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Accrual basis for revenue and cash basis for expenses is used
Accrual basis for expenses and cash basis for revenue is used
Accrual basis is used irrespective of whether an item is revenue or an expense
Cash basis is used irrespective of whether an item is revenue or an expenses
Varies according to the nature of the items of revenue and expenses.
(1 mark)
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Board of Directors
Partners
Investors
Managers
Officers.
(1 mark)
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Original expectation of expected future cash flows at the end of the period less original expectation of
expected future benefits at the beginning of the period
Capital at the end of the period less capital at the beginning of the period
Revised expectation of expected future cash flows at the end of the period less original expectation of
expected future benefits at the beginning of the period
Gross sales less returns
The profit which is disclosed in profit and loss account.
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Answer
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(1 mark)
6. The net amount collectible in the event of an assets disposal is known as
(a)
(b)
(c)
(d)
Historical value
Current value
Present value
Realizable value
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(e)
Inventories
Debtors
Cash at Bank
Patents
Prepaid expenses.
(1 mark)
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Answer
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8. The concept which states that every transaction has two aspects is known as
(a)
(b)
(c)
(d)
(e)
Duality concept
Matching concept
Realization concept
Consistency concept
Conservatism concept.
(1 mark)
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Answer
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10.Which accounting entry is to be passed to make a full and final settlement for a payment of Rs.10,000 to
Mr. Abuja at a discount of 2% (payment is made through a cheque)?
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Answer
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Rs.
(a)
(b)
(c)
(d)
(e)
Rs.
Abujas account
To Bank account
To Discount received account
Abujas account
To Bank account
Purchases account
To Bank account
Abujas account
To Bank account
Abujas account
To Trade discount
To Bank account
9,800.
Dr.
10,000
9,800
200
Dr.
9,800
9,800
Dr.
10,000
10,000
Dr.
10,000
Dr.
10,000
10,000
200
(1 mark)
11.Which of the following subsidiary books serves the purpose of ledger, in addition to the recording of
accounting transactions?
(a)
(b)
(c)
(d)
(e)
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Purchases book
Sales book
Bills receivable book
Cash book
Journal proper.
(1 mark)
12.Consider the following data pertaining to purchases made by Kodiac Ltd., a dealer in electronic goods,
for the month of June 2007:
Date
Particulars
No. of units
Rate per
Trade
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unit Rs.
June 01, 2007
Color TVs
10
6,000
June 09, 2007
Tape Recorders
10
1,000
June 19, 2007
Audio Cassettes
100
30
June 22, 2007
Stationery cartons
10 dozens
35
June 22, 2007
Stationery pens
10 dozens
25
The total of purchases recorded in purchase day book for the month of June 2007, was
(a)
(b)
(c)
(d)
(e)
Discount
10%
10%
5%
---
Rs.65,850
Rs.54,000
Rs.63,000
Rs.66,450
Rs.73,000.
(2 marks)
13.M/s. Swathi Enterprises introduced the imprest system of maintaining petty cash book, the amount of
imprest being Rs.3,000. The petty cash transactions during the month of June 2007 are as under:
Particulars
Stamps
Conveyance
Repairs
Stationery
Other office expenses
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(Rs.)
200
190
500
200
93
The amount of cash received on July 01, 2007 to make up the imprest balance is
(a)
(b)
(c)
(d)
(e)
Rs.1,578
Rs.1,194
Rs.1,183
Rs.1,422
Rs.3,000.
(2 marks)
14.The total assets of a business are Rs.21,315 and outside liabilities are Rs.4,120. Reserves and surplus
stands at Rs.2,500. Then, the amount of owners equity is
(a)
(b)
(c)
(d)
(e)
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Rs.21,315
Rs.17,195
Rs.27,435
Rs. 4,120
Rs.14,695.
(2 marks)
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16.While preparing the final accounts of the company, the accountant of Pioneer Company located the
following errors:
The difference in Trial Balance of the company on account of the above errors is
(a)
Nil
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(b)
(c)
(d)
(e)
Rs. 877
Rs.1,377
Rs.3,631
Rs.4,131.
(2 marks)
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18.The statement which helps an accountant to assess the arithmetical accuracy of the accounting records is
the
(a)
(b)
(c)
(d)
(e)
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Balance sheet
Profit and loss account
Cash book
Trial balance
Bank reconciliation statement.
(1 mark)
19.Rs.400 paid as rent was credited to the Rent account. The rectifying entry is
Rs.
(a)
(b)
(c)
(d)
(e)
Cash account
To Rent account
Rent account
To Suspense account
Rent account
To Suspense account
Suspense account
To Rent account
Rent account
To Cash account
Dr.
400
Dr.
800
Dr.
400
Rs.
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400
800
400
Dr.
800
800
Dr.
400
400.
(1 mark)
20.The following incorrect Trial Balance as on March 31, 2007 was prepared by an inexperienced
accountant:
Particulars
Capital (1st April, 2006)
Stock (1st April, 2006)
Purchases
Sales
Fixed assets
Sundry creditors
Sundry debtors
Bank overdraft
Administrative expenses
Carriage outward
Provision for bad debts
Returns outward
Discount received
Total
Debit (Rs.)
79,000
37,000
2,33,300
3,94,000
50,850
49,760
1,39,700
9,000
79,160
2,310
4,250
5,42,320
Rs.5,42,320
Rs.4,64,200
Credit (Rs.)
3,160
3,150
5,42,320
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(c)
(d)
(e)
Rs.5,55,510
Rs.5,43,200
Rs.5,03,440.
(2 marks)
21.The accountant of Style Ltd. noticed certain differences in the books of account after preparation of the
final accounts. One of the differences is that the discount column on payments side of cash book is
totalled as Rs.5,900 instead of Rs.5,600. The journal entry required to be passed to rectify this error is
(a)
(b)
(c)
(d)
(e)
Discount account
To Sundry creditors account
Dr.
Suspense account
To Discount account
Dr.
Dr.
Rs.
300
Rs.
300
300
300
300
300
Discount account
Dr.
To Profit and loss adjustment account
Discount account
To Suspense account
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Dr.
300
300
5,600
5,600.
(2 marks)
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Insurance premium
Taxes and legal expenses
Depreciation on machinery
Discount allowed
Installation charges.
(1 mark)
24.The accountant of M/s.Abhay Enterprises reported a net profit of Rs.5,90,000 for the year 20062007.
Subsequently, the following omissions were noticed:
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The company has invested Rs.1,00,000 in 13% Debentures and the interest for the year 2006-2007
is not accounted for.
Salary to manager is still outstanding for the month of March, 2007 and is not taken into account
while preparing profit and loss account. The manager draws an annual salary of Rs.18,000.
The above omissions were duly considered. The profit of M/s. Abhay Enterprises after giving effect to
the above omissions is
(a)
(b)
(c)
(d)
(e)
Rs.6,01,500
Rs.5,59,000
Rs.6,30,000
Rs.5,75,500
Rs.5,92,000.
(2 marks)
25.The following is the data pertaining to Jagriti Enterprises as on March 31, 2007:
Particulars
Rs.
Gross profit
2,64,000
Closing stock
75,000
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Salaries
Other expenses
Fixed assets
Sundry debtors
Sundry creditors
Cash and bank
Capital
Short term loan
86,000
73,000
6,00,000
45,000
32,000
53,000
6,00,000
36,000
The firm has the practice of charging depreciation on the fixed assets at the rate of 10% on book value.
The total of the Balance Sheet as on March 31, 2007 was
(a)
(b)
(c)
(d)
(e)
Rs.7,38,000
Rs.6,68,000
Rs.7,13,000
Rs.5,93,000
Rs.7,43,000.
(2 marks)
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26.The following is the data pertaining to Mr. Kantilal for the year ended March 31, 2007:
Particulars
Sales
Purchases
Opening stock
Salaries and wages
Carriage inward
Returns inward
Returns outward
Closing stock
Rs.
5,00,000
4,50,000
30,000
19,000
5,500
10,000
15,000
10,000
The manager of Mr. Kantilal is entitled to a commission of 5% on net profit after charging his
commission. The commission payable to the manager for the year 2006-2007 was
(a)
(b)
(c)
(d)
(e)
Rs.500
Rs.525
Rs.619
Rs.650
Rs.700.
(2 marks)
27.Consider the following data pertaining to M/s. Soma Enterprises as on March 31, 2007:
Particulars
Total sales
Total purchases
Wages paid
Returns inward
Returns outward
Carriage inward
Carriage outward
Gas, water and fuel
Raw materials destroyed by fire
Rs.
1,60,000
90,000
5,000
3,000
2,000
1,000
1,000
2,000
2,000
Additional Information:
Particulars
Inventory
Outstanding wages
Gross profit of M/s. Soma Enterprises for the year ended March 31, 2007 was
(a)
Rs.73,800
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(b)
(c)
(d)
(e)
Rs.75,800
Rs.74,800
Rs.76,200
Rs.75,200.
(2 marks)
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Capital expenditure
Revenue expenditure
Capital receipt
Revenue receipt
Deferred expenditure.
(1 mark)
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Rs.2,65,000
Rs.2,10,000
Rs.1,75,000
Rs.1,60,000
Rs. 55,000.
(2 marks)
30.Which of the following systems of inventory valuation computes cost of goods sold as a residual
amount?
(a)
(b)
(c)
(d)
(e)
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Weighted Average
Last-in First-out
Perpetual Inventory System
Periodic Inventory System
Specific Identification.
(1 mark)
31.Which of the following methods of valuation of inventory is based on the assumption that costs are
charged against revenue in the order in which they occur?
(a)
(b)
(c)
(d)
(e)
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FIFO method
LIFO method
Weighted average method
Moving average method
Retail inventory method.
(1 mark)
32.Consider the following data pertaining to Lays Ltd. for the month of June, 2007:
Date
01-06-2007
02-06-2007
10-06-2007
25-06-2007
Purchases
Quantity
Rate
(Kg.)
(Rs.)
400
600
Issues
Quantity
(Kg.)
Balance
Quantity
Rate
(Kg.)
(Rs.)
500
22.80
24
25
1,000
If the company uses weighted average method for inventory valuation, the value of inventory as on June
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Rs.11,967
Rs.12,000
Rs.12,500
Rs.11,400
Rs.36,000.
(2 marks)
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35.Consider the following information supplied by Alvin Co. for the year 2006-07:
Purchases during the period
Total sales
Closing stock of goods
Gross profit margin
Rs.80,000
Rs.80,000
Rs.40,000
25%
Nil
Rs.60,000
Rs.20,000
Rs.36,000
Rs.40,000.
(2 marks)
36.Under which method, the revenue is recognized in the period in which goods are delivered or services
are actually provided?
(a)
(b)
(c)
(d)
(e)
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Installment method
Production method
Delivery method
Realization method
Percentage-of-completion method.
(1 mark)
37.Cyber Ltd. has furnished the following information for the year 2006-2007:
Opening balance of Sundry debtors account
Closing balance of Sundry debtors account
Cash collected from debtors
Discount allowed to debtors
The total amount of credit sales was
(a)
(b)
(c)
(d)
Rs.6,00,000
Rs.5,20,000
Rs.5,10,000
Rs.5,00,000
Rs. 50,000
Rs. 60,000
Rs.5,00,000
Rs. 10,000
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(e)
Rs.4,90,000.
(2 marks)
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38.Consider the following data pertaining to Universe Ltd., as on March 31, 2007:
Total sundry debtors as per Trial Balance Rs.40,600
Bad debts identified after the preparation of Trial Balance Rs.600
Provision for bad debts to be created @ 5% on sundry debtors
Provision for discount on sundry debtors to be created @ 2%.
The amount of provision for discount on sundry debtors created for the period ended
March 31, 2007 was
(a)
Rs. 760
(b)
Rs.2,000
(c)
Rs. 771
(d)
Rs. 800
(e)
Rs. 812.
(2 marks)
39.ABC Ltd. has the practice of creating provision for doubtful debts @ 5% on debtors. The balance of
provision for doubtful debts on April 01, 2006 and March 31, 2007 is Rs.300 and Rs.400, respectively.
If the amount collected from debtors is Rs.56,000, credit sales during the year 2006-2007 are
(a)
(b)
(c)
(d)
(e)
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Rs.58,000
Rs.56,100
Rs.54,000
Rs.55,900
Rs.56,000.
(2 marks)
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Sales
Interest on investment
Rent received
Dividend received
Advance received for supplies.
(1 mark)
41.The present book value of an asset of a company is Rs.2,04,120. The company has charged depreciation
at the rate of 10% under straight line method for the last 3 years. The original cost of the asset was
(a)
(b)
(c)
(d)
(e)
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Rs.2,91,600
Rs.2,80,000
Rs.2,55,150
Rs.2,52,000
Rs.2,26,800.
(2 marks)
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They are acquired for using them in the conduct of business operations
They are not meant for resale to earn profit
They can be easily converted into cash
Depreciation at specified rates is to be charged on the Fixed Assets
Their utility is not confined to one accounting period.
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(1 mark)
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45.The balance in Machinery account of Leo Ltd., as on 1st April, 2006 was Rs.85,000. The following
transactions took place during the year 2006-07:
Date
01.04.2006
01.07.2006
Particulars
Machinery sold (book value as on 01.04.06 is Rs.40,000)
Machinery purchased
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Rs.
50,000
90,000
If the company charges depreciation @10% per annum on book value, the balance in Machinery
account as on 31st March, 2007 was
(a)
(b)
(c)
(d)
(e)
Rs.1,84,500
Rs.1,93,500
Rs.2,05,000
Rs.1,99,000
Rs.1,23,750.
(2 marks)
46.Supriya Ltd. purchased a machinery on April 01, 2002 for Rs.1,50,000. It is estimated that the
machinery will have a useful life of 5 years after which it will have no salvage value. If the company
follows sum-of-the-years-digits method of depreciation, the amount of depreciation to be charged
during the year 2006-2007 was
(a)
(b)
(c)
(d)
(e)
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Rs.50,000
Rs.40,000
Rs.30,000
Rs.20,000
Rs.10,000.
(2 marks)
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4
5
6
7
8.
(2 marks)
48.A new machine costing Rs.1,00,000 was purchased by a company to manufacture a special product. The
scrap value at the end of its useful life was estimated to be Rs.10,000. The production plan for the next
5 years using the above machine is as follows:
Year 1
Year 2
Year 3
Year 4
5,000 units
10,000 units
12,000 units
20,000 units
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Year 5
25,000 units
The depreciation expenditure for the 3rd year under units-of-production method will be
(a)
(b)
(c)
(d)
(e)
Rs.16,667
Rs.15,000
Rs.20,000
Rs.18,000
Rs.19,000.
(2 marks)
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49.The profits of Kavya Ltd. for the past 3 years are as under:
Year
2004-2005
2005-2006
2006-2007
Rs.
3,75,000
4,50,000
7,42,500
The company noticed the following errors, while computing the average profits for the purpose of
valuation of goodwill:
On October 01, 2004, repair expenses of Rs.30,000 of machinery were capitalized. Kavya Ltd.
provides depreciation at the rate of 10% on straight-line method.
The profit for the year 2006-2007 includes profit of Rs.22,500 on sale of plant.
The average adjusted profit of the company to be considered for valuation of goodwill is
(a)
(b)
(c)
(d)
(e)
Rs.5,07,500
Rs.3,79,500
Rs.2,84,100
Rs.5,00,100
Rs.3,78,500.
(2 marks)
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50.The following information is extracted from the books of Jeet and Company:
Rs.37,800
Rs.16,000
Rs.22,680
Rs.60,480
Rs.59,724.
(2 marks)
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Conservatism concept
Going concern concept
Matching concept
Time period concept
Business entity concept.
(1 mark)
52.Which of the following deductions from profits is permitted under Section 350 of the Companies Act,
for the calculation of managerial remuneration?
(a)
(b)
(c)
(d)
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(e)
53.Which of the following factors is used as a multiplier of super profits in valuation of goodwill of a
business?
(a)
(b)
(c)
(d)
(e)
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54.Which of the following factors does not have lasting impact on the valuation of goodwill?
(a)
(b)
(c)
(d)
(e)
Rs.
6,00,000
2,10,000
1,50,000
1,50,000
11,10,000
Assets
Fixed assets
Sundry debtors
Inventories
Cash
Total
Rs.
9,20,000
90,000
65,000
35,000
11,10,000
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Rs. 7,85,000
Rs.10,85,000
Rs. 8,85,000
Rs. 7,65,000
Rs.10,65,000.
(2 marks)
56.Which of the following items cannot be shown as reserves under the head Reserves and surplus in the
balance sheet of a company?
(a)
(b)
(c)
(d)
(e)
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Capital reserve
Sinking funds
Retained earnings
Capital redemption reserve
Unclaimed dividends.
(1 mark)
57.Dinakar operates a garment store in a hired premises at a rent of Rs.1,20,000 per annum. The owner of
the premises, who has recently completed her fashion-designing course, wishes to purchase the garment
store. The details of the business of Dinakar are as under:
If the normal return on capital employed is 12%, the super profit for calculation of goodwill is
(a)
(b)
Rs. 58,000
Rs. 62,000
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(c)
(d)
(e)
Rs.1,10,000
Rs.1,20,000
Rs.1,78,000.
(2 marks)
58.The net profit of Yankee Ltd. is Rs.15,75,000, which is arrived at after considering the following:
Directors remuneration
Subsidy received from the Government
Income tax paid
Damages paid by virtue of legal liability
Rs. 21,000
Rs.3,15,000
Rs. 94,500
Rs. 42,000
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If the managerial remuneration payable to directors is Rs.83,475, the percentage of such commission on
the net profits before charging such commission is
(a)
(b)
(c)
(d)
(e)
4%
8%
7%
5%
10%.
(2 marks)
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59.The claims against the company not acknowledged as debts are shown as
(a)
(b)
(c)
(d)
(e)
Current liabilities
Loans and advances
Contingent liabilities
Unsecured loans
Without any separate disclosure.
(1 mark)
60.Diana Ltd. has issued 10%, 10,000 Preference Shares of Rs.100 each fully paid and 1,30,000 Equity Shares of <Answer
Rs.10 each fully paid, which are issued at a premium of Rs.20. The profit for the year 2006-07 is Rs.10,84,000 >
and the balance brought forward from the previous year amounted to Rs.1,52,500.
The company decides to provide Rs.4,38,000 for taxation of the previous year before making any
appropriations.
The company declared an equity dividend of 10%.
A body corporate
A person indebted to the company for Rs.1,500
A person holding the shares of the company as a trustee
A person disqualified to be appointed as an auditor of its subsidiary company
An officer of the company.
(1 mark)
62.According to the Companies Act, 1956, the period to which the accounts of a company relate is known
as financial year should not exceed
(a)
(b)
(c)
(d)
(e)
12 months
15 months
18 months
24 months
21 months.
(1 mark)
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63.A machine was acquired by a company five years ago at a price of Rs.13,000. It is being depreciated to
its scrap value Rs.1,000 on straight line basis over 8 years. The amount of depreciation accumulated
upto date is Rs.7,500. The company reestimates the life of the machine in a more realistic manner to be
10 years.
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The amount of excess depreciation provided on the machinery for the past five years amounts to
(a)
(b)
(c)
(d)
(e)
Rs. 300
Rs. 600
Rs. 900
Rs.1,200
Rs.1,500.
(2 marks)
64.Which of the following will not come under the head Miscellaneous Expenditure in the balance sheet
of a company?
(a)
(b)
(c)
(d)
(e)
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Preliminary expenses
Interest paid out of capital during construction
Discount allowed on issue of shares and debentures
Development expenditure not adjusted
Contribution to provident fund.
(1 mark)
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(1 mark)
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66.When the auditor is having reservations in respect of some material matters then he will give
(a)
(b)
(c)
(d)
(e)
A clean report
A qualified report
A disclaimer report
An adverse report
No report.
(1 mark)
67.Tax deducted at source on the payments made by a company appears in the Balance Sheet of the
company on the
(a)
(b)
(c)
(d)
(e)
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Roads
Railways
Infrastructural facilities
Concession provided by the State
Plant and machinery.
(1 mark)
69.The fund available with a company after paying all claims including tax and dividend is called
(a)
(b)
(c)
Net profit
Net operating profit
Capital profit
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(d)
(e)
Retained earnings
Profit before tax.
(1 mark)
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Answer
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Debit
(Rs.)
1,86,420
7,18,210
12,680
1,11,630
4,910
19,240
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Credit
(Rs.)
11,69,900
9,850
(2 marks)
Suggested Answers
Financial Accounting (CFA510): July 2007
1.
Reason :
2.
Answer :
Reason :
3.
Answer :
Reason :
4.
Answer :
Reason :
Answer :
Reason:
5.
6.
Answer :
Reason:
7.
Answer :
Reason :
8.
Answer :
Reason :
9.
Answer :
Reason :
Answer :
Reason :
10.
Answer : (b)
11.
Answer :
Reason :
12.
Answer :
Reason :
Under Hybrid system of accounting for revenue and expenses, accrual basis for expenses and cash
basis for revenue is used.
(a)
Revenue reserve represent accumulated retained earnings from the profits of normal business
operations. Bad debt realized, premium on issue of debentures, premium on issue of shares and
revaluation gains are capital reserve. Hence, answer (a) is correct answer.
(c)
Board of Directors, Partners, Managers and Officers are internal users. An investor is an external user
of financial statements.
(c)
An agreement to sell is not an accounting transaction.
(c)
Ex-post income = Revised expectation of expected future cash flows at the end of the period less
original expectation of expected future benefits at the beginning of the period.
(d)
Realizable value is the net amount collectible in the event of the assets disposal. (a) Historical cost is
the amount paid or payable to acquire a benefit. (b) the amount that needs to be paid if the asset is to be
acquired currently is the current value. (c) the present discounted value of the future inflows that an
item is expected to generate in the normal course of business is the present value (e) written down
value is a cost of asset less depreciation. Hence the correct answer is (d).
(d)
Current assets include cash and cash equivalents, inventories, debtors, cash at bank, and prepaid
expenses. Patents are fixed asset of the firm.
(a)
The duality concept states that every transaction two aspects one debit another credit. Hence, (a) is the
correct answer.
(d)
Only Credit purchases of goods are recorded in the Purchase Day Book.
(a)
The entry to be passed for settlement of purchase of Rs.10,000 from Abuja at a discount of 2% will
involve a debit to Abujas account with Rs.10,000 and credit to Discount received account Rs.200 and
Bank account Rs.9,800. (a) is the correct answer.
(d)
Cash book is a special journal in which all cash transactions are recorded directly. The cash book
resembles a ledger with the debit and credit sides, and the balance represents the cash on hand and at
bank at the end of the accounting period. Hence it serves the purpose of ledger. Cash account and bank
account are not opened when a cash book is maintained. Purchases book, sales book, bills receivables
book and journal proper are the books of original entry and they do not serve the purpose of ledger
(a)
Purchases Day Book
Date
June 01, 2007
June 09, 2007
June 19, 2007
Particulars
10 Colour T.V. @ Rs.6,000 each
Less : Trade discount @ 10%
10 Tape recorder @ Rs.1,000 each
Less : Trade discount @ 10%
100 Audio Cassettes @ Rs.30 each
Details
(Rs.)
60,000
6,000
10,000
1,000
3,000
Total
(Rs.)
54,000
9,000
13.
14.
15.
16.
17.
18.
19.
20.
Heads of Account
Capital
2006)
(1st
April,
Debt Balance
(Rs.)
Credit Balance
(Rs.)
79,000
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
21.
22.
23.
24.
25.
26.
37,000
2,33,300
3,94,000
50,850
49,760
1,39,700
9,000
79,160
2,310
4,250
5,42,320
3,160
3,150
5,42,320
Answer : (c)
Reason : The discount on the payments side of cash book implies discount received. Since the discount received
is overcast, the excess amount is to be debited to profit and loss adjustment account (as the accounts are
already finalized). The corresponding credit is to be given to suspense account. Hence the rectification
entry is
Profit and loss adjustment account Dr. Rs.300
To Suspense account
Rs.300
Answer : (c)
Reason : The Trial Balance shows both debit and credit balances of all real, personal and nominal accounts.
Answer : (e)
Reason : Cost incurred for increasing the earning capacity of a business is an example of capital expenditure.
Installation charges will increase the earning capacity of the asset. Hence, it is a capital expenditure.
Other expenditures stated in (a), (b), (c) and (d) are examples of revenue expenditure.
Answer : (a)
Reason :
Particulars
Rs.
Profit as reported by the accountant
5,90,000
Add : Interest on investments
13,000
6,03,000
Less : Managers salary
1,500
Profit after considering all aspects
6,01,500
Answer : (c)
Reason:
In the books of Jagriti Enterprises
Dr.
Profit and loss account for the year ended March 31, 2007
Cr.
Particulars
Rs.
Particulars
Rs.
To Salaries
86,000 By Gross profit
2,64,000
To Other expenses
73,000
To Depreciation
60,000
To Net profit
45,000
2,64,000
2,64,000
Balance sheet of Jagiriti Enterprises as on March 31, 2007
Liabilities
Rs.
Assets
Rs.
Share capital
6,00,000 Fixed
assets
(Rs.6,00,000
5,40,000
Rs.60,000)
Net profit
45,000 Sundry debtors
45,000
Short tem loan
36,000 Closing stock
75,000
Sundry creditors
32,000 Cash and bank
53,000
7,13,000
7,13,000
Answer : (a)
Reason :
Trading account and Profit and loss account for the year ended March 31, 2006.
Particulars
Rs.
Rs.
Particulars
Rs.
To Opening stock
30,000 By Sales
5,00,000
Less:
Returns
10,000
To Purchases
4,50,000
4,90,000
inward
Less
:
Returns
15,000
4,35,000 By Closing stock
10,000
outward
To Salaries and wages
19,000
To Carriage inward
5,500
To Managers commission
500
10,000
To Net Profit
5,00,000
5,00,000
Profit before charging Managers commission = Rs. 10,500
Managers Commission =Rs.
27.
28.
29.
30.
10,500
5 = Rs.500
105
Answer : (b)
Reason : Books of Soma Enterprises
Dr.
Trading Account for the period ending March 31, 2007
Cr.
Particulars
Rs.
Rs.
Particulars
Rs.
Rs.
To Opening stock
27,000 By Sales :
1,60,000
To Purchases
90,000
() Returns
3,000
1,57,000
inward
() Inventory lost
2,000
By Closing stock
40,000
() Returns outward
2,000
86,000
To Wages
5,000
(+) Outstanding as on
March 31, 2007
700
5,700
() Outstanding as on
April 01, 2006
500
5,200
To Carriage inward
1,000
To Gas, water, fuel
2,000
To Gross Profit
75,800
1,97,000
1,97,000
Answer : (b)
Reason : Payment of Rs.5,000 to repaint the premises is an example of revenue expenditure.
Answer : (d)
Reason :
Computation of missing inventory
Particulars
Rs.
Rs.
Opening stock
15,00,000
Add: Purchases
45,00,000
60,00,000
Sales
50,00,000
Less : Gross profit (Rs.50,00,000 x 25%)
12,50,000
37,50,000
Closing stock as per records
22,50,000
Less: value of physical inventory
20,90,000
Value of missing inventory
1,60,000
Answer : (d)
Reason : Under the periodic system, the cost of goods sold is computed by subtracting the ending inventories
which are determined by the physical count from the sum of the opening inventory plus purchases.
Thus, it is computed as a residual amount. Hence, (d) is the correct answer. Weighted average method,
Last-in First-out and Specific identification are the methods inventory valuation and not the systems of
maintaining inventory records. And are not the correct answers. Under the perpetual inventory system,
a continuous record that tracks inventories and the cost of goods sold on a day-to-day basis is arrived. It
is not computed as a residual amount.
31.
32.
33.
34.
35.
Answer : (a)
Reason : The basis for pricing inventory is either cost of production or cost of acquisition. FIFO method of
identifying inventory is based on the assumption that costs are charged against revenue in the order in
which they occur. In case of other methods i.e. LIFO method (b) matches the most recent costs
incurred with current revenue, leaving the first cost incurred to be included as inventory. WeightedAverage method (c) assumes that costs are charged against revenue based on an average of the number
of units acquired at each price level. Moving average method (d) can be used only with a perpetual
inventory. The cost per unit is recomputed after every addition to the inventory. The ending inventory
is valued at the last moving average unit cost for the period. Retail inventory method (e) this method
requires the maintenance of records of purchases both cost and selling price.
Answer : (b)
Reason :
Purchases
Issues
Balance
Date Quantity Rate
Quantity Rate
Quantity
Rate
Rs.
Rs.
Rs.
(Kg)
Rs.
(Kg)
Rs.
(Kg)
Rs.
01-6500
22.8 11,400
07
02-6400
24
9,600
900 23.33 21,000
07
10-6600
25 15,000
1,500
24 36,000
07
25-61,000
24 24,000
500
24 12,000
07
30-6500
24 12,000
07
Answer : (b)
Reason : The phrase markup means the selling price raised above the original selling price.
Answer : (c)
Reason : Cost of conversion is made of direct wages plus production overhead plus direct expenses.
Answer : (c)
Reason :
Calculation of value of closing stock as on March 31, 2007
Particulars
Closing stock of goods
Add: Cost of goods sold
Sale
Less : Gross profit (25%)
Less: Purchases during the period
Opening stock of goods
36.
37.
38.
Rs.
40,000
Rs.80,000
Rs.20,000
60,000
1,00,000
80,000
20,000
Answer : (c)
Reason : Enterprises which earn revenue by the sale of goods and services follows delivery method. Under the
delivery method, the revenue recognized in the period in which goods are delivered or services are
actually provided.
Answer : (b)
Reason :
Dr.
Sundry Debtors Account
Particulars
Rs.
Particulars
Rs.
To Balance b/d
50,000 By Cash
5,00,000
To Credit sales (Bal. fig.)
5,20,000 By Discount
10,000
By Balance c/d
60,000
5,70,000
5,70,000
Answer : (a)
Reason:
Particulars
Debtors as per trial balance
Less : Bad debts written-off
Rs.
40,600
600
40,000
2,000
38,000
2
Rs.38, 000 = Rs.760
Provision for discount on sundry debtors will be 100
39.
Answer : (a)
Reason :
Dr.
Date
April 01,
2006
2006-2007
Particulars
To Opening
balance (300/5%)
To Credit sales
(Balance figure)
March 31,
2007
Particulars
By Cash
By Closing
balance
(400/5%)
64,000
40.
41.
43.
44.
45.
8,000
64,000
Answer : (e)
Reason : Sales, interest on investment, rent received and dividends received are revenue items where as advance
received for supplies is not a revenue item.
Answer : (a)
Reason : The depreciated value of the asset Rs.2,04,120
Depreciation rate 10%
Depreciation charged under straight line method for 3 years
Cost of asset before depreciation
42.
Cr.
Rs.
56,000
Rs.2,04,120
= Rs.2,91,600.
0 .7
Dr.
1.04.06
1.04.06
Rs.2, 04,120
[1 (3 10%)]
Machinery account
Particulars
To Balance b/d
To Profit & loss a/c
Amount in
Rs.
85,000
10,000
Date
1.04.06
31.3.07
Cr.
Particulars
By Bank (sale)
By Depreciation
Amount in
Rs.
50,000
11,250
1.07.06
46.
(Rs.50,000
Rs.40,000)
To Bank
90,000 31.3.07
By Closing balance
1,85,000
Calculation of depreciation:
1,23,750
1,85,000
Particulars
Amount in Rs.
On machinery purchased on 1.7.06 (Rs.90,000 x 10% x 9/12)
6,750
Depreciation on balance machinery (Rs.85,000 40,000) 10%
4,500
Total depreciation
11,250
Answer : (e)
Reason : Depreciation under sum-of-the-years digits method for the year 2006-07
1
1,50, 000 = Rs.10, 000
= 1+ 2 + 3 + 4 + 5
47.
Answer : (a)
Reason :
Year
1st
year
2nd year
3rd year
4th year
48.
49.
50.
51.
Particulars
Cost of the asset
Less depreciation @20%
WDV at the end of the year
Less depreciation @20%
WDV at the end of the 2nd year
Less depreciation @20%
WDV at the end of the 3rd year
Less depreciation @20%
WDV at the end of the 4th year
Rs.
50,000
10,000
40,000
8,000
32,000
6,400
25,600
5,120
20,480
Answer : (b)
Reason : The formula for calculation of depreciation under units-of production method is original cost minus
scrap value multiplied by the number of units produced during the particular year divided by the total
number of units produced during the entire useful life of the asset. i.e.,
(Rs.1,00,000 Rs.10,000) 12,000/72,000 = Rs.15,000.
Answer : (a)
Reason :
2004-2005
2005-2006
2006-2007
Total
Particulars
Rs.
Rs.
Rs.
Rs.
Profit
3,75,000
4,50,000
7,42,500
Less: repair expenses
- 30,000
Add: Depreciation on
capitalized repairs
1,500
3,000
3,000
Less: profit on sale of
22,500
plant
Adjusted profits
3,46,500
4,53,000
7,23,000
15,22,500
Average adjusted profits = Rs.15,22,500 / 3 = Rs.5,07,500
Answer : (c)
Reason :
Average profit
Rs.16,000
Normal profit 1,00,000 x 10/100, Rs.10,000
Super profit = 16,000 10,000 = 6,000
Goodwill as per annuity method 6,000 x 3.78 = Rs.22,680.
Answer : (c)
Reason : Intangible assets are amortized like tangible fixed assets. If costs/benefit are more than one accounting
period, they should be systematically and rationally allocated to all accounting periods. Matching
52.
53.
54.
55.
concept involves recognizing costs as expenses on the basis of direct association with assets. Thus amortization of
intangible assets is systematic allocation of costs over several periods in recognition of matching
concept (c). 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. Going concern concept (b)
assumes that the business entity is assumed to be a going concern in the absence of evidence to the
contrary. Time Period concept (d) requires accounting information to be reported at regular intervals to
foster comparability. Business entity concept explains that in accounting business is to be considered as
a separate entity from the owner.
Answer : (a)
Reason : According to Section 350 of the companies Act any tax notified as a tax on excess or abnormal profits
can be deducted from the profits for the calculation of managerial remuneration.
Answer : (c)
Reason : Number of years purchase is the factor with which the super profits will 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.
Answer : (d)
Reason : Goodwill is the value of reputation of the firm judged in respect of its capacity to bring in unaided
profits. It is in respect of profits expected in future. Temporary craze or fashion (d) is a temporary
phenomenon, and if in the past good profits have been earned due to it, there will be no value attached
to goodwill. Thus, it does not have any lasting impact on evaluation of goodwill. The factors stated in
other alternatives, normal rate of return (a) is the return which will satisfy ordinary investor, capital
employed, (b) is the most important factor, since the size of profits is significant only in relation to
capital employed, it is difficult to enter an industry. Existing entities will enjoy a measure of goodwill
by the mere fact of existence. Thus, nature of business (c) has a bearing on evaluation of goodwill.
Personal skill and reputation of the owner (e) is much more important in evaluation of goodwill. Thus,
the factors in alternatives (a), (b), (c) and (e) have a bearing on future profits.
Answer : (a)
Reason :
Particulars
Fixed assets
Sundry debtors
Inventories
Cash
Less:
12% Debentures
Sundry creditors
Capital employed
56.
57.
58.
Rs.
9,00,000
85,000
65,000
35,000
10,85,000
1,50,000
1,50,000
7,85,000
Answer : (e)
Reason : Unclaimed dividends is a current liability not a reserve. Hence, correct answer is (e).
Answer : (b)
Reason :
Profit for the year 2006-2007
2,30,000
Add: Rent (not relevant if the owner of the premises operates the
1,20,000
business)
Adjusted maintainable profits
3,50,000
Capital employed by Dinakar
20,00,000
Add: Value of premises
4,00,000
Total capital employed
24,00,000
Normal profit (12% of Rs.24,00,000)
2,88,000
Super profits (Rs.3,50,000 Rs.2,88,000)
62,000
Answer : (d)
Reason : To arrive at the profits for calculating managerial remuneration, the directors remuneration, damages
paid by virtue of legal liability shall be deducted and subsidy received from Government shall be
added. However the income tax payable shall not be deducted. Hence the profit for the purpose of calculating
managerial remuneration is Rs.15,75,000 + Rs.94,500 = Rs.16,69,500.
83,475
x100
Commission = 16,69,500
= 5%
59.
60.
61.
62.
63.
Answer : (c)
Reason : The claims against the company not acknowledged as debts represent contingent liabilities.
Answer : (d)
Reason :
Particulars
Rs.
Rs.
Current year profit
10,84,000
Previous year profit
1,52,500
12,36,500
Provision for taxation of the previous year
4,38,000
Dividend on 10% 10,000 Preference Shares of Rs.100
1,00,000
10% Dividend on 1,30,000 equity shares of Rs.10 each
1,30,000
6,68,000
The total amount of profit carried forward to balance sheet
5,68,500
Answer : (c)
Reason : According to Section 226(3) of the Companies Act, 1956, a body corporate, an officer of the company,
a person indebted to the company for an amount exceeding Rs.1,000, a person disqualified to be
appointed as an auditor of its subsidiary company, a person holding any security of the company are
disqualified to be appointed as an auditor. However, a person holding the shares of the company as a
nominee or a trustee for any third person and in which the holder has no beneficial interest shall not be
disqualified. Hence the answer is (c).
Answer : (b)
Reason : According to the Companies Act, 1956, the period to which the accounts of a company relate should
not exceed 15 months. Therefore, alternative (b) is the correct answer.
Answer : (e)
Reason :
Depreciation before revision (Rs.12,000/8)
Rs.1,500
Depreciation after revision (Rs.12,000/10)
Rs.1,200
Difference per year
Rs. 300
64.
Answer :
Reason :
65.
Answer :
Reason :
66.
Answer :
Reason :
67.
Answer :
Reason :
68.
Answer :
Reason :
69.
Answer :
Reason :
70.
Answer :
Reason :
71.
Annual financial statements of a company should be signed by the manager or secretary of the
company (if any) and by not less than two directors of the company, one of whom shall be a managing
director where there is one.
Answer : (a)
Reason :
Statement of cost of goods sold for the year 2006-07
Particulars
Rs.
Rs.
Rs.
Opening stock
1,86,420
Add: Purchases
7,18,210
Less: Returns
9,850
7,08,360
Carriage in-wards
4,910
Wages
1,11,630
Manufacturing expenses
19,240
10,30,560
Less : Closing stock
1,24,840
Cost of goods sold
9,05,720
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