A-AS Level (CIE) Accounting Paper-2: Specimen Questions with Answers 7 - 8 of 53

Question 7

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State the different type of contingent liabilities

Explanation

Contingent Liabilities are liabilities which have not arisen, but may arise upon the happening of a certain event. In other words, the liability itself is uncertain. It may or may not involve the payment of money. The amount of contingent liabilities is never shown in the amount of the liability՚s side.

Usual types of contingent liabilities are:

  • Claims against companies not acknowledged as debts or disputed claims.
  • Uncalled liability on partly-paid shares
  • Arrears of dividends on cumulative preference shares
  • Estimated amount of contract remaining to be executed on capital account and not provided for
  • Other moneys for which the company is contingently liable
  • Bills discounted but not matured
  • Guarantee for loan

Question 8

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What do you mean by revaluation of assets and liabilities?

Explanation

Whenever a new partner is admitted, it becomes necessary to revalue the assets and abilities of the firm to their true and fair values. This is done because with the passage of time the value of certain assets might have increased while the value of certain other assets might have decreased. Thus, the actual values of various assets and liabilities may be different from the values stated in the balance sheet. New partner should not be affected because of decrease in the value of assets, neither he should be benefitted by increase in the value of assets. Thus, the entire profit or loss arising from revaluation is divided between the old partners in their old profit-sharing ratio. Revaluation Account is made to reevaluate the assets and liabilities. Sometimes this account is called as Profit & Loss adjustment A/c. This account is a nominal account in nature. Therefore, if there is a Loss due to revaluation, revaluation account is debited and if the revaluation results in of it, the revaluation account is credited.

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