Institute for Future Education, Entrepreneurship and Leadership (iFEEL), Karla, Lonavala

Subject: Financial Accounting Maximum Marks: 30

PGDM-2017-19 (Semester-1) Mid Term Exam Duration : 1 Hour 30 Minutes

Date: 17 Sep, 2017

Q.1 a) Explain in brief the Business Entity Concept in accounting (2 marks)

Business enterprise is considered as a separate legal entity. It is distinct from its owners. Results of the
operations (profit or loss) belong to business entity itself and cannot be ascribed to any single person (such as owner).

b) Determine the Account Types (Asset, Liability, Equity, Revenue or Expenses) for the following accounts. (2
marks)

i) Deferred Revenue Liability ii) Outstanding Expenses -- Liability iii) Interest Receivable -- Asset

iv) Buildings -- Asset

Q.2 The following accounts contain five transactions keyed together with letters. Write a short description of each
transaction with the related amount(s). (6 marks)

Dr Sales Cr
(a) 12,000
(d) 9,000

Dr Sales return Cr
(b) 600

Dr Discount Allowed Cr
(e) 90

Dr Debtors Cr
(a) 12,000 (b) 600
(d) 9,000 (c) 11,400
(e) 9000
Dr Cash Cr
( c) 11,400
( e) 8910

Answer: The transactions are as follows:

a) Sold merchandise on credit, Rs 12,000
b) Accepted merchandise returned by customer, Rs 600
c) Collected amount due on invoice, Rs 11400
d) Sold merchandise on credit, Rs 9000
e) Collected cash from the customer on account, Rs 8910, after allowing cash discount of Rs 90.
Q. 3

a) A company has bought machine worth Rs 5000 on April 1, 2015. The life of the machinery is 5 years. Consider
straight line method of depreciation.

(i) Write a depreciation journal entry for the year ending March 31, 2017. (1 mark)

Date Particulars Debit Credit

March 31,
2017 Depreciation Expenses 1000
To Accumulated Depreciation 1000

(ii) What will be the book value of the machinery as on March 31, 2017. (1 mark)

Cost of Machinery: Rs 5000

Less: Accumulated Depreciation (till March 31 2017): 2000

Book Value of the Machinery: Rs 3000

b) A company has Debtors worth Rs 5,000 as on March 31. They believe that 5% may not be received.

(i) Write a journal entry for the year ending March 31, 2017. (1 mark)

Date Particulars Debit Credit

March 31,
2017 Bad Debts Expense 250
To Provision for Bad Debts 250

(ii) Explain Bad Debts in brief. (1 mark)

Bad debts are accounts receivable that a company does not expect to collect.

Q. 4 AllClear Pvt Ltd company was formed on Aug 1, 2017. The company will be offering washing and dry cleaning
services. The following transactions occurred during Aug 2017.

Aug 1 - Mr Raj, the owner of the AllClear Pvt Ltd, infused capital of Rs 200,000 into the company

Aug 3 - Company bought an equipment of Rs 50,000 in cash for washing and dry cleaning services

Aug 4 - Paid an advance of Rs 10,000 to Nav Bharat Traders to supply washing powder and chemicals

Aug 10 - Received cash of Rs 5000 from Modern School for providing washing services for next two months

Aug 12 - Received powder and chemicals of Rs 8000 from Nav Bharat Traders

Aug 17 - Provided services to the local society and received cash of Rs 2000 for the services

Aug 30 - Billed Modern School for Rs 2500

Aug 31 - Paid wages of Rs 500 to the workers for month of August

You are required to
(a) Journalise the transactions
(b) Post to ledger accounts
(c) Prepare a trial balance as on Aug 31, 2017
(16 marks)

Journal Entries

Date Particulars Debit Credit

Aug 1 Cash 200000
To Capital 200000

Aug 3 Washing & Cleaning Equipment 50,000

To Cash 50000

Aug 4 Nav Bharat Traders (Advance to Supplier) 10000

To Cash 10000

Aug 10 Cash 5000

To Modern School (Advance from
Customers) 5000

Aug 12 Purchases (Powder & Chemicals) 8000

To Nav Bharat Tradres 8000

Aug 17 Cash 2000

To Washing & Cleaning Services
(Revenue) 2000

Aug 30 Modern School 2500

To Washing & Cleaning Services
(Revenue) 2500

Aug 31 Wage Expense 500

To Cash 500

T Accounts

Dr Cash Cr
Date Particulars Amount Date Particulars Amount
By Washing & Cleaning
Aug 1 Aug 3
To Capital 2,00,000 Equipment 50000
To Modern School (Advance from
Aug 10 Aug 4
Customers) 5000 By Nav Bharat Traders 10000
To Washing & Cleaning Services
Aug 17 Aug 31
(Revenue) 2000 By Wage Expense 500
Aug 31
By Balance b/d 1,46,500
2,07,000 2,07,000
To Balance c/d 1,46,500
Dr Capital Cr
Date Particulars Amount Date Particulars Amount
Aug 31 To Balance b/d 200000 Aug 1 By Cash 200000

200000 200000
By Balance c/d 200000

Dr Washing & Cleaning Equipment Cr

Date Particulars Amount Date Particulars Amount

Aug 3 To Cash 50,000 Aug 31 By Balance b/d 50,000

50,000 50,000
To Balance c/d 50,000

Dr Nav Bharat Traders (Advance to Supplier) Cr

Date Particulars Amount Date Particulars Amount
By Purchases (Powder &
Aug 4 To Cash 10000 Aug 12 Chemicals) 8000
Aug 31 By Balance b/d 2000
10000 10000
To Balance c/d 2000

Dr Modern School (Advance from Customer) Cr

Date Particulars Amount Date Particulars Amount
To Washing & Cleaning Services
Aug 30 (Revenue) 2500 Aug 10 By Cash 5000
Aug 31 To Balance b/d 2500
5000 5000
By Balance c/d 2500

Dr Purchases (Powder & Chemicals) Cr

Date Particulars Amount Date Particulars Amount

Aug 12 To Nav Bharat Tradres 8000 Aug 31 By Balance b/d 8000

8000 8000
To Balance c/d 8000

Dr Washing & Cleaning Services (Revenue) Cr

Date Particulars Amount Date Particulars Amount

Aug 31 To Balance b/d 4500 Aug 17 By Cash 2000

Aug 30 By Modern School 2500

4500 4500
By Balance c/d 4500
Dr Wage Expense Cr
Date Particulars Amount Date Particulars Amount

Aug 31 To Cash 500 Aug 31 By Balance b/d 500

500 500
To Balance c/d 500

Trial Balance for the period Aug 1 to Aug

31, 2017

Account Name Debit Credit

Cash 1,46,500
Capital 200000
Washing & Cleaning Equipment 50,000
Nav Bharat Traders (Advance to Supplier) 2,000
Modern School (Advance from Customer) 2500
Purchases (Powder & Chemicals) 8,000
Washing & Cleaning Services (Revenue) 4500
Wage Expense 500
2,07,000 2,07,000