G.C.E.(A.L.

) Support Seminar - 2014

Accounting - Paper I
Answer Guide

Questoion No. Answer Questoion No. Answer

(1) 3 (21) 2

(2) 4 (22) 4

(3) 1 (23) 4

(4) 5 (24) 3

(5) 5 (25) 2

(6) 3 (26) 4

(7) 5 (27) 3

(8) 5 (28) 2

(9) 4 (29) 4

(10) 2 (30) 5

(11) 3

(12) 2

(13) 5

(14) 4

(15) 4

(16) 2

(17) 2

(18) 3

(19) 5

(20) 5

[ see page 2
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Accounting – Paper I

31' A - False
B - False
C - True
D - False
32' Prime entry book Source document
^1& Purchase Journal Purchase Invoice
^2& General Journal Journal Voucher

33' 1. Increase 2. Decrease 3. Decrease 4. Decrease

34' ^a& Trade Creditors Dr. 18 000

Purchase account Cr. 18 000

^b& Profit will decrease by Rs. 18 000.

35' Financial Accounting Management Accounting

(1) Users of Information External Internal
(2) Legal requirements Apply Not Apply
(3) Time Annually (in general) On Demand
(4) Nature of the information Historical oriented Historical,
provided Present and
Future oriented

36' Rs. 580 000

37' (i) Rs. 2 350 000

(ii) Rs. 3 450 000

38' (i) Rs. 1 200
(ii) Rs. 57 600

39' Rs. 300 000

40' ^⁄& A, B
^⁄⁄& A, B, D
^⁄⁄⁄& C

41' (i) Rs. 162 000

(ii) Rs.165 600

42' 1' There must be a present obligation as a result of a past event.

2. It is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation.
3. A reliable estimate can be made of the amount of the obligation.
 3
43' Net cash flows generated from operational activities Rs.5 140 000
Option:-
(Rs. '000)
Draft profit for the period 5 200
Add:-
Provision for income tax 360
Depreciation of assets 100 460

5 660
Deduct:-
Profit on sale of motor vehicles 200
Income tax paid 300
Increase in inventories 20 (520)
Net cash flows generated from operational activities 5 140


44' A Transfer of Rs. 200 000 to the general reserve.
B Issue of shares of Rs. 500 000 by capitalising the reserves.
C Issue of Ordinary shares for Rs. 500 000.
D Transfer of Rs. 300 000 to revaluation reserve, and Rs. 500 000 to retained earnings, out of
the total comprehensive income of Rs.800 000.

45' Only C.

46' Rs.125 000

47' ^⁄& Purchasing department should be informed by the stores department on the required
quantity of goods to be purchased.
^⁄⁄& Obtain quotations from the approved suppliers. (Purchasing department will send to
suppliers)
^⁄⁄⁄& Recording the receipts, issues and balances of the stocks and keeping them at the racks will
enable to check the balances of stocks at the stores at any given time
^⁄¤& Register maintained to record the material receipts, issues and balances including the value.

48' ^⁄& Economic Order Quantity – 2 000 units

^⁄⁄& Optimum number of orders to place – 125 orders

49' ^⁄& 2014.03.31 Accumulated Fund Rs. 36 000

2013.03.31 Accumulated Fund Rs. 31 000
Surplus Rs. 5 000

^⁄⁄& 2014.03.31 Accumulated Fund – Rs. 36 000

50' 1. Prime cost

2. Prime cost
3. Production overhead cost
4. Production overhead cost

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Accounting – Paper II
Question No. 01
^1& Net Profit Adjustment Statement
(Rs. '000)
Drafted Profit 580
Add:-
Building revaluation 200
Provision for doubtful debts 2
Interest Income 30 232
812
Deductions:-
Depreciation - Building 80
Depreciation -Machinery 60
Lease interest 40
Bad debts 40
Write off of inventories 15
Long term loan interest 20
Expenses of issue of shares 50
Provision for income taxes 135 (440)
372

^2& Kanishaka (Pvt) Ltd.

Statement of Financial Position as at 31.03.2014
(Rs. '000)
Non-Current Assets
Property Plant and Equipment 7 180
Fixed Deposit - 15% 1 200
Current Assets
Inventories 160
Trade debtors 260
Provision for doubtful debts (13) 247
Interest receivable 30
Cash & cash equivalents 1 125 1 562
Stated Capital 9 942
Ordinary Shares 3 800
Non redeemable preference shares 1 500 5 300
Reserves
Revaluation reserve 1 280
General reserve 800
Retained earnings 342 2 422
Long-term liabilities
Long term loan @12% 1 000
Lease creditors 220
Current liabilities
Trade creditors 400
Loan interest payable 20
Lease creditors 95
Income tax payables 200
Dividends payables 100
Bank overdraft 185 1 000
9 942

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^3& Kanishaka (Pvt) Ltd.
Changes in equity statement for the year ended 31.03.2014
(Rs. '000)
Ordinary Preference Revaluation General Retained
Total
shares shares reserve reserve earnings
Balance 01.04.2013 2 500 1 500 1 000 800 450 6 250
Capitalization of reserves 800 - (600) (200) - -
General reserve - - - 200 (200) -
Total comprehensive income - - 880 - 372 1 252
Right issue of shares 500 - - - - 500
Dividends:-
Preference shares - - - - (180) (180)
Ordinary shares - - - - (100) (100)
Balance 31.03.2014 3 800 1 500 1 280 800 342 7 722

^4& Disclosures

(1) The inventories has been valued at Rs.160 000 which is the lower of cost of the inventories
and its net realizable value.

(2) Rs. 100 000 worth of inventories has been pledged to the bank as a security for the
bank overdraft obtained.

Workings :
(Rs. '000)
Balance Additions/ Disposals/ Balance
Asset
01.04.2013 Revaluations Transfers 31.03.2014
Land 4 400 - - 4 400
Buildings 2 000 - - 2 000
Office Equipment 1 800 - - 1 800
Machinery 400 - - 400 8 600
Balance Balance
Depreciation Additions Deductions
01.04.2013 31.03.2013
Buildings - 400 - 400
Office Equipment 680 280 - 960
Machinery - 60 - 60 ^1 420&
7 180

Building Account (Rs.) Revaluation Reserve (Rs.)

Bal b/f 1 600 Accumulated 280
Revaluation 680 Depreciation
Reserve Bal c/d 2 000
2 280 2 280
Bal b/f 200 Land 400
^Equity& Buildings 680
880
Bal c/d
1 080 1 080

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Question No. 02

02' ^a& ^1&

Profit and Loss Appropriation Account (Rs.'000)
Net profit 740
Interest on capital:
Disa 100
Gaya 85
Sachi 50 ^235&
Salaries :
Sachi ^175&
Profit Shares :
Disa 165
Gaya 110
Sachi 55 ^330&
-


Current Accounts (Rs.'000)
Dissa Gaya Sachi Dissa Gaya Sachi
Drawings 200 220 140 Balance b/f 500 300 -
Drawings 30 35 20 Salaries - - 175
Interest on capital 100 85 50
Profit share 165 110 55
Balance c/d 535 240 125 Interest for loan - - 5
765 495 285 765 495 285


Capital Accounts (Rs.' 000)

Dissa Gaya Sachi Dissa Gaya Sachi
Goodwill 150 100 50 Balance b/f 1 000 800 -
Salaries - - 550
Balance c/d 1 000 850 500 Goodwill 150 150 -
1 150 950 550 1 150 950 550

Ú Goodwill also can be treated by debiting Sachi Rs.50 and crediting Gaya Rs.50.
 7
^a&
Extracts of statement of Financial Position as at 31.03.2014
(Rs.'000)
Equity and Liabilities
Capital Accounts :
Dissa 1 000
Gaya 850 2 350
Sachi 500
Current Accounts :
Dissa 535
Gaya 240
Sachi 125 900
Non Current Liabilities :
Loan from Sachi 325
Current Liabilities :
Loan from Sachi 60
3 635


Workings:

Calculation of Adjusted profit Rs.’000

Profit before adjustments (120+180+360) 660
Add – Drawings (30+35+20) 85
Deductions – Loan interest 400 × 5/100 × ¼ (5)
740

Total Goodwill 50 × 6 = 300

^b& ^1&
Suranji Manufacturing Enterprise
Manufacturing account for the quarter ended 31.03.2014
(Rs. '000)
1/1 Inventory 10 000
Raw material purchases 66 000
3/31 Inventory (8 800)
Cost of materials consumed 67 200
Production salaries 62 000
Prime Cost 129 200
Production overhead cost
Overhead expenses 15 800
Depreciation on machinery 10 000 25 800
Total production cost 155 000

^2& Revenue generated from sales of flower pots

1650 × 150 = Rs. 247 500
 8

Workings:

Number of flower pots produced

1/1 Timber stock ( Sq.fts) 50

Purchases 300
3/31 Closing stock (8 800 / 220) (40)
310

No. of flower pots 310 × 5 = 1 550
Production salaries 1 550 × 40 = Rs. 62 000

Number of Flower pots sold

Opening No. of flower pots 200

Production during the quarter 1 500
Closing stock (100)
1 650


Question No. 03
^3& ^a& ^1&
(Rs. '000)
Assets
Motor Furniture Trade Liabilities Equity
Stocks Bank
Vehicles & fittings Debtors
Bal B/f 1 500 95 43 270 137 355 1 690
^⁄& +40 -40
^⁄⁄& +125 +125
^⁄⁄⁄& +90 -90
^⁄¤& -65 30 +50 +15
^¤& -270 +265 -5
^¤⁄& -35 -5 -30
^¤⁄⁄& -8 -8
^¤⁄⁄⁄& -25 -25
1 475 135 60 30 412 350 1 762

^2& All numbers are in rupees thousand

Net profit/ loss = Closing net assets – Opening net assets + Drawings - Additional capital
introduced

= 1 762 – 1 690 + 8 - 125

Net Loss = Rs. 45

 9
^b& ^1&
General Journal (Rs.)
(1) Promotional Expenses Dr. 6 000
Suspense Account 6000
(Correcting the error of non recording of the promotional expenses)
(2) .................................. 3 200
Suspense Account 3 200
(Correcting for the error of insurance expenses of Rs. 3 200 not been
taken to the trial balance)
(3) Motor vehicle repair account Dr. 10 000
Motor vehicle account 10 000
(Correcting the error of recording of motor vehicle repair expenses of
Rs. 10 000 in to the motor vehicle account)
(4) Purchase returns account Dr. 2 400
Trade creditors 2 400
(Correcting the error of duplicating the recording of purchase returns of
Rs. 2 400 in the purchase returns journal)
(5) Suspense account Dr. 2 000
Commission received account 1 000
Commission paid account 1 000
(Correcting the error of recording commission received as commission
paid)
(6) Sales account Dr. 9 000
Suspense account 9 000
(Correcting the totaling error in the sales journal which increased the total
sales in sales journal by Rs.9 000)

^2&
Suspense Account (Rs.)
Balance b/f 16 200 Insurance expenses 3 200
Commission received 1 000 Sales 9 000
Commission paid 1 000 Promotional expenses 6 000
18 200 18 200


Question No. 04

04' ^a& ^1&
Creditors Control Account (Rs.)
Sales returns 4 000 Balance B/f 81 000
Discount 8 000 Purchases 603 000
Cash 566 000 Cash 20 000
Balance C/d 126 000
704 000 704 000

 10
^2& Rs. 145 000
(Rs.)
Balance as per creditor account 126 000
Add:
Unrecorded Purchases 12 000
Purchases being recorded at a lower amount 27 000 39 000
Less: 165 000
Sales (20 000)
Balance in the creditor account 145 000


Option:
Creditors Control Account (Rs.)
Sales 20 000 Balance B/f 126 000
Purchases 27 000
(recorded at a lesser value)
Balance C/d 145 000 Purchases 12 000
165 000 165 000


^3&
Creditor Reconciliation Statement (Rs.)
Balance as per creditors control 145 000

Add: Discount - Asith 3 000

Unrecorded discount 4 000 7 000
152 000
Deductions:
Unrecorded purchases (12 000)
Total of trade creditor ledger 140 000

^b& ^1&

Bank Reconciliation Statement as at 31.03.2014 (Rs.)

Bank overdraft as per bank statement ^8 000&
Add :
Unrealized cheques 25 000
17 000
Less :
Cheques issued but not presented ^18 000&
Balance as per bank account ^1 000&


 11

Bank Account (Rs.)

Returned cheque 15 000 Balance B/f 13 750
(Rent) Bank charges 500
Cheque book charges 350
Balance C/d 1 000 Insurance expenses 1 400
16 000 16 000

^2& Bank account balance (over draft) before the adjustments are made is Rs.13 750

Question No. 05

05' ^a& ^1&

General Ledger (Rs.)

(1) Machinery transfer account Dr. 130 000
Machinery account 130 000
(Transferring the cost of the machine to the machinery transfer account)
(2) Accumulated depreciation for machinery 32 500
Machinery transfer account 32 500
(Transferring the accumulated depreciation of the transferring machinery
to the Machinery transfer account )
(3) Machinery account 120 000
Machinery transfer account 100 000
Cash account 20 000
(Completing the transaction by transferring the old machine and settling
the balance by cash)
(4) Machinery transfer account 2 500
Profit & Loss/ Income statement 2 500
(Recognizing the profit of machinery transfer)


^2&

Decrease in profit if not for machinery transfer (Machinery depreciation) = Rs. 10 000

Decrease in profit as a result of transfer (Depreciation – 7 500+ 3 000) = Rs. 10 500

Increase in profit due to the profit obtained in machine transfer = Rs. 2 500
Rs. 8 000

Increase in profit 10 000 - 8 000 = Rs. 2 000

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Workings:

Accumulated profit up to the date of transfer (Rs.)

}

Year ended 90 000 - 10 000
= 8 000
31.03.2011 10

Year ended = 8 000

31.03.2012
8 000 × 1

}

Year ended 2
= 4 000
31.03.2013 90 000 + 40 000 - 10 000 - 20 000 1
× = 5 000
10 2
Depreciation
up to 01.01.2014

}
10 000 × 3
4

= 7 500
32 500

Depreciation for the = 2014.01.01 to 1/1 to 3/31 = 7 500
year ended 31.03.2014 120 000 × 1 = 3 000
10 4
10 500

05' ^b&
Statement of Affairs (Rs.)
Capital 250 250 Noncurrent assets 150 000
Cash 80 000
Trade debtors 15 250
Trade creditors 30 000 Stocks 35 000
280 250 280 250

Cash account (Rs.)

Bal b/f 80 000 Salaries 19 000

}
Receipts from 223 000 Operational expenses 18 000
trade debtors Drawings 5 000
Cash sales 54 000 Trade creditors 280 000
Bal c/d 35 000
357 000 357 000


Creditors Control Account (Rs.) Debtors Control Account (Rs.)
Cash 280 000 Bal b/f 30 000 Bal b/f 15 250 Cash 223 000
Discount
received } 4 000 Purchases 268 000 Sales

264 750 Discount given
Bal c/d
7 000
50 000
Bal c/d 14 000 280 000 280 000
298 000 298 000


 13

Income statement (Rs.)
Sales 318 750
Less: Cost of sales
Stock 35 000
Purchases 268 000
303 000
Less: Closing stock (48 000) (255 000)
Gross Profit
63 750
Add: Other income
4 000
Discount received
Noncurrent asset depreciation 67 750
15 000
Discount allowed 7 000
Salaries 27 000
Operational expenses 18 000
Provision for doubtful debt 2 500 (69 500)
Net Loss (1 750)


Statement of Financial position (Rs.'000)
Non Current Assets
Property Plant and Equipment 150 000
Depreciation (15 000) 135 000
Current Assets
Cash 35 000
Inventories 48 000
Trade debtors 50 000
Provision for doubtful debt (2 500) 47 500 130 500
265 500
Capital 250 250
Less : Accumulated loss (1 750)
248 500
Less : Drawings (5 000) 243 500
Current liabilities
Accrued salaries 8 000
Trade creditors 14 000 22 000
265 500

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Question No. 06

^6& ^a& ^1&

Statement of Affairs as at 31.03.2013 (Rs. ' 000)

Accumulated Fund 550 Noncurrent assets
Noncurrent Liabilities Sports complex 500
Life membership fund 500 Gym equipment 800
Gym Equipment fund 300 800
Current Liabilities Current Assets

}
Subscription received 125 Subscription receivable 50
in advance Bank balance 125
Advance received 40 165 Cash 40 215
1 515 1 515

Income and Expenditure Account for the year ended 31.03.2014 ^Rs. ' 000&
Salaries 120 Subscription fees 550
Other Expenses 250 Daily fees 520
Promotional expenses 80 Rental income 120
Maintenance 75
Depreciation - Sports complex 25
Depreciation -Gym equipment 160
Surplus 480
1 190 1 190

Statement of Financial Position as at 31.03.2014 (Rs. ' 000)

Accumulated Fund 550 Noncurrent assets
Add : Surplus 480 Sports complex 475
Noncurrent Liabilities Gym equipment 640 1 115
Life time membership fund 450
Gym Equipment fund 300 750
Current Liabilities

in advance }
Subscription received

100 Current Assets
Subscription receivable 100
Advance received 70 Bank balance 745
Rent received in advance 60 230 Cash 50 895
2 010 2 010
 15

Workings:
Subscription Account (Rs. ' 000)
Balance B/f 50 Balance B/f 125
Income expenditure 550 Cash 425
Balance c/d 100 Life member fees 50
Balance c/d 100
700 700

Cash Account (Rs. ' 000)

Balance B/f 40 Salaries 120
Subscription 425 Other expenses 250
Income from daily charges 550 Promotional expenses 80
Rental income 180 Maintenance 75
Bank 620
Balance c/d 50
1 195 1 195

^b&
Total variable cost = Rs. 300
Contribution = 800 - 300 = 500

Total Fixed Cost

Vehicle expenses = 125 000
Other = 25 000
Salaries = 12 500
162 500

(1) Number of items to be sold = 162500 / 500 = 325

(2) In order to obtain a profit of Rs. 150 000 = (162500+150 000)/500 = 625
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Question No. 07

^7& ^a& ^1&

Average Profit – A Average Profit – B

85 000 65 000
50 000 45 000
75 000 60 000
(32 000) 22 000

178 000 192 000

= 44 500 = 48 000
4 4

Accounting Rate of Return (ARR) Average Investment

Average Profit × 100 } Cost+ Scrap value

Average Investment 2

Average Investment

250 000 + 50 000 = 150 000

2

44 500 × 100 48 000 × 100

150 000 150 000

29.67% 32%

^2& Payback Period - A

Accumulated
Time Profit Depreciation Scrap value Cash flow
cash flows
0 - - - ^250 000& ^250 000&
1 85 000 50 000 - 135 000 ^115 000&
2 50 000 50 000 - 100 000 ^15 000&
3 75 000 50 000 - 125 000 110 000
4 ^32 000& 50 000 50 000 68 000 178 000

15 000
× 12
125 000
Payback period = 2 years and 01 month
 17
Payback Period - B
Accumulated cash
Time Profit Depreciation Scrap value Cash flow
flows
0 - - - ^250 000& ^250 000&
1 65 000 50 000 - 115 000 ^135 000&
2 45 000 50 000 - 95 000 ^40 000&
3 60 000 50 000 - 110 000 70 000
4 22 000 50 000 50 000 122 000 192 000

40 000 × 12
110 000
Payback period – 2 years and 04 months
^3&
A (Rs.)
Discounting factor at 15% Cash Flows Present Value
0 1 ^250 000& ^250 000&
1 '87 135 000 117 450
2 '76 100 000 76 000
3 '66 125 000 82 500
4 '57 68 000 38 760

Net Present Value 64 710

B (Rs.)
Discounting
Cash Flows Present Value
factor @ 15%
0 1 ^250 000& ^250 000&
1 '87 115 000 100 050
2 '76 95 000 72 200
3 '66 110 000 72 600
4 '57 122 000 69 540
Net Present Value 64 390


^4& As per Accounting Rate of Return (ARR)
A B Option to select
29.67% 32% B

As per Payback Period

A B Option to select
2 years and 01 month 2 years and 04 months A

As per Net Present Value

A B Option to select
64 710 64 390 A

(5) Machine A
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^7& ^b&
(1) Average Consumption = 3 000 + 10 000 – 1 000 – 1 200
= 10 800
= 10 800 / 3
= 3 600

(2) Re order level = Maximum consumption × Maximum lead

time
= 800 × 15
= 12 000 units

(3) Re- order quantity = 15 000 units

^4&
Unit price (Rs.)
2014.03.01 Balance 3 000 10.00 30 000
Purchases 15 000 12.00 180 000
18 000 11.67 210 000
Issues (10 000) (116 700)
8 000 93 300
Sales returns 1 000 12.00 12 000
9 000 11.70 105 300
Purchases 15 000 15.00 225 000
24 000 13.76 330 300
Purchase returns (2 000) 15.00 (30 000)
Balance 22 000 13.65 300 300

Value of stock as at 31.03.2014 is Rs. 300 300