111 1003

Question Paper
Financial Accounting – I (111) : October 2003

Section A : Basic Concepts (40 Points)
• • This section consists of questions with serial number 1 - 40.
• • Answer all questions.
• • Each question carries one point.
< Answer
1. Which of the following inventory valuation methods shows higher profits during the period of rising >
prices?
a. FIFO method
b. LIFO method
c. Weighted average method
d. Simple average method
e. Specific identification method.
< Answer
2. At the time of preparation of final accounts, bad debts recovered account will be transferred to >
a. Debtor’s account
b. Profit & loss account
c. Profit & loss adjustment account
d. Profit & loss appropriation account
e. Provision for discount on debtors account.
< Answer
3. Which of the following systems of inventory valuation computes cost of goods sold as a residual >
amount?
a. Weighted Average
b. Last-in First-out
c. Perpetual Inventory System
d. Periodic Inventory System
e. Specific Identification.
< Answer
4. Which of the following is not an intangible asset? >
a. Goodwill
b. Trade mark
c. Franchise
d. Accounts receivable
e. Secret process.
< Answer
5. If machinery account is debited with the amount of repairs incurred on the machine, this is an example >
of
a. Compensating error
b. Error of principle
c. Error of commission
d. Error of omission
e. Error of partial omission.
< Answer
6. Which of the following is a current liability? >
a. Prepaid expenses
b. Trade-mark
c. Discount on issue of shares
d. Outstanding salaries
e. Fixed deposits.
< Answer
7. Which of the following will not appear in Profit and Loss Account of a business? >
a. Drawings
b. Bad debts
c. Provision for doubtful debts
d. Accrued expenses
e. Reserve for discount on sundry creditors.
< Answer
8. Which of the following concepts is not considered as basic principle of accounting? >
a. Materiality concept
b. Cost concept
c. Consistency concept
d. Matching concept
e. Logical concept.
< Answer
9. In contract accounting, the percentage of completion method is an exception to the >
a. Matching principle
b. Going concern principle
c. Historical cost principle
d. Business entity principle
e. Revenue recognition principle.
< Answer
10. The amount payable to a person as consideration for the use of rights vested in him is >
a. Dividend
b. Royalty
c. Purchase consideration
d. Installment
e. Interest.
< Answer
11. Which of the following factors are primarily considered to determine the economic life of an asset? >
a. Passage of time, asset usage, and obsolescence

b. Tax regulations and SEBI guidelines
c. Tax regulations and asset usage
d. SEBI guidelines and asset usage
e. Management and external factors.
< Answer
12. Which of the following is not a feature of a promissory note? >
a. It must be in writing
b. It contains an unconditional promise to pay
c. It is payable to the bearer
d. It must be signed by the maker
e. The amount payable must be certain.
< Answer
13. Which of the following is/are fixed asset(s)? >
a. Closing inventory
b. Fixed Deposits in a bank
c. Patents
d. Prepaid expenses
e. Both (b) and (c) above.
< Answer
14. Withdrawal of goods from stock by the owner of the business for personal use should be recorded by >
debiting
a. Drawings account and crediting cash account

b. Drawings account and crediting purchases account
c. Capital account and crediting drawings account
d. Purchases account and crediting drawings account
e. Purchases account and crediting capital account.
< Answer
15. If the opening inventory of a business is undercast, it will >
a. Increase gross profit and decrease net profit

b. Decrease gross profit as well as net profit
c. Increase value of assets
d. Increase gross profit as well as net profit
e. Decrease value of assets.
< Answer
16. The various divisions of a business located under the same roof are known as >
a. Branches
b. Dependent branches
c. Independent branches
d. Inland branches
e. Departments.
< Answer
17. Which of the following concepts assumes that a business will last indefinitely? >
a. Business entity
b. Going concern
c. Periodicity
d. Conservatism
e. Consistency.
< Answer
18. Which of the following is not a financial statement? >
a. Profit and loss account

b. Profit and loss appropriation account
c. Balance sheet
d. Funds flow statement
e. Trial Balance.
< Answer
19. Which of the following statements is false? >
a. If a lessee leases a part of the leased property to another person, it is called sub-lease
b. In case of partial sub-lease, lessor will be paid on the basis of the output of the primary lease
c. Royalty receivable account is opened in the books of the lessor
d. Minimum rent is payable by the lessee even if the royalty amount is less than the minimum rent
e. The balance in short workings receivable account appears on the asset side of the balance sheet of
the lessee.
< Answer
20. Based on which of the following concepts, is share capital account shown on the liabilities side of a >
balance sheet?
a. Business entity concept
b. Money measurement concept
c. Duality concept
d. Going concern concept
e. Matching concept.
< Answer
21. If a bill is endorsed to a third party, the accounting entry in the books of the endorser, at the time of >
endorsement involves
a. Credit Endorsee’s account
b. Debit Endorsee’s account
c. Debit Bills receivable account
d. Credit Bills payable account
e. Debit Bills payable account.
< Answer
22. If goods are sent to branch, the accounting treatment in the books of Head Office is >
a. Debit Goods sent to branch account

b. Credit Branch account
c. Debit Branch Debtors account
d. Debit Stock account
e. Debit Branch account.
< Answer
23. Which of the following statements is true with regard to accounting for branches? >
a. Under debtors system, Branch account is a real account

b. Under stock and debtors system, Branch adjustment account discloses the gross profit made by the
branch
c. Branch stock account is always prepared at cost price
d. Under debtors system, Branch account is debited with losses like bad debts, discounts allowed and
depreciation
e. Under stock and debtors system, Branch stock account is a nominal account.
< Answer
24. In the books of lessee, short workings recovered amount is debited to >
a. Profit & loss account

b. Minimum rent account
c. Short workings recoverable account
d. Royalty account
e. Landlord’s account.
< Answer
25. Which of the following is not a contingent liability? >
a. Debts included in sundry debtors which are doubtful in nature

b. Uncalled liability on partly paid shares
c. Claims against the company not acknowledged as debts
d. Arrears of fixed cumulative dividend
e. Liability on bills receivable previously discounted.
< Answer
26. If royalty is less than minimum rent, the balance of royalty account at the end of the year has to be >
transferred to
a. Capital reserve account
b. Reserve capital account
c. Profit & loss account
d. Profit & loss adjustment account
e. Profit & loss appropriation account.
< Answer
27. Which of the following entries in the books of Head Office is true if goods are returned by customers to >
branch?
a. Debit Branch Stock a/c and Credit Returns Inward a/c
b. Debit Branch Stock a/c and Credit Branch Debtors a/c
c. Debit Branch Debtors a/c and Credit Returns Inward a/c
d. Debit Branch Debtors a/c and Credit Branch Stock a/c
e. Debit Returns Inward a/c and Credit Branch Stock a/c.
< Answer
28. Which of the following is true? >
a. Bank account is a personal account

b. Stock of stationery account is a nominal account
c. Returns inward account is a personal account
d. Outstanding rent account is a nominal account
e. Capital account is a real account.
< Answer
29. Which of the following is not classified as inventory in the financial statements? >
a. Finished goods
b. Work-in-process
c. Stores and spares
d. Raw-materials and components
e. Advance payments made to suppliers for raw materials.
< Answer
30. Which of the following is a liability of a firm? >
a. Debit balance of analytical petty cash book

b. Credit balance of bank pass book
c. Debit balance of bank column of cash book
d. Debit balance of cash column of cash book
e. Credit balance of bank column of cash book.
< Answer
31. Which of the following statements is true? >
a. Inventory valuation affects only the income statement

b. Undercasting or overcasting of subsidiary book is an example of error of commission
c. Capital expenditure wrongly treated as revenue is an example of error of commission
d. No entry is needed in case of a bill endorsed in favor of a creditor
e. Inventories should be valued at lower of historical cost and current replacement cost.
< Answer
32. If unexpired insurance appears in the trial balance, it should be >
a. Debited to the trading account

b. Credited to the profit and loss account
c. Debited to the profit and loss account
d. Shown on the liabilities side of the balance sheet
e. Shown on the assets side of the balance sheet.
< Answer
33. If the short working amount is not recouped due to expiry of the term of recoupment, it should be >
debited to
a. Minimum rent account
b. Landlord account
c. Royalty account
d. Profit & loss account
e. Profit and loss adjustment account.
< Answer
34. Which of the following statements is true? >
a. Bad debts recovered account is transferred to sundry debtors account

b. Bill of exchange is drawn by the purchaser
c. Trial balance establishes the arithmetical accuracy of the accounting records
d. A well maintained asset need not be depreciated
e. Drawing of goods is to be debited to profit and loss account.
< Answer
35. Provision for bad debts is made as per the >
a. Conservatism concept
b. Cost concept
c. Consistency concept
d. Going concern concept
e. Time period concept.
< Answer
36. In which of the following methods, the cost of the asset is spread over in equal proportion during its >
useful economic life?
a. Straight line method
b. Written down value method
c. Units-of-production method
d. Sum-of-the-years’-digits method
e. Machine-hour rate method.
< Answer
37. Purchase of fixed assets on credit is originally recorded in >
a. Purchases book
b. Ledger
c. Cash book
d. Journal proper
e. Both (b) and (d) above.
< Answer
38. Double entry book keeping involves >
a. Two accounts being affected for each transaction which are equal and opposite to one another
b. Two sets of books being kept for the business
c. Business book-keeping being kept by more than one person
d. Every entry in the business books being checked twice
e. Every transaction is recorded once in the journal and again in the ledger.
< Answer
39. Which of the following are current assets of a business? >
I. Income received in advance

II. Stock
III. Debtors
IV. Pre-paid expenses
V. Accrued income.
a. Both (I) and (IV) above

b. Both (II) and (III) above
c. (I), (II) and (III) above
d. (II), (III), (IV) and (V) above
e. (I), (II), (III) and (IV) above.
< Answer
40. The amount of owners’ equity in a business is not affected by >
a. The percentage of total assets held in cash

b. Investments made in the business by the owner
c. The profitability of the business
d. The amount of dividends paid to stockholders
e. Sale of an asset for an amount less than the book value.
END OF PART A
Section B : Problems (60 Points)

• • This section consists of questions with serial number 41 - 73.
• • Answer all questions.
• • Points are indicated against each question.
< Answer
41. Avanth Ltd. purchased machinery on December 20, 2001 in exchange of its securities. The machinery >
was installed on March 31, 2002. The value of securities on the above two dates was Rs.1,92,000 and
Rs.1,96,000, respectively. It is expected that the machinery will have a useful life of 7 years after which
it will have a salvage value of Rs.10,000. The machinery was put to use with effect from April 01, 2002.
If the company follows straight line method of depreciation, the amount of depreciation charged for the
year 2002-2003 was
a. Rs.26,000
b. Rs.27,428
c. Rs.28,000
d. Rs.26,572
e. Rs.26,285.
(1 point)
< Answer
42. Rainbow Ltd. purchased furniture for Rs.1,20,000 two years ago. The current book value of the >
furniture is Rs.86,700. If the company charges depreciation on furniture under written down value
method, the rate of depreciation is
a. 35%
b. 30%
c. 25%
d. 20%
e. 15%.
(1 point)
< Answer
43. M/s.Zodiac Co. has branches at Agra and Delhi. If Agra branch sends goods worth Rs.30,000 to Delhi >
branch, the journal entry to record the transaction in the books of Head Office is
a. Agra branch a/c Dr. Rs.30,000
To Goods sent to branch a/c Rs.30,000
b. Agra branch a/c Dr. Rs.30,000
To Delhi branch a/c Rs.30,000
c. Agra branch a/c Dr. Rs.30,000
To Goods received from branch a/c Rs.30,000
d. Delhi branch a/c Dr. Rs.30,000
To Agra branch a/c Rs.30,000
e. Delhi branch a/c Dr. Rs.30,000
To Goods sent to branch a/c Rs.30,000.
(1 point)
< Answer
44. The provision for bad and doubtful debts of Bhargav Ltd. has a debit balance of Rs.3,500 after >
adjustment of bad debts of Rs.5,000. If the company decides to maintain a provision for bad and
doubtful debts of Rs.2,200 at the end of the year, the profit & loss account will be debited by
a. Rs. 8,500
b. Rs. 1,300
c. Rs. 7,200
d. Rs. 5,700
e. Rs.10,700.
(1 point)
< Answer
45. The total purchases of Paragon Ltd. is Rs.50,000. If the gross profit of the company is 20% on sales and >
the closing stock is more than the opening stock by Rs.10,000, the cost of goods sold will be
a. Rs.75,000
b. Rs.62,500
c. Rs.40,000
d. Rs.37,500
e. Rs.30,000.
(1 point)
< Answer
46. The following balances are extracted from the books of account of Libra Ltd. for the year 2002-2003: >
Opening stock Rs.17,500

Closing stock Rs.20,000
Purchases Rs.92,000
Returns outward Rs. 7,000 If the gross profit for the year was
Rs.19,500, the total sales during the year were
a. Rs.1,22,000
b. Rs.1,29,000
c. Rs.1,09,000
d. Rs.1,02,000
e. Rs. 95,000.
(1 point)
< Answer
47. As per the Profit and loss account of Vardhan Ltd. for the year ended March 31, 2003 the amount of >
salary expenditure was Rs.4,15,000. If the balance of outstanding salaries as on April 01, 2002 and
March 31, 2003 was Rs.52,000 and Rs.64,000, respectively, the cash paid on account of salaries during
the year 2002-03 was
a. Rs.3,63,000
b. Rs.4,03,000
c. Rs.4,67,000
d. Rs.4,27,000
e. Rs.4,79,000.
(1 point)
< Answer
48. Consider the following data pertaining to Universe Ltd. as on March 31, 2003: >
 Total sundry debtors as per Trial Balance Rs.40,600

 Bad debts identified after the preparation of Trial Balance Rs.600
 Provision for bad debts to be created @ 5% on sundry debtors
 Provision for discount on sundry debtors to be created @ 2%.
The amount of provision for discount on sundry debtors created for the period ended
March 31, 2003 was
a. Rs. 760
b. Rs.2,000
c. Rs. 771
d. Rs. 800
e. Rs. 812.
(1 point)
< Answer
49. Consider the following data pertaining to purchases made by Zodiac Ltd., a dealer in electronic goods, >
for the month of September 2003:
Rate per
No. of Trade
Date Particulars unit
units Discount
Rs.
September 01 Black & White TVs 50 3,000 10%
Colour TVs 10 6,000 10%
September 09 Tape Recorders 10 1,000 10%
Two-in-one 10 1,500 10%
September 19 Audio Cassettes 100 30 5%
On
September 22, 2003, the company purchased from Indian Stationers on credit for office use 10 dozens
of carbon papers at the rate of Rs.35 per dozen and 10 dozens of ball pens at the rate of Rs.25 per dozen.
The total of purchases for the month of September 2003, was
a. Rs.2,14,350
b. Rs.2,38,000
c. Rs.2,14,950
d. Rs.2,38,600
e. Rs.2,14,200.
(1 point)
< Answer
50. In the year 2002- 2003, Ross Ltd. purchased a new machine and made the following payments in >
relation to it:
Cost as per supplier’s list Rs.5,20,000
Less: Agreed discount Rs. 50,000
Rs.4,70,000
Delivery charges 10,000
Erection charges 20,000
Annual maintenance charges 30,000
Additional components to increase capacity of the machine 40,000
Annual insurance premium 5,000 The
cost of the machine is
a. Rs.5,40,000
b. Rs.5,45,000
c. Rs.4,70,000
d. Rs.5,50,000
e. Rs.5,70,000.
(1 point)
< Answer
51. The proprietor of Four Ess & Co. had withdrawn goods for personal use, the cost of which was Rs.3,500 >
and the market value on the date of withdrawal was Rs.4,500. Sales were credited by Rs.3,000.
While preparing the final accounts of the firm for the year ended March 31, 2003, the journal entry
passed to record the withdrawal of the goods was
a. Drawings a/c Dr. Rs.4,500
To Sales a/c Rs.4,500
b. Sales a/c Dr. Rs.3,000
Drawings a/c Dr. Rs. 500
To Purchases a/c Rs 3,500
c. Drawings a/c Dr. Rs.1,500
d. Cash a/c Dr. Rs.4,500
e. Drawings a/c Dr. Rs.4,500
To Purchases a/c Rs.4,500.
(1 point)
< Answer
52. Amar drew a bill on Bimal for Rs.30,000. Bimal accepted the said bill and returned it to Amar. Amar >
endorsed the bill in favour of Amith. Amith, thereafter, endorsed the bill in favour of Dheeraj. Dheeraj
got the bill discounted for Rs.29,500. On the due date, the bill is dishonored and the banker paid noting
charges at the rate of 1% of the bill. The journal entry passed in the books of Amar to record the
dishonour of the bill and payment of noting charges is
a. Bimal’s a/c Dr. Rs.29,795
To Bank a/c Rs.29,795
b. Bimal’s a/c Dr. Rs.30,000
Noting charges a/c Dr. Rs. 300
To Bank a/c Rs.30,300
c. Bimal’s a/c Dr. Rs.30,300
To Amith’s a/c Rs.30,300
d. Bimal’s a/c Dr. Rs.29,800
To Dhiraj’s a/c Rs.29,800
e. Bills receivable a/c Dr. Rs.30,000
Noting charges a/c Dr. Rs. 300
To Bimal’s a/c Rs.30,300.
(1 point)
< Answer
53. Zee Motors Ltd., a dealer in second-hand cars has the following five vehicles of different models and >
makes in their stock at the end of the financial year 2002-2003:
Maruti
Car Fiat Ambassador Maruti 800 Zen
Esteem
Cost (Rs.) 90,000 1,15,000 2,75,000 1,00,000 2,00,000
Net realizable value (Rs.) 95,000 1,55,000 2,65,000 1,25,000 2,30,000
The cost of Maruti Esteem includes a sum of Rs.5,500 for the repair of engine and Rs.2,000 for the
repair of air conditioner of the vehicle. The value of stock included in the balance sheet of the company
as on March 31, 2003 was
a. Rs.7,62,500
b. Rs.7,70,000
c. Rs.7,80,000
d. Rs.8,70,000
e. Rs.7,72,500.
(1 point)
< Answer
54. An inexperienced book-keeper of M/s.Volga & Co. has drawn up the following trial balance of the firm >
for the year ended March 31, 2003:
Trial Balance as on March 31, 2003
Particulars Debit Particulars Credit
Rs. Rs.
Provision for doubtful debts 2,000 Capital 45,910
Bank overdraft 16,540 Sundry creditors 16,370
Sundry debtors 29,830 Discount allowed 7,330
Discount received 2,520 General expenses 8,290
Drawings 12,000 Returns inward 3,300
Office furniture 21,550 Cash sales 60,800
Purchases 1,09,230 Credit sales 1,08,020
Rent and rates 3,140
Salaries 25,200
Opening stock 24,180
Provision for depreciation on 3,640
office furniture
Total 2,49,830 Total 2,50,020
Subsequently another trial balance was drawn and the residual difference was placed to a suspense
account. The amount debited/credited to suspense account was
a. Rs. 190 (debit)
b. Rs. 530 (credit)
c. Rs.11,750 (debit)
d. Rs. 4,170 (debit)
e. Rs.11,750(credit).
(2 points)
< Answer
55. >
On September 30, 2003,the bank column of the cash book of Mars Ltd. showed a credit balance of
Rs.1,62,000 which did not agree with the balance as per the bank statement. On scrutiny the
following omissions and commissions were noticed:
 As per bank statement, a cheque of Rs.7,000 was deposited on September 25,2003. But no
entry was made in the cash book
 Receipt side of the bank column of the cash book was undercast by Rs.1,000
 An amount of Rs.49,960 was credited by the bank on account of the proceeds of a cheque for
Rs.50,000 deposited for collection: No entry was passed in the cash book for bank charges
 A cheque issued by a customer for Rs.5,300 was deposited in the bank on September
25,2003. But the same was dishonoured on September 29, 2003. No entry was passed in the cash
book for dishonour
 The amount of bills receivable collected directly by the bank aggregated to Rs.35,000
 The amount of bank charges of Rs.250 was recorded twice in the cash book
 A bill of Rs.80,000 discounted for Rs.70,960 was dishonoured by the bank, and noting
charges of Rs.150 was paid by the bank. No entry was made in the cash book.
The bank balance as per the bank statement on September 30, 2003 was
a. Rs.2,14,940 (credit)
b. Rs.1,34,940 (debit)
c. Rs.2,05,900 (debit)
d. Rs.2,04,240 (debit)
e. Rs.1,34,940 (credit).
(3 points)
< Answer
56. Taurus Ltd., a dealer in cosmetics, has the practice of selling goods only on credit. Consider the >
following balances pertaining to the company as on April 01, 2002:
Sundry debtors - Rs.10,000
Provision for doubtful debts - Rs. 400
And the following additional data of the company for the year 2002-2003:
Particulars Rs.
Sales for the year 2002-2003 1,00,000
Sales returns for the year 2002-2003 1,000
Collection from sundry debtors during the year 2002-2003 90,000
Bad debts written off during the year 2002-2003 500
Discount allowed during the year 2002-2003 400
At the
end of the financial year March 31, 2003, the provision for doubtful debts is required to be 5% of
sundry debtors, after making a specific provision for a debt of Rs.200 from a customer who was
declared bankrupt.
The amount debited to profit and loss account by way of provision for bad and doubtful debts for the
year ended March 31, 2003 was
a. Rs. 505
b. Rs. 905
c. Rs.1,095
d. Rs. 895
e. Rs 1,195.
(3 points)
< Answer
57. Snigdha Industries depreciates its machinery at 10% p.a. on straight-line basis. On April 01, 2002 the >
balance in the machinery account of the firm was Rs.8,50,000 (original cost Rs.12,00,000). On July 01,
2002 a new machine was purchased for Rs.25,000. On December 31, 2002 an old machine having a
written down value of Rs.40,000 as on April 01, 2002 (original cost Rs.60,000) was sold for Rs.30,000.
The balance showed in the machinery account of the business as on March 31, 2003 was
a. Rs.7,19,125
b. Rs.7,91,500
c. Rs.7,92,125
d. Rs.7,18,500
e. Rs.7,21,125.
(2 points)
< Answer
58. Consider the following data in respect of material traded by Success Ltd. during the month of >
September 2003:
Opening stock as on September 01 2003 is 1,000 kg. @ Rs.20 per kg.
Purchases Issues
Date Quantity (Kg) Rate per Kg Rs. Quantity (Kg)
September 10,2003 500 23.00
September 15,2003 750
September 20,2003 1000 26.25
September 30,2003 750 On
September 30, 2003, the value of stock held by the company under the Weighted Average Method is
a. Rs.23,083
b. Rs.23,000
c. Rs.24,000
d. Rs.28,000
e. Rs.26,250.
(2 points)
< Answer
59. On May 12, 2003, Xavier sold goods worth Rs.60,000 to Yamini. On May 15, 2003, Xavier drew three >
bills of exchange worth Rs.30,000, Rs.20,000 and Rs.10,000 payable after three months, two months
and one month, respectively. Yamini accepted all the bills and returned to Xavier immediately. On 18 th
June 2003, the drawer got discounted the first bill with his bank @ 10% p.a. On the same day, he
endorsed the second bill to Zaheer. He retained the third bill till maturity.
Yamini met the third bill on the due date but dishonoured the first and the second bills. Noting charges
amounting to Rs.250 for each of these two bills were incurred. Yamini was declared insolvent and could
pay only 50 paise in a rupee on August 30, 2003 in full settlement.
The journal entry passed in the books of Xavier to record recovery of the amount from the estate of
Yamini is
Rs. Rs.
a. Bank a/c Dr. 25,250
Bad debts a/c Dr. 25,250
To Yamini’s a/c 50,500
b. Bills receivable a/c Dr. 50,500
To Bank a/c 25,250
To Bad debts a/c 25,250
c. Bank a/c Dr. 25,125
Bad debts a/c Dr. 25,125
To Yamini’s a/c 50,250
d. Xavier’s a/c Dr. 50,500
To Bank a/c 25,250
To Deficiency a/c 25,250
e. Bank a/c Dr. 25,125
Deficiency a/c Dr. 25,125
To Bills Receivable a/c 50,250. (2
points)
Questions 60 and 61 are based on the following information:

Trial Balance of Vern & Co. as on March 31, 2003:
Particulars Debit (Rs.) Particulars Credit (Rs.)
5% Investments (as on 01.04.2002) 2,500 Capital Account 64,050
Cash with Traders Bank Ltd. 4,000 Interest 725
Stock on 01-04-2002 23,400 Sales 1,44,800
Furniture (as on 01-04-2002) 900 Discount 1,495
Sales returns 4,300 Purchases returns 2,900
Purchases 1,21,550 Sundry creditors 7,400
Audit fees 350
Carriage inward 9,300
Office administrative expenses 12,760
Interest 450
Sundry debtors 12,000
Discount 3,770
Advertising 5,600
Fire insurance premium 300
Cash on hand 190
Drawings 5,000
10% Deposits (as on 01.04.2002) 15,000
Total 2,21,370 Total 2,21,370
Adjustments:
• Value of Stock as on March 31, 2003 is Rs.39,300.(Market Value Rs.42,500). This includes goods
returned by customers on March 31, 2003 of the value Rs.1,500 for which no entry has been
passed in the books.
• Purchases include furniture purchased on January 01, 2003 for Rs.1,000.
• Depreciation should be provided on furniture at 10% per annum.
• Sundry debtors include Rs.2,000 due from Solmon and Sundry creditors include Rs.1,000 due to
him.
• The firm makes a provision for doubtful debts at 5% on sundry debtors. No such provision need
be made for the deposits.
< Answer
60. Considering the above Trial Balance and the additional information, the net profit made by the firm for >
the year ending March 31, 2003 was
a. Rs.8,275
b. Rs.6,325
c. Rs.6,350
d. Rs.7,250
e. Rs.7,275.
(3 points)
< Answer
61. The total of Balance Sheet of the firm as on March 31, 2003 was >
a. Rs.72,750
b. Rs.77,700
c. Rs.72,700
d. Rs.71,800
e. Rs.74,200.
(3 points)
< Answer
62. Global Tech Ltd. with its Head Office at Bombay has a Branch at Hyderabad. The branch receives all >
goods from Head Office, which also remits cash for all expenses. Sales are made by the branch on credit
as well as for cash.
Total sales made by the branch during the year 2002-2003 amounted to Rs.5,60,000 out of which 20%
was cash sales. The following further information pertaining to the branch for the year 2002-2003 is
available:
Particulars As on April 01, 2002 Rs. As on March 31, 2003 Rs.
Stock 25,000 36,000
Sundry debtors 60,000 48,000
Cash 120 180
The branch incurred
expenses as under:
Salaries – Rs.36,000
Rent – Rs.12,000
Petty expenses – Rs. 5,600
The amount collected from debtors during the year 2002-2003 was
a. Rs.4,60,000
b. Rs.5,72,000
c. Rs.5,36,000
d. Rs.5,24,000
e. Rs.5,08,000.
(2 points)
< Answer
63. Libra Ltd. with its Head Office at Jaipur has a Branch at New Delhi. Goods are invoiced to the Branch >
1
3
at cost plus 33 %. The following information is given in respect of the branch for the year ended
March 31, 2003:
Particulars Rs. Particulars Rs.
Goods Sent to Branch 4,80,000 Discount allowed 1,000
(invoice price)
Stock at branch (01-04-2002) 24,000 Bad debts 1,500
(at invoice price)
Cash sales 1,80,000 Stock at branch 48,000
(31-03-2003) at invoice price
Returns from debtors 6,000 Branch debtors balance 36,500
(31-03-2003)
Branch expenses paid for cash 53,500 Collection from debtors 2,70,000
Branch debtors balance 30,000 Branch debtors’ cheques 5,000
(01-04-2002) returned dishonoured
The profit of the branch under stock and debtors system for the year ended March 31, 2003 was
a. Rs.68,000
b. Rs.58,000
c. Rs.56,000
d. Rs.50,000
e. Rs.53,000.
(3 points)
< Answer
64. The Raval Coal Co. took from Krishna Ltd. a coalfield on lease for a period of 25 years from April 01, >
1999 on the following terms:
 Royalty of Rs.5 per ton of coal extracted

 Minimum rent of Rs.3 lakhs per annum
 Short workings: Lessee has authority to recoup the short workings during the first three years of
the lease.
The annual output for the past four years was as follows:
Year Output in tonnes
1999-2000 10,000
2000-2001 70,000
2001-2002 80,000
2002-2003 1,20,000 The amount of short workings recouped during the year
2001-2002 was
a. Rs. Nil
b. Rs. 50,000
c. Rs.1,00,000
d. Rs.2,50,000
e. Rs.2,00,000.
(2 points)
< Answer
65. The Ghat Collieries Ltd. leased a mine from Central Collieries Ltd. on the following terms: >
 Royalty of Rs.60 per ton

 Minimum rent of Rs.80,000 per annum
 Short workings: Lessee has power to recoup each year’s short workings out of the royalties of
next 3 years.
It was also agreed that in the event of a strike, the short workings, if any, would stand reduced
proportionately to time actually worked.
The annual output for the past six years was as follows:
Year Output in tonnes
1997-1998 600
1998-1999 1,250
1999-2000 1,500
2000-2001 1,800
2001-2002 (Strike for 3 months) 800
2002-2003 1,600 The amount of short workings recouped,
during the year 2002-2003 was
a. Rs.12,000
b. Rs.16,000
c. Rs. 8,000
d. Rs.17,000
e. Rs. Nil.
(3 points)
< Answer
66. Mayur Computers of Calcutta has a branch at Dehradun. Computers are supplied to the branch at cost. >
The expenses of the branch are paid from Calcutta and the branch keeps a sales journal and the debtors’
ledger only. The following information pertaining to the branch is available for the year ended March
31, 2003:
Opening stock (01-04-2002) 2,40,000 Sundry debtors (31-03-2003) 91,600
Closing stock (31-03-2003) 1,80,000 Goods received from Head Office 3,36,00
0
Credit sales 4,10,000 Expenses paid by H.O for the Branch 1,04,00
0
Cash sales 1,75,000 Cash received from debtors 3,79,00
0 For
the year ended March 31, 2003, the profit of the branch transferred to General Profit and Loss account
was
a. Rs. 55,400
b. Rs.1,45,600
c. Rs.1,28,400
d. Rs.1,16,000
e. Rs. 85,000.
(2 points)
< Answer
67. Consider the Balance Sheet of Net Services Ltd. as on March 31, 2003: >
Liabilities Rs. Assets Rs.

Share capital 1,00,000 Cash at bank 42,000
Profit and Loss account 19,000 Sundry debtors 90,000
Sundry creditors 25,000 Closing stock 10,000
Prepaid Rent 2,000
Total 1,44,000 Total 1,44,000
Following is the summary of transactions that occurred during the month of April 2003:
Rs.
• • Collections from debtors 88,000
• • Payments to creditors 24,000
• • Purchase of inventory on credit 80,000
• • Sale of inventory on credit (cost Rs.70,000) 85,000
• • Recognition of rent expenses in the month of April 2003 1,000
• • Salaries paid by cheque in the month of April 2003 8,000

Considering the above Balance Sheet and the additional information, the total of Trial Balance of the
company as on April 30, 2003 was
a. Rs.2,05,000
b. Rs.2,65,000
c. Rs.2,85,000
d. Rs.2,95,000
e. Rs.2,96,000.
(3 points)
Questions 68 and 69 are based on the following information:
On August 01,1999, Fly Travels Ltd. bought four Matador vans costing Rs.1,20,000 each. The company
expected to fetch a scrap value of 25% of the cost price of the vehicles after ten years. The vehicles
were depreciated under the fixed installment method up to March 31, 2002. With effect from April 01,
2002, the company decided to introduce the diminishing balance method of depreciation @20% p.a.
instead of the fixed installment method. The company sold one of the vans at Rs.70,000 on March 31,
2002.
< Answer
68. The company followed Straight-line method of depreciation up to March 31, 2002. The rate of >
depreciation charged up to March 31, 2002 was
a. 10.0%
b. 9.0%
c. 8.5%
d. 7.5%
e. 12.0%.
(1 point)
< Answer
69. The balance outstanding to the debit of Matador vans account as at March 31, 2003 was >
a. Rs.2,88,000
b. Rs.2,30,400
c. Rs.2,02,400
d. Rs.2,56,400
e. Rs.2,17,600.
(3 points)
< Answer
1
70. 33 >
3
Revanth Ltd. of Trivendrum sends goods to its Hyderabad Branch at cost plus %. Out of the goods
sent to the branch during the month of September 2003, part of the goods were lost in transit. The
transactions pertaining to the branch during the month of September 2003 were as under:
Particulars Rs.
Opening stock (invoice price) 30,000
Goods sent to Branch (invoice price) 1,30,000
Credit sales 88,000
Closing stock (invoice price) 24,000
Opening cash balance 4,000
Closing cash balance 14,000
Cash received from Branch 90,000
Cash collected from debtors 54,000 The cost price of the goods lost in
transit is
a. Rs.1,000
b. Rs.1,500
c. Rs.2,000
d. Rs.1,333
e. Rs. 500.
(2 points)
< Answer
71. Windy Ltd. has the practice of creating provision for doubtful debts @ 8% on debtors. The balance of >
provision for doubtful debts on April 01, 2002 and March 31, 2003 was Rs.32,000 and Rs.44,000,
respectively. During the year 2002-2003, the amount collected from debtors was Rs.60,50,000. Credit
sales during the year were
a. Rs.60,50,000
b. Rs.66,00,000
c. Rs.62,00,000
d. Rs.64,50,000
e. Rs.60,62,000.
(2 points)
< Answer
72. The following Trial Balance pertaining to John Vicky as on March 31, 2003 was prepared by an >
inexperienced accountant:
Trial Balance of John Vicky as at March 31, 2003
Debit Credit
Particulars
(Rs.) (Rs.)
Capital (1st April, 2002) 89,000
Drawings 10,000
Stock (1st April, 2002) 37,000
Purchases 2,31,250
Sales 3,94,000
Motor vehicles 14,500
Cash in hand 1,350
Sundry creditors 49,760
Sundry debtors 1,39,700
Bank overdraft 9,000
Administrative expenses 76,360
Office equipment 35,000
Carriage outward 2,310
Returns inward 2,050
Provision for bad debts 4,250
Returns outward 3,160
Discount allowed 2,800
Discount received 3,150
Total 5,52,320 5,52,320 Though, the Trial Balance
has tallied, it has certain errors which were subsequently rectified. The total of corrected Trial Balance
as on March 31, 2003 is
a. Rs.5,52,320
b. Rs.4,64,200
c. Rs.5,55,510
d. Rs.5,43,200
e. Rs.5,03,440.
(2 points)
< Answer
73. Consider the following data pertaining to Sarovar & Co. for the year ended March 31, 2003: >
Particulars Rs.
Sales 5,50,000
Purchases 4,50,000
Salaries and wages 22,000
Printing and stationery 3,000
Rent paid 12,000
Prepaid insurance 4,000
Carriage inward 3,700
Carriage outward 2,500
Returns outward 15,000
Closing stock 20,000 The manager of the business is entitled to a
commission of 6% on profit after charging his commission. The commission payable to the manager for
the year 2002-2003 is
a. Rs.1,800
b. Rs.1,668
c. Rs.2,366
d. Rs.1,908
e. Rs.1,574.
(2 points)
END OF SECTION B
Suggested Answers
Financial Accounting – I (111) : October 2003
1. Answer : (a) < TOP
>
Reason : FIFO method is based on the assumption that costs are charged against revenue in the order
in which they occur. It means, the first unit in stock is the first unit to be out. The closing
inventory consists of the units purchased last. If the prices are rising, goods are issued at
lower price and closing stocks are valued at higher price. It will help to create more profit.
Other inventory methods stated in Last in first out method (b), under this method, the last
unit in the stock is the first unit to be out and the costs are charged against revenue in the
reverse order of the fifo method and during the periods of rising prices, the closing stock
consists of stock with remote prices. Under Weighted average method (c), the stocks are
valued with certain weights as per the movement of stocks and the prices are restated at
every stage of purchase. Under simple average method (d) the stock procured at various
prices is computed on the average price of the stock. Under specific identification method
(e), the physical stock is verified on daily basis where the stock dealt is of high value Hence,
(a) is true.
2. Answer : (b) < TOP
>
Reason : Bad debts recovered is a wind fall gain and it is transferred to profit and loss account at the
time of preparation of final accounts. If provision account is there in the books it will be
transferred to provision account and the balance if any in the provision account will be
transferred to profit and loss account. It is recovery of bad debt written off and hence it is
not transferred to debtor’s account. It is not transferred to profit and loss adjustment
account. It is not an appropriation to be transferred to profit and loss appropriation account.
Provision for discount on debtors is the account created to record the discount allowed to
debtors and not to record either the bad debts or bad debts recovered. Thus, the answer is
(b).
3. Answer : (d) < TOP
>
Reason : Under the periodic system, the cost of goods sold is computed by subtracting the ending
inventories which are determined by the physical count from the sum of the opening
inventory plus purchases. Thus, it is computed as a residual amount. Hence, (d) is the
correct answer. Weighted average method, Last-in First-out and Specific identification are
the methods inventory valuation and not the systems of maintaining inventory records. And
are not the correct answers. Under the perpetual inventory system, a continuous record that
tracks inventories and the cost of goods sold on a day-to-day basis is arrived. It is not
computed as a residual amount.
>
Reason : An accounts receivable is not an intangible asset. It is the amount that the business has to
receive from its debtors. The other assets mentioned in alternatives a, b, c, and e – goodwill,
trademark, franchises and secret processes are intangible assets. Hence, the correct answer
is (d).
5. Answer : (b) < TOP
>
Reason : Error of principle denotes wrong classification of expenditure or revenue. If a company pays
for repairs on a machine, it should be debited to repairs account. If it is charged to
machinery account, it is an error of principle. Compensating error (b) is the one where one
error is compensated by another error or series of errors and the debit to machinery account
on account of repairs is neither compensated by another error or by series of errors and
hence it is incorrect. Error of commission (c) is incorrect because this is an error made in
recording the amount involved in a transaction while journalizing or posting to ledger
accounts. Error of omission may be partial or complete. Under completed omission, the
recording of an entry is completely omitted and it is incorrect answer. Error of partial
omission is result of omission one aspect of a transaction and it is not the correct answer (e).
Thus, (b) is the correct answer.
Reason : Outstanding salaries are short term obligations expected to be paid off during the short >
period of time. So, it is a current liability. Fixed deposits are the long-term obligations or
long term liabilities. Prepaid expenses, trademark and discount on issue of shares are assets.
Hence, (d) is correct answer.
>
Reason : Profit and loss account is an income statement which depicts all incomes/gains and
expenses/losses during an accounting period. Drawings are neither an income nor an
expense to be recorded in profit and loss account. Thus, (a) is the correct answer. The items
in other alternatives are either expenses or accrued expenses or probable expenses for which
provision is to be created and probable income of discount on sundry creditors. The
depreciation, bad debts and provision for doubtful debts and accrued expenses appear in the
profit and loss account and provision for income i.e. provision for discount on sundry
creditors. Hence, (a) is the correct answer.
8. Answer : (e) < TOP
>
Reason : According to Generally Accepted Accounting Principles, materiality concept, cost concept,
consistency concept and matching concept are considered as basic principles of accounting.
Logical principal is not considered as basic principle of accounting.
9. Answer : (e) < TOP
>
Reason : In contract accounting, there is a reasonable certainty that the project would be completed
and the return consideration is realized. In fact, return consideration may begin as soon as
the work begins. So, revenue may be recognized at work-in-progress. This is the exception
to the revenue recognition principle. Other principles stated in (a), (b), (c) and (d) are not
correct. Hence, (e) is true.
10 Answer : (b) < TOP
>
. Reason : The amount paid to the landlord for use of rights vested in him is the royalty. Dividends are
the amounts paid for the investment made in an enterprise and is not the correct answer.
Purchase consideration is the price paid for receiving a title of a property moveable and
immovable. And is not the correct answer. Installment is the payment of amount in stages
and is not the amount paid for using the rights vested in the landlord. And is not he correct
answer. Interest is the price paid for making use of others funds.
>
Reason : The economic life of an asset should be estimated on the basis of passage of time, asset
usage and obsolescence of the asset. It will not consider the factors like tax regulations,
SEBI guidelines, management and external factors. Hence (a) is true.
12 Answer : (c) < TOP
>
. Reason : According to the Negotiable Instrument Act, promissory note is not payable to the bearer. It
must contain an order to pay. So this is not the characteristic of promissory note. Other
options are the characteristics of promissory note.
>
. Reason : Fixed assets are for use over relatively long period and they are not meant for resale. Patents
(c) satisfy the characteristics of fixed assets and are shown under the category of Fixed
assets. Closing inventory (a) Fixed deposit in bank (b) and Prepaid expenses (d) are current
assets. Thus (c) is the correct answer.
>
. Reason : If the owner withdraws goods from the business, journal entry will be
Drawing account ……… Dr
To Purchases account
Other options, given in a, c, d and e, relating to drawings are not correct
15 Answer : (d) < TOP
>
. Reason : If the opening inventory of a business was under cast it will increase the gross profit and net
profit (d). The opening stock plus net purchases are the cost of goods sold for a given
period and its understatement will result in increase in gross profit and ultimately increases
net profit. The alternatives (a) and (d) are incorrect because, the increase in gross profit as a
result of understatement of opening stock will not decrease the net profit. The alternative
(c) is incorrect because opening stock does not reflect in balance sheet of a business either
to increase assets or decrease the value of assets. The alternative (b) is incorrect because the
decrease in cost of goods sold will not decrease gross profit and net profit.
16 Answer : (e) < TOP
>
. Reason : A business is generally split into many parts or divisions. If the various divisions are
situated under the same roof, they are known as departments. The other alternatives are the
various types of branches. If the divisions are located at different places of the same town or
different towns of the same country they are known as branches (a) The branches are
divided into two from the accounting point of view. Branches in respect of which the whole
of the accounting records are kept at the head office are dependent branches (b) and which
maintain independent records of accounts are independent branches (c) and branches located
in the country of head office are inland branches (d). The alternatives (a), (b), (c) and (d) are
not relevant in the present case.
>
. Reason : According to going concern concept (b), a business entity is assumed to carry on its
operations forever. Seemingly inconsequential, this is a fundamental concept, which has far
reaching consequences. The other concepts, business entity concept (a) treats business
distinct from the entity of its owners. According to the concept of periodicity (c) the income
or loss of the business is measured periodically, one year is the usual accounting period. The
conservatism concept (d) advocates that all possible losses should be provided for but not
any possible profit unless it is certain. The consistency concept (e) requires that once an
entity has decided on one method of treating an event in recording it in books of accounts, it
will treat all subsequent events of the same character in the same fashion. Thus, the
alternative (b) is the correct answer
>
. Reason : Trial Balance (e) is not a financial statement. It is a list of all accounts showing outstanding
balances at the end of the accounting period. It helps in the preparation of financial
statements. The Profit and Loss account (a); Profit and Loss appropriation account (b)
Balance Sheet (c) and Funds flow statement (d) are the financial statements prepared by a
business entity. Funds flow statement though categorized as one of the financial statements,
its preparation is not mandatory. Thus, (e) is the correct answer.
>
. Reason : In case of sub-lease, the lessor will be paid royalty on the basis of the combined output of
both the primary lease and sublease but not on the basis of the output of the primary lease
alone. Hence, the statement (b) is false.
The other statements are true and state the accounting for royalties and explain the terms
sub-lease; minimum rent etc.
If a lessee leases the whole or portion of the leased property it is a case of sub-lease (a).
Lessor is the person entitled to receive royalty and as such Royalty Receivable Account
opened in his books (c).
Lessee is the person who enjoys the rights of the leased property and in turn agrees to pay a
fixed amount known as minimum rent. Minimum rent is payable even in case of lower
output and resultant (lesser) royalty (d).
If the royalty is less than the minimum rent the lessee has to pay the minimum rent by
debiting short workings account. It is a loss/expenditure to the lessee, which may be agreed
to be recouped out of surplus in royalty of subsequent years. It may be recovered over a
period of time as agreed. It will be shown as an asset in the balance sheet of the lessee till it
is recoverable (e).
20 Answer : (a) < TOP
>
. Reason : Share capital is the contribution made by the owner(s) and is regarded as a liability to the
business in the nature of owner’s equity. The underlying feature for this treatment is the
distinction between the owner(s) and that of the business owned by them. According to
business entity concept whenever an owner brings capital into the business, the business in
turn is deemed to owe the capital to the owner. As such the share capital account is treated
as a liability to the business and shown under liabilities. The other concepts are not correct
because
(b) Money measurement concept explains that in financial accountancy, a record is made
only of information that can be expressed in monetary terms and ignores other events,
however significant they may be. It is silent about the treatment of share capital
account.
(c) Cost concept implies that in accounting all transactions are generally recorded at cost
and not at market value. It does not explain why share capital account is to be treated
as liability.
(d) Going concern concept explains that the resources of the concern would continue to be
used for the purposes for which they are meant to be used. The very categorization of
assets into fixed and current presupposes the going concern concept. It does not deal
about the treatment of share capital account.
(e) Conservatism concept: The theme behind this principle is that recognition of revenue
requires better evidence than recognition of expenses. It deals with revenues and
expenses and not the share capital account.
>
. Reason : A bill of exchange is treated as a bill receivable by the party who draws the bill and is
entitled to receive payment and he can endorse the bill to a third party before the due date
and become an endorser. The accounting treatment for endorsement in the books of endorser
will be
Endorsee’s a/c Dr.
To Bills receivable account
Hence, the endorsee’s account will be debited.
The other alternatives are not correct because,
(a) As per the accounting principle of personal accounts ‘debit the receiver and credit the
giver’ here the endorsee is the receiver and his account cannot be credited.
(c) ‘Bills receivable account’ is a real account and as per the accounting principle of real
accounts ‘debit what comes in and credit what goes out; bills receivable is parted with
on endorsement and hence it cannot be debited.
(d) and (e) A bill of exchange is a bill receivable to the endorser and bills payable account
does not reflect in his books.
< TOP
22 Answer : (e) >
. Reason : When goods are sent to branch the journal entry in the head office books is
Branch account Dr
To Goods sent to branch account
Thus branch account will be debited.
The other statements are not correct because
(a) Goods sent to branch account will be credited and not debited as the credit aspect of
the transaction is ‘goods sent to branch account’.
(b) Branch account will be debited and not credited.
(c) and (d) When goods are sent to branch, the accounts affected are branch account and
goods sent to branch account. Debtor’s account is not affected; hence it is neither credited
nor debited.
< TOP
23 Answer : (b) >
. Reason : The subordinate divisions of a business are the branches of a business and one of the
popular systems of accounting treatment is stock and debtors system. The head office
prepares a) branch account b) branch debtors account c) branch expenses account (d) branch
adjustment account (e) branch stock reserve account and f) branch profit and loss account.
Branch adjustment account is prepared to adjust the difference of selling price and cost. The
resultant figure is the gross profit. Here, the goods are invoiced at selling price.
The other statements are false because a) branch account is a personal account and not a real
account c) branch stock account is prepared at selling price also d) Under debtors system,
the depreciation is not shown but the net balance of the asset account is shown in the branch
account. The bad debts, discount allowed are reflected in debtors account and not in branch
account. e) Under stock and debtors system, branch stock account is an asset, which will be
shown in the balance sheet, and it is not a nominal account.
>
. Reason : The royalty payable is a fixed minimum amount or actual royalty computed on the basis of
output, whichever, is higher. The excess of minimum rent over the actual royalties is termed
as shortworkings. In the books of lessee shortworkings recoverable amount is debited to
Landlord’s account in the event of surplus of actual royalty over minimum rent. The
shortworkings are recouped over a period of time as per the agreement.
The other accounts mentioned are not debited with because
(a) Profit and loss account is debited with lapsed shortworkings amount to write off the
irrecoverable shortworkings.
(b) The minimum rent is only a fixed amount agreed as minimum rent even if the royalties
based on output turns out to be lower.
(c) The excess of minimum rent over the actual royalties based on output is short
workings. Short workings account is credited with the amount of short workings
recouped.
(d) Royalty account is debited with the amount of royalty calculated basing on the output
or minimum rent whichever is higher. Short workings amount is not reflected in
royalty account. Thus,(e) is the correct answer.
>
. Reason : A contingent liability is the loss which will be known or determined only on the occurrence
or non-occurrence of one or more future uncertain events. Debts of debtors is not an
uncertain event but only the realization of a part of the debt in doubtful for which provision
must be provided and hence it is not a contingent liability. Items in other alternatives
uncalled liability on partly paid shares (b) may be called up in the event of necessity, Claims
against the company not acknowledged as debts (c) they may or may not turn out to be debts
in future. Arrears of cumulative fixed dividend (d) are contingent liabilities. Liability for
bills receivable discounted previously (e) is a contingent liability, which is dependent on the
solvency of the drawee.
>
. Reason : Royalty amount, whether it is less than or more than the minimum rent, payable to landlord
is the revenue expenses of the business. At the end of the year, the royalty account will be
closed by transferring it to profit and loss account. It cannot be transferred to capital reserve
account, reserve capital account, profit & loss adjustment account and profit & loss
appropriation account
>
. 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
>
. Reason : Bank account is a personal account is a correct statement. Alternative (b) is incorrect
because, stock of stationery is a real account, which indicates the value of stationery in
stock. Returns inward account (c) is a nominal account which indicates the sales returns and
to be reflected in the trading account of a business. Outstanding rent account (d) is a
representative personal account and not nominal account. Capital account (e) is a
representative personal account, which indicates the funds owned by the owners, and it is
not a real account. Thus (a) is the correct answer.
>
. Reason : Advance payment made to suppliers for materials is not classified as inventory. Other items
mentioned in (a), (b), (c) and (d) are classified as inventory in the financial statements as
they are the components of inventory
>
. Reason : Bank balances and cash balances represent real accounts and the debit balances in bank
column and cash column represent assets and the credit balances represent liabilities to a
firm. But credit balance in cash column is only hypothetical and it never happens in
practical life. The credit balance in bank column of cash book represents overdraft and it is a
liability of a business.
>
. Reason : Inventory valuation affects not only income statement, balance sheet also. If capital
expenditure is treated as revenue expenditure, it is an error of principle but not the error of
commission. Journal entry is required for any bill endorsement. Inventories should be
valued at lower of historical cost and market value but not replacement cost. All these
statements given in (a), (c), (d) and (e) are false. But under casting or over casting of
subsidiary book is the example of error of commission. Hence (b) is correct.
>
. Reason : Un expired insurance or prepaid insurance must be shown on the assets side of the balance
sheet, because it is an asset. It cannot be shown on the liabilities side of the balance sheet. It
cannot be debited to trading a/c. and profit & loss a/c. Also it cannot be credited to profit &
loss a/c. Hence (e) is true.
>
. Reason : The un recovered short workings after the expiration of the stipulated period is to be written
off by debiting profit & loss account, because it is a loss. It cannot be debited to minimum
rent account, landlord a/c., royalty account or profit and loss adjustment account. Hence, (d)
is true.
>
. Reason : Bad debts recovery amount will be transferred to profit and loss account and not to sundry
debtors account. Hence, (a) is not correct. Bill of exchange is drawn by the drawer i.e. the
seller and not the purchaser. According to Companies Act, all assets must be depreciated.
Drawing of goods by the owner of a business will be debited to capital account and hence
does not affect the profit and loss. Hence, (a), (b), (d) and (e) are not true. By tallying trial
balance always proves the arithmetical accuracy of the accounting records. Hence, (c) is
correct.
< TOP
35 Answer : (a) >
. Reason : Conservatism concept means the early recognition of unfavorable events. Under this
concept, the business must provide all expected losses but does not account for anticipated
profit. In the given situation, provision for bad debt made out of profit for future bad debt
loss is as per the conservative approach.
>
. Reason : Under straight line method of depreciation, the depreciable asset whether tangible or
intangible is depreciated over its useful life with an equal amount of depreciation in each
period. This is the widely used approach of recongnising an equal amount of depreciation
expense in each period of a depreciable asset’s useful life. Thus, alternative (a) is the correct
answer. Alternative (b) Written down value method is incorrect because where the asset is
depreciated on diminishing balance of the asset where in the depreciation expense is not
equal in each period. Alternative (c) double declining method is incorrect because, under
this method depreciation expense is not equal like under written down value method and it
is more in the initial stages of the acquisition of the asset and less in the later periods. The
method of recording depreciation under sum of the years’ digits method (d) is not equal in
each period it is also more in the early periods of acquisition of the asset and less in the later
periods. There is no method by name-accumulated depreciation (e) and it is only the
amount of depreciation accumulated over a period of time.
>
. Reason : Purchase of fixed assets on credit is entered in journal proper and subsequently posted into
the ledger. It is not recorded in purchases book as only purchase of goods will be recorded
in purchases book. In cash book, only cash transactions will be recorded. As the fixed assets
were purchased on credit, this transaction will not be recorded in the cash book.
>
. Reason : The fundamental principle is that every transaction has dual aspect, an aspect of giving and
an aspect of receiving. Under double entry system of accounting, both these aspects of
receiving and giving are recorded in terms of account. Thus, the receiving and giving entries
are being made in the business books, which are equal and opposite of one another because
every debit has equal, and opposite credit. Hence alternative (a) is the correct answer.
Alternative (b) is incorrect because double entry does not involve keeping two sets of books
for the business. Alternative (c) is incorrect because business book-keeping being kept by
more than one person is not the principle of double entry system of accounting. Alternative
(d) is incorrect because whether double entry or single entry business books may be checked
twice. Double entry system of accounting does not involve in checking of the entries once
or twice. Alternative (e) is incorrect because under double entry system of accounting if an
entry is recorded once in the cash book it will not find its place in any other subsidiary book.
If it is recorded in the journal it will not be recorded again in the cash book. Hence correct
answer is (a).
>
. Reason : Current assets are the assets which can be converted into cash with in an accounting period
i.e. Usually twelve months. Bank overdraft is a liability of a business and is not a current
asset. Thus, (a) is the correct answer. Alternatives (b) stock, (c) debtors, (d) pre-paid
expenses, accrued income (e) are current assets of a business and are not the correct
answers.
>
. Reason : Owners’ equity in a business is the amount of funds belonging to the owners. The
composition of assets does not affect the owners’ equity. Hence, the percentage of total
assets held in cash does not affect the owners’ equity. On the other hand it indicates the
liquidity position of the business. Owners’ equity represents investments made in the
business by the owners (b), the profits of the business (c) and the owners’ equity is affected
by a change in any of these items. The amount of dividends paid to stockholders (d) affects
the owners’ equity in the business with a corresponding decrease in the equity. Sale of asset
for an amount less than the book value (e) decreases the owners’ equity in a business.
Hence, transactions in alternatives (d) and (e) adversely affect the owners’ equity in a
business. Thus, correct answer is (a) which does not affect the owners’ equity.
>
. Rs.1, 92, 000 −Rs.10, 000
= Rs.26, 000
7 years
Reason : Depreciation =
The cost as on March 31, 2002 is irrelevant (cost concept).
>
.
S
n
C
Reason : Rate of depreciation = 1–
86, 700
2
1, 20, 000
= 1–
= 1 – 0.85 = 15%.
>
. Reason : The journal entry to record the inter branch transactions in the books of Head Office, on
account of goods sent by Agra branch to Delhi branch is
Delhi branch a/c Dr. Rs.30,000
To Agra branch a/c Rs.30,000.
>
. Reason : Closing balance of provision Rs.2,200
Add: Debit balance of provision account Rs.3,500
Profit and loss account will be debited by . Rs.5,700
>
. Reason : Cost of goods sold = Purchases + Opening stock – Closing stock
= Purchases – (Closing stock – Opening stock)
= Rs.50,000 – (Rs.10,000)*= Rs.40,000
Since, the closing stock has been increased by Rs.10,000
>
. Reason : Total sales during the year = Opening stock + Net purchases + Gross profit – Closing stock.
= Rs.17,500 + Rs.85,000 (Rs.92,000 – 7,000)+Rs.19,500 – Rs.20,000
= Rs.1,02,000.
>
. Reason : Salary as per income statement Rs.4,15,000
Add: Outstanding salary as on April 01, 2002 Rs. 52,000
Rs.4,67,000
Less: Outstanding salary as on March 31, 2003 Rs. 64,000
Cash paid for salary during the year Rs.4,03,000
>
. Reason : Debtors as per trail balance Rs.40,600
Less: Bad debts written-off Rs. 600
Rs.40,000
Less: Provision for bad debts@ 5% Rs. 2,000
Rs.38,000
2
×Rs.38, 000 = Rs.760
100
Provision for discount on sundry debtors will be
>
. Reason : Purchases Day Book
Date Particulars Details Total
(Rs.) (Rs.)
Sept. 01 50 Black & White T.V. @ Rs.3,000 each 1,50,000
10 Colour T.V. @ Rs.6,000 each 60,000
2,10,000
Less: Trade discount @ 10% 21,000 1,89,000
Sept. 09 10 pieces of Taperecorder @ Rs.1,000 each 10,000
10 pieces of Two-in-one @ Rs.1,500 each 15,000
25,000
Less: Trade discount @ 10% 2,500 22,500
Sept. 19 100 pieces of Audio Casettes @ Rs.30 each 3,000
Less: Trade discount @ 5% 150 2,850
2,14,350
The purchase of stationery is not a part of purchase of goods and it is to be debited to
stationery account.
>
. Reason : Costs that improve the revenue earning capability of an asset should be capatilised as part of
the cost of the asset (for example, Rs.40,000 paid for additional component for increasing
the earning capacity). However, costs that maintain the revenue earning capability (such as
the maintenance charges and the replacement parts) should be treated as revenue expenses
and they are to be charged to the Profit and Loss Account. The correct figure for
depreciation calculation is therefore, as under:
Particulars Rs. Rs.
Cost less discount 4,70,000
Delivery charges 10,000
Erection charges 20,000
Additional component to increase the capacity 40,000 5,40,000
>
. Reason :
Particulars Rs.
Sales a/c. Dr. 3,000
Drawings a/c Dr. 500
To Purchases a/c
(Being the adjustment for goods withdrawn by the proprietor)
Cost of goods withdrawn by the proprietor will be treated as drawings. The market value of
goods Rs.4,500 is immaterial. Sales account has already been credited by Rs.3,000.
Therefore, the balance is to be adjusted by debiting Drawings account and Sales account and
crediting Purchases account.
>
. Reason : In the books of Amar
Journal
Bimal’s A/c Rs.30,300
Dr.
To Amith ‘s A/c Rs.30,300
(Being the bill endorsed in favour of Amith now dishonoured,
noting charges being Rs.300 i.e. 10% of the bill)
>
.
Reason : The value of the stock at ‘the lower of cost and net realizable value’ is as follows:
Car Fiat Ambassador Maruti Maruti 800 Zen Total
Esteem (Rs.)
Value (Rs.) 90,00 1,15,000 2,65,000 1,00,000 2,00,00 7,70,000
0 0
The appropriate stock figure is Rs.7,70,000 as calculated above.
>
. Reason : Corrected Trial Balance
Particulars Debit Credit
(Rs.) (Rs.)
Provision for doubtful debts 2,000
Bank overdraft 16,540
Sundry debtors 29,830
Discount received 2,520
Drawings 12,000
Office furniture 21,550
Purchases 1,09,230
Rent and rates 3,140
Salaries 25,200
Provision for depreciation on furniture 3,640
Capital 45,910
Sundry creditors 16,370
General expenses 8,290
Cash sales 60,800
Credit sales 1,08,020
Total 2,44,050 2,55,800
Suspense (Debit) Rs.2,55,800 – Rs.2,44,050 = Rs.11,750.
>
. Reason : Bank Reconciliation Statement as on September 30, 2003
Rs. Rs.
Bank overdraft per the cash book 1,62,000
Add: Cheque for Rs.50,000 deposited but collection as per bank
statement Rs.49,960 i.e. bank charges 40
Cheque dishonoured as per the bank statement 5,300
Bill for Rs.80,000 discounted for Rs.70,960 dishonoured by
the bank, noting charges being Rs.150 80,150 85,490
2,47,490
Less:Cheque deposited but not recorded in the cash book 7,000
Debit side of the bank column cast short 1,000
Bills collected directly by the bank 35,000
Bank charges recorded twice in the cash book 250 43,250
Bank overdraft as per the pass book (Dr.) 2,04,240
>
. Reason :
Dr. Sundry Debtors Account
Cr.
Date Particulars Rs. Date Particulars Rs.
April 01, 2002 To Balance b/d 10,000 March 31, By Returns inward a/c 1,000
2003
March 31, 2003 To Sales a/c 1,00,00 March 31, By Cash a/c 90,000
0 2003
March 31, By Bad debts a/c 500
2003
March 31, By Discount allowed 400
2003 a/c
March 31, By Balance c/d 18,100
2003
1,10,00 1,10,000
0
Dr. Provision for Bad Debts Account
Cr.
March 31, 2003 To Bad Debts 500 April 01, 2002 By Balance b/d 400
To Balance 1,095 March 31, By Profit & Loss a/c 1,195
c/d 2003
1,595 1,595
On March 31, 2003 the balance of sundry debtors is Rs.18,100. This amount includes Rs.200 due
from a debtor who has been declared bankrupt. Therefore, provision for doubtful debts is to be
created 100% on Rs.200 and 5% on Rs. 17,900 (Rs.18,100 – Rs.200)
The total provision on March 31, 2003 = Rs.200 + Rs.895 + 500 = Rs.1,595 and less existing
provision of Rs.400 and amount debited to profit and loss account is Rs.1,195.
>
. Reason :
Dr. Machinery Account
Cr.
April 01, 2002 To Balance b/d 8,50,0 Dec. 31, 2002 By Bank a/c (sale of old 30,000
00 machine)
July 01, 2002 To Bank a/c 25,000 Dec. 31, 2002 By Depreciation a/c (WN – 4,500
(new machine) 2)
Mar. 31, 2003 By Profit & loss a/c (WN – 5,500
2)
March 31, By Deprecation a/c (WN – 1,15,87
2003 1) 5
March 31, By Balance c/d 7,19,12
2003 5
8,75,0 8,75,00
00 0
Working Notes:
(1) Calculation of depreciation Rs. (2) Calculation of loss on sale of Rs.
for year 2002-2003 machinery
Opening balance (original) 12,00,000 Written down value on April 01, 2002 40,000
Less: Original cost of machine 60,000 Less: Depreciation @ 10% p.a. on 4,500
sold Rs.60,000 for 9 months)
11,40,000 Written down value on December 31, 35,500
2002 (Date of sale)
Depreciation @ 10% p.a. (old 1,14,000 Less: Sales value 30,000
machine)
Depreciation for 9 months (new 1,875 Loss 5,500
machine)
1,15,875
>
. Reason : Valuation of closing stock under Weighted Average Method
Purchases Issues Balance
Date
Value Value Value
Sep. 2003 Quantity Rate Quantity Rate Quantity Rate
(Rs.) (Rs.) (Rs.)
1 Opening 1,000 20 20,00
Stock 0
10 500 23 11,500 1,500 21 31,50
0
15 750 21 15,750 750 21 15,75
0
20 1,000 26.25 26,250 1,750 24 42,00
0
30 750 24 18,000 1,000 24 24,00
0
Value of closing stock 1,000 24,00
0
>
. Reason : In the books of Xavier
Journal
Aug. 30 Bank A/c Dr. Rs.25,250
Bad Debts A/c Dr. Rs.25,250
To Yamini’s A/c Rs.50,500
(Being a final dividend of 50 paise in the rupee is received
in full settlement)
>
. Reason :
Dr. Trading and Profit & Loss Account for the year ended March 31, 2003 Cr.
Particulars Rs. Rs. Particulars Rs. Rs.
To Opening Stock 23,400 By Sales 1,44,800
To Purchases 1,21,550 Less Sales returns: 5,800 1,39,00
Rs.(4,300 + 1,500) 0
Less Purchases returns 2,900 By Closing stock 39,300
1,18,650
Less Furniture purchasd 1,000 1,17,65
0
To Carriage inwards 9,300
To Gross profit c/d 27,950
1,78,30 1,78,30
0 0
Office Administrative expenses By Gross profit b/d 27,950
12,760 By Interest received 1,625
(Note 1)
To Interest 450 By Discount received 1,495
To Advertisement 5,600
To Discount allowed 3,770
To Audit fees 350
To Fire insurance premium 300
To Provision for doubtful debts 475
(Note 3)
To Depreciation on furniture: 115
Rs.(90+25)
To Net Profit (transferred to 7,250
capital)
31,070 31,070
. Reason : Balance Sheet of as at March 31, 2003 >
Liabilities Rs. Rs. Assets Rs. Rs.

Capital Furniture 900
Opening balance 64,0 Addition during the 1,000
50 year
Less: Net Profit during the year 7,25 1,900
0
71,3 Less Depreciation 115 1,785
00
Less Drawings 5,00 66,300 5% Investments 2,500
0
10% Deposits 15,000
Accrued Interest on 900
deposits (Note 2)
Sundry Creditors: Rs.(7,400 – 1,000) 6,400 Stock-in-trade 39,300
Sundry debtors (Note 9,500
3)
Less: Provision for 475 9,025
doubtful debts (Note 3)
Cash with Traders 4,000
Bank
Cash on hand 190
72,700 72,700
Working Notes:
(1) (2) Calculation of Provision for Doubtful Debts
Rs. Rs.
(1) Interest accrued on deposits Sundry debtors as per Trial 12,000
Balance
Annual interest on investments @ 5% 125 Less: Sales returns not recorded 1,500
Annual interest on deposits @10% 1,500 10,500
1,625 Less: Cancellation against sundry 1,000
creditors
Less: Interest received on investments and 725 Net balance of sundry debtors 9,500
deposits
Provision for doubtful debts to be 475
created @ 5%
Accrued Interest 900
>
. Reason :
Working Notes:
(1) Cash sales & Credit sales
Rs.
Total sales 5,60,000
Less: Cash sales (20% of Rs.5,60,000) 1,12,000
Credit sales (80%) 4,48,000
Dr. Memorandum Branch Debtors Account Cr.
To Balance b/d 60,000 By Bank A/c (Balancing 4,60,000
figure)
To Credit Sales (Note 1) 4,48,000 By Balance c/d 48,000
5,08,000 5,08,000
The amount collected from debtors to be shown in branch account is Rs.4,60,000.
>
. Reason : In the books of Head Office, Jaipur
Dr. New Delhi Branch Stock Account
Cr.
1-4-2002 To Balance b/d (stock) 24,000 31-3- By Bank A/c (cash 1,80,000
2003 sales)
31-3-88 To Goods Sent to Branch A/c 4,80,000 By New Delhi Branch 2,80,000
Debtors A/c (Note 1)
(Credit sales)
To New Delhi Br. Debtors 6,000 By Shortage-in-stock 2,000

A/c (Returns) A/c (Balancing
figure)
By Balance c/d 48,000
5,10,000 5,10,000
Dr. New Delhi Branch Debtors Account
Cr.
1-4-2002 To Balance b/d 30,000 31-3- By Bank A/c 2,70,000

2003 (Collection)
31-3-2003 To Bank A/c (Dishonour of 5,000 By New Delhi Branch 6,000

cheques) A/c
To New Delhi Branch 2,80,00 Bad debt

Stock A/c (Note 1) 0 Rs.1,500

Rs.1,000
By Balance c/d 36,500
3,15,00 3,15,000
0
Dr. New Delhi Branch Adjustment Account

Cr.
31-3-2003 To Branch Expenses A/c (Note 4) 56,000 1-4- By Stock Reserve 6,000
2002 A/c (Note 2)
To Shortage-in-stock A/c (Note 2,000 By Goods Sent to 1,20,00
5) Branch A/c (Note 3) 0
To Stock Reserve A/c (Note 6) 12,000
To Profit (Trans. to General 56,000
P & L A/c)
1,26,00 1,26,00
0 0
The profit made by the branch for the year ended March 31, 2003 was Rs.56,000.
Working Notes:
1. Credit sales have not been given in the problem. So, the balancing figure of Branch Debtors
Account is to be taken as credit sales
13 13 13 14
2. Loading is 33 on cost i.e. 33 , 133 or i.e., 25% on invoice value. Therefore
loading on opening stock is Rs.24,000/4 = Rs.6,000.
3. Loading on goods sent = Rs.4,80,000/4 = Rs.1,20,000.
4. Total branch expenses = Cash expenses are Rs.53,500 + Bad Debts Rs.1,500 + Discount
allowed Rs.1,000 = Rs.56,000.
5. Loading on closing Stock = Rs.48,000/4 = Rs.12,000.
>
. Reason : Rate per ton – Rs.5; minimum Rent – Rs.3,00,000
The amount of short working recouped during the year 2001-2002 is Rs.1,00,000
Analysis of Royalties Payable
Minim Excess
Outpu Actual Amount
Year um Workin Shortworkings
t Royalties Payable
Rent g
Suffer Recoup Writte
C/F
ed ed n – off
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
1999- 10,00 50,000 3,00,0 - 2,50,0 - - 2,50,0 3,00,00
2000 0 00 00 00 0
2000- 70,00 3,50,000 3,00,0 50,000 - 50,000 - 2,00,0 3,00,00
2001 0 00 00 0
2001- 80,00 4,00,000 3,00,0 1,00,00 - 1,00,00 1,00,0 NIL 3,00,00
2002 0 00 0 0 00 0
2002- 1,20,0 6,00,000 3,00,0 3,00,00 - - - - 6,00,00
2003 00 00 0 0
>
. Reason : Analysis of Royalties Payable
Outpu
Minim Excess
t Actual Amount
Year um Workin Shortworkings
(Tonne Royalties Payable
Rent g
s)
Suffer Recoup Writte
C/F
ed ed n – off
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
1997- 600 36,000 80,000 - 44,00 - - 44,00 80,000
1998 0 0
1998- 1,250 75,000 80,000 - 5,000 - - 49,00 80,000
1999 0
1999- 1,500 90,000 80,000 10,000 - 10,000 - 39,00 80,000
2000 0
2000- 1,800 1,08,000 80,000 28,000 - 28,000 6,000 80,000
5,000
2001
2001- 800 48,000 *72,00 - *24,00 - 5,000 24,00 72,000
2002 0 0 0
2002- 1,600 96,000 80,000 16,000 - 16,000 - 80,000
8,000
2003
The amount of short workings recouped during the year 2002-2003 was Rs.16,000.
* Actual short working are Rs.32,000 (Rs.80,000 – Rs.48,000). But it is reduced to 75% (9
months) i.e. Rs.24,000. Therefore, minimum rent is adjusted accordingly (Rs.48,000 + Rs.24,000
= Rs.72,000.)
>
. Reason : In the books of the Head Office (Calcutta)
Dehradun Branch Account
2002 To Balance b/d 2003 By Bank A/c
April 01 March
31
Stock 2,40,0 Cash sales 1,75,00
00 0
Debtors (Note 1) 60,600 Received from 3,79,00
Debtors 0
2003 To Bank A/c (expenses) 1,04,0 By Balance c/d
March 31 00
To Goods Sent to Branch 3,36,0 Stock 1,80,00
A/c 00 0
To General Profit & Loss 85,000 Debtors 91,600
A/c
8,25,6 8,25,60
00 0
Memorandum Branch Debtors Account
To Balance b/d (balance figure) 60,600 By Cash 3,79,000
To Sales (credit) 4,10,000 By Balance c/d 91,600
4,70,600 4,70,600
>
. Reason :
Trial Balance of Net Services Ltd. as on 30-4-2003
Heads of Accounts Debt Balance (Rs.) Credit Balance (Rs.)
Cash at bank 98,000
Sundry Debtors Account 87,000
Purchases Account 80,000
Prepaid Rent Account 1,000
Rent Expenses Account 1,000
Salaries Account 8,000
Inventory Account 10,000
Sundry Creditors Account 81,000
Sales Account 85,000
10. Share Capital Account 1,00,000
11. Profit and Loss account 19,000
TOTAL 2,85,000 2,85,000
Working Notes:
1. Cash account Rs.
Opening Cash 42,000
Add: Collections from debtors 88,000
1,30,000
Less: Paid to creditors 24,000
Wages paid 8,000
Closing cash balance 98,000
2. Sundry debtors
Opening balance 90,000
Add: Credit sales 85,000
1,75,000
Less: Cash received 88,000
Closing balance 87,000
3. Sundry creditors
Add: Credit purchases 80,000
1,05,000
Less:Cash paid 24,000
4. Prepaid rent
Less: Rent recognized 1,000
5. Rent account 1,000
6. Sales 85,000
7. Purchases 80,000
8. Wages 8,000
9. There is no change in closing stock,
capital and profit and loss accounts
>
. Reason : Rate of depreciation under SLM
Total depreciation = Cost of asset – Scrap value = Rs.1,20,000–Rs.30,000=Rs.90,000
Total depreciation Rs.90, 000
Life of the asset 10 years
Annual depreciation = = =
Rs.9,000
Annual depreciation 9, 000
×100 ×100
Cost of the asset 1, 20, 000
= = 7.5%.
>
. Reason :
Dr. Matador Vans Account
Cr.
1999 July 01 To Bank A/c 4,80,00 2000 March By Depreciation A/c 24,000
0 31 (8 months)
By Balance c/d 4,56,00
0
4,80,00 4,80,00
0 0
2000 April To Balance b/d 4,56,00 2001 March By Depreciation A/c 36,000
0 31
0
4,56,00 4,56,00
0 0
2001 April 01 To Balance b/d 4,20,00 2002 March By Depreciation A/c 36,000
0 31
By Bank A/c 70,000
By Profit & Loss A/c 26,000
(Note 1)
0
4,20,00 4,20,00
0 0
2002 April 01 To Balance b/d 2,88,00 2003 March By depreciation A/c 57,600
0 31 (20% on Rs.2,88,000)
0
2,88,00 2,88,00
0 0
2003 April 01 To Balance b/d 2,30,40
0
>
. Reason : Dr. Branch Cash A/c
Cr.
To Opening balance 4,000 By Remitted to HO 90,000
To Cash collected from debtors 54,000
To Cash sales
46,000 By Closing balance 14,000
(Balancing figure)
1,04,000 1,04,000
Dr. Branch Stock A/c
Cr.
To Opening balance 30,000 By Credit sales 88,000

To Goods sent to Branch 1,30,000 By Cash sales 46,000
By Closing balance 24,000
By Stock lost
2,000
(Balancing figure)
1,60,000 1,60,000
Invoice Price = Rs.2,000
1
33 %
3
Margin on cost price = i.e., 25% on sales.
3
4
Cost price of the goods lost in transit= Rs.2,000 × = Rs.1,500.
>
. Reason : Dr. Sundry Debtors Account
Cr.
April 01, To Opening 2002-2003 By Cash

2002 balance 4,00,000 60,50,000
(32,000/8%)
2002-2003 To Credit sales March 31, By Closing
(Balance figure) 62,00,000 2003 balance 5,50,000
(44,000/8%)
66,00,000 66,00,000
>
. Reason :
Trial Balance of John Vicky as at March 31, 2003
Debt Balance Credit Balance
Sl.No Heads of Account
(Rs.) (Rs.)
1. Capital (1st April, 2002) 89,000
2. Drawings 10,000
3. Stock (1st April, 2002) 37,000
4. Purchases 2,31,250
5. Sales 3,94,000
6. Motor Vehicles 14,500
7. Cash in Hand 1,350
8. Sundry Creditors 49,760
9. Sundry Debtors 139,700
10. Bank Overdraft 9,000
11. Wages & Salaries 62,000
12. Lighting & Heating 3,150
13. Office Equipment 35,000
14. Carriage Outward 2,310
15. Returns Inward 2,050
16. Provision for Bad Debts 4,250
17. Returns Outward 3,160
18. Discount Allowed 2,800
19. Discount Received 3,150
20. Rent, Rates & Insurance 11,210
TOTAL 5,52,320 5,52,320
>
. Reason : Trading account and Profit and loss account for the year ended March 31, 2003.
Dr.
Cr.
5,50,00
To Opening stock 40,000 By Sales
0
Less: Returns 20,00
To Purchases 4,50,000 5,30,000
inward 0
Less: Returns outward 15,000 4,35,000 By Closing stock 20,000
To Salaries and wages 22,000
To Printing and stationery 3,000
To Rent 12,000
To Carriage inward 3,700
To Carriage outward 2,500
To Manager’s commission 1,800
To Net Profit 30,000
5,50,000 5,50,000
Profit before charging Manager’s commission = Rs. 31,800
31, 800
Rs. ×6 = Rs.1, 800
106
Manager’s Commission = .

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Question Paper

Financial Accounting – I (111) : October 2003

a. Passage of time, asset usage, and obsolescence

a. Drawings account and crediting cash account

a. Increase gross profit and decrease net profit

a. Profit and loss account

a. Debit Goods sent to branch account

a. Under debtors system, Branch account is a real account

a. Profit & loss account

a. Debts included in sundry debtors which are doubtful in nature

a. Bank account is a personal account

a. Debit balance of analytical petty cash book

a. Inventory valuation affects only the income statement

a. Debited to the trading account

a. Bad debts recovered account is transferred to sundry debtors account

I. Income received in advance

a. Both (I) and (IV) above

a. The percentage of total assets held in cash

Section B : Problems (60 Points)

Opening stock Rs.17,500

 Total sundry debtors as per Trial Balance Rs.40,600

Questions 60 and 61 are based on the following information:

 Royalty of Rs.5 per ton of coal extracted

 Royalty of Rs.60 per ton

Liabilities Rs. Assets Rs.

• • Salaries paid by cheque in the month of April 2003 8,000

Liabilities Rs. Rs. Assets Rs. Rs.

To New Delhi Br. Debtors 6,000 By Shortage-in-stock 2,000

By Balance c/d 48,000

1-4-2002 To Balance b/d 30,000 31-3- By Bank A/c 2,70,000

31-3-2003 To Bank A/c (Dishonour of 5,000 By New Delhi Branch 6,000

To New Delhi Branch 2,80,00 Bad debt

Discount allowed 2,500

By Balance c/d 36,500

Dr. New Delhi Branch Adjustment Account

Particulars Rs. Particulars Rs.

To Opening balance 30,000 By Credit sales 88,000

April 01, To Opening 2002-2003 By Cash

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