PRINCIPLES AND PRACTICE OF ACCOUNTING

Question No. 1 is compulsory.

Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions should be made and disclosed by way of
note forming part of the answer.
Working Notes should form part of the answer.
(Time allowed: 3 Hours) (100 Marks)

Q1 (a) Classify the following items as capital or revenue expenditure:

(i) An extension of railway tracks in the factory area;

(ii) Wages paid to machine operators;

(iii) Installation costs of new production machine;

(iv) Materials for extension to foremen‘s offices in the factory

(v) Payment for computer time to operate a new stores control system,

(vi) Wages paid to own employees for building the foremen‘s offices. Give reasons for your
classification.
(6 statements x 2 Marks= 12 Marks)
(b) HDC Ltd. issues 2,00,000, 12% Debentures of `10 each at `9.40 on 1st January, 2010. Under the
terms of issue, 1/5th of the debentures are annually redeemable by drawings, the first
redemption occurring on 31st December, 2010. Calculate the amount of discount to be written-
off from 2010 to 2014.
(4 Marks)
(c) Classify the following errors under the three categories – Errors of Omission, Errors of
Commission and Errors of Principle.
(i) Sale of furniture credited to Sales Account.
(ii) Purchase worth Rs. 500 from M not recored in subsidiary books.
(iii) Credit sale wrongly passed through the Purchase Book.
(iv) Machinery sold on credit to Mohan recored in Journal Proper but omitted to be posted.
(v) Goods worth Rs. 5000 purchased on credit from Ram recorded in the Purchase Book as
Rs. 500. (4 Marks)
(OR )

Q 1 Write short notes on the following:

(i) Fundamental Accounting Assumptions.
(ii) Objectives of preparing Trial Balance.
(iii) Accounting conventions.
(iv) Machine Hour Rate method of calculating depreciation
(v) Trade bill vs. Accommodation bill. (5 x 4 Marks= 20 Marks)

Prepared By: CA/CS/CMA Gautam Khurana AVJ Laxmi Nagar Page 1

 2 (a) Vandana Traders of Delhi purchased 10000 pieces of Sarees @100 per saree . Out of these sarees
6000 were sent on Consignment to Vastralaya of Jabalpur at the selling price of Rs 120 per Saree .
The consignors paid Rs 3000 for paking and freight . Vastralaya sold 5000 sarees @ Rs 125 per
Sarees amd incurred Rs 1000 for selling expenses and remitted Rs 500,000 to delhi on account .
They are entiled to a commission of 5 % on total sale plus a further 20 % commission on any surplus
realized over Rs 120 per Saree .3000 Saree were sold at Delhi at Rs 110 per Saree.Owing to fall in
market price ,the value of the stock of sarees in hand is to be reduced by 10 % . Prepare the
consignment account and trading account in the books of vandana Traders and their account in
the books of the agents M/s.Vastralaya of Jabalpur

(b) From the following information, ascertain the value of stock as on 31.3.2017:

Value of stock on 1.4.2016 7,00,000

Purchases during the period from 1.4.2016 to 31.3.2017 34,60,000

Manufacturing expenses during the above period 7,00,000

Sales during the same period 52,20,000

At the time of valuing stock on 31.3.2016 a sum of 60,000 was written off a particular item which was
originally purchased for 2,00,000 and was sold for 1,60,000. But for the above transaction the gross profit
earned during the year was 25% on cost

(c ) E Ltd. sends out its accounting machines costing 200 each to their customers on Sales or Return
basis. All such transactions are, however, treated like actual sales and are passed through the Day
Book. Just before the end of the financial year, i.e., on March 24, 2016, 300 such accounting machines
were sent out at an invoice price of 280 each, out of which only 90 accounting machines are
accepted by the customers 250 each and as to the rest no report is forthcoming. Show the Journal
Entries in the books of the company for the purpose of preparing Final Accounts for the year ended
March 31, 2016. (8+6+6=20 Marks)

Q3 (a) A. Ltd. obtain from B.S. Ltd. a lease of some coal-bearing land, the terms being a royalty of 15 per
ton of coal raised subject to a minimum rent of 75,000 p.a. with a right of recoupment of short-working
over the first four years of the lease.
Year Sales (Tons) Closing Stock (Tons)

2009 2,000 300

2010 3,500 400

2011 4,800 600

2012 5,600 500

2013 8,000 800

From the following details, show (i) Short-working Account, (ii) Royalty Account and (iii) B.S. Ltd.
Account in the books of A. Ltd.

Prepared By: CA/CS/CMA Gautam Khurana AVJ Laxmi Nagar Page 2

(b) The following is the trial balance of Hari as at 31st December, 2017:

Dr. Cr.
Hari’s capital account - 76,690
Stock 1st January, 2017 46,800 -
Sales - 3,89,600
Returns inward 8,600 -
Purchases 3,21,700 -
Returns outward - 5,800
Carriage inwards 19,600 -
Rent & taxes 4,700 -
Salaries & wages 9,300 -
Sundry debtors 24,000 -
Sundry creditors - 14,800
Bank loan @ 14% p.a. - 20,000
Bank interest 1,100 -
Printing and stationary expenses 14,400 -
Bank balance 8,000 -
Discount earned - 4,440
Furniture & fittings 5,000 -
Discount allowed 1,800 -
General expenses 11,450 -
Insurance 1,300 -
Postage & telegram expenses 2,330 -
Cash balance 380 -
Travelling expenses 870 -
Drawings 30,000
5,11,330 5,11,330

The following adjustments are to be made:

(1) Included amongst the debtors is ` 3,000 due from Ram and included among the creditors
` 1,000 due to him.
(2) Provision for bad and doubtful debts be created at 5% and for discount @ 2% on sundry
debtors.
(3) Depreciation on furniture & fittings @ 10% shall be written off.
(4) Personal purchases of Hari amounting to ` 600 had been recorded in the
purchases day book.
(5) Interest on bank loan shall be provided for the whole year.
(6) A quarter of the amount of printing and stationary expenses is to be carried forward
to the next year.
(7) Credit purchase invoice amounting to ` 400 had been omitted from the books.
(8) Stock on 31.12.2017 was ` 78,600.
Prepare Trading & profit and loss account for the year ended 31.12.20 17 and Balance sheet as on 31st
December, 2017. (8+12 =20 Marks)

Prepared By: CA/CS/CMA Gautam Khurana AVJ Laxmi Nagar Page 3

 Q4 (a) X Company Limited issued 10,000 14% Debentures of the nominal value of `50,00,000 as follows:
(a) To sundry persons for cash at 90% of nominal value of `25,00,000.
(b) To a vendor for purchase of fixed assets worth `10,00,000 – `12,50,000 nominal value.
(c) To the banker as collateral security for a loan of `10,00,000 – `12,50,000 nominal value. Pass
necessary Journal Entries.

(b) Calculate average due date from the following information:

Date of bill Term Amount (`)

1st March, 2017 2 months 4,000

10th March, 2017 3 months 3,000

5th April, 2017 2 months 2,000

23rd April, 2017 1 months 3,750

10th May, 2017 2 months 5,000

(c) XL Ltd. invited applications for issuing 1,00,000 equity shares of `10 each at par. The amount
was payable as follows :
On Application `3 per share.
On Allotment `4 per share.
On First and Final Call `3 per share.
The issue was over-subscribed by three times. Applications for 20% shares were rejected and the
money refunded. Allotment was made to the remaining applicants as follows :

Category No. of Shares Applied No. of Shares Allotted

I 1,60,000 80,000

II 80,000 20,000

Excess money received with applications was adjusted towards sums due on allotment and first and
final call. All calls were made and were duly received except the final call by a shareholder
belonging to Category I who has applied for 320 shares. His shares were forfeited. The forfeited
shares were re-issued at ` 15 per share fully paid up.

Pass necessary Journal entries And prepare Balance sheet for the above transactions in the book of
XL Ltd (4+4+12 =20 Marks)

Q5 (a) Based on the following particulars show various assets and liabilities of Tirupati Ltd. Fixed
Assets turnover ratio 8 times
Capital turnover ratio 2 times
Inventory Turnover 8 times
Receivable turnover 4 times
Payable turnover 6 times
GP Ratio 25%

Prepared By: CA/CS/CMA Gautam Khurana AVJ Laxmi Nagar Page 4

 Gross profit during the year amounts to 8,00,000. There is no long-term loan or overdraft. Reserve and
surplus amount to 2,00,000. Ending inventory of the year is 20,000 above the beginning inventory.

(b) The following are the transactions that took place between Rohan & Sunil during the half year ended
30th June, 2017:

Particulars `
I Balance due to Rohan by Sunil on 1 January, 2017 3,010
ii Goods sold by Rohan to Sunil on 7 January, 2017 4,430
iii Goods purchased by Rohan from Sunil on 16 February, 2017 6,480
iv Goods returned by Rohan to Sunil on 18 February, 2017 (out of 560
the purchases of 16 February, 2017)
v Goods sold by Sunil to Rohan on 24th March, 2017 3,560
vi Bill accepted by Rohan at 3 months on 22nd April, 2017 1,500
vii Cash paid by Rohan to Sunil on 29th April, 2017 2,500
viii Goods sold by Rohan to Sunil on 17th May, 2017 2,710
ix Goods sold by Sunil to Rohan on 22nd June, 2017 2,280

Draw up an account current to be rendered by Sunil to Rohan charging interest @ 10% per annum .

(c ) Prepare a Bank Reconciliation Statement of Shri Hari as on 31st March, 20 18:

(i) Balance as per Pass Book is ` 10,000.
(ii) Bank collected a cheque of ` 500 on behalf of Shri Hari but wrongly credited it to Shri Hari’s
Account (another customer of bank).
(iii) Bank recorded a cash deposit of ` 1,589 as ` 1,598.
(iv) Withdrawal column of the Pass Book undercast by ` 100.
(v) The credit balance of ` 1,500 on page 5 was recorded on page 6 as debit balance.
(vi) The payment of a cheque of ` 350 was recorded twice in the Pass Book.
(vii) The Pass Book showed a credit for a cheque of ` 1,000 deposited by Shri Hari (another
customer of the bank). (7+6+7 =20 Marks)

Q6 (a) The following was the Balance Sheet of ‘Kamal’ and ‘Rani’, who were sharing profits and losses in
the ratio of 2:1 on 31.12.2015:
Liabilities ` Assets `
Capital Accounts Plant and machinery 24,00,000
Kamal 20,00,000 Building 18,00,000
Rani 10,00,000 Sundry debtors 6,00,000
Reserves 18,00,000 Stock 8,00,000
Sundry creditors 8,00,000 Cash 2,00,000
Bills payable 2,00,000
58,00,000 58,00,000

They agreed to admit ‘Nisha’ into the partnership on the following terms:

Prepared By: CA/CS/CMA Gautam Khurana AVJ Laxmi Nagar Page 5

 (i) The goodwill of the firm was fixed at ` 2,10,000.
(ii) That the value of stock and plant and machinery were to be reduced by 10%.
(iii) That a provision of 5% was to be created for doubtful debts.
(iv) That the building account was to be appreciated by 20%.
(v) There was an unrecorded liability of ` 20,000.
(vi) Investments worth ` 40,000 (Not mentioned in the Balance Sheet) were taken into
account.
(vii) That the value of reserve, the values of liabilities and the values of assets other than
cash are not to be altered.
(viii) ‘Nisha’ was to be given one-fourth share in the profit and was to bring capital
equal to his share of profit after all adjustments.
Prepare Memorandum Revaluation Account, Capital account of the partners and the Balance Sheet of
the newly reconstituted firm.

(b) Rupali and Priya were both in need of temporary accommodation. On Nov.1, 2016 Rupali accepted
Priya’s draft for `30,000 for 3 monthsand Priya accepted Rupali’s draft for `25,000 for 3 months. Both the
bills were discounted and their respective banks for 29,000 and 24,200. Before maturity of the bill Priya sent
5,000 to Rupali for difference in accommodation bills. Rupali and Priya met their acceptances on the
aduedate. Record the transactions in the journal of Rupali and Priya. (12+8 =20 Marks)

Prepared By: CA/CS/CMA Gautam Khurana AVJ Laxmi Nagar Page 6




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