CBSE Class 12 Accountancy Chapter 8 Financial Statements of a Company — 20 MCQs with Answers

The balance sheet under Schedule III follows a vertical format with two main heads: Equity and Liabilities, and Assets. Equity and liabilities include shareholders' funds (share capital, reserves and surplus) and non-current liabilities (long-term borrowings, deferred tax liabilities) followed by current liabilities (short-term borrowings, trade payables, provisions). Assets are split into non-current assets (fixed assets tangible and intangible, non-current investments, long-term loans and advances) and current assets (inventories, trade receivables, cash and cash equivalents, short-term loans and advances). Understanding the exact sub-heads and their sequence is critical for MCQs testing format recall.

Share capital is presented showing authorised, issued, subscribed, and paid-up figures with details of each class of shares. Calls unpaid are deducted to arrive at paid-up capital. Reserves and surplus is the next line under shareholders' funds, listing capital reserves, securities premium, general reserve, surplus (balance in statement of P&L), and any other specific reserves. MCQs often ask where to show forfeited shares, bonus issue disclosures, or buyback details. Notes to accounts provide breakup of number of shares, rights and preferences, and movements during the year.

The statement of profit and loss begins with Revenue from Operations (sales, other operating revenues) minus cost of goods sold and operating expenses to arrive at operating profit. Other Income is added separately. Employee benefit expense, depreciation, finance costs, and other expenses are deducted to compute Profit Before Tax. After tax expense, we get Profit After Tax, which feeds into the appropriation section showing transfers to reserves, proposed dividend, and balance carried to balance sheet. CBSE MCQs test the classification of incomes and expenses, the order of presentation, and the link between P&L and reserves.

Non-current assets include fixed assets (tangible like land, building, machinery; intangible like goodwill, patents), non-current investments (long-term holdings not readily realisable), deferred tax assets, and long-term loans and advances. Fixed assets are shown at cost less accumulated depreciation. Current assets comprise inventories, trade receivables, cash and cash equivalents, short-term loans and advances, and other current assets. Current assets are valued at lower of cost or net realisable value. MCQs test the classification boundary (current vs. non-current) and the treatment of advances, prepayments, and accrued income.

A provision is recognized when there is a present obligation and a reliable estimate of the amount (e.g. provision for warranties, provision for taxation). Contingent liabilities are possible obligations or present obligations not recognised because outflow is not probable; these are disclosed in notes but not shown on the face of the balance sheet. Examples include pending lawsuits, bills discounted, guarantees given. Notes to accounts provide detailed breakup of major line items such as share capital movements, reserves composition, fixed asset schedules, and contingent liabilities. CBSE MCQs test the distinction between provision and contingent liability and the disclosure requirements.

Higher-order MCQs require you to compute figures from given data—for example, deriving paid-up capital after a rights issue, calculating surplus after appropriations, or determining net fixed assets after depreciation. These questions test whether you can apply the vertical format rules and accounting adjustments. Practice computing final balances by working backwards from trial balance figures, adjusting for calls unpaid, premium, discount, and transfers.

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Many students confuse the placement of calls-in-advance (current liability) with calls-in-arrears (deduction from share capital). Another frequent error is treating proposed dividend as an appropriation in the statement of P&L when it should appear as a current liability on the balance sheet. Students also mix up capital reserve (arising from capital profits like forfeiture, revaluation) with revenue reserves like general reserve. Always read the MCQ stem carefully: if it says 'shown under Equity and Liabilities', check both the major head and the sub-head. Lastly, do not skip notes to accounts questions—they are easy marks if you know the disclosure rules for contingent liabilities and share capital movements.

In the CBSE Class 12 Accountancy paper, MCQs usually form Section A (1 mark each, no negative marking). Aim to complete all MCQs in the first 15–20 minutes, leaving time for numerical and theory sections. Start with questions you are certain about to build confidence. For assertion-reason MCQs, evaluate the assertion first; if it is false, you can eliminate options (A) and (B) immediately. If a computation MCQ seems time-consuming, mark your best guess and flag it for review—come back only if time permits. Use the elimination technique: cross out two obviously wrong options and choose between the remaining two. Finally, transfer answers to the OMR sheet carefully; one bubble-filling error costs a full mark. Practice 20–30 MCQs daily in the month before boards so that pattern recognition becomes automatic and you can score full marks in Section A with minimal time investment.