NEB 12 Accounts Sure Short Final Questions and Answers

 1. Write any two features of a public company.

·       Answer: A public company is a voluntary association of persons which has two distinct features:

1.     Limited Liability: The liability of its shareholders is limited to the unpaid value of the shares they hold.

2.     Free Transferability of Shares: The shares of a public company can be easily bought and sold in the stock market without requiring the company's permission.

·       Example: Nepal Telecom (NTC) is a public company. Its shareholders can easily sell their NTC shares in the NEPSE (Nepal Stock Exchange), and their risk is limited only to the amount they invested in those shares.

2. Define authorized capital.

·       Answer: Authorized capital, also known as registered or nominal capital, is the maximum amount of share capital that a company is legally authorized to issue to the public as per its Memorandum of Association.

·       Example: If a company's Memorandum of Association states its authorized capital is Rs. 10,00,00,000 (divided into 10 Lakh shares of Rs. 100 each), the company cannot issue shares worth more than this amount without legally altering its Memorandum.

3. Write the meaning of calls-in-arrears.

·       Answer: Calls-in-arrears refers to the portion of the called-up capital that a shareholder has failed to pay by the specified due date. It is a deduction from the called-up capital in the balance sheet.

·       Example: A company makes a final call of Rs. 20 per share on 1,000 shares. A shareholder holding 100 shares fails to pay this amount. Here, Rs. 2,000 (100 shares × Rs. 20) is the calls-in-arrears.

4. What is meant by pro-rata allotment of shares?

·       Answer: Pro-rata allotment is a proportional distribution of shares. It occurs in cases of over-subscription when a company receives applications for more shares than it has offered to the public, and instead of rejecting excess applications, it allots shares to all applicants in a fixed ratio.

·       Example: A company issues 10,000 shares but receives applications for 15,000 shares. Instead of rejecting some, it decides to allot 2 shares for every 3 shares applied for. This ratio is pro-rata allotment.

5. State the meaning of calls in advance.

·       Answer: Calls in advance is the amount paid by a shareholder in excess of the called-up amount. The company receives money for future calls before they are actually made by the board of directors.

·       Example: A shareholder holding 50 shares pays the first call money of Rs. 30 per share and also pays the future final call money of Rs. 20 per share along with it. The Rs. 1,000 (50 shares × Rs. 20) is treated as calls in advance.

6. What do you mean by forfeiture of share?

·       Answer: Forfeiture of shares is the cancellation of the membership of a shareholder and the seizure of the amount already paid by them, usually due to the non-payment of allotment or call money.

·       Example: A shareholder pays Rs. 50 on application and allotment but fails to pay the final call of Rs. 50. The company issues warnings and finally cancels their shares. The Rs. 50 already paid by the shareholder is forfeited (seized) by the company.

7. When and how the shares of a company are forfeited?

·       Answer: Shares are forfeited when a shareholder fails to pay the due call or allotment money within the stipulated time. The Board of Directors passes a resolution to forfeit the shares after giving a mandatory 14 days' notice to the defaulting shareholder as per the Articles of Association.

·       Example: If Mr. A fails to pay a Rs. 30 first call on his 100 shares, the company will send him a 14-day notice. If he still does not pay, the Board will pass a resolution to legally confiscate his shares.

8. What is issue of share for other than cash?

·       Answer: When a company issues shares to vendors, promoters, or creditors as consideration for the purchase of assets or services instead of receiving cash, it is called the issue of shares for consideration other than cash.

·       Example: A company buys machinery worth Rs. 5,00,000 from a supplier. Instead of paying cash, the company gives the supplier 5,000 equity shares of Rs. 100 each.

9. What do you understand by debenture?

·       Answer: A debenture is a formal certificate issued by a company under its common seal acknowledging a debt. It contains the terms of repayment of the principal amount and the payment of interest at a fixed rate.

·       Example: A company issues "10% Debentures of Rs. 1,000 each". This means the company is taking a loan of Rs. 1,000 per debenture and promises to pay 10% interest annually until the principal is repaid.

10. Write in brief the meaning of convertible debentures.

·       Answer: Convertible debentures are a type of debt instrument that gives the holder the option to convert their debentures into equity shares of the company after a specified period under predefined terms.

·       Example: A person buys a 5-year convertible debenture. After 5 years, instead of taking their cash back, they have the right to exchange the debenture for 10 equity shares of the company.

11. State the features of debenture.

·       Answer: Two key features of debentures are:

1.     It represents borrowed capital (loan) for the company, not ownership capital.

2.     It carries a fixed rate of interest, which is a compulsory charge on profit (must be paid even if the company suffers a loss).

·       Example: Unlike dividends which are only paid when there are profits, the 8% interest on an "8% Debenture" must be paid annually, regardless of the company's financial performance.

12. Show the differences between shares and debentures.

·       Answer: 1. Status: Shareholders are the owners of the company, whereas debenture holders are the creditors. 2. Return: Shareholders get dividends (variable), while debenture holders get interest (fixed).

·       Example: An equity shareholder benefits when a company makes high profits because the dividend rate increases. A debenture holder will still only get their fixed 10% interest, even if profits triple.

13. Write any two items of assets.

·       Answer: Two common items of assets are:

1.     Cash in Hand (Current Asset)

2.     Plant and Machinery (Fixed Asset)

·       Example: For a manufacturing company, the cash available in its cashbox to pay daily wages is "Cash in Hand," and the machines used to produce goods are "Plant and Machinery."

14. State the meaning of fixed assets.

·       Answer: Fixed assets are long-term tangible or intangible assets purchased for continuous use in the business to generate revenue, rather than for resale. They provide benefits for more than one accounting period.

·       Example: A delivery van bought by a bakery to transport bread is a fixed asset, as it will be used for several years to help generate income.

15. List out any two items of current assets.

·       Answer: 1. Inventory (Closing Stock) 2. Sundry Debtors (Accounts Receivable)

·       Example: Unsold goods in a godown at the end of the year (Inventory) and the money owed by customers who bought goods on credit (Debtors) are both current assets because they are expected to be converted into cash within a year.

16. Write the full form of NFRS.

·       Answer: The full form of NFRS is Nepal Financial Reporting Standards. It is a set of accounting standards issued by the Accounting Standards Board (ASB) of Nepal to bring uniformity in financial reporting.

·       Example: When a Nepali bank prepares its annual balance sheet and income statement, it must format and disclose its financial data strictly according to NFRS guidelines so investors can compare it fairly with other banks.

17. Define cash flow statement.

·       Answer: A cash flow statement is a financial document that shows the inflows (receipts) and outflows (payments) of cash and cash equivalents of an enterprise during a specific accounting period, categorized into operating, investing, and financing activities.

·       Example: A statement showing how a business received Rs. 5,00,000 from sales (inflow), spent Rs. 2,00,000 on buying machinery (outflow), and borrowed Rs. 1,00,000 from a bank (inflow) during the year.

18. Mention the items relating to cash flow from operating activities.

·       Answer: Operating activities relate to the primary revenue-generating activities of the business. Items include cash receipts from customers, cash paid to suppliers for inventory, cash paid to employees for wages, and tax payments.

·       Example: The cash received from selling daily merchandise and the cash paid for electricity bills both fall strictly under operating activities.

19. Write any two importance of cost accounting.

·       Answer: 1. Fixation of Selling Price: It helps management determine the total cost of production per unit so that a profitable selling price can be fixed. 2. Cost Control: It helps identify wastages and inefficiencies, allowing management to take corrective measures to reduce costs.

·       Example: A shoe manufacturer uses cost accounting to realize that each pair of shoes costs Rs. 800 to make. This helps them accurately set a selling price of Rs. 1,000 to ensure a Rs. 200 profit margin.

20. Define service costing.

·       Answer: Service costing (or operating costing) is a method of cost accounting used by organizations that provide services rather than produce physical goods. It aims to ascertain the cost of providing a specific unit of service.

·       Example: A transport company uses service costing to determine the "cost per passenger-kilometer" to figure out how much to charge for a bus ticket.

21. Mention any two advantages of cost accounting.

·       Answer: 1. Helps in formulating future business policies and planning (e.g., whether to make or buy a component). 2. Identifies profitable and unprofitable products or departments, enabling better decision-making.

·       Example: If a company makes both pens and pencils, cost accounting can reveal that pens are highly profitable while pencils are made at a loss, allowing the company to drop the pencil line.

22. What is variable cost?

·       Answer: Variable cost is a cost that changes proportionally in total with the level of production or output. If production increases, the variable cost increases; if production stops, it becomes zero.

·       Example: Direct material is a variable cost. If it takes Rs. 50 of wood to make one chair, making 10 chairs will cost Rs. 500 in wood. If 0 chairs are made, the wood cost is Rs. 0.

23. Write any two limitations of financial accounting.

·       Answer: 1. Historical Nature: It only records past events and cannot provide day-to-day cost information for immediate decision-making. 2. Lack of Detailed Cost Information: It shows the overall profit or loss of the business but does not show the profit or loss of individual products, processes, or departments.

·       Example: Financial accounting will show that a factory made a total profit of Rs. 1 Lakh, but it cannot tell the manager if Product A made Rs. 2 Lakh profit while Product B suffered a Rs. 1 Lakh loss.

24. State any two limitations of cost accounting.

·       Answer: 1. Expensive to install: Setting up a detailed cost accounting system requires specialized staff and paperwork, making it costly for small businesses. 2. Based on Estimates: Many overhead costs are allocated based on estimates and pre-determined rates, which might not be 100% accurate.

·       Example: A small local grocery store cannot afford to hire a specialized cost accountant to track the exact electricity overhead for every single item sold; it would cost more than the benefits gained.

25. What is cost accounting?

·       Answer: Cost accounting is a specialized branch of accounting that deals with the classification, recording, allocation, and analysis of costs associated with the production of goods or services to help management control costs and make decisions.

·       Example: While financial accounting just records "Raw material bought for Rs. 1,00,000", cost accounting tracks exactly how much of that material was used in Department A vs. Department B.

26. Define process costing.

·       Answer: Process costing is a method of costing used in continuous manufacturing industries where the product passes through several distinct stages or processes. The output of one process becomes the raw material for the next until the final product is completed.

·       Example: In a sugar factory, sugarcane goes through crushing (Process 1), boiling (Process 2), and refining (Process 3). Process costing calculates the cost added at each separate stage.

27. State any two objectives of cost account.

·       Answer: 1. To ascertain the cost per unit of different products manufactured. 2. To provide data for preparing tenders and quotations for future projects.

·       Example: A construction company uses cost objectives to accurately estimate the materials and labor required so they can submit a competitive and profitable bid (tender) to build a bridge.

28. What is indirect material cost?

·       Answer: Indirect material cost refers to the cost of materials that are used in the production process but cannot be easily, conveniently, or directly traced to a specific final product. They are treated as manufacturing overheads.

·       Example: In a furniture factory, the wood is a direct material, but the glue, small nails, and lubricating oil used for the machinery are indirect materials because measuring the exact amount of glue per chair is not feasible.

29. What is batch costing?

·       Answer: Batch costing is a variation of job costing where identical products are produced in distinct, specific groups or "batches." Costs are accumulated for the entire batch and then divided by the number of units to find the cost per unit.

·       Example: A pharmaceutical company producing 5,000 Paracetamol tablets in one run uses batch costing. They calculate the total cost of the batch and divide it by 5,000 to find the cost of a single tablet.

30. What is fixed cost?

·       Answer: A fixed cost is a cost that remains constant in total regardless of the volume of production or sales within a relevant range. It does not change whether the factory operates at 10% capacity or 100% capacity.

·       Example: Factory rent of Rs. 20,000 per month is a fixed cost. The business must pay this Rs. 20,000 whether they produce 100 units or 10,000 units in that month.

31. What do you mean by bin cards?

·       Answer: A bin card is a quantitative document maintained by the storekeeper that records the receipt, issue, and closing balance of materials kept in a specific bin or rack. It does not record the financial value/price of the materials, only the physical quantities.

·       Example: When a worker takes 10 kilograms of raw cotton from Bin #4, the storekeeper updates the bin card for Bin #4 to show a deduction of 10 kgs from the physical stock.

32. Give the meaning of centralized and decentralized purchase.

·       Answer: * Centralized Purchase: All purchasing for different branches or departments of an organization is done by a single, central purchasing department. This allows for bulk discounts and better control.

o   Decentralized Purchase: Each branch or department has the authority to purchase its own materials independently based on its specific needs. This allows for faster procurement without delays.

·       Example: If a hospital network buys all its surgical gloves from the head office in Kathmandu for all branches across Nepal, that is centralized purchasing. If the Pokhara branch buys its own gloves from local vendors, it is decentralized.

## Top 10 Exam-Essential Questions on Computerized Accounting Systems

1. What is a Computerized Accounting System (CAS)? Explain the core components that make up this system.

Answer: A Computerized Accounting System (CAS) is a digital framework that utilizes computers and specialized accounting software to record, process, store, and generate financial data for a business. Instead of manually writing entries into thick paper journals and ledgers, a business inputs financial transactions into a computer system, which automatically handles all downstream calculations and report formatting.

A complete Computerized Accounting System relies on five core components to function properly:

• Hardware: This includes the physical equipment needed to run the system, such as computers, keyboards, monitors, printers, and hard drives or servers for data storage.

• Software: This refers to the programs and applications that process the financial data. Examples include popular accounting software like Tally, Busy, QuickBooks, or custom ERP systems.

• People (Personnel): These are the human operators—such as data entry clerks, accountants, and system administrators—who interact with the system, input data, and analyze the financial results.

• Data: This is the raw financial facts, figures, and transactions (like sales invoices, purchase receipts, and salary slips) that are fed into the system for processing.

• Procedures: These are the established rules, guidelines, and steps that users must follow to ensure data is entered accurately, securely, and consistently.

2. Discuss the main advantages of adopting a Computerized Accounting System over a traditional manual system.

Answer: Shifting from pen-and-paper bookkeeping to a computerized platform offers massive competitive advantages to modern enterprises. The main benefits include:

• Unmatched Speed and Efficiency: Computers can process thousands of complex transactions in a fraction of a second. Once a basic voucher is recorded, the software instantly updates the general ledger, trial balance, and financial statements without requiring human intervention.

• High Precision and Accuracy: Manual accounting is highly vulnerable to human mistakes, such as copying numbers incorrectly or making math errors. A computerized system eliminates these slips because all calculations are performed by automated software rules.

• Instant Access to Reports (Real-Time Data): In a manual system, financial statements are usually prepared only at the end of the year or month. With a CAS, managers can check the company's real-time financial position, profit margins, or inventory levels at any random moment with a single click.

• Enhanced Scalability: As a business expands, the volume of its transactions multiplies. A computerized system can easily scale up to handle millions of new transactions without requiring a massive, expensive increase in accounting staff.

3. What are the major disadvantages or limitations of implementing a Computerized Accounting System in a business?

Answer: While digital systems offer exceptional benefits, they also introduce distinct challenges that management must carefully navigate. The primary limitations include:

• High Initial and Ongoing Costs: Setting up a proper digital accounting environment requires a large upfront investment to purchase modern computers, buy genuine software licenses, and set up secure networks. Additionally, companies must pay regular fees for software updates and technical maintenance.

• Staff Training and Resistance to Change: Employees who have spent decades doing manual bookkeeping often struggle to adapt to digital tools. Businesses must invest valuable time and resources into training programs, and they frequently face internal pushback from staff uncomfortable with technology.

• System Vulnerability and Data Loss Risk: Physical ledger books cannot catch a digital virus, but computers can. If a business suffers from a major hardware crash, a severe power surge, or a malware attack—and fails to keep proper external backups—years of financial records could be permanently erased in seconds.

• Cyber Security Threats: Storing financial data digitally opens the door to hacking, data breaches, and digital fraud. Unauthorized individuals, both inside and outside the company, might attempt to manipulate accounting records or steal sensitive corporate data.

4. Explain the key differences between a Manual Accounting System and a Computerized Accounting System.

Answer: Though both systems follow the exact same double-entry accounting principles, they differ fundamentally in execution, speed, and safety.

• Method of Recording: In a manual system, an accountant physically writes every transaction down in paper books using pen and paper. In a computerized system, data is typed into digital screens via keyboards or scanned automatically using barcodes and digital invoicing.

• Ledger Posting: In manual bookkeeping, after writing a journal entry, the accountant must meticulously copy that information into separate ledger accounts by hand—a process that takes hours. In a computerized setup, the moment a journal voucher is saved, the software posts it to all relevant ledgers instantly.

• Trial Balance and Final Accounts: Preparing a manual Trial Balance, Profit and Loss Account, and Balance Sheet requires days of calculating balances and formatting tables. In contrast, accounting software generates these final reports automatically and perfectly at any given time.

• Error Detection: Finding a balancing mistake in a manual system requires checking every single page line by line. A computerized system prevents many mistakes from happening in the first place (for example, it will not allow you to save a voucher if the total debits do not equal the total credits).

5. Describe the three main types of accounting software packages available for businesses.

Answer: Businesses vary in size, budget, and structural complexity, which is why software providers offer three distinct categories of accounting packages:

• Ready-to-Use Software: This is mass-produced, standard software developed for the general market. It is highly affordable, easy to install, and readily available. However, it offers very low flexibility, meaning the business must adapt its operations to fit the software's built-in workflow.

  • Best for: Small shops, startups, and grocery stores with standard business operations.

• Customized Software: This begins as a standard software package, but the developer modifies its features, inputs, and report formats to better align with the specific needs of a particular business. It is more expensive than ready-to-use software and requires technical setup time.

  • Best for: Medium-sized companies that have unique operational processes but cannot afford to build software from scratch.

• Tailored (Bespoke) Software: This software is built completely from the ground up to match the exact requirements of a specific enterprise. It is incredibly expensive, takes months or years to develop, and requires a dedicated IT team to maintain. However, it offers complete control and accommodates highly complex business models.

  • Best for: Large corporations, multinational banks, and massive manufacturing plants.

6. What is the difference between an Accounting Information System (AIS) and a Management Information System (MIS)?

Answer: While both systems process internal corporate data to help an organization run smoothly, they focus on different scopes and serve different operational purposes:

• Accounting Information System (AIS): The AIS is a specialized subsystem focused strictly on financial and monetary data. It collects, processes, and stores financial transactions—such as sales, purchases, payroll, and taxes. Its primary purpose is to track the financial health of the company, maintain legal compliance, and produce standard financial reports like the income statement and balance sheet for auditors, tax authorities, and investors.

• Management Information System (MIS): The MIS is a much broader, overarching umbrella system that encompasses all operational aspects of a business, including non-financial areas. It integrates data from various departments—such as human resources (employee attendance), manufacturing (machine hours), marketing (customer trends), and logistics alongside financial data. Its main objective is to provide comprehensive, multi-dimensional reports to internal managers so they can make strategic decisions, evaluate employee performance, and optimize daily business operations.

7. What is Data Processing in accounting? Outline the steps involved in the data processing cycle.

Answer: In a computerized environment, Data Processing refers to the systematic series of actions where raw, unorganized financial facts (data) are collected, converted, and manipulated by a computer to turn them into meaningful, orderly financial statements (information).

The computerized accounting data processing cycle follows these essential stages:

• Data Input: Raw financial data from primary source documents—such as cash memos, purchase invoices, and bank statements—is manually entered into the accounting system using input devices like keyboards.

• Data Processing: The central processing unit (CPU) of the computer and the accounting software take over. They sort the data, perform necessary arithmetic calculations, apply accounting rules (like calculating depreciation or VAT), and post the values into respective digital ledgers.

• Data Storage: The processed financial information is securely saved in digital databases, hard drives, or cloud networks so that it remains safe and accessible for future reference or legal audits.

• Information Output: The processed data is converted into human-readable formats. The system prints or displays structured reports, such as aging debtor schedules, trial balances, and cash flow statements, for management to review.

8. Why is data security critical in computerized accounting? Mention key measures a business should take to protect its financial data.

Answer: Financial data is the lifeblood of any commercial organization. If a business's digital accounting records are corrupted, stolen, or altered, it can lead to massive financial losses, legal lawsuits from regulators, and severe damage to corporate reputation. Therefore, protecting financial databases from internal fraud, external hackers, and accidental physical destruction is absolutely critical.

To protect their systems, businesses must implement the following security measures:

• User Access Controls (Passwords & Permissions): Every employee should have a unique username and strong password. The system should restrict access based on roles; for example, a data entry clerk should only be allowed to enter invoices, while only the Chief Accountant should have permission to edit final balances or approve massive cash transactions.

• Regular and Automated Backups: Companies must frequently save copies of their accounting databases to external hardware (like secure external hard drives) or remote cloud storage servers. This ensures that if the main office computer crashes or catches fire, data can be restored instantly.

• Anti-Virus and Firewall Installation: Businesses must install premium cybersecurity software and active firewalls to block digital viruses, malware, and unauthorized remote hackers from infiltrating the accounting network.

• Data Encryption: Sensitive financial information transmitted over the internet (such as online banking or remote branch entries) should be encrypted so that cybercriminals cannot intercept or read the files.

9. Explain the term "Sourcing of Accounting Software" and list the main factors a business must evaluate before choosing an accounting application.

Answer: Sourcing of Accounting Software refers to the thorough process of researching, evaluating, and purchasing the right accounting software application that perfectly matches a company's business model, workflow, and budget constraints. Since switching accounting platforms is highly disruptive and expensive, management must be extremely careful when making a selection.

A business must carefully weigh the following factors before sourcing software:

• Size and Nature of the Business: A small retail shop only needs simple software to track cash and inventory. However, a large manufacturing factory requires advanced software that can calculate complex raw material processing costs across multiple departments.

• Cost of Software and Installation: Management must evaluate the total cost of ownership. This includes the initial purchase price, implementation fees, hardware upgrade costs, employee training expenses, and recurring annual subscription or support fees.

• Simplicity and Ease of Use: The software user interface should be clean and intuitive. If the application is overly complicated or confusing, it will take months for employees to learn, leading to high human error rates during data entry.

• Vendor Reputation and Technical Support: Accounting software requires occasional troubleshooting and legal updates (such as changing tax rates). A business should only purchase from reliable software vendors who are known for providing quick, reliable technical support and regular software patches.

10. Outline the logical steps a company must follow to successfully implement a Computerized Accounting System.

Answer: Transitioning a business from a traditional manual bookkeeping system to a computerized accounting environment is a major project that requires careful planning. A systematic deployment generally follows these steps:

• Step 1: Requirement Analysis: Management must study their current manual operations, identify pain points (like slow reporting or inventory tracking issues), and determine exactly what features they need from digital software.

• Step 2: Software Sourcing and Selection: Based on the analysis, the company explores the market, tests different accounting packages, and purchases the software that best fits their operational needs and budget.

• Step 3: Hardware Upgrades: The business buys and installs the necessary physical infrastructure—such as modern desktop computers, fast printers, backup power supplies (UPS), and secure network routers—to ensure the new software runs smoothly.

• Step 4: Creating the Chart of Accounts: Before typing in daily transactions, accountants must set up the system's foundational structure. This involves creating a digital "Chart of Accounts" by organizing assets, liabilities, capitals, revenues, and expenses into systematic digital categories.

• Step 5: Staff Training: The accounting staff is given comprehensive, hands-on training to learn how to operate the software interfaces, navigate forms, record vouchers, and generate reports securely.

• Step 6: Data Migration and Parallel Running: The company inputs all existing opening balances from the old manual books into the new software. For a brief transition period (e.g., one or two months), the business often runs both the manual and computerized systems simultaneously to verify that the software outputs match the manual records perfectly before retiring the paper books permanently.

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