111 0404

Question Paper
Financial Accounting – I (111) : April 2004
< Answer >

1. Which of the following conventions stipulates that contingent items appear as a
footnote in the balance sheet?
(a) Materiality (b) Matching (c) Consistency (d) Disclosure
(e) Conservatism.
(1 mark)
< Answer >
2. Which of the following violates the conservatism concept?
I Making provision for bad and doubtful debts in anticipation of certain
debtors turning out to be bad in future
II Valuation of inventory at market price or cost price whichever is
higher
III Treating small items of capital nature as revenue items
IV Adoption of written down value method of depreciation as against
straight line method of depreciation
V Making reserve for discount on creditors.
(a) Only (V) above (b) Both (II) and (V) above
(c) Both (I) and (IV) above (d) (II), (III) and (V) above
(e) (I), (III) and (IV) above.
(1 mark)
< Answer >
3. Which of the following statements is/are true with respect to going concern
concept?
(a) The business is not going to terminate its operations in the period ahead
(b) The business may be discontinued in the next accounting period
(c) The business may not diversify its operational spheres
(d) The business may not revalue its assets during the current accounting
period
(e) Both (a) and (c) above.
(1 mark)
< Answer >
4. ‘Accounting’ records transactions and events of financial in character in terms
of
(a) Commodity units (b) Production units
(c) Monetary units
(d) Both (a) and (c) above (e) All (a), (b) and (c) above.
(1 mark)
< Answer >
5. Which of the following statements is false?
(a) If a lessee leases a part of the leased property to another person it is called
sub-lease
(b) In case of partial sub-lease, lessor will be paid on the basis of the output of the
primary lease
(c) Royalty receivable account is opened in the books of the lessor
(d) Minimum rent is payable by the lessee even if the royalty amount is less
than the minimum rent
(e) The balance in shortworkings account appears on the asset side of the
balance sheet of the lessee.
(1 mark)
< Answer >
6. Which of the following statements is/are true with regard to a Trial Balance of a
business?
I It summarises business transactions in a tabular form
II It confirms that the Generally Accepted Accounting Principles have
been observed
III It helps in locating errors, if any, in the books of accounts
IV It forms a basis for finalizing the financial statements
V It ensures arithmetical accuracy.
(a) Only (IV) above (b) Both (III) and (V) above
(c) Both (I) and (IV) above (d) (I), (IV) and (V) above
(e) All (I), (II), (III), (IV) and (V) above.
(1 mark)
< Answer >
7. Which of the following will result in understatement of net profit of a business?
(a) Treating capital expenditure as revenue expenditure
(b) Treating revenue expenditure as capital expenditure
(c) Creation of general reserve
(d) Cash withdrawals by the owner of the business
(e) Both (a) and (d) above.
(1 mark)
< Answer >
8. Assets which are not being actively used and are set aside for disposal should be
stated at
(a) Historical cost less accumulated depreciation
(b) Net realizable value
(c) Replacement value
(d) Net book value or net realizable value, whichever is lower
(e) Historical cost.
(1 mark)
< Answer >
9. The basic accounting rule of ‘debit what comes in and credit what goes out’ is
true with regard to which of the following types of accounts?
(a) Personal accounts (b) Nominal accounts -
expenditure nature
(c) Nominal accounts- income nature (d) Real accounts
(e) Both (b) and (c) above.
(1 mark)
< Answer >
10. The out standing debit balance in a petty cash book is
(a) An expenditure (b) An
income
(c) The net profit for the current accounting period (d) An asset
(e) The amount to be reimbursed by the main cashier.
(1 mark)
< Answer >
11. Which of the following accounts shall have a credit balance?
(a) Returns outward (b) Bills Payable
(c) Returns Inward (d) Short workings Recoupable
(e) Both (a) and (b) above.
(1 mark)
< Answer >
12. Which of the following statements is true?
(a) Bank Overdraft is a personal account
(b) Share capital account is a real account
(c) Prepaid insurance is a nominal account (expenditure)
(d) Accrued interest on fixed deposits is a nominal account (income)
(e) Drawings is a nominal account.
(1 mark)
< Answer >
13. A heavy amount spent on advertisement campaign, the benefit of which is
likely to last for three years is a
(a) Revenue expenditure (b) Capital expenditure
(c) Pre-paid expenditure (d) Deferred capital expenditure
(e) Deferred revenue expenditure.
(1 mark)
< Answer >
14. Closing inventory which is shown in trial balance should be taken to
(a) Debit side of Trading account (b) Credit side of Trading account
(c) Assets side of balance sheet (d) Both (a) and (c) above (e)
Both (b) and (c) above.
(1 mark)
< Answer >
15. Which of the following accounts is a current asset?
(a) Short-term Investments (b) Advances from customers
(c) Accounts receivable (d) Short workings non-
recoupable
(1 mark
< Answer >
16. Mr. Ramu accepted a bill drawn by Mr. Ravinder. Mr. Ravinder endorsed the
bill to Mr.Sravan. On the due date, the bill is dishonored as Mr. Ramu became
insolvent. To record the dishonor of the bill in the books of Mr. Ravinder, which
of the following accounts should be credited?
(a) Mr. Ramu’s account (b) Bills receivable account
(c) Mr. Sravan’s account (d) Bills payable account
(e) Bills for collection account.
(1 mark)
< Answer >
17. Assume, during the year 2003-04, the ending inventory is overstated because
some items of inventory is accidentally counted twice. Which of the following
statements is/are false in this situation?
(a) Cost of goods sold for this accounting period will be overstated
(b) Net income for this accounting period will be overstated
(c) Net income in the next accounting period will be understated
(d) Ending retained earnings in the next accounting period will be correct
(e) Both (a) and (d) above.
(1 mark)
< Answer >
18. Which of the following financial statements is prepared as of a particular date?
(a) Profit and loss account (b) Balance sheet (c) Cash
flow statement
(d) Profit and loss adjustment account (e) Profit and loss appropriation
account.
(1 mark)
< Answer >
19. What does the classified profit and loss account of a business contain?
(a) Revenue from operations (b) Expenses from operations
(c) Assets from operations (d) Capital invested during
operations
(1 mark)
< Answer >
20. Which of the following systems of inventory valuation computes cost of goods
sold as a residual amount?
(a) Weighted Average (b) Last-in First-out
(c) Perpetual Inventory System (d) Periodic Inventory System
(e) Specific Identification.
(1 mark)
< Answer >
21. Which of the following statements is true with regard to accounting for
branches?
(a) Under debtors system, Branch Debtors account is a real account
(b) Under stock and debtors system, Branch adjustment account discloses the
gross profit made by the branch
(c) Branch stock account is always prepared at cost price
(d) Under debtors system, Branch Debtors account is debited with losses like
bad debts, discounts allowed and depreciation
(e) Under stock and debtors system, Branch stock account is a nominal
account.
(1 mark)
< Answer >
22. Which of the following is not a contingent liability?
(a) Debts included in sundry debtors which are doubtful in nature
(b) Uncalled liability on partly paid shares
(c) Claims against the company not acknowledged as debts
(d) Arrears of fixed cumulative dividend
(e) Liability on bills receivable previously discounted.
(1 mark)
< Answer >
23. The amount of owners’ equity in a business is not affected by
(a) The percentage of total assets held in cash
(b) The investments made in the business by the owner
(c) The profitability of the business
(d) The amount of dividends paid to shareholders
(e) Sale of an asset for an amount less than the book value.
(1 mark)
< Answer >
24. If a concern proposes to discontinue its business from March 2004 and decides
to dispose off all its assets within a period of 4 months, the Balance Sheet as on
March 31, 2004 should indicate the assets at their
(a) Historical cost (b) Net realizable value
(c) Cost less depreciation (d) Cost price or market value,
whichever is lower
(e) Replacement cost.
(1 mark)
< Answer >
25. The amount of any transaction incorrectly recorded, either wholly or partly, is
(a) Error of omission (b) Error of commission
(c) Error of principle (d) Compensating error
(e) Error of computation.
(1 mark)
< Answer >
26. Depreciation on fixed assets of foreign branches should be translated using the
(a) Closing rate (b) Average
rate
(c) Rate at which the concerned fixed asset has been converted
(d) Weighted average rate (e) Forward
rate.
(1 mark)
< Answer >
27. Balancing of an account at the end of a financial year denotes
(a) Carry forward excess of debit over credit
(b) Carry forward excess of credit over debit
(c) Equalizing both sides of an account by placing funds or withdrawing funds
(d) Both (a) and (b) above in case of personal, nominal and real accounts
(e) Only (a) in case of real accounts and both (a) and (b) in case of personal
accounts.
(1 mark)
< Answer >
28. The process of allocating the cost of a natural resource over its estimated useful life
is known as
(a) Amortization (b) Absorption
(c) Allocation (d) Depletion (e) Set-off.
(1 mark)
< Answer >
29. Which of the following errors causes a mismatch in trial balance?
(a) Omission of an entry in the journal
(b) Recording of wrong amount in the journal
(c) Recording of wrong account in the journal
(d) Posting of wrong amount in the ledger in one account concerned
(e) Posting of wrong amount in all the accounts affected.
(1 mark)
< Answer >
30. Under a royalty agreement, if the landlord receives royalties from the lessee for
the assignment of a patent for three years, the royalties received should be
reported as revenue
(a) Evenly over the life of the royalty agreement
(b) At the date of entering into the agreement
(c) During the period of actual receipt
(d) During the period the royalty is earned
(e) After completion of three years.
(1 mark)
< Answer >
31. In the books of lessee, the recoverable short workings are
(a) Shown as an asset in the balance sheet (b) Shown as a liability in the
balance sheet
(c) Debited to profit and loss account (d) Credited to profit and loss
account
(e) Amortised over the period in which they are recoverable.
(1 mark)
< Answer >
32. The income or expense which arise in the current year as a result of errors or
omissions in the preparation of financial statements of one or more previous
years is known as
(a) Prior period items (b) Extraordinary items
(c) Contingent items (d) Preliminary items
(e) Equity items.
(1 mark)
< Answer >
33. Under stock and debtors system of maintaining branch accounts, the balance in
Branch Adjustment account is transferred to
(a) Branch stock reserve account (b) General profit and loss account
(c) Branch profit & loss account (d) Branch stock account
(e) Goods sent to branch account.
(1 mark)
< Answer >
34. The three column cash book represents
(a) Real accounts (b) Real and nominal accounts
(c) Personal accounts (d) Real and personal accounts
(e) Real, personal and nominal accounts.
(1 mark)
< Answer >
35. RS Ltd. makes purchases on credit. If the purchases are not as per the
specifications, the company returns them to the suppliers. The book, that is used
to record such returns is
(a) Returns inward book (b) Returns outward book
(c) Cash book (d) Journal proper
(e) Purchases day book.
(1 mark)
< Answer >
36. If goods are sent to branch, the accounting treatment in the books of Head
Office is
(a) Debit Goods sent to branch account (b) Credit Branch account
(c) Debit Branch Debtors account (d) Debit Stock account
(e) Debit Branch account.
(1 mark)
< Answer >
37. Which of the following statements is/are false?
(a) The person who draws the bill is the seller of goods/services
(b) The person who accepts the bill is called the drawee
(c) The person who endorses the bill is called the endorsee
(d) Drawee and Payee can be the same person
(e) Both (c) and (d) above.
(1 mark)
< Answer >
38. If royalty is less than the minimum rent, the balance of royalty account at the
end of the year has to be transferred to
(a) Capital reserve account (b) Reserve capital account
(c) Profit & loss account (d) Profit & loss adjustment
account
(e) Profit & loss appropriation account.
(1 mark)
< Answer >
39. ABC Ltd. makes payments to its sundry creditors through cheques and the cash
discount received on these payments is recorded in the triple columnar cash
book. In the event of dishonour of any such cheques, the discount so received
should be written back through
I. A debit to discount column of the cash book
II. A credit to discount column of the cash book
III. A credit to bank column of the cash book
IV. A debit to discount account through journal proper
V. A credit to creditor’s account through journal proper.
(a) Only (I) above (b) Only (II) above
(c) Only (IV) above (d) Both (I) and (III) above
(e) Both (IV) and (V) above.
(1 mark)
< Answer >
40. Which of the following statements is true with regard to written down value
method of depreciation?
I. The rate at which the asset is written off reduces year after year
II. The amount of depreciation provided reduces from year to year
III. The rate of depreciation as well as the amount of depreciation reduce year
after year
IV. The value of the asset gets reduced to zero over a period of time.
(a) Only (I) above (b) Only (II) above
(c) Both (I) and (II) above (d) (I), (II) and (III) above
(e) (II), (III) and (IV) above.
(1 mark)
< Answer >
4 Luxor Coals Ltd. acquired a coal mine on lease for a period of 9 years commencing
1. from
April 01, 1999. The terms of the lease agreement are as follows:
• • The lessee is to pay Rs.600 per ton as royalty with a minimum rent of
Rs.50,00,000 per annum.
• • The shortfall in any year may be recouped from any excess of royalty over
the minimum rent of the next 4 years, subject to a maximum of Rs.5,00,000 per
annum.
The output for five years is given below:
Year Output (Tons)
1999-2000 6,000
2000-2001 8,200
2001-2002 9,000
2002-2003 8,500
2003-2004 7,000 (3 months strike) As per the lease agreement, in
the event of a strike, the minimum rent would be considered on pro-rata, on the basis of
actual working period.
The amount of short-workings recoupable reflected in the balance sheet of the Luxor
Coals Ltd. as on March 31, 2004 is
(a) Rs.9,80,000 (b) Rs.17,80,000 (c) Rs.80,000 (d) Rs.5,30,000 (e)
Rs. 8,80,000.
(3 marks)
< Answer >
4Periscope Ltd. of Dehradun has a branch in Bangalore. It invoices goods to the branch
2. 1
3
at selling price, which is cost plus 33 %. The company has furnished the following
information pertaining to the transactions of Bangalore branch for the year ended March
31, 2004:
Particulars Rs.
Opening stock at branch, at invoice price 50,000
Sundry debtors as on April 01, 2003 40,000
Goods in transit as on April 01, 2003, at invoice price 10,000
Goods sent to branch, at invoice price 4,80,000
Goods received by the branch 4,78,000
Cash sales 1,60,000
Credit sales 5,20,000
Discount allowed to customers 3,200
Bad debts written off 3,000
Cash received from sundry debtors 5,25,000
Branch salaries & wages paid by HO 1,40,000
Branch sundry expenses paid by HO 60,000
Branch outstanding salaries 10,000
Branch prepaid wages 1,800
Closing stock at branch, at invoice price 40,000 The
profit/loss made by the Bangalore branch for the period ended March 31, 2004 is
(a) Rs.99,600 (b) Rs.97,600 (c) Rs.1,02,800 (d) Rs.96,000
(e) Rs.98,100.
(3 marks)
Question Nos. 43 and 44 are based on the following information:
Consider the following Trial Balance and additional information pertaining to Ravera
Ltd. for the year ended March 31, 2004.
Trial balance as on March 31, 2004
Debit balance Credit balance
Particulars Particulars
(Rs.)
Opening stock 30,000 Purchases returns
Purchases 6,30,000 Sundry creditors
Sales returns 40,000 Sales
Sundry debtors 1,50,000 Discount received
Fixed assets 11,70,000 Share Capital
Salaries 3,80,000 10% Debentures
Wages 2,10,000 Reserves & Surplus
Rent, rates & taxes 80,000
Telephone expenses 1,23,000
Discount allowed 12,000
Insurance premium 5,400
Carriage inward 6,800
Carriage outward 8,200
Cash at bank 26,000
Investments (10%) 2,00,000
Closing stock 32,000
31,03,400
Additional information:
i. Goods worth Rs.4,000 were distributed by salesmen as free sample, but no entry
has been made for this.
ii. Provide depreciation of Rs.78,000 on the fixed assets
iii. A cheque for Rs.4,000 received from a customer was dishonoured by the bank but
the same has not been recorded in the books. The customer has become insolvent
and 50% of the amount is expected to be realized from his estate.
iv. A purchase invoice of Rs.6,000 received from a supplier has not been entered by
oversight.
< Answer >
4 The net profit/net loss of Ravera Ltd. for the period ended March 31, 2004 is
3.
(a) Rs.12,000 (profit) (b) Rs.16,000 (loss)
(c) Rs.20,000 (loss) (d) Rs.10,000 (loss) (e) Rs.16,000
(profit).
(3 marks)
< Answer >
4 The total of the Balance Sheet of Ravera Ltd. as on March 31, 2004 is
4.
(a) Rs.14,98,000 (b) Rs.15,30,000
(c) Rs.15,34,000 (d) Rs.15,38,000
(e) Rs.15,28,000.
(2 marks)
< Answer >
4 The Machinery account of Forward Co. showed a debit balance of Rs.1,60,000 on
5. April 01, 2003. The company charged depreciation on machinery at the rate of 12% per
annum under straight line method. In the year 2003-2004, the company decided to
change the method of depreciation from the straight line method to the written down
value method at the rate of 10% per annum with retrospective effect from April 01,
2000. The said machinery was acquired on April 01, 2000. The company desired to give
effect of the change while preparing the final accounts for the year ended March 31,
2004.
The amount to be debited/credited to profit and loss account for the year ending March
31, 2004 on account of change in method of depreciation is
(a) Credit to profit and loss account Rs.22,250
(b) Debit to profit and loss account Rs.22,250
(c) Debit to profit and loss account Rs.67,750
(d) Debit to profit and loss account Rs.90,000
(e) Debit to profit and loss account Rs.40,475.
(2 marks)
< Answer >
4 The following is the Trial Balance of Mithra Manufacturing Company as on March 31,
6. 2004:
Particulars Debit (Rs.) Credit (Rs.)
Equity Share Capital (Face value Rs.10 each)
Fixed Assets 12,80,000
Sundry debtors
Sundry creditors 1,50,000
Purchases 6,72,000
Sales
Purchases returns 49,000
Sales returns
Opening stock (as on April 01, 2003)
Bad debts 19,000
General and Administration expenses 6,84,000
Term Loan (Interest rate of 13% per annum)
Interest on bank overdraft
Prepaid Rent
Investments in fixed deposit (8% p.a.) 2,00,000
Discount allowed
Discount received 21,000
Reserves & Surplus
Cash on hand 50,000
Total 31,25,000
The trial balance did not agree. On scrutiny, it is observed that certain balances were
wrongly placed in the trial balance. It is corrected by the accountant and it is noticed
that the further difference is on account of omission of bank balance. The bank balance
omitted is
(a) Rs.48,000 (favorable balance) (b) Rs.12,000 (favorable balance)
(c) Rs.15,000 (over draft) (d) Rs.72,000 (favorable balance)
(e) Rs.12,000 (over draft).
(2 marks)
< Answer >
4 RVS Publishers published a book on “Intellectual property rights” which is written by
7. Dr. Niranjan. The terms and conditions of the agreement for the copyright are:
• • The royalties will be paid at the rate of Rs.100 per copy of the book sold
subject to a minimum rent of Rs.3,50,000.
• • A right of recoupment of shortworkings over the first three years of the royalty
agreement.
The publishers furnished the following information:
No. of copies No. of copies held in closing

Year
printed stock
2000-2001 3,000 200
2001-2002 3,500 300
2002-2003 3,900 400
2003-2004 5,000 700 The
total amount paid to Dr. Niranjan during the four years and the amount of short-
workings recouped during the said period, respectively were
(a) Rs.15,50,000; Rs. 30,000 (b) Rs.14,70,000; Rs.80,000
(c) Rs.14,70,000; Rs.30,000 (d) Rs.15,20,000; Rs.30,000
(e) Rs.14,00,000; Rs.Nil.
(2 marks)
< Answer >
4 Fairex Ltd. transfers goods to its branch at cost plus 25%. It maintains the branch
8. accounts under stock and debtors system. The following are the details pertaining to its
Lucknow Branch for the year 2003-2004:
Particulars Rs.
Opening stock at branch 10,000
Goods sent to branch 60,000
Cash sent to branch for
Rent 3,000
Salaries 1,000
Other expenses 2,000
Cash sales 20,000
Credit sales 45,000
Closing stock at branch 5,000 The amount of profit of
Lucknow branch transferred to general profit & loss account for the year ended March
31, 2004 is
(a) Rs.13,000 (b) Rs.7,000 (c) Rs.10,500 (d) Rs.6,000
(e) Rs.6,500.
(2 marks)
< Answer >
4 On March 31, 2004, the bank column of cash book of Periscope Ltd. revealed a debit
9. balance of Rs.20,000 with State Bank of India. The bank balance of the company did
not agree with the balance shown by the bank statement. On scrutiny, the following
differences were noticed:
i. The cashier misappropriated a sum of Rs.10,000 by passing a fictitious entry as
cash deposited in the bank.
ii. Cheques for Rs.48,000 were issued during the month of March 2004, out of
which two cheques of Rs.5,000 each were presented on April 03, 2004.
iii. It was found that the payments side of the cashbook was undercast by Rs.700.
iv. A cheque of Rs.500 deposited in the bank has been dishonored and was shown in
the bank statement, but it was not entered in the cashbook.
v. A cheque for Rs.5,500 drawn by the company was debited by the bank to the
Managing Director’s personal account
vi. Interest on investments directly collected by the bank amounting to Rs.500 and
bank interest of Rs.200 charged by the bank were not taken into the cash book.
vii. Bank charges of Rs.50 had been entered in the bank statement but not entered in the
cashbook.
viii. Cheques worth Rs.35,000 were deposited in the bank before March 23, 2004,
but it appears from the bank statement that cheques worth Rs.22,000 were
credited before March 31, 2004.
The accountant of the company prepared a bank reconciliation statement as on March 31, 2004
and arrived at the bank balance as per the bank records. The balance as per the bank statement
is
(a) Rs.11,550 (credit) (b) Rs.11,550 (debit)
(c) Rs.2,550 (credit) (d) Rs.2,450 (debit) (e)
Rs.32,450 (credit).
(3 marks)
< Answer >
5 On December 01, 2003, Sanjay accepted a bill of Rs.6,300 drawn by Bimal for 3
0. months inclusive of interest on outstanding balance at the rate of 20% per annum. On
December 04, 2003, Bimal discounted the bill with his bank at the rate of 10% per
annum (rounded off to the nearest rupee). On March 15, 2004, Sanjay was declared
insolvent . A first and final dividend of 40 paise per rupee was received by Bimal from
the Official Receiver of Sanjay on April 06, 2004.
The journal entry passed by Sanjay is lieu of settlement of the bill is
(a) Bank a/c. Dr. Rs.2,520
Bad debts a/c. Dr. Rs.3,780
To Sanjay’s a/c. Rs.6,300
(b) Bills payable a/c. Dr. Rs.6,300
To Cash a/c. Rs.2,520
To Deficiency a/c. Rs.3,780
(c) Bills payable a/c. Dr. Rs.6,300
To Bimal’s a/c. Rs.3,780
(d) Bills payable a/c. Dr. Rs.6,300
To Sanjay’s a/c. Rs.2,520
(e) Bimal’s a/c. Dr. Rs.3,780
Bills payable a/c. Dr. Rs.2,520
To Deficiency a/c. Rs.3,780.
(2 marks)
< Answer >
5 Fortune Ltd. purchased copy rights to a book for Rs.5,00,000. The following data with
1. regard to royalty for the year 2003-2004 is available:
Minimum Rent Rs. 2,00,000
Sales during the year Rs.21,00,000
Royalty At the rate of 10% on sales The amount of
shortworkings for the year 2003-2004 was
(a) Rs.2,90,000 (b) Rs.3,00,000 (c) Rs.2,00,000 (d) Rs.10,000
(e) Rs.Nil.
(1 mark)
< Answer >
5 At the time of preparation of final accounts for the year 2003-04, Rainbow Ltd. has
2. valued the closing stock on April 07, 2004 instead of March 31, 2004. The transactions
during the period of April 01, 2004 to April 07, 2004 were as follows:
Particulars Rs.
Purchases 15,000
Sales 40,000
Stock on April 07, 2004 15,000
Gross Profit 30% The value of closing stock
to be considered by the company for the year ended March 31, 2004 is
(a) Rs.40,000 (b) Rs.43,000 (c) Rs.28,000 (d) Rs.15,000
(e) Rs.32,000.
(1 mark)
< Answer >
5 On March 31, 2004, the bank column of the cash book of Vibgyr Ltd. showed a debit
3. balance of Rs.1,375. However, according to the bank statement this account was
overdrawn. On verification, the following facts were revealed:
I. Cheques worth Rs.4,200 received from customers were recorded in the cash
book on March 29, 2004, but not entered by the bank until April 02, 2004.
II. Bank charges of Rs.72 on March 11, 2004 and Rs.85 on March 29, 2004 had
not been entered in the cash book.
III. The receipt column of the cash book has been overcast by Rs.900.
IV. Cheques drawn and entered in the cash book in the month of March 2004
amounting to Rs.1,100 were not presented until April 02,2004.
V. During the month of March 2004, a cheque payment of Rs.1,670 had been
erroneously entered in the cash book as Rs.1,760.
VI. The bank had debited the account of the company with a cheque for Rs.1,900
on March 18, 2004 which was not issued by the company.
The amended cash book of Vibgyr Ltd. showed a bank balance of
(a) Rs.408 (debit) (b) Rs.318 (credit)
(c) Rs.408 (credit) (d) Rs.1,308 (debit)
(e) Rs.1,398 (debit).
(2 marks)
< Answer >
5 The following information is shown in the accounting records of Happy Homes Ltd.
4.
Balance as on April 01, 2003
Rs.
Cash 45,000
Inventories 72,000
Sundry debtors 47,000
Sundry creditors 40,000 Balance as on March 31, 2004
Inventories Rs.67,000
Sundry debtors Rs.70,000
Sundry Creditors Rs.38,000
Total sales made during
the year 2003-04 were Rs.6,75,000 and cost of goods sold was 80% of sales. All sales
and purchases were made on credit. Various operating expenses of Rs.98,000 were paid
in cash. Assume that there were no other pertinent transactions.
The cash balance on March 31, 2004 is
(a) Rs.25,000 (b) Rs.1,60,000 (c) Rs.1,23,000 (d) Rs.62,000
(e) Rs.1,08,000.
(2 marks)
< Answer >
5 Consider the Balance Sheet of Super Services Ltd. as on March 31, 2003:
5. Liabilities Rs. Assets
Share capital 1,00,000 Cash at bank
Profit and Loss account 19,000 Sundry debtors
Sundry creditors 25,000 Closing stock
Prepaid Rent
Total 1,44,000 Total
Following is the summary of transactions that occurred during the year 2003-04:
Particulars Rs.
• • Collections from debtors 88,000
• • Payments to creditors 24,000
• • Purchase of inventory on credit 80,000
• • Sale of inventory on credit (cost Rs.70,000) 85,000
• • Recognition of rent expenses during the year 1,000
• • Salaries paid by cheque during the year 8,000
Considering the above Balance Sheet and the additional information, the total of Trial
Balance of the company as on March 31, 2004 was
(a) Rs.2,05,000 (b) Rs.2,65,000 (c) Rs.2,85,000 (d) Rs.2,95,000
(e) Rs.2,96,000.
(3 marks)
< Answer >
5 Lakhan accepted a six-month bill drawn by Pradham for Rs.6,000. Pradham endorsed
6. the bill in favor of Manish. On the due date, the bill is honored. The entry to be passed
in the books of Pradham to record the payment of the bill is
Rs. Rs.
(a) Bank account 6,000
Dr.
To Manish account 6,000
(b) Bank account 6,000
Dr.
To Bills receivable account 6,000
(c) Manish account 6,000
Dr.
To Bills receivable account 6,000
(d) Manish account 6,000
Dr.
To Bank account 6,000
(e) No entry is required to be passed.
(1 mark)
< Answer >
5 Consider the following information pertaining to Bharani Ltd.
7.
Particulars Rs.
Opening inventory as on April 01,2004 6,00,000
Purchases during the year 2003-04 34,00,000
Sales during the year 2003-04 48,00,000 On March 31, 2004,
the value of inventory as per physical stock-taking was Rs.3,25,000. The company’s
gross profit on sales has remained constant at 25%. The management of the company
suspects that some inventory might have been pilfered by a new employee.
The estimated cost of missing inventory is
(a) Rs.75,000 (b) Rs.25,000 (c) Rs.1,00,000 (d) Rs.1,50,000
(e) Rs.2,25,000.
(1 mark)
< Answer >
5 Good Health Enterprises, which started its operations on April 01, 2003, provided the
8. following untallied trial balance as on March 31, 2004:
Particulars Rs.
Sales 5,65,000
Fixed assets 10,90,000
Sundry debtors 1,25,000
Sundry creditors 95,000
Cash and bank 65,000
Capital 9,00,000
On verification, it was noticed that
the difference in trial balance is on account of omission of purchases. If the value of
stock as on March 31, 2004 was Rs.50,000, the gross profit for the year ended March
31, 2004 was
(a) Rs.6,15,000 (b) Rs.3,94,000 (c) Rs.3,48,000 (d) Rs.2,08,000
(e) Rs.3,66,000.
(2 marks)
< Answer >
5 Consider the following data pertaining to Finapolis Ltd. for the month of March 2004:
9.
Date Purchases Issues Balance
Quantity Rate Quantity Quantity Rate
(Kg.) (Rs.) (Kg.) (Kg.) (Rs.)
01-03-2004 500 22.80
02-03-2004 400 24
10-03-2004 600 25
25-03-2004 1,000 If
the company uses weighted average method for inventory valuation, the value of
inventory as on March 31, 2004 is
(a) Rs.11,967 (b) Rs.11,400 (c) Rs.12,500 (d) Rs.12,000
(e) Rs.36,000.
(2 marks)
< Answer >
6 NJoy Company has furnished the following balances:
0.
As on April 01, As on March 31, As on March 31,
Particulars
2002 (Rs.) 2003 (Rs.)
Sundry debtors – 4,50,000
Bad debts written off – 27,000
Discount allowed – 9,000
Provision for doubtful debts 33,000 –
Provision for discount on debtors 12,000 –
The company maintained the following percentages for making provisions during the
years:
Provision for doubtful debts – 8%
Provision for discount on debtors – 3%.
The amount debited to profit and loss account for the year ended March 31, 2004, on
account of provision for discount on debtors is
(a) Rs.12,420 (b) Rs.10,488 (c) Rs.6,568 (d) Rs.9,420
(e) Rs.19,100.
(2 marks)
< Answer >
6 The following balances are extracted from the books of accounts of Sturdy Ltd. as on
1. March 31, 2004.
Particulars Rs. Particulars

Share capital account 2,68,800 Manufacturing wages
Preliminary expenses 21,100 Sales
Sundry creditors 1,10,060 Returns inward
15% Term- Loan 40,000 Salaries
Closing inventory as on March 31, Returns outward
2004 2,05,200
Cash at bank 44,000 Discount allowed
Sundry debtors 1,43,000 Office administrative expenses
Bills Payable 1,55,500 Prepaid insurance
Provision for doubtful debts 2,000 Insurance
Fittings and Fixtures 75,540 Bad debts
Discount received 9,200 Commission received
Opening inventory as on April 01, Outstanding salaries
2003 1,09,360
Purchases 3,07,980
The total of Trial Balance of the company as on March 31, 2004 was
(a) Rs.11,03,300 (b) Rs.13,12,700 (c) Rs.13,09,700 (d) Rs.13,12,300 (e)
Rs.11,07,500.
(1 mark)
< Answer >
6 Carolina Ltd. began operations this year. At the beginning of the year the Company
2. purchased fixed assets of Rs.1,65,000, with an estimated useful life of ten years and no
salvage value. The company depreciated the assets under straight line method.
During the year, the company had sales of Rs.3,00,000, salary expenses of Rs.50,000
and other expenses of Rs.20,000 excluding depreciation. In addition, the company
purchased inventory aggregating to Rs.2,36,900 as follows:
Date No. of Rate per

units unit
April 15, 400 Rs.100
2003
May 20, 2003 200 Rs.102
June 15, 2003 800 Rs.104
Sept. 18, 600 Rs.103
2003
March 09, 300 Rs.105
2004
2,300 At the end of the year, a physical
inventory disclosed 500 units still on hand. The manager of the company knows that
they have a choice of accounting methods but is not sure of the effect of the methods on
net income. As such, he wanted to make a comparison of the net profit using FIFO
method and LIFO method of inventory valuation.
The net profit under FIFO and LIFO methods of inventory valuation, respectively are
(a) Rs.45,200: Rs,43,300 (b) Rs.26,560: Rs.26,370
(c) Rs.21,350: Rs.21,160 (d) Rs.48,700: Rs.46,800
(e) Rs.28,700: Rs.26,800.
(3 marks)
< Answer >
6 Consider the following data pertaining to Exlnt Ltd. for the month of March 2004:
3.
Date Particulars Rs.
March20 1 Opening balance of cash 40,000
04 Opening balance of bank ?
2 Paid into bank 30,000
5 Bought goods and paid by cheque 15,000
9 Sold goods to Ramlal for cash 10,000
12 Received a cheque from Babulal 7,500
17 Paid Giridhar Lal by cheque 8,000
20 Bankers inform the dishonour of Babulal’s 7,500
cheque
23 Paid printing charges by cheque 4,000
25 Surplus cash deposited into bank 4,000
26 Amount withdrawn from bank for personal use 5,000
31 Combined balance of cash and bank 30,500
The opening bank balance as on March 01, 2004 was
(a) Rs.19,500 (b) Rs.42,500 (c) Rs.5,500 (d) Rs.9,500
(e) Rs.12,500.
(3 marks)
< Answer >
6 In the books of Pramod Ltd. goods worth Rs.7,850 returned by Mr. Prakash were
4. entered in the purchases day book and recorded there from to Mr. Prateek’s account as
Rs.8,750. At the time of preparation of the trial balance, the difference was posted to
suspense account. On rectification the entry to be passed is
Rs. Rs.
(a) Sales account 7,850
Dr.
Prateek account 8,750
Dr.
To Purchases account 7,850
To Prakash account 7,850
To Suspense account 900
(b) Returns inward account 8,750
Dr.
Prakash account 7,850
Dr.
To Prateek account 8,750
(c) Suspense account 7,850
Dr.
Dr.
(d) Returns inward account 7,850
Dr.
Dr.
(e) Returns inward account 7,850
Dr.
Dr.
To Suspense account 900.
(2 marks)
< Answer >
6 Consider the following information pertaining to the office equipment purchased by
5. Libra Ltd.:
Office equipment purchased on April 01, 2003 Rs.50,000
Accumulated depreciation upto March 31, 2004 Rs. 8,000
Salvage Value Rs. 2,500
The cost of the equipment that is yet to be expensed through the Profit and loss account
is
(a) Rs.10,500 (b) Rs.47,500 (c) Rs.42,000 (d) Rs.8,000
(e) Rs.39,500.
(1 mark)
< Answer >
6 Consider the following data pertaining to Jagriti Ltd. as on March 31, 2004:
6.
Particulars Amount (Rs.) Amount (Rs.)
Opening stock 90,000
Sales 6,35,000
Purchases 4,56,000
Salaries 86,000
Sundry debtors 45,000
Share capital 6,00,000
Short term loan 36,000
13,03,000 13,03,000The value of stock as
on March 31, 2004 is Rs.75,000. The company has the practice of charging depreciation
on the fixed assets at the rate of 15% on written down value method. The total of
liabilities side of balance sheet as on March 31, 2004 is
(a) Rs.7,38,000 (b) Rs.6,68,000 (c) Rs.6,73,000 (d) Rs.5,93,000
(e) Rs.7,43,000.
(2 marks)
< Answer >
6 As on March 31, 2004, the overdraft balance of Mr.X as per bank pass book is
7. Rs.20,000. The pass book balance did not agree with the balance as per cash book. On
scrutiny, the following omissions and commissions were noticed:
•• A cheque for Rs.4,000 issued to Mr.Y has not been presented for
payment till date
•• Mr.Z, a tenant, directly deposited into the bank account an amount of
Rs.10,000 towards rent and the same is not accounted in the cash book.
•• A cheque for Rs.15,000 deposited in the bank is not yet realised
•• The interest on debentures for this year, directly collected by the bank,
amounted to Rs.10,000
The bank balance as per cash book is
(a) Debit balance of Rs.23,500 (b) Credit balance of Rs.29,000
(c) Credit balance of Rs.16,500 (d) Debit balance of Rs. 5,500
(e) Debit balance of Rs.16,500.
(2 marks)
< Answer >
6 On March 01, 2004, the Bills receivable of Swastik Ltd. showed a balance of Rs.50,000.
8. During the month of March 2004, new bills accepted by debtors amounted to Rs.6,000,
bills dishonored by drawees amounted to Rs.8,000 and bills honored by drawees
amounted to Rs.25,000. The balance of bills receivable account as on March 31, 2004 is
(a) Rs.23,000 (b) Rs.61,000 (c) Rs.48,000 (d) Rs.77,000
(e) Rs.73,000.
(1 mark)
< Answer >
6 Venus Ltd. purchased furniture for Rs.1,20,000 two years ago. The current book value
9. of the furniture is Rs.86,700. If the company charges depreciation on furniture under
written down value method, the rate of depreciation is
(a) 35% (b) 30% (c) 25% (d) 20%
(e)15%.
(1 mark)
< Answer >
7 M/s.Zodiac Co. has branches at Agra and Delhi. If Agra branch sends goods worth
0. Rs.30,000 to Delhi branch, the journal entry to record the transaction in the books of
Head Office is
(a) Agra branch a/c. Dr. Rs.30,000
To Goods sent to branch a/c.
Rs.30,000
(b) Agra branch a/c. Dr. Rs.30,000
To Delhi branch a/c.
Rs.30,000
(c) Agra branch a/c. Dr. Rs.30,000
To Goods received from branch a/c.
Rs.30,000
(d) Delhi branch a/c. Dr. Rs.30,000
To Agra branch a/c.
Rs.30,000
(e) Delhi branch a/c. Dr. Rs.30,000
To Goods sent to branch a/c.
Rs.30,000.
(1 mark)
< Answer >
7 Consider the following data pertaining to Universe Ltd. as on March 31, 2004:
1.
 Total sundry debtors as per Trial Balance Rs.40,600
 Bad debts identified after the preparation of Trial Balance Rs.600
 Provision for bad debts to be created @ 5% on sundry debtors
 Provision for discount on sundry debtors to be created @ 2%.
The amount of provision for discount on sundry debtors created for the period ended
March 31, 2004 was
(a) Rs.760 (b) Rs.2,000 (c) Rs.771 (d) Rs.800
(e) Rs.812.
(2 marks)
END OF
QUESTION
PAPER
Suggested Answers
Financial Accounting – I (111) : April 2004
1. Answer : (d) < TOP
>
Reason : The concept of disclosure stipulates that the contingent items should appear as a foot note in the
balance sheet. Materiality concept says that all the transactions that are material shall be reflected in
the financial statements as separate line items and there fore it is not the correct answer (a). Matching
concept says that the expenses shall relate to the goods sold or services rendered during the year and
therefore it is not the correct answer (b). Consistency concept says that all the accounting policies
shall be followed consistently from one period to another unless there is a sound reason to change
them and therefore it is not the correct answer (c). Conservatism concept says that expenses can be
recognized on the basis of anticipation but revenues should be recognized only when their realization
is reasonably certain and therefore it is not the correct answer (e). Thus alternative (d) is the correct
answer.
2. Answer : (b) < TOP
>
Reason : The statements (II) and (V) i.e. , valuation of inventories at the market price or cost price which ever
is higher and making reserve for discount on sundry creditors , are violating the concept of
conservatism. Making provision for bad and doubtful debts in anticipation of certain debtors turning
out to be bad in future is in line with the concept of conservatism (I). Treating small items of capital
nature as revenue items (III) and adoption of Written down value method of depreciation as against
Straight line method of depreciation are not against the Conservatism concept. Therefore, alternatives
(a), (c), (d) and (e) are not correct answers. Thus, alternative (b) is the correct answer.
3. Answer : (a) < TOP
>
Reason : Going concern concept assumes that the business will be carried on for an indefinite period of time
and the enterprise has neither the intention nor the necessity of liquidation or of curtailing materially
the scale of operations. Therefore, statement (a) is the correct answer. Statement (b) i.e., the business
may be discontinued in the next accounting period is against the going concern concept. Diversifying
the operational spheres is the part and parcel of new business world and has nothing to do with the
Going Concern Concept (c). Similarly, revaluation of assets is also a common feature in the business
and has nothing to do with the Going Concern Concept (d). Alternative (e), both (a) and (c) above is
also not a correct answer. Therefore, alternative (a) is the correct answer.
4. Answer : (c) < TOP
>
Reason : Accounting records transaction and events of financial nature in terms of Monetary units (for e.g., in
terms of Rupees in India). Therefore, alternative (c) is the correct answer. Transactions are neither
recorded in Commodity units (a) nor in terms of Production units (b). Hence, alternatives (a) and (b)
are not correct answers and the alternatives having them as a part, i.e., alternatives (d) and (e) are also
not correct answers. Therefore, alternative (c) is the correct answer.
5. Answer : (b) < TOP
>
Reason : In case of sub-lease, the lessor will be paid royalty on the basis of the combined output of both the
primary lease and sublease but not on the basis of the output of the primary lease alone. Hence, the
statement (b) is false.
The other statements are true and state the accounting for royalties and explain the terms sub-lease;
minimum rent etc.
If a lessee leases the whole or portion of the leased property it is a case of sub-lease.
Lessor is the person entitled to receive royalty and as such Royalty Receivable Account opened in his
books.
Lessee is the person who enjoys the rights of the leased property and in turn agrees to pay a fixed
amount known as minimum rent. Minimum rent is payable even in case of lower output and resultant
(lesser) royalty.
If the royalty is less than the minimum rent the lessee has to pay the minimum rent by debiting short
workings account. It is a loss/expenditure to the lessee, which may be agreed to be recouped out of
surplus in royalty in subsequent years. It may be recovered over a period of time as agreed. It will be
shown as an asset in the balance sheet of the lessee till it is recoverable.
>
Reason : A Trial Balance summarizes business transactions in a tabular form (I), it forms a basis for finalizing
the financial statements It forms a basis for finalizing the financial statements (IV) and it ensures
arithmetical accuracy (V). Therefore, alternative (d) i.e., (I), (IV) and (V) above is the correct answer.
A Trial Balance doesn’t confirm that Generally Accepted Accounting Principles have been observed.
Therefore, Statement (II) is a false one. We cannot locate Compensating errors by preparing a Trial
Balance. Therefore, a Trial Balance helps in locating errors, if any, in the books of accounts (III) is
also not a correct statement. Hence, alternatives containing (II) or (III) as a part of them, i.e.,
alternatives (b), (d) and (e) are not correct answers. Alternative (a) is ignoring the statements (I) and
(V) which are true statements and hence it is not the correct answer. Therefore, alternative (d) is the
correct answer.
7. Answer : (a) < TOP
>
Reason : Treating capital expenditure as revenue expenditure will result in understatement of net profit.
Therefore, alternative (a) is the correct answer. Treating revenue expenditure as capital expenditure
(b) will result in Overstatement of Profit and not understatement of profit. Therefore, alternative (b) is
not a correct answer. Creation of general reserve (c) is an appropriation of profit. Therefore, it will not
effect the Net profit of the business. A cash withdrawal by the owner of the business (d) is known as
drawings. It will shown as reduction from the Owner’s Capital and will not effect the Net profit.
Therefore, alternative (d) is not a correct answer. Alternative (e) i.e., both (a) and (d) is also not a
correct answer. Therefore, alternative (a) is the correct answer.
>
Reason : According to Accounting Standard 10, assets which are not being actively used and which are held for
disposal should be stated at net book value or net realizable value whichever is lower.
>
Reason : The Basic accounting principle for Real accounts is ‘ Debit what comes in, Credit what goes out ’.
Therefore, alternative (d) is the correct answer The basic accounting rule for Personal account is ‘
Debit the Receiver and Credit the Giver ’. Therefore, alternative (a) is not the correct answer. The
Basic accounting rule for Nominal accounts is ‘ Debit all Expenses and losses, Credit all incomes and
gains ’. Therefore alternatives (b) and (c) are not correct answers. Alternative (e) i.e., the combination
of (b) and (c)., is not the correct answer. Thus, alternative (d) is the correct answer.
10 Answer : (d) < TOP
>
. Reason : To avoid recording too many small value transactions in the main Cash Book, a Petty Cash Book is
maintained. Therefore, a debit balance in a Petty Cash book represents an asset (d). It is neither
expenditure (a) nor an income (b). It cannot be the net profit for the current accounting period (c).
The amount to be reimbursed by the main cashier (e) is also not the correct answer. Therefore,
alternative (d) is the correct answer.
11. Answer : (e) < TOP
>
Reason : Returns outward (a) and Bills Payable (b) represents usually shows Credit balances. Therefore,
alternative (e) i.e., both (a) and (b) above is the correct answer. Returns inward Account (c) is a
nominal account. When we close it at the end of each month it will show a Debit balance. However, at
the end of the year it will be transferred to Trading and Profit and loss Account. Hence, alternative (c)
is not the correct answer.. Short workings Recoupable is an Asset. Therefore, Short workings
recoupable Account shows a debit balance. Therefore, alternative (d) is not the correct answer.
Therefore, alternative (e) is the correct answer.
12 Answer : (a) < TOP
>
. Reason : A Personal Account deals with accounts of individuals like debtors, creditors, bank etc. Outstanding
expenses and prepaid expenses, and accrued incomes and incomes received in advance are also
personal accounts.
Therefore, Bank overdraft Account is a Personal Account (a) is the correct answer. Share Capital is the
amount which is contributed by the owners of the firm, it is a personal account and not a real account.
Therefore, alternative (b) is not a correct answer. Prepaid insurance, accrued interest on fixed deposits
and drawings account are personal accounts and not nominal accounts. Therefore, alternatives (c), (d)
and (e) are not a correct answers. Thus, alternative (a) is the correct answer.
13 Answer : (e) < TOP
>
. Reason : A heavy amount spent on advertisement campaign the benefit of which is likely to last for three years
is a deferred revenue expenditure. Thus, alternative (e) is the correct answer. It is not a revenue
expenditure since its benefits are expected to accrue over three years and not confined to the year in
which it is incurred. Therefore, alternative (a) is not the correct answer. It is not a capital expenditure
since the expenditure is in the nature of revenue, which is deferred and spread over the period over
which the benefits are accrued. Since its very nature is not of a capital expenditure it cannot be a
deferred capital expenditure. Therefore, alternatives (b) and (d) are not correct answers.
14 Answer : (c) < TOP
>
. Reason : Closing inventory, if shown in trial balance should be taken to assets side of balance sheet. If it is
indicated outside trial balance, it will have two adjustments - take it to credit side of Trading account
and show it on assets side of Balance sheet. The reason is, the closing stock is given in the trial
balance only when it is deducted from the Purchases i.e., net purchases after closing stock adjustment
will be given in the trial balance. Hence, we should not take it to the credit side of the Trading
Account. When it is given as an adjustment, i.e., not considered while preparing the trial balance, then
we have to show it on the credit side of the Trading Account since the closing stock in not adjusted in
the purchases. In any case, it will be taken to Assets side of the Balance Sheet. Therefore, alternative
(c) is the correct answer.
>
. Reason : Accounts receivables is a current asset. Short-term investments(a) are the investments and are
categorized under investments. and are not the current assets. Advances from customers (b) are the
liabilities to a business and are not assets and is not the correct answer. Short workings non-
recoupable (lapsed)is an expenditure and not a current asset (d) is not the correct answer .Alternative
(e), the combination of (a) and (b) is not the correct answer. Alternative (c) is the correct answer.
>
. Reason : When the endorsed bill is dishonored, the drawee’s account is debited and the endorsee’s account is
credited. The entry to record the dishonor is:
Mr. Ramu’s A/c Dr
To Mr. Sravan’s A/c.
>
. Reason : Cost of goods sold for this accounting period will be overstated (a) is the false statement, since
overstating the Closing inventory will result in understating the cost of goods sold but not overstating
the cost of goods sold. Therefore, alternative (a) is the correct answer. Net income for the period will
be overstated (b) is a true statement and therefore not a correct answer. Net income for the next
accounting period will be understated is a true statement since the closing inventory for the current
accounting period will be opening inventory for the next accounting period and therefore overstating
the opening inventory will result in understatement of net income. Therefore, alternative (c) is not the
correct answer. Ending retained earnings in the next accounting period will be correct (d) is also a true
statement because, we will transfer the current year’s overstated net income and the next year’s
understated net income to the retained earnings, overstatement will be offset by the understatement
and the net retained earnings will be correct. Therefore, it is a true statement and not the correct
answer. Alternative (e) is also not a correct answer since it contains alternative (d) as a part of it. Thus,
alternative (a) is the correct answer.
18 Answer : (b) < TOP
>
. Reason : Balance sheet is prepared as on a particular date whereas profit and loss account, cash flow statement,
income and expenditure account are prepared for a particular period. Therefore, alternative (b) is the
correct answer.
>
. Reason : A classified Profit and loss Account contains both Revenue from operations and expenses from
operations. Therefore, alternative (e) i.e., both (a) and (b) above is the correct answer. It does not
contain Assets from operations (c) and Capital invested during operations (d). Therefore, alternatives
(c) and (d) are not correct answers. Therefore, alternative (e) is the correct answer.
>
. Reason : Under the periodic system, the cost of goods sold is computed by subtracting the ending inventories
which are determined by the physical count from the sum of the opening inventory plus purchases.
Thus, it is computed as a residual amount. Hence, (d) is the correct answer. Weighted average method,
Last-in First-out and Specific identification are the methods inventory valuation and not the systems
of maintaining inventory records. And are not the correct answers. Under the perpetual inventory
system, a continuous record that tracks inventories and the cost of goods sold on a day-to-day basis is
arrived. It is not computed as a residual amount. Therefore, alternative (d) is the correct answer.
. Reason : The subordinate divisions of a business are the branches of a business and one of the popular systems >
of accounting for branches is stock and debtors system. The head office prepares (1) branch stock
account (2) branch debtors account (3) branch expenses account (4) branch adjustment account (5)
branch stock reserve account and (6) branch profit and loss account. Branch adjustment account is
prepared to adjust the difference of selling price and cost. The resultant figure is the gross profit. Here,
the goods are invoiced at selling price.
The other statements are false because a) branch debtors account is a personal account and not a real
account c) branch stock account is prepared at selling price also d) Under debtors system, the
depreciation is not shown but the net balance of the asset account is shown in the branch account. The
bad debts, discount allowed are credited to the branch debtors account and not debited to the branch
debtors account. e) Under stock and debtors system, branch stock account is an asset, which will be
shown in the balance sheet, and it is not a nominal account.
< TOP
22 Answer : (a) >
. Reason : A contingent liability is the loss which will be known or determined only on the occurrence or non-
occurrence of one or more future uncertain events. Debts of debtors is not an uncertain event but only
the realization of a part of the debt is doubtful for which provision must be provided and hence it is
not a contingent liability. Items in other alternatives i.e., uncalled liability on partly paid shares (b)
may be called up in the event of necessity, Claims against the company not acknowledged as debts
(c), may or may not turn out to be debts in future, Arrears of cumulative fixed dividend (d) are
contingent liabilities. Liability for bills receivable discounted previously (e) is a contingent liability,
which is dependent on the solvency of the drawee. Therefore, alternative (a) is the correct answer.
< TOP
23 Answer : (a) >
. Reason : Owners’ equity in a business is the amount of funds belonging to the owners. The composition of
assets does not affect the owners’ equity. Hence, the percentage of total assets held in cash does not
affect the owners’ equity. On the other hand it indicates the liquidity position of the business. Owners’
equity represents investments made in the business by the owners (b), the profits of the business (c)
and the owners’ equity is affected by a change in any of these items. The amount of dividends paid to
shareholders (d) affects the owners’ equity in the business with a corresponding decrease in the equity.
Sale of asset for an amount less than the book value (e) decreases the owners’ equity in a business.
Hence, transactions in alternatives (d) and (e) adversely affect the owners’ equity in a business. Thus,
correct answer is (a) which does not affect the owners’ equity. Thus, alternative (a) is the correct
answer.
>
. Reason : Financial accounting principles assume the going concern concept and hence the fixed assets will be
valued at cost less depreciation. However, in the given case, the concern decided to close its
operations. Hence, the fixed assets should be indicated in the balance sheet at net realizable value.
Hence the answer is (b). The assets are not recorded at historical cost (a). Cost less depreciation (c) is
not used when the going concern concept is doesn’t holds good. Cost or market value, whichever is
lower (d) is used to record stock-in-trade but not fixed assets. The replacement cost (e) is irrelevant
when the firm is going to discontinue its operations. Thus, alternative (b) is the correct answer.
>
. Reason : The mistake made by recording the amount incorrectly, either wholly or partly is known as error of
commission. Hence the correct answer is (b). If any transaction is omitted to be recorded, it is known
as error of omission. If the principles of accounting are not followed in recording the transaction, it is
known as error of principle. If two or more errors are made and the amount compensates in such a
way that the error is not disclosed by trial balance, such errors are compensating errors. If any mistake
is made in calculation (like the calculation of depreciation), such error is known as error of
computation. Thus, alternative (b) is the correct answer.
>
. Reason : Depreciation of foreign branches of the parent enterprise should be translated using the rate at which
the fixed asset has been converted. Hence the answer is (c). The closing rate is used for conversion of
current assets and liabilities. Average rate will be used to convert revenue items. Weighted average
rate is used for revenue items in some special situations like when the income is not evenly accrued
through out the accounting period. If current assets are acquired and held abroad and are covered by
forward exchange contract, the assets should be converted at the forward rate mentioned in the
contract. Thus, alternative (c) is the correct answer.
. Reason : Balancing of an account at the end of a financial year denotes carry forward excess of debit over >
credit in case of real accounts and carry forward of the difference between debit and credit in case of
personal accounts. Hence (e) is the answer. The funds are neither placed nor withdrawn for balancing
an account (c). Thus, alternative (c) is not a correct answer. Alternative (d) i.e., both (a) and (b) above
in case of personal, nominal and real accounts is also not a correct answer since in case of real
accounts carry forward of excess credit over debit will not occur and nominal accounts will be closed
at the end of the year and will not show any balance. Thus, alternative (e) is the correct answer.
. Reason : The process of allocating the cost of a natural resource over its estimated useful life is known as >
depletion. Amortisation (a) is the process of allocating the cost of assets like patents over their
estimated useful life, Absorption (b) is the process of allocation of overheads to the products,
Allocation (c) is the process of distributing the overheads to production and service departments and
Set-off (e) is adjusting the losses with income, and therefore, not the correct answers. Thus,
alternative (d) is the correct answer.
. Reason : Posting of wrong amount in the ledger in one account concerned leads to mismatch in trial balance as >
the wrong amount is recorded only in one account. Thus, alternative (d) is the correct answer.
Omission of an entry in the journal (a), recording of wrong amount in the journal (b), recording of
wrong account in the journal (c) and posting of wrong amount in all the accounts affected (e) will not
cause a mismatch in trial balance because the mistake is effected on both sides and therefore not the
correct answers. Thus, alternative (d) is the correct answer.
. Reason : Revenues should be recognized when they are earned and they are realized or realizable in future. >
unless otherwise provided it is assumed that they are realizable They are realized when the goods or
services or using rights are exchanged for cash or claims to cash. The other alternatives are incorrect
because the revenue should be recognized only when it is realized or realizable and earned.
>
. Reason : Recoverable short workings will be shown as an asset in the balance sheet. They are not shown as a
liability, they are not taken to profit and loss account, and they are not amortized over a period of
time. Hence the answer is (a).
>
. Reason : According to Accounting Standard-5, the incomes or expenses which arise in the current period as a
result of errors or omissions in the preparation of financial statements of one or more prior periods is
known as prior period items. Extraordinary items are income or expenses that arise from events or
transactions that are clearly distinct from the ordinary activities of the enterprise and, therefore, are
not expected to recur frequently or regularly. Contingent items are gains or losses, which arise only
on the occurrence or non-occurrence of one or more uncertain future events. Preliminary items are
those expenses incurred for the incorporation of the company. Equity items are the items like equity
share capital, calls-in-arrears, which are related to equity shareholders.
>
. Reason : The balance in branch adjustment account depicts gross profit and is transferred to Branch Profit &
loss account. The balance in branch profit and loss account is taken to general profit and loss account.
It is not taken to branch stock reserve or branch stock account or goods sent to branch account
>
. Reason : The three column cash book is a refinement over single column cash book and double column cash
book. Under three column cash book an additional column for discount is included on either side.
Thus, it represents cash column-real account, Bank column-personal account and discount column-
nominal account. The other alternatives (a) single column represents real account there is no cashbook
where only personal accounts (c) are represented. In some business organizations a cashbook with
bank column is maintained due to convenience where real and personal accounts (d) are reflected. The
three-column cash book represents real personal and nominal accounts.
< TOP
35 Answer : (b) >
. Reason : The book, that is used to record the goods purchased on cash that are sent back to the suppliers on
account of non confirmation to the specifications, is the returns outward book also known as
purchases returns book (b) is the correct answer. Returns inward book (a) is not the correct answer
because, the sales returns are recorded in the returns inward book. Cashbook (c) is not the correct
answer because, the transactions involving either the receipt or payment of cash is recorded in the
cashbook. Journal proper (d) is not the correct answer because the journal proper is meant to record
the transactions, which do not find place in any other subsidiary book. Purchases day book (e) is not
the correct answer because, all credit purchases are recorded in the purchases day book and not the
returns of it. Thus, (b) is the correct answer
>
. Reason : When goods are sent to branch the journal entry in the head office books is
Branch account Dr
To Goods sent to branch account
Thus branch account will be debited.
The other statements are not correct because
(a) Goods sent to branch account will be credited and not debited as the credit aspect of the
transaction is ‘goods sent to branch account’.
(b) Branch account will be debited and not credited.
(c) and (d) When goods are sent to branch, the accounts affected are branch account and goods sent to
branch account. Debtor’s account is not affected; hence it is neither credited nor debited.
Reason : Alternative (e) i.e., both (c) and (d) above is the correct answer. The person who endorses the bill is >
.
called the Endorser of the bill. Therefore, the alternative (c), which states that the person who
endorses the bill is called the Endorsee of the bill, is a false statement. Payee is a person to whom the
amount is paid i.e., who receives the payment. Drawee is a person who makes the payment. Therefore,
Drawee and payee can be the same person (d) is a false statement. The other two statements, the
person draws the bill is called Drawer (a) and the person who accepts the bill is called the Drawee (b),
are true statements and therefore not the correct answers. Therefore, alternative (e) is the correct
answer.
>
. Reason : Royalty amount, whether it is less than or more than the minimum rent, payable to landlord is the
revenue expenses of the business. At the end of the year, transferring it to profit and loss account will
close the royalty account. It cannot be transferred to capital reserve account, reserve capital account,
profit & loss adjustment account and profit & loss appropriation account
>
. Reason : The amount of cash discount received on the payments made to sundry creditors through cheques by
the business will be recorded in the cash book, and if the previously issued cheque is dishonoured, the
discount should be written back through (IV) A debit to discount account through journal proper and
(V) A credit to creditor’s account through journal proper (e) the combinations of these two statements
is the correct answer. Discount received and allowed accounts separately maintained are not netted as
such the discount received which got to be written back because of return of previously issued cheque
cannot be debited to discount column of the cash book (a) is the incorrect answer. Since it is reversal
of already credited discount account again a credit to discount column of the cashbook cannot be
given and (b) is the incorrect answer. Bank column is debited with the amount of cheque returned
which does not include discount component and it is not a credit to bank column of the cash book as
such (c) is the incorrect answer. The combination of the incorrect statements in (I) and (III) i.e. (d) is
not the correct answer. So (e) is the correct answer.
Reason : Under written down value method of depreciation, the amount on which depreciation is provided >
.
reduces from year to year. Thus the statement under alternative (b) is the correct answer. The
statements in other alternatives are incorrect because, the rate of depreciation does not change year
after year it remains fixed (a): The rate of depreciation and the amount of depreciation reduce from
year to year is incorrect because only the amount of depreciation reduces and not the rate. Thus, the
alternative with the combination of statements (I) and (III) is incorrect. Under diminishing balance
method of depreciation, the amount of the asset never becomes to zero over a period of time. Thus,
the combination of statements (I), (III) and (IV) i.e. a, c, d and e are incorrect
41 Answer : (c) < TOP >
. Reason : Workings: Royalty: Rs.600 per ton:
Short- Short-
Output Minimum Short- Short- Amount
Royalty workings workings
Year in Rent workings workings paid
(Rs.) recouped lapsed
Tons (Rs.) (Rs.) C/f (Rs.) (Rs.)
(Rs.) (Rs.)
1999-2000 6,000 36,00,000 50,00,000 14,00,000 – – 14,00,000 50,00,000
2000-2001 8,200 49,20,000 50,00,000 80,000 – – 14,80,000 50,00,000
2001-2002 9,000 54,00,000 50,00,000 – 4,00,000 10,80,000 50,00,000
2002-2003 8,500 51,00,000 50,00,000 – 1,00,000 – 9,80,000 50,00,000
2003-2004 7,000 42,00,000 37,50,000 – 4,50,000 4,50,000 80,000 37,50,000
Minimum rent (2003-2004) = (Rs.50,00,000 ÷ 12 months) × 9 months = Rs.37,50,000.
The amount of short-working recoupable reflected in the balance sheet is Rs.80,000.
. Reason : >
Dr. Bangalore Branch A/c. Cr.
Particulars Rs. Particulars Rs.
To Opening stock (Rs.50,000–Rs.12,500) 37,500 By Sales:
To Goods in transit (Rs.10,000–Rs.2,500) 7,500 Cash 1,60,000
To Goods sent to branch 3,60,000 Credit 5,20,000
(Rs.4,80,000 – Rs.1,20,000)
To Expenses By Branch prepaid wages 1,800
Discount allowed 3,200 By Closing stock (Rs.40,000–Rs.10,000) 30,000
Bad debts 3,000 By Goods in transit (Rs.12,000–Rs.3,000) 9,000
To Branch salaries & wages 1,40,000
To Branch sundry expenses 60,000
To Branch outstanding salaries 10,000
To Branch Profit transferred to general
profit & loss a/c 99,600
7,20,800 7,20,800
. Reason : Revera Ltd. >
Dr. Trading and Profit & Loss A/c. for the year ended March 31, 2004 Cr.
Particulars Rs. Rs. Particulars Rs. Rs.
To Opening stock 30,000 By Sales 15,85,000
To Purchases 6,30,000 Less:Sales returns 40,000 15,45,000
Less: Purchases returns 28,000 By Advertisement (Free samples) 4,000
6,02,000
Add: Purchases 6,000 6,08,000
To Wages 2,10,000
To Carriage inward 6,800
To Gross profit 6,94,200
15,49,000 15,49,000
To Salaries 3,80,000 By Gross Profit 6,94,200
To Rent, rates & taxes 80,000 By Discount received 10,400
To Telephone expenses 1,23,000 By Interest on investments 20,000
To Discount allowed 12,000
To Insurance premium 5,400
To Carriage outward 8,200
To Interest on debentures 48,000
To Advertisement 4,000
To Depreciation 78,000 By Net loss 16,000
To Provision for insolvent customer 2,000
7,40,600 7,40,600
>
. Reason : Balance Sheet as on March 31, 2004
Liabilities Rs. Assets Rs.
Share Capital 7,00,000 Fixed Assets: 11,70,000
Reserves & surplus 1,80,000 Less: Depreciation 78,000
10% Debentures 4,80,000 10,92,000
Interest on Debentures 48,000 Investments (10%) 2,00,000
Current Liabilities: Interest on Investments 20,000
Sundry creditors: 1,20,000 Current Assets:
Add: Purchase invoice omitted 6,000 1,26,000 Closing stock 32,000
Add: Dishonored cheque 4,000
1,54,000
Less:Provision for
Insolvent customer 2,000 1,52,000
Cash at bank 26,000
Less: Dishonored cheque 4,000 22,000
Expenditure & losses:
Profit & loss A/c. 16,000
15,34,000 15,34,000
>
. Reason : Amount to be credited to profit and loss account on account of change in method of depreciation is
Rs.22,250.
Forward Co.
Rs.1, 60, 000

Rs.1,60,000
1 − (3 × 12%) 1 − 0.36
Cost of machinery as on April 01, 2000 (before 3 years) = =
Rs.1,60,000
0.64
= =
Rs.2,50,000
Particulars SLM (12%) WDV (10%)
Balance on April 01, 2000 2,50,000 2,50,000
Less: Depreciation 30,000 25,000
Balance on April 01, 2001 2,20,000 2,25,000
Balance on April 01, 2002 1,90,000 2,02,500
Balance on April 01, 2003 1,60,000 1,82,250
Total depreciation for 3 years 90,000 67,750
Depreciation to be reversed 22,250
Machinery Account
Dr. Cr..
Date Particulars Rs. Date Particulars Rs.
01.04.200 To Balance b/d 1,60,000 31.03.200 By Depreciation 18,225
3 4 (10% p.a. on
Rs.1,82,250)
31.03.200 To Profit & loss account 22,250 By Balance c/d 1,64,025
4 (Depreciation reversed
due to change of method)
1,82,250 1,82,250
>
. Reason :
Trial Balance of M/s Mithra Manufacturing Company as on March 31, 2004
Dr. Cr.
Fixed Assets 12,80,000 Equity share capital 5,00,000
Sundry Debtors 1,80,000 (face value Rs.10 each)
Purchases 6,72,000 Sundry Creditors 1,50,000
Sales return 22,000 Sales 16,15,000
Opening stock (as on April 01, 2003) 48,000 Purchases return 49,000
Bad debts 19,000 Term loan 3,00,000
General and administrative expenses 6,84,000 (Interest @13% p.a.)
Over draft Discount received 21,000
Prepaid Rent 18,000 Reserves and surplus 5,92,000
Electricity expenses
Investment in fixed deposit (8% p.a.) 2,00,000
General expenses
Cash in hand 50,000
Cash at bank 12,000
(Balancing figure)
32,27,000 32,27,000
. Reason : RSV Publishers >
The total amount paid to Dr. Niranjan Rs.15,20,000 and the amount of short-working recouped
Rs.30,000
Analytical Table
Royalty = Rs.100 per copy of the book sold
Short– Recoupment Short–

Short
Copies Royalti Minimu of workin Amount
workin working
Year sold es m Rent shortworkin gs paid
gs c/f
(units)* (Rs.) (Rs.) gs Lapsed (Rs.)
(Rs.) (Rs.)
(Rs.) (Rs.)
2,80,00
2000-2001 2,800 3,50,000 70,000 – – 3,50,000 70,000
0
3,40,00
2001-2002 3,400 3,50,000 10,000 – – 3,50,000 80,000
0
3,80,00
2002-2003 3,800 3,50,000 – 30,000 50,000 3,50,000 NIL
0
4,70,00
2003-2004 4,700 3,50,000 – – – 4,70,000 NIL
0
Total 30,000 15,20,000
* No. of copies sold = (Copies printed + Opening stock – Closing stock)
>
. Reason : Dr. Branch Trading Account Cr.
To Goods send to branch 10,000 By Cash sales 20,000
To Opening stock 60,000 By Credit sales 45,000
To Branch stock reserve By Branch stock reserve
(loading on closing stock) 1,000 (loading on opening stock) 2,000
To gross profit 13,000 By Goods sent to branch
(loading on goods sent to branch) 12,000
By Closing stock 5,000
84,000 84,000
To Branch expenses By Gross profit B/d 13,000
(3,000 + Rs.1,000 + Rs.2,000) 6,000
To Net profit
(balancing figure) 7,000
13,000 13,000
>
. Reason : Periscope Ltd.
Bank Reconciliation Statement as on March 31, 2004
Particulars Rs. Rs.
Balance as per Cash book (favorable) 20,000
Add :
b. Cheques issued but not presented for payment 10,000
f. Cheques drawn but wrongly debited to another customer 5,500
g. Interest on investment directly credited to the bank account 500 16,000
36,000
Less:
a. Amount misappropriated and wrongly shown as deposited at Bank 10,000
c. Undercasting of Payment side of cash book bank column 700
e. Cheques dishonoured – not taken in Cash book. 500
g. Bank overdraft interest charged only in statement. 200
h. Bank charges debited in the bank statement 50
i. Cheques deposited but not collected / credited by the bank 13,000 24,450
Balance as per Pass book (favorable) 11,550
Reason : In the books of Bimal >
Journal Entries
Date Particulars Dr. Cr. (Rs.)
(Rs.)
April 06, 2004 Bills payable a/c Dr. 6,300

To Cash a/c 2,520
To Deficiency a/c 3,780
(Being declared insolvent and has paid at 40 paise per
rupee)
. Reason : Royalty = Rs.21,00,000 x 10% = Rs.2,10,000 >
Minimum rent = Rs.2,00,000
Since royalty is more than minimum rent, no short workings arise.
. Reason : Workings: >
Calculation of closing stock
Stock as on 7.4.2004 Rs.15,000
Add: Cost of goods sold during the period 1.4.2004 to 7.4.2004
Sales Rs.40,000
Less: Gross Profit – 30% Rs.12,000 Rs.28,000
Rs.43,000
Less: Purchases during 1.4.2004 to 7.4.2004 Rs.15,000
Closing stock as on March 31, 2004 Rs.28,000

. Reason : The bank balance as per amended cash book is Rs.408. (debit) >
VIBGYR Ltd.
Amended cash book (Bank column only)
Dr.
Cr.
31.03.200 To Balance b/f 1,375 31.03.200 By Bank charges 157
4 4 (Rs.72 + Rs.85)
To Error in cheque (Cheque 90 By Error (Overcasting 900
paid for Rs.1,670 wrongly on debit side)
recorded as Rs.1,760)
By Balance c/d 408
1,465 1,465

Reason : >
.
Working Notes:
Particulars Rs.
i. Cash collected from customer
Credit sales 6,75,000
Add: Opening balance of debtors 47,000
7,22,000
Less: Closing balance of debtors 70,000
Cash collected from customer 6,52,000
ii. Calculation of purchases
Closing inventories 67,000
Add: Cost of goods sold 5,40,000
6,07,000
Less: Opening inventories 72,000
Purchase 5,35,000
iii. Cash paid to creditors
Opening sundry creditors 40,000
Add: Purchase 5,35,000
5,75,000
Less: Closing sundry creditors 38,000
Cash paid to creditors 5,37,000
Solution: Cash balance
Particulars Rs.
Opening cash balance (April 1, 2003) 45,000
Add: Cash collected from debtors 6,52,000
6,97,000
Less: Cash paid to creditors 5,37,000
1,60,000
Less: Operating expenses 98,000
Closing cash balance (as on March 31, 2004) 62,000
>
. Reason : Trial Balance of super Services Ltd. as on 31-3-2004
Heads of Accounts Debt Balance (Rs.) Credit Balance (Rs.)
1. Cash at bank 98,000
2. Sundry Debtors Account 87,000
3. Purchases Account 80,000
4. Prepaid Rent Account 1,000
5. Rent Expenses Account 1,000
6. Salaries Account 8,000
7. Inventory Account 10,000
8. Sundry Creditors Account 81,000
9. Sales Account 85,000
10. Share Capital Account 1,00,000
11. Profit and Loss account 19,000
TOTAL 2,85,000 2,85,000
Working Notes:
1. Cash account Rs.
Opening Cash 42,000
Add: Collections from debtors 88,000
1,30,000
Less: Paid to creditors 24,000
Wages paid 8,000
Closing cash balance 98,000
2. Sundry debtors
Opening balance 90,000
Add: Credit sales 85,000
1,75,000
Less: Cash received 88,000
Closing balance 87,000
3. Sundry creditors
Add: Credit purchases 80,000
1,05,000
Less:Cash paid 24,000
4. Prepaid rent
Less: Rent recognized 1,000
5. Rent account 1,000
6. Sales 85,000
7. Purchases 80,000
8. Wages 8,000
9. There is no change in capital and profit
and loss accounts
10. Closing stock is not shown in the trial
balance. If it is to be shown in the trial
balance, we have to show net purchases
(i.e. Purchases less closing stock i.e.
85,000–20,000 = 65000).
>
. Reason : When the endorsed bill is honored, no entry will be passed in the books of the drawer. Hence,
Pradham does not pass any entry.
>
. Reason : Dr. Stock account Cr.
To Opening balance 6,00,000 By Cost of goods sold
To Purchases 34,00,000 (Rs.48,00,000 × 75%) 36,00,000
By Missing inventory 75,000
(balancing figure)
By Closing balance 3,25,000
(physical count)
40,00,000 40,00,000
. Reason : Trial balance of Goodwill enterprises as on March 31, 2004 >
Dr. Amount Cr. Amount

Particulars
Rs. Rs.
Sales 5,65,000
Purchases (balancing figure) 2,21,000
Capital 9,00,000
15,60,000 15,60,000
Trading account for the year ended March 31, 2004
Dr. Cr.
To Purchases 2,21,000 By Sales 5,65,000
To Carriage inward 28,000 By Closing stock 50,000
6,15,000 6,15,000
. Reason : >
Purchases Issues Balance
Quantit Rate Amount Quantity Rate Amount Quantit Rate Amount
Date y per (Rs.) (Kg) per kg. (Rs.) y per kg. (Rs.)
(Kg) kg. (Rs.) (Kg) (Rs.)
(Rs.)
01-03-04 500 22.80 11,400
02-03-04 400 24 9,600 900 23.33 21,000
10-03-04 600 25 15,000 1,500 24.00 36,000
25-03-04 1,000 24 24,000 500 24.00 12,000
. Reason : Amount debited to profit and loss account is Rs.6568. >
A. A. Joy Company
Dr. Provision for doubtful debts a/c Cr.

31.3.2003 To Bad debts 27,000 1.4.2002 By Balance b/d 33,000
31.3.2003 To Balance c/d (8% on 31.3.200
36,000 By Profit & loss a/c 30,000
Rs.4,50,000) 3
63,000 63,000
31.3.2004 To Bad debts 24,700 1.4.2003 By Balance b/d 36,000
31.3.2004 To Balance c/d (8% on 31.3.200
Rs.3,80,000) 4
55,100 55,100
Dr. Provision for discount on debtors a/c Cr.

12,00
31.3.2003 To Discount allowed 9,000 1.4.2002 By Balance b/d
0
31.3.2003 To Balance c/d (3% on (Rs. 31.3.200
4,50,000 – Rs.36,000)) 3
21,42
21,420
0
12,42
31.3.2004 To Discount allowed 8,500 1.4.2003 By Balance b/d
0
31.3.2004 To Balance c/d (3% on 31.3.200
(Rs.3,80,000 – Rs.30,400) 4
18,98
18,988
8
>
. Reason : Trial Balance of Sturdy Ltd. as on March 31, 2004
Particulars Amount Particulars Amount
Debit Credit
Preliminary expenses 21,100 Share capital account 2,68,800
Closing stock 2,05,200 Sundry creditors 1,10,060
Cash at bank 44,000 15% Loan 40,000
Sundry debtors 1,43,000 Provision for doubtful debts 2,000
Bad debts 7,240 Sales 7,10,800
Fittings and Fixtures 75,540 Commission received 11,280
Insurance premium 800 Outstanding salaries 3,000
Opening inventory as on Returns outward
April 1, 2002 1,09,360 2,060
Purchases 3,07,980 Discount received 9,200
Manufacturing wages 81,940 Bills payable 1,55,500
Returns inward 5,560
Salaries 2,79,840
Office Administrative
expenses 21,740
Prepaid Insurance 1,200
TOTAL 13,12,700 TOTAL 13,12,700
>
. Reason : Trading and Profit and Loss account of Carolina Ltd (Using FIFO method of Inventory valuation)
Debit Credit
To purchases 2,36,900 By Sales 3,00,000
To Gross Profit c/d 1,15,200 By Closing Stock under FIFO
method
300 × Rs.105 = 31,500
200 × Rs.103 = 20,600 52,100
3,52,100 3,52,100
To Salaries 50,000 By Gross profit b/d 1,15,200
To Depreciation 16,500
To Other expenses 20,000
To Net profit 28,700
1,15,200 1,15,200
Trading and Profit and Loss account of Carolina Ltd (Using LIFO method of Inventory valuation)
Debit Credit
To Purchases 2,36,900 By Sales A/c 3,00,000
To Gross profit c/d 1,13,300 By Closing Stock under LIFO
method
400 × Rs.100 = 40,000
100 × Rs.102 = 10,200 50,200
3,50,200 3,50,200
To Salaries a/c 50,000 By Gross profit b/d 1,13,300
To Depreciation a/c 16,500
To Other expenses 20,000
To Net Profit 26,800
1,13,300 1,13,300
>
. Reason : EXLNT LTD
Cash book for the month of March 2004
Dr.
Cr.
Date Particulars Lf Bank Cash Date Particulars Lf Bank Cash
Mar1 To Balance b/f 40,00 Mar2 C 30,000
12,500 0 By Bank a/c
2 To Cash a/c c 30,000 5 By Purchases a/c 15,000
9 To Sales a/c 10,00 17 8,000
0 By Giridharlal’s a/c
12 To Babulal’s 20 By Babulal’s a/c 7,500
a/c 7,500
25 To Cash a/c C 4,000 23 By Printing charges 4,000
25 By Bank a/c C 4,000
26 By Drawings a/c 5,000
31 By Balance c/f 14,500 16,000
50,00 54,000 50,000
54,0000
Note:
Step 1: Enter all the transaction in the cash book at respective places
Step 2: Find out the closing cash balance (i.e. Rs.16,000)
Step 3: Closing Bank Balance = Combined closing balance of cash and bank – Closing cash balance
= Rs.30,500 – Rs.16,000
=
Rs.14,500
Step 4: Then balance the bank column. The balancing figure is the opening bank balance.
>
. Reason : The correct entry which must have been recorded is
Returns inward account Dr. Rs.7,850
To Prakash account Rs.7,850
Whereas, Prateek’s account is credited with Rs.8,750 and purchases account debited with
Rs.7,850. Hence the rectification entry is
Returns inward account Dr. Rs.7,850
Prateek account Dr. Rs.8,750
To Purchases account Rs.7,850
To Prakash account Rs.7,850
To suspense account Rs. 900

. Reason : >
Particulars Rs.
Cost of office equipment 50,000
Less Depreciation 8,000
Net written down value 42,000
Less salvage value 2,500
Amount to be expensed in future years through income statement 39,500
>
. Reason :
Dr. Trading and profit and loss account for the year ended March 31, 2004 Cr.
To Opening stock 90,000 By Sales 6,35,000
To Purchases 4,56,000 By closing stock 75,000
7,10,000 7,10,000
To Salaries 86,000 By Gross profit 1,64,000
To other expenses 73,000 By Net loss 70,000
To Depreciation 75,000
2,34,000 2,34,000
Balance sheet of
Jagriti Ltd. as on March 31, 2004
Liabilities Rs. Assets Rs.

Share capital 6,00,000 Fixed assets 4,25,000
Sundry creditors 32,000 Sundry debtors 45,000
Short tem loan 36,000 Closing stock 75,000
Net loss 70,000
6,68,000 6,68,000
>
. Reason : Bank Reconciliation Statement
Particulars Rs. Rs.
Overdraft balance as per Pass book 20,000
Add: Cheques issued to Mr. Y but not presented for payment 4,000
Rent deposited by Mr. Z directly into the bank 10,000
Interest on debentures directly collected by bank 10,000 24,000
44,000
Less:
Cheque deposited, yet to be realised 15,000 15,000
Overdraft balance as per cash book 29,000
>
. Reason : Balance of Bills receivable as on March 31, 2004 = Bills receivable as on March 01, 2004 + bills
accepted by customers – bills honored – bills dishonored
= Rs.50,000 + Rs.6,000 – Rs.8,000 – Rs.25,000 = Rs.23,000
>
.
S
n
C
Reason : Rate of depreciation = 1–
86, 700
2
1, 20, 000
= 1–
= 1 – 0.85 = 15%.
>
. Reason : The journal entry to record the inter branch transactions in the books of Head Office, on account of
goods sent by Agra branch to Delhi branch is
Delhi branch a/c Dr. Rs.30,000
To Agra branch a/c Rs.30,000.
>
. Reason : Debtors as per trail balance Rs.40,600
Less: Bad debts written-off Rs. 600
Rs.40,000
Less: Provision for bad debts@ 5% Rs. 2,000
Rs.38,000
2
×Rs.38, 000 = Rs.760
100
Provision for discount on sundry debtors will be
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Question Paper

Financial Accounting – I (111) : April 2004

< Answer >

No. of copies No. of copies held in closing

Particulars Rs. Particulars

Date No. of Rate per

Rs.1, 60, 000

Short– Recoupment Short–

April 06, 2004 Bills payable a/c Dr. 6,300

53 Answer : (a) < TOP

54 Answer : (d) < TOP

Dr. Amount Cr. Amount

Dr. Provision for doubtful debts a/c Cr.

Date Particulars Rs. Date Particulars Rs.

Dr. Provision for discount on debtors a/c Cr.

65 Answer : (e) < TOP

Liabilities Rs. Assets Rs.

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