1

SOLUTIONS TO
COMMERCE PAPER – II

MARCH 2007

PART – A
(Marks: 50)

I. Answer any two questions from the following not exceeding 40 lines
each
2 x 10 = 20
(a) Explain the services rendered by Retail Traders.
Ans.:
Retailing means the sale of goods to the final consumers. A person who carries on
this business is called a retailer. The retailer purchase goods in small quantities and selling
them to ultimate consumers.
I. Services to manufacturers and wholesalers :
1. Opportunity to present products : The retailers give an opportunity to
manufacturers or wholesalers to present their products to consumers. The retailers
arrange for the display of goods, supply necessary information about products etc.
2. Concentrate on production : The manufacturers are relieved from the burden of
selling goods in small quantities to the consumers and concentrate only on
production activity. This saves their time and efficiency to concentrate on
production.
3. Provides information : The retailers provide valuable information to the
manufacturers such as trends, in marketing changes, in fashion, etc., which have
bearing on consumer demand. This will help to manufacturers to bring necessary
steps for change.
4. Marketing of new product : Retailer renders valuable services in promoting new
product in the market.
5. Reduce the risk of loss : The retailers in direct contact with the customers and help
the manufacturers to reduce the risk of loss by giving information about quality,
quantity and price range is required.
II. Services of Retailers to Consumers :
 2

1. Largest choice : The retailer keeps large variety of goods manufactured by different
producers. This enables the cosnumers to have largest choice as to cost, quality,
colour, size etc.
2. Relief from storage : Retailers supply goods to the consumers in any quantities at
convenient place. Therefore, consumers are not required to store a large stock of
commodities.
3. Supply of information : Retailers provide useful information to the consumers
about the new products and new varieties. This helps the consumers to purchase the
right product at right price and, right place.
4. Credit facility : Retailer offers credit facility to those customers whom they know
personally. This increases sales and profit.
5. Expert advice : Retailer offers free expert advice to his customers about the merits
and demerits of different products which helps them to go for better product.
6. Extra services : In order to meet the growing competition retailers have started
performing after sales service, free delivery of goods at home etc.
7. Personal attention : The retailer personally visits his customers and collect orders
and makes enquiry about the quality of the good supplied. He also entertains
complaints and solves them to get consumer satisfaction.

(b) What is Consumerism ? Explain the reasons for slow development of

Consumer movement in India.
Ans:
Consumerism
Consumerism is a social force designed to protect consumer interests in the market
place by organising consumer pressures on business. These pressures are brought about
by the consumers, organising themselves as consumer organsiations, to fight against unfair
trade practices that are indulged in by the sellers.
Philip Kotler : ``Consumerism as social movement seeking to augment the rights and
powers of buyers in relation to sellers’’.
Their consumerism is a growing social force which makes consumers to be aware of
their rights. These rights are protected by :
(I) educating the consumers and mobilising them to fight for their rights
(II) exerting pressure on the government to protect the consumer interests by
guaranteeing their legitimate rights, and
(III) making the business more honest and responsible. This process will be
successful only when all the consumers represented by different voluntary non-
 3

government consumers organisations, the government, the regulatory

authorities in the country, the consumer courts, organisations representing
trade, industry and service providers, the law makers and those who are
responsible for the implementation of laws and rules act together.

Reasons for backwardness of Consumer Movement :

The consumer movement in India is slowly developed due to the following reasons.
1. Poverty : Majority of people are living in India below the poverty line. Therefore they
are unable to exercise their rights as consumers.
2. Malnutrition : Hunger does not differentiate between adulterated and unadulterated
food. The poor have no time to examine the things before they consume them.
3. Lack of Education : Indians are decile persons. They believe in Karma and accept
things as they are. This is so because of lack of education and unawareness of the
consumers as to their rights given by the laws.
4. Poor Organisation of Consumers : A few number of people are participating in
consumer activities. Lack of leadership of consumer organisations is the main cause
of low level consumer movement in India.
5. Poor Implementation of laws : Many laws have been enacted to protect the
consumers from various malpractices played by the businessmen. However, their
implementation is very poor. This is due to the loopholes in law and lack of co-
ordination at different levels of machinery and also their illiteracy.
(c) Define Stock Exchange. Explain the functions of Stock Exchange.
Ans.:
Stock Exchange - Definition
The following are the definitions given by various experts and institution an stock
exchange.
Garg K. L.: An association of persons engaged in the buying and selling of stocks,
bonds and shares for the public on commission and guided by certain rules and usages.
Securities contracts (Regulation) Act 1956: Any body of individuals whether
incorporated or not, constituted for the purpose of assisting, regulating, or controlling the
business of buying, selling or dealing in securities.
Functions of Stock Exchange
Stock exchange, being a part of capital market, performs two functions viz.,
primary functions and subsidiary functions.

I. Primary Functions:
The following are the basis functions of a stock exchange.
 4

1. Provision of ready market for securities: The stock exchange provides a ready
market for securities. The investors can easily buy and sell securities on the floor of
the stock exchange. The prices at which the securities have been traded are
regularly given in the electronic and print media for the benefit of investors.
2. Determination of security prices: The stock exchange helps in determining the
prices of various listed securities. The buying of securities regularly leads to the
determination of prices of securities. The exchange helps in the provision of prices
of securities through print and electronic media.
3. Mobilisation Surplus Savings: Stock exchange is a channel for mobilising capital.
It helps in the mobilisation of small savings from various parts of the country. By
directing the flow of capital into worthwhile projects, it helps faster economic
development of the country. It provides mobility capital and facilitate sound
investment.
4. Provision of Liquidity for securities: In a stock exchange buying and selling
securities takes place regularly and systematically. Hence, an investor can encash
his securities at any time.
5. Protection of investors: A stock exchange functions strictly according to rules and
regulations. These rules and regulations provide a check on over trading in
securities. They prevent the manipulation of prices. Thus, a stock exchange serves
as a caretaker of investor ‘s money.
6. Encourages speculative dealings: Most of dealings are in the form of forward
contracts. In stock exchanges all facilities for a future contract are provided. The
terms of contract, payment and other conditions will be certified by the exchange.
This encourages speculation.
7. Barometer of economy: A stock exchange serves as a reliable barometer of a
country’s economic situation. It reflects the changes taking place in the economy. It
is a symbol of the development of an economy.
ii. Subsidiary Functions:
In addition to the above primary function, stock exchange performs the following
subsidiary functions.

1. Safety of Investment: Securities in the stock exchanges are listed after complete
security. It prevents the trading of false and duplicate securities. It also facilitates in
the immediate and easy transfer of securities.
2. Provision of information about listed companies: The organised stock exchange
collects information about the companies listed with it and publish the information in
 5

the form of “Official Year Book”. This proves very useful to the investors in making
investment decisions.
3. Publication of statistics: Stock exchanges publish regularly correct reports
regarding securities trade. They provide free information from such reports to
investors.

II. Answer any Four of the following questions, in not exceeding 20 lines each.
4 x 5 = 20
(a) Explain any five principles of Insurance.
Ans. :
Insurance – Definition
According to Justice Tindal, :”Insurance is a contract in which a sum of money is paid by
the assured in consideration of insurers incurring the risk of paying a large sum upon
a given contingency.”
According to Schultz and Bradwill, “Insurance in its technical sense is a social device
which employs the use of pooling technique to eliminate uncertainty.”
Thus, Insurance is a device by which loss due to some uncertain event is spread
over a large number of people who voluntarily join against such an event.
Principles of Insurance :
A Contract of insurance is a mercantile contract. All the principles applicable to
mercantile contracts are applicable to contracts of insurance also. Further, there are some
special principles applicable to contracts of insurance. They are :

Principles of Insurance

1. Principle of utmost good

faith
2. Principle of Indemnity
3. Principle of Insurable
interest
Principles of Insurance 4. Principle of cause
proximal
5. Principle of mitigation of
loss
6. Principle of contribution
7. Principle of subrogation

1. Principle of Utmost Good Faith : A contract of Insurance is a contract of Uberrimae

fidei i.e. a contract which requires utmost good faith on both the Insurer and the
Insured. The Insured at the time of entering into a contract must disclose all the
 6

material facts knowing to him about the subject matter of the contract. failure to
disclose the truth at the time of entering into contract will render the contract viodable.
2. Principle of Indemnity : All contracts of Insurance except life and personal accident
and sickness insurance are contracts of indemnity. This means that, the insurer will
pay only the actual loss suffered by the Insured, i.e., the insurer will not pay the
assured amount but only the actual loss suffered by the assured. For example, if a
person has insured the cargo for Rs.50,000 and if a part of the goods of Rs.10,000 is
destroyed the insurer will pay only Rs.10,000 and not Rs.50,000. This principle,
ensures that ‘no one makes a profit out of Insurance’.
3. Principle of Insurable Interest : The insured must have insurable interest or actual
interest in the subject matter of the Contract of Insurance. He must have such interest
that he would have benefit from its existence, or loss from its destruction.
Insurable interest is necessary for a valid contract of insurance. Insurable interest
must be a pecuniary interest. Insurable interest is not to be presumed from the
existence of mere relationship. Therefore, the pecuniary interest must be proved.
Only a person who has insurable interest in the life of insured can effect the
contract of life insurance. The following have the insurable interest.
i. A child has an insurable interest in the life of his father.
ii. A person has unlimited insurable interest in his own life.
iii. A husband has an insurable interest in the life of his wife.
iv. A wife has it in the life of her husband.
v. A creditor has an insurable interest, to the extent of his debt, in the life of
his debtor.
vi. A partner in business has an insurable interest in the life or lives of his co-
partner or co-partners.
vii. A company has an insurable interest in the life of a senior officer whose
death may seriously affect the profits of the business of that company.
The time when insurable interest should exist differs according to the nature
of insurance. In life assurance, the assured should have insurable interest at the time
the contract was entered into. In marine insurance it should be at the time of loss. But
in fire insurance, insurable interest at the time the contract was entered into. In
marine insurance it should be at the time of loss. But in fire insurance, insurable
interest must exist not only at the time the contract was entered into, but also at the
time of loss.
4. Principle of Proximate Cause : Cause Proxima means the nearest cause. An
insured person can recover the loss only when it is caused by any of the risk insured
against. Causes of loss may be of two kinds.
 7

a. Insured Perils;
b. Excepted or Uninsured Perils.
Insurer, in no case, is liable to compensate for the damages arising out of
excepted perils. An insured may recover damages if the cause has been immediate
or proximate to the loss. For example, a cargo of wheat by a ship was insured
against sea hazards. Rats made a hole in the ship, resulting in entry of the sea water
in the ship which damaged the wheat. The insurance company was held liable for
payment because the proximate cause of loss was sea water.
5. Principle of Mitigation of Loss : According to this principle, an insured must take all
reasonable care to reduce the loss. The insured according to this principle must act as
if the property was not insured. This principle aims at making sure that the insured
person behaves like a prudent person and is not careless. For example, when a
warehouse catches fire, it is the duty of insured to do all that he would have done if
the goods wee not insured. Thus, this principle aims at making sure that the insured
behaves as a prudent person and does not become careless after taking a policy to
cover any risk.
6. Principle of Contribution : The principle of contribution will apply when one and the
same property is insured with more than one insurer. It seeks to divide the amount of
loss among different insurers. However, this does not apply to life insurance.
Thus, when any loss has taken place, the insured person can recover the full
amount of loss from any of the insurers who have covered the risk. Thereafter, the
insurer can recover form co-insurers the amount which each of them have agreed to
pay in the event of loss of the same subject-manner.
For example, A insurers his house against fire for Rs.40,000, with insurer B; and
for Rs.60,000, with insurer C. If the house catches fire and the actual loss amounts to
Rs.30,000, B will be liable to pay Rs.12,000 and C Rs.18,000. If the whole amount of
loss is paid by B, he can recover Rs.18,000 from C. And if it is paid by C, he can
recover Rs.12,000 from B.
7. Principle of Subrogation : When the loss is caused to the Insured by a third party,
the insurer after making good such loss to the insured, will have the right against such
third party. In other words, after paying compensation to the insured, the insurer will
have all the right relating to the subject matter transferred to him. This is called
principle of subrogation. For example, if the cargo is damaged by the action of a third
party, the insurer after making good the loss to the Insured, can use such third party
who was responsible for the danger to the cargo.
 8

(b) Mention the negative (adverse) effects of Advertisement.

Ans. :
1. Higher Prices : Huge amounts spent on advertising increase the cost of promotion
which is ultimately transferred to the consumer in the form of higher prices.
2. Exploitation : Advertising exploits the sentiments of people and it persuades them to
buy the products which are not needed by them. It also promotes artificial living and
extravagance.
3. Monopoly : Big firms by spending huge amounts on advertising create brand preference
and restrict the entry of small firms into market. Thus, they get monopoly power in the
market.
4. Misleads the consumers : Sometimes, the advertising may be fraudulent, misleading or
deceptive. False comparisons used in advertisements dupe the innocent customers.
5. Encourage social evils : Many advertisements encourage social evils like drinking and
smoking which are not at all welcomed by any society. The indecent language used and
the undesirable photographs presented in advertisements have a significant adverse
effects on various sections of people in the society.

(c) Explain the advantages of Foreign Trade.

Ans.:
Foreign Trade or international trade refers to the trade between two or more
nations. It involves the exchange of goods and services between the citizens of two
nations.
According to Stephenson Foreign Trade means the trade which is spread
beyond the boundaries of a country.
Advantages :
The following are the Advantages of Foreign Trade.
1. Goods made available : It enables a country to obtain such articles which cannot be
produced at home or which can be produced at high cost.
2. Sale of surplus production : It enables a country to dispose of those goods which
are in surplus and to purchase such goods which are in short supply.
3. Cheap goods to customers : It tends to equalize prices of goods throughout the
world (allowing for transport and other costs). Thus customers can buy cheap and
best goods.
4. Specialization : It enables each country to produce only those goods which it can
produce cheaply. Thus it leads to specialization.
 9

5. Full Utilization of resources : It provides an opportunity to every country to utilize

its natural resources in a better way. Thus wastage of resources is avoided.
6. Helpful in difficult times : In difficult times (famine, earthquake, flood, war) foreign
trade is very useful. Articles of short supply can be imported from other countries.
7. Variety of goods : In enables to a country to enjoy large variety of goods of various
countries.
8. Wide market : Markets can be widened and better prices can be secured for the
goods.
9. Cultural exchange : It leads to connections in several non-business directions as
well. Exchange of ideas promote international peace.
10. More Profits : Foreign Trade is more profit – earning than home trade.

(d) Explain the differences between Speculation and Gambling.

Ans :
Speculation
Speculation is defined as intelligent and rational forecasting of future trend of prices on
the basis of concrete information and knowledge It involves any business activity relating to
the forecasting of price movements and expenditure of capital with a view to making profit
prompted by expectation of rise or fall in prices in the near future.
Gambling
Gambling is unethical, illegal and without foresight and knowledge. Gambling is based
on blind chance and not on knowledge.
Differences between Speculating and Gambling

1. Speculation is based on knowledge and foresight. On the other hand Gambling is

based on blind chance and not on knowledge.
2. Speculation is a rational activity based on region or logic. Whereas gambling is
irratiional forecasting. It is recognised as reclus or blind speculation.
3. Speculation is recognised as lawful activity. On the other hand the contract of
gambling is void and unenforceable by law.
(e) Mention the functions of Managers.
Ans.:
The following are the five functions of managers.
1. Planning,
2. Organising,
3. Staffing,
4. Directing, and
 10

5. Controlling

(f) Explain the advantages of Computers.

Ans:
Computer :
A computer can be defined as an electronic data processing machine which not only
process numeric and non –numeric data. It also stores and retrieves a lot of information
whenever needed.
Computer can do mathematical calculations like additions, subtractions,
multiplication’s, divisions etc., millions of times faster than a human brain.
Advantages of Computers:
Computers are widely used in almost every aspect of present day society. They have
become an indispensable tool of the modern competitive world. In business field
computers are widely used for inventory control, preparation of salary sheets,
maintenance of records. Preparation of financial statements etc. The following are
advantages of computers.
1. A computer provides more information than is otherwise possible.
2. It provides information at a great speed.
3. It reduces the monotony of the office staff.
4. It makes complicated calculations at a great speed.
5. It saves office labour costs.
6. It ensures greater accuracy in data processing
7. It provides indirect financial saving through various types of application e. g.,
inventory control.
8. It ensures better centralised control.
9. It provides flexibility of operations as any number of programmes can be prepared
for different business operations.
10. It improves customer service and company prestige.

III. Answer any Five of the following questions, in not exceeding 5 lines each
5 x 2 = 10
(a) Endowment policy.
In this case the amount assured is payable “ With Profit policies” and “Without Profit
policies”. In the case of with profit policies the assured not only gets the sum assured but
also a share in the profits of the underwriter in the form of bonus. The premium payable
is higher in the case of “with profits policy”.
 11

(b) E- commerce
It is the process of conducting business by electronic means. It means the use of
computer and other relating electronic equipment to do business through internet. E-
Commerce is a process of buying and selling of goods or services online through internet
any time and any where and payment by electronic credit cards.
(c) Give any four names of advertising media.
Ans. :
Advertising media are the means to transmit the advertising copy or the message of
the advertiser to the intended public. This copy consists of the subject matter of
advertisement. The aim of this copy is to influence the prospective customers to act in a
desired way when they read it. In other words, the channels through which the advertising
message is conveyed to the public are called ``Advertising media.’’
1. Print Media : Newspapers, Magazines,
2. Broadcast Media : Radio, Television Narrow cast media (video, cable TV, Cinema
etc.)
3. Outdoor Media : Bill boards, wall writings, sky writings etc.
4. Internet advertising

(d) Mention the jurisdiction of National Commission.

It is established by the Central Government by notification. It is the highest authority to
settle the consumer disputes at the national level. It consists of president and four other
members, all are appointed by the Central Government. The president is the judge of
Supreme Court. The members shall have adequate knowledge relating to economic, law,
commerce industry, public affairs etc. and one of them shall be woman. The National
commission is vested with powers to award compensation for claims exceeding Rs. One
Crore.
(e) Bounty
Ans:
The amount of incentive given by the Government to exporters to increase the
exports is known as Bounty.

(f) Ex-dividend
It means “without dividend”. If sale of any shares is ex-dividend the right to receive
dividend in respect of those shares, which may be declared by the company after the sale,
 12

will remain with the seller. The buyer will not be entitled to dividend even if he has paid the
price of shares and the shares are in his possession.
(g) Attitude
People do their work better if they like that work. Similarly people become more effective
members of work group if they like the other members of the work group. In the presence of
such things to react favourably is called an attitude. All of us have favourable and
unfavourable attitudes. Favourable attitudes definitely contribute to better performance.
For example, if a person looks at his work as something unavoidable, feels very
unhappy while doing the work and prefers to do the minimum work and get away from this, it
is an unfavourable attitude. Such people do not work, feel unhappy and avoid work as much
as possible.
There are people who look at their work as a challenge and opportunity to rpove their
merit, enjoy their work and would like to do their best and also create a good and pleasant
atmosphere.
(h) Mention any 3 input devices of Computer.
Ans.:
1. Central Processing Unit : The most important part of the computer is CPU. It means
central processing unit. It is the brain of the computer, because it has many similarities
of a human brain. It has to process the input data and has to produce the output results
as per the program given by user. The CPU. divided into three parts. (a) Control unit (b)
Arithmetic/Logic unit (A.L.U.), (c) Memory Unit.
2. Monitor : A monitor is also called as Visual Display Unit (VDU), similar to a television.
Monitor with keyboard is called terminal. A monitor serves both as input and output
device. It displays all information type through keyboard and transmits it to the
computer. It displays the results of processing by the system. The screen is divided into
24 horizontal lines called as rows and 80 vertical lines called as columns. There are
three types of Monitors. (1) Monochrome, i.e., the Black and While monitor. (2) Colour
Monitors, (3) Combinations.
3. Key Board : It is a primary input device to the computer. The key board has ordinary
keys of standard manual or electronic typewriter. Besides, the computer key board has
some special keys to perform some special function. Each key bears a character or
characters both of numbers, alphabet and other symbols.
4. Mouse : Mouse is also one of the input devices in the size of tape cassette. Mouse
easily rolls on a small bearing called Mouse pad made of either rubber or plastic. On the
top of the mouse are found two or more buttons. It is used for positioning the cursor on
the monitor at the required position, very easily , by clicking these buttons once or twice.
 13

The mouse performs some specific functions. The process of editing, or printing a text is
very easy with mouse than key board because we have to use a number of keys on the
keyboard for the same purpose.

PART – B

Solution IV :

Dr. Profit and Loss Appropriation a/c Cr.

Rs. Rs.
To Furniture a/c 2,500 By Buildings 15,000
To Stock a/c 6,250
To Bad debts Reserve
a/c 5,250
To Capital a/c
Pinki 600
Rinku 400 1,000
15,000 15,000

Goodwill a/c
Rs. Rs.
To Capital a/c’s By Cash a/c 50,000
Pinki 30,000
Rinku 20,000 50,000
50,000 50,000
Cash a/c
Rs. Rs.
To Balance b/d 5,000 By Pinki Capital a/c 30,000
To Tinku Capital a/c 50,000 By Rinku Capital a/c 20,000
To Goodwill a/c 50,000 By Balance c/d 55,000
1,05,000 1,05,000
To Balance b/d 55,000

Dr. Capital a/c’s Cr.

Pinki Rs. Rinku Tinku Pinki Rs. Tinku Rinku
Rs. Rs. Rs. Rs.
To Cash a/c 30,000 20,000 - By Balance b/d 1,50,000 75,000 -
To Balance c/d 2,04,600 1,11,400 50,000 By Cash - - 50,000
By Profit and loss 600 400 -
a/c
By Goodwill a/c 30,000 20,000 -
By General Reserve 54,000 36,000 -
2,34,600 1,31,400 50,000 2,34,600 1,31,400 50,000
 14

By Balance b/d 2,04,600 1,11,400 50,000

Balance Sheet of the New Firm as on 1-1-07

Liabilities Rs. Assets Rs.
Creditors 50,000 Cash 55,000
Bills payable 1,60,000 Debtors (1,95,000 – 5,250) 1,89,750
Capital : Stock (1,25,000 – 6,250) 1,18,750
Pinki 2,04,600 Furniture (50,000 – 2,500) 47,500
Rinku 1,11,400 Buildings (1,50,000 + 15,000) 1,65,000
Tinku 50,000 3,66,000
5,76,000 5,76,000

Solution V (a) :
Consignment a/c
Rs. Rs.
To Goods Sent on By Goods Sent on
Consignment a/c 1,00,000 Consignment a/c 25,000
To Cash 2,500 By Ameer Khan 80,000
To Ameer khan 1,000 By Consignment Closing
Stock a/c 20,500
To Ameer Khan 4,000
To Consignment Stock
Suspense a/c 5,000
To Profit and Loss a/c 13,000
1,25,500 1,25,500

Ameer Khan a/c

Rs. Rs.
To Consignment a/c 80,000 By Bills Receivable a/c 20,000
By Consignment a/c 1,000
By Consignment a/c 4,000
By Balance c/d 55,000
80,000 80,000

Goods Sent on Consignment a/c

Rs. Rs.
To Consignment a/c 25,000 By Consignment a/c 1,00,000
To Trading a/c 75,000
1,00,000 1,00,000

Solution V (b) :
 15

Income and Expenditure a/c of Visakha Sports Club

for the year ended 31st March, 2006
Dr. Cr.
Expenditure Rs. Income Rs.
To Salaries 13,000 By Subscriptions 12,800
Add : Outstanding 500 13,500 Less : Previous Year 800
To Rent 2,400 12,000
Less : Prepaid Rent 100 2,300 Add : Outstanding 200 12,200
Subscriptions
To Stationery 360 By Interest on 5,000
Investments
To Postage 100 By Bank Interest 100
To Loss on Sale of
Furniture (1,200 – 200
1,000)
To Excess of
Income over 840
Expenditure
17,300 17,300

IV. Answer any Five of the following questions.

5 x 2 = 10
(a) Parties to Bill of exchange.
Ans. :
1. Drawer : He is the person who draws the bill. He is usually creditor or seller.
2. Drawee : He is the person on whom the bill is drawn. He is also known as
acceptor as he accepts the bill.
3. Payee : He is the person who is entitled to receive payment.

(b) Write the Principle of annual depreciation in Fixed Installment Method.

Ans.:
Annual Depreciation = Cost of the Asset – Scrap Value
Estimated life of the asset

(c) Red-ink interest.

In case the due date of a bill falls after the date of closing the account, then no interest is
allowed for that. However, interest from the date of closing to such due date is written in
 16

`Red Ink’ in the appropriate side of the `Current Account’’. This interest is called Red-Ink
Interest. This Red Ink Interest is treated as negative interest.
(d) Proforma invoice.
Proforma Invoice is a statement of the goods sent by the consignor to consignee. It
contains the description of the goods consigned, weight, quantity etc. The price at which
the goods are to be sold will be given. The consignee has to sell the goods at the
proforma invoice price at a price above that. But he cannot sell below that price without
obtaining consent from the consignor.
(e) Write the principle of calculating interest by product method.
Interest = Balance of products x Rate of interest
100 x 365
Solution VI (f) :

Date Particulars LF Debit Rs. Credit Rs.

Suspense a/c Dr. 18
To Commission a/c 18
(Being wrong amount credited in
Commission a/c, now rectified)
Furniture a/c Dr. 5,000
To Purchase a/c 5,000
(Being wrong debit given to Purchase
a/c, now rectified)
(f) Revenue Expenditure
Amount received by sale of goods or services are known as revenue receipts. These
receipts will recur continuously. For example, Receipts by sale of goods or services;
Receipts of interest, Dividend, Commission, Discount etc. All revenue receipts are to be
shown in the credit side of trading, profit and loss account.

Solution (h) :
X Share = 7/8 x 4/7 = 4/8
Y Share = 7/8 x 3/7 = 3/8
Z Share = 1/8
= 4:3:1
Solution VII (a) :
Explain the various types of Errors.
Ans.:
Errors may be broadly classifed into two categories. They are :
 17

1. Errors of Principle : Errors involving violation of accounting principle are termed

as errors of principle.
2. Clerical Errors : The errors made by the clerical staff while recording transactions
are known as Clerical Errors. These are of the following three types.
(1) Errors of Omission
(2) Errors of Commission and
(3) Compensating Errors

Solution VII (b) :

Journal Entries in the Books of ‘X’
Date Particulars LF Debit Rs. Credit Rs.
2006
Jan.1 ‘Y’’s a/c Dr. 10,000
To Sales a/c 10,000
(Being goods sold on Credit)
“ Bills Receivable a/c Dr. 10,000
To ‘Y’ a/c 10,000
(Being the Bill Received)
“ Cash a/c Dr. 9,850
Discount a/c Dr. 150
To Bills Receivable a/c 10,000
(Being Bill Discounted)
April 4, ‘Y’ a/c Dr. 10,050
2006 To Bank a/c 10,050
(Being Bill dishonoured and hence
noting charges paid)

Solution VII (C) :

Machinery a/c
Date Particulars Rs. Date Particulars Rs.
1995 1995
Jan 1 To Cash (with 55,000 Dec 31 By Depreciation 5,500
Installation Charges)
“ By Balance c/d 49,500
55,000 55,000
1996 1996
Jan 1 To Balance b/d 49,500 Dec 31 By Depreciation 5,500
“ By Balance c/d 44,000
49,500 49,500
1997 1997
 18

Jan 1 To Balance b/d 44,000 Dec 31 By Depreciation 5,500

“ By Balance c/d 38,500
44,000 44,000
1998 1998
Jan 1 To Balance b/d 38,500 Dec 31 By Depreciation 5,500
“ By Balance c/d 33,000
38,500 38,500
1999 1999
Jan 1 To Balance b/d 33,000 Dec 31 By Depreciation 5,500
“ By Balance c/d 27,500
33,000 33,000
2000
Jan 1 To Balance b/d 27,500

Solution VII (d) :

Calculation of Average Due Date :
Base Date : March 8
Due Date Amount Rs. No. of Days from Products
base date to the
due date
March 8 1,000 0 0
March 18 2,000 10 20,000
May 23 500 76 38,000
May 28 1,500 81 1,21,500
5,000 1,79,500

Toital Products
Average Due Date  Base Date 
Total Amounts
1,79,500
 March 8 
5,000

= March 8 + 36
= April 13.

*****************