CSS Accountancy & Auditing Accounting Concepts, Conventions & Principles

Adam’s Learning Centre, Lahore

CSS Accounting & Auditing
Topic Vise Past Papers (Unsolved)
Accounting Concepts, Conventions & Principles
Q. 1 (CSS – 2015, Paper # 1, Section – A, Q. # 4(b)) (10 Marks)
Financial statements are prepared to seek the financial position of an organization. How much the above statement
is helpful to overcome the financial issues facing by an organization? Justify the above statement with solid reasons.

Q. 2 (CSS – 2015, Paper # 1, Section – B, Q. # 6(b)) (10 Marks)

What requirement is imposed by double entry system in the recording of any business transaction?
Q. 3 (CSS – 2013, Paper # 1, Section – B, Q. # 7 (20 Marks)
Currently there is a growing interest of more and more disclosure in financial reports of corporate.
You are required to first list and then explain the following:
1. Rationale behind the above movement.
2. Push forces behind the above trends.
3. How for one should go for full disclosure? Where one should stop?
Q. 4 (CSS – 2012, Paper # 1, Section – A, Q. # 3 (12 Marks)
For each of the following independent situations, describe the accounting assumptions, characteristics or conventions
that have been violated or that is involved.
A. Hilary Wong is the sole proprietor of Wong Jewelry Imports. During March the following items were recorded as
expenses on the firm’s books:
Rent on office Rs. 500
Employees’ wages 700
Supplies for personal use 100
Advertising 250
Pleasure travel 800
B. The Wright Corporation began business in 2000. The company produces a magazine for nature enthusiasts.
Two year subscriptions are offered. The firm has adopted the policy of recognizing revenues when the cash is
received.
C. Over the last few years the president of the federal company has purchased a number of paintings to decorate
her office. Recently one of the artists died, and his paintings have increased in value by over 200%. The
president has therefore instructed the accounting department to increase the recorded cost of the paintings to
reflect this change.
D. Earth Airlines has suffered huge losses in recent years and may not be able to continue to operate. The firm’s
public accountants feel that this information should be disclosed in their opinion.
E. The following footnote was taken from a recent annual report of general motors. “There are various claims and
pending actions against the corporation and its subsidiaries with respect to commercial matters, including
warranties and product liability, government regulations including environmental and safety matters, civil rights,
patent matters, taxes and other matters arising out of the conduct of the business. The amounts of liability on
these claims and actions at December 31, 1982 were not determinable but in the opinion of the management,
the ultimate liability resulting will not materially affect the consolidated financial position or results of operations
of the corporation and its consolidated subsidiaries”.
F. ABC company’s president has decided not to prepare financial statements this year because the company
suffered huge losses.
G. A fancy staple machine costing Rs.125 was debited to the office equipment account and will be depreciated
over 10 years.
H. Recently fine restaurant hired one of the country’s outstanding chefs. Based on the anticipated increased
earnings, the firm credited capital for Rs. 1000000.
I. Good times received Rs. 3,200 for unlimited passes to their amusement part. Although half of these passes
were not valid until the following year, the entire amount was recorded currently as revenue.
J. Two years ago good times paid Rs. 2,790 for a 3-year insurance policy. No insurance expense appeared on this
year’s income statement.

Q. 5 (CSS – 2012, Paper # 1, Section – A, Q. # 4 (12 Marks)

Financial statements are described as the major product of the accounting information systems. Explain this
statement and briefly describe the four principal financial statements.

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CSS Accountancy & Auditing Accounting Concepts, Conventions & Principles
Q. 6 (CSS – 2012, Paper # 1, Section – A, Q. # 5 (12 Marks)
What is the relationship between the need to prepare financial statements on timely basis and the matching
convention?

Q. 7 (CSS – 2012, Paper # 1, Section – B, Q. # 7 (18 Marks)

Why is it necessary to make adjusting entries? Can you think of a situation when adjusting entries would not be
required?

Q. 8 (CSS – 2011, Paper # 1, Section – A, Q. # 3 (12 Marks)

Listed below are 12 technical accounting terms:
Accounting period Depreciation Net income
Accrual basis of accounting Expenses Realization
Cash basis of accounting Income statement Revenue
Closing entries Matching Conservatism
Each of the following statements may (or may not) describe one of these technical terms. For each statement,
indicate the accounting term described, or answer “None” if the statement does not correctly describe any of the
terms.
(a) The spam of time covered by an income statement.
(b) An increase in owner’s equity as a result of earning revenue and incurring expenses.
(c) An accounting concept intended to avoid overstatement of financial strength or earnings.
(d) The generally accepted accounting principle used in determining when expenses should be offset against
revenue.
(e) The generally accepted accounting principle used in determining when to recognize revenue.
(f) Recognizing revenue when it is earned and expenses when the related goods or services are used in the
effort to obtain revenue.
(g) The systematic allocation of the cost of a long-lived asset, such as a building or equipment, to expense over
the useful life of the asset.
(h) The procedures for transferring the balances of the revenue, expense, Income Summary, and owner drawing
accounts into the owner’s capital account.

Q. 9 (CSS – 2011, Paper # 1, Section – A, Q. # 4 (12 Marks)

Explain the double-entry system of accounting.

Q. 10 (CSS – 2011, Paper # 1, Section – A, Q. # 5 (12 Marks)

When do accountants consider revenue to be realized? What basic question about recording revenue in accounting
records is answered by the realization principle?

Q. 11 (CSS – 2011, Paper # 1, Section – B, Q. # 7 (18 Marks)

During the current year, East-West Airlines earned net income of Rs. 50 million from total revenue of Rs. 350 million.
The company services primarily cities in Pakistan but also has service to several foreign countries. Three events are
described below, along with the treatment accorded to these events in the company’s financial statements.
This case focuses upon the question of “materiality”. Therefore, some items described below may be viewed as
immaterial.
(a) During the year, the company purchased Rs. 5 million in spare parts to be used in aircraft maintenance. All of
these purchases were charged immediately to Maintenance Expense. No adjusting entry was made at year-end
to reflect approximately Rs. 50,000 in spare parts remaining on hand, because the amount was considered
immaterial.
(b) The company’s internal auditors discovered that the vice president of in-flight services had embezzled Rs.
100,000 from the airlines by authorizing payments to a fictitious supplier of in-flight meals. The vice president
was fired, and criminal charges currently are pending against her, as is a civil lawsuit to recover the embezzled
funds. In the income statement, this Rs. 100,000 loss was deducted from revenue as part of the Flight
Operations Expenses, which totaled more than Rs. 200 million. No special disclosures were made, because the
amount of the embezzlement was considered immaterial.
(c) Shortly after year-end, the company suspended all flight operations to a particular foreign country as a result of
political unrest. These flights provided approximately 2% of the company’s revenue and net income during the
current year. Cancellation of service to this country was not disclosed in notes to the current year’s financial
statements, because operations of the current year were not affected.

INSTRUCTIONS
Explain whether in your own judgment you concur or disagree with the treatment accorded to these events by
East-West in its current financial statements. If you recommend a different financial statement presentation,
explain why you do. In each case, indicate whether or not you consider the item “material”, and explain your
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CSS Accountancy & Auditing Accounting Concepts, Conventions & Principles
reasons. Consider each of these three situations independently of the others.

Q. 12 (CSS – 2010, Paper # 1, Q. # 2 (30 Marks)

Write the short note on the following?

(i) What is meant by event in accounting?
(ii) What is the meaning of equity?
(iii) Define separate entity concept.
(iv) Narrate the meaning of conservatism.
(v) Differentiate among provision, reserve and fund.
(vi) What is meant by footing?
(vii) What is amortisation?
(viii) What is controlling account?
(ix) Define contingent assets.
(x) What is the meaning of sales term 1/10 E.O.M?

Q. 13 (CSS – 2009, Paper # 1, Q. # 2 (30 Marks)

Write short notes on the followings:
(i) What is a compound journal entry?
(ii) Define subsidiary ledger.
(iii) Identify two major causes of depreciation on plant assets.
(iv) What is meant by statement of cash flows?
(v) Briefly explain the perpetual inventory system.
(vi) State the principle of realization.
(vii) What do you understand by realization account?
(viii)Describe the term accelerated depreciation.
(ix) What do you understand by limited partnership?
(x) Define closing entries and give two examples.

Q. 14 (CSS – 2008, Paper # 1, Q. # 2 (30 Marks)

Give short answer to the following:
(i) Define each component of accounting equation.
(ii) Identify stakeholders in Insurance Company.
(iii) Identify the meaning of accounting related acronym GAAP.
(iv) Define adjusted trial balance.
(v) Describe financing activities in the context of cash flow statement.
(vi) Explain the difference between financial reporting and financial statements.
(vii) Explain salvage value of an asset.
(viii) Define franchises and licenses.
(ix) Explain the acronym FOB destination.
(x) Explain accrual accounting system.
(xi) Explain Matching concept.
(xii) Define Debit note.
(xiii) Describe re-valuation Accounts.
(xiv) What is meant by interim Accounts?
(xv) Bring out the importance of preparing Trial Balance.

Q. 15 (CSS – 2007, Paper # 1, Q. # 2 (25 Marks)

Answer the following short questions:
(a) Prepare the two adjusting entries required to record accrued salaries expense and accrued legal fees
revenue.
(b) Define provision for bad debts.
(c) Give two examples of contra items which appear in the balance sheet of a bank.
(d) What is meant by interim accounts?
(e) Briefly explain the periodic inventory system.
(f) State the matching principle.
(g) What do you understand by worksheet?
(h) List the accounting procedures involved in the accounting cycle.
(i) Describe revaluation account.
(j) Bring out the importance of preparing trial balance.

Q. 16 (CSS – 2006, Paper # 1, Q. # 1 (25 Marks)

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CSS Accountancy & Auditing Accounting Concepts, Conventions & Principles
Explain and illustrate legal provisions governing preparation of banking companies and financial statements in
Pakistan.

Q. 17 (CSS – 2005, Paper # 1, Q. # 1 (20 Marks)

Answer the following short questions briefly.
(a) Define Accrual system of accounting.
(b) Describe three basic functions of an accounting system.
(c) Define worksheet.
(d) What do you understand by capital loss? Give an example of capital loss.
(e) Prepare rectifying entry for sales book over cast by Rs. 900.
(f) Make an adjusting entry for prepaid rent Rs.1000.
(g) Define “budget”.
(h) What do you understand by adjusting entries? Make three adjusting entries with your own figures.
(i) List down the four types of book keeping errors.
(j) Describe bad debts recovered.

Q. 18 (CSS – 2005, Paper # 1, Q. # 2 (20 Marks)

Differentiate between the following:
(a) Capital expenditure and Revenue expenditure.
(b) Single entry system and double entry system of bookkeeping.
(c) Receipts and payment account and Income & Expenditure account.
(d) Straight-line method and diminishing balance method of depreciation.

Q. 19 (CSS – 2004, Paper # 1, Q. # 1 (20 Marks)

What is a Trial Balance? Why is it prepared? What are the two methods of preparing it and which of them is a
better one and why?

Q. 20 (CSS – 2004, Paper # 1, Q. # 2 (20 Marks)

Answer the following short questions briefly. Each question carries two marks.
(1) Define ledger
(2) List three disadvantages of not preparing the Trial Balance.
(3) Give two examples of errors of principle.
(4) State two methods of charging depreciation on fixed assets.
(5) What is reserve for doubtful debts?
(6) Why is revaluation account prepared?
(7) Enumerate at least four reasons for which a Cheque is dishonored.
(8) What are capital receipts?
(9) Name two methods of preparing final accounts from incomplete records.
(10) What do you understand by closing entries?

Q. 21 (CSS – 2002, Paper # 1, Q. # 2 (20 Marks)

Explain ten principles of Accounting and their applications to Investment concerns.

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