis.

Question 30.
What is meant by vertical analysis?
When financial statements of a particular year or on a particular date are analysed component-wise, it is called vertical analysis. For example, in common-size statements vertical analysis is made.

Question 31.
What do you mean by Comparative Income Statement?
Comparative Income Statement shows increase or decrease in absolute figures of the incomes and expenses. It reflects absolute and percentage change in the operating activities of the business firm for two or more accounting periods.

Question 32.
State the major heads under which the items appearing on the liabilities side of a Company’s Balance Sheet are classified.
Major heads on Liabilities side of a Company’s Balance Sheet are as under:

• Shareholder’s Funds
• Share Application Money pending allotment
• Non-current Liabilities
• Current Liabilities.

Question 33.
What is meant by Cash Equivalents?
Or, What are Cash Equivalents?
Cash equivalents are the highly liquid short-term investments which are rapidly converted into known amount of cash without any risk of changes in value. For example, Government securities, Treasury bills etc.

Question 34.
What do you mean by Accounting Ratios?
The term ‘accounting ratios’ is used to describe relationship between two figures are group of figures shown in the financial statements (i.e., Balance Sheet and Income Statement).

Question 35.
Give the definition of the partnership.