Class 12 Financial Statements of a Company Mock Test (CBSE)

Topics in Financial Statements of a Company

• Meaning of financial statements
• Nature of financial statements
• Objectives of financial statements
• Types of financial statements
• Form and contents of statement of profit and loss
• Form and contents of balance sheet
• Uses and importance of financial statements
• Limitations of financial statements

Financial Statements of a Company practice questions with answers

1. Q1Multiple choice·1 mark
   According to the Indian Companies Act, 2013, which of the following is a component of the financial statements of a company?

   1. (a)Auditor's Report
   2. (b)Directors' Report
   3. (c)Trial Balance
   4. (d)Cash Flow Statement
   Show answer and step marks

   1. Correct option: (d) Cash Flow Statement. As per Section 2(40) of the Companies Act, 2013, financial statements include a Balance Sheet, Statement of Profit and Loss, Cash Flow Statement, Statement of Changes in Equity, and Explanatory Notes.+1

   Answer: (d)
2. Q2Multiple choice·1 mark
   Which of the following represents the primary objective of preparing financial statements of a company?

   1. (a)To provide users with information useful for making economic decisions
   2. (b)To show the current market value of the company's assets on the balance sheet date
   3. (c)To record the company's day-to-day transactions in chronological order
   4. (d)To compute the company's taxable income as per the Income Tax Act
   Show answer and step marks

   1. Correct option: (a) To provide users with information useful for making economic decisions+1

   Answer: (a)
3. Q3Short answer·3 marks
   State any three points of importance or uses of financial statements to different stakeholders of a company.
   Show answer and step marks

   1. First use, any one of: management uses them for planning, decision-making and control; investors and shareholders assess profitability, earning capacity and safety of investment; creditors, banks and lenders assess liquidity, solvency and creditworthiness; employees assess the ability to pay wages, bonus and job security; government uses them for taxation, regulation and national statistics; suppliers and customers judge the firm's stability; or any other valid stakeholder use.+1
   2. Second use, a different one from the same list.+1
   3. Third use, a different one from the same list.+1

   Answer: Any three of: management (planning, decisions, control); investors (profitability, safety of investment); creditors and banks (liquidity, solvency); employees (wages, bonus, job security); government (taxation, regulation); suppliers and customers (stability of the firm).

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