Question Paper

Financial Accounting (MB131) : July 2004

• Answer all questions.

• Marks are indicated against each question.

< Answer >

1. Which of the following ratios indicates a firm’s ability to pay its debts in the short run?
(a) Liquidity ratios (b) Turnover ratios (c) Coverage ratios
(d) Profitability ratios (e) Leverage ratios.
(1 mark)
< Answer >
2. Which of the following is not a method of computing purchase consideration in case of an
amalgamation?
(a) Lump sum method (b) Net asset method
(c) Net payment method (d) Super profit method
(e) Intrinsic value method.
(1 mark)
< Answer >
3. The financial statement which reflects the static picture of the sources and uses of funds is
(a) Funds flow statement (b) Cash flow statement
(c) Balance sheet (d) Bank reconciliation statement
(e) Prospectus.
(1 mark)
< Answer >
4. The amount earmarked for distribution to the shareholders is known as

(a) Profit after tax (b) Retained earnings

(c) Dividends (d) Operating profit (e) Profit before tax.
(1 mark)
< 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.
(1 mark)
< Answer >
6. The time interval between the dates of balance sheets of holding company and subsidiary company for
the purpose of consolidation of accounts
(a) Can be more than 1 year
(b) Can be more than 9 months but less than 1 year
(c) Can be more than 6 months but less than 9 months
(d) Cannot be more than 6 months
(e) Cannot be more than 2 months.
(1 mark)
< Answer >
7. Based on which of the following concepts, is share capital account is shown on the liability side of a
balance sheet?
(a) Business entity concept (b) Money measurement concept
(c) Cost concept (d) Going concern concept
(e) Conservatism concept.
(1 mark)
< Answer >
8. Which of the following concepts is not considered as basic principles of accounting?
(a) Materiality concept (b) Cost concept
 (c) Consistency concept (d) Matching concept (e) Logical
concept.
(1 mark)
< Answer >
9. 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.
(1 mark)
< Answer >
10. Which of the following events/transactions is not recorded in the books of account of a business?
(a) Withdrawal of goods by the proprietor for personal consumption
(b) Sale of an asset on credit
(c) Purchase of a new asset in exchange of an old asset
(d) Receipt of interest by proprietor on bank fixed deposit held jointly with spouse
(e) Loss of stock by fire.
(1 mark)
< Answer >
11. Exchange of fixed assets for equity shares is the commonly used exchange mode in mergers and
acquisitions. The accepted method of recognition of the value of fixed assets in the books is
(a) The net book value (b) The fair market value
(c) The net realizable value (d) The current market value
(e) The replacement value.
(1 mark)
< Answer >
12. Which of the following is not considered as Research and Development Costs?
(a) Testing in search for product alternatives
(b) Legal work on patent application
(c) Modification of design of a process
(d) Searching for application of new research findings
(e) The design of tools, moulds and dies involving new technology.
(1 mark)
< Answer >
13. Which of the following is not classified as inventory?
(a) Raw materials and components (b) Goods-in-transit (c) Work-in-
process
(d) Finished goods (e) Stores and spares.
(1 mark)
< Answer >
14. Which of the following is a method of financial statement analysis which highlights the
interrelationships in the contents of financial statements?
(a) Du Pont analysis (b) Common size analysis
(c) Time series analysis (d) Index analysis (e) Break-even
analysis.
(1 mark)
< Answer >
15. 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.
(1 mark)
< Answer >
16. Amortization of unidentified intangible assets is in terms of
(a) Conservatism concept (b) Materiality concept
(c) Matching concept (d) Cost concept (e) Business entity
concept.
(1 mark)
 < Answer >
17. In double entry system of book-keeping, every business transaction affects
(a) Two accounts
(b) The same account on two different dates
(c) Two sides of the same account
(d) Two accounts on two different dates
(e) Two accounts on the same side.
(1 mark)
< Answer >
18. Which of the following errors will not cause a mismatch in the trial balance?
(a) Recording a transaction in the wrong subsidiary book
(b) Posting to an account on the wrong side
(c) Omitting to write the cash balance in the trial balance
(d) Wrong casting of a subsidiary book
(e) Both (a) and (d) above.
(1 mark)
< Answer >
19. Which of the following is/are source(s) of funds?
(a) Disposal of an asset (b) Payment to creditors
(c) Acceptance of bills payable (d) Purchase of an asset
(e) Both (a) and (c) above.
(1 mark)
< Answer >
20. Which of the following concepts assumes that a business will last indefinitely?

(a) Business entity (b) Going concern

(c) Periodicity (d) Duality (e) Consistency.
(1 mark)
< Answer >
21. Which of the following factors is used as multiplier of super profits in valuation of goodwill of a
business?
(a) Average capital employed in the business (b) Simple profits
(c) Number of years’ purchase (d) Normal rate of return
(e) Normal profits.
(1 mark)
< Answer >
22. The excess price received over the par value of shares, should be credited to
(a) Calls-in-advance account (b) Share capital account
(c) Reserve capital account (d) Share premium account
(e) Share allotment account.
(1 mark)
< Answer >
23. The periodical total of a purchases returns book is recorded to the
(a) Debit side of the purchases account
(b) Debit side of the purchases returns account
(c) Credit side of the purchases account
(d) Credit side of the purchases returns account
(e) Credit side of creditors account.
(1 mark)
< Answer >
24. The statement which helps an accountant to assess the arithmetical accuracy of the accounting process is
the
(a) Balance sheet (b) Profit and loss account
(c) Cash book (d) Trial balance
(e) Bank reconciliation statement.
(1 mark)
< Answer >
25. In a Funds flow statement, the excess application of funds over sources of funds is known as
 (a) Net profit (b) Funds from operations
(c) Increase in working capital (d) Decrease in working capital (e) Net
Loss.
(1 mark)
< Answer >
26. ‘Outstanding salaries’ represents

(a) A personal account (b) A real account

(c) A nominal account (d) A deferred expense account (e) An
asset.
(1 mark)
< Answer >
27. If closing stock appears in the trial balance, it should be
(a) Credited to the trading account
(b) Credited to the profit and loss account
(c) Deducted from the purchases in the trading account
(d) Credited to the trading account and shown on the assets side of the Balance sheet
(e) Shown on the assets side of the Balance sheet.
(1 mark)
< Answer >
28. Calls in advance account is shown on
(a) The assets side of the balance sheet
(b) The liabilities side of the balance sheet as a deduction from paid up share capital
(c) The liabilities side of the balance sheet as an addition to the paid up share capital
(d) The liabilities side of the balance sheet separately from the paid up share capital
(e) The liabilities side of the balance sheet as a contingent liability.
(1 mark)
< Answer >
29. Which of the following is true when a debtor pays his dues?
(a) The asset side of the balance sheet will decrease
(b) The asset side of the balance sheet will increase
(c) The liability side of the balance sheet will increase
(d) The liability side of the balance sheet will decrease
(e) There is no change in total assets or total liabilities.
(1 mark)
< Answer >
30. Which of the following accounting treatments is/are true in respect of accrued commission appearing
on the debit side of a trial balance?
(a) It is shown on the debit side of the profit and loss account
(b) It is shown on the credit side of the profit and loss account
(c) It is shown on the liabilities side of the balance sheet
(d) It is shown on the assets side of the balance sheet
(e) Both (b) and (d) above.
(1 mark)
< Answer >
31. The discount allowed on re-issue of forfeited shares is debited to
(a) Discount on re-issue of shares account (b) Profit and loss account
(c) Share premium account (d) Discount on issue of shares
account
(e) Forfeited shares account.
(1 mark)
< Answer >
32. Which of the following is not specifically identifiable intangible asset?
(a) Patents (b) Trademarks
(c) Goodwill (d) Franchises (e) Secret processes.
(1 mark)
< Answer >
33. Which of the following statements is false?
(a) The forfeited shares should not be issued at a premium
 (b) At the time of forfeiture of shares, share premium should not be debited with the amount of
premium already received
(c) Shares can be issued at a discount only after one year from the commencement of business
(d) Share premium cannot be utilized to redeem preference shares
(e) The loss on re-issue of shares cannot be more than the gain on forfeiture of those shares.
(1 mark)
< Answer >
34. The process of transferring entries from journal to ledger is known as
(a) Journalizing (b) Ledgerizing
(c) Posting (d) Transferring (e)
Appropriation.
(1 mark)
< Answer >
35. Which of the following equations is equal to Net Value Added?
(a) Gross Value Added + Depreciation (b) Gross Value Added + Interest
(c) Gross Value Added – Depreciation (d) Gross Value Added – Inventory
(e) Gross Value Added + Inventory.
(1 mark)
< Answer >
36. Which of the following methods of valuation of shares is/are known as intrinsic value method?
(a) Earning capacity method (b) Break-up value method
(c) Fair value method (d) Asset backing method
(e) Both (b) and (d) above.
(1 mark)
< Answer >
37. Which of the following is/are true with respect to debentures?
(a) They can be issued for cash
(b) They can be issued for consideration other than cash
(c) They can be issued as collateral security
(d) They can be issued in lieu of dividends
(e) (a), (b) and (c) of the above.
(1 mark)
< Answer >
38. Which of the following is/are a limitation(s) of a Balance Sheet?
I. It does not contain certain assets and liabilities despite its claim to be the statement of all
assets and liabilities
II. The factors, which have a vital bearing on the earnings of the organization, are not disclosed
III. Personal judgment plays a great part in determining the figures of the balance sheet.
(a) Only (I) above (b) Only (II) above
(c) Only (III) above (d) Both (II) and (III) above
(e) All (I), (II) and (III) above.
(1 mark)
< Answer >
39. Till the date of redemption of debentures, ‘Premium on Redemption of Debentures’ appears on the
(a) Liabilities side of Balance Sheet
(b) Assets side of Balance Sheet
(c) Credit side of Profit and Loss Account
(d) Credit side of Profit and Loss Appropriation Account
(e) Credit side of Profit and Loss Adjustment Account.
(1 mark)
< Answer >
40. Declared dividend should be classified in the Balance Sheet as
(a) Provision (b) Current liability (c)
Reserve
(d) Current asset (e) Miscellaneous expenditure.
(1 mark)
Questions No. 41 & 42 are based on the following information:
 Balance Sheet of Mugdha Ltd. as on March 31, 2004
Liabilities Rs. Assets Rs.
Share Capital 70,000 Fixed Assets 1,59,300
Reserves & Surplus 31,300 Current Assets:
Long term Loans 1,43,020 Sundry debtors 85,000
Current Liabilities: Inventories 65,000
Sundry Creditors 67,000 Cash on hand 12,020 1,62,020
Outstanding salaries
5,000
Bank Temp-over Draft
5,000 77,000
Total 3,21,320 Total 3,21,320
< Answer >
41. The quick ratio of Mugdha Ltd. is
(a) 2.10 (b) 1.28 (c) 1.26 (d) 1.10 (e)
1.45
(2 marks)
< Answer >
42. The debt-equity ratio of Mugdha Ltd. is
(a) 0.45 (b) 2.25 (c) 2.04 (d) 1.41 (e)
0.90.
(1 mark)
< Answer >
43. Jasmine Ltd. issued 40,000 debentures of Rs.10 each at a premium of 15%. Mr. Wright has
underwritten 38,000 debentures. Applications were received for 36,000 debentures. The maximum
amount of underwriting commission which can be paid to Mr. Wright is
(a) Rs.19,000 (b) Rs.21,850 (c) Rs.20,700 (d) Rs.10,925 (e)
Rs.10,350.
(1 mark)
< Answer >
44. Sun shine Ltd. issued 10,000 equity shares of Rs.100 each at a premium of 10%, payable as under:
On application Rs.20
On allotment Rs.40 (including premium)
On first call Rs.30
On final call Rs.20

Mr. Thakur, to whom 100 shares were allotted, failed to pay the first call money and his shares were
forfeited before the final call is made. The journal entry to record the forfeiture by the company is
Rs. Rs.
(a) Share capital a/c. Dr. 8,000
Share premium a/c. Dr. 1,000
To Share first call a/c. 3,000
To Share forfeiture a/c. 6,000
(b) Share capital a/c. Dr. 10,000
Share premium a/c. Dr. 1,000
To Share first call a/c. 3,000
To Share final call a/c. 2,000
To Share forfeiture a/c. 6,000
(c) Share capital a/c. Dr. 8,000
To Share first call a/c. 3,000
To Share forfeiture a/c. 5,000
(d) Share capital a/c. Dr. 10,000
To Share first call a/c. 3,000
To Share forfeiture a/c. 7,000
(e) Share capital a/c. Dr. 10,000
To Share premium a/c. 2,000
To Share first call a/c. 3,000
 To Share forfeiture a/c. 5,000
(2 marks)
< Answer >
45. Super Ltd. issued 500 Debentures of Rs.100 each at a discount of 10% . Holders of these debentures
have an option to convert their holdings to equity shares of Rs.100 each at a premium of Rs.20 at any
time within 5 years. The total number of equity shares to be issued, if all the debenture holders opt for
conversion, is
(a) 500 (b) 450 (c) 430 (d) 416 (e)
375.
(1 mark)
< Answer >
46. Radial Tyres Ltd. issued 8,000 shares of Rs.100 each at a premium of 10% payable, Rs.20 on
application, Rs.40 (including premium) on allotment and the balance on call. Applications were
received for 15,000 shares and allotment was made as under:
• Applicants for 9,000 shares were allotted 5,800 shares pro-rata.
• Applicants for 5,000 shares were allotted 1,350 shares pro-rata.
• Applicants for 1,000 shares were allotted 850 shares pro-rata.
The surplus money, if any, would be refunded only after utilizing the excess received on application
towards the payment of allotment dues. The amount refunded to the applicants is
(a) Rs. Nil (b) Rs. 19,000 (c) Rs.1,40,000 (d) Rs.31,000 (e)
Rs.1,80,000.
(2 marks)
< Answer >
47. On October 1, 2003, out of 4,000 equity shares of Lilliput Company, the Gulliver Company acquired
3,200 equity shares. The profit and loss account of Lilliput Company showed the following balances:
On April 1, 2003 Rs.50,000 (Cr.)
On March 31, 2004 Rs.98,000 (Cr.)
The share of capital profit of Gulliver Company that is shown in the Consolidated Balance Sheet as on
March 31, 2004 is
(a) Rs.78,400 (b) Rs.59,200 (c) Rs.49,000 (d) Rs.24,000 (e)
Rs.79,200.
(2 marks)
< Answer >
48. Consider the following data pertaining to Great Ltd. as on March 31, 2004:
Particulars Rs.
2,000 Equity shares of Rs.100 each 2,00,000
20,000 10% Preference shares of Rs.10 each 2,00,000
2,500 14% Debentures of Rs.100 each 2,50,000
Sundry creditors 80,000
Fixed assets 5,75,000
Current assets 1,55,000
The asset backing of equity shares is
(a) Nil (b) 1 time (c) 2 times (d) 3 times (e) 4
times.
(1 mark)
< Answer >
49. H Ltd. acquired 7,500 shares of S Ltd. on August 1, 2003. The equity share capital of S Ltd. is
Rs.1,00,000 of Rs.10 per share. The machinery of S Ltd. is revalued upwards by Rs.2,00,000. The
minority group interest shown in the consolidated balance sheet as on March 31, 2004 was
(a) Rs.2,00,000 (b) Rs.1,50,000 (c) Rs.1,00,000 (d) Rs.75,000 (e)
Rs.50,000.
(2 marks)
< Answer >
50. Q Ltd. issued 10,000, 10% Debentures at the rate of Rs.100 each during the year 2000-2001. Interest on
debentures is payable half yearly on September 30 and March 31 every year. The company has power to
purchase its 10% debentures in the open market for cancellation. The following purchases were made
 during the year 2003-2004:
On July 01, 2003 – 5,000 10% debentures at the rate of Rs.96 ex-interest.
On December 01, 2003 – 2,500 10% debentures at the rate of Rs.102 cum- interest.
The total amount debited to own debenture investment account was
(a) Rs. 7,35,000 (b) Rs. 7,30,833 (c) Rs.
7,30,000
(d) Rs. 7,26,666 (e)Rs. 7,50,000.
(2 marks)
< Answer >
51. Consider the following data pertaining to Savera Ltd.
Authorized share capital Rs. 2,00,000
Issued, called-up and paid -up capital Rs. 1,20,000
Calls in advance Rs. 80,000
Securities Premium Rs. 12,000
Profit for the current year Rs. 25,560
The directors of the company proposed a dividend of 10%. The amount debited to Profit and Loss
Appropriation account on account of proposed dividend is
(a) Rs.18,000 (b) Rs.24,000 (c) Rs.12,800 (d) Rs.14,400 (e)
Rs.12,000.
(2 marks)
< Answer >
52. The profits for the past 5 years of Sohan Ltd. are as under:
Year Profit (Rs.)
1999-2000 64,000
2000-2001 59,475
2001-2002 58,750
2002-2003 61,200
2003-2004 63,695
The weighted average profit of the company is
(a) Rs.63,695 (b) Rs.76,873 (c) Rs.92,247 (d) Rs.61,424 (e)
Rs.61,498.
(2 marks)
< Answer >
53. Consider the following data pertaining to Whirl-Wind Ltd. for the month of June 2004:
As on June 01,
Particulars As on June 30, 2004 (Rs.)
2004 (Rs.)
Stock 1,60,000 90,000
Sundry creditors 60,000 40,000
The company makes all purchases on credit. During the month of June 2004, the company paid a sum of
Rs.3,70,000 to the suppliers. The goods are sold at 25% above the cost. The sales for the month of June
2004 were
(a) Rs.4,12,500 (b) Rs.5,25,000 (c) Rs.4,20,000
(d) Rs.4,10,000 (e) Rs.5,12,500.
(2 marks)
< Answer >
54. A credit sale to Mr. Govind for Rs.75,000 was recorded in Purchases book as Rs.57,000 and was posted
to the debit side of Govind’s account as Rs.75,000. The effect of this mistake, in trial balance is
(a) Debit is more by Rs.1,32,000 (b) Debit is more by Rs.75,000
(c) Credit is more by Rs.57,000 (d) Debit is less by Rs.75,000
(e) Credit is more by Rs.1,32,000.
(1 mark)
< Answer >
55. Anand Ltd. has purchased a machinery on December 20, 2002 in exchange of its securities. The
machinery was installed on March 31, 2003. The value of securities on the above two dates is
 Rs.1,75,000 and Rs.1,65,000, respectively. It is expected that the machinery will have a useful life of 10
years after which it will have a salvage value of Rs.15,000. The machinery was put to use with effect
from April 01, 2003. If the company follows straight line method of depreciation, the amount of
depreciation charged for the year 2003-2004 is
(a) Rs.16,000 (b) Rs.15,000 (c) Rs.15,500 (d) Rs.16,500 (e)
Rs.17,500.
(1 mark)
< Answer >
56. As on June 30, 2004, the overdraft balance of Mr.Y as per bank pass book is Rs.30,000. The pass book
balance did not agree with the balance as per cash book. On scrutiny, the following omissions and
commissions were noticed:
• A cheque for Rs.6,000 issued to Mr.Z has not been presented for payment till date
• Mr.M, a tenant, directly deposited into the bank account of Mr. Y an amount of Rs.20,000
towards rent and the same is not accounted in the cash book.
• A cheque for Rs. 5,000 deposited in the bank is not yet realized till date
• The interest on debentures for this year, directly collected by the bank, amounted to
Rs.15,000.
The bank balance as per cash book is
(a) Debit balance of Rs.26,000 (b) Credit balance of Rs.66,000
(c) Credit balance of Rs.36,000 (d) Debit balance of Rs.71,000
(e) Debit balance of Rs.66,000.
(3 marks)
< Answer >
57. Consider the following information pertaining to PQR Ltd.:
On April 01, 2003 , the Provision for bad debts account showed a credit balance of Rs.40,000. As on
March 31, 2004, the status of the following debtors is
• Mr. X had become insolvent and only 30 paise in a rupee is expected to be realized out of his
estate in full settlement. He owed a total amount of Rs.40,000.
• Mr. Y who owes an amount of Rs.20,000 became bankrupt and it was understood that no
amount will be recovered from him.
• Mr. Z has agreed to pay Rs.4,000 as final settlement against his due of Rs.12,000 and the
balance is irrecoverable.
If the company decided to maintain the provision at Rs.15,000 as on March 31, 2004, the amount to be
debited to Profit and loss account, after considering the above, is
(a) Rs.31,000 (b) Rs.15,000 (c) Rs.23,000 (d) Rs.71,000 (e)
Rs.11,000.
(2 marks)
< Answer >
58. Consider the following data pertaining to M/s.Scorpio Company:
As on April 01, 2003 As on March 31, 2004
Particulars
Rs. Rs.
Cash & bank 6,00,000 ?
Sundry debtors 5,00,000 4,00,000
Sundry creditors 7,00,000 8,00,000
During the year 2003-04, the sales were Rs.46,00,000 and all were on credit. The cash purchases were
Rs.9,00,000 and credit purchases were Rs.30,00,000. Expenses paid during the year were Rs.80,000.
The cash and bank balance of M/s.Scorpio Company as on March 31, 2004 is
(a) Rs.29,00,000 (b) Rs.14,20,000 (c)
Rs.37,00,000
(d) Rs.51,00,000 (e) Rs.6,00,000.
(3 marks)
< Answer >
59. Lay’s Ltd. purchased furniture for Rs.60,000 two years ago. The current book value of the furniture is
Rs.43,350. If the company charges depreciation on furniture under written down value method, the rate
 of depreciation is
(a) 35% (b) 30% (c) 25% (d) 20% (e)
15%.
(1 mark)
< Answer >
60. Vardhan Ltd., records its stock under first-in-first-out method, so as to minimize accumulation of
outdated stock. The opening stock as on June 01, 2004 is Rs.30,000 consisting of 1,500 units at the rate
of Rs.20 per unit. The purchases and sales made during the month are:
Purchases:
Date No. of units Cost price per unit
03-06-2004 2,000 Rs.25
14-06-2004 1,000 Rs.22
21-06-2004 3,000 Rs.30
26-06-2004 1,500 Rs.40
Sales:
Date No. of units
03-06-2004 1,000
10-06-2004 1,500
15-06-2004 1,000
25-06-2004 2,000
28-06-2004 1,500
The opening stock of the company as on July 01, 2004 is
(a) Rs.20,000 (b) Rs.60,000 (c)
Rs.80,000
(d) Rs.50,000 (e) Rs.75,000.
(2 marks)
< Answer >
61. Consider the following data pertaining to XL Ltd.
i. Original cost of furniture (Rs.) 15,000
ii. Rate of depreciation under written down value method (%) 20
iii. Residual value of furniture at the end of useful life (Rs.) 6,144
The estimated useful life of the furniture is
(a) 3 years (b) 4 years (c) 5 years (d) 6 years (e) 7
years.
(1 mark)
< Answer >
62. Kavya Ltd. started its operations on April 15, 2003. Consider the following data pertaining to the
company for the year 2003-2004:
Particulars Rs.
Total Sales during the year 2003-2004 of which 85% is cash sales 9,00,000
Bad debts written off 3,500
Issue of shares for cash 6,00,000
Purchase of fixed assets for cash 4,50,000
Depreciation 45,000
Amount received by way of short-term loan from Bank 1,20,000
Short-term loan repaid 20,000
Payment towards manufacturing and administrative expenses 4,50,000
Amount paid to purchase raw materials 1,80,000
Amount deposited in bank 2,80,000
The balance of cash as on March 31, 2004 is
(a) Rs.60,000 (b) Rs.1,05,000 (c)
Rs.2,40,000
(d) Rs.1,95,000 (e) Rs.56,500.
(2 marks)
< Answer >
63. On June 30, 2004, the bank column of cash book of Sri Ltd. showed debit balance of Rs.3,400 and this
balance did not agree with the balance as per bank pass book. On verification, the following facts were
 noticed:
i. An outstation cheque for Rs.4,500 deposited in the bank on June 28, 2004 was not collected
by the bank as on June 30, 2004.
ii. Bank charges amount to Rs.120 and interest charges amount to Rs.790 were not recorded in the cash book.
iii. Cheques amounting to Rs.5,650 were not presented for payment as on June 30, 2004.
The bank balance as per pass book as on June 30, 2004 was
(a) Rs.3,160 (debit) (b) Rs.5,460 (credit) (c) Rs.7,660
(debit)
(d) Rs.3,640 (credit) (e) Rs.1,340 (debit).
(3 marks)
< Answer >
64. The balance in machinery account of Taurus Ltd. as on April 01, 2003 was Rs.85,000. The following
transactions took place during the year 2003-2004:
Amount
Date Particulars
(Rs.)
01-07-2003 Machinery purchased 90,000
01-10-2003 Machinery sold (book value as on April 01, 2003 is 50,000
Rs.40,000)
01-01-2004 New machinery purchased 80,000
If the company charges depreciation at the rate of 10% per annum, on written down value method, the
amount of depreciation charged for the year 2003-2004 is
(a) Rs.23,250 (b) Rs.15,500 (c)
Rs.19,500
(d) Rs.13,250 (e) Rs. 15,250.
(2 marks)
Consider the following data pertaining to Saketh Ltd. as on March 31, 2004 and answer Question
Nos. 65 and 66.
Particulars Amount (Rs.) Amount (Rs.)
Opening stock 90,000
Sales 4,35,000
Purchases 2,56,000
Salaries 76,000
Other expenses 68,000
Fixed assets (cost – Rs.9,00,000) 6,00,000
Sundry debtors 1,55,000
Sundry creditors 1,32,000
Cash and bank 58,000
Share capital 7,00,000
Short-term loan 36,000
13,03,000 13,03,000
< Answer >
65. The value of stock as on March 31, 2004 is Rs.75,000. The company has the practice of charging
depreciation on the fixed assets at the rate of 15% on written down value method.
The Profit/Loss made by the Saketh Ltd. for the period ended March 31, 2004 is
(a) Rs. 70,000 (loss) (b) Rs.35,000(loss) (c) Rs. 1,64,000
(profit)
(d) Rs.20,000(profit) (e) Rs.20,000(loss)
(2 marks)
< Answer >
66. The total of balance sheet of Saketh Ltd. as on March 31, 2004 is
(a) Rs.8,38,000 (b) Rs.8,68,000 (c) Rs.9,58,000
(d) Rs.7,98,000 (e) Rs.9,38,000.
(2 marks)
< Answer >
67. Consider the following data pertaining to Lairs Ltd. for the month of June 2004:
 Purchases Issues Balance
Date Quantity Rate Quantity Quantity Rate
(Kg.) (Rs.) (Kg.) (Kg.) (Rs.)
01-06-2004 500 228
02-06-2004 400 240
10-06-2004 600 250
25-06-2004 1,000
If the company uses weighted average method for inventory valuation, the value of inventory as on June
30, 2004 is
(a) Rs.1,19,670 (b) Rs.1,20,000 (c)
Rs.1,25,000
(d) Rs.1,14,000 (e) Rs.3,60,000.
(2 marks)
< Answer >
68. On May 31, 2004 the cash balance of Wren Ltd. is Rs.1,65,500. The cash receipts and cash payments
during the month of June 2004 aggregated to Rs.2,91,000 and Rs.2,05,000, respectively. Further, the
company deposited Rs.2,00,000 with its banker as fixed deposit for three years. The rent and salaries
yet to be paid amounted to Rs.5,000 and Rs.6,000, respectively. The amount of cash balance as on June
30, 2004 is
(a) Rs.68,500 (b) Rs.79,500 (c) Rs.51,500
(d) Rs.45,500 (e) Rs.40,500.
(1 mark)
Question Nos. 69 and 70 are based on the following information:
Trial Balance of Varun & Co. as on March 31, 2004:
Particulars Debit (Rs.) Particulars Credit (Rs.)
5% Investments (as on 01.04.2003) 2,500 Capital Account 64,050
Cash with Safe Bank Ltd. 4,000 Interest 1,625
Stock on 01-04-2003 23,400 Sales 1,44,800
Furniture 1,000 Discount 1,495
Sales returns 4,300 Purchases returns 2,900
Purchases 1,20,550 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 1,990
Drawings 5,000
10% Deposits (as on 01.04.2003) 15,000
Total 2,22,270 Total 2,22,270
Additional Information:
• Value of Stock as on March 31, 2004 is Rs.37,800.(Market Value Rs.42,500).
• Depreciation should be provided on furniture at 10% per annum.
• The firm makes a provision for doubtful debts at 5% on sundry debtors. No such provision need
be made for the deposits.
< Answer >
69. Considering the above Trial Balance and the additional information, the net profit made by the firm for
the year ending March 31, 2004 was
(a) Rs.11,840 (b) Rs.4,340 (c) Rs.4,790 (d) Rs.7,140 (e)
Rs.7,740.
(3 marks)
< Answer >
70. The total of Balance Sheet of the firm as on March 31, 2004 was
 (a) Rs.78,590 (b) Rs.78,290 (c) Rs.73,590
(d) Rs.74,190 (e) Rs.58,590.
(3 marks)
< Answer >
71. The following Trial Balance pertaining to Tom Vicky as on March 31, 2004 was prepared by an
inexperienced accountant:
Trial Balance of Tom Vicky as at March 31, 2004
Debit Credit
Particulars
(Rs.) (Rs.)
Capital 89,000
Drawings 9,000
Stock (1st April, 2003) 37,000
Purchases 2,01,100
Sales 3,94,000
Closing Stock 30,150
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 3,310
Returns inward 2,050
Provision for bad debts 4,250
Returns outward 3,160
Discount allowed 2,800
Discount received 3,150
Total 5,22,170 5,82,470
The Trial Balance was not tallied, and the errors were subsequently rectified. The total of corrected
Trial Balance as on March 31, 2004 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 marks)
< Answer >
72. Consider the following data pertaining to Dileep Company for the period 2003-2004:
Particulars Rs.
Opening inventory 4,00,000
Purchases during the year 26,00,000
Sales during the year 32,00,000
A physical inventory taken on March 31, 2004 showed an ending inventory of Rs.4,25,000. Company’s
gross profit on sales was constant at 20% through out the year. The management of the company
suspects pilferage of inventory. The estimated cost of missing inventory on the last day of the financial
year was
(a) Rs.2,25,000 (b) Rs.2,00,000 (c)
Rs.85,000
(d) Rs.70,833 (e) Rs.15,000.
(2 marks)
END OF SECTION B
 Suggested Answers
Financial Accounting (MB131) : July 2004
1. Answer : (a)
Reason : Liquidity ratios are the ratios which judge the financial position of the concern inorder to highlight its relative
strength in meeting their current obligations. These are used to measure firm’s ability to meet short run
obligations. They are current ratios and quick ratios.
Turnover ratios (b) are also known as performance ratios; Activity ratios will indicate position of assets usage.
Coverage ratios (c) indicate the extent to which the interests of the persons entitled to get a fixed return or
scheduled repayment as per agreed terms are safe. Profitability ratios (d) are of utmost importance for a concern.
These ratios enlighten the end results of business activities. Leverage ratios (e) refers to employment of funds to
accelerate rate of return to owners. These ratios explain the extent to which the debt is employed in the capital
structure of the concerns. Thus, the ratios (b), (c), (d) and (e) do not explain the firm’s ability to pay its debt in the
short run. Hence, are not the correct answers.
2. Answer : (d)
Reason : Purchase consideration is the price payable by the transferee company to the transferor company for the net assets
taken over. (d) Super profit method : is one of the methods of valuation of goodwill, thus, it is not one of the
methods for computation of purchase consideration and is the correct answer
There are basically four methods of calculating purchase consideration.
a. Lump sum method : is the simplest method under this, the purchase consideration is the specified fixed
amount.
b. Net asset method : Under this method, the purchase consideration is calculated by deducting agreed values
of all liabilities from agreed values of all assets.
c. Net payment method : Under this method, the purchase consideration is arrived at by adding up the cash
paid and the agreed values of the shares and debentures allotted by the transferee company to the transferor
company
e. Intrinsic value method : The purchase consideration is calculated on the basis of agreed value of shares of
the transferor company. All these are methods of calculating purchase consideration.
Thus, the super profit method (d) is the correct answer.
3. Answer : (c)
Reason : Balance sheet is a statement reflecting the various sources of funds on liabilities side and the different uses to
which they were put on assets side. It is static in nature. Thus, the static picture of the sources of funds and its uses
are reflected in Balance Sheet (c). Thus it is the correct answer. Funds flow statement (a) captures the movement
in sources of funds and uses of funds Cash flow statement (b) represents only sources and uses involving cash.
Bank reconciliation statement (d) is not a financial statement. It is a statement prepared to reconcile the
differences between Bank pass book balance and balance as per Bank column of cash book. Prospectus (e) is not a
financial statement. It is a document inviting the public to subscribe for securities of a body corporate. Thus,
alternatives (a), (b), (d) and (e) are incorrect.
4. Answer : (c)
Reason : Dividends represent the amount earmarked to distribute to the shareholders. Hence (c) is the answer. The amount
of taxes is to be deducted from profit before tax and the amount to be transferred to reserves and other
appropriations, if any, need to be made from profits after tax. Operating profit is the amount of profit other than
non-operating surplus. Interest, taxes, other appropriations should be made to operating profit. Hence this is not
the amount earmarked for distribution to shareholders.
5. Answer : (b)
Reason : If machinery account is debited with the amount of repairs incurred on the machine, this is an example of error of
principle. If two or more errors are made and the amount compensates in such a way that the error is not disclosed
by trial balance, such errors are compensating errors. The mistake made by recording the amount incorrectly,
either wholly or partly is known as error of commission. If any transaction is omitted, to be recorded, it is known
as error or omission. If any transaction is partially omitted, to be recorded, it is known as error of partial omission.
6. Answer : (d)
Reason : According to the sub-section 2(c) of section 212 of the Companies Act, the time interval between the dates of
balance sheets of the holding company and subsidiary company should not be more than 6 months.
7. Answer : (a)
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 (a) 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.
Thus alternative (a) is the correct answer.
8. Answer : (e)
Reason : According to Generally Accepted Accounting Principles, materiality concept (a), cost concept (b), consistency
concept (c) and matching concept (d) are considered as basic principles of accounting. Logical concept (e) is not
considered as basic principle of accounting.
9. Answer : (a)
Reason : FIFO method is based on the assumption that the 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 statedin LIFO method (b), Weighted average
method (c), Simple average method (d) and Specific identification method (e) do not show higher profits during
the periods of inflation. Hence, (a) is true.
10. Answer : (d)
Reason : The receipt of interest by proprietor on bank fixed deposit held jointly with spouse cannot be entered in the books
of account of the business. The other items i.e. withdrawal of goods by the proprietor for personal consumption,
sale of an asset on credit, purchase of net asset in exchange of old asset and loss of stock by fire are all recorded in
the books of account.
11. Answer : (b)
Reason : AS-10 suggests use of fair market value of the fixed assets so acquired for recognizing in the books of accounts.
At times the fair market value of the securities issued shall be considered in recording, if it is more evident than
the fair market value of the fixed asset acquired
12. Answer : (b)
Reason : Legal work on patent application is not related to research and development work. Other activities referred in (a),
(c), (d) and (e) are relevant to research and development work. Hence, (b) is correct.
13. Answer : (b)
Reason : As per Accounting standard 2, Goods in transit (b) is not classified as inventories. The other items mentioned in
alternatives Raw materials and components (a); Work-in-Process (c); Finished goods (d) and stores and spares (e)
are classified as inventories.
14. Answer : (a)
Reason : Analyzing return ratios is referred to as Du Pont Analysis. This system highlights the inter-relationships in the
contents of financial statements. Hence, the answer is (a). The other alternatives compare the financial statements
by taking the individual items of different financial statements and reviewing the changes that have occurred from
year to year and over the years. Break – even analysis is related to the production/sales where a business incurrs
neither loss nor profit.
15. Answer : (b)
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).
16. Answer : (c)
Reason : Intangible assets are amortized like tangible fixed assets. If costs benefit more than one accounting period, they
should be systematically and rationally allocated to all accounting periods. Matching concept involves
recognizing costs as expenses on the basis of direct association with assets. Thus amortization of intangible assets
is a systematic allocation of costs over a several periods in recognition of matching concept. The other concepts
do not recognize allocation of costs of fixed assets. Conservatism concept is not meant to introduce a bias into
financial reporting. It is a prudent reaction to uncertainty to try to ensure that inherent risks in business are
adequately considered. Materiality concept (b) explains that the transactions which can be quantified in terms of
money alone find place in accounting. Cost concept (d) requires fixed assets to be reported at acquisition
cost/historical cost. Business entity concept (e) explains that in accounting business is to be considered as a
separate entity from the owner. It does not speak about amortization. Alternative (c) is the correct answer.
17. Answer : (a)
Reason : In double entry system of book-keeping every business transaction affects two or more than two accounts (a) one
account affects debit aspect while the other credit aspect. It does not affect the same account on two different
dates (b) nor two sides of the same account (c). It does not affect two accounts on two different dates (d) it does
not affect same side of two accounts (e).
18. Answer : (a)
Reason : Making an entry in the wrong subsidiary book (a) will not cause a mismatch in the trial balance. The wrong
recording is carried over at all stages and the trial balance is not affected by this wrong recording. The mistakes
stated in other alternatives results in a mismatch in the trial balance. The posting of an amount on debit side
instead of credit side or vice versa (b) omitting to write the cash balance in the trial balance (c) and wrong casting
of a subsidiary book (d) affects the agreement of trial balance.
19. Answer : (e)
Reason : In a business, funds can be raised by increasing liabilities and reducing assets. Thus alternative (a) reduction in
asset and alternative (c) increase in liability are the sources of funds. The other alternatives (b) payment of
creditors leads to reduction in liability and (d) purchase of an asset increases assets and they are uses of funds.
20. Answer : (b)
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 duality (d) concept is also known as accounting equivalence concept implies that the uses
of funds must be equal to the sources of funds i.e. Assets = owners’ Equity + outside liability. The liabilities and
assets that appear in the Balance sheet are governed by this concept. 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.
21. Answer : (c)
Reason : Number of years’ purchase is the factor with which the super profits would have to be multiplied in order to
arrive at the value of goodwill.
Super profits : Average annual profits – (Average capital employed x Normal rate of return)
Goodwill : Number of years’ purchase x super profits
22. Answer : (d)
Reason : If by the terms of issue, the price payable is above the par value of shares, it is called an issue at premium. The
amount so received is to be credited to securities premium account.
23. Answer : (d)
Reason : Purchases account is a debit balance and purchases returns is a credit balance and the total of purchase returns
will be recorded to the credit side of the purchases returns account. Hence (d) is the answer. It is not taken to debit
side of purchases returns account. Hence (b) is not the answer. It is not taken to purchases account. Hence (a) and
(c) are not the answers. The creditors account will be debited with the amount of purchase returns. Hence (e) is
not the answer.
24. Answer : (d)
Reason : The trial balance is prepared to assess the arithmetical accuracy. Hence the answer is (d). The profit and loss
account is prepared to know the profit or loss of the concern. The balance sheet is prepared to know the financial
position as on a particular date. The cashbook indicates the cash receipts and payments. The bank reconciliation
statement is prepared to reconcile the bank balance as per cash book and pass book.
25. Answer : (d)
 Reason : In the preparation of funds flow statement, the excess of sources over application is known as increase in working
capital, hence option (c ) is incorrect, and the excess of applications over sources is known as decrease in working
capital. The terms Net profit, Net loss are used in the case of Income statements and not funds flow statement,
hence option (a) and (e) are incorrect. Similarly the term Funds from Operation is a source of fund (component in
the Funds Flow Statement) hence, option (b) is incorrect.
26. Answer : (a)
Reason : Outstanding salaries is the amount payable during a particular period which is not yet paid. It is Personal Account
representing salaries due to employees. It is a representative personal account
27. Answer : (e)
Reason : When Closing stock appears in the trial balance it implies that it is already adjusted against the purchases figure
in the trial balance , so no more adjustment is required in the purchases account in the trading account. Only when
closing stock is given as an adjustment , closing stock is credited to the trading account and shown on the assets
side of the Balance sheet, hence both (a) and (d) are incorrect. When closing stock appears in the trial balance ,
only one effect is given i.e. it is shown on the assets side of the Balance sheet. Option (e) is correct answer.
28. Answer : (d)
Reason : Calls in advance results when a shareholder pays the entire amount on the shares i.e. in respect of future calls also
in advance. Calls in advance is a liability and not an asset, hence option (a) is false. Calls in advance does not
form a part of the Company’s share capital, hence it is not deducted like Calls in arrears nor added as amount in
forfeited account. It is shown separately from the Paid up share capital
29. Answer : (e)
Reason : If a debtor pays his dues, debtors balance will decrease and cash balance will increase. Thus, the composition of
assets will change. But there is no change in the total assets or liabilities and hence (e) is true.
30. Answer : (d)
Reason : If accrued commission is shown on the debit side list of balances in the trial balance, it indicates that it is already
adjusted in the commission received /receivable and it does not require any adjustment in the profit and loss
account. It directly appears as a current asset in the balance sheet. Hence (d) is true.
31. Answer : (e)
Reason : Discount allowed on re-issue of forfeited shares is debited to forfeited shares account. It cannot be debited to
discount on re-issue of shares, since there is no such account maintained, it is not a usual discount allowed to be
debited to (b) Profit and loss account. The share premium account (c) can be debited only for the purposes as per
the provisons of the Compnaies Act. The discount on issue of shares (d) can be debited only in the event of issue
of shares at a discount originally. Thus, (e) is the correct answer.
32. Answer : (c)
Reason : Patents, trademarks, franchises and secret processes are specifically identifiable intangible assets. They can be
sold individually. However goodwill is unidentifiable intangible asset. Customer loyalty, and a reputation for
quality are unidentifiable intangibles, they cannot be sold without selling the enterprise. Hence the answer is (c).
33. Answer : (a)
Reason : Forfeited shares can be re-issued at a premium. Thus, the statement in alternative (a) is false. The statements in
other alternatives are true-, if share premium is already received, share premium account cannot be debited with
the amount of premium on forfeiture of shares; Shares can be issued a discount, only after one year from the
commencement of business; Share premium can be utilized only specific purposes as per the provisions of section
78 of the Companies Act and it cannot be utilized to redeem preference shares; The forfeited shares cannot be
reissued for a loss more than the gain on those shares.
34. Answer : (c)
Reason : The process of transferring entries from journal to ledger is known as posting. Hence the answer is (c). The
process of recording the transaction in the book of original entry is journalizing. Taking over the balance in
nominal accounts to profit and loss account is transferring. The allocation of profit to reserves is known as
appropriation. There is no term called ledgerizing.
35. Answer : (c)
Reason : Net value-added is derived by deducting depreciation from the gross value added. Gross value added is arrived at
by deducting cost of all materials and services and other extraordinary expenses from sales revenue and any other
income. Therefore, Net value added = Gross value added – Depreciation. Therefore, alternative (c) is the correct
answer.
36. Answer : (e)
Reason : The intrinsic value method of valuation of shares is also known as break-up value method and asset backing
 method. The yield method is known as earning capacity method. The fair value method is an average of intrinsic value
method and yield method. Hence the answer is (e).
37. Answer : (e)
Reason : Debenture can be issued for cash or consideration other than cash. It can be issued as collateral security, but it
cannot be issued in lieu of dividends. Hence, (e) is true.
38. Answer : (e)
Reason : Though the balance sheet is claimed to be the statement of all assets and liabilities, it does not contain certain
assets and liabilities. For example, the efficient management force is a human asset available to the organization.
Though efforts are being made to quantify and present the human resources, most of the balance sheets do not
present the same. Also dissatisfied labor force is a liability to the organization. The factors, which have a vital
bearing on the earnings of the organization such as changes in the managerial personnel, cessation of agreements,
loss of markets, are not disclosed. Personal judgment plays a great part in determining the figures for the balance
sheet. Example: provision for depreciation, stock valuation, provision for bad debts are more based on the
personal judgment and is therefore not free from bias. Hence the answer is (e).
39. Answer : (a)
Reason : Premium on redemption of debentures is a personal account and is shown on the liabilities side of the balance
sheet as it depicts the amount payable to the debenture holders at the time of redemption. Hence (a) is the answer.
It is not shown on the assets side of balance sheet. It is not credited to profit and loss account / profit and loss
appropriation account / profit and loss adjustment account.
40. Answer : (b)
Reason : The proposed dividend is classified as a provision and shown on the liability side of the balance sheet. The
dividend finally decided by the shareholders in the annual general meeting as payable is termed as Declared
Dividend. Any dividend declared must be paid with thirty days from the date of declaration. Hence, a declared
dividend must be classified as a current liability in the balance sheet of the company. Thus the answer is (b).
41. Answer : (c)
Currentassets − Inventories
Reason : Quick ratio : Current liabilities

Rs.1, 62, 020 − Rs.65, 000 97, 020

= = 1.26
= Rs.77, 000 77, 000
42. Answer : (d)
Long − term debt
Reason : Debt equity ratio = Net worth

Rs.1, 43, 020

= 1.41
= Rs.1, 01, 300
43. Answer : (d)
Reason : The underwriting commission should not exceed 2.5 % of the issue price in case of debentures.
Issue price of the debentures is Rs. 10 x 115% = Rs.11.5
Hence the maximum commission payable to Mr.Wright is 38,000 x Rs.11.5 x 2.5%= Rs.10,925
44. Answer : (c)
Reason : When shares are forfeited, the share capital account should be debited with called up amount (excluding
premium) and corresponding credit should be given to share call account with amount not received and share
forfeiture account with amount received. If the premium is already received, the same should not be reversed.
Hence the entry is
Share capital a/c Dr. Rs. 8,000
To Share first call a/c Rs.3,000
To Share forfeiture a/c Rs.5,000
45. Answer : (e)
Reason :
Debenture amount–500 units × Rs.100 Rs.50,000
Less: Discount – 10% Rs. 5,000
 Rs. 45,000
These Rs.45,000 debentures are converted into equity shares of Rs.100 each at a premium of Rs.20.
So, the amount of equity share per unit = Rs.100 + Rs.20 =
Rs.120
Rs.45, 000
No. of equity shares to be issued = Rs.120 =
375 shares.
46. Answer : (b)
Reason :
Shares Shares Application Application Excess Allotment Surplus /
applied allotted money Money due money money due (deficit)
received Rs. Rs. (including Rs.
Rs. premium)
Rs.
(1) (2) (3)=(1)×Rs.20 (4)=(2) × (5)=(3) – (6)=(2)×Rs.40 (7) = (5)– (6)
Rs.20 (4)
9,000 5,800 1,80,000 1,16,000 64,000 2,32,000 (1,68,000)
5,000 1,350 1,00,000 27,000 73,000 54,000 19,000
1,000 850 20,000 17,000 3,000 34,000 (31,000)
15,000 8,000 3,00,000 1,60,000 1,40,000 3,20,000 (1,80,000)
Hence the amount of refund is Rs.19,000.
47. Answer : (b)
Reason : Share of Gulliver company is 100 x 3200 / 4000 = 80%
Date of acquisition is October 1, 2003. Profit prior to date of acquisition is capital profit.
Capital profit for 6 months (up to 1st October) = 50% of (Rs.98,000 – Rs.50,000) Rs.48,000
= Rs.24,000
Share of Gulliver Company is 80% of (Rs.50,000 + Rs.24,000) = 80% of Rs.74,000 =
Rs.59,200.
48. Answer : (b)
Net assets available for equity shareholders
Reason : Asset backing per equity share = Equity Share Capital
= Rs.5,75,000 + Rs.1,55,000– (Rs.80,000+ Rs.2,50,000+ Rs.2,00,000)
= Rs.7,30,000 – Rs.5,30000= Rs.2,00,000
Rs.2, 00, 000
= Rs.2, 00, 000 = 1 time
49. Answer : (d)
Reason : Number of shares of S Ltd. = Rs. 100000 / Rs. 10 = 10000
Minority interest = 10000 – 7500 = 2500 = 25%
Profit on revaluation of machinery = Rs.2,00,000.
Share of minority group of S Ltd. = 25%
Share of profit on revaluation = 25% of Rs.2,00,000
25
× Rs. 2, 00, 000 =
100 Rs. 50,000
Equity share capital [2500×10] Rs. 25,000

Total minority interest = Rs. 75,000

50. Answer : (b)
Reason :
01.07.2003
5,000 × Rs.96 ex-interest Rs.4,80,000
 01.12.2003
2,500 × Rs.102 cum-interest = Rs.2,55,000 – Rs.4,167 Rs.2,50,833
2 10
×
(Interest for 2 months Rs.2,50,000× 12 100 =
Rs.4,167)
Rs.7,30,833
Amount debited to own debenture investment account is Rs.7,30,833.
51. Answer : (e)
Reason : No dividends are paid on call in advance nor on calls in arrear. Dividend = 10% on Rs.1,20,000 = Rs. 12,000
52. Answer : (e)
Reason :
Year Profit (Rs.) Weight Product
1999-2000 64,000 1 64,000
2000-2001 59,475 2 1,18,950
2001-2002 58,750 3 1,76,250
2002-2003 61,200 4 2,44,800
2003-2004 63,695 5 3,18,475
9,22,475 15 9,22,475
Average profit = Rs.9,22,475 / 15 = Rs.61,498
53. Answer : (b)
Reason : Books of Whirl Wind Ltd
Dr. Stock Account Cr.
Date Particulars Rs. Date Particulars Rs.
June 01, 04 To Opening 1,60,000 June 30, By Cost of 4,20,000
balance 04 goods sold (bal.
Fig)
To Purchases 3,50,000 By Closing 90,000
balance
5,10,000 5,10,000

Dr. Sundry creditors Account Cr

Date Particulars Rs. Date Particulars Rs.
June 30, 04 To Cash paid 3,70,000 June.01, 04 By Opening 60,000
balance
To Closing balance 40,000 By Purchases 3,50,000
(balancing figure)
4,10,000 4,10,000
Sales = Rs.4,20,000 + 25% (Rs.4,20,000) = Rs.5,25,000.
54. Answer : (a)
Reason : An amount of Rs.75,000 (i.e credit sale) was not recorded on credit side and Rs. 57,000 was wrongly recorded on
debit side. Hence, the debit side will be more by Rs.1,32,000 (i.e 75,000 + 57,000) Mr. Govind account is
correctly debited with Rs.75,000 and hence will not affect the trial balance. Thus, debit is more by Rs.1,32,000.
55. Answer : (a)
Rs.1, 75, 000 − Rs.15, 000
= Rs.16, 000
Reason : Depreciation = 10 years

The cost as on March 31, 2003 is irrelevant (cost concept).

56. Answer : (b)
Reason : Bank Reconciliation Statement
Particulars Rs. Rs.
Overdraft balance as per Pass book 30,000
 Add: Cheques issued to Mr. Z but not presented
6,000
for payment
Rent deposited by Mr. M directly into the
20,000
bank
Interest on debentures directly collected by
15,000 41,000
bank
71,000
Less:
Cheque deposited, yet to be realised 5,000 5,000
Overdraft balance as per cash book 66,000
57. Answer : (a)
Reason : Dr. Provision for Bad debts Account Cr.
Date Particulars Rs. Date Particulars Rs.
March 31, April 01, 2003 By Opening
To X 28,000 40,000
2004 balance
To Y 20,000 March 31, 2004 By P & L a/c 31,000
To Z 8,000
To Closing balance 5,000
71,000 71,000
58. Answer : (b)
Reason :
Dr. Sundry debtors account Cr.
Date Particulars Rs. Date Particulars Rs.
April 01, 2003-2004 By Cash
2003 To Balance b/d 5,00,000 (Balancing 47,00,000
figure)
2003-2004 March 31,
To Sales 46,00,000 By Balance c/d 4,00,000
2004
51,00,000 51,00,000
Dr. Sundry Creditors Cr.
Date Particulars Rs. Date Particulars Rs.
2003-2004 To Cash April 01,
(balancing 29,00,000 2003 By Balance b/d 7,00,000
figure)
March 31, To Balance c/d 8,00,000 2003-2004 By Purchases 30,00,000
2004
37,00,000 37,00,000

Cash and Bank balance:

Particulars Rs.
Opening cash and bank balance 6,00,000
Add Cash received from sundry
47,00,000
debtors
53,00,000
Less Cash paid to sundry creditors 29,00,000
Cash purchases 9,00,000
Expenses paid 80,000
Closing cash and bank balance 14,20,000
59. Answer : (e)

S 43,350
n 2
Reason : = 1– C = 1– 60, 000

= 1 – 0.85 = 15%.
60. Answer : (e)
Reason :
Particulars Units
 Total Purchases 7,500
Opening stock 1,500
9,000
Less Sales 7,000
Closing stock 2,000
Since FIFO method of valuation is followed, the stock in hand will be that purchased on the latest date. i.e
26-06-2004 ; 21-06-2004.
Hence closing stock = 500 x Rs.30 per unit = Rs.15,000
1,500 x Rs.40 per unit = Rs.60,000
––––––––
Rs.75,000
––––––––
61. Answer : (b)
Reason :
Particulars Rs.
Original cost of furniture 15,000
Less Depreciation at the rate of
20%
Year – 1 3,000
12,000
Year – 2 2,400
9,600
Year – 3 1,920
7,680
Year – 4 1,536
Residual Value 6,144
Useful life – 4 years
62. Answer : (b)
Reason :
Particulars Rs.
Cash Sales (9,00,000 × 85%) 7,65,000
Issue of shares 6,00,000
Amount received by way of short-term loan 1,20,000
14,85,000
Less: Purchase of fixed assets 4,50,000
Short tem loan repaid 20,000
Payment towards expenses 4,50,000
Amount paid to purchase raw materials 1,80,000
Amount deposited in bank 2,80,000
Cash balance as on March 31, 2004 1,05,000

63. Answer : (d)

Reason : Bank reconciliation statement:

Particulars Rs. Rs.

Favourable (debit) balance as per bank column of cash book 3,400
Add:
Cheques issued not yet presented for payment 5,650
5,650
9,050
 Less:
Cheques deposited not yet cleared 4,500
Bank and interest charges not recorded in cash book 910
5,410
Credit balance as per pass book 3,640
64. Answer : (e)
Reason : Dr. Machinery account Cr.
Date Particulars Rs. Particulars Rs.
1-04-03 To Opening balance 85,000 1-10-03 By Bank (sale) 50,000
1-07-03 To Bank 90,000 31-3-04 By Depreciation 15,250
1-10-03 To Profit and loss a/c 31-3-04 By Closing 2,01,750
(Profit on sale of 12,000 balance
machine)
1-01-04 To Bank 80,000
2,67,000 2,67,000
Depreciation calculation:
Particulars Rs.
On machinery purchased on 1-7-03 (Rs.90,000 x 10% x 9/12) 6,750
On machinery sold (40,000 x 10% x 6/12) 2,000
On machinery purchased on 1-1-04 (Rs.80,000 x 10% x 3/12 ) 2,000
On balance machinery (Rs,85,000 – Rs.40,000) x 10% 4,500
15,250
65. Answer : (a) Net Loss : Rs. 70,000
Reason : Dr. Trading and profit and loss account for the year ended March 31, 2004 Cr.
Particulars Rs. Particulars Rs.
To Opening stock 90,000 By Sales 4,35,000
To Purchases 2,56,000 By Closing stock 75,000
To Gross profit 1,64,000
5,10,000 5,10,000
To Salaries 76,000 By Gross profit 1,64,000
To Other expenses 68,000 By Net loss 70,000
To Depreciation 90,000
2,34,000 2,34,000
66. Answer : (b)
Reason :
Balance sheet as on March 31, 2004
Liabilities Rs. Assets Rs.
Share capital 7,00,000 Fixed assets 5,10,000
Sundry creditors 1,32,000 Sundry debtors 1,55,000
Short tem loan 36,000 Closing stock 75,000
Cash and bank 58,000
Net loss 70,000
8,68,000 8,68,000
67. Answer : (b)
Reason :
Purchases Issues Balance
Quantity Rate Amount Quantity Rate Amount Quantity Rate Amount
Date (Kg) per (Rs.) (Kg) per (Rs.) (Kg) per kg. (Rs.)
kg. kg. (Rs.)
(Rs.) (Rs.)
01-6- 500 228 1,14,000
04
02-6- 400 240 96,000 900 233.33 2,10,000
04
10-6- 600 250 1,50,000 1,500 240 3,60,000
 04
25- 1,000 240 2,40,000 500 240 1,20,000
06-
04
68. Answer : (c)
Reason : Cash balance as on June 30, 2004 = Cash balance as on June 01, 2004 + Cash receipts – Cash
Payments - Deposits with bank = Rs.1,65,500 + Rs.2,91,000 – Rs.2,05,000 – Rs. 2,00,000 = Rs.51,500.
69. Answer : (d)
Reason :
Dr. Trading and Profit & Loss Account for the year ended March 31, 2004 Cr.
Particulars Rs. Rs. Particulars Rs. Rs.
To Opening Stock 23,400 By Sales 1,44,800
To Purchases 1,20,550 Less Sales returns: 4,300 1,40,500
Less Purchases returns 2,900 By Closing stock 37,800
Less Furniture purchasd 1,17,650
To Carriage inward 9,300
To Gross profit c/d 27,950
1,78,300 1,78,300
By Gross profit b/d 27,950
To Office Administrative expenses 12,760 By Interest received 1,625
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 600
12000 x 5%
To Depreciation on furniture: 100
To Net Profit 7,140
(transferred to capital)
31,070 31,070
70. Answer : (c)
Reason :
Balance Sheet of as at March 31, 2004
Liabilities Rs. Rs. Assets Rs. Rs.
Capital Furniture 1,000
Opening balance 64,050 Less Depreciation 100 900
Less: Net Profit during the year 7,140 5% Investments 2,500
71,190 10% Deposits 15,000
Less Drawings 5,000 66,190 Stock-in-trade 37,800
Sundry debtors 12,000
Less: Provision for 600 11,400
doubtful debts
Sundry Creditors 7,400 Cash with Safe Bank 4,000
Cash on hand 1,990
73,590 73,590
71. Answer : (a)
Reason :
Trial Balance of Tom Vicky as at March 31, 2004
Debt Balance Credit Balance
Heads of Account
(Rs.) (Rs.)
Capital 89,000
Drawings 9,000
Stock (1st April, 2004) 37,000
 Purchases 2,01,100
Closing Stock 30,150
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 3,310
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
72. Answer : (e)

Reason : Cost of goods sold during the year 2003-2004 = Rs.32,00,000 × 0.80 = Rs.25,60,000
Closing inventory = Opening inventory + Purchases during the year 2003-2004
– Cost of goods sold
= Rs.4,00,000 + Rs.26,00,000 – Rs.25,60,000
= Rs.4,40,000
Actual physical inventory as on March 31, 2004 = Rs.4,25,000
Therefore, missing inventory = Rs.4,40,000 – Rs.4,25,000 = Rs.15,000

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