Accounting Previous Year Question solve

Financial accounting (2 set/3 set)

Q.2019
1.(a)What is accounting? Discuss its basic assumption.
Answer: Accounting is the process of recording financial transaction pertaining to a business. The
accounting process include summarizing, analyzing and reporting these transaction to oversight agencies,
regulators and tax collection entities.
Basic assumption of accounting:
i)Business Entity Concept: Business entity concept explains that business is has a distinct entity which is
separate from its owners.
ii) Going Concern Concept
iii) Going Concern Concept
iv) The Accounting Period Concept
v) The Accrual Concept
vi) Dual Aspect Concept
vii) Revenue Matching Concept
(b) What is meant by accounting cycle? State its different stages.
Answer: The accounting cycle is a collective process of identifying, analyzing, and recording the
accounting events of a company. It is a standard 8-step process that begins when a transaction occurs and
ends with its inclusion in the financial statements.
Stages:
1. Identify transaction
2. Record transaction
3. Posting
4. Unadjusted trial balance
5. Worksheet
6. Adjusting Journal entries
7. Financial statement
8. Closing the book.
(c) Each transaction must have a dual effect on the accounting equation explain it.
Answer: Accounting equation indicates that for every debit there must be an equal credit. Asset, liabilities
and owner’s equity are the three component of the equation. Accounting equation suggest that for every
debit there must be a credit. Every financial transaction has equal and opposite effect in at least two different
account. This used to satisfy accounting equation.
Asset= liabilities + owner’s equity.
2. (a) What is journal? State its functions.
Answer: Q.2015 -- 1. (b)
(b) What is accounting equation? What does it indicate?
Answer: The accounting equation is a basic principle of accounting and a fundamental element of the
balance sheet. The equation is as follows:
Assets = Liabilities + Shareholder’s Equity
This equation sets the foundation of double-entry accounting and highlights the structure of the balance
sheet. Double-entry accounting is a system where every transaction affects both sides of the accounting
equation. For every change to an asset account, there must be an equal change to a related liability or
shareholder’s equity account.
Q.2018
1. Define money measurement concept of accounting?
Answer: The money measurement concept states that a business should only record an accounting
transaction if it can be expressed in terms of money. This means that the focus of accounting transactions is
on quantitative information, rather than on qualitative information. Thus, a large number of items are never
reflected in a company's accounting records, which means that they never appear in its financial statements.
2. What is meant by journal? State the basic rule for debit and credit?
Answer: a journal is a record of financial transactions in order by date. Traditionally, a journal has been
defined as the book of original entry.
In accounting, these are divided into three types of accounts. The rule of debit and credit depends on the
type of account you are talking about:
Personal account: Debit the receiver and credit the giver
Real account: Debit what comes in and credit what goes out
Nominal account: Debit all expenses & losses and credit all incomes & gains

Q.2017
1. Distinguish between double column cash book and triple column cash book.
Answer: The double column cash book (also known as two column cash book) has two money columns on
both debit and credit sides – one to record cash transactions and one to record bank transactions The triple
column cash book (also known as three column cash book) has three money columns on both receipt and
payment sides to record transactions involving cash, bank, discount.
The only difference between two types of cash book is that a double column cash book has two money
columns (i.e., cash and bank) whereas a triple column cash book has three money columns (i.e., cash, bank
and discount).
2. What is meant by cash balance?
Answer: The amount of money a company has in its bank account in a particular time. It is calculated by
adding the initial deposit to all subsequent deposit subtracting all disbursement. A positive cash balance
indicates the money is present and available in the account.

Q.2015
1. (a) Asset = Liabilities + Owner’s equity Explain.
Answer: Asset = Liabilities + Owner’s equity
This relationship is the basic accounting equation. Asset must equal the sum of liabilities and owner’s
equity. This equation shows that what a company owns (asset) is purchased by either what it owes (liability)
or by what its owner’s invest (equity).

(b) What is meant by journal? State its function.

Answer: (see Q.2018)
Functions of journal:
1.Analytic Function: While recording a transaction in the journal each transaction is analyzed into debit
aspect and credit aspect.
2. Recording Function: In journal each transaction is recorded based on the principles.
3. History Function: Journal book contain a serial record of the transaction for future reference.

Q.2014
1. What do you mean by the term accounting? State its objectives.
Answer: Accounting is the process of recording financial transaction pertaining to a business. The
accounting process include summarizing, analyzing and reporting these transaction to oversight agencies,
regulators and tax collection entities.
Objectives:
1. To maintain full and systematic records of business transactions
2. To ascertain profit or loss of the business
3. To depict financial position of the business
4. To provide accounting information to the interested parties.
2. Explain the utilities of studying accounting to an engineer?
Answer: Engineer need a basic understanding of accounting. He need to understand the cost of labor and
materials to truly determine how much it costs to make. He must understand the cost of wear and tear,
maintenance and depreciation to understand which industrial equipment purchase is truly the better deal. He
need to be able to calculate the cost per product to find the right lot size, including labor and capital costs.
He must be able to determine the most effective lot size to buy and logistical solution in order to keep supply
chain costs as low as possible.
3. What is meant by the term “transaction”? What are its main characteristic .
Answer: A transaction is a completed agreement between a buyer and a seller to exchange goods, services,
or financial assets. As soon as a business event occurs which can be measured and expressed in terms of
money it must be recorded in the books of accounts. It is called a transaction.
Transaction must have the following characteristics:
It must be for a sum certain in money (i.e., of a financial value)
It must be supported by a source document (e.g. sales invoice, official receipt, disbursement voucher,
remittance advice, etc.)
It must have a two-fold effect in the elements of accounting
3. What is meant by double entry system?
Answer: The double-entry system of accounting or bookkeeping means that for every business transaction,
amounts must be recorded in a minimum of two accounts. The double-entry system also requires that for all
transactions, the amounts entered as debits must be equal to the amounts entered as credits.
4. Cash book is both journal and ledger explain?
Answer: A cash book is both a journal as well as a ledger. The cash book is a journal because it records the
cash transactions from the source document for the first time and then these are posted in the respective
ledger accounts. The cash book is a ledger in the sense that it serves the purpose of a cash account also.
When the cash book is prepared, the Cash A/c is not required to be prepared. Thus, the cash book serves the
purpose of a subsidiary book as well as the principal book.
5. Discuss the golden rules for debit and credit.
Answer: The golden rules of accounting also revolve around debits and credits. The three main rules of
accounting:
Debit the receiver and credit the giver
Debit what comes in and credit what goes out
Debit expenses and losses, credit income and gains
6. Every debit has its corresponding credit Explain.
Answer: Every debit must have a corresponding credit. According to Dual Aspect Concept, every
transaction has two aspects, a debit and credit of equal amount. Every entry into the financial records of a
business must balance with an equal value in debits as in credits however there could be different numbers
of debits and credits therefore not a one for one matching. In double-entry accounting every debit has a
corresponding and equal credit.

COST ACCOUNTING (1 SET/2 SET):

Q.2019
4(a) Distinguish between primary and secondary distribution of overhead.
Answer: A primary distribution is an initial sale of securities on the secondary market, such as in the case of
an IPO. By contrast, a secondary distribution refers to the sale of existing securities among buyers and
sellers on the secondary market. Secondary distributions, primary distributions are a direct source of funds
for the company issuing securities to raise capital.
(b) Why and how are the service department cost allocate among production department?
Answer: The costs of service departments are allocated to the operating departments because they exist to
support the operating departments. The direct method allocates costs of each of the service departments to
each operating department based on each department's share of the allocation base.

Q.2018
3(a) Discuss the objectives of cost accounting.
Answer: Objectives of Cost Accounting can be summarized as under
1. To ascertain the cost of production on per unit basis, for example, cost per kg, cost per meter, cost per
liter, cost per ton etc.
2. Cost accounting helps in the determination of selling price. Cost accounting enables to determine the cost
of production on a scientific basis and it helps to fi x the selling price.
3. Cost accounting helps in cost control and cost reduction.
4. Ascertainment of division wise, activity wise and unit wise profitability becomes possible
through cost accounting.
5. Cost accounting also helps in locating wastages, inefficiencies and other loopholes in the
production processes/services offered.
6. Cost accounting helps in presentation of relevant data to the management which helps in
decision making. Decision making is one of the important functions of Management and it
requires presentation of relevant data. Cost accounting enables presentation of relevant data
in a systematic manner so that decision making becomes possible.
7. Cost accounting also helps in estimation of costs for the future.
(b) What is meant by cost statement?
Answer: A cost sheet is a statement which represents the various costs incurred at different stages of
business operations, in a tabular format. It determines the total cost or expenditure made by the organization,
along with the cost incurred on each unit of a product or service in a particular period. The cost sheet of a
business organization provides an insight into its performance and efficiency. It helps in competitive
analysis and improvement of the business operations through cost reduction.
4(a) What are the various element of cost?
Answer: - Costs can be classified according to the elements. There are three elements of costing, viz.
material, labor and expenses. Total cost of production/services can be divided into the three elements to find
out the contribution of each element in the total costs.
4(b) Distinguish between fixed cost and variable cost.
Answer: Fixed cost includes expenses that remain constant for a period of time irrespective of the level of
outputs, like rent, salaries, and loan payments, while variable costs are expenses that change directly and
proportionally to the changes in business activity level or volume, like direct labor, taxes, and operational
expenses.

Q.2017
3(a) Distinguish between cost accounting and financial accounting.
Answer: Cost Accounting refers to that branch of accounting which deals with costs incurred in the
production of units of an organization. On the other hand, financial accounting refers to the accounting
concerned with recording financial data of an organization, in order to exhibit exact position of the business.
Cost accounting generates information so as to keep a check on operations, with an aim of maximizing profit
and efficiency of the concern. Conversely, financial accounting ascertains the financial results, for the
accounting period and the position of the assets and liabilities on the last day of the period. There is no
comparison between these two because they are equally important for the users. This article presents you the
difference between cost accounting and financial accounting in tabular form.
(b) Discuss the various element of cost.
Answer: There are 4 basic element of cost accounting – are direct material, direct labour cost, direct
expenses and overhead.
Direct material: Direct materials are those materials which can be conveniently identified with and allocated
to cost units. Direct materials generally become a part of the finished product.
Direct labour cost: Direct labour cost consists of wages paid to workers directly engaged in converting raw
materials into finished products.
Direct expenses: These expenses, also known as chargeable expenses, include all direct costs, other than
direct material and direct labour that are special incurred for a particular product or process.
overhead : Overhead is the total of all indirect costs.
4(a) What do you understand by Operating costing? In which industries is this cost applied.
Answer: Operating costs are the ongoing expenses incurred from the normal day-to-day of running a
business that include both costs of goods sold and other operating expenses—often called selling, general,
and administrative expenses.
The emphasis under operating costing is on the ascertainment of cost of rendering services rather than on the
cost of manufacturing a product. It is applied by transport companies, gas, and waterworks, electricity
supply companies, canteens, hospitals, theatres, schools, etc.
(b) Distinguish between fixed cost and variable cost.
Answer: Q.2018 4(b)

Q.2016
1(a) Distinguish between cost accounting and financial accounting.
Answer: Q.2017 3(a)
2(a) What is meant by relevant cost? What are its characteristics .
Answer: Relevant costs are defined as the costs that arise in future and are different for different
alternatives. The concept of relevant costs are used by management for making various decisions such as
special or one-time order pricing, make or buy decisions, add or drop product lines, in-sourcing vs.
outsourcing etc. Relevant costs are issue specific.
Two important characteristic features of relevant costs are ‘Occurrence in Future’ and ‘Different for
Different Alternatives’. This does not mean that all costs which occur in future are not relevant cost. For a
cost item to be relevant, both the conditions should be present. A future cost has also to be different in the
different alternative to making it a relevant cost important for decision making. In other words, the costs
which do not change with the alternative situation are irrelevant costs not considered by management.
3(a) What is meant by cost statement? What are its element?
Answer: Q.2018 3(b), 4(a)
(b) Define the terms ‘fixed cost’, ‘variable cost’ , ‘semi variable cost’ and give some example of each one,
Answer: Variable cost: A cost that changes, in total dollar amount, with the change in the level of activity is
called variable cost. A common example of variable cost is direct materials cost.
Fixed cost: A cost that does not change, in total, with the change in activity is called fixed cost. A common
example of fixed cost is rent.
Semi- variable cost: A cost that has the characteristics of both variable and fixed cost is called mixed or
semi-variable cost. For example, the rental charges of a machine might include $500 per month plus $5 per
hour of use.

Q.2015
2(a) What do you understand by operating cost? State its objectives?
Answer: Operating costs are the ongoing expenses incurred from the normal day-to-day of running a
business that include both costs of goods sold and other operating expenses—often called selling, general,
and administrative expenses.
Objectives:
The objectives of operating costing are listed below:
1. To supply the information through which the efficiency in rendering service is improved.
2. To provide a basis for fixing accurate quotation and fare.
3. To ensure that the services are provided in proper time.
4. To control the fuel consumption and its expenses.
5. To ensure that the service equipments are properly maintained.
6. To provide cost comparison between own service and alternative service i.e. hiring.
7. To compare the cost of one service center with another.
8. To determine the apportionment cost if the services are provided within an organization.
9. To decide the price that can be charged for use of vehicle.
10. To control the cost of maintenance and repairs.
11. To select efficient and suitable routing of vehicles to reduce the costs to production departments that
uses the service.
12. To avoid the under utilization of capacity and idle time of the work force.
13. To absorb the fixed costs proportionately and systematically that is allocated to the units of services.
2(b) What steps would you take in controlling operating cost of vehicles?
Answer: (if necessary)
3(a) What is meant by cost statement?
Answer: Q.2018 3(b)
3(b) What are the element of cost? Explain
Answer: Q.2017 3(b)
4(d) What is meant by relevant cost?
Answer: Relevant cost is a managerial accounting term that describes avoidable costs that are incurred only
when making specific business decisions. The opposite of a relevant cost is a sunk cost, which has already
been incurred regardless of the outcome of the current decision.

Q.2014
4(a) What is meant by operating cost? What are its objectives.
Answer: Q.2015 2(a)