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Question Paper
Financial Accounting – I (111): October 2005
• Answer all questions.
• Marks are indicated against each question.

< Answer >

1. Which of the following is false?
(a) Operating profit is the difference between gross profit and operating expenses
(b) Gross profit reflects operating performance and is not affected by non-operating profit
(c) Earning Before Interest and Tax (EBIT) is the sum of operating profit and non operating
surplus/deficit
(d) Non-operating surplus represents gain from sources other than normal business
(e) Income from investment and profit from disposal of assets are the main components of non-
operating income.
(1 mark)
< Answer >
2. Under Hybrid system of accounting for revenues and expenses
(a) Accrual basis is used for revenues and cash basis for expenses
(b) Accrual basis is used for expenses and cash basis for revenues
(c) Accrual basis is used irrespective of whether an item is revenue or expense
(d) Cash basis is used irrespective of whether an item is revenue or expense
(e) Cash basis or Accrual basis is used depending on the nature of the items of revenues and
expenses.
(1 mark)
< Answer >
3. Which of the following events is not recorded/disclosed in the books of a business?
(a) Significant monetary events after the balance sheet date
(b) Depreciation of fixed assets on revised basis
(c) Government investigations into the pricing policies of the business
(d) Realization of bad debts
(e) Payment of royalty.
(1 mark)
< Answer >
4. Which of the following is not a source of fund?
(a) Sale of an asset (b) Increased cash balance due to idle fund
(c) Issue of shares (d) Borrowing from banks
(e) Operating profits.
(1 mark)
< Answer >
5. Which of the following are current assets of a business?
I. Bank (Credit) Balance.
II. Stock.
III. Debtors.
IV. Pre-paid expenses.
V. Accrued income.
(a) Both (I) and (IV) above (b) Both (II) and (III) above
(c) (I), (II) and (III) above (d) (II), (III), (IV) and (V) above
(e) (I), (II), (III) and (IV) above.
(1 mark)
< Answer >
6. Under the Companies Act, a company is normally not permitted to have an accounting period extending
beyond
(a) 6 months (b) 1 year (c) 15 months (d) 18 months (e) 2
years.
(1 mark)
< Answer >
7. Which of the following accounts will invariably have a credit balance?
(a) Accounts receivable (b) Accounts payable
(c) Purchases account (d) Bank account (e) Cash account.
(1 mark)
Page 2 of 28
< Answer >
8. In the context of Accounting standards, which of the following statement is false?
(a) All significant policies adopted in the preparation and presentation of financial statements should
normally be disclosed in one place of the statement
(b) Any change in the accounting policies which has a material effect in the current period should be
disclosed
(c) Where any change in the accounting policies has no material effect in the current period but has
material effect in later period, the fact of change should be disclosed in the financial statement of
the later period
(d) Where the effect of the change in accounting policy is not ascertainable, wholly or in part, the fact
should be indicated
(e) If fundamental accounting assumptions are followed in financial statements, specific disclosure is
not required.
(1 mark)
< Answer >
9. As per Accounting Standard 16, a qualifying asset is
(a) An asset which costs more than Rs.20 Lakhs
(b) An asset that takes a long time to get ready for intended use or sale
(c) An asset which qualifies for a particular rate of depreciation
(d) An asset which qualifies to be a part of reconstruction
(e) An asset that takes less than predicted time for intended use.
(1 mark)
< Answer >
10. The total amount of net sales can be arrived from the
(a) Sales Book less returns inward
(b) Cash account less returns outward
(c) Sales account less returns inward
(d) Bank account plus cash account less returns inward
(e) Sales account less returns outward.
(1 mark)
< Answer >
11. Cash sales to X will be posted to --------- side of----- -- account
(a) Debit, X’s (b) Credit, X’s (c) Debit, sales
(d) Credit, sales (e) Credit, cash.
(1 mark)
< Answer >
12. Personal accounts can take the form of
I. Natural persons’ accounts like proprietor’s account, suppliers’ accounts, receivers’ accounts.
II. Artificial persons’ and body of persons’ accounts like limited companys’ accounts, insurance
companys’ accounts, any government accounts.
III. Representative personal accounts like salaries outstanding account, unexpired insurance account,
interest receivable account.
IV. Representative personal accounts like provision for bad and doubtful debts, provisions for
discount on debtors, reserve for discount on creditors account.
(a) Only (I) above (b) Both (I) and (II) above
(c) Both (I) and (III) above (d) Both (I) and (IV) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
< Answer >
13. Purchase of vehicle by the proprietor for his son out of business cash will
(a) Increase assets and decrease capital
(b) Increase assets and decrease liability
(c) Decrease assets and decrease capital
(d) Decrease assets and increase liability
(e) Affect neither asset nor liability.
(1 mark)
< Answer >
14. If the goods purchased are in transit, then the journal entry at the end of the period will be
(a) Goods-in-transit A/c Dr.
To Supplier’s A/c
(b) Goods-in-transit A/c Dr.
To Purchases A/c
(c) Stock A/c Dr.
To Good-in-transit A/c
(d) Supplier’s A/c Dr.
Page 3 of 28
To Goods-in-transit
(e) Goods-in-transit A/c Dr.
To Trading A/c.
(1 mark)
< Answer >
15. PQR Ltd. maintains two accounts known as account No.1 and account No.2 in Canara Bank. On
September 30, 2005 the overdraft as per pass book for account No.1 is Rs.86,552. But the overdraft as
per cash book is not the same and on comparing the pass book and the cash book he finds the following:
I. Out of the total cheques of Rs.7,400 deposited on September 27, 2005, one cheque amounting to
Rs.2,650 was collected on October 4, 2005.
II. Out of the total cheques of Rs.12,560 issued on September 22, 2005, two cheques of Rs.1,500
each were not presented until September 30, 2005.
III. A cheque amounting to Rs.2,260 was sent to the supplier through post on September 29, 2005 and
is expected to reach him only after October 3, 2005.
IV. Bank charges amounting to Rs.63 and interest charges amounting to Rs.262 have not yet been
recorded in the cash book.
V. A cheque of Rs.1,000 deposited in account No.2 on September 02, 2005 was wrongly credited to
account No.1.
VI. A cheque deposited on September 15, 2005 for Rs.500 was returned by bankers on October 3,
2005.
VII. A cheque of Rs.200 issued for account No.1 by mistake was recorded in bank column of the cash
book for account No.2 and this cheque was presented for payment on October 4, 2005.
From the above particulars, the bank overdraft as per cash book as on September 30, 2005 is
(a) Rs.88,337 (b) Rs.89,337
(c) Rs.89,137 (d) Rs.91,597 (e) Rs.89,662.
(2 marks)
< Answer >
16. Which of the following receipts is of a capital nature?
(a) Amount realized from sale of equipments
(b) Amount recovered from bad debts written off
(c) Interest received on fixed deposit
(d) Amount received from debtors
(e) Legal claim against debtors received.
(1 mark)
< Answer >
17. Biravi started a business on August 10, 2005 with capital of Rs.30,000. In the following month, he
entered into the following transactions:
Particulars Rs.
Sold goods to Sen 5,000
Sold goods to Ramesh 2,500
Purchased goods from Suresh 2,000
Sales returns by Sen 1,000
Purchased goods for cash from Lalith 1,000
Sold goods to Rajan 6,000
Sales returns by Rajan 1,500
Purchased goods from Suresh 5,000
Sold goods to Meera for cash 3,000
Purchase returns to Suresh 1,200
Sold goods to Ram 2,500
Purchased goods from Mahesh 2,000
Purchase returns to Mahesh 500
The total in the purchase day book to be posted to the debit of the purchase account is
(a) Rs.4,000 (b) Rs.7,000 (c) Rs.9,000
(d) Rs.10,000 (e) Rs.11,000.
(1 mark)
< Answer >
18. Which of the following rectification entries is to be passed for goods returned by X amounting to
Rs.500 wrongly entered in the Purchase Return Book?
(a) Debit Purchase Return Rs.500
Credit Sales Return Rs.500

(b) Debit Sales Return Rs.500

Credit X’s A/c Rs.500
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(c) Debit Sales Return Rs.500

Debit Purchase Return Rs.500
Credit X’s A/c Rs.1000

(d) Debit Sales Return Rs.500

Credit Purchase Returns A/c Rs.500

(e) Debit Purchase Return A/c Rs.500

Credit Purchase A/c Rs.500.
(1 mark)
< Answer >
19. Basheer receives three bills of exchange from Akbar, dated June 1, 2005 for 3 months. First bill is for
Rs.4,000, second bill is for Rs.3,000 and the third bill is for Rs.5,000. The second bill is immediately
endorsed in favor of Kumar on June 4, 2005, the third bill was discounted on June 4, 2005 with the bank
for Rs.4,700. The journal entry for the endorsement of the second bill in the books of Basheer is
Rs. Rs.
(a) Bills receivable account Dr. 3,000
To Kumar account 3,000
(b) Bills receivable account Dr. 3,000
To Akbar account 3,000
(c) Kumar account Dr. 3,000
To Bills receivable account 3,000
(d) Bills payable account Dr. 3,000
To Bills receivable account 3,000
(e) Kumar account Dr. 3,000
To Bills payable account 3,000.
(1 mark)
< Answer >
20. Bills receivable account is a/an
(a) Nominal account (b) Personal account
(c) Intangible asset (d) Real account
(e) Representative personal account.
(1 mark)
< Answer >
21. A holder of a 3 months bill for Rs.9,000/- discounts it after one month with a factor whose discount
charge is 10% p.a. The net amount received by the holder is
(a) Rs.8,775 (b) Rs.8,781 (c) Rs.8,100 (d) Rs.8,850 (e)
Rs.8,783.
(1 mark)
< Answer >
22. A bill dated 26-10-2005 payable after 30 days after sight is accepted on 28-10-2005. The due date of the
bill is
(a) 01-12-2005 (b) 28-11-2005 (c) 29-11-2005
(d) 02-12-2005 (e) 30-11-2005.
(1 mark)
< Answer >
23. Saachi, for mutual accommodation of herself and Ankurita, drew a bill for 3 months for Rs.8,000. The
bill was discounted at 5% and 1/4th of the proceeds were remitted to Ankurita. On the due date, Saachi
fails to pay her share and hence Ankurita draws another accommodation bill of Rs.12,000 for 2 months
on Saachi and discounts the same at 4% and remits half of the proceeds to Saachi. The total amount of
discount charges borne by Saachi was
(a) Rs.75 (b) Rs.50 (c) Rs.115 (d) Rs.100 (e)
Rs.120.
(1 mark)
< Answer >
24. When a discounted bill is retired, the drawer credits
(a) Bank account (b) Acceptor’s account
(c) Third party’s account (d) Bills receivable account (e) No account.
(1 mark)
< Answer >
25. Unearned income account is
(a) A current asset (b) A current liability (c) An expense
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(d) An income (e) Deferred expense.
(1 mark)
< Answer >
26. Pioneer Company, a dealer in cosmetics, records its inventory under first-in-first-out method, so as to
minimize accumulation of outdated stock. The opening stock as on September 01, 2005 is 150 units at
the rate of Rs.20 per unit. The purchases and sales made during the month are:
Purchases:
Date No. of units Cost price per unit
04-09-2005 200 Rs.25
14-09-2005 100 Rs.22
21-09-2005 300 Rs.30
26-09-2005 150 Rs.40
Sales:
Date No. of units
03-09-2005 100
10-09-2005 150
15-09-2005 100
25-09-2005 200
28-09-2005 200
With effect from September 01, 2005, the company decided to change the method of inventory
valuation from the FIFO method to LIFO method. The change in the value of inventory consequent
upon the change in the method of valuation is
(a) Increase in the value of closing stock by Rs.1,500
(b) Decrease in the value of closing stock by Rs.3,000
(c) Increase in the value of closing stock by Rs.3,000
(d) Decrease in the value of closing stock by Rs.500
(e) Decrease in the value of closing stock by Rs.2,250.
(3 marks)
< Answer >
27. An exporter had the following transactions with his consignee in U.S.A. On 28.2.’05 goods costing Rs.2
lakhs were sent. The goods were received by the consignee on 5.3.’05. The consignee sold 50% of the
consignment for Rs.1,20,000/- on 28.3.’05 and the balance for Rs.1,20,000/- on 4.4.’05. How much
revenue can be treated as being realized as on 31.3.’05?
(a) Rs.1,00,000 (b) Rs.1,20,000 (c) Rs.2,20,000
(d) Rs.2,00,000 (e) Rs.2,40,000.
(1 mark)
< Answer >
28. Zee Motors Ltd., a dealer in second-hand cars has the following five vehicles of different models and
makes in their stock at the end of the financial year 2004-2005:
Maruti
Car Fiat Ambassador Maruti 800 Zen
Esteem
Cost 90,000 1,15,000 2,75,000 1,00,000 2,10,000

(Rs.)
Net realizable 95,000 1,55,000 2,65,000 1,25,000 2,00,000
value (Rs.)
The cost of Maruti Esteem includes a sum of Rs.5,500 for the repair of engine and Rs.2,000 for the
repair of air conditioner of the vehicle. The value of stock included in the balance sheet of the company
as on March 31, 2005 was
(a) Rs.7,62,500 (b) Rs.7,70,000 (c) Rs.7,90,000
(d) Rs.8,70,000 (e) Rs.7,72,500.
(1 mark)
< Answer >
29. On April 07, 2005, i.e, a week after the end of the accounting year 2004-05, a company undertook
physical stock verification. The value of stock as per physical stock verification was found to be
Rs.35,000.
The following details pertaining to the period April 01, 2005 to April 07, 2005 are given:
I. Goods costing Rs.5,000 were sold during the week.
II. Goods received from consignor amounting to Rs.4,000 included in the value of stock.
III. Goods earlier purchased but returned during the period amounted to Rs.1,000.
IV. Goods earlier purchased and accounted but not received Rs.6,000.
After considering the above, the value of stock held as on March 31, 2005 was
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(a) Rs.27,000 (b) Rs.19,000 (c) Rs.43,000
(d) Rs.51,000 (e) Rs.35,000.
(2 marks)
< Answer >
30. On April 01, 2004, the debit balance of the machinery account of Bright Light Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10%
per annum under diminishing balance method. On October 01, 2004, the company acquired a new
machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. The company
decided to change the system of providing depreciation from the diminishing balance method to the
straight-line method with retrospective effect from April 01, 2002. The rate of depreciation will remain
the same. The company decided to make necessary adjustments in respect of depreciation due to the
change in the method in the year 2004-2005. The balance outstanding to the debit of machinery account
as at March 31, 2005 after effecting the above changes was
(a) Rs.5,45,700 (b) Rs.5,52,700 (c) Rs.5,46,000
(d) Rs.5,49,400 (e) Rs.5,43,000.
(3 marks)
< Answer >
31. On April 01, 2004, the provision for bad and doubtful debts of Chitra Lekha Limited showed a credit
balance of Rs.11,200. On March 31, 2005 the Sundry Debtors showed a balance of Rs.5,00,800, which
includes the following:
Sinha Rs. 7,600 – identified as bad debt and is to be written off
Gupta Rs.18,000 – expected to realize only 80%
Patel Rs.16,000 – expected to realize only 60%
Iyer Rs.11,000 – likely to file insolvency petition and the percentage of recovery is not
known.
All other debts as on the date of finalization of accounts are estimated to be good. The company
maintains a suitable provision for doubtful debts. The amount transferred to profit and loss account on
account of provision for bad and doubtful debts for the year ended March 31, 2005 was
(a) Rs.28,600 (b) Rs.17,400 (c) Rs.15,700
(d) Rs.10,500 (e) Rs.21,000.
(2 marks)
< Answer >
32. Light and Sound Ltd. provides the following information for the year ended March 31, 2005.
i. Opening balance of provision for bad debts Rs.12,450.
ii. Opening balance of provision for discount on debtors Rs.4,500.
iii. Sundry debtors included Rs.40,000 in respect of credit sale of furniture on
January 15, 2005.
iv. Credit sales during the year was recorded as Rs.5,75,000. The debtors amount of Rs. 17,500 has
been declared as bad.
v. A credit sale of Rs.7,300 to Mr. Rao on March 4, 2005 was taken in debtors
account as Rs.3,700.
vi. Amount collected from sundry debtors was Rs.3,15,000.
vii. Discount allowed during the year was Rs.1,000.
viii. Opening balance of sundry debtors Rs.1,63,000.
The provision for bad and doubtful debts at 5% and provision for discount on debtors at 2% are to be
made.
The amount of provision for discount on debtors chargeable to Profit and Loss Account for the period
ended March 31, 2005 is
(a) Rs.4,500 (b) Rs.3,494 (c) Rs.6,994 (d) Rs.1,000 (e)
Rs.6,500.
(3 marks)
< Answer >
33. Under the direct write off method of recognizing a bad debt expense, which of the following statements
is/are true?
I. The bad debt expense is not matched with the related sales.
II. Accounts receivables are overstated in the year of sales.
III. Revenue is overstated in the year of sales.
IV. It violates the matching principle of accounting.
(a) Only (I) above (b) Both (I) and (II) above
(c) Both (II) and (III) above (d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
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< Answer >
34. Consider the following data pertaining to a company for the month of September 2005:
Opening balance of sundry debtors Rs. 45,000
Credit sales Rs.4,25,000
Cash sales Rs. 20,000
Cash collected from debtors Rs.4,00,000
Closing balance of sundry debtors Rs. 50,000
The bad debts of the company during the month are
(a) Rs.40,000 (b) Rs.35,000 (c) Rs.30,000
(d) Rs.25,000 (e) Rs.20,000.
(1 mark)
< Answer >
35. Which of the following is not a method of converting Accounts Receivable into immediate cash?
(a)Factoring (b) Discounting (c) Pledging
(d) Forfeiting (e) Endorsing.
(1 mark)
< Answer >
36. Which of the following statements is false?
(a) Wages paid on installation of machinery should be credited to cash account
(b) A sale of computer that has been used in the business should be debited to cash account
(c) Error of posting of a correctly recorded transaction affects one or more accounts
(d) Repairs of a machinery purchased second hand should be debited to machinery account
(e) Withdrawal of goods by the proprietor of the business should be credited to capital account.
(1 mark)
< Answer >
37. As on April 1, 2003, the machinery account in the books of Pannalal Kunnalal Ltd. shows a debit
balance of Rs.60,000. The machinery was sold on September 30, 2004 for Rs.30,000. If the company
charges depreciation @ 20% p.a. on diminishing balance method, the amount of depreciation and the
profit/loss on sale of machinery for the period ended March 31, 2005 is
(a) Depreciation of Rs.12,000 and loss on sale of machinery Rs.6,000
(b) Depreciation of Rs.9,600 and loss on sale of machinery Rs.8,400
(c) Depreciation of Rs.4,800 and loss on sale of machinery Rs.13,200
(d) No depreciation and loss on sale of machinery Rs.18,000
(e) Depreciation of Rs.9,600 and profit on sale of machinery Rs.8,400.
(2 marks)
< Answer >
38. Where the depreciable asset is revalued, the provision for depreciation should be based on the estimate
of the remaining useful life of such asset on the
(a) Revalued amount (b) Depreciable amount
(c) Historical cost (d) Market price
(e) Revalued amount or depreciable amount whichever is lower.
(1 mark)
< Answer >
39. Which of the following is false?
(a) Taking the favorable balance as per pass book as the starting point, the amount in respect of
charges made by the bank will be added to the pass book balance
(b) Taking the favorable balance as per pass book as the starting point, the amount in respect of
dividends credited directly into the bank will be deducted from the pass book balance
(c) Bank charges recorded twice in cash book will be added to the overdraft as per cash book in the
preparation of reconciliation statement
(d) Taking the favorable balance as per cash book as the starting point, cheque issued but not
presented for payment will be added
(e) The amount of the undercasting of the credit side of the bank column of the cashbook will be
deducted from the overdraft as per passbook.
(1 mark)
< Answer >
40. The number of production or similar units expected to be obtained from the use of an asset by an
enterprise is called as
(a) Unit life (b) Useful life
(c) Production life (d) Expected life (e) Asset life.
(1 mark)
< Answer >
41. Consider the following data pertaining to M/s. Good Movies Ltd. who constructed a cinema house:
Particulars Rs.
Page 8 of 28
Cost of second hand furniture 90,000
Cost of repainting the furniture 10,000
Wages paid to employees for fixing the furniture 2,000
Fire insurance premium 1,000
The amount debited to furniture account is
(a) Rs.90,000 (b) Rs.91,000 (c) Rs.1,00,000
(d) Rs.1,02,000 (e) Rs.1,03,000.
(1 mark)
< Answer >
42. Which of the following statements are true?
I. Recoupable shortworkings is a current asset.
II. Lapsed shortworkings is a nominal account.
III. Shortworkings is the part of minimum rent not represented by the use of rights.
IV. Shortworkings is the amount by which the minimum rent exceeds the actual royalty.
V. The occurrence of shortworkings in any period indicates that the lessee is liable to pay the
minimum rent.
(a) Both (I) and (II) above (b) Both (II) and (III) above
(c) (I), (II) and (IV) above (d) (II), (IV) and (V) above
(e) All (I), (II), (III), (IV) and (V) above.
(1 mark)
< Answer >
43. Mr. Karam took on lease a mine on January 01, 2000 on the following terms:
Royalty at the rate of Rs.20 per ton of output
Minimum rent of Rs.1,00,000 per annum
Shortworkings of any year can be recouped in the next 3 years
On March 31, 2000, Mr. Karam inturn leased one-fourth of the mine to Mr. Param on the following
terms:
Royalty at the rate of Rs.25 per ton of output
Minimum rent of Rs.30,000 per annum
Shortworkings can be recouped in the first 3 years of the lease
The output from the mine is as under:
Output in tons
Year
Mr. Karam Mr. Param
1999-2000 3,000 –
2000-2001 2,000 700
2001-2002 3,000 900
2002-2003 5,000 1,300
2003-2004 6,500 1,500
2004-2005 8,000 1,800
In the books of Mr. Karam, the amount transferred from royalties receivable account to profit and loss
account for the year 2004-05, is
(a) Rs.45,000 (b) Rs.36,000 (c) Rs. 9,000
(d) Rs.1,43,000 (e) Rs.1,88,000.
(2 marks)
< Answer >
44. In case of sub-lease, royalty receivable to be paid to lessor must be transferred to
(a) Lessor’s account (b) Lessee’s account
(c) Profit and loss account (d) Royalty payable account
(e) Production account.
(1 mark)
45. Bhaya Ltd. granted a lease to Bharani Ltd., for extracting minerals from its property for a period of 12< Answer >
years from April 01, 2001. The terms of agreement are:
Royalty - at the rate of Rs.25 per ton of output
Minimum rent - Rs.6,00,000 per annum.
It was further agreed that the shortfall in any year may be recouped from any excess of royalty over the
minimum rent in the next 2 years subject to a maximum of Rs.50,000 per annum.
The following is the data pertaining to output of the Bharani Ltd., for the past four years:
Year Output (tonnes)
2001-02 18,000
2002-03 20,000
2003-04 25,000
Page 9 of 28
2004-05 32,000
The journal entry to record the irrecoverable short workings in the year 2004-05 is
Rs. Rs.
(a) Short workings account Dr. 25,000
To Suspense account 25,000
(b) Short workings account Dr. 1,75,000
To Suspense account 1,75,000
(c) Profit and loss account Dr. 50,000
To Short workings account 50,000
(d) Profit and loss account Dr. 1,00,000
To Short workings account 1,00,000
(e) No entry, as there are no irrecoverable short workings.
(3 marks)
< Answer >
46. Which of the following is the correct response to indicate the impact on profit, assets, owners’ equity
and total liabilities of a firm on account of following adjustments outside trial balance?
Adjustments Effect on Effect on Effect on Effect on
Profit Assets Owners’ Equity Liabilities
(a) Commission received in Decrease Increase No effect Increase
advance
(b) Outstanding wages Decrease No effect Decrease Increase
(c) Stock destroyed by fire; Decrease Decrease Decrease Decrease
but no claim admitted
(d) Provision for bad debts Decrease Decrease No effect Decrease
(e) Insurance unexpired Decrease Increase Decrease No effect
(1 mark)
< Answer >
47. A cheque of Rs.3,456 received from A after allowing him discount of Rs.19 was endorsed to B in full
settlement of Rs.3,475. The cheque was finally dishonored but no entries were passed in the books.
Which of the following rectification entry is to be made?
Rs. Rs.
(a) B’s account Dr. 3,475
To A’s account 3,475
(b) A’ s account Dr. 3,475
Discount received account Dr. 19
To B’s Account 3,475
To Discount allowed 19
(c) A’ s account Dr. 3,456
To B’s account 3,456
(d) B’ s Account Dr. 3,456
To A’s account 3,456
(e) A’ s account Dr. 3,456
Discount received account Dr. 19
To B’s Account 3,456
To Discount allowed 19.
(2 marks)
< Answer >
48. On March 31, 2005 just before preparing the final accounts, Mr. Munimji, the accountant of Rajesh
Enterprises prepared a trial balance, which did not agree. He put the difference in a newly opened
suspense account. Later he discovered the following errors:
i. A sale of Rs.2,250 has been passed through the Purchase Day Book. The customer’s account has,
however, been correctly debited.
ii. A purchase of Rs.781 has been posted to the debit of creditor’s account as Rs.817.
iii. While carrying forward the total of sales book from one page to the next, the amount was written
as Rs.91,761 instead of Rs.97,161.
iv. Goods amounting to Rs.18,000 had been returned by a customer and were taken into stock, but no
entry in respect thereof was made in the books of account.
After the posting of rectification entries, the suspense account was fully closed with Nil balance. What
was the balance in suspense account for tallying the Trial Balance?
(a) Rs.6,098 (b) Rs.11,498 (c) Rs.8,302
(d) Rs.2,498 (e) Rs.19,248.
Page 10 of 28
(3 marks)
< Answer >
49. The accountant of Baroda Alkalies Ltd. has drawn the below trial balance as on March 31, 2005.

Particulars Debit (Rs.) Credit (Rs.)

Opening stock 10,000
Purchases 50,000
General Reserve 5,000
Carriage on goods purchased 1,000
Bank deposits 50,000
Cash in hand 2,000
Purchase returns 1,500
Sales 92,600
Sales returns 2,400
Share capital 1,50,000
Import duty 1,200
Export duty 1,050
Debtors 50,000
Creditors 22,500
Plant and Machinery 62,500
Salaries 20,000
Wages 10,000
Bills receivable 15,000
Bills payable 10,000
Interest received 3,000
Commission on sales 1,000
Miscellaneous expenses 6,600
Carriage on goods sold 1,850
2,01,100 3,68,100
In the above trial balance which of the following accounts are wrongly placed?
(a) Opening stock, General Reserve, Bank deposits and Carriage on goods purchased
(b) General Reserve, Bank deposits, Purchase returns, Export duty and Import duty
(c) General Reserve, Carriage on goods sold, Creditors, Plant and machinery, Commission on sales
(d) Plant and machinery, Creditors, Purchase returns, Bank deposits and General Reserve
(e) Creditors, Debtors, Sales, Purchases and Commission on sales.
(2 marks)
< Answer >
50. Which of the following is/are the asset(s) of a business?
I. Debit balance of analytical petty cash book.
II. Credit balance of a bank pass book.
III. Debit balance of bank column of cash book.
IV. Debit balance of cash column of cash book.
V. Credit balance of bank column of cash book.
(a) Only (V) above (b) Both (III) and (IV) above
(c) (I), (II) and (III) above (d) (I), (II), (III) and (IV) above
(e) All (I), (II), (III), (IV) and (V) above.
(1 mark)
< Answer >
51. Which of the following statements is true?
(a) Depreciation provision is of the discretion of the management
(b) Depreciation is a charge against profit
(c) Depreciation is provided only when there is profit
(d) Depreciation is an appropriation of profit
(e) Depreciation is a loss to the business.
(1 mark)
< Answer >
52. While finalizing the current year’s profit, the company realized that there was an error in the valuation
of closing stock of the previous year. In the previous year, closing stock was valued more by Rs.50,000.
As a result
(a) Previous year’s profit is overstated and current year’s profit is also overstated
(b) Previous year’s profit is understated and current year’s profit is overstated
(c) Previous year’s profit is understated and current year’s profit is also understated
(d) Previous year’s profit is overstated and current year’s profit is understated
Page 11 of 28
(e) There is no impact on the profit of either the previous year or the current year.
(1 mark)
< Answer >
53. Consider the following particulars pertaining to the business of Mr. Agarwal:
As on April 01, 2004 As on March 31, 2005
Particulars
Rs. Rs.
Capital 3,50,000 ?
Loan from bank 1,75,000 1,25,000
Sundry creditors 25,000 35,000
Fixed assets 2,75,000 2,55,000
Inventory 1,50,000 1,75,000
Sundry debtors 70,000 90,000
Cash and bank 55,000 85,000
The profit for the year 2004-05 was
(a) Rs.4,45,000 (b) Rs.55,000 (c) Rs.30,000
(d) Rs.95,000 (e) Rs.75,000.
(1 mark)
< Answer >
54. Neeraj Ltd. started its operations on April 15, 2004. Consider the following data pertaining to the
company for the year 2004-05:
Particulars Rs.
Sales (85% collected during the year 2004-05) 8,00,000
Bad debts written off 2,000
Issue of shares for cash 5,00,000
Purchase of fixed assets for cash 4,00,000
Depreciation 40,000
Amount received by way of short-term loan 1,00,000
Short-term loan repaid 25,000
Payment towards manufacturing and administrative expenses 3,50,000
Amount paid to purchase of raw materials 1,50,000
Amount deposited in bank 2,00,000
The balance of cash as on March 31, 2005 is
(a) Rs.1,15,000 (b) Rs.1,55,000 (c) Rs.1,13,000
(d) Rs.2,75,000 (e) Rs.2,33,000.
(2 marks)
< Answer >
55. Consider the following data pertaining to Pampa Frozen Food Ltd. for the year ended March 31, 2005:
Capital (1.04.2004) Rs.1,25,000
Cash sales Rs.4,00,000
Decrease in inventory Rs. 40,000
Plant & Machinery Rs.1,70,000
Rent received Rs. 55,000
Purchases Rs.2,85,000
Sales commission paid Rs. 12,000
Drawings Rs. 22,000
Additional Information:
• Rent includes Rs.2,500 as received in advance.
• A credit purchase of Rs.15,000 was wrongly recorded in sales day book as Rs.51,000.
• The company has the practice of depreciating the Plant and Machinery at the rate of 15% per
annum on straight line method. The original cost of the Plant and Machinery was Rs.2,00,000.
• Sales commission was paid only to the extent of two thirds of the amount payable.
Considering the above data and the additional information, the net profit of the company for the period
ended March 31, 2005 was
(a) Rs.18,000 (b) Rs.19,500 (c) Rs.13,500
(d) Rs.28,000 (e) Rs.18,500.
(2 marks)
< Answer >
56. The total cost of goods available for sale with a company during the current year is Rs.12,00,000 and
the total sales during the period are Rs.13,00,000. If the gross profit margin of the company is 33 1/3%
on cost, the closing inventory during the current year is
Page 12 of 28
(a) Rs.4,00,000 (b) Rs.3,00,000 (c) Rs.2,25,000
(d) Rs.2,60,000 (e) Rs.1,00,000.
(1 mark)
< Answer >
57. Which of the following should not be treated as revenue expenditure?
(a) Interest on loans and debentures
(b) Annual fire insurance premium on plant and equipment
(c) Sales tax paid in connection with the purchase of equipment
(d) Repairs and maintenance on fixed assets
(e) Machinery spares consumed.
(1 mark)
< Answer >
58. Sheeba & Co. made the following payments in respect of insurance premium:
Date of payment Particulars
April 02, 2004 Payment of Rs.32,000 for 3 months ended June 30, 2004
July 15, 2004 Payment of Rs.64,000 for the 6 months ended December 31, 2004
December 25, 2004 Payment of Rs.48,600 for the 4 months ended April 30, 2005.
The insurance premium outstanding/prepaid for 2004-05 (if any) is
(a) Rs.10,667 (prepaid) (b) Rs.10,667 (outstanding)
(c) Rs.12,150 (prepaid) (d) Rs.12,150 (outstanding)
(e) Rs.11,123 (prepaid).
(1 mark)
< Answer >
59. The term ‘Insolvency’ denotes
(a) The excess of assets over liabilities
(b) A criminal offence
(c) The failure of a business to meet the financial obligations
(d) The excess of cash with loss of production
(e) The shortage of cash due to increased level of production.
(1 mark)
< Answer >
60. If an individual asset is increased, there will be a corresponding
(a) Increase of another asset or increase of capital
(b) Decrease of another asset or increase of liability
(c) Decrease of specific liability or decrease of capital
(d) Increase of drawings and liability
(e) Decrease of capital and decrease of another asset.
(1 mark)
< Answer >
61. The following is the Trial Balance of Karnataka Mills as on 31st March 2005:

Particulars Debit Rs. Credit Rs.

Purchases 15,000
Debtors 20,000
Interest earned 400
Salaries 3,000
Sales 32,100
Purchase returns 500
Wages 2,000
Rent 1,500
Sales returns 1,000
Bad debts written off 700
Capital 12,000
Creditors 10,000
Drawings 2,400
Provision for bad debts 600
Printing and Stationery 800
Insurance 1,200
Opening stock 5,000
Office expenses 1,200
Page 13 of 28
Furniture and Fittings 2,000
Accumulated depreciation 200
Total 55,800 55,800
Additional information:
Following adjustments are required to be made for the year ended 31.03.2005:
i. Depreciate furniture and fittings by 10% on original cost.
ii. Make a provision for doubtful debts equal to 5% of debtors.
iii. Salaries for the month of March amounting to Rs.300 were unpaid which must be provided for.
The balance in the account includes Rs.200 paid in advance.
iv. Insurance is prepaid to the extent of Rs.200.
v. Provide Rs.800 for office expenses.
vi. Stock valued at Rs.600 was put by A, the proprietor for his personal use.
vii. Closing stock was valued at Rs.6,000.
Based on the above information, the total of assets in the balance sheet as on 31.03.2005 after making
all the adjustment would be:
(a) Rs.27,000 (b) Rs.26,800 (c) Rs.26,400
(d) Rs.25,900 (e) Rs.28,000.
(3 marks)
< Answer >
62. On March 31, 2005, the closing stock of Xylol Ltd. was Rs.34,50,000. On April 1, 2005, stock of
Rs.22,50,000 was destroyed by fire. The company closes its accounts on 31st March 2005. If the
Balance Sheet of the company on March 31, 2005, was finalized on April 25, 2005, then the balance
sheet will show the closing stock at
I. Rs.34,50,000 without disclosing the loss by fire.
II. Rs.12,00,000 without disclosing the loss by fire.
III. Rs.34,50,000 disclosing the loss by fire in foot note.
IV. Rs.12,00,000 disclosing the loss by fire in foot note.
(a) Only (I) above (b) Only (II) above
(c) Only (III) above (d) Both (II) and (III) above (e) Both (I) and (IV) above.
(1 mark)
63. Consider the following Trial Balance and additional information pertaining to Ravera Ltd. for the year< Answer >
ended March 31, 2005.
Trial balance as on March 31, 2005
Particulars Debit balance (Rs.) Particulars Credit balance (Rs.)
Opening stock 30,000 Purchase returns 28,000
Purchases 6,30,000 Sundry creditors 1,20,000
Sales returns 40,000 Sales 15,85,000
Sundry debtors 1,50,000 Discount received 10,400
Fixed assets 11,70,000 Share Capital 7,00,000
Salaries 3,80,000 10% Debentures 4,80,000
Wages 2,10,000 Reserves & Surplus 1,80,000
Rent, rates & taxes 80,000
Telephone expenses 1,23,000
Discount allowed 12,000
Insurance premium 5,400
Carriage inward 6,800
Carriage outward 8,200
Cash at bank 26,000
Investments (10%) 2,00,000
Closing stock 32,000
31,03,400 31,03,400
Additional information:
i. Goods worth Rs.4,000 were distributed by salesmen as free sample, but no entry has been made
for this.
ii. Provide depreciation of Rs.78,000 on the fixed assets.
iii. A cheque for Rs.4,000 received from a customer was dishonoured by the bank but the same has
not been recorded in the books. The customer has become insolvent and 50% of the amount is
expected to be realized from his estate.
iv. A purchase invoice of Rs.6,000 received from a supplier has not been entered by oversight.
The gross profit and the net profit/net loss of Ravera Ltd. for the period ended March 31, 2005 are
Page 14 of 28
(a) Rs.7,00,200 and Rs.12,000 (profit) respectively
(b) Rs.6,94,200 and Rs.16,000 (loss) respectively
(c) Rs.6,97,000 and Rs.20,000 (loss) respectively
(d) Rs.6,94,200 and Rs.10,000 (loss) respectively
(e) Rs.6,90,200 and Rs.16,000 (profit) respectively.
(3 marks)
< Answer >
64. Which of the following is false about revaluation?
(a) An increase in the book value of a fixed asset arising out of revaluation can be credited to General
Reserve
(b) An increase in book value of a fixed asset arising out of revaluation should be credited to
Revaluation Reserve A/c
(c) An increase in book value of a fixed asset arising out of revaluation not exceeding the decrease in
book value on revaluation recorded previously can be credited to P&L A/c
(d) A decrease in book value of a fixed asset arising out of revaluation can be debited to P&L A/c if it
is not related to a previous increase on revaluation
(e) Revaluation reserve is generally not available for distribution.
(1 mark)
< Answer >
65. Which of the following statements is true with regard to accounting for branches?
(a) Under debtors system, Branch account is real account
(b) Under stock and debtors system, Branch adjustment account discloses the gross profits made by
the Branch
(c) Branch stock account is always prepared at cost price
(d) There are three methods for maintaining branch accounts – Trading method, Debtors method and
Stock and Debtors method
(e) In case of independent branches, if the head office makes the payment for the fixed asset, entry
should be passed in the books of branch.
(1 mark)
< Answer >
66. Consider the following data pertaining to Spices Ltd.:

Particulars As on April 01, 2004 As on March 31, 2005

Rs. Rs.
Cash & bank 60,000 90,000
Sundry debtors 50,000 ?
Sundry creditors 70,000 80,000
During the year 2004-05, the sales were Rs.3,60,000 and all were on credit. The cash purchases were
Rs.80,000 and credit purchases were Rs.2,00,000. Expenses paid during the year were Rs.70,000.
The amount received from sundry debtors during the year 2004-05 and the closing balance of sundry
debtors as on March 31, 2005 were respectively
(a) Rs.1,80,000 and Rs.2,30,000 (b) Rs.3,70,000 and Rs.40,000
(c) Rs.4,10,000 and Rs.Nil (d) Rs.3,60,000 and Rs.50,000
(e) Rs.1,90,000 and Rs.2,20,000.
(2 marks)
< Answer >
67. Meradiyan Ltd. has a branch at Tirupati. Following are particulars relating to its branch for the period
ended March 31, 2005:
Particulars Amount in Rs.
Stock at branch on April 01, 2004 6,00,000
Debtors on April 01, 2004 2,40,000
Petty cash on April 01, 2004 4,000
Goods sent to branch (2004-05) 10,00,000
Goods returned to Head office 12,000
Cash sales at branch 6,00,000
Credit sales at branch 8,40,000
Sale returns to branch 5,000
Bad debts written off 6,000
Discount allowed to customers 2,000
Branch expenses paid by Head office 60,000
Petty cash sent to branch 10,000
Petty expenses incurred by Branch 8,000
Stock on March 31, 2005 2,50,000
Cash received from customers 7,00,000
Page 15 of 28
The branch profit for the period ended March 31, 2005 credited to general profit and loss account and
branch debtors on March 31, 2005 are respectively
(a) Rs.34,500 and Rs.3,69,000 (b) Rs.15,480 and Rs.3,75,000
(c) Rs.78,500 and Rs.3,72,000 (d) Rs.21,000 and Rs.3,67,000
(e) Rs.2,500 and Rs.3,80,000.
(3 marks)
Household Appliances Ltd. transfers goods to its Kanpur Branch at cost plus 25%. It maintains the < Answer >
68. branch accounts under Stock and debtors system. The following are the details pertaining to its
Kanpur Branch for the year 2004-05:
Particulars Rs.
Opening stock at branch 12,000
Goods sent to branch 58,000
Cash sent to branch for:
Rent 3,300
Salaries 1,500
Other expenses 1,200 6,000
Cash sales 22,500
Credit sales 42,500
Closing stock at branch 5,000
The amount transferred to general profit & loss account for the year ended March 31, 2005 was
(a) Rs.13,000 (b) Rs.7,000 (c) Rs.8,000
(d) Rs.9,500 (e) Rs.15,000.
(2 marks)
< Answer >
69. In case of manufacturing concerns, the balance in ‘goods sent to branch’ account will be transferred to
(a) Purchases account (b) Sales account
(c) Trading account (d) Branch account (e) Branch stock account.
(1 mark)
1 < Answer >
70. 33
Revanth Ltd. of Mysore sends goods to its Hyderabad Branch at cost plus 3 %. Out of the goods sent
to the branch during the month of September 2005, a part was lost in transit. The transactions pertaining
to the branch during the month of September 2005 were as under:
Particulars Rs.
Opening stock (invoice price) 30,000
Goods received from Head office
(invoice price) 1,30,000
Credit sales 88,000
Closing stock (invoice price) 24,000
Opening cash balance 4,000
Closing cash balance 14,000
Cash sent to Head office 90,000
Cash collected from debtors 54,000
The cost price of the goods lost in transit is
(a) Rs.1,000 (b) Rs.1,500 (c) Rs.2,000 (d) Rs.1,333 (e)
Rs.500.
(2 marks)
< Answer >
71. The total of debit side of trial balance of a company is Rs.2,45,000 and that of the credit side is
Rs.2,72,900. Subsequently the following mistakes are discovered.
Correct Amount Amount which appears
Particulars
(Rs.) in trial balance (Rs.)
Opening stock 40,500 40,600
Advertisement expenses 15,000 15,000 (credit side)
Interest from investments 36,000 30,000
Sundry creditors 76,000 80,000
The total of the corrected trial balance is
(a) Rs.2,74,900 (b) Rs.2,59,900 (c) Rs.2,75,100
(d) Rs.2,84,900 (e) Rs.2,82,800.
(2 marks)
Page 16 of 28
Suggested Answers
Financial Accounting – I (111): October 2005
1. Answer : (b) < TOP
>
Reason : Operating profit reflects operating performance, not gross profit. Operating profit is not affected by non-operating
profit. Hence statement (b) is false. All the other statements are true.
2. Answer : (b) < TOP
>
Reason : Accrual basis is used for expenses and cash basis is used for revenue. This statement is correct. Other options are
incorrect.
3. Answer : (c) < TOP
>
Reason : In recognition of money measurement concept, the events and transactions which are of monetary in nature are
recorded in the books of a business. The statement in alternative (c) the Government investigation into the pricing
activities of the business does not involve any monetary treatment and so does not find any place in the books. The
significant monetary events after the balance sheet date, depreciation of fixed assets on revised basis, realization of
bad debts, royalty payments are to be recorded in the books. Therefore, (c) is the correct answer.
4. Answer : (b) < TOP
>
Reason : Keeping idle funds so that cash balance increases is use of funds. The sale of an asset, issue of shares, borrowing
from banks and operating profits are sources of funds.
5. Answer : (d) < TOP
>
Reason : Current assets are the assets which can be converted into cash with in an accounting period i.e. usually twelve
months. Bank (credit) balance / Bank overdraft is a liability of a business and is not a current asset. Thus, (d) the
combination of alternatives (II) stock, (III) debtors, (IV) pre-paid expenses, accrued income (V) are current assets of
a business is the correct answer.
6. Answer : (c) < TOP
>
Reason : As per the companies Act, the accounting period of a company in the normal circumstance shall not exceed
15months. Answer (c) is correct.
7. Answer : (b) < TOP
>
Reason : Accounts payable will invariably have credit balance. Accounts receivable will have a debit balance whereas bank
account under overdraft facility can show a debit balance and cash account will invariably show a debit balance for
the simple reason that one cannot pay more than what one has.
8. Answer : (c) < TOP
>
Reason : If a change is made in the accounting policies which has no material effect on the financial statement for the current
period but which is reasonably expected to have a material effect in later periods, the fact of such change should be
disclosed in the period in which the change is adopted. Hence option (c) is wrong. All others are correct.
9. Answer : (b) < TOP
>
Reason : Accounting Standard 16 defines a qualifying asset as an asset that takes a long time to get ready for intended use or
sale.
10. Answer : (c) < TOP
>
Reason : In sales account both cash and credit sales are being credited and the balance in the sales account will disclose the
gross total sales of the business and less inward returns will indicate the net sales.
Cash book is used to enter all cash transactions including cash sales whereas sales book is used to record only credit
sales. Similarly bank account at the most may disclose cash sales through cheques and amount received from
debtors in the form of cheques, which may not be related to the relevant accounting period.
11. Answer : (d) < TOP
>
Reason : When goods are sold for cash, the journal entry is to debit cash account and credit sales account. Therefore the right
option is (d).
12. Answer : (e) < TOP
>
Reason : All the categories listed from (I) to (IV) are personal accounts and hence option (e) is the correct answer.
13. Answer : (c) < TOP
>
Reason : When cash is paid for buying the vehicle, the decrease in cash balance will decrease the assets. But the amount paid
will be considered as personal drawings of the proprietor and will be deducted from the capital of the proprietor
which in turn will decrease the capital.
14. Answer : (b) < TOP
>
Reason : This is an adjusting entry to be passed in respect of goods purchased and already entered in the purchase book.
Since goods are not in stock but in transit, it cannot be included in closing stock. So will be debited to goods-in-
transit and will appear on the asset side of balance sheet. The amount has already been debited to purchase account.
Hence purchases account has to be reduced to the extent of the cost of goods –in-transit by crediting the purchases
account.
Page 17 of 28
15. Answer : (b) < TOP
>
Reason : Bank Reconciliation statement as on September 30, 2005
Particulars Rs. Rs.
Bank overdraft as per passbook 86552
Add : cheques issued but not presented for payment 3000
Add: cheques sent to the supplier through post, but has not reached 2260
him, hence not presented
Add: A cheque wrongly credited to account No.1 by bank instead 1000 6260
of account No.2
92812
Less: cheque deposited but not yet collected by bank 2650
Less: bank charges and interest not recorded in Cash book 325
Less. Cheques deposited on September 15, 2005, but not cleared 500 3475
by the bank until September 30, 2005
Bank overdraft as per Cash Book 89337
16. Answer : (a) < TOP
>
Reason : Amount realized from sale of equipments is treated as capital receipt. Amount recovered from bad debts written
off, interest received on fixed deposit, amount received from debtors and legal claim against a debtor received are
treated as revenue receipts
17. Answer : (c) < TOP
>
Reason : Purchase book records only credit purchases, and cash purchases are recorded in the cash book.
Purchases Book
Dr. Cr.
Date Particulars Invoice L.F Amount
2005 No. Rs.
Sep. Mr. Suresh 2,000
Mr. Suresh 5,000
Mr. Mahesh 2,000
9,000
18. Answer : (c) < TOP
>
Reason : Goods worth Rs.500 returned by X is against goods sold to him. So it should have been entered in the Sales Return
Book instead of Purchase Return Book. Having entered in the Purchase Return Book, the entries that might have
been passed are debit X’s A/c and credit Purchases A/c. whereas the correct entries are to debit Sales Return A/c
and credit X’s A/c by Rs.500 each. To reverse the wrong entries, X’s A/c should be credited by twice the amount
debited to his account and Purchase Return and Sales Return to be debited by Rs.500 each.
19. Answer : (c) < TOP
>
Reason : On the receipt of the second bill of exchange the entry made in the books of Basheer is
Rs. Rs.
Bills receivable account Dr. 3,000
To Akbar account 3,000
(Being bill received from Akbar)

On the endorsement of the bill to Kumar the entry to be made is

Rs. Rs.
Kumar’s account Dr. 3,000
To Bills receivable account 3,000
(Being bill endorsed to Kumar)
20. Answer : (d) < TOP
>
Reason : Bills receivable account is a real account
21. Answer : (d) < TOP
>
Reason : The net amount received by the holder is worked out as below
9000 x 10 x 2
Discount paid = 100 x 12 = Rs.150/-
Bill amt. Less discount = Rs.9000 – Rs.150 = Rs.8850/-
< TOP
22. Answer : (e) >
Reason : 30 days from the date of acceptance is 27-11-2005.
Plus 3 days of grace will be 30-11-2005.
Hence, the due date of the bill with 3 days of grace, is on 30-11-2005.
Page 18 of 28
< TOP
23. Answer : (c) >
5 3
×
Reason : Discount of the 1st bill = Rs.8,000 × 100 12 = Rs.100 (for 3 months)
1 3
Share of Saachi = 1 – 4 = 4
3
Share of discount of Saachi = Rs.100 × 4 = Rs.75.

4 2
×
Discount of the 2nd bill = Rs.12,000 × 100 12 = Rs.80 (for 2 months)
1
Share of discount of Saachi = Rs.80 × 2 = Rs.40.
Total share of discount = Rs. 75 + Rs. 40 = Rs. 115.
24. Answer : (e) < TOP
>
Reason : A bill discounted with a bank when retired, the drawer does not pass any entry as he has already passed his
beneficial interest on the bill to the bank.But the situation is different in case of dishonor of the bill.
25. Answer : (b) < TOP
>
Reason : Unearned income is a liability till it is earned. Once it is earned it becomes income. (b) is the correct answer.
26. Answer : (e) < TOP
>
Reason :
FIFO LIFO
Receipt Issue Balance Receipt Issue Balance
1.09.2005 150×20=3000 1.09.2005 150×20=3000
3.09.2005 100×20=2000 50×20=1000 3.09.2005 100×20=2000 50×20=1000
4.09.2005 200×25=5000 50×20=1000 4.09.2005 200×25=5000 50×20=1000
200×25=5000 200×25=5000
10.09.2005 50×20=1000 10.09.2005 150×25=3750 50×20=1000
100×25=2500 100×25=2500 50×25=1250
14.09.2005 100×22=2200 100×25=2500 14.09.2005 100×22=2200 50×20=1000
100×22=2200
15.09.2005 100×25=2500 100×22=2200 50×25=1250
21.09.2005 300×30=9000 100×22=2200 100×22=2200
300×30=9000 15.09.2005 100×22=2200 50×20=1000
25.09.2005 100×22=2200 50×25=1250
100×30=3000 200×30=6000 21.09.2005 300×30=9000 50×20=1000
26.09.2005 150×40=6000 200×30=6000 50×25=1250
150×40=6000 300×30=9000
28.09.2005 200×30=6000 150×40=6000 25.09.2005 200×30=6000 50×20=1000
50×25=1250
100×30=3000
26.09.2005 150×40=6000 50×20=1000
50×25=1250
100×30=3000
150×40=6000
28.09.2005 150×40=6000 50×20=1000
50×30 = 1500 50×25=1250
50×30=1500
Value of closing stock as per FIFO = 6,000
Value of closing stock as per LIFO = 3,750
2,250
27. Answer : (b) < TOP
>
Reason : In case of consignment revenue is recognized only on actual sale.Therefore only Rs.120000/- can be considered as
revenue realized.
28. Answer : (b) < TOP
>
Reason :
The value of the stock at ‘the lower of cost and net realizable value’ is as follows:
Car Fiat Ambassador Maruti Maruti Zen Total
Esteem 800 (Rs.)
Value 90,000 1,15,000 2,65,000 1,00,000 2,00,000 7,70,000
(Rs.)
Page 19 of 28
The appropriate stock figure is Rs.7,70,000 as calculated above.
29. Answer : (c) < TOP
>
Reason : The working is as follows:- Rs.
Value of physical stock 35,000
Add: goods purchased not received 6,000
Goods sold during the week 5,000
Goods earlier purchased but returned 1,000
47,000
Less goods held on consignment 4,000
Closing stock as on 31.03.05 43,000
30. Answer : (b) < TOP
>
Reason: The balance outstanding to the debit of machinery account Rs.5,52,700
Bright Light Limited
Cost of machinery on April 1, 2002
Rs.5,67,000 x 100/90 x 100/90 = Rs.7,00,000
Note : Depreciation provided on reducing balance method :
2002-03 (10% on Rs.7,00,000) Rs. 70,000
2003-04 (10% on Rs.6,30,000) Rs. 63,000
Rs.1,33,000
Depreciation to be provided on the straight line method :
2002-03 (10% on Rs.7,00,000) Rs. 70,000
2003-04 (10% on Rs.7,00,000) Rs. 70,000
Rs.1,40,000
Further depreciation to be provided for
Rs. 1,40,000 – Rs.1,33,000 = Rs. 7,000
As per AS- 6 any change in the method of depreciation is treated as a change in accounting policy and its effect
should be quantified and disclosed.
Machinery Account
Dr Cr.
Date Particulars Rs. Date Particulars Rs.
1.4.2002 To Balance 7,00,000 31.3.2003 By Depreciation 70,000
(on Rs.7,00,000
@10%)
31.3.2003 By Balance c/d 6,30,000
7,00,000 7,00,000
1.4.2003 To Balance 6,30,000 31.3.2004 By Depreciation 63,000
b/d (on Rs.6,30,000
@ 10%)
By Balance c/d 5,67,000
6,30,000 6,30,000
1.4.2004 To Balance 5,67,000 31.3.2005 By Depreciation 7,000
b/d (due to change in
method)
1.10.2004 To Bank 60,000 By Depreciation 70,000
(New (on Rs.7,00,000
machine) @ 10% p.a for the
year)
To Bank 6,000 By Depreciation 3,300
(installation (on Rs.66,000 for
expenses) 6 months@10%
p.a.)
By Balance c/d 5,52,700
6,33,000 6,33,000
31. Answer : (b) < TOP
>
Reason : The amount debited to profit and loss account in respect of provision for doubtful debts is Rs.17,400 and the
closing provision is Rs.21,000.
Provision for bad and doubtful debts
Page 20 of 28
Dr. Cr.
Particulars Rs. Rs. Particulars Rs.
To Bad debts (Sinha) 7,600 By Balance b/f 11,200
To Provision c/f By Profit and
Gupta 20% of Rs. loss account
18,000 3,600 17,400
Patel 40% of Rs.16,000 6,400
Iyer 100% of Rs.11,000 11,000
Provision to be carried 21,000
over
28,600 28,600
32. Answer : (b) < TOP
>
Reason :
Sundry Debtors
Date Particulars Amount (Rs.) Date Particulars Amount (Rs.)
01.04.04 To Balance b/f 1,63,000 2004-05 By Sale of 40,000
furniture
15.01.05 To Credit sale 5,75,000 By Bad debt 17,500
04.03.05 To Error 3,600 By Cash 3,15,000
Adjustment
By Discount 1,000
31.03.05 By Balance c/d 3,68,100
7,41,600 7,41,600
Provisions for bad debts
Date Particulars Amount (Rs.) Date Particulars Amount (Rs.)
31.3.2005 To Bad debts 17,500 01.04.2004 By Balance b/d 12,450
31.03.2005 By P/L a/c 23,455
31.3.2005 To Balance c/d 5% on 18,405
Rs.3,68,100
35,905 35,905
Provisions for discount on debtors
Date Particulars Amount Date Particulars Amount
(Rs.) (Rs.)
31.3.2005 To Discount allowed 1,000 01.04.2004 By Balance b/d 4,500
31.3.2005 To Balance c/d 2% on 6,994 31.03.2005 By P/L a/c 3,494
(Rs.3,68,100 –
Rs.18,405)
= 2% on Rs.3,49,695
7,994 7,994
33. Answer : (e) < TOP
>
Reason : Under the direct write off method of recognizing a bad debt expense,the alternative (e) is the correct answer with
the combination of the following statements (I) The bad debt expense is not matched with the related sales because
the expense is written off in the year of occurrence and it is not matching with the related sale; (II) Accounts
receivables are overstated in the year of sales as the accounts receivables are not reported at net realizable value;
(III) Revenue is overstated in the year of sales as a result of not making any provision for possible loss on account
of non-recoverable accounts (IV) It violates the matching principle of accounting as the expenses of bad debts is not
matched for the same period of income. Thus (e) is the correct answer.
< TOP
34. Answer : (e) >
Reason :
Opening balance of Sundry debtors Rs. 45,000
Add : Credit sales Rs.4,25,000
Rs.4,70,000
Less : Cash collected Rs.4,00,000
Rs. 70,000
Less : Closing balance of sundry debtors Rs. 50,000
Bad debts Rs. 20,000
35. Answer : (e) < TOP
>
Reason : Endorsing is legally transferring a negotiable instrument to third party and this is not a method of converting
accounts receivable into immediate cash. Factoring, Discounting, Pledging and Forfeiting are methods for
converting accounts receivable into immediate cash.
Page 21 of 28
36. Answer : (e) < TOP
>
Reason: The statement in alternative (e) is incorrect because, withdrawal of goods by the proprietor of the business should
be debited to drawings and credited to purchases account and not credited to capital account This is a false
statement and is the correct answer. Wages paid on installation of machinery should be credited to cash account and
debited to machinery account (a) A sale of computer that has been used in the business should be debited to cash
account and credited to office equipment account (b); Error of posting of a correctly recorded transaction affects
one or more accounts (c); Repairs of a machinery purchased second hand should be debited to machinery account
(d) are the correct statements and not the correct answers.
37. Answer : (c) < TOP
>
Reason : Machinery Account
Date Particulars Amount Date Particulars Amount
April 1, To balance b/f 60,000 March 31, By depreciation 12,000
2003 2004
March 31, By balance c/d 48,000
2004
60,000 60,000
April 1, To balance b/f 48,000 Sept.30, 2004 By depreciation 4,800
2004
“ By bank 30,000
March 31, By P&L a/c (loss) 13,200
2005
48,000 48,000
38. Answer: (a) < TOP
>
Reason: Where the depreciable asset is revalued, the provision for depreciation should be based on the estimate of the
remaining useful life of such asset on the revalued amount.
39. Answer : (c) < TOP
>
Reason : Bank charges recorded twice in cash book will be added to the overdraft as per cash book in the preparation of
reconciliation statement is not correct. Since charges have been twice credited to bank a/c in cash book, the O.D
balance is in excess. To reconcile the cash book balance with pass book, bank charge is to be added to pass book
balance. Adding to cash book balance results in further widening the difference.
40. Answer : (b) < TOP
>
Reason : Useful life of a depreciable asset is the period for which an enterprise can profitably deploy in production which
may be equal to or less than the expected life, life period, production life, asset life etc. of an asset. Obviously an
enterprise is expected to use a depreciable asset up to its useful period only.
41. Answer : (d) < TOP
>
Reason : The total cost of the furniture should be treated as Rs.1,02,000. All the amounts mentioned should be capitalized
except the fire insurance premium since without such expenditure the furniture would not be available for use.
Cost of second hand furniture Rs. 90,000
Cost of repainting Rs. 10,000
Wages for installation Rs. 2,000
Furniture a/c Rs.1,02,000
42. Answer : (e) < TOP
>
Reason : All the following statements are true (I) Recoupable shortworkings is a current asset and it is shown in the balance
sheet either till they are recovered or written off; (II) Lapsed shortworkings is a nominal account and is to be
debited to profit and loss account in the year of lapse of the time; (III) Shortworkings is the part of minimum rent
not represented by the use of rights because the amount of shortworkings is paid due to the agreement of minimum
rent without making use of the rights vested in; (IV) Shortworkings is the amount by which the minimum rent
exceeds the actual royalty; and (V)The occurrence of shortworings in any period indicates that the lessee is liable to
pay the minimum rent. Thus, the statements above stated are true and the combination of all the above (e) is the
correct answer. The other alternatives (a), (b), (c) and (d) are not the correct answers.
43. Answer : (c) < TOP
>
Reason : Royalty table for sub-lease (Royalty @ Rs.25 per ton)
Output in Shortworkings Shortworkings Amount
Year Royalty Shortworkings
tonnes recouped not recouped receivable
2000-01 700 17,500 12,500 30,000
2001-02 900 22,500 7,500 30,000
2002-03 1,300 32,500 2,500 17,500 30,000
2003-04 1,500 37,500 37,500
2004-05 1,800 45,000 45,000
Page 22 of 28
The amount transferable to Profit and loss account from royalties receivable account for the year 2004-05 =
Rs.45,000 – (1,800 × Rs.20) = Rs.45,000 – Rs.36,000 = Rs.9,000.
Note : The amount of Rs.36,000 (1,800 x Rs.20) will be transferred from royalties receivable account to royalties
payable account.
44. Answer : (d) < TOP
>
Reason : Since it has been sub-leased royalty receivable from sub-lease will become royalty payable.
45. Answer : (c) < TOP
>
Reason : The amount of shortworkings lapsed during the year 2004-2005 amounts to Rs.50,000.
Analysis of royalty payable (Royalty @ Rs.25 per ton)

Short Short Short

Actual Minimum Short
Output workings workings Payment workings
Year royalty workings
(tons) rent (Rs.) recouped (Rs.) lapsed
(Rs.) (Rs.) c/f (Rs.)
(Rs.) (Rs.)
2001- 18,000 4,50,000 6,00,000 1,50,000 –– 6,00,000 –– 1,50,000
02
2002- 20,000 5,00,000 6,00,000 1,00,000 –– 6,00,000 –– 2,50,000
03
2003- 25,000 6,25,000 6,00,000 –– 25,000 6,00,000 1,25,000 1,00,000
04
2004- 32,000 8,00,000 6,00,000 –– 50,000 7,50,000 50,000 Nil
05
46. Answer : (c) < TOP
>
Reason : Stock destroyed by fire ,but no claim admitted will be a loss and profit will be reduced to the extent. This will
decrease the capital and the total liabilities on the one hand and value of stock(assets) on the other hand.
47. Answer : (b) < TOP
>
Reason :
On the receipt of cheque from A the entry made was
Bank account Dr. 3,456
Discount allowed a/c 19
Dr. 3,475
To A’ s account
When this cheque is endorsed to B in full settlement of Rs.3,475 the entry made in records is
B’s account Dr. 3,475
To Discount received a/c 19
To Bank account 3,456
On dishonor of the cheque, the entry to be made is
A’ s account Dr. 3,475
Discount received a/c Dr. 19
To B’ s account 3,475
To Discount allowed a/c 19
48. Answer : (b) < TOP
>
Reason :
Rectification entries in the books of Excellent enterprises
Particulars Debit Credit
(Rs.) (Rs.)
Suspense account Dr. 4,500
To Purchase account 2,250
To Sales account 2,250
Suspense account Dr. 1,598
To Creditor’s account 1,598
Suspense account Dr. 5,400
To Sales account 5,400
Returns inward account Dr. 18,000
To Customer’s account 18,000
On posting the above rectification entries in the suspense account, the suspense account looks as follows:
Particulars Amount Particulars Amount
To Purchase account 2,250 By Balance
(Difference in trial
Page 23 of 28
balance transferred to 11,498
Suspense account)
To Sales account 2,250
To Creditors account 1,598
To Sales account 5,400
11,498 11,498
49. Answer : (d) < TOP
>
Reason : Plant and machinery: P & M Shows a debit balance as it is an asset and is debited on purchase of asset wrongly
listed on credit side.
Creditors: Shows a credit balance, it is a personal account and is credited when purchases are made on credit. Hence
it should shows a credit balance. Wrongly placed on debit side.
Purchases returns: Purchases shows a debit balance. However when goods purchased are returned, we credit the
purchase return account and correspondingly debit the creditor account. Wrongly placed on debit side.
Bank deposits: Bank deposits are excess funds deposited with Bank, hence our asset, and shows a debit balance.
Wrongly placed on credit side.
General Reserve: It denotes accumulated profits and belong to the owners who contributed capital, hence shows a
credit balance. Wrongly placed on debit side.
All the above items have been wrongly treated by the accountant wrongly. The correct trial balance is as follows.
Debit (Rs.) Credit (Rs.)
Opening stock 10,000
Purchases 50,000
General Reserve 5,000
Carriage on goods purchased 1,000
Bank deposit 50,000
Cash in hand 2,000
Purchase returns 1,500
Sales 92,600
Sales returns 2,400
Share Capital 1,50,000
Import duty 1,200
Export duty 1,050
Debtors 50,000
Creditors 22,500
Plant & Machinery 62,500
Salaries 20,000
Wages 10,000
Bills Receivable 15,000
Bills payable 10,000
Interest received 3,000
Commission on sales 1,000
Miscellaneous expenses 6,600
Carriage on goods sold 1,850
2,84,600 2,84,600
50. Answer : (d) < TOP
>
Reason : Debit balance in cash and bank columns of cash book form current assets of the business. The credit balance in
bank column of cash book represents amount overdrawn from the bank and is a liability to the business. Hence
statement (d) is true.
Debit balance of analytical petty cash book is not in any way different from cash book and is an asset. Credit
balance as per pass book is amount of deposit lying with the bank and is an asset to the firm
51. Answer : (b) < TOP
>
Reason : Depreciation is provided as a charge against profit. It is not an appropriation of profit. It is provided irrespective of
whether the business is making loss or profit. Hence statement (b) is a true statement.
52. Answer : (d) < TOP
>
Reason : If the previous year closing stock is valued more, then, previous year’s profit is overstated and current year’s profit
is understated. Closing stock overstatement and opening stock understatement increases the profits and vice versa is
also equally true.
53. Answer : (d) < TOP
>
Reason : According to the basic accounting equation, assets = liabilities + owners equity.
Hence owners equity = assets – liabilities.
Capital = Rs.2,55,000 + Rs.1,75,000 + Rs.90,000 + Rs.85,000 – (Rs.1,25,000 + Rs.35,000)
Page 24 of 28
= Rs.6,05,000 – Rs.1,60,000 = Rs.4,45,000
Profit for the year 2004-05 = Capital as on March 31, 2005 – Capital as on April 01, 2004
= Rs.4,45,000 – Rs.3,50,000 = Rs.95,000
54. Answer : (b) < TOP
>
Reason :
Particulars Rs.
Cash sales (8,00,000 × 85%) 6,80,000
Issue of shares 5,00,000
Amount received by way of short-term 1,00,000
loan
12,80,000
Less: Purchase of fixed assets 4,00,000
Short tem loan repaid 25,000
Payment towards expenses 3,50,000
Amount paid to purchase of raw materials 1,50,000
Amount deposited in bank 2,00,000
Cash balance as on March 31, 2005 1,55,000
55. Answer : (c) < TOP
>
Reason : Net Profit of Joy Ltd. for the year ending March 31, 2003:

Dr. Cr.
Particulars Rs. Rs. Particulars
To Purchases 2,85,000 By Cash sales 4,00,000
Add: Omitted to be recorded 15,000 Less: Wrong Credit

51,000 3,49,000
To Decrease in inventory 3,00,000
40,000
To Gross Profit 9,000
3,49,000 3,49,000
To Sales Commission 12,000 By Gross Profit 9,000
+ Accrued By Rent received
6,000 18,000 55,000
Less: received in
To Depreciation advance
30,000 2,500 52,500
To Net Profit 13,500
61,500 61,500
The net profit is Rs.13,500
56. Answer : (c) < TOP
>
Reason : Cost of goods available for sale 12,00,000
Less: Cost of goods sold (Rs.13,00,00 x0.75) 9,75,000
Closing stock 2,25,000
(note: 33 1/3 % on cost is 25% on sales)
57. Answer : (c) < TOP
>
Reason : A revenue expenditure is an expenditure whose benefit expires within the current accounting period and is in the
nature of recurring and is therefore written off to P& L account. Machinery spares are usually charged to the profit
and loss statement as and when consumed . Sales tax paid in connection with the purchase of office equipment is a
non-recurring expenditure whose benefit is going to last for more than one accounting period and hence not a
revenue expenditure.
58. Answer : (c) < TOP
>
Reason : For the financial year 2004-05, the payments made on April 02, 2004 for 3 months and July 15, 2004 for 6 months
fully belong to the period 2004-05. Since the period 2004-05 ends on March 31, 2005, in respect of the payment of
Rs.48,600 paid on December 25, 2004 for the 4 months ended April 30, 2005 implies that one month advance
payment was made in respect of the next financial year. Hence the prepaid insurance is Rs.12,150 (Rs.48,600/4)
59. Answer : (c) < TOP
>
Reason : It is a situation in which a company is unable to meet its financial obligations when they become due. This can
happen when their liabilities are more than their assets.
60. Answer : (b) < TOP
>
Reason : When an asset is increased, another asset may be decreased or a new liability is created or a specified liability will be
Page 25 of 28
increased. For example, if materials are purchased paying cash, stock of materials will increase and cash will be decreased to
the same extent. If the purchase is on credit, instead of decreasing the cash balance, Sundry Creditors (liability) will
be increased. Hence option (b) which reads as “If an individual asset is increased, there must be a corresponding
decrease in another asset or increase in a specific liability” is true.
61. Answer : (b) < TOP
>
Reason : The total of assets in the balance sheet as on 31.03.2005 after making all the adjustment is Rs.26,800.
Karnataka Mills
Balance Sheet as on March 31, 2005
Liabilities Rs. Rs. Assets Rs. Rs.
Capital 12,000 Fixed Assets
Less: Drawings 2,400 Furniture and Fittings 2,000
Less: Stock drawn 600 Depreciation for 2004-
05 400 1,600
9000 Debtors 20,000
Add: Profit 6,900 15,900 Less: Provision for bad 19,000
debts 1,000
Outstanding office Prepaid insurance 200
expenses 800
Creditors 10,000 Closing stock 6,000
Outstanding salaries 300
Less: Paid in advance 200 100
26,800 26,800

Trading and Profit and Loss account

Dr. Cr.
Particulars Amount Amount Particulars Amount Amount
To opening stock 5,000 By sales 32,000
To Purchase 15,000 Less: Return 1,000 31,100
Less: Returns 500
Less: Drawings 600 By Closing stock 6,000
13,900
To wages 2,000
To Gross profit 16,200
37,100 37,100
To salaries 3,100 By Gross profit 16,200
(3,000–200+300)
To rent 1.500 By interest 400
To Bad debts
(700+1,000–600)
To printing & stationary 800
To Insurances 1,200
Less prepaid 200 1,000
To office expense 1,200
Add : Outstanding 800 2,000
To Depreciation 200
To Net profit 6,900
16,600 16,600
62. Answer : (c) < TOP
>
Reason : According to Accounting Standards on disclosure norms, any material loss/damage caused after the Balance Sheet
date is to be disclosed in the foot note. Since the loss does not pertain to the accounting period, the full value of the
closing stock is to be shown in the Balance Sheet.
63. Answer : (b) < TOP
>
Reason : Revera Ltd.
Dr. Trading and Profit & Loss A/c. for the year ended March 31, 2005 Cr.
Particulars Rs. Rs. Particulars Rs. Rs.
To Opening stock 30,000 By Sales 15,85,000
To Purchases 6,30,000 Less: Sales returns 40,000 15,45,000
Less: Purchases returns 28,000 By Advertisement (Free samples) 4,000
6,02,000
Add: Purchases 6,000 6,08,000
To Wages 2,10,000
To Carriage inward 6,800
To Gross profit 6,94,200
Page 26 of 28
15,49,000 15,49,000
To Salaries 3,80,000 By Gross Profit 6,94,200
To Rent, rates & taxes 80,000 By Discount received 10,400
To Telephone expenses 1,23,000 By Interest on investments 20,000
To Discount allowed 12,000
To Insurance premium 5,400
To Carriage outward 8,200
To Interest on debentures 48,000
To Advertisement 4,000
To Depreciation 78,000 By Net loss 16,000
To Provision for insolvent customer 2,000
7,40,600 7,40,600
64. Answer : (a) < TOP
>
Reason : An increase in net book value arising on revaluation of fixed assets is normally credited directly to owner’s interests
under the heading of revaluation reserves and is regarded as not available for distribution. A decrease in net book
value arising on revaluation of fixed assets is charged to profit and loss statement except that, to the extent that such
a decrease is considered to be related to a previous increase on revaluation that is included in revaluation reserve, it
is sometimes charged against that earlier increase. It sometimes happens that an increase to be recorded is a reversal
of a previous decrease arising on revaluation which has been charged to profit and loss statement in which case the
increase is credited to profit and loss statement to the extent that it offsets the previously recorded decrease. (AS10)
65. Answer : (b) < TOP
>
Reason : The subordinate divisions of a business are the branches of a business and one of the popular systems of accounting
treatment is stock and debtors system. The head office prepares (a) branch account (b) branch debtors account (c)
branch expense account (d) branch adjustment account (e) branch stock reserve account and (f) branch profit and
loss account.
Branch adjustment account is prepared to adjust the difference of selling price and cost. The resultant figure is the
gross profit.
Here the goods are invoiced at selling price.
The other statements are false because (a) branch account is personal account and not a real account (c0 branch
stock account is prepared at selling price also.(d) There are two methods for maintaining branch accounts – Trading
method or Debtors method and Stock and Debtors method.(e) In case of independent branches, if the head office
makes the payment for the fixed asset, entry will not be passed in the books of branch.
66. Answer : (b) < TOP
>
Reason :
Sundry debtors account
Dr. Cr.
Date Particulars Rs. Date Particulars Rs.
April 01, 2004 To Balance b/d 50,000 2004-05 By Cash 3,70,000

2004-05 To Sales 3,60,000 March 31, By Balance (Balancing 40,000

2005 figure)
4,10,000 4,10,000
Sundry Creditors
Dr. Cr.
Date Particulars Rs. Date Particulars Rs.
2004-05 To Cash April 01, By
1,90,000 70,000
(balancing figure) 2004 Balance b/d
March 31, 2004-05
To Balance c/d 80,000 By Purchases 2,00,000
2005
2,70,000 2,70,000
Cash Account
Date Particulars Rs. Date Particulars Rs.
April 01, To Balance 60,000 2004-05 By Purchases 80,000
2004 cash
2004-05 To Debtors 3,70,000 By Expenses 70,000
By Creditors 1,90,000
By Balance c/f 90,000
4,30,000 4,30,000
67. Answer : (d) < TOP
>
Reason : Branch Account
Particulars Rs. Particulars Rs.
Page 27 of 28
To Balance b/d By Remittances:
Stock Cash sales 6,00,000
6,00,000
Debtors 2,40,000 Cash received
Petty cash 8,44,000 From Debtors 7,00,000 13,00,000
4,000
To Goods sent to branch 10,00,000
To Bank account: By Goods sent to Branch 12,000
(returns)
Expenses 60,000 By Balance c/d
Petty cash 10,000 Stock 2,50,000
To Profit (P&L account) 21,000 Debtors 3,67,000
Petty cash 6,000
19,35,000 19,35,000
Memorandum Debtor’s Account
Particulars Rs. Particulars Rs.
To Balance b/d 2,40,000 By Cash received 7,00,000

To Credit Sales 8,40,000 By Sales returns 5,000

By Bad debts 6,000
By Discount allowed 2,000
By Balance c/ d 3,67,000
(Closing debtors)
10,80,000 10,80,000
68. Answer : (b) < TOP
>
Reason :
Branch adjustment account
Dr. Cr.
Particulars Rs. Particulars Rs.
To Branch stock reserve (loading on closing By Branch stock reserve (loading on
stock) 1,000 opening stock) 2,400
To P/L account (gross profit) 13,000 By Goods sent to branch (loading on
goods sent to branch) 11,600
14,000 14,000
Profit and loss account
To Branch expenses (3,300 + Rs.1,500 + By Branch adjustment account (Gross 13,000
Rs.1,200) 6,000 profit)
To Net profit (balancing figure) 7,000
13,000 13,000
69. Answer : (c) < TOP
>
Reason : In case of manufacturing concerns, the balance in ‘goods sent to branch’ account will be transferred to Trading
Account (c).In case of trading concerns the balance in goods sent to branch account will be transferred to purchases
account(a) and it is not the correct answer in the present situation. The alternative (b) is not the correct answer
because it is not a sale to be credited to sales account.. The alternative (d) is incorrect because goods sent to branch
account is created by debiting the branch account and crediting goods sent to branch account and again the balance
in it is not transferred to branch account.
In case of accounting for branches under stock and debtors system the branch stock account is maintained to route
all transactions relating to goods sent and received back. Hence it is not correct answer. Thus (c) is the correct
answer.
70. Answer : (b) < TOP
>
Reason : Dr. Branch Cash A/c Cr.
Particulars Rs. Particulars Rs.
To Opening By Remitted to
4,000 90,000
balance HO
To Cash collected
54,000
from debtors
Page 28 of 28
To Cash sales By Closing
46,000 14,000
(Balancing figure) balance
1,04,000 1,04,000
Dr. Branch Stock A/c Cr.
Particulars Rs. Particulars Rs.
To Opening
30,000 By Credit sales 88,000
balance
To Goods received
1,30,000 By Cash sales 46,000
from Head office
By Closing
24,000
balance
By Stock lost
2,000
(Balancing figure)
1,60,000 1,60,000
Invoice Price = Rs.2,000
1
33 %
Margin on cost price = 3 i.e., 25% on sales.
3
Cost price of the goods lost in transit= Rs.2,000 × 4 = Rs.1,500.
71. Answer : (b) < TOP
>
Reason :
Particulars Rs.
Total of debit side of trial balance 2,45,000
Add : Advertisement expenses 15,000
Less : Opening stock (excess taken) 100
Total of trial balance (Debit side) 2,59,900

Particulars Rs.
Total of credit side of trial balance 2,72,900
Add : Interest on investments (less taken) 6,000
Less : Sundry creditors (excess taken) 4,000
Less : Advertisement expenses (wrongly 15,000
taken)
Total of trial balance (credit side) 2,59,900

< TOP OF THE DOCUMENT >