111-0104 ''

Question Paper
Financial Accounting (111) - January 2004

Section A : Basic Concepts (40 Marks)
• • This section consists of questions with serial number 1 - 40.
• • Answer all questions.
• • Each question carries one mark.
< Answer
1. Which of the following statements is true? >
a. Going concern concept assumes that business will be carried on for a definite period
b. Time period concept facilitates the comparison of the results of one accounting period of a
business with that in the past
c. The capital losses need not be deducted to ascertain net income
d. Provision for bad and doubtful debts is created in recognition of conservatism concept
e. Materiality concept states that all business transactions are to be recorded however insignificant
they may be.
< Answer
2. Which of the following is not an asset? >
a. Stock of stationery b. Goodwill
c. Profit and loss account (credit balance) d. Accounts Receivable
e. Cash at bank.
< Answer
3. The accountant of Leo Ltd. recorded a payment by cheque to a creditor for supply of materials as >
Rs.1,340.56. The bank recorded the cheque at its correct amount of Rs.3,140.56. The company has not
passed any rectification entries and the error is not detected through the bank reconciliation. The impact
of this error is
a. The trial balance will not agree
b. The balance of creditors is understated
c. The purchases are understated
d. The favorable bank balance as per pass book is less than the bank balance as per cash book
e. Both (b) and (c) above.
< Answer
4. Which of the following accounts appear(s) in the Balance Sheet of a business? >
I. Stock at the end of the financial year
II. Stock at the beginning of the financial year
III. Drawings
IV. Prepaid Rent
V. Interest received but not yet earned.
a. Only (I) above b. Only (III) above
c. Both (I) and (III) above d. (I), (III), (IV) and (V) above
e. All (I), (II), (III), (IV) and (V) above.
< Answer
5. Computers taken on hire by a business for a period of twelve months should be classified as >
a. Fixed assets b. Current assets
c. Intangible assets d. Deferred revenue expenditure
e. Not an asset.
< Answer
6. The process of balancing of an account involves equalization of both sides of the account. If the debit >
side of an account exceeds the credit side, the difference is put on the credit side. The said balance is
I. A debit balance II. A credit balance
III. An expenditure or an asset IV. An income or a liability.
a. Only (II) above b. Only (IV) above

c. Both (I) and (III) above d. Both (II) and (III) above
e. Both (II) and (IV) above.
< Answer
7. Which of the following statements is false? >
a. Wages paid on installation of machinery should be credited to cash account
b. A sale of computer that has been used in the business should be debited to cash account
c. Error of posting of a correctly recorded transaction affects one or more accounts
d. Repairs of a machinery purchased second hand should be debited to machinery account
e. Withdrawal of goods by the proprietor of the business should be credited to capital account.
< Answer
8. Which of the following transactions of a business is/are recorded in journal proper? >
I. Purchase of goods on credit
II. Sale of office furniture for cash
III. Discounting of bill of exchange with a bank
IV. Endorsement of a bill of exchange in settlement of debt of the business.
a. Only (I) above b. Only (IV) above
c. Both (II) and (IV) above d. (I), (III) and (IV) above
e. All (I), (II) (III) and (IV) above.
< Answer
9. The portion of the acquisition cost of the asset yet to be allocated is known as >
a. Written down value b. Accumulated value c. Realisable value
d. Salvage value e. Residual value.
< Answer
10. Which of the following statements is true with regard to written down value method of depreciation? >
I. The rate at which the asset is written off reduces year after year
II. The amount of depreciation provided reduces from year to year
III. The rate of depreciation as well as the amount of depreciation reduce year after year
IV. The value of the asset gets reduced to zero over a period of time.
a. Only (I) above b. Only (II) above
c. Both (I) and (II) above d. (I), (II) and (III) above
e. (II), (III) and (IV) above.
< Answer
11. Which of the following errors affects the agreement of a trial balance? >
a. Mistake in balancing an account
b. Omitting to record a transaction entirely in the subsidiary books
c. Recording of a wrong entry in the subsidiary books
d. Recording a correct entry in wrong subsidiary book
e. Posting an entry on the correct side but in the wrong account.
< Answer
12. Which of the following statements is/are true? >
I. An error in casting the subsidiary books is an error of commission
II. An error in wrong casting of the sales day book will not affect the personal accounts of debtors
III. Mistake in transferring the balance of an account to the trial balance will not affect the agreement
of the trial balance
IV. The mistake of treating a liability as an income or vice versa will not affect the agreement of a trial
balance.

c. Both (I) and (II) above d. Both (I) and (III) above
e. (I), (II) and (IV) above.
< Answer
13. The expenses and incomes pertaining to full trading period are taken to the Profit and Loss account of a >
business, irrespective of their payment or receipt. This is in recognition of
a. Time period concept b. Business entity concept
c. Going concern concept d. Accrual concept
e. Duality concept.
< Answer
14. Which of the following is an example of capital expenditure? >
a. Insurance premium b. Taxes and legal expenses
c. Depreciation on machinery d. Discount allowed
e. Customs duty on import of machinery.
< Answer
15. Which of the following items is/are covered under Accounting Standard-2 with regard to accounting for >
inventory?
I. Financial instruments held as stock-in-trade
II. Work in progress arising under construction contracts
III. Work in progress of service providers
IV. Work in progress of a manufacturing industry.
a. Only (I) above b. Only (IV) above

c. Both (I) and (II) above d. Both (III) and (IV) above
e. (II), (III) and (IV) above.
< Answer
16. Which of the following statements is/are true? >
I. Drawings account is a nominal account
II. Capital account is a real account
III. Sales account is a nominal account
IV. Outstanding salaries account is a nominal account
V. Patents account is a personal account.
a. Only (I) above b. Only (III) above
c. Both (II) and (IV) above d. Both (II), (IV) and (V) above
e. (I), (II), (III) and (IV) above.
< Answer
17. The entry to record the collection of cash from sundry debtors would involve a >
I. Debit to sundry debtors II. Debit to cash account
III. Credit to sundry debtors IV. Credit to cash account.

c. Only (III) above d. Both (II) and (III) above
e. Both (I) and (IV) above.
< Answer
a. Bank charges increase debit balance shown as per bank column of the cash book
b. Bank charges increase debit balance as per bank pass book
c. A cash sale of a non-trading asset is recorded in the journal proper
d. Cash discount allowed by the business will appear on the debit side of the debtor’s account
e. Bank reconciliation statement is prepared by a bank.
< Answer
19. In the books of the drawer, the accounting treatment involved on receipt of a bill of exchange duly >
accepted by the drawee is
I. Debit Bills Receivable account II. Debit drawee’s account
III. Credit drawee’s account IV. Credit Sales account.
a. Only (I) above b. Both (II) and (IV) above

c. Both (I) and (III) above d. Both (I) and (IV) above
e. (I), (III), and (IV) above.
< Answer
20. The noting charges levied on dishonour of an endorsed bill by the Notary Public are to be borne by >
a. The drawer of the billb. The person responsible for dishonour
c. The holder of the bill d. The endorser of the bill
e. The endorsee of the bill.
< Answer
21. XYZ Ltd. has a branch at Bangalore. The branch sells goods only for cash and the Head Office >
maintains the accounts of the branch in its books. At the beginning of the year, the company debits its
Banagalore Branch Account with which of the following accounts?
I. Goods sent to branch II. Opening balance of cash at the
branch
III. Opening assets of the branch IV. Opening stock at the branch
V. Opening debtors of the branch.
a. Only (I) above b. Both (II) and (III) above
c. Both (II) and (IV) above d. (II), (III) and (IV) above
< Answer
22. ABC Ltd. makes payments to its sundry creditors through cheques and the cash discount received on >
these payments is recorded in the triple columnar cash book. In the event of dishonour of any such
cheques, the discount so received should be written back through
I. A debit to discount column of the cash book
II. A credit to discount column of the cash book
III. A credit to bank column of the cash book
IV. A debit to discount account through journal proper
V. A credit to creditor’s account through journal proper.
c. Only (IV) above d. Both (I) and (III) above
e. Both (IV) and (V) above.
< Answer
23. RS Ltd. makes purchases on credit. If the purchases are not as per the specifications, the company >
returns them to the suppliers. The book, that is used to record such returns is
a. Returns inward book b. Returns outward book
c. Cash book d. Journal proper
e. Purchases day book.
< Answer
24. The drawer of a trade bill passes relevant entries with regard to the transaction involved in it. But, in >
case of an accommodation bill, he passes an entry in addition to the usual entries. The additional entry
so passed is with respect to
a. Discounting of the bill with the bank b. Payment of the bill on due date
c. Remitting or receiving the amount d. Sending the bill to bank for collection
e. Both (b) and (d) above.
< Answer
25. Which of the following assets is/are to be valued at the lower of cost and net realizable value? >
a. Goodwill b. Inventories
c. Investments d. Sundry debtors e. Both (b) and (c) above.
< Answer
26. Under which of the following situations, is journal entry not passed in the books of the drawer? >
a. When a discounted bill is honoured by the drawee on the due date
b. When a bill is sent to the bank for collection
c. When a bill is renewed at the request of the drawee
d. When a debtor accepts a bill drawn by the drawer
e. When an accommodation bill is discounted with a bank.
< Answer
27. The balances of which of the following accounts do not disappear, once they are debited/credited to >
Trading Account.
a. Sales b. Purchases c. Inward returns
d. Closing stock e. Outward returns.
< Answer
28. Which of the following events is/are not recorded in the books of a business? >
a. Significant monetary events after the balance sheet date
b. Death of a chief executive of the business
c. Government investigations into the pricing policies of the business
d. Both (b) and (c) above
e. (a), (b) and (c) above.
< Answer
29. If office equipment is purchased for cash, what effect will this transaction have on the financial position >
of the company?
a. There is no change in the assets, liabilities and owners’ equity
b. There is a decrease in assets, increase in liabilities and no change in owners' equity
c. There is a decrease in assets, no change in liabilities and a decrease in owners' equity
d. There is an increase in assets, decrease in liabilities and no change in owners’ equity
e. There is an increase in assets, no change in liabilities and an increase in owners’ equity.
< Answer
30. The accounting process of gradually converting the unexpired cost of fixed assets into expenses over a >
series of accounting periods is
a. Depreciation b. Physical deterioration of the asset
c. Decrease in market value of the asset d. Valuation of an asset at a point of time
e. All of the above.
< Answer
31. The periodical total of discount column on receipts side of a triple column cash book is recorded to the >
a. Credit side of discount account b. Credit side of provision for discount account
c. Debit side of discount account d. Credit side of debtor’s account
e. Credit side of creditor’s account.
< Answer
32. Which of the following statements is false? >
a. Credit side total of discount column of cash book is an income
b. Credit balance of bank pass book is an overdraft
c. Debit balance of bank column of cash book is an asset
d. Debit balance of cash column of cash book is an asset
e. Credit balance of bank column of cash book is a liability.
< Answer
33. Under trading method of branch accounting, the branch account shows >
a. The profit made by the branch
b. The opening and closing balances of assets at the branch
c. The opening and closing balances of liabilities at the branch
d. Both (b) and (c) above
e. (a), (b) and (c) above.
< Answer
34. Which of the following statements is false with regard to short workings? >
a. The short workings in a particular year may be adjusted against the surplus royalty as per the terms
of agreement
b. The short workings are recouped to the debit of landlord’s account
c. The short workings are the losses of the lessee in the year of occurrence
d. The recoverable short workings are shown as an asset in the books of the lessee
e. The question of short workings does not arise, if the royalty agreement does not contain a clause
for minimum rent.
< Answer
35. If goods are returned by a customer to branch, the entry to be passed in the books of head office is >
a. Debit Branch Stock a/c., Credit Returns Inward a/c.
b. Debit Branch Stock a/c., Credit Branch Debtors a/c.
c. Debit Branch Debtors a/c., Credit Returns Inward a/c.
d. Debit Branch Debtors a/c., Credit Branch Stock a/c.
e. Debit Returns Inward a/c., Credit Branch Stock a/c.
< Answer
36. In case of manufacturing concerns, the balance in ‘goods sent to branch’ account will be transferred to >
a. Purchases account b. Sales account c. Trading account
d. Branch account e. Branch stock account.
37. Which of the following methods is not a practical way of realizing revenue? < Answer
>
a. Delivery method b. Percentage-of-completion method
c. Production method d. Installment method
e. Moving average method.
< Answer
38. Under the direct write-off method of recognizing a bad debt expense, which of the following statements >
is/are true?
a. The bad debt expense is not matched with the related sales
b. Accounts receivables are overstated in the year of sales
c. Revenue is overstated in the year of sales
d. It violates the matching principle of accounting
e. All of the above.
< Answer
I. Recoupable shortworkings is a current asset
II. Lapsed shortworkings is a nominal account
III. Shortworkings is the part of minimum rent not represented by the use of rights
IV. Shortworkings is the amount by which the minimum rent exceeds the actual royalty
V. The occurrence of shortworkings in any period indicates that the lessee is liable to pay the
minimum rent.
a. Both (I) and (II) above b. Both (II) and (III) above
c. (I), (II) and (IV) above d. (II), (IV) and (V) above
40. The inventory method where the cost per unit is recomputed after every addition in the inventory is < Answer
>
known as
a. Simple average method b. Specific identification method
c. Moving average method d. Last-in-First-out method
e. First-in-First-out method.
END OF SECTION A
Section B : Problems (60 Marks)

• • This section consists of questions with serial number 41 - 74.
• • Answer all questions.
• • Marks are indicated against each question.
< Answer >
41. Consider the following information pertaining to Vikram Company for the year 2002-2003:
Opening balance of provision for bad and doubtful debts account Rs. 20,000
Bad debts during the year Rs. 18,000
Closing balance of sundry debtors Rs.2,65,000 If the
company has the practice of maintaining provision at the rate of 4 % on sundry debtors, the amount to
be debited to profit and loss account for the period ended March 31,2003, is
a. Rs. 8,600 b. Rs.10,400 c. Rs.10,520 d. Rs.10,600 e. Rs.10,680.
(1 mark)
42. At the beginning of the current year, the owner’s equity of a firm is Rs.1,80,000. During the year, the < Answer >
assets and liabilities of the firm have increased by Rs.1,80,000 and Rs.2,20,000 respectively. Owner’s
equity at the end of the year will be
a. Rs.3,60,000 b. Rs.4,00,000 c. Rs.2,20,000 d. Rs.1,40,000 e. Rs.1,80,000.
(1 mark)
< Answer >
43. While preparing the final accounts of the company, the accountant of Pioneer Company located the
following errors:
• • The Returns Inward book was undercast by Rs.1,377.

• • A purchase of Rs.1,252 was posted to the debit of the supplier’s account as Rs.125.
• • Wages of Rs.500 paid for installation of a new machine was debited to wages account.
• • Sales returns of Rs.877 were taken into stock but no entry in respect of the transaction was
passed in the books.
The difference in Trial Balance of the company on account of the above errors is
a. Rs. Nil b. Rs. 877 c. Rs.1,377 d. Rs.3,631 e. Rs.4,131.
(2 marks)
< Answer >
44. Consider the following data pertaining to Dileep Company for the period 2002-2003:
Particulars Rs.
Opening inventory 5,00,000
Purchases during the year 25,00,000
Sales during the year 32,00,000
A physical inventory taken on March 31,
2003 showed an ending inventory of Rs.5,75,000. Company’s gross profit on sales was constant at 25%
through out the year. The management of the company suspects pilferage of inventory. The estimated
cost of missing inventory on the last day of the financial year was
a. Rs.2,25,000 b. Rs.2,00,000 c. Rs.1,75,000 d. Rs.1,00,000 e. Rs. 25,000.
(1 mark)
< Answer >
45. Mitra Company of Hyderabad, opened a branch at Dehradun on April 01, 2002. During the period April
01, 2002 to December 31, 2003, the Head Office invoiced goods at selling price to the Branch which
was 120% of the cost price of the Head Office. The company has furnished the following information
pertaining to the transactions of its Dehradun branch.
Particulars Rs. Rs.

Goods sent to branch (at cost to Head Office) 8,00,000
Amount paid to branch for:
Salaries Rs.68,000
Rent Rs.15,000
Other expenses Rs. 7,000 90,000
Sales– Cash 2,50,000
Credit 6,50,000
Returns from debtors 15,000
Cash collected from debtors 4,90,000
Discount allowed to debtors 22,000
Spoiled goods written off at invoice price 4,800
Stock as on December 31, 2003 at invoice price 60,000
The Head Office maintains necessary accounts under stock and debtors system in its books to arrive at
the profit or loss made by the branch. The profit made by the branch for the period ended December 31,
2003 is
a. Rs. 6,533 b. Rs.23,000 c. Rs.45,000 d. Rs.55,200 e. Rs.28,533.
(3 marks)
< Answer >
46. Ruthven Limited has two accounts with Everest Bank Ltd. The accounts were numbered as I and II. On
December 31, 2003, as per the bank column of cash book of the company, the balances in both the
accounts were as under:
Account No. I. (Debit) Rs. 1,28,250 and Account No. II. (Credit) Rs.1,11,250.
The above balances were not agreeing with the balances shown by the bank. On scrutiny, the following
discrepancies were noticed:
i. Outstation cheques for Rs1,32,000 and Rs.1,17,500 deposited in Account No. I and II respectively
in the bank on December 22, 2003 were not collected by the bank as on December 31, 2003.
ii. Bank charges amounting to Rs.150 and Rs.1,125, respectively for Account No. I and II and Bank interest
amounting to Rs. 11,375 on Account No. II were not recorded in the cash book.
iii. Cheques amounting to Rs.1,50,000 and Rs.15,000 issued respectively from Account No. I and II
were not presented for payment as on December 31, 2003.
iv. Interest on investments of Rs.5,200 collected and credited in Account No. I by the banker appeared
only in the bank statement.
v. A deposit of Rs.17,500 in Account No. I was wrongly entered in Account No. II in the cash book.
The bank balance as per pass book in Account No. II as on December 31, 2003 was
a. Rs.2,29,000(debit) b. Rs.2,61,250(credit) c. Rs.2,31,250(debit) d. Rs.2,43,750(debit)
e. Rs.2,43,750(credit).
(3 marks)
< Answer >
47. On April 01, 2002, Sneha Limited showed a balance of Rs.5,600 to the credit of Provision for bad and
doubtful debts. On March 31, 2003 the Sundry Debtors showed a balance of Rs.2,50,400. Out of the
total debtors, the status of the following debtors is as follows:
Sinha Rs.3,800 - identified as bad debt and is to be written off
Gupta Rs.9,000 - expected to realize only 80%
Patel Rs.8,000 - expected to realize only 60%
Iyer Rs.5,500 - filed insolvency petition and the recovery chances are remote.
All other debts as on the date of finalisation of accounts are estimated to be good. The company
maintains a suitable provision for doubtful debts. The amount debited to the profit and loss account in
respect of provision for bad and doubtful debts for the year ended March 31, 2003 was
a. Rs.14,300 b. Rs. 8,700 c. Rs.15,700 d. Rs.10,500 e. Rs. 4,900.
(2 marks)
< Answer >
48. On December 31, 2003, the debit balance as per bank statement of Rainbow Ltd. is Rs.12,500. On
December 20, 2003, the company deposited two cheques aggregating to Rs.8,500, out of which, one
cheque for Rs.2,800 was dishonoured on December 25, 2003 which was entered in the cash book on
January 02, 2004. The bank balance as per cash book of the company as on December 31, 2003 is
a. Rs. 4,000 (credit) b. Rs.15,300(debit)
c. Rs.12,500(credit) d. Rs. 9,700(debit) e. Rs. 9,700(credit).
(1 mark)
< Answer >
49. Consider the following information pertaining to Blue Sky Ltd. for the year 2002-2003:
Particulars 1st April 2002 31st March 2003
Inventory Rs. 52,200 Rs. 65,800
Sundry debtors Rs. 37,000 Rs. 60,000
Sundry creditors Rs. 50,000 Rs. 48,000 Total
credit sales made during the year was Rs.6,75,000. The amount of discount allowed to the sundry
debtors during the period was Rs.2,800. The cost of goods sold of the company was 80% of the sales.
Cash collected from the sundry debtors during the year was
a. Rs. 7,22,000 b. Rs. 6,95,200 c. Rs. 6,75,000 d. Rs. 6,49,200 e. Rs. 5,14,200.
(1 mark)
< Answer >
50. The closing stock of Aravali Ltd. for the year ended March 31, 2002 was undervalued by Rs.1,120,
while for the year ended March 31, 2003 it is overvalued by Rs.1,120. The gross profit of the company
for the year ended March 31, 2003 is Rs.2,23,240. On rectification of these errors, the gross profit of the
company will be
(1 mark)
< Answer >
51. On April 01, 1999 Mr. Mahendra took on lease a coal mine on the following terms:
Minimum rent per annum Rs.50,000
Royalty 10% of sales
Shortworkings of any year can be recouped in the next two years.
Mr. Mahendra sells coal at the rate of Rs.50 per ton
The production and closing inventory details are as under:
Year Production in tonnes Closing stock in tonnes

1999-2000 2,700 700
2000-2001 5,800 500
2001-2002 8,300 800
2002-2003 11,000 1,800 The amount of
shortworkings shown on the assets side of Balance Sheet of the company as at March 31, 2003 was
a. Rs.40,000 b. Rs.70,000 c. Rs.10,000 d. Rs.30,000 e. Rs.66,000.
(2 marks)
< Answer >
52. Sanyo Ltd. transfers goods to its branch at cost plus 25%. It maintains the branch accounts under Stock
and debtors system. The following are the details pertaining to its Kanpur Branch for the year 2002-
2003:
Particulars Rs.
Opening stock at branch 12,000
Goods sent to branch 58,000
Cash sent to branch for
Rent 3,300
Salaries 1,500
Other expenses 1,200
Cash sales 22,500
Credit sales 42,500
Closing stock at branch 5,000 The amount transferred to general profit & loss
account for the year ended March 31, 2003 was
a. Rs.13,000 b. Rs. 7,000 c. Rs 8,000 d. Rs. 9,500 e. Rs.15,000.
(2 marks)
Questions 53 and 54 are based on the following data:
The following is the trial balance of Mythili Ltd. as on March 31, 2003:
Debit
Particulars Particulars Credit (Rs.)
(Rs.)
Equity share capital
Land & building 3,65,000 5,00,000
(Face value Rs.10 each)
Plant & machinery 6,72,000 Sundry creditors 1,50,000
Furniture & fixtures 2,85,000 Sales 16,15,000
Sundry debtors 1,80,000 Purchases returns 49,000
Bank overdraft
Purchases 6,72,000 3,00,000
(Rate of Interest-13% per annum)
Sales returns 22,000 Discount received 21,000
Opening stock
48,000 Reserves & Surplus 3,12,000
(as on April 01, 2002)
Bad debts 19,000 12% Debentures 2,80,000
Salaries and wages 5,10,000
Interest on bank overdraft 30,000
Advertisement 1,20,000
Annual fire insurance premium
18,000
(with effect from May 01, 2002)
Investments (8% p.a.) 2,00,000
Discount allowed 12,000
General expenses 54,000
Cash at bank 20,000
Total 32,27,000 Total 32,27,000
The company
has furnished the following additional information:
 Closing stock as on March 31, 2003 was Rs.50,000.
 Depreciation is to be provided on plant & machinery at the rate of 20% per annum and on furniture and
fixtures at the rate of 12% per annum.
 Stock worth Rs.6,000 was destroyed by fire on March 11, 2003 and the insurance company admitted a
claim of Rs.5,000.
 A provision for discount on debtors is to be made at the rate of 5% on sundry debtors.
Goods worth Rs,5,000 are distributed as samples.
< Answer >
53. Considering the above trial balance and the additional information, the net profit of the company for the
year ended March 31, 2003 was
(3 marks)
< Answer >
54. The total of Balance Sheet of Mythili Ltd.as on March 31, 2003 was
(3 marks)
< Answer >
55. Pioneer Company, a dealer in cosmetics, records its inventory under first-in-first-out method, so as to
minimize accumulation of outdated stock. The opening stock as on December 01, 2003 is 150 units at
the rate of Rs.20 per unit. The purchases and sales made during the month are:
Purchases:
Date No. of units Cost price per unit
04-12-2003 200 Rs.25
14-12-2003 100 Rs.22
21-12-2003 300 Rs.30
26-12-2003 150 Rs.40 Sales:
Date No. of units
03-12-2003 100
10-12-2003 150
15-12-2003 100
25-12-2003 200
28-12-2003 200 With effect from December 01, 2003, the
company decided to change the method of inventory valuation from the FIFO method to LIFO method.
The change in the value of inventory consequent upon the change in the method of valuation is
a. Increase in the value of closing stock by Rs.1,500
b. Decrease in the value of closing stock by Rs.1,500
c. Increase in the value of closing stock by Rs.3,000
d. Decrease in the value of closing stock by Rs.500
e. Decrease in the value of closing stock by Rs.3,000.
(2 marks)
< Answer >
56. Aryan Ltd. purchased furniture for Rs.60,000 two years ago. The current book value of the furniture is
Rs.43,350. If the company charges depreciation on furniture under written down value method, the rate
of depreciation charged was
a. 35% b. 30% c. 25% d. 20% e. 15%.
(1 mark)
< Answer >
57. Mr. Abhinav owes Rs.12,500 to Mr. Abhijith and accepted a bill for 3 months drawn by Mr. Abhijith.
Subsequently, after one month Mr. Abhijith discounted the bill with a bank at a rate of 24% p.a. On the
due date, the bill was dishonored and this fact was noted by the notary public at a cost of 2.5% of bill
amount. The journal entry to record the payment of noting charges and the dishonor of the bill in the
books of Abhijith is
a. Mr. Abhinav’s a/c. Dr. Rs.12,500.00
To Bills receivable Rs.12,500.00
b. Mr. Abhinav’s a/c. Dr. Rs.12,500.00
To Bank a/c. Rs.12,500.00
c. Mr. Abhinav’s a/c. Dr. Rs.12,812.50
d. Mr. Abhinav’s a/c. Dr. Rs.12,812.50
To Bills receivable Rs.12,812.50
e. Mr. Abhinav’s a/c. Dr. Rs. 13,125.00
To Noting charges a/c. Rs. 312.50.
(1 mark)
< Answer >
58. Consider the following data pertaining to Windsor Ltd. for the month of December 2003:
As on December 01, 2003 As on December 31, 2003
Particulars
(Rs.) (Rs.)
Stock 1,80,000 90,000
Sundry creditors 80,000 60,000 The company
makes all purchases on credit. During the month of December 2003, the company paid a sum of
Rs.3,50,000 to the suppliers. The goods are sold at 25% above the cost. The sales for the month of
December 2003 were
a. Rs.4,12,500 b. Rs.5,25,000 c. Rs. 90,000 d. Rs.3,15,000 e. Rs.3,30,000.
(2 marks)
< Answer >
59. During the year 2002-2003, Deepak Ltd. paid Rs.1,20,000 as rent. If the outstanding rent as on March
31, 2002 and March 31, 2003 was Rs.24,000 and Rs.36,000 respectively, the amount of rent charged to
profit & loss account for the year ended March 31, 2003 was
(1 mark)
Questions 60 and 61 are based on the following information:
Fair Pal Company with its head office at Chennai has a branch at Pondichery. Goods are invoiced to the branch at cost
plus 33 1/3% which is the selling price. The following information is the summary of transactions of the branch during
the year 2002-2003:.
Particulars Rs.
Goods sent to branch (at invoice price) 9,60,000
Stock at branch (at invoice price) as on April 01, 2002 48,000
Cash sales 3,60,000
Returns from customers 12,000
Branch expenses paid in cash 1,07,000
Branch debtors balance as on April 01, 2002 60,000
Bad debts 3,000
Stock at branch (at invoice price) as on March 31, 2003 96,000
Branch debtors balance as on March 31, 2003 73,000
Collection from debtors 5,40,000
Branch debtors’ cheques dishonoured 10,000
< Answer >
60. The cost of stock lost in transit was
a. Rs.3,000 b. Rs.4,000 c. Rs.2,667 d. Rs.1,333 e. Rs.Nil.
(1 mark)
< Answer >
61. The amount of credit sales made by the branch during the year 2002-03 was
(2 marks)
< Answer >
62. Sukanya Ltd. purchased a machinery on April 01, 1998 for Rs.1,50,000. It was estimated that the
machinery will have a useful life of 5 years after which it will have no salvage value. If the company
follows sum-of-the-years’-digits method of depreciation, the amount of depreciation charged during the
year 2002-2003 was
(1 mark)
< Answer >
63. In the month of April 2003, the accountant of Aditya & Co. found the following errors in the books of
accounts for the year 2002-2003, in spite of the agreed balance sheet:
• • Goods worth Rs.20,050 sold to Mr. Dutta was entered in the sales day book as Rs.20,500
and it was debited to Mr. Dutta’s account as Rs.25,000
• • Goods worth Rs.16,000 were purchased from M/s.Philip & Company on March 30, 2003.
The invoice was not passed through the purchases day book
• • Goods to the value of Rs.2,750 returned by Mr. Rajkumar, was debited to his account and
also to sales returns account
• • The purchases day book for the month of March 2003 was undercast by Rs.10,000
• • Bank interest on overdraft for the month of March 2003, amounting to Rs.3,750 was not
recorded in the books of accounts.
• • A credit sale of goods worth Rs.20,000 on March 29, 2003, was completely omitted to be
recorded in the sales day book.
The effect of rectification of the above transactions on the profit for the year 2002-2003 will be
a. Profit will increase by Rs.10,200 b. Profit will decrease by Rs.30,450
c. Profit will decrease by Rs.3,750 d. Profit will increase by Rs.36,450
e. Profit will decrease by Rs.10,200.
(3 marks)
< Answer >
64. Navneeth, a sole proprietor, maintains a three columnar cash book to record his business transactions.
Consider the following data pertaining to his business for the month of December, 2003:
Particulars Rs.
Opening cash on hand 25,000
Balance at bank 3,50,000
Cheque received from a customer (after allowing a discount of Rs.2,500) 50,000
Paid the supplier by cheque (discount allowed by the supplier: Rs.10,000) 1,00,000
Salaries paid to staff in cash 20,000
Received a cheque from Daulat Ram, a customer (who owed Rs.16,500 and was 14,850
allowed a discount of 10%)
Paid M/s. Bharani and Co. in full settlement of their dues of Rs. 28,500 26,250
Received from Rama & Bros. (as against 38,900) in full and final settlement 36,200
The total amount of discount recorded on the debit side of the three columnar cash book for the month
of December 2003 is
a. Rs. 5,200 b. Rs. 4,150 c. Rs. 6,850 d. Rs. 12,250 e. Rs. 13,900.
(2 marks)
< Answer >
65. On April 01, 2002, the debit balance of the machinery account of Bright Light Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2000.The company charged depreciation at the rate of 10% per
annum under diminishing balance method. On October 01, 2002, the company acquired a new machine
at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine.
The company decided to change the system of providing depreciation from the diminishing balance
method to the straight-line method with retrospective effect from April 01, 2000. The rate of
depreciation will remain the same. The company decided to make necessary adjustments in respect of
depreciation due to the change in the method in the year 2002-2003.
The balance outstanding to the debit of machinery account as at March 31, 2003 after effecting the
above changes was

(2 marks)
< Answer >
66. Bhaya Ltd. granted a lease to Bharani Ltd., a mining company for extracting minerals from its property
for a period of 12 years from April 01, 1999. The terms of agreement are:
• • Royalty - at the rate of Rs.25 per ton of output

• • Minimum rent - Rs.6,00,000 per annum.
It was further agreed that the shortfall in any year may be recouped from any excess of royalty over the
minimum rent in the next 2 years subject to a maximum of Rs.50,000 per annum.
The following is the data pertaining to output of the Bharani Ltd., for the past four years:
Year Output (tonnes)
1999-2000 18,000
2000-2001 20,000
2001-2002 25,000
2002-2003 32,000 The amount of shortworkings lapsed during the year
2002-2003 was
a. Rs. 25,000 b. Rs.1,75,000 c. Rs. 50,000 d. Rs.Nil e. Rs.1,00,000.
(2 marks)
< Answer >
67. For mutual accommodation of Mr. Sarath and Mr. Verma, Mr. Sarath had drawn a bill of Rs.24,000 for 2
months on October 01, 2003. On the same day Mr. Verma accepted the bill and sent to Mr. Sarath. On
October 04, 2003, Mr. Sarath discounted the bill with Bank of Hyderabad Ltd. at the rate of 12% per
annum and remitted one third proceeds to Mr. Verma. On the due date Mr. Sarath was unable to remit
his share. On the same day he accepted a bill of Rs.18,000 for 2 months drawn by Mr. Verma.
Mr. Verma discounted the bill at the rate of 12% per annum with Syndicate Bank.
Mr. Verma honored his acceptance and sent Rs.1,000 to Mr. Sarath. On January 01, 2004,
Mr. Sarath became insolvent. A dividend of 40 paise in a rupee was realized from his estate on January
20, 2004.
In the books of Mr.verma, the entry to record the recovery of 40 paise from the estate of Sarath is
a. Bank account Dr. Rs. 6,938
Bad debts account Dr. Rs.10,409
To Sarath’s account Rs.17,347
b. Bank account Dr. Rs. 7,200
To Bills Receivable account Rs.18,000
c. Bank account Dr. Rs. 7,200
d. Bad debts account Dr. Rs. 7,200
Bank account Dr. Rs.10,800
e. Bad debts account Dr. Rs. 6,938
Bank account Dr. Rs.10,409
To Bills Receivable account Rs.17,347.
(3 marks)
< Answer >
68. For mutual accommodation of Monty and Ronty, Monty accepted a bill drawn on him by Ronty for 2
months for Rs.4,500 on November 01, 2003. Ronty discounted the bill on the same day with his bank
for Rs.4,410 and remitted 1/3rd of the proceeds to Monty. Ronty did not send his share to Monty in order
to enable him to meet the bill. Monty also did not honour the bill on the due date. Noting charges at the
rate of 3% of the bill amount was paid by the bank. The amount of noting charges borne by the drawer
was
a. Rs.135.00 b. Rs. 90.00 c. Rs. 45.00 d. Rs. 88.20 e. Rs.132.30.
(1 mark)
< Answer >
69. Anand drew a bill for Rs.12,000 on Arvind who accepted the same for mutual accommodation in the ratio
of 2:1. Anand discounted the bill for Rs.11,100 and remitted one third proceeds to Arvind. Before the
due date, Arvind drew another bill for Rs.18,000 on Anand in order to provide funds to meet the first
bill. The second bill was discounted for Rs.17,400 by Arvind and a sum of Rs.3,600 was remitted to
Anand for meeting the first bill. The second bill was honored by Anand. The share of discount that was
borne by Anand on the second bill was
a. Rs. 400 b. Rs. 600 c. Rs. 300 d. Rs. 900 e. Rs.1,200.
(1 mark)
< Answer >
70. The following balances are extracted from the books of accounts of Silver Line Ltd. as on March 31,
2003.
Particulars Rs. Particulars Rs.
Share capital account 2,68,800 Manufacturing wages 81,940
Preliminary expenses 21,100 Sales 7,10,800
Sundry creditors 1,10,060 Returns inward 5,560
15% Term- Loan 40,000 Salaries 2,79,840
Closing inventory as on March Returns outward 2,060
31, 2003 2,05,200
Cash at bank 44,000 Discount allowed 8,200
Sundry debtors 1,43,000 Office administrative expenses 21,740
Bills Payable 1,55,500 Prepaid insurance 1,200
Provision for doubtful debts 2,000 Insurance 800
Fittings and Fixtures 75,540 Bad debts 7,240
Discount received 9,200 Commission received 11,280
Opening inventory as on April 01, Outstanding salaries 3,000
2002 1,09,360
Purchases 3,07,980
The total of Trial Balance of the company as on March 31, 2003 was
(2 marks)
< Answer >
71. The sundry debtors of M/s.Neelam & Co. includes a balance of Rs.80,000 to the debit of Mahajan
Traders in respect of which it has been negotiated and settled to receive from the party after allowing a
discount of 2.5%. The settled amount was received by a cheque. The transaction will be recorded in the
books of Neelam & Co. as
a. Bank a/c. Dr. Rs.80,000
To Mahajan Traders a/c. Rs.80,000
b. Bank a/c. Dr. Rs.80,000
To Mahajan Traders a/c. Rs.78,000
To Discount a/c. Rs. 2,000
c. Mahajan Traders a/c. Dr. Rs.78,000
To Bank a/c. Rs.78,000
d. Bank a/c Dr. Rs.78,000
Discount a/c. Dr. Rs. 2,000
To Mahajan Traders a/c Rs.80,000
e. Bank a/c. Dr. Rs.78,000
To Mahajan Traders a/c. Rs.78,000.
(1 mark)
< Answer >
72. Mr. Madhav sold goods to Mr. Rajan for Rs.1,900. The catalogue price of the goods is Rs.2,100. Mr.
Madhav also offered a further discount of Rs.50 for spot payment of cash. Mr. Rajan took delivery of
goods by paying cash.
The journal entry to record the transaction in the books of Mr. Madhav is
a. Cash a/c. – Dr. Rs.1,850
Trade discount a/c. – Dr. Rs. 200
Cash discount a/c. – Dr. Rs. 50
To Sales a/c. Rs.2,100
b. Cash a/c. – Dr. Rs.1,850
Discount a/c. – Dr. Rs. 250
c. Cash a/c. – Dr. Rs.1,850
d. Cash a/c. – Dr. Rs.1,850
e. Mr. Rajan’s a/c._ Dr. Rs.1,850
(1 mark)
< Answer >
73. Consider the following extract of Trial Balance of Nilgiri Ltd. as on March 31, 2003:
Particulars Rs.
Share Capital 5,76,900
12%Bank loan 1,50,000
Sundry creditors 50,000
Bills payable 10,000
Land & building 4,36,000
Cash at bank 23,500
Office equipment 1,99,700
Furniture 2,00,000
Closing stock 38,000
Bills receivable 9,000
Sundry debtors 55,000
Petty cash 210
Cash on hand 9,400 For the year ending March 31, 2003, the following
adjustments were effected.
• • Depreciation on – Office equipment: Rs.19,970; Furniture:Rs.30,000
• • Reserve for discount on Sundry creditors is Rs.720. Provision for discount on Sundry
debtors is Rs.779
• • Sundry creditors include a debt of Rs.8,000 due to Mr.Madhukar who is also in the list of
Sundry debtors for the same amount
• • Accrued commission receivable amounted to Rs.13,000 and Prepaid printing charges
aggregated to Rs.1,850; Accrued interest on bank loan is of Rs.15,000.
After effecting the adjustments, the net profit was Rs.1,33,731.
The total of Balance Sheet of the company as at March 31, 2003 was
(3 marks)
< Answer >
74. Consider the following data pertaining to Joy Ltd. for the year ended March 31, 2003:
Cash sales Rs 4,00,000
Decrease in inventory Rs. 40,000
Plant & Machinery Rs.1,70,000
Rent received Rs. 55,000
Purchases Rs 2,85,000
Sales commission paid Rs. 12,000
The company noticed the following:
o o An amount Rs.2,500 is the amount of rent received in advance.
o o A credit purchase of Rs.15,000 was wrongly recorded in sales day book as Rs.51,000.
o o The company has the practice of depreciating the Plant and Machinery at the rate of
15% per annum on straight line method. The original cost of the Plant and Machinery was
Rs.2,00,000.
o o Sales commission was paid only to the extent of two thirds of the amount payable.
Considering the above data and the additional information, the net profit of the company for the period
ended March 31, 2003 was
a. Rs 18,000 b. Rs.19,500 c. Rs.13,500 d. Rs.28,000 e. Rs.18,500.

(2 marks)
END OF SECTION B
Suggested Answers
Financial Accounting (111) - January 2004
1. Answer : (d) < TOP
>
Reason : According to the conservatism concept, ‘anticipate no profit and provide for all possible losses’. Thus, in
recognition of conservatism concept, provision for bad and doubtful debts is created in anticipation of
actual bad debts. The statements in other alternatives are incorrect because Going concern concept
assumes that business will be carried on for a indefinite period and not for definite period (a). The capital
losses are to be deducted to ascertain net income (c). Materiality concept states that insignificant events
need not be recorded and the statement in alternative (e) is incorrect. Thus, the correct answer is (d).
2. Answer : (c) < TOP
>
Reason : Stock of stationery (a), Goodwill (b), Accounts receivable (d) and cash at bank (e) are the assets and not
the correct answers. Profit and loss account (credit balance) (c) is the amount belongs to the owner of the
business and it is a liability to the business. Hence it is not an asset and (c) is the correct answer.
>
Reason : The favorable bank balance as per pass book will be less than the bank balance as per cash book, since the
debit in the bank account is more than the debit in the cash book (d). As debit and credit are for equal
amount there is no disagreement of the trial balance; Creditors balance is overstated but not understated:
The favorable bank balance as per pass book will be less than the bank balance as per cash book, since the
debit in the bank account is more than the debit in the cash book. Purchases are not affected, as it is a
payment to the creditor. Thus, the correct answer is (d).
>
Reason : Stock at the end of the financial year is the closing stock, drawings are the amounts withdrawn by the
owner of the business for personal use; and prepaid rent is the amount of rent which is paid in advance of
the current financial year and interest received but not yet earned is the amount of interest received which
does not pertain to the current year are the items that appear in the balance sheet of a business. Stock at
the beginning of the financial year is the opening stock that appears in Trading Account of a business and
not in the balance sheet. Thus,(d), the combination of all the accounts in alternatives (I), (III), (IV) and
(V) is the correct answer.
5. Answer : (e) < TOP
>
Reason : Computers taken on hire by a business for a period of twelve months is not an asset because it is not
owned by the business to be classified as asset. Thus, the correct answer is (e). Since it is not an asset it
cannot be classified as any asset and other alternatives are not the correct answers.
>
Reason : The process of balancing of an account involves equalization of both sides of the account. If the debit side
of an account exceeds the credit side, the difference is put on the credit side. The said balance is a debit
balance and it represents either expenditure or an asset or both. Thus, the combination of items under I
and III i.e. alternative (c) is the correct answer. The other alternatives are incorrect because, the excess of
debit over credit side is not a credit balance and it is neither an income nor a liability. Thus, alternatives
(b): (d) and (e) the combination of II with III and IV are incorrect.
>
Reason : The statement in alternative (e) is incorrect because, withdrawal of goods by the proprietor of the business
should be debited to drawings and credited to purchases account and not credited to capital account and is
the false statement and is the correct answer. Wages paid on installation of machinery should be credited
to cash account and debited to machinery account (a);A sale of computer that has been used in the
business should be debited to cash account and credited to office equipment account (b); Error of posting
of a correctly recorded transaction affects only one account or more accounts (c); Repairs of a
machinery purchased second hand should be debited to machinery account (d) are the correct statements
and not the correct answers.
8. Answer : (b) < TOP
>
Reason : Endorsement of a bill receivable in settlement of a debt of the business is recorded in the journal proper
(b) is the correct answer. The transactions in other alternatives are not recorded in journal proper and they
are recorded in other subsidiary books specified for them like alternative (a) Purchase of goods on credit
is recorded in purchases book Sale of office furniture for cash (II) and Discounting of a bill receivable
with a bank (III) are recorded in cash book and not in the journal proper. Thus, the combination of these
transactions in alternatives (a), (c), (d) and (e) are not the correct answers.
9. Answer : (a) < TOP
>
Reason : The portion of the acquisition cost of the asset yet to be allocated is known as written down value (a)
Accumulated value (b) is the value of a thing accumulated over a period of time and not the correct
answer. Realizable value (c) is the value which can be realized in the event of sale and is not correct
answer. Salvage value (d) is the value of an asset that remains as scrap value after its usage over a period
of time and is not the correct answer. Residual value (e) is the value remaining residue and is not the
correct answer. Alternative (a) is the correct answer.
>
Reason : Under written down value method of depreciation, the amount on which depreciation is provided reduces
from year to year. Thus the statement under alternative (b) is the correct answer. The statements in other
alternatives are incorrect because, the rate of depreciation does not change year after year it remains fixed
(a): The rate of depreciation and the amount of depreciation reduce from year to year is incorrect because
only the amount of depreciation reduces and not the rate. Thus, the alternative with the combination of
statements (I) and (III) is incorrect. Under diminishing balance method of depreciation, the amount of the
asset never becomes to zero over a period of time. Thus, the combination of statements (I), (III) and (IV)
i.e. a, c, d and e are incorrect.
>
Reason : The mistake in balancing an account affects the agreement of a trial balance(a) is the correct answer. The
other mistakes do not affect the agreement of trial balance. The Omission to record a transaction entirely
in the subsidiary books (b) will not affect the agreement of a trial balance because both the aspects of a
transaction are omitted to be recorded: Recording of a wrong entry in the subsidiary books (c) will not
cause disagreement of a trial balance because, the wrong entry so recorded has the effect of posting the
transaction in the manner it is recorded. Recording a correct entry in wrong subsidiary book (d) has the
effect of posting the transaction in the manner it is recorded and has no impact on the agreement of a trial
balance: Posting an entry on the correct side in the wrong account (e) does not affect the tallying of a trial
balance because the aspect of the transaction is posted to the correct side of an account. Thus, (a) is the
correct answer.
>
Reason : An error in casting the subsidiary books is an error of commission (I),An error in wrong casting of the
sales day book will not affect the personal accounts of debtors (II) and The mistake of treating a liability
as an income or vice versa will not affect the agreement of a trial balance (IV) are the true statements and
the combination of these statements alternative (e) is the correct answer. The other alternatives are
incorrece because (a) states only the statement in (I); (b) states only the statement (II) and the alternative
(c) is the combination of (I) and (II) which is incomplete (d) combination of (I) and (III) wherein the
statement (III) Mistake in transferring the balance of an account to the trial balance will not affect the
agreement of the trial balance is incorrect because such mistake affects the agreement of the trial balance
is incorrect. Thus, the correct answer is (e).
>
Reason : The expenses and incomes for the full trading period are taken to the Profit and Loss account of a
business, irrespective of their payment or receipt is in recognition of accrual concept. The concepts in
other alternatives are incorrect because according to the Time period concept (a) the income or loss of a
business is measured periodically for a specified interval of time usually one year and it does not speak
about how expenses and incomes are accounted for the entire period irrespective of the cash involvement.
According to the Business entity concept (b) the transactions of the business are treated distinctly from
that of the owners of the business and it explains that all the expenses and incomes of business are to be
accounted for distinctly from that of the owners. The Going concern concept (c), which necessitates
distinction between expenditure that will render benefit over a long period and that whose benefit will be
exhausted within the accounting period. The Duality concept (e) says that every transaction has dual
aspect and explains that Capital + outside liability =Assets. This is the basis for fundamental equation.
Thus, the correct answer is (d).
>
Reason : Customs duty on import of machinery is a capital expenditure and is to be capitalized along with the cost
of the asset. The other expenditures stated in alternatives (a) Insurance premium (b) taxes and legal
expenses (c) Depreciation on machinery and (d) discount allowed are of revenue nature whose benefit
expires with in the financial year and are not the correct answers. Thus, the correct answer is (e).
>
Reason : The Accounting Standard-2 deals with regard to accounting for inventory. According to the statement,
Work in progress of a manufacturing industry is covered. Thus, the alternative (b) is the correct answer.
The items of inventory stated in other alternatives are not covered under AS-2 Financial instruments held
as stock-in-trade: Work in progress arising under construction contracts and Work in progress of service
providers. Hence, alternatives (a) reflecting statement (I); (c) combination of statements (I) and (II);
alternative (d) combination of statements (III) and (IV) and alternative (e) combination Of statements II,
III and IV are incorrect.
>
Reason : Sales account is a nominal account is the correct statement and alternative (b) is the correct answer. The
alternative (a) is incorrect because drawings is not a nominal account and it is a personal account of the
owner which indicates the value of money or goods withdrawn by him for personal consumption. The
alternative (c) is incorrect because the combinations of wrong statement (II) Capital account is a personal
account and not a real account with (III) correct statement. The alternative (d) is incorrect because the
statement IV is incorrect as outstanding salaries is a representative personal account and not a nominal
account and the statement V is incorrect as patents account is a rela account and not personal account and
the combination of II, IV and V is not the correct answer. The alternative (e) is incorrect because the
combination of one correct statement (III) with incorrect statements in (I), (II) and (IV). Thus, the correct
answer is (b).
>
Reason : The entry to record the collection of cash from sundry debtors will be
Cash account Dr.
To Sundry debtors
the entry is stated in the alternative (d) which is the combination of statement (II) and (III). The other
alternatives (a), (b) and (c) only one aspect of the transaction and not the correct answers. The alternative
(e) the combination of two incorrect treatments is not the correct answer. Thus, (d) is the correct answer.
>
Reason : Bank charges increase debit balance as per bank pass book (b) is the correct answer. The debit balance as
per bank pass book indicates the overdraft balance and the bank charges being the expenditure increase
the debit balance. The alternative (a) is incorrect because, the Bank charges decrease the debit balance
shown as per bank column of the cash book and do not increase the debit balance as debit balance as per
cash book signifies the favourable balance. A cash sale of a non-trading asset is recorded in the journal
proper is incorrect (c) because all in transactions involving cash receipts and payments are recorded in the
cash book Cash discount allowed by the business will appear on the debit side of the debtor’s account (d)
is incorrect because, the cash discount allowed is a reduction in the balance of a debtor’s account which
appears on the credit side. Bank reconciliation statement is prepared by a bank (e) is incorrect because
bank reconciliation statement is prepared by the business and not by the bank. Thus, (b) is the correct
answer.
>
Reason : In the books of the drawer, the accounting treatment involved on receipt of a bill of exchange duly
accepted by the drawee is Debit Bills Receivable account and credit draswee’s account i.e. the
combination of statements in (I) and (III) alternative (c) is the correct answer. The other alternatives are
incorrect because the combination of one correct answer with the statement of incorrect answer. Drawee’s
account is debited as soon as a sale is made or any advances is made and II Debit drawee’s account is not
debited when the bill of exchange is accepted and sales is credited (IV) when the sale is made and not at
the time of acceptance of bill of exchange. Thus, the alternatives (a), Statement (I) (b), combination of
(II) and (IV) (d) combination and (e) the combination of (I), (III), and (IV) are incorrect.
>
Reason : The noting charges are the charges paid to the Notary Public for presenting a bill for payment and to note
the fact of dishonour. The charges are to be borne by the person responsible for dishonour who is none
other than the drawee. Thus, the correct answer is (b). The drawer of the bill (a) is incorrect answer
because the drawer may pay the charges initially but ultimately they are to be borne by the drawee. The
holder of the (c) is entitled to receive the payment of the bill and to bear the noting charges on the bill.
The endorser (d) may be the drawer of the bill in which case he will recover the noting charges from the
drawee of the bill. The endorsee of the bill (e) is in no way has to bear the noting charges on dishonour of
the bill. Thus, (b) is the correct answer.
>
Reason : In case of branches where the sales are made only for cash, in the books of Head Office, the Branch
Account is debited with opening balance of cash (II) and opening balance of stock (III) in the beginning of
the year. The combination of the statements (II) and (IV) alternative (c)is the correct answer. When the
goods are sold only for cash the branches do not maintain any books of accounts except a petty cash book
and a stock statement. Since there are no credit sales, the debtors account do not arise and the branch do
not maintain any fixed assets at branch level. Whenever goods are sent to the branch, the branch account
is debited with the goods sent and not at the beginning of the year. Thus, the statements in (I), (III) and
(V) are incorrect and the combination with those statements. Hence (c) is the correct answer.
< TOP
22. Answer : (e) >
Reason : The amount of cash discount received on the payments made to sundry creditors through cheques by the
business will be recorded in the cash book, and if the previously issued cheque is dishonoured, the
discount should be written back through (IV) A debit to discount account through journal proper and (V)
A credit to creditor’s account through journal proper (e) the combinations of these two statements is
the correct answer. Discount received and allowed accounts separately maintained are not netted as such
the discount received which got to be written back because of return of previously issued cheque cannot
be debited to discount column of the cash book (a) is the incorrect answer. Since it is reversal of already
credited discount account again a credit to discount column of the cash book cannot be given and (b) is
the incorrect answer. Bank column is debited with the amount of cheque returned which does not include
discount component and it is not a credit to bank column of the cash book as such (c) is the incorrect
answer. The combination of the incorrect statements in (I) and (III) i.e.(d) is not the correct answer. Thus,
(e) is the correct answer.
< TOP
23. Answer : (b) >
Reason : The book, that is used to record the goods purchased on cash that are sent back to the suppliers on account
of non confirmation to the specifications, is the returns outward book also known as purchases returns
book (b) is the correct answer. Returns inward book (a) is not the correct answer because, the sales
returns are recorded in the returns inward book. Cash book (c) is not the correct answer because, the
transactions involving either the receipt or payment of cash is recorded in the cash book. Journal proper
(d) is not the correct answer because the journal proper is meant to record the transactions which do not
find place in any other subsidiary book Purchases day book (e) is not the correct answer because, all
credit purchases are recorded in the purchases day book and not the returns of it. Thus, (b) is the correct
answer.
>
Reason : In case of accommodation bills, the additional entry that is to be passed other than the usual entries passed
with regard to trade bills in the books of the drawer is in respect of
(c) remitting or receiving the amount at the time of discounting the bill and honouring the bill at maturity.
The entries passed are the same in case of discounting the bill with the bank
(a) and no additional entry is passed except for sending the share of proceeds to the drawee. On payment
of the bill on due date (b) no additional entry is passed in the books of the drawer. If the bill is sent to the
bank for collection, (d) the purpose behind the accommodation bill is defeated. However, no additional
entry is required to be passed at the time of sending the bill to the bank for collection (d). Thus, (c) is the
correct answer.
>
Reason : Inventories (b) are to be valued at the lower of cost and net realizable value. All the other assets stated in
other alternatives are valued as per the cost concept. Goodwill (a) is a fixed intangible asset and is shown
at the cost of its acquisition. Investments (c) are valued at cost or market value which is ever less.Sundry
debtors (d) are shown at deduting any amount of bad debts and the provision created for bad and doubtful
debts. The combination of (b) and (c) is incorrect because a correct answer with incorrect answer is an
incorrect answer. Thus, the correct answer is (b).
>
Reason : When a discounted bill is honoured by the drawee on the due date,(a) no journal entry is passed in the
books of the drawer. The entry is passed at the time of discounting of the bill itself and no entry is
required if the discounted bill is hounoured on due date. Hence, (a) is the correct answer. The other
alternatives are incorrect because, When a bill is sent to the bank for collection (b) a journal entry debiting
bills sent to bank for collection and crediting bills receivable is passed: When a bill is renewed at the
request of the drawee (c) a journal entry is passed canceling the old bill and raising a new bill with
interest: When a debtor accepts a bill drawn by the drawer (d) when a debtor is converted to bills
receivable the debtors balance is reduced and bills receivable account is increased to extent of the amount
passing a journal entry to that effect: When an accommodation bill is discounted with a bank (e) an usual
entry of bills discount that is passed in the case of trade bill is passed. Thus, (a) is the correct answer.
>
Reason : The closing stock(d) is the value of goods which remain unsold at the end of the period whose balance
appears once in trading account and once in balance sheet of the business. All other accounts sales (a),
purchases (b), inward returns (c) and outward returns (e) are closed once they are absorbed by the trading
account. Thus, (d) is the correct answer.
>
Reason : In recognition of money measurement concept, the events and transactions which are of monetary in
nature are recorded in the books of a business. The statements in alternatives (b) firing and death of a
chief executive, though significant cannot be expressed in terms of money as such does not finds place in
the books. The statement in alternative (c) the Government investigation into the pricing activities of the
business does not involve any monetary treatment to be made as such does not find place in the books.
Thus, the alternative (d) the combination of (b) and (c) is the correct answer. The significant monetary
events after the balance sheet date (a) are to be recorded in the books of the business hence is not the
correct answer. Thus, (d) is the correct answer.
>
Reason : When Office equipment is purchased for cash, there is no change in the assets, liabilities and owners’
equity. Thus, the alternative (a) is the correct answer. The cash on hand is used for purchase of furniture
and it is only a change in the composition of the assets. The other alternatives (b), (c), (d) and (e), which
indicate a change either an increase or a decrease in assets/liabilities/owners equity are (b) There is a
decrease in assets, increase in liabilities and no change in owners' equity (c)There is a decrease in assets,
no change in liabilities and a decrease in owners' equity (d)There is an increase in assets, decrease in
iabilities and no change in owners’ equity (e)There is an increase in assets, no change in liabilities and an
increase in owners’ equity are not the correct answers. Hence (a) is the correct answer.
>
Reason : The accounting process of gradually converting the unexpired cost of fixed assets into expenses over a
series of accounting periods is called depreciation (a). Physical deterioration of the asset (b) is the wear
and tear of the assset on account of its usage and it is not any accounting process involved in it and it is
not the correct answer. Deecrease in market value of the asset (c) is not the accounting process and is not
the correct answer.The allotment of cost of an asset over its estimated useful life is not the valuation of an
assset (d) at a point of time is not the correct answer. Thus, (a) is the correct answer.
>
Reason : The periodical total of discount column on receipts side of a triple column cash book is recorded to the
debit side of discount account. Receipts side of a triple column cash book indicates the debit side and the
debit in case of a nominal account is an expenditure and the discount entered on the receipt side of triplke
column cash book indicates the discount allowed and posted to the debit side of discount account in the
ledger. Thus, (c) is the correct answer. Since it is not an income it is not credit to discount account and
alternative (a) is not the correct answer. It is not the discount to be credited to provision for discount
account on debtors (b) and it is not the correct answer. The periodical total is not credited to debtor’s
account as only the individual amount of discount is credited to respective debtor’s account and not the
periodical total is credited to debtor’s account and alternative (d) is not the correct answer. Since it is an
expenditure being the amount of discount allowed to the debtors, it does not find any place in creditors
accounts and alternative (e) is the incorrect answer. Thus, alternative (c) is the correct answer.
>
Reason : Credit balance of bank pass book is an overdraft (b) is a false statement because credit balnce as per pass
book indicates the favourable balance and it is an asset. Credit balance of discount column of cash book is
an income (a) is true :Debit balance of bank column of cash book is an asset (c):Debit balance of cash
column of cash book is an asset and :and Credit balance of bank column of cash book is a liability (e) are
the true statements and the alternatives are not the correct answers. Thus, (b) is the correct answer.
>
Reason : Under trading method of branch accounting, the branch account shows (a) The profit made by the
branch (b)The opening and closing balances of assets at the branch (c) The opening and closing balances
of liabilities at the branch. Thus, alternative (e) the combination of the statements in alternatives a, b, and
c is the correct answer.
>
Reason : The short workings are not the losses of the lessee in the year of occurrence, but in the year they lapse and
hence the statemlent in alternative (c ) is the correct answer and false statement. The statements in other
altenatives are true and not the correct answers. The short workings in a particular year may be adjusted
against the surplus royalty if any as per the terms of agreement (a); The short workings are recouped to
the debit of landlord’s account (b); The recoverable short workings are shown as an asset in the books of
the lessee (d) till they are recouped and recoupable as per the terms of the agreement and The question of
short workings does not arise, if the royalty agreement dose not contain a clause for minimum rent (e).
Thus, (c) is the correct answer.
< TOP
35. Answer : (b) >
Reason : In the Books of head office, journal entry is
Branch stock a/c – Dr.
To Branch Debtors a/c
Other entries stated in (a), (c), (d) and (e) are not true. Thus, (b) is the correct answer.
>
Reason : In case of manufacturing concerns, the balance in ‘goods sent to branch’ account will be transferred to
Trading account (c). In case of trading concerns the balance in goods sent to branch account will be
transferred to purchases account (a) and it is not the correct answer in the present situation. The
alternative (b) is not the correct answer because it is not a sale to be credited to sales account. The
alternative (d) is incorrect because, goods sent to branch account is created by debiting the branch account
and crediting goods sent branch account and again the balance in it is not transferred to branch account. In
case of accounting for branches under stock and debtors system the Branch stock account is maintained to
route all transactions relating to goods sent and received back Hence it is not the correct answer. Thus, (c)
is the correct answer.
>
Reason : The following methods are the practical ways of realizing revenue applying the conservatism concept and
realization concept and the (a)Delivery method in case of sale of goods, (b)Percentage-of-completion
method in case of rendering of services,(c) Production method in case of agriculture produce and (d)
Installment method in case of sale of goods on installments. Thus, these are the various ways of
recognizing revenue and the methods adopted to recognize revenue. Moving average method (e) is the
method of valuing inventory and it is not the method adopted to recognise revenue. Thus, (e) is the
correct answer.

>
Reason : Under the direct write-off method of recognizing a bad debt expense, the alternative (e) is the correct
answer which the combination of the following statements (a)The bad debt expense is not matched with
the related sales because the expense is written off in the year of occurrence and it is not matching with
the related sale; (b) Accounts receivables are overstated in the year of sales as the accounts receivables
are not reported at net realizable value; (c)Revenue is overstated in the year of sales as a result of not
making any provision for possible loss on account of non-recoverable accounts (d) It violates the
matching principle of accounting as the expense of bad debt is not matched for the same period of income.
Thus, (e) is the correct answer.
>
Reason : All the following statements are true (I) Recoupable shortworkings is a current asset and it is shown in the
balance sheet either till they are recovered or written off; (II) Lapsed shortworkings is a nominal account
and is to be debited to profit and loss account in the year of lapse of the time; (III) Shortworkings is the
part of minimum rent not represented by the use of rights because the amount of shortworkings is paid due
to the agreement of minimum rent without making use of the rights vested in; (IV) Shortworkings is the
amount by which the minimum rent exceeds the actual royalty; and (V)The occurrence of shortworings in
any period indicates that the lessee is liable to pay the minimum rent. Thus, the statements above stated
are true and the combination of all the above (e) is the correct answer. The other alternatives (a), (b), (c)
and (d) are not combined with all the true statements and are not the correct answers.
>
Reason : The moving average method of inventory valuation assumes that cost are charged against revenue based
on an average of the number of units acquired at each price level. The resulting average price is applied to
the ending inventory to find the total ending inventory value. The moving average is determined by
dividing the total costs of the inventory available including any beginning inventory by the total number
of units. Under this method the cost per unit is recomputed after every addition. Hence (c) is true. Other
methods stated in (a), (b), (d) and (e) are not correct. (c) is the correct answer.
41 Answer : (a) < TOP

>
Reason : Vikram Co.
Bad debts Rs.18,000
Add: Closing provision (4% on Rs.2,65,000) Rs.10,600
Rs.28,600
Less:Opening provision Rs.20,000
Amount to be debited to profit & loss account Rs. 8,600
42 Answer : (d) < TOP
>
Reason : According to the duality concept, sources of fund must be equal to uses of fund. From this equality
approach, the fundamental accounting equation can be defined as
Owners’ equity + Outside liability = Assets
During the year, owners’ equity will be changed due to the change of assets and liabilities.
Asset are increased by Rs.1,80,000
Liabilities are increased by Rs 2,20,000
Hence, owner’s equity will decrease by Rs. 40,000
So, at the end of the year the owners’ equity will be equal to opening balance of owners’ equity less change of
owners’ equity during the year. i.e. Rs.1,80,000 - Rs.40,000 = Rs.1,40,000
>
Reason : Rs.Nil The difference in one transaction got compensated by another transaction. The error of principle
does not result in any difference and also the error of omission does not affect the agreement of trial
balance.
The undercasting of returns inward book is rectified by debiting returns inward account with Rs.1,377 and
the wrong debit to the supplier’s account is to be rectified by crediting the account with
Rs.1,252+Rs.125=Rs.1,377. Thus, the wrong casting in one transaction is compensated by wrong posting
of wrong amount to the wrong side. It has no effect on the agreement of trial balance. Payment of wages
to the debit of wrong account is an error of principle and it does not affect the trial balance. The complete
omission of sales returns will not affect the trial balance totals. Thus, the difference in trial balance is
Rs.nil despite the errors.
44 Answer : (e) < TOP
>
Reason : Cost of goods sold during the year 2002-2003 = Rs.32,00,000 × 0.75 = Rs.24,00,000
Closing inventory = Opening inventory + Purchases during the year 2000-2001

– Cost of goods sold
= Rs.5,00,000 + Rs.25,00,000 – Rs.24,00,000
= Rs.6,00,000
Actual physical inventory as on March 31, 2003 = Rs.5,75,000
Therefore, missing inventory = Rs.6,00,000 – Rs.5,75,000 = Rs.25,000
45 Answer : (b) < TOP

>
Reason : The goods are sent to the branch at 120% of cost price. Therefore, the value of goods sent is
Rs.8,00,000x120%
=Rs.9,60,000 the loading on goods sent is Rs.1,60,000.
Goods spoiled Rs.4,800
Shortage of stock Rs.10,200 i.e. Goods sent plus goods returned
(Rs.9,60,000 + Rs.15,000 = Rs.9,75,000) less
Sales plus spoiled stock plus closing stock
(Rs.2,50,000 + Rs.– 6,50,000 50,000+Rs.4,800+Rs.60,000=9,64,800) = Rs. 10,200.
Branch Profit and Loss account for the period ended December 31, 2003
To Branch expenses –salary, rent and 90,000 By Stock adjustment account 1,60,00
office expenses Loading on goods sent to branch 0
To Spoilage of goods 4,800
To Shortage of stock 10,200
To Stock reserve (loading on closing 10,000
stock)Rs.60,000x20/120
To Branch debtors - discount 22,000
To Profit transferred to general profit 23,000
and loss account
1,60,000 1,60,00
0
>
Reason : Bank Reconciliation statement as on December 31,2003
Particulars Rs. Rs.

Credit (Overdraft) balance as per cash book 1,11,250
Add:
i. Outstation cheque deposited in Account No. II in the bank on December 1,17,500
22, 2003 not yet collected by the bank as on December 31, 2003.
ii. Bank charges for Account No. II and 1,125

iii. Bank interest on Account No.II were not recorded in the cash book 11,375
iv. A deposit in Account No.I was wrongly entered in Account No.II 17,500 1,47,500
in the cash book
2,58,750
Less:
v. Cheque amounting in Account No II was not presented for payment as 15,000
on December 31, 2003
Overdraft balance as per bank pass book 2,43,750
Interest on investment of Rs.5,200 collected and credited in Account No.I by the banker appeared only in
the bank statement does not appear in the bank reconciliation of Account No.II.
>
Reason : The amount debited to profit and less account in respect of provision for doubtful debts is Rs.8,700.
Dr. Provision for bad and doubtful debts Cr.
To Bad debts (Sinha) 3,800 By balance b/f 5,600
To Provision c/f 10,500 By Profit and loss account 8,700
14,300 14,300 Computation of suitable provision
for the year ending March 31,2003
Particulars Rs.
Gupta Rs. 9,000 Expected to realize only 80% hence doubt full part 1,800
Patel Rs.8,000 Expected to realize only 60%. 3,200
Iyer Rs.5,500 Filed Insolvency petition and the recovery chances are remote 5,500
>
Reason : Bank Reconciliation statement as on December 31, 2003
Particulars Rs.
Balance as per banks statement (overdraft) 12,500
Less: Cheque returned but not entered in the cash book 2,800
Balance as per cash book (overdraft) (credit balance) 9,700
>
Reason :
Particulars Rs.
Opening balance of sundry debtors 37,000
Add: Credit sales 6,75,000
7,12,000
Less: Closing balance of Sundry debtors 60,000
6,52,000
Less: Discount allowed 2,800
Cash collected from sundry debtors 6,49,200
50 Answer : (c) < TOP
>
Reason : If the value of opening stock is overvalued, the profit will be less and if the value of opening stock is
undervalued , the profit will be more. Similarly, if the value of closing stock is overvalued, the profit will
be more and vice-versa. In the given situation, opening stock is undervalued by Rs.1,120 and closing
stock is overvalued by Rs.1,120 and hence the profit increased by Rs.2,240 (i.e. Rs.1,120+Rs.1,120)
Hence, the gross profit was Rs,2,25,480.and on rectification of these errors the gross profit will be
Rs.2,21,000 i.e. (Rs.2,25,480 – Rs.2,240 –Rs.2,240). Thus, the gross profit of the company will be
Rs.2,21,000.
>
Reason : Books of Mahendra
Royalties Analytical Table:
R Short-
oyal Short- workin
Cl. Short
Op. Sales ty worki gs
Produc stoc Sales -
stoc in Rs. ngs transfe
Year tion k in worki
k tonn (10 recou rred to
Units Unit Rs. ngs
Units es % of ped P&L
s Rs.
Sale Rs. A/c
s) Rs.
1999- 2,00 1,00, 10,0 40,00
2,700 700
2000 0 000 00 0
6,00 3,00, 30,0 20,00
2000-2001 5,800 700 500
0 000 00 0
8,00 4,00, 40,0 10,0
2001-2002 8,300 500 800 40,000
0 000 00 00
1,80 10,0 5,00, 50,0
2002-2003 11,000 800 - - 20,000
0 00 000 00
Amount of shortworkings shown in the Balance Sheet is Rs.10,000.

>
Reason : Dr. Branch adjustment account Cr.
To Branch stock reserve By Branch stock reserve
(loading on closing stock) 1,000 (loading on opening stock) 2,400
To gross profit 13,000 By Goods sent to branch
(loading on goods sent to branch) 11,600
14,000 14,000
To Branch expenses By Gross profit 13,000
(3,300 + Rs.1,500 + Rs.1,200) 6,000
To Net profit
(balancing figure) 7,000
13,000 13,000
>
Reason : Trading and profit & loss account of Mythili Ltd. for the year ended March 31, 2003
Dr. Cr. Cr.
Particulars Rs. Rs. Particulars Rs. Rs.
To Opening stock 48,000 By Sales 16,15,000
To Purchases 6,72,000 Less: Returns 22,000 15,93,000
By Loss of stock due to
Less: Returns 49,000 6,23,000 6,000
fire
By Advertisement (free
5,000
samples)
To Gross profit c/f 9,83,000 By Closing stock 50,000
16,54,000 16,54,000
To Bad debts 19,000 By Gross Profit 9,83,000
By Interest on
To Salaries and wages 5,10,000 16,000
investments
To Interest on bank (Accrued Income @
30,000
overdraft 8% on Rs.2,00,000)
Add: Outstanding 9,000 39,000 By Discount received 21,000
To Advertisement 1,20,000
Add: Free samples 5,000 1,25,000
To Fire insurance
18,000
premium
Less:Prepaid 1,500 16,500
To Discount allowed 12,000
To General expenses 54,000
To Outstanding interest on
33,600
debentures
To Depreciation
Plant & machinery
1,34,400
(20%)
Furniture & fixtures
34,200
(12%)
To Loss of stock (Rs.6,000–
1,000
Rs.5,000)
To Provision for discount on
9,000
debtors
To Net profit 32,300
10,20,000 10,20,000

>
Reason :
Balance sheet of Mythili Ltd.as on March 31, 2003
Liabilities Rs. Assets Rs. Rs.
Share capital Fixed Assets
Equity share capital (Rs.10
5,00,000 Land & building 3,65,000
each)
Reserves & Surplus Plant & Machinery 6,72,000
Less: Depreciation
Reserve & Surplus 3,12,000 1,34,400 5,37,600
(20%)
Profit & loss account 32,300 Furniture & fixtures 2,85,000
Less: Depreciation
Secured Loans 34,200 2,50,800
(12%)
12% Debentures 2,80,000
Outstanding interest on
33,600 Investments (8% p.a.) 2,00,000
debentures
AccruedInterest on fixed
Bank overdraft (13%) 3,00,000 16,000
deposit
Outstanding Interest on bank Current Assets, Loans &
9,000
overdraft Advances
Unsecured loans NIL Current Assets
Current liabilities & provisions Closing stock 50,000
Current liabilities Sundry debtors 1,80,000
Less: Provision for
Sundry creditors 1,50,000 9,000
discount (5%)
1,71,000 1,71,000
Prepaid Insurance
1,500
premium
Cash at bank 20,000
Insurance company 5,000
16,16,90 16,16,90
0 0
>
Reason :
Particulars Units
Total Purchases 750
Opening stock 150
900
Less Sales 750
Closing stock 150 Since FIFO method of
valuation is followed, the stock in hand will be that purchased on the latest date. i.e 26-12-2003.
Hence closing stock 150 Units × Rs.40 per Unit =Rs.6,000 under FIFO method of valuation and
under LIFO method of valuation the closing stock will consist of the oldest purchase i.e .opening
stock of the month 150 units at the rate of Rs.20 per unit and the closing stock will be.Rs.3,000.
Hence, the difference in shifting from FIFO method to LIFO method will decrease the value of
closing stock by Rs.3,000.
>
n
S
C
Reason : Rate of depreciation = 1–
43,350
2
60, 000
= 1–
= 1 – 0.85 = 15%.
>
Reason : Mr. Abhinav’s a/c Dr. Rs.12,812.50
To Bank a/c.
Rs.12,812.50
Is the correct answer since the bill was discounted and later on dishonoured and the noting chanrges are to be
borne by the drawee.
>
Reason : Books of Windsor Ltd
Stock Account
Dr. Cr.
Date Particulars Rs. Date Particulars Rs.
Dec.01, 03 To Opening 1,80,00 Dec.31, By Cost of 4,20,000
balance 0 03 goods sold (bal.
Fig)
To Purchases 3,30,00 By Closing 90,000
0 balance
5,10,00 5,10,000
0
Sundry creditors Account
Dr. Cr
Dec.31, 03 To Cash paid 3,50,00 Dec.01, 03 By Opening 80,000
0 balance
To Closing balance 60,000 By Purchases 3,30,000
(balancing figure)
4,10,00 4,10,000
0
Sales = Rs.4,20,000 + 25% (Rs.4,20,000) = Rs.5,25,000.
>
Reason :
Particulars Rs.
Rent paid during the year 1,20,000
Less: Outstanding rent as on March 31, 2002 24,000
96,000
Add: Outstanding rent as on March 31, 2003 36,000
Rent for the year charged to profit & loss a/c. 1,32,000
>
Reason : The shortage of stock at invoice price Rs.4,000
At cost is Rs. 4,000 –(4,000 x 25%)=Rs.4,000-Rs.1,000= Rs.3,000.
In the Books of Head office at Chennai
Fair Pal Company
Branch Stock Account
Dr. Cr.
To Balance b/d 48,000 By Cash- cash sales 3,60,000
To Goods sent to Branch account 9,60,000 By Branch Debtors-
Credit sales 5,60,000
To Branch Debtors a/c 12,000 By Branch adjustment a/c
- returns by customers - Loading on shortage
Rs.1,000
By Branch Profit and Loss a/c
- Cost of shortage
Rs.3,000
(Balancing figure) 4,000
By Balance c/d 96,000
10,20,00 10,20,000
0

>
Reason : The amount of credit sales made by the branch during the period 2002-03 was Rs.5,60,000.
Branch Debtors Account

Dr. Cr.
To Balance b/d 60,00 By Branch stock a/c – 12,000
0 Returns
To Bank – Dishonored cheque 10,000 By Profit & Loss a/c
– Discount 2,000
– Bad debts 3,000
To Branch stock a/c – Credit By Bank – Collection from 5,40,000
sales 5,60,00 debtors
(Balancing figure) 0
By Balance c/d 73,000
6.30,00 6,30,000
0
>
Reason : Depreciation under sum-of-the-years’ digits method for the year 2002-03, being the last year
1
×1, 50, 000 = Rs.10, 000
1 +2 +3 +4 +5
= .
>
Reason : The effect of rectification will be -the profit and loss adjustment account will be debited with Rs.30,200
and will be credited with Rs.20,0000 resulting in a net decrease of profit of Rs.10,200 i.e
Rs.450+Rs.16,000+Rs.10,000+3,750 less Rs.20,000.
Aditya & Co.
Journal entries
Particulars Rs. Rs.
i. Profit & loss Adjustment a/c. Dr. 450
Suspense a/c Dr. 4,500
To Mr. Dutta A/c 4,950
(Sale to Mr. Dutta of Rs.20,050 wrongly entered in the sales book
as Rs.20,500 and posted to his account as Rs.25,000 now rectified)
ii. 16,00
Profit & loss Adjustment a/c Dr.
0
16,00
To Mr. Philip a/c
0
(Goods purchased on 30th March 2002 were included in stock but
not recorded in the purchase book, now rectified)
iii. Suspense a/c… Dr. 5,500
To Mr. Rajkumar a/c (Rs.2,750 × 2) 5,500
(Goods returned by Mr. Rajkumar wrongly debited to his account,
now rectified)
iv. 10,00
Profit & loss Adjustment a/c Dr.
0
10,00
To Suspense a/c
0
(Error caused by undercasting of the purchase book in the month
of March 2002, now rectified)
v. Profit & loss adjustment a/c… Dr. 3,750
To Bank a/c. 3,750
(Bank interest previously not recorded now rectified)
vi. 20,00
Sundry debtors a/c Dr.
0
20,00
To Profit & loss adjustment a/c
0
(Credit sales completely omitted from sales day book, now
rectified)
>
Reason : Discount recorded on debit side of cash book represents the discount allowed to the customers.
Rs.
= Cheque received and allowed discount 2,500
+ Discount allowed to Rama & Bros
(Rs.38,900 – Rs.36,200)
2,700
+ Cheque received from Daulat Ram
discount allowed 10% of 16,500 1,650
Rs.6,850.
>
Reason : The balance outstanding to the debit of machinery account Rs.5,52,700
Bright Light Limited
Cost of machinery on April 1, 2000
Rs.5,67,000 x 100/90 x 100/90 = Rs.7,00,000
Note: Depreciation provided on reducing balance method:
2000-01 (10% on Rs.7,00,000) Rs. 70,000
2001-02 (10% on Rs.6,30,000) Rs. 63,000
Rs.1,33,000
Depreciation to be provided on the straight line method :
2000-01 (10% on Rs.7,00,000) Rs. 70,000
2001-02 (10% on Rs.7,00,000) Rs. 70,000
Rs.1,40,000
Further depreciation to be provided for
Rs. 1,40,000 – Rs.1,33,000 = Rs. 7,000
As per AS- 6 any change in the method of depreciation is treated as a change in accounting policy and its effect
should be quantified and disclosed. Thus, the gross profit of the company will be Rs.2,21,000.
Machinery Account
Dr Cr.
1.4.2000 To Balance 7,00,00 31.3.2001 By Depreciation 70,000
0 (on Rs.7,00,000 @10%)
31.3.2001 By Balance c/d 6,30,000
7,00,00 7,00,000
0
1.4.2001 To Balance b/d 6,30,00 31.3.2002 By Depreciation (on 63,000
0 Rs.6,30,000 @ 10%)
By Balance c/d 5,67,000
6,30,00 6,30,000
0
1.4.2002 To Balance b/d 5,67,00 31.3.2003 By Depreciation (due to 7,000
0 change in method)
1.10.2002 To Bank (New machine) 60,00 By Depreciation (on 70,000
0 Rs.7,00,000 @ 10% p.a for
the year)
To Bank (installation 6,000 By Depreciation (on 3,300
expenses) Rs.66,000 for 6
months@10% p.a.)
By Balance c/d 5,52,700
6,33,00 6,33,000
0

>
Reason : The amount of shortworkings lapsed during the year2002-2003 amounts to Rs.50,000.
Workings:
In the books of Mining Company
Analysis of royalty payable (Royalty @ Rs.25 per ton)
Short Short
Short
Outp Actual Minimu Short working workin
Payme workings
Year ut royalty m rent workin s gs
nt (Rs.) c/f
(tons) (Rs.) (Rs.) gs (Rs.) recoupe lapsed
(Rs.)
d (Rs.) (Rs.)
1999-2000 18,00 4,50,00 6,00,00 1,50,00 –– 6,00,00 –– 1,50,000
0 0 0 0 0
2000-2001 20,00 5,00,00 6,00,00 1,00,00 –– 6,00,00 –– 2,50,000
0 0 0 0 0
2001-2002 25,00 6,25,00 6,00,00 –– 25,000 6,00,00 1,25,00 1,00,000
0 0 0 0 0
2002-2003 32,00 8,00,00 6,00,00 –– 50,000 7,50,00 50,000 Nil
0 0 0 0
>
Reason : Bank account Dr. Rs. 6,938
In the books of Mr. Verma
Journal Entries
Date Particulars Dr (Rs.) Cr (Rs.)
1-10-2003 Mr. Sarath account Dr. 24,000
To Bills payable account 24,000
(Bill accepted for 2 months drawn by Mr. Sarath)
4-10-2003 Bank account Dr. 7,840
Discount account Dr. 160
To Mr. Sarath account 8,000
(1/3rd of the proceeds of the bill received from Mr. Sarath)
4-12-2003 Bills receivable account Dr. 18,000
To Mr. Sarath 18,000
(Bill drawn being accepted by Mr. Sarath)
Bank account Dr. 17,640
Discount account Dr. 360
To Bills receivable account 18,000
(Bill discounted from bank)
Bills payable account Dr. 24,000
To Bank 24,000
(The first Bills paid on due date)
Mr Sarath account Dr. 1,347
To Bank 1,000
To Discount 347
(Proceeds of the bill partly remitted and proportionate
discount charged)
(Proportionate discount = Rs.360 ×
Rs.16,000 + Rs.1,000
Rs.17,640
Rs.17,000
Rs.17,640
= Rs.360 × = Rs.347)
1-01-2004 Mr. Sarath account Dr. 18,000
To Liability for Bill discounted account 18,000
(Mr. Sarath’s acceptance debited to him on his becoming
insolvent)
20.1.2004 Bank Account Dr. 6,938
Bad debts account Dr. 10,409
To Mr. Sarath account 17,347
(40 paisa per rupee of dues received from the estate of Mr.
Sarath and balance written off as bad debt) Note: Liability for
bills discounted account is credited since the bill has not yet fallen due.
Mr. Sarath Account
Dr. Cr.
To Bills payable
1-10-2003 24,000 4-10-2003 By Bank 7,840
account
By Discount 160
4-12-2003 To Bank 1,000 4-12-2003 By Bills receivable 18,000
To Discount 347
To Liability for bill
1-01-2004 18,000 By Balance c/d 17,347
discounted
43,347 43,347
>
Reason : 4,500 × 3% = Rs.135
2
× Rs.135
3
Ronty is to bear = = Rs.90.
>
Reason : Before the due date of the first bill, Anand was to remit Rs.8,000 to Arvind to enable him to honor the bill.
But Anand could not remit the required amount. As a result, he accepted a bill for Rs.18,000 drawn by
Arvind. Arvind discounted the bill for Rs.17,400 and remitted to Anand Rs.3,600 after adjusting Rs.8,000
due on first bill. Thus, Anand enjoyed
Rs.3,600 + 8,000 = 11,600 out of Rs.17,400. therefore,
Rs.11600
Rs.17400
Anand’s share of discount will be Rs.600 × = Rs.400.
>
Reason : Trial Balance of Silver Line Ltd. as on March 31, 2003
Particulars Amount Particulars Amount
Debit Credit
Preliminary expenses 21,100 Share capital account 2,68,800
Closing stock 2,05,200 Sundry creditors 1,10,060
Cash at bank 44,000 15% Loan 40,000
Sundry debtors 1,43,000 Provision for doubtful debts 2,000
Bad debts 7,240 Sales 7,10,800
Fittings and Fixtures 75,540 Commission received 11,280
Insurance premium 800 Outstanding salaries 3,000
Opening inventory as on Returns outward
April 1, 2002 1,09,360 2,060
Purchases 3,07,980 Discount received 9,200
Manufacturing wages 81,940 Bills payable 1,55,500
Returns inward 5,560
Salaries 2,79,840
Office Administrative
expenses 21,740
Prepaid Insurance 1,200
TOTAL 13,12,700 TOTAL 13,12,700
>
Reason : Bank a/c Dr. Rs.78,000
Discount a/c. Dr. Rs. 2,000
To Mahajan Traders a/c Rs.80,000.

>
Reason : Cash a/c. – Dr. Rs.1,850
>
Reason : Balance Sheet of Nilgir Ltd as on March 31, 2003.
Liabilities Rs. Assets Rs.
Share Capital 5,76,900 Land & building 4,36,000
Profit and loss account 1,33,731 Office equipment 1,99,700
12% Bank Loan 1,50,000 Less: depreciation 19,970 1,79,730
Add: Outstanding interest Furniture 2,00,000
15,000 1,65,000
Sundry creditors 50,000 Less: depreciation 30,000 1,70,000
Less: Closing stock 38,000
Debtors set off 8,000 Sundry debtors 55,000
Provision for discount Less: Provision for 779
on creditors 720 41,280 discount on debtors
Creditors setoff 8,000 46,221
Bills payable 10,000 Bills receivable 9,000
Cash at bank 23,500
Petty cash 210
Accrued commission 13,000
Prepaid printing 1,850
Cash on hand 9,400
9,26,911 9,26,911
>
Reason : Net Profit of Joy Ltd. for the year ending March 31, 2003:
Dr. Cr.
Particulars Rs. Rs. Particulars
To Purchases 2,85,000 By Cash sales 4,00,000
Add: Omitted to be recorded Less: Wrong Credit 51,000
15,000 3,49,000
To Decrease in inventory 3,00,000
40,000
To Gross Profit 9,000
3,49,000 3,49,000
To Sales Commission 12,000 By Gross Profit 9,000
+ Accrued 6,000 18,000 By Rent received 55,000
Less: received in advance
To Depreciation 30,000 2,500 52,500
To Net Profit 13,500
61,500 61,500 The net
profit is Rs.13,500
< TOP OF THE DOCUMENT >

111-0104 &#39;&#39;

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

111-0104 &#39;&#39;

Uploaded by

Copyright:

Available Formats

Question Paper

Financial Accounting (111) - January 2004

a. Only (II) above b. Only (IV) above

a. Only (I) above b. Only (II) above

a. Only (I) above b. Only (IV) above

a. Only (I) above b. Only (II) above

a. Only (I) above b. Both (II) and (IV) above

Section B : Problems (60 Marks)

• • The Returns Inward book was undercast by Rs.1,377.

Particulars Rs. Rs.

Year Production in tonnes Closing stock in tonnes

a. Rs.5,45,700 b. Rs.5,52,700 c. Rs.5,46,000 d. Rs.5,49,400 e. Rs.5,43,000.

• • Royalty - at the rate of Rs.25 per ton of output

a. Rs 18,000 b. Rs.19,500 c. Rs.13,500 d. Rs.28,000 e. Rs.18,500.

38. Answer : (e) < TOP

41 Answer : (a) < TOP

Closing inventory = Opening inventory + Purchases during the year 2000-2001

45 Answer : (b) < TOP

Particulars Rs. Rs.

ii. Bank charges for Account No. II and 1,125

52 Answer : (b) < TOP

54 Answer : (d) < TOP

61 Answer : (b) < TOP

Branch Debtors Account

66 Answer : (c) < TOP

72 Answer : (c) < TOP

< TOP OF THE DOCUMENT >

You might also like

111-0104 ''

111-0104 ''