MCQs on Amalgamation and External Reconstruction
Multiple Choice Questions and Answers 2024
In this page, you will get MCQs on Amalgamation and External Reconstruction which are asked in B. Com and Various Professional Exams Like CA/CMA and CS.
Also All the MCQs type Questions asked in Dibrugarh University, Gauahti University and Assam University Exams are included.
We update this page frequently to add new questions. Chapter wise Corporate Accounting MCQs are also included in this post.
Meaning of External Reconstruction
The term ‘External Reconstruction’ means the winding up of an existing company and registering itself into a new one after a rearrangement of its financial position. Thus, there are two aspects of ‘External Reconstruction’, one, winding up of an existing company and the other, rearrangement of the company’s financial position.
Such arrangement shall be approved by its shareholders and creditors and shall be sanctioned by the National Company Law Tribunal (NCLT). Such a step usually involves the writing off of a debit balance on Profit and Loss Account, elimination of all fictitious assets if any from the Balance Sheet, and the consequent readjustment of share capital.
Meaning of Amalgamation
Amalgamation means the merging of two or more than two companies for eliminating competition among them or for growing in size to achieve the economies of scale. Amalgamation is a broad term which includes mergers (uniting of two existing companies) and acquisition (one company buying out another company).
There are two types of amalgamation: According to AS-14 amalgamation is divided into the following two categories for accounting purposes:
(A) Amalgamation in the nature of merger; and
(B) Amalgamation in the nature of purchase.
Multiple Choice Questions and Answers
1. Accounting Standard for amalgamation is:
a) AS-3
b) AS-9
c) AS-12
d) AS-14
(AS-14 deals with accounting for amalgamation)
Answer: d) AS-14
(AS-14 deals with accounting for amalgamation)
2. according to AS – 14, purchase consideration is
the sum of payments made to the:
a) Debenture
holders and Shareholders
b) Shareholders
c) Debenture
holders
d) Creditors,
Debenture holders and Shareholders
Answer: b) Shareholders
3. Future retail Ltd and Reliance Ltd go into
liquidation and a new company Reliance Retail Ltd is formed. It is a case of:
a) Absorption
b) External
reconstruction
c) Amalgamation.
d) Take
over
Answer: c) Amalgamation.
4. Reliance Ltd takes over the business of Future
retails. It is a case of:
a) Absorption
b) External
reconstruction
c) Amalgamation.
d) Take
over
Answer: c) Absorption
5. Future retail Ltd is liquidated and a new
company Future Enterprises is formed to take over its business. It is a case
of:
a) Absorption
b) External
reconstruction
c) Amalgamation.
d) Take
over.
Answer: c) External
reconstruction
6. Why Amalgamation is known to be in the nature of
merger:
a) There is
transfer of all assets & liabilities at book values.
b) Issue of
equity shares discharged the Purchase consideration wholly (except cash for
fractional shares)
c) Equity
shareholders holding 90% equity shares in Transferor Company become
shareholders of Transferee Company.
d) All of
the above
Answer: d) All
of the above
7. The method to be followed in case of
amalgamation in the nature of merger is:
a) Purchase
method
b) Pooling
of Interest method
c) Absorption
method
d) Consolidated
method
Answer: b) Pooling
of Interest method
8. The method to be followed in case of
amalgamation in the nature of merger is:
a) Purchase
method
b) Pooling
of Interest method
c) Absorption
method
d) Consolidated
method
Answer: a) Purchase
method
9. Amalgamation is called to be in the nature of
purchase - why?
a) The
transferee company cannot take over all the assets and liabilities of the
Transferor Company.
b) There is
change in the business of Transferor Company.
c) Purchase
consideration can be discharged by shares or debentures or cash.
d) All of
the above
Answer: d) All
of the above
Also Read: Corporate Accounting MCQs Chapterwise
Issue and Redemption of Debentures MCQs
Redemption of Preference Shares MCQs
Amalgamation and External Reconstruction MCQs
MCQs on Liquidation of Companies
10. In case of Amalgamation in the nature of
purchase, Amalgamation Adjustment accounts is opened to record:
a) General
and revenue reserve of the transferor company.
b) The
statutory reserves of the transferor company
c) Assets
of the transferor company
d) Liabilities
of the transferor company.
Answer: b) The
statutory reserves of the transferor company
11. under the pooling of interest method where it
will be adjusted if, the share capital of the transferor company and the
difference between the considerations paid.
a) Goodwill
or Capital reserve.
b) The
general reserve or other reserves of the transferee company.
c) Amalgamation
Adjustment Account.
d) All of
the above.
Answer: b) The
general reserve or other reserves of the transferee company.
12. Only the __________ of Transferor Company is
transferred to the transferee company’s balance sheet.
a) General
Reserve
b) Statutory
Reserve
c) Capital
Reserve
d) Revenue
reserve
Answer: b) Statutory
Reserve
13. under the purchase method – it will be adjusted
in, the net assets of the transferor company and the difference between the
purchase considerations paid in:
a) Goodwill
or Capital reserve.
b) The
general reserve or other reserves of the transferee company.
c) Amalgamation
Adjustment Account.
d) All of
the above.
Answer: a) Goodwill
or Capital reserve.
14. Goodwill arising on amalgamation is to be
amortised:
a) Within 5
years.
b) Within 5
years unless a longer period is justified.
c) Within
10 years.
d) Within 3
years.
Answer: b) Within
5 years unless a longer period is justified.
15. Accounting Standard-14 (AS-14) is not
applicable if the separate entity of the transferor company after acquisition:
a) Ceases
to exist
b) Continues
to exist
c) AS-14 is
applicable in all situations.
d) AS-14 is
not applicable in acquisition.
Answer: b) Continues
to exist
16. Which of the following is included in
accumulated profits?
a) Provision
for doubtful debts
b) Superannuation
fund
c) Workmen's
compensation fund.
d) Pension
fund.
Answer: b) Workmen's
compensation fund.
17. Which one of the following is an outsider’s
liability?
a) Dividend
equalization fund.
b) Workmen
Compensation funds.
c) Investment
Allowance reserve.
d) Provident
fund.
Answer: d) Provident
fund.
18. Liquidation expenses borne by the transferee
company are debited to:
a) Goodwill
account
b) Capital
reserve account
c) General
reserve account
d) All of
the above
Answer: d) All
of the above
(Note: In case of merger, debited to general
reserve account and in case of purchase debited to goodwill or capital reserve
depending on the balance arises)
19. If the transferee company paid the liquidation
expenses is debited to:
a) Goodwill
account
b) Capital
reserve account
c) General
reserve account
d) Realisation
account
Answer: d) Realisation
account
20. While calculation purchases consideration, the
following value of the assets is to be considered.
a) Book
value
b) Market
value
c) Fair
value
d) Average
price
Answer: c) Fair
value
21. Net assets minus capital reserve is:
a) Goodwill
b) General
reserves
c) Purchase
consideration
d) None of
the above
Answer: c) Purchase
consideration
22. If purchase consideration is more than net
assets of the transferor company, then difference will be shown as:
a) Goodwill
account
b) Capital
reserve account
c) General
reserve account
d) None of
the above
Answer: a) Goodwill
account
23. If purchase consideration is less than net
assets of the transferor company, then difference will be shown as:
a) Goodwill
account
b) Capital
reserve account
c) General
reserve account
d) None of
the above
Answer: b) Capital
reserve account
24. The difference between the purchase
consideration and net asset is adjusted in case of merger is adjusted with:
a) Goodwill
account
b) Capital
reserve account
c) General
reserve account
d) None of
the above
Answer: c) General
reserve account
25. in the books of Transferor Company, shares
received from the new company are recorded at:
a) Face
value
b) Market
Price
c) Intrinsic
value of shares
d) None of
the above
Answer: b) Market
Price
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