CA Foundation Accounts Important Question
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CA Foundation Jan 25 Important Question Other Subjects Blogs :
Question 1.
Distinguish between:
Answer:
(i) Distinction between Money measurement concepts and matching concept
As per Money Measurement concept, only those transactions, which can be measured in terms of money are recorded. Since money is the medium of exchange and the standard of economic value, this concept requires that those transactions alone that are capable of being measured in terms of money be only to be recorded in the books of accounts. Transactions and events that cannot be expressed in terms of money are not recorded in the business books.
In Matching concept all expenses matched with the revenue of that period should only be taken into consideration. In the financial statements of the organization if any revenue is recognized them expenses related to earn that revenue should also be recognized.
(ii) Distinction between Going concern and cost concept
Going Concern Concept The financial statements are normally prepared on the assumption that an enterprise is a going concern and will continue in operation for the foreseeable future. Hence, it is assumed that the enterprise has neither the intention nor the need to liquidate or curtail materially the scale of its operations; if such an intention or need exists, the financial statements may have to be prepared on a different basis and, if so, the basis used needs to be disclosed.
Cost concept By this concept, the value of an asset is to be determined on the basis of historical cost, in other words, acquisition cost. By this concept, the value of an asset is to be determined on the basis of historical cost, in other words, acquisition cost. Although there are various measurement bases, accountants traditionally prefer this concept in the interests of objectivity.
Question 2.
ABC purchased a machinery amounting ₹ 10,00,000 on 1st April, 2001. On 31st March, 2022, similar machinery could be purchased for ₹ 20,00,000. Historical cost of machine is 20,00,000. True or False ?
Answer:
Question 3.
Explain in brief objective and advantages of setting Accounting Standards.
Answer:
Question 4.
Define the following terms:
(i) Capital Commitment
(ii) Expired Cost
(iii) Floating Charge
(iv) Obsolescence
Answer:
Question 5.
Distinguish between Provision and Contingent Liability.
Answer:
Question 1.
One of your clients, Mr. Singhania has asked you to finalise his accounts for the year ended 31st March, 2022. Till date, he himself has recorded the transactions in books of accounts. As a basis for audit, Mr. Singhania furnished you with the following statement.
| Dr. Balance (₹) | Cr. Balance (₹) | |
| Singhania’s Capital | 1,556 | |
| Singhania’s Drawings | 564 | |
| Leasehold premises | 750 | |
| Sales | 2,750 | |
| Dues from customers | 530 | |
| Purchases | 1,259 | |
| Purchases return | 264 | |
| Loan from bank | 264 | |
| Trade payables | 528 | |
| Trade expenses | 700 | |
| Cash at bank | 226 | |
| Bills payable | 100 | |
| Salaries and wages | 600 | |
| Inventories (1.4.2021) | 264 | |
| Rent and rates | 463 | |
| Sales return | 98 | |
| 5,454 | 5,454 |
The closing inventory on 31st March, 2022 was valued at ₹ 574. Mr. Singhania claims that he has recorded every transaction correctly as the trial balance is tallied. Check the accuracy of the above trial balance.
Answer:
| Corrected Trial Balance of Mr. Singhania as on 31st March, 2022 | ||
| Particulars | Dr. Amount ₹ | Cr. Amount ₹ |
| Singhania’s Capital | 1,556 | |
| Singhania’s Drawings | 564 | |
| Leasehold premises | 750 | |
| Sales | 2,750 | |
| Dues from customers (refer note 1 below) | 530 | |
| Purchases | 1,259 | |
| Purchases returns (refer note 2 below) | 264 | |
| Loan from Bank | 256 | |
| Trade payables (refer note 3 below) | 528 | |
| Trade expenses | 700 | |
| Cash at Bank | 226 | |
| Bills payable (refer note 4 below) | 100 | |
| Salaries and Wages | 600 | |
| Inventory (1.4.2021) (refer note 5 below) | 264 | |
| Rent and rates | 463 | |
| Sales return (refer note 6 below) | 98 | |
| 5,454 | 5,454 | |
Notes:
Question 2.
Mr. Roy was unable to agree the Trial Balance last year and wrote off the difference to the Profit and Loss Account of that year. Next Year, he appointed a Chartered Accountant who examined the old books and found the following mistakes:
(1) Purchase of a scooter was debited to conveyance account ₹3,000.
(2) Purchase account was over-cast by ₹10,000.
(3) A credit purchase of goods from Mr. P for ₹ 2,000 was entered as a sale.
(4) Receipt of cash from Mr. A was posted to the account of Mr. B ₹ 1,000.
(5) Receipt of cash from Mr. C was posted to the debit of his account, ₹ 500.
(6) ₹ 500 due by Mr. Q was omitted to be taken to the trial balance.
(7) Sale of goods to Mr. R for ₹ 2,000 was omitted to be recorded.
(8) Amount of ₹ 2,395 of purchase was wrongly posted as ₹ 2,593.
Mr. Roy used 10% depreciation on vehicles. Suggest the necessary rectification entries.
Answer:
Question 3.
Give journal entries to rectify the following:
(1) A purchase of goods from Ram amounting to ₹150 has been wrongly entered through the Sales Book.
(2) A Credit sale of goods amounting ₹120 to Ramesh has been wrongly passed through the Purchase Book.
(3) On 31st December, 2022 goods of the value of ₹ 300 were returned by Hari Saran and were taken into inventory on the same date but no entry was passed in the books.
(4) An amount of ₹ 200 due from Mahesh Chand, which had been written off as a Bad Debt in a previous year, was unexpectedly recovered, and had been posted to the personal account of Mahesh Chand.
(5) A Cheque for ₹ 100 received from Man Mohan was dishonoured and had been posted to the debit of Sales Returns Account.
Answer:
Question 4.
Prepare Journal Entries for the following transactions in the books of Gamma Bros.
(i) Employees had taken stock worth ₹ 10,000 (Cost price ₹ 7,500) on the eve of Deepawali and the same was deducted from their salaries in the subsequent month.
(ii) Wages paid for erection of Machinery ₹ 8,000.
(iii) Income tax liability of proprietor ₹ 1,700 was paid out of petty cash.
(iv) Purchase of goods from Naveen of the list price of ₹ 2,000. He allowed 10% trade discount, ₹ 50 cash discount was also allowed for quick payment.
Answer:
Question 5.
The following errors were committed by the Accountant of Geete Dye-Chem.
(i) Credit sale of ₹ 400 to Trivedi & Co. was posted to the credit of their account.
(ii) Purchase of ₹ 420 from Mantri & Co. passed through Sales Day Book as ₹ 240
How would you rectify the errors assuming that :
(a) they were detected before preparation of Trial Balance.
(b) they were detected after preparation of Trial Balance but before preparing
Final Accounts, the difference was taken to Suspense A/c.
(c) they were detected after preparing Final Accounts.
Answer:
Question 1.
Write short note on Bank reconciliation statement.
Answer: Bank reconciliation statement is prepared as on a particular date to reconcile and explain the causes of difference between the bank balance as per cash book and the same as per savings bank pass book or current account statement. At the end of each month, the bank balance as per cash book and that as per pass book /bank statement should be compared and, if there is disagreement, these balances should be reconciled stating exact reasons of disagreement. The reconciliation is made in a statement called the bank reconciliation statement.
Question 2.
On 30th November, 20X1, Mr. Hari 's Bank Statement showed only ₹ 3,200 overdrawn. An examination of the two records showed the following errors:
You are required to prepare a Bank Reconciliation Statement on 30th November, 20X1.
Answer:
Question 3.
Importance of bank reconciliation to an industrial unit.
Answer:
Question 4.
Prepare a bank reconciliation statement from the following particulars as on 31st March, 20X1
| Particulars | ₹ |
| Debit balance as per bank column of the cash book | 18,60,000 |
| Cheque issued to creditors but not yet presented to the Bank for payment | 3,60,000 |
| Dividend received by the bank but not entered in the Cash book | 2,50,000 |
| Interest allowed by the Bank | 6,250 |
| Cheques deposited into bank for collection but not collected by bank up to this date | 7,70,000 |
| Bank charges not entered in Cash book | 1,000 |
| A cheque deposited into bank was dishonoured, but no intimation received | 1,60,000 |
| Bank paid house tax on our behalf, but no intimation received form bank in this connection | 1,75,000 |
Answer:
Question 5.
From the following particulars ascertain the balance that would appear in the Bank Pass Book of A on 31st December, 20X1.
(1) The bank overdraft as per Cash Book on 31st December, 20X1 ₹ 6,340.
(2) Interest on overdraft for 6 months ending 31st December, 20X1 ₹ 160 is entered in Pass Book.
(3) Bank charges of ₹ 400 are debited in the Pass Book only.
(4) Cheques issued but not cashed prior to 31st December, 20X1, amounted to ₹ 11,68,000.
(5) Cheques paid into bank but not cleared before 31st December, 20X1 were for ₹ 22,17,000.
(6) Interest on investments collected by the bank and credited in the Pass Book ₹ 12,00,000.
Answer:
Question 1.
A manufacturer has the following record of purchases of a condenser, which he uses while manufacturing radio sets:
|
Date |
Quantity (units) |
Price per unit |
|
Dec. 4 |
900 |
50 |
|
Dec. 10 |
400 |
55 |
|
Dec. 11 |
300 |
55 |
|
Dec. 19 |
200 |
60 |
|
Dec. 28 |
800 |
47 |
|
|
2,600 |
|
1,600 units were issued during the month of December till 18th December. Calculate the closing using FIFO Method
Answer:
The closing inventory is 1,000 units and would consist of:
800 units received on 28th December; and
200 units received on 19th December as per FIFO
| ₹ | |
| The value of 800 units @ ₹ 47 | 37,600 |
| The value of 200 units @ ₹ 60 | 12,000 |
| Total | 49,600 |
Question 2.
Mr. Surya runs a factory, which produces detergents. Following details were available in respect of his manufacturing activities for the year ended 31-03-20X2.
| Opening work-in-progress (27,000 units) | 78,000 |
| Closing work-in-progress (42,000 units) | 1,44,000 |
| Opening inventory of Raw Materials | 7,80,000 |
| Closing inventory of Raw Materials | 9,60,000 |
| Purchases | 24,60,000 |
| Hire charges of Machinery @ ₹ 0.70 per unit manufactured | |
| Hire charges of factory | 7,80,000 |
| Direct wages-contracted @ ₹ 0.80 per unit manufactured and @ ₹ 0.40 per unit of closing W.I.P. | |
| Repairs and maintenance | 5,40,000 |
| Units produced - 15,00,000 units |
You are required to prepare a Manufacturing Account of Mr. Surya for the year ended 31-03-20X2.
Answer:
Question 3.
M/s Sam, Profit and loss account showed a net profit of ₹24,00,000, after considering the closing stock of ₹22,50,000 on 31st March 20X1. Subsequently, the following information was obtained from scrutiny of the books:
You are required to determine the adjusted net profit for the year ended on 31.3.20X1 and calculate the value of stock on 31st March 20X1.
Answer:
Question 4.
Physical verification of stock in a business was done on 23rd February, 20X1 The value of the stock was ₹ 28,00,000. The following transactions took place from 23rd February to 29th February, 20X1 :
(1) Out of the goods sent on consignment, goods at cost worth ₹ 2,30,000 were unsold.
(2) Purchases of ₹ 3,00,000 were made out of which goods worth ₹ 1,20,000 were delivered on 5th March, 20X1
(3) Sales were ₹ 13,60,000 which include goods worth ₹ 3,20,000 sent on approval. Half of these goods were returned before 29th February, 20X1, but no information is available regarding the remaining goods.
(4) Goods are sold at cost plus 25%. However goods costing ₹ 2,40,000 had been sold for ₹ 1,50,000.
Determine the value of stock on 29th February, 20X1
Answer:
Question 5.
Raj Ltd. prepared their accounts financial year ended on 31st March 20X1. Due to unavoidable circumstances actual stock has been taken on 10th April 20X1, when it was ascertained at ₹ 1,25,000. It has been found that;
(i) Sales are entered in the Sales Book on the day of dispatch and return inwards in the Returns Inward Book on the day of the goods received back.
(ii) Purchases are entered in the Purchase Book on the day the Invoices are received.
(iii) Sales between 1st April 20X1 to 9th April 20X1 amounting to ₹ 20,000 as per Sales Day Book.
(iv) Free samples for business promotion issued during 1st April 20X1 to 9th April 20X1 amounting to ₹ 4,000 at cost.
(v) Purchases during 1st April 20X1 to 9th April 20X1 amounting to ₹ 10,000 but goods amounts to ₹ 2,000 not received till the date of stock taking.
(vi) Invoices for goods purchased amounting to ₹ 20,000 were entered on 28th March 20X1 but the goods were not included in stock.
Rate of Gross Profit is 25% on cost.
Ascertain the value of Stock as on 31st March 20X1.
Answer:
Question 1.
A Machine costing ₹ 6,00,000 is depreciated on a straight line basis, assuming 10 years working life and Nil residual value, for three years. The estimate of remaining useful life after the third year was reassessed at 5 years. Required to calculate depreciation for the fourth year.
Answer: Depreciation per year = ₹ 6,00,000 / 10 = ₹ 60,000
Depreciation on SLM charged for three years = ₹ 60,000 x 3 years = ₹ 1,80,000
Book value of the computer at the end of third year = ₹ 6,00,000 – ₹ 1,80,000 = ₹ 4,20,000.
Remaining useful life as per previous estimate = 7 years
Remaining useful life as per revised estimate = 5 years
Depreciation from the fourth year onwards = ₹ 4,20,000 / 5 = ₹ 84,000 per annum
Question 2.
A firm purchased second hand machinery on 1st January, 20X1 for ₹ 3,00,000, after which ₹ 60,000 and ₹ 40,000 were spent on its repairs and installation, respectively. On 1st July, 20X2 another machinery was purchased for ₹ 2,60,000. On 1st July, 20X3, the first machinery having become outdated was auctioned for ₹ 3,20,000 and on the same date, another machinery was purchased for ₹ 2,50,000.
On 1st July, 20X4, the second machinery was also sold off, and it fetched ₹ 2,30,000.
Depreciation was provided on machinery @ 10% on the original cost annually on 31st December, under the
straight line method.
Required
Prepare the following accounts in the books of the company: (i) Machinery Account for the years ending Dec. 31 20X1 to 20X4 and (ii) Machinery Disposal Account.
Answer:
Question 3.
A firm’s plant and machinery account at 31st December, 2025 and the corresponding depreciation provision account, broken down by year of purchase are as follows:
| Year of Purchase | Plant and Machinery at cost (₹) | Depreciation Provision (₹) |
| 2008 | 2,00,000 | 2,00,000 |
| 2014 | 3,00,000 | 3,00,000 |
| 2015 | 10,00,000 | 9,50,000 |
| 2016 | 7,00,000 | 5,95,000 |
| 2023 | 5,00,000 | 75,000 |
| 2024 | 3,00,000 | 15,000 |
| 30,00,000 | 21,35,000 |
Depreciation is at the rate of 10% per annum on cost. It is the Company’s policy to assume that all purchases, sales or disposal of plant occurred on 30th June in the relevant year for the purpose of calculating depreciation, irrespective of the precise date on which these events occurred.
During 2025 the following transactions took place:
You are required to:
Calculate the provision for depreciation of plant and machinery for the year ended 31st December, 2025. In calculating this provision you should bear in mind that it is the company’s policy to show any profit or loss on the sale or disposal of plant as a completely separate item in the Profit and Loss Account. You are also required to prepare the following ledger accounts during 2025.
Answer:
Question 1.
Write short note on:
Answer:
(a) Bills of Exchange are usually drawn to facilitate trade transmission, that is, bills are meant to finance actual purchase and sale of goods. But the mechanism of bill can be utilised to raise finance also. When bills are used for such a purpose, they are known as accommodation bills.
(b) When the acceptor of a bill finds himself in financial straits to honour the bill on the due date, then he may request the drawer to cancel the original bill and draw on him a fresh bill for another period. And if the drawer agrees, a new bill in place of the original bill may be accepted by the drawee for another period. This is called the renewal of bill.
(c) The charges paid to Notary public for notify the dishonour are noting charges. It is necessary that the fact of dishonour and the causes of dishonour should be established. If the acceptor can prove that the bill was not properly presented to him for payment, he may escape liability. Therefore, if there is dishonour, or fear of dishonour, the bill will be given to a public official known as “Notary Public”. These officials present the bill for payment and if the money is received, they will hand over the money to the original party. But if the bill is dishonoured they will note the fact of dishonour, with the reasons and give the bill back to their client. For this service they charge a small fee. This fee is known as noting charges. The amount of noting charges is recoverable from the party which is responsible for dishonour.
Question 2.
On 1st July 20X1, Pawan purchased goods valued at ₹7,800 from Tapan and on same date, he accepted a three months bill for ₹7,700 in full settlement of the account. On the same date, it was endorsed by Tapan to Swpan in full satisfaction of the debt of ₹8,000 due to him. Swapan immediately discounted the bill for ₹7,500.
On the due date, the bill was dishonoured and the noting charges incurred by the banker amounted to ₹100.
Journalise (excluding narrations) the above transaction in the books of Tapan and also prepare Tapan's Account in the books of Pawan and Swapan.
Answer:
Question 3.
Mr. Z accepted a bill for ₹ 50,000 drawn on him by Mr. Y on 1st August, 20X1 for 3 months. This was for the amount which Z owed to Y. On the same date Mr. Y got the bill discounted at his bank for ₹ 49,000.
On the due date, Z approached Y for renewal of the bill. Mr. Y agreed on condition that ₹ 10,000 be paid immediately along with interest on the remaining amount at 12% p.a. for 3 months and that for the remaining balance Z should accept a new bill for 3 months. These arrangements were carried through. On 31st December, 20X1, Z became insolvent and his estate paid 40%. Prepare Journal Entries in the books of Mr. Y.
Answer:
Question 1.
Sengupta & Co. employs a team of eight workers who were paid ₹30,000 per month each in the year ending 31st March 20X1. At the start of financial year 20X1-20X2, the company raised salaries by 10% to ₹33,000 per month each.
On October 1, 20X1, the company hired two trainees at salary of ₹21,000 per month each. The work force are paid salary on the first working day of every month, one month in arrears, so that the employees receive their salary for January on the first working day of February etc.
You are required to calculate:
Answer:
| (i) | Salaries to be charged to profit and loss account for the year ended 31st March 20X2: | ₹ |
| Salaries of 8 employees for full year @ ₹33,000 per month each | 31,68,000 | |
| Salaries of 2 trainees for 6 months @ ₹21,000 p.m. | 2,52,000 | |
| 34,20,000 | ||
| (ii) | Salaries actually paid in 20X1-X2 | |
| March 20X1 salaries paid in April 20X1 (8 x 30,000) | 2,40,000 | |
| Salaries of 8 employees for April 20X1 to March 20X2 paid in May 20X1 to March 20X2 @ ₹33,000 for 11 months | 29,04,000 | |
| Salaries of 2 trainees for October 20X1 to February 20X2 paid in November 20X1 to March 20X2 @ ₹21,000 for 5 months | 2,10,000 | |
| 33,54,000 | ||
| (iii) | Outstanding salaries as at 31st March 20X2 | |
| 8 employees @ ₹33,000 each for 1 month | 2,64,000 | |
| 2 trainees @ ₹21,000 each for 1 month | 42,000 | |
| 3,06,000 |
Question 2.
The following are the balances extracted from the books of Shri Raghuram as on 31.03.20X2, who carries on business under the name and style of M/s Raghuram and Associates at Chennai:
| Particulars | Debit (₹) | Credit (₹) |
| Capital A/c | 14,11,400 | |
| Purchases | 12,00,000 | |
| Purchase Returns | 18,000 | |
| Sales | 15,00,000 | |
| Sales Returns | 24,000 | |
| Freight Inwards | 62,000 | |
| Carriage Outwards | 8,500 | |
| Rent of Godown | 55,000 | |
| Rates and Taxes | 24,000 | |
| Salaries | 72,000 | |
| Discount allowed | 7,500 | |
| Discount received | 12,000 | |
| Drawings | 20,000 | |
| Printing and Stationery | 6,000 | |
| Insurance premium | 48,000 | |
| Electricity charges | 14,000 | |
| General expenses | 11,000 | |
| Bank charges | 3,800 | |
| Bad debts | 12,200 | |
| Repairs the Motor vehicle | 13,000 | |
| Interest on loan | 4,400 | |
| Provision for Bad-debts | 10,000 | |
| Loan from Mr. Rajan | 60,000 | |
| Sundry creditors | 62,000 | |
| Motor vehicles | 1,00,000 | |
| Land and Buildings | 5,00,000 | |
| Office equipment | 2,00,000 | |
| Furniture and Fixtures | 50,000 | |
| Stock as on 31.03.20X1 | 3,20,000 | |
| Sundry debtors | 2,80,000 | |
| Cash at Bank | 22,000 | |
| Cash in Hand | 16,000 | |
| 30,73,400 | 30,73,400 |
Prepare Trading and Profit and Loss Account for the year ended 31.03.20X2 and the Balance Sheet as at that date after making provision for the following:
Answer:
Question 3.
Following particulars are extracted from the books of Mr. Sandeep for the year ended 31st December, 20X1.
| Particulars | Amount | Particulars | Amount |
| Debit Balances: | ₹ | Credit Balances: | ₹ |
| Cash in hand | 1,500 | Capital | 16,000 |
| Purchase | 12,000 | Bank overdraft | 2,000 |
| Sales return | 1,000 | Sales | 9,000 |
| Salaries | 2,500 | Purchase return | 2,000 |
| Tax and Insurance | 500 | Provision for Bad debts | 1,000 |
| Bad debts | 500 | Creditors | 2,000 |
| Debtors | 5,000 | Commission | 500 |
| Investment | 4,000 | Bills payable | 2,500 |
| Opening stock | 1,400 | ||
| Drawings | 2,000 | ||
| Furniture | 1,600 | ||
| Bills receivables | 3,000 | ||
| 35,000 | 35,000 |
Other information :
You are required to prepare the final accounts after making above adjustments.
Answer:
Question 1.
From the following Receipts and Payments A/c of Mumbai Club, prepare Income and Expenditure A/c for the year ended 31.12.20X2 and its Balance sheet as on that date:
| Receipts | Amount (₹) | Payments | Amount (₹) |
| Cash in hand | 4,000 | Drama Expenses | 500 |
| Cash at bank | 10,000 | Salary | 2,000 |
| Donations | 5,000 | Repair Expenses | 500 |
| Subscriptions | 12,000 | Purchase of Furniture | 6,000 |
| Entrance fees | 1,000 | Misc. Expenses | 500 |
| Interest Received from bank | 400 | Purchase of Investments | 6,000 |
| Sale of old newspaper | 150 | Insurance Premium | 200 |
| Sale of drama Tickets | 1,050 | Billiard Table | 8,000 |
| Interest on Investment | 100 | Paper, Ink, Etc. | 150 |
| Cash in Hand (Closing) | 2,650 | ||
| Cash in Bank (Closing) | 7,200 | ||
| 33,700 | 33,700 |
Information :
Answer:
Income and expenditure Account of Mumbai Club
(For the year ended 31st December 20X2)
| Expenditure | Amount (₹) | Income | Amount (₹) | ||
| To Salary | 2,000 | By Donations | 5,000 | ||
| To Repair Expenses | 500 | Less:Capitalised | 2,500 | 2,500 | |
| To Misc. Expenses | 500 | By Subscriptions | 12,000 | ||
| Less: Prepaid | 90 | 410 | Add: Outstanding | 900 | |
| To Insurance Premium | 200 | 12,900 | |||
| Add: Outstanding | 40 | 240 | Less: Advance | 350 | 12,550 |
| To Paper, ink | 150 | By Entrance fees | 1,000 | ||
| To Drama Expenses | 500 | By Interest on investment | 300 | ||
| To Surplus | 14,150 | 100 + 6,000 x |
|||
| By Interest received from bank | 400 | ||||
| By Sale of old news paper | 150 | ||||
| By Sale of Drama Tickets | 1,050 | ||||
| 17,950 | 17,950 |
Balance sheet of mumbai Club
As on 31st December, 20X2
| Liabilities | Amount (₹) | Assets | Amount (₹) | |
| Capital Fund: | Billiard Table | 30,000 | ||
| Opening Balance | 36,000 | Furniture | 6,000 | |
| Add: Surplus | 14,150 | Investments | 6,000 | |
| Donation | 2,500 | 52,650 | Interest Accrued | 200 |
| Outstanding Insurance Premium | 40 | Prepaid expenses | 90 | |
| Subscription Received in advance | 350 | Subscriptions receivable | 900 | |
| Cash in hand | 2,650 | |||
| Cash at bank | 7,200 | |||
| 53,040 | 53,040 |
Working Notes:
Balance sheet of mumbai club
as on 31st December, 20X1
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Capital Fund (Balancing Figure) | 36,000 | Billiard Table | 30,000 |
| Creditors for billiard table | 8,000 | Cash in hand | 4,000 |
| Cash at bank | 10,000 | ||
| 44,000 | 44,000 |
Question 2.
Highend Club appointed a new Accountant for maintaining books of account. He prepared following receipts and payments A/c for the year ended as on 31st March 20X2.
Receipts and Payments Account
| Receipts | ₹ | Payments | ₹ | |
| To balance b/d | 9,000 | By Printing and stationery | 21,000 | |
| To Annual subscription for current yr | 9,18,000 | By Telephone Expenses | 45,000 | |
| Add: Outstanding of last year received this yr | 36,000 | By Repair & Maintenance Expenses (inc payment for sports material ₹54,000) | 1,26,000 | |
| 9,54,000 | By Garden Upkeep | 55,000 | ||
| Less: Subscription received in adavnce as on 31-03-20X1 | 18,000 | 9,36,000 | By Electricity Charges | 36,000 |
| To Sale of old newspaper | 36,000 | By Loss on sale of furniture (Cost as per books ₹90,000) | 36,000 | |
| To 5% Interest on Investments | 27,000 | By Balance c/d | 25,57,000 | |
| To Entrance Fees | 68,000 | |||
| To Donation for building | 18,00,000 | |||
| Total | 28,76,000 | Total | 28,76,000 |
Additional Information:
| Highend club had balances | 01-04-20X1 (₹) | 01-04-20X2 (₹) |
| Furniture | 3,60,000 | |
| Stock of sports material | 1,33,200 | 36,000 |
| Subscription receivable | 54,000 | |
| Subscription received in advance | 18,000 | |
| Outstanding printing & stationery expenses | 1,500 | 2,500 |
| Outstanding Electricity charges | 3,200 | |
| 50% Entrance Fees is to be capitalized |
Do you agree with above Receipts and Payment account ? If not, prepare correct receipts and payments account and Income and Expenditure Account for the year ended 31st March 20X2, and balance sheet as on that date.
Answer:
Question 3.
A doctor, after retiring from govt. service, started private practice on 1st April, 20X1 with ₹ 20,000 of his own and ₹ 30,000 borrowed at an interest of 15% per annum on the security of his life policies. His accounts for the year were kept on a cash basis and the following is his summarized cash account:
| (₹) | (₹) | ||
| Own capital | 20,000 | Medicines purchased | 24,500 |
| Loan | 30,000 | Surgical equipments | 25,000 |
| Prescription fees | 52,500 | Motor car | 32,000 |
| Gifts from patients | 13,500 | Motor car expenses | 12,000 |
| Visiting fees | 25,000 | Wages and salaries | 10,500 |
| Fees from lectures | 2,400 | Rent of clinic | 6,000 |
| Pension received | 30,000 | General charges | 4,900 |
| Household expenses | 18,000 | ||
| Household Furniture | 2,500 | ||
| Expenses on daughter’s marriage | 21,500 | ||
| Interest on loan | 4,500 | ||
| Balance at bank | 11,000 | ||
| Cash in hand | 1,000 | ||
| 1,73,400 | 1,73,400 |
You are required to prepare his capital account and income and expenditure account for the year ended 31st March, 20X2 and balance sheet as on that date. One-third of the motorcar expense may be treated as applicable to the private use of car and ₹ 3,000 of the wages and salaries are in respect of domestic servants.
The stock of medicines in hand on 31st March, 20X2 was valued at ₹ 9,500.
Answer:
Question 1.
Mr. Prakash keeps his accounts on single entry system. He has given following information about his assets and liabilities.
| Item | On 31-3-20X1 | On 31-3-20X2 |
| Creditors | 55,200 | 58,500 |
| Cash at bank | 600 | 1500 |
| Bills payable | 26,400 | 28,200 |
| Bills receivables | 16,200 | 18,300 |
| Debtors | 45,600 | 56,000 |
| Stock in trade | 31,000 | 47,300 |
| Machinery | 66,200 | 78,000 |
| Computer | 18,000 | 17,000 |
During the year, Prakash brought in additional Rs. 7,500 cash in business. He withdrew goods of Rs.2,100 and cash of Rs. 7,200 for his personal use. Interest on opening capital is to be given at 5% and interest on drawing is to be charged at 10%.
Prepare statement of profit or loss for the year ended 31-03-20X2.
Answer: Here the information about opening and closing capital is not given. Both these figures can be computed based on statement of affairs as on 31-03-20X1 and 31-03-20X2. These can be worked out on the basis of information given. The balancing figures in both statements will represent capital figures as on those two days.
These figures will then be used together with the information to find out profit or loss. The interest on capital will increase it while, interest on drawings will result in decrease in capital. This will be included in the statement of profit or loss for the year ended 31-03-20X2.
Statement of Affairs as on 31-3-20X2
| Liabilities | Amount (Rs.) | Assets | Amount (Rs.) |
| Creditors | 55,200 | Cash at Bank | 600 |
| Bills payable | 26,400 | Bills receivables | 16,200 |
| Capital (balancing figure) | 96,000 | Debtors | 45,600 |
| Stock in trade | 31,000 | ||
| Machinery | 66,200 | ||
| Computers | 18,000 | ||
| 1,77,600 | 1,77,600 |
Statement of Affairs as on 31-3-20X2
| Liabilities | Amount (Rs.) | Assets | Amount (Rs.) |
| Creditors | 58,500 | Cash at Bank | 1,500 |
| Bills payable | 28,200 | Bills receivables | 18,300 |
| Capital (balancing figure) | 1,31,400 | Debtors | 56,000 |
| Stock in trade | 47,300 | ||
| Machinery | 78,000 | ||
| Computers | 17,000 | ||
| 2,18,100 | 2,18,100 |
Statement of profit or loss for the year ended 31-03-20X2
| Particulars | Amount (rS.) |
| Closing Capital as per statement of affairs as on (31-3-20X1) | 1,31,400 |
| Less: Opening Capital as per statement of affairs as on (31-3-2013) | (96,000) |
| Increase or decrease in capital | 35,400 |
| Add: Drawings (goods + cash) | 9,300 |
| Add: Interest on drawings @ 10%on rS. 9,300 | 930 |
| Less: Interest on opening capital @ 5% (96,000 * 5%) | (4,800) |
| Less: Fresh capital introduced | 7,500 |
| Net Profit or loss for the year | 33,330 |
Question 2.
On 1st April 20X1, Sneha started a beauty Parlour. She acquired a shop for Rs.12,00,000 and paid Rs.2,00,000 for interior fittings. She put Rs. 4,00,000 into business bank A/c. She carried on till 31st March 20X2, when she wanted to know what the parlour has earned over the period. She has approached you to find out the business results with following information as on 31-03- 20X2: In addition to the shop and fitting she had following possessions: Stock Rs. 6,00,000, Motor car (purchased on 30-09- 20X1) Rs. 5,50,000, Cash at bank Rs.2,50,000. Based on her limited knowledge she has told you to charge depreciation of 2% p.a. on shop, 5% p.a. on fittings and 20% on car. On 31-3-20X2, Rs.1,40,000 was payable to creditors, and Rs. 1,00,000 to a friend for money borrowed for business. She had withdrawn Rs. 2,000 per month from the business.
Prepare her statement of profit or loss for the year.
Answer:
Question 3.
From the following information in respect of Mr. Aman, prepare Trading and Profit and Loss Account for the year ended 31st March, 20X2 and a Balance Sheet as at that date:
| 31-03-20X1 | 31-03-20X2 | ||
| (1) | Liabilities and Assets | ₹ | ₹ |
| Stock in trade | 3,20,000 | 2,80,000 | |
| Debtors for sales | 6,40,000 | ? | |
| Bills receivable | - | ? | |
| Creditors for purchases | 4,40,000 | 6,00,000 | |
| Furniture at written down value | 2,40,000 | 2,54,000 | |
| Expenses outstanding | 80,000 | 72,000 | |
| Prepaid expenses | 24,000 | 28,000 | |
| Cash on hand | 8,000 | 6,000 | |
| Bank Balance | 40,000 | 3,000 | |
| (2) | Receipts and Payments during 20X1-20X2: | ||
| Collections from Debtors (after allowing 2-1/2% discount) | 23,40,000 | ||
| Payments to Creditors (after receiving 2% discount) | 15,68,000 | ||
| Proceeds of Bills receivable discounted at 2%) | 2,45,000 | ||
| Proprietor’s drawings | 2,80,000 | ||
| Purchase of furniture on 30.09.20X1 | 40,000 | ||
| 12% Government securities purchased on 1-10-20X1 | 4,00,000 | ||
| Expenses | 7,00,000 | ||
| Miscellaneous Income | 20,000 | ||
| (3) | Sales are effected so as to realize a gross profit of 50% on the cost. | ||
| (4) | Capital introduced during the year by the proprietor by cheques was omitted to be recorded in the Cash Book, though the bank balance on 31st March, 20X2 (as shown above), is after taking the same into account. | ||
| (5) | Purchases and Sales are made only on credit. | ||
| (6) | During the year, Bills Receivable of ₹ 4,00,000 were drawn on debtors. out of these, Bills amount to ₹ 80,000 were endorsed in favour of creditors. Out of this latter amount, a Bill for ₹ 16,000 was dishonoured by the debtor. | ||
Answer:
Question 1.
A and B are in partnership sharing profits and losses at the ratio 3:2. They take C as a new partner. Calculate the new profit sharing ratio if -
Answer:
(i) New profit sharing ratio:
A = 3/5 - 1/10 = 5/10
B = 2/5 i.e. 4/10
C = 1/10
i.e. 5:4:1
(ii) A’s sacrifice 1/10 × 2/5 = 2/50
B’s sacrifice 1/10 × 3/5 = 3/50
New profit sharing ratio
A = 3/5 – 2/50 = 28/50
B = 2/5 – 3/50 = 17/50
C = 1/10 i.e. 5/50
i.e. 28:17:5
(iii) Let total share be 1
C’s share=1/10
Remaining share=1 - 1/10 = 9/10
Distribution:
A = 9/10 × 3/5 = 27/50
B = 9/10 × 2/5 = 18/50
C = 1/10. i.e. = 5/50
i.e. 27:18:5
Question 2.
Red, White and Blue give you the following Balance Sheet as on 31st March.
| Capital and Liabilities | ₹ | Properties and Assets | ₹ | ||
| Red's Loan | 15,000 | Plant and Machinery at Cost | 30,000 | ||
| Capital Accounts: | Fixtures and Fittings | 2,000 | |||
| Red | 30,000 | Stock | 10,400 | ||
| White | 10,000 | Debtors | 18,400 | 18,000 | |
| Blue | 2,000 | 42,000 | Less: Provision | 400 | |
| Sundry Creditors | 17,800 | ||||
| Loan on Hypothecation of Stock | 6,200 | Joint Life Policy | 15,000 | ||
| Joint Life Policy Reserve | 12,400 | Patents and Trademarks | 10,000 | ||
| Cash at Bank | 8,000 | ||||
| Total | 93,400 | Total | 93,400 |
The Partners shared Profits and Losses in the ratio of Red 4/9, White 2/9 and Blue 1/3. The Firm was dissolved on the above date, and you are given the following information –
Prepare the Realisation Account, Bank Account and Partners Capital Accounts in columnar form.
Answer:
Question 3.
Ram and Rahim are in partnership sharing profits and losses in the ratio of 3:2. As Ram, on account of his advancing years, feels he cannot work as hard as before, the chief clerk of the firm, Ratan, is admitted as a partner with effect from 1st January, 20X1, and becomes entitled to 1/10th of the net profits and nothing else, the mutual ratio between Ram and Rahim remaining unaltered.
Before becoming a partner, Ratan was getting a salary of ₹ 500 p.m. together with a commission of 4% on the net profits after deducting his salary and commission.
It is provided in the partnership deed that the share of Ratan’s profits as a partner in excess of the amount to which he would have been entitled if he had continued as the chief clerk, should be taken out of Ram’s share of profits.
The net profit for the year ended December 31, 20X1 is ₹ 1,10,000. Show the distribution of net profit amongst the partners.
Answer:
Question 1.
Bhagwati Ltd. invited applications for issuing 2,00,000 equity shares of ₹ 10 each.
The amounts were payable as follows:
| On application | ₹ 3 per share |
| On allotment | ₹ 5 per share |
| On first and final call | ₹ 2 per share |
Applications were received for 3,00,000 shares and pro rata allotment was made to all the applicants. Money overpaid on application was adjusted towards allotment money. B, who was allotted 3,000 shares, failed to pay the first and final call money. His shares were forfeited. Out of the forfeited shares, 2,500 shares were reissued as fully paid-up @ ₹ 6 per share.
Pass necessary Journal entries to record the above transactions in the books of Bhagwati Ltd.
Answer:
In the books of Bhagwati Ltd.
Journal Entries
| Dr. ₹ | Cr. ₹ | ||
| Bank A/c | Dr. | 9,00,000 | |
| To Equity Share Application A/c | 9,00,000 | ||
| (Being the application money received for 3,00,000 shares at ₹ 3 per share) | |||
| Equity Share Application A/c | Dr. | 9,00,000 | |
| To Equity Share Capital A/c (2,00,000 x ₹ 3) | 6,00,000 | ||
| To Share allotment A/c | 3,00,000 | ||
| (Being share allotment made for 2,00,000 shares and excess adjusted towards allotment) | |||
| Equity Share Allotment A/c | Dr. | 10,00,000 | |
| To Equity Share Capital A/c | 10,00,000 | ||
| (Being allotment amount due on 2,00,000 equity shares at ₹ 5 per share as per Directors’ resolution no... dated... | |||
| Bank A/c | Dr. | 7,00,000 | |
| To Equity Share Allotment A/c | 7,00,000 | ||
| (Being balance allotment money received for 2,00,000 shares at ₹ 5 per share.) | |||
| Equity Share first and final call A/c | Dr. | 4,00,000 | |
| To Equity Share Capital A/c | 4,00,000 | ||
| (Being first and final call amount due on 2,00,000 equity shares at ₹ 2 per share as per Directors’ resolution no... dated...) | |||
| Bank A/c | Dr. | 3,94,000 | |
| Calls in arrears A/c | Dr. | 6,000 | |
| To Equity Share first and final call A/c | 4,00,000 | ||
| (Being final call received on 1,97,000 shares) | |||
| Share capital A/c (3,000 x ₹ 10) | Dr. | 30,000 | |
| To Forfeited share A/c (3,000 x ₹ 8) | 24,000 | ||
| To Calls in arrears A/c (3,000 x ₹ 2) | 6,000 | ||
| (Being forfeiture of 3,000 shares of ₹ 10 each fully called up for non-payment of first and final call @ ₹ 2 as per Directors’ resolution no... dated…) | |||
| Bank A/c (2,500 x ₹6) | Dr. | 15,000 | |
| Forfeited share A/c (2,500 x ₹ 4) | Dr. | 10,000 | |
| To Equity Share Capital A/c (2,500 x ₹ 10) | 25,000 | ||
| (Being re-issue of 2,500 shares @ 6) | |||
| Forfeited share A/c (2,500 x ₹ 4) | Dr. | 10,000 | |
| To capital reserve A/c (2,500 x ₹ 4) | 10,000 | ||
| (Being profit on re-issue transferred to capital reserve) |
Working Note:
| Calculation of amount to be transferred to Capital reserve A/c |
₹ | |
| Forfeited amount per share | = 24,000/3,000 | = 8 |
| Loss on re issue (8-4) | 4 | |
| Surplus per share | 4 | |
| Transfer to capital reserve | 4 x 2,500 | ₹ 10,000 |
Question 2.
The following are the extracts from the Balance Sheet of ABC Ltd. as on 31st December, 20X1.
Share capital: 40,000 Equity shares of ₹ 10 each fully paid – ₹ 4,00,000; 1,000 10% Redeemable preference shares of ₹ 100 each fully paid – ₹ 1,00,000.
Reserve & Surplus: Capital reserve – ₹ 50,000; Securities premium – ₹ 50,000; General reserve – ₹ 75,000; Profit and Loss Account – ₹ 35,000
On 1st January 20X2, the Board of Directors decided to redeem the preference shares at par by utilisation of reserve.
You are required to pass necessary Journal Entries including cash transactions in the books of the company.
Answer:
Question 3.
A company has decided to increase its existing share capital by making rights issue to its existing shareholders. The company is offering one new share for every two shares held by the shareholder. The market value of the share is ₹ 240 and the company is offering one share of ₹ 120 each. Calculate the value of a right. What should be the ex-right market price of a share?
Answer:
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