Pre-preparatory Assessment - Accounting

Time: 60 minutes
Marks:50

Part A

1. While preparing the financial statements of ABC limited, the company did not
consider:
a. Total Assets and Outsiders` liabilities expressed in non-monetary terms
b. Outsiders` Liabilities expressed in monetary terms
c. Total Assets expressed in monetary terms
d. Capital expressed in monetary terms

2. Patents is an example of:

a. Current asset
b. Fixed assets
c. Revenue
d. Intangible asset

3. What is the objective behind preparing a cash flow statement?

a. To provide the cash balances at the beginning and end of the year
b. To depict the reasons for the change in cash position of the business
c. To provide a forecast of the cash position of the business
d. To provide sources of finances of a business

4. What is a fundamental accounting assumption?

a. Going Concern
b. Double entry
c. Historical cost
d. Period

5. Which item should be treated as capital expenditure?

a. cost of carriage on the purchase of a non-current asset
b. cost of replacement of part of a non-current asset
c. depreciation of a non-current asset
d. repairs to a non-current asset
6. An item is included in the financial statements because it affects their interpretation.
Which accounting concept is being applied?
a. Consistency
b. Accrual
c. Materiality
d. Substance over form

7 What happens to the Balance Sheet of a business when a business buys goods on
credit?
Assets Liabilities

A Increases Decreases

B Decreases Decreases

C Increases Increases

D Decreases Increases

8. What happens to Current Assets (CA) and Current Liabilities (CL) when money is
received from a credit customer (to whom goods have been sold on "Buy Now Pay
Later")?

a) CA and CL - both increase

b) CA and CL - both are constant
c) CA increases while CL decreases
d) CA decreases while CL increases

Part B

1. Pass journal entries for the following transactions (Narration is NOT needed)
(2 X 5 = 12 marks)
a) Sales made to Mr. Ram - money collected immediately in cash (Rs 25000)
Cash a/c Debit
Sales a/c Credit
b) Purchases made from Mr. Shyam for Rs 22000 - payment made after 45
days
Purchase a/c Debit
Credit Shyam a/c
 c) Salaries to the extent of Rs 120000 not paid on 31st March 2022, (being
the end of the accounting year)
Salaries a/c Debit
Unpaid or Outstanding salaries a/c Credit
d) Insurance expenses prepaid to the extent of Rs 24000 as on 31st March
2021 (being the end of the accounting year)
Prepaid insurance expenses a/c Debit
Credit Insurance expenses
e) Capital is introduced into the business Rs 20 lakhs.
Cash or Bank a/c Debit
Credit X’s Capital a/c
f) Dividends proposed by Board of Directors of HUL Rs 1800 crores
No entry needs to be passed – there is only a need for disclosure in
the financial statements.

2. Classify the following into assets, liabilities, income, expenses and capital
(1 X 11 = 11 marks)

Item Classification

Trade payables Liabilities

Debentures Liabilities

Goodwill Assets

Interest received on Fixed Deposit Income

Interest paid on Bank Loan Expenses

Vehicles Assets

Bank overdraft Liabilities

Carriage inwards Expenses

Advertisement Expenses

Net profit earned by business Capital

Share capital Capital

3. Name the accounting concepts being referred to through each of the
statements below:-
(1 X 4 = 4 marks)
a. Accountants should be cautious about recognizing revenues Conservatism /
Prudence
b. Business is solvent enough to continue its operations in the near future Going
Concern
c. Receipt of cash is not important; what is important is legal right to receive
Accrual
d. For every debit, there is an equivalent amount of credit Dual Aspect

4. Calculate the profit after tax of a business with the following data: (3 marks)
● Sales $120mn
● Purchases $82mn
● Other expenses $20 mn
● Tax rate 30%
● Assume that all the goods purchased have been sold and that the business has
no opening and closing stock of goods.
● Provide the answer in $ mn (2 decimals) - $3.28 mn as the answer

Profit before tax = 120 – 82 – 20 = 18mn

Tax @ 30% = 5.4 mn
Profit after tax = $12.6 mn

5. A business takes a loan on 1st June 2020 from Axis Bank for Rs 350 lakhs. The loan
carries an interest rate of 11% p.a. If the accounting year of the business is 1st Apr
2020 to 31st Mar 2021, what would be the amount of interest expenses to be payable
by the business? Please provide the answer in Rs lakhs (Do not write the currency or
lakhs). 2 decimal places needed (3 marks)
Period of Loan – From 1 June 2020 till 31 Mar 2021 (10 months).
st st

This is the period for which interest would be payable.

Interest = 10/12*350*11% = Rs 32.08 lakhs

6. A business purchases goods for $120,000 and it sells 100% of these goods for
$180,000. What is the Gross Profit Margin of the business? What is the Markup of the
business? Provide answers in % (2 decimals). (3 marks)
Gross Profit = 180000 – 120000 = 60000
Gross Profit Margin = Gross Profit / Sales * 100 = 60000 /180000*100 =
33.33%
Markup = Gross Profit / Cost price * 100 = 60000/120000*100 = 50%

7. A business paid insurance premium for delivery van paid on 31 st July 2020 – amount
paid was Rs 21,000. The accounting year followed by the business was 1st Mar 2020 to
28th Feb 2021. Calculate the amount of insurance expenses to be shown in the Income
statement and the Prepaid expenses. (Answers to be rounded - no decimal places)
(3 marks)
Amount for the overlapping period will be treated as expense.
This will be for 7 months (from 1st Aug 2020 to 28th Feb 2021)
= 7/12*21000 = Rs 12,250
Prepaid expenses pertain to next accounting period (non overlapping
period). This is for 5 months (from 1st Mar 2021 to 31st July 2021)
Prepaid expenses (Asset as on 28th Feb 2021) = 5/12*21000 = Rs 8,750

8. Determine the profit made by a business, given the following details:

● Capital of the business as on 1st July 2020 $21 mn
● Capital of the business as on 30th June 2021 1st July 2020 $27 mn
● Capital introduced by the owner of business $ 2.3 mn
● Amount withdrawn by owner as drawings $1.8 mn

Write the answer with 2 decimals ($7.80 mn)

(3 marks)
Closing balance of capital = Opening balance + Capital introduced + Profit
– Drawings
27 = 21 + 2.3 + Profit - 1.8
Profit = 27-21-2.3+1.8 = 5.5 mn