Professional Documents
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Introduction to Accounting
Instructions to examinees:
(i) Answer all EIGHT questions.
(ii) Answer in black pen only.
Section A
Q.1 Shangrila Enterprises (SE) expanded its production facility by installing a plant in 2019.
Following information pertains to the plant:
(i) Two vendors A and B submitted their bid prices of Rs. 750 million and Rs. 800 million
respectively. Due to better quality, vendor B was selected and after negotiations, price
of the plant was finalized at Rs. 780 million.
(ii) The acquisition of the new plant was financed by selling an old plant having book
value of Rs. 170 million for Rs. 140 million and remaining amount was arranged by
selling investments held by SE.
(iii) Arrival of the plant was originally scheduled on 31 March 2019 at a freight of
Rs. 3.5 million. However, the arrival date was rescheduled to 31 January 2019 by
paying additional freight of Rs. 1.5 million. While transporting, the plant was slightly
damaged and repaired at a cost of Rs. 2 million.
(iv) Site preparation work was completed at a cost of Rs. 5.8 million. This cost includes
Rs. 1.2 million for demolition and reconstruction of the existing building structure.
(v) Installation work was carried out during the month of February 2019 at a cost of
Rs. 5 million. In addition, overheads of Rs. 1.5 million were allocated for using factory
resources during installation.
(vi) The plant was customised by altering some parts at a cost of Rs. 12 million. The
alteration slows down the production process but is necessary to align the plant with
existing production process.
(vii) On 1 March 2019, safety equipment for the use of staff operating the plant were
purchased at a cost of Rs. 10 million. Expected useful life of the safety equipment is
5 years.
(viii) The plant was available for use on 1 May 2019 but due to unavailability of the
required raw material, commercial production was delayed till 1 June 2019.
(ix) Residual values of the plant at the end of its useful life and economic life of 20 years
and 25 years are estimated at Rs. 100 million and Rs. 40 million respectively.
Required:
Compute book value of the plant as at 31 December 2019. (08)
(Items ignored while computing cost of the plant should be mentioned as zero)
Required:
Prepare formats of statement of profit or loss giving analysis of expenses by their:
(a) nature (03)
(b) function (03)
Introduction to Accounting Page 2 of 6
Q.3 Following information pertains to Paristan Brothers for the month of January 2020:
(i) Business travel expenses amounted to Rs. 85,000 were paid by the owner from his
personal bank account.
(ii) A payment of Rs. 45,000 was made for repair of owner's personal vehicle.
(iii) A laptop costing Rs. 250,000 and having book value of Rs. 60,000 was sold for
Rs. 100,000 on cash.
(iv) Tasnim, a creditor having balance of Rs. 1,500,000 has been admitted to the
partnership. The balance payable is to be treated as his capital.
(v) Goods costing Rs. 180,000 were sold to the owner of the office building against office
rent of Rs. 210,000 for the month of January 2020.
(vi) A debtor who was declared bankrupt, has paid Rs. 400,000 (i.e. 50% of the balance
due) in full and final settlement. A specific provision at 60% of the balance due had
already been made.
Required:
Show the effects, if any, of each of the above information in the form of accounting
equation. (08)
Q.4 Select the most appropriate answer from the options available for each of the following
Multiple Choice Questions (MCQs).
(ii) Which of the following does not require journal entry in periodic inventory method?
(v) Rent amounts totaling Rs. 150,000 were received during the year ended
31 December 2019. In this respect, opening and closing balances are as under:
What should be the rent income for the year ended 31 December 2019?
(a) Rs. 144,000 (b) Rs. 152,000 (c) Rs. 148,000 (d) Rs. 140,000 (02)
Introduction to Accounting Page 3 of 6
(vi) Office supplies purchased were mistakenly debited to Purchases account. This type of
error is called:
(a) error of omission (b) compensating error
(c) error of principle (d) error of transposition (01)
(vii) A transaction not recorded in any other books of original entry is recorded in:
(a) Sales day book (b) Purchases day book
(c) General journal (d) Cash book (01)
(viii) On 1 February 2019, a loan of Rs. 6,000,000 was taken from a bank for acquisition of
an office building. A portion of the building was rented out on 1 August 2019 at a
monthly rent of Rs. 45,000. Interest is payable at 15% per annum on 31 January each
year and rent is received half yearly in advance.
What amounts of interest payable and unearned rent should be shown in the statement
of financial position as on 31 December 2019?
(a) Interest payable Rs. 900,000; Unearned rent Rs. 270,000
(b) Interest payable Rs. 825,000; Unearned rent Rs. 45,000
(c) Interest payable Rs. 450,000; Unearned rent Rs. 45,000
(d) Interest payable Rs. 825.000; Unearned rent Rs. 250,000 (02)
(ix) An entity acquired laptops in exchange of desktops which have carrying amount of
Rs. 450,000 and fair value of Rs. 300,000 at the date of exchange. The list price of the
laptops acquired is Rs. 600,000. The entity is also required to pay cash of Rs. 275,000
in this exchange transaction.
Section B
Q.5 Kallar Traders (KT) deals in various consumer products. KT follows perpetual inventory
system and uses first-in-first-out (FIFO) method to measure cost of its inventory. Following
information for the month of January 2020 pertains to one of its products Beta:
Date Description
01-Jan Opening inventory:
2,800 units Rs. 140,000
1,200 units Rs. 62,400
03-Jan Purchased 3,000 units on cash having a list price of Rs. 60 per unit at a trade
discount of 5%.
08-Jan Sold 2,900 units on 30 days’ credit for Rs. 266,800 subject to 2% discount on
payment within 10 days.
15-Jan Sold 1,800 units on credit at a list price amounted to Rs. 171,000 and allowed
a discount thereon at 5%.
20-Jan Returned 500 damaged units purchased on 3 January 2020. The return
amount was set-off against balance payable to the supplier.
25-Jan Purchased 3,000 units for Rs. 174,000 against issuance of a post-dated cheque.
30-Jan Purchased 2,000 units on credit for Rs. 120,000. These units were collected by
KT’s transporter on 30 January 2020 and received at warehouse on
3 February 2020.
As per physical inventory count carried out on 31 January 2020:
100 units were found expired and can be sold as scrap at Rs. 20 per unit; and
600 units were found short and it was determined that these units were stolen by an
employee who left the job.
Introduction to Accounting Page 4 of 6
Required:
(a) Prepare inventory ledger card for product Beta for the month of January 2020. (08)
(b) Prepare accounting entries from the above information. (Narrations are not required) (07)
Q.6 Following information pertains to Zahrba Stationers (ZS) for the month of January 2020:
CASH BOOK
Cash Bank Cash Bank
Date Description Date Description
--- Rs. in '000 --- --- Rs. in '000 ---
01-Jan Balance 110 - 01-Jan Balance - 180
02-Jan Sales 290 - 05-Jan Purchases 250 -
08-Jan GL - net of 5% discount - 1,900 09-Jan SC - net of 4% discount - 1,440
10-Jan SS - 1,590 12-Jan Utility bills 98 -
18-Jan Scrap sale 25 16-Jan Petty cash - 50
20-Jan Bank 200 - 20-Jan Cash - 200
26-Jan Sales 295 - 25-Jan Repair & maintenance 67 -
27-Jan Long-term-loan - 100
28-Jan RT - 1,378
31-Jan Balance 480 167
895 3,515 895 3,515
Additional information
(i) The petty cash fund was established during the month. As at 31 January 2020 petty
cash balance in hand was Rs. 20,000.
(ii) Repair and maintenance payment includes Rs. 25,000 paid for repair of owner’s
premises.
(iii) Payment of loan amount includes interest of Rs. 15,000.
(iv) The cheque issued to RT was presented to the bank in February 2020.
(v) On 29 January 2020, goods costing Rs. 100,000 purchased from BB were found
damaged and returned.
(vi) A part of goods sold on cash to Haleji & Sons on 26 January 2020 for Rs. 70,000 were
returned on 31 January 2020 and the amount due was paid on 4 February 2020.
(vii) Other assets and liabilities as at 1 January 2020, are as under:
Rs. in '000
Fixed assets – net (Cost Rs. 1,600,000) 1,254
Trade debtors 2,423
Inventory 850
Trade creditors 1,800
Long-term-loan 800
Required:
Prepare trial balance for the month ended 31 January 2020. (Preparation of ledger accounts is
not necessary) (15)
Introduction to Accounting Page 5 of 6
Q.7 Hanna Traders (HT) is a partnership with two partners A and Zee. Following is the
summarized trial balance of HT for the year ended 31 December 2019:
Rs. in million
Description Debit Description Credit
Property, plant and equipment 140 Accumulated depreciation 64
Inventories – 1 Jan 2019 35 Trade payables 30
Trade receivables 48 Other payables and accruals 8
Cash and bank balances 3 Capital account – A 67
Prepayments 6 Capital account – Zee 45
Other receivables 4 Current account – Zee 2
Provision for doubtful receivables 3 Sales 315
Purchases 170 Other income 6
Import duties 39
Returns 7
Freight in 5
Operating expenses 52
Financial charges 5
Depreciation expense 16
Current account – A 4
537 537
Additional information:
(i) Physical inventories as at 31 December 2019 were valued at Rs. 30 million.
(ii) Goods costing Rs. 3 million were issued to A but not recorded. A informed that:
goods costing Rs. 2 million were distributed to potential customers as samples;
and
goods costing Rs. 1 million were gifted to one of his friends.
(iii) Sales commission of Rs. 8 million was paid to Zee during the year which was charged
to operating expenses.
(iv) Operating expenses include insurance premium of Rs. 4 million that pertained to an
insurance policy expiring on 31 March 2020.
(v) On 1 August 2019, Rs. 6 million was received being 50% advance payment against a
maintenance contract valid up to 31 March 2020. Remaining amount is due on
completion of the contract. The amount received was credited to other payables.
(vi) Due to a calculation error, prepaid rent has been over recorded by Rs. 2 million.
(vii) Rs. 2 million received in full and final settlement of a previously written off balance of
Rs. 5 million, was credited to trade receivables. HT maintains provision for
doubtful receivables at 4% of the year-end balance.
(viii) A fully depreciated machine costing Rs. 28 million was sold for Rs. 10 million through
an agent who is entitled for a sale commission of 5%. The sale proceeds was received
on 20 January 2020. Nothing has been recorded in this respect.
Required:
(a) Prepare statement of profit or loss for the year ended 31 December 2019. (08)
(b) Show how HT’s profit for the year ended 31 December 2019 would be shared between
the partners. (04)
(c) Prepare statement of financial position as at 31 December 2019. (08)
Introduction to Accounting Page 6 of 6
Other information:
NE uses periodic stock method. The plant is depreciated at 20% using diminishing balance
method.
Required:
Prepare corrected statement of financial position as on 31 December 2019. (17)
(THE END)