Junior Clerk Questions

Registrar may Supersede the Committee of a Co-operative Society

The Registrar of Co-operative Societies is empowered under the Co-operative Societies Act to supersede the managing committee of a co-operative society.

Grounds for supersession:

Persistent default in performing duties

Acts prejudicial to the interests of the society or its members

Wilful disobedience of lawful orders of the Registrar

Failure to conduct elections within the prescribed time

Mismanagement causing financial loss

Procedure:

The committee must be given a reasonable opportunity of being heard.

The Registrar shall issue a written order stating reasons for supersession.

After supersession:

The committee ceases to function.

The Registrar may appoint an Administrator or Administrative Committee.

Steps are taken to conduct fresh elections and restore democratic management.

Purpose:

To protect members’ interests

To ensure proper administration

To maintain discipline and efficiency in co-operative societies

Special General Body Meeting of a Co-operative Society may be called by

A Special General Body Meeting (SGM) of a Co-operative Society may be called by:

The Managing Committee / Board of Directors
– On its own initiative, whenever urgent or special business has to be transacted.

The Registrar of Co-operative Societies
– If the Registrar considers it necessary in the interest of the society.

The nominal accounts (like revenue, expenses, losses, and gains) are temporary accounts that are closed at the end of the accounting period. Their balances are transferred to the Trading Account or Profit & Loss Account to calculate the net profit or loss.

A sinking fund is a fund created by an organization to:

Replace fixed assets when they become obsolete, or

Repay long-term liabilities at the time of maturity.

It is a long-term provision to ensure that funds are available when needed, without affecting regular operations.

Other options:

Capital Reserve: Created from capital profits, not for repayment or replacement.

Reserve Capital: Portion of uncalled capital kept as a backup, not actively used.

Common Good Fund: Used for community or member welfare purposes.

Interest on drawings is charged to a partner for withdrawing money from the business for personal use.

It reduces the partner’s capital, so it is adjusted in the Capital Account of that partner.

Other options:

Interest: This is a general heading, but the actual adjustment is in Capital.

Trading Account: Only deals with revenue and direct expenses of business.

Bank Account: Used for cash transactions, not for adjusting drawings interest.

Claims against the assets of a business firm can come from:

Owners – called Capital / Owners’ Equity

Creditors / outsiders – called Outsiders’ Equity / Liabilities

Therefore, claims by outsiders (like creditors, suppliers, banks) on the firm’s assets are referred to as Outsiders’ Equity.

Other options:

Owners’ Equity / Capital: Claim of owners, not outsiders.

Total Equity: Sum of owners’ and outsiders’ claims (not specific).

Since the sale of scrap is not part of normal business sales, it cannot be recorded in the Sales Book.

Therefore, it is recorded in the Journal Proper, which is used for transactions not covered by special books.

If whitewashing expense is debited to the Building Account, it is an error of principle ✅.


Building Account is a capital account (asset account) and should include capital expenditure only (like cost of construction, purchase, or improvements).

Whitewashing is a revenue expenditure (maintenance expense) and should be recorded in the Repairs & Maintenance Account or directly in the Profit & Loss Account.

Charging a revenue expense to a capital account violates accounting principles.

Type of Error: Error of Principle – violating the basic accounting principle that capital and revenue items must be treated separately.

The uncalled portion of capital is also known as Reserve Capital 

Reserve Capital is the part of authorized capital of a company or cooperative society that has not yet been called for payment.

It is kept aside to be called upon only in case of winding up or when the society needs additional funds.

It is not demanded from members during normal operations.

Other related terms:

Called-up Capital: Portion of capital that members have already been asked to pay.

Paid-up Capital: Portion of capital actually paid by members.

In a Co-operative Society, the Receipts & Payments Account (R&P Account) and Income & Expenditure Account (I&E Account) are prepared from the balances of ledger accounts.

The General Ledger contains all the ledger accounts of members, cash, bank, income, and expenditure.

Sub-Day Books (like Cash Book, Purchase Book, Sales Book) are special journals used to record daily transactions but are not directly used to prepare the R&P Account.

Special Ledger is not a standard term in accounting.

Wasting assets are assets that get used up or exhausted over time, like mines, quarries, or oil wells.

Depreciation for such assets should be based on actual usage or production, not merely the passage of time.

The Output Method (also called Units of Production Method) calculates depreciation according to the quantity of output or production during the accounting period.

Other methods:

Insurance Policy Method: Related to insuring the asset, not suitable for wasting assets.

Annuity Method: Spreads cost with interest, not based on actual usage.

Revaluation Method: Adjusts asset value, not primarily a depreciation method.

Hence, the Output Method is best for wasting assets.

A personal account records transactions related to individuals, firms, or organizations.

Credit balance in a personal account means the business owes money to that person or entity.

Therefore, it represents an amount payable (liability).

Examples:

Creditor’s account showing ₹10,000 credit → The business owes ₹10,000 to the creditor.

Other options:

Amount receivable: Would be a debit balance in a personal account.

Expense / Assets: Not indicated by a personal account’s credit balance.

A Balance Sheet shows actual assets and liabilities of a business at a particular date.

Current Liabilities, Fixed Liabilities, and Long-term Liabilities are actual obligations and are shown on the balance sheet.

Contingent Liability is a potential or possible obligation that may arise depending on the outcome of a future event (e.g., a lawsuit).

Since it is not certain, it is disclosed in the notes to accounts, not in the main balance sheet.

Stock undervaluation means valuing closing stock less than its actual market or cost value.

This reduces the reported profit in the Profit & Loss Account.

The difference between the actual value of stock and the undervalued stock acts as a hidden or secret reserve.

Secret reserves help the business to strengthen its financial position without showing it openly.

Other options:

Profit overstated: Incorrect — profit is understated, not overstated.

Price of shares increased: No direct effect.

General reserve created: Not automatically — only secret reserve is formed.

Noting charges are fees paid to a notary when a bill of exchange or promissory note is dishonoured.

These charges are incurred to protect the interests of the holder (payee) of the bill, not the drawer.

Therefore, noting charges are an expense to the holder and not an expense to the drawer.

Example:

If a bill of ₹10,000 is dishonoured, the holder pays ₹50 as noting charges. The holder can claim this amount from the drawer, but the drawer does not record it as an expense until payment is demanded.

In consignment transactions, the consignee sells goods on behalf of the consignor.

The consignee prepares a detailed statement showing:

Sales made

Expenses incurred (like freight, insurance, commission)

Amount due to the consignor

This statement is sent periodically to the consignor and is called Account Sales.

Other options:

Invoice: A bill for goods sold, issued at the time of sale.

Pro-forma invoice: Preliminary invoice sent before goods are dispatched.

Sales account: Ledger account recording sales, not a periodic statement from consignee.

Floating assets are assets that are used in the business for a short period and keep circulating in the normal course of business.

Examples: Cash, Stock, Debtors, Bills Receivable.

They are also called circulating assets because they change form quickly (e.g., stock → debtors → cash).

Other options:

Fixed assets: Long-term assets like land, building, machinery.

Fictitious assets: Intangible or deferred expenses, e.g., preliminary expenses, which do not have real existence.

Purchase Book (also called Purchase Day Book) is a special journal used to record all credit purchases of goods made by the business.

Cash purchases are not recorded in the Purchase Book; they are recorded in the Cash Book.

Summary:

Credit Purchases → Purchase Book

Cash Purchases → Cash Book

This helps in organizing transactions efficiently before posting them to the ledger.

Period costs are costs that are not directly tied to the production of goods and are incurred over a period of time.

Examples: Rent, Salaries of office staff, Depreciation of office building.

These costs are generally fixed in nature, i.e., they remain constant irrespective of the level of production.

Other options:

Variable costs: Change with production level (e.g., raw materials, direct labor).

Overhead: Can include both fixed and variable components.

Prime cost: Direct costs of production (Direct materials + Direct labor).

The current standard for depreciation accounting is:

IAS 16 – Property, Plant, and Equipment

It deals with:

Depreciable amount = Cost − Residual value

Allocation of cost over the useful life of assets

Methods like Straight-Line, Diminishing Balance, and Units of Production

Summary:

Depreciation accounting should follow IAS 16, not IAS IV.

When forfeited shares are reissued, any profit made on the reissue (i.e., the amount received over the original issue price) is not treated as revenue.

Instead, it is transferred to a Capital Reserve Account because it is a capital profit.

Capital Reserve is used for purposes like writing off capital losses, issuing bonus shares, or strengthening the financial position of the company.

Other options:

Share Capital: Only records the nominal value of shares issued.

Profit & Loss Account: For revenue profits, not capital profits.

Reserve Capital: Portion of uncalled capital, not related to profit on reissue.

Work-in-progress (WIP) refers to partially completed goods in a manufacturing process.

Accounting principle for valuation of WIP: Conservative / Lower of Cost or Market (Net Realizable Value).

Cost price: Expenses incurred so far in producing the goods.

Market price / Net realizable value: Estimated selling price minus completion and selling costs.

This ensures that assets are not overstated in the financial statements.

Other options:

Market price: Could overstate WIP.

Cost price: Ignores possible fall in realizable value.

Selling price: Not used for valuation in accounts.

Cost price or market price which ever is less

Outstanding wages are wages incurred but not yet paid by the business at the end of the accounting period.

They represent an obligation to pay, so they are a liability.

They do not appear in the Trading or Profit & Loss Account directly, but when preparing the Profit & Loss Account, they are added to the wages/expenses to calculate total expenses.

Bad debts are amounts owed by debtors that are written off as loss when considered irrecoverable.

If a bad debt is later recovered, it becomes income for the business.

Therefore, it is shown on the credit side of the Profit & Loss Account as “Bad Debts Recovered”.

Other options:

Debit side of P&L: Would indicate an expense, which is incorrect.

Sundry Debtors Account: Only adjusts the debtor’s balance, not recorded as income in P&L.

Separately in Balance Sheet: Not shown separately; it affects profit.

it started functioning officially from 12st July 1982.

NABARD’s main objective is to provide and regulate credit and other facilities for the promotion and development of agriculture, small-scale industries, cottage and village industries, and rural infrastructure.

The Lead Bank Scheme was introduced by the Reserve Bank of India in 1969.

Objective: To ensure planned development of banking in rural and semi-urban areas by assigning each district to a specific bank called the Lead Bank.

Functions of Lead Bank:

Coordinate the activities of all banks in the district.

Prepare District Credit Plans.

Monitor and ensure proper credit flow to agriculture, small industries, and weaker sections.

Other options:

NABARD: Provides refinance and regulates credit, but did not introduce the scheme.

Central Government: Supports banking, but scheme was initiated by RBI.

SBI: Participates as a bank, but did not introduce it.

Retail Banking refers to banking services offered to individual customers or households, rather than to large corporations or institutions.

It is often described as “operations for the masses rather than for the classes” because it focuses on small deposits, personal loans, savings accounts, and other services for the general public.

Other options:

Wholesale Banking: Deals with large clients, corporations, and bulk transactions.

Net Banking: Online banking services, not related to customer segment.

Branch Banking: Refers to operations through branches, could be wholesale or retail.

The Differential Rate of Interest (DRI) Scheme was introduced by public sector banks in 1972.

Objective: To provide cheap credit to the weaker sections of society, such as small farmers, artisans, and small borrowers, at subsidized interest rates.

Under this scheme:

Loans are given at a lower interest rate than the normal lending rate.

It helps promote financial inclusion and support for low-income groups.

Chain Banking refers to a system where two or more separate banks come under a single management or control.

It allows centralized management of multiple banks while each bank remains a separate legal entity.

This system helps in:

Better coordination among banks

Efficient utilization of resources

Expanding banking operations in different areas

Other options:

Unit Banking: A bank operates from a single office only.

Branch Banking: A bank has multiple branches under one bank.

Merchant Banking: Provides financial services like underwriting, investment advisory, etc., not related to chain management.

New Bank of India (NBI) was merged with Punjab National Bank in 1993.

This was part of the Indian government’s efforts to consolidate and strengthen public sector banks.

The merger helped expand PNB’s branch network and customer base, especially in northern India.

Other options:

Bank of Maharashtra, Dena Bank, Nedungadi Bank – These banks were merged with other banks at different times, not with PNB in 1993.

CIBIL stands for Credit Information Bureau (India) Limited.
It maintains credit records and credit scores of individuals and companies in India, which are used by banks and financial institutions to assess creditworthiness.

Credit and Investment Bank of (India Limited)

Credit Investigation Bank of India Limited

Credit Information Bureau (India) Limited

Credit and Investment Bank of (International ) Limited

A Fixed Deposit Receipt (FDR) is neither transferable nor negotiable like cheques or promissory notes. It is only assignable under certain conditions, but it cannot be freely transferred

If a bank customer cannot be traced and there is no operation in the account for a long period, the banker usually transfers the balance to the unclaimed deposit account and closes the original account.

The SARFAESI Act does not apply to loan debts below 20% of the loan given.

The Reserve Bank of India (RBI) reduced the validity period of cheques from 6 months to 3 months, effective from 1 April 2012.

A derivative deposit (or secondary deposit) is money created by a bank when it grants a loan, essentially the loan amount being deposited into the borrower's new or existing account, forming the basis for further lending and money creation, distinct from a primary deposit (cash brought in by customers) and different from financial derivatives (like options/futures)

A "per pro" (per procurationem) endorsement means someone is signing a financial instrument (like a check) on behalf of another person or company, acting as their authorized agent, indicating they have the power to do so (e.g., "per pro John Doe, Jane Smith"). It's a legal way to show the signing isn't personal but delegated, giving the instrument validity as if the principal signed it, commonly used in business to manage transactions.

Money laundering is the process of converting illegally obtained funds or assets into legitimate ones to hide their criminal origin.

It is a serious financial crime and is strictly monitored by banks and regulatory authorities worldwide.

A credit crunch occurs when there is a sudden decline in the availability of loans or credit from banks and financial institutions.

It usually happens during financial crises or when lenders become cautious about lending due to high risk.

A Return Memo is a short note issued by a banker to inform the drawer or holder of a cheque about the reasons for its dishonor (e.g., insufficient funds, signature mismatch, etc.).
It serves as an official record of why the cheque could not be honored.

Providing safe locker facilities is considered a general utility service offered by commercial banks.

General utility functions include services that assist customers, such as locker facilities, remittance services, and issuing letters of credit, which are not directly related to accepting deposits or lending.

A material alteration is a change made to the instrument’s terms that affects its legal validity or rights of the parties.

Changing a generally crossed cheque into a special crossing is a material alteration because it modifies the way the cheque can be paid.

Other options like writing “account payee” or converting crossings are usually not considered material alterations.

Changing a generally crossed cheque into special crossing

Conversion of not negotiable crossing into ordinary crossing

Writing the word account payee in crossing

Merchant banking refers to providing various services related to capital markets and finance to corporations, such as:

Raising capital (equity/debt)

Underwriting securities

Portfolio management

Financial advisory services

It primarily caters to corporate clients, unlike commercial banks that serve the general public.

Reverse Repo interest is calculated daily on the funds that banks deposit with the Reserve Bank of India (RBI) under reverse repo operations.

The interest accrues for the exact number of days the money remains with the RBI.

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