Certificate in Accounting and Finance Stage Examination

The Institute of 4 March 2019

Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes

Introduction to Accounting
Q.1 Chaman Stores commenced its business on 1 January 2019. The following books of prime
entry are available for the month of January 2019:

CASH BOOK
------------------- Receipts ------------------- ------------------- Payments -------------------
Cash Bank Cash Bank
Date Description Date Description
Rs. in '000 Rs. in '000
1-Jan Capital 500
2-Jan Cash 140
2-Jan Bank 140 5-Jan Security deposit - shop 45
10-Jan Sales 19 36
10-Jan Furniture 40 35
15-Jan Bank loan 200
11-Jan Insurance 15
27-Jan Rafiq Limited - net 95
12-Jan Shabbir & Sons - net 44 100
15-Jan Purchases 35 43
21-Jan Returns 4
27-Jan Salaries to staff 76
30-Jan Utilities 18
31-Jan Balance c/f 36 359
159 831 159 831

SALES DAY BOOK

Date Name of customer Rs. in '000
9-Jan Arif Sons 65
17-Jan Rafiq Limited 130
24-Jan Zubair Brothers 72
267

SALES RETURN DAY BOOK

Date Name of customer Rs. in '000
22-Jan Rafiq Limited 30

PURCHASES DAY BOOK

Date Name of supplier Rs. in '000
3-Jan Shabbir & Sons 150
19-Jan Ameer & Sons 220
370

Additional information:
(i) Stock in trade as at 31 January 2019 amounted to Rs. 85,000.
(ii) Utilities paid on 30 January 2019 include Rs. 6,000 against bills of owner's residence.
(iii) Shop rent of Rs. 22,000 for the month of January 2019 was paid on 3 February 2019.
(iv) Goods costing Rs. 30,000 were withdrawn by owner for personal use.
(v) Furniture purchased on 10 January 2019 had a total cost of Rs. 130,000. Remaining
amount is due to be paid within 30 days.
(vi) Goods costing Rs. 13,000 were returned to Ameer & Sons on 31 January 2019.
(vii) Rafiq Limited and Shabbir & Sons had no balance at month end.
 Introduction to Accounting Page 2 of 5

Required:
Prepare trial balance for the month ended 31 January 2019. (Preparation of ledger accounts is
not necessary) (15)

Q.2 (a) Identify any five potential user groups who may be interested in an entity’s financial
statements and specify what type of information would be of their interest. (05)

(b) List and briefly explain the purpose of any five documents issued/used in sales cycle. (05)

Q.3 Following information pertains to Swat Enterprises (SE):

(i) A machine was purchased for Rs. 3,500,000 against which 100% advance had already
been paid. SE also paid transportation and installation costs of Rs. 60,000 and
Rs. 125,000 respectively on this machine.
(ii) Insurance premium amounting to Rs. 180,000 was paid which included an amount of
Rs. 30,000 for the proprietor’s personal vehicle.
(iii) Office equipment having cost and carrying value of Rs. 265,000 and Rs. 89,000
respectively was sold for Rs. 95,000.
(iv) SE entered into rent agreement with the owner of a shop for annual rent of
Rs. 300,000.
(v) Stock amounting to Rs. 75,000 was destroyed in fire in the warehouse. The stock was
insured and insurance company agreed to pay Rs. 65,000.
(vi) SE incurred costs of Rs. 1,200,000 on extension of warehouse and Rs. 250,000 on
miscellaneous repairs.

Required:
Show the effects, if any, of each of the above information in the form of accounting
equation. (08)

Q.4 Multan Traders (MT) held 200 units of product A valued at Rs. 175 each on
1 December 2018. Following transactions related to product A have occurred during
December 2018:

Date Description
07 Purchased 400 units from Alpha on credit for Rs. 80,700. Alpha gave further
50 units at no cost under a promotion scheme.
13 Sold 360 units on cash for Rs. 72,000.
16 Purchased 500 units from Bravo on credit for Rs. 89,000. MT also incurred
transportation cost of Rs. 1,580.
21 Sold 440 units for Rs. 92,400 on credit to Charlie. To avail the 5% discount on
early payment, Charlie paid the amount on 24 December 2018.
25 Purchased 350 units from Delta on credit. Delta offered discount of 8% on list
price of Rs. 200 per unit if at least 250 units were purchased. Delta also offered
further 2% discount if payment was made within 10 days.
27 30 units were found in unsaleable condition and were removed from the
inventory.
28 Sold 300 units on cash for Rs. 61,000. MT incurred cost of Rs. 1,600 for delivery.

MT follows weighted average method for valuation of its inventory.

Required:
(a) Prepare inventory ledger card for product A for the month of December 2018 under
perpetual inventory system. (09)
(b) Compute gross profit on sale of product A for December 2018. (02)
 Introduction to Accounting Page 3 of 5

Q.5 Following is the summarised trial balance of Qambar Enterprises (QE) for the year ended
31 December 2018:

Rs. in ‘000
Debit Credit
Furniture – cost 2,535 Accumulated dep. at 1 Jan 2018:
Vehicles – cost at 1 Jan 2018 4,500 – Furniture 975
Inventories at 1 Jan 2018 4,450 – Vehicles 1,450
Trade receivables 2,970 Capital at 1 Jan 2018 5,223
Office and sales supplies 210 12% Bank loan 1,500
Cash and bank balances 746 (obtained on 1 April 2018)
Purchases 12,364 Trade payables 3,943
Returns 826 Sales 18,184
Salaries and commission 1,295 Other income 275
Rent and insurance 545
Utilities and repairs 420
Goods withdrawn 644
Provision for doubtful receivables 45
31,550 31,550

Additional information:
(i) Inventories as at 31 December 2018 were valued at Rs. 3,860,000. Office and sales
supplies costing Rs. 90,000 are still unused. However, 30% of these supplies are not
usable due to deterioration in quality.
(ii) Rent and insurance includes Rs. 75,000 paid for a photocopying machine. The
machine was obtained on 1 November 2018 at a fixed rent of Rs. 75,000 per quarter
and an additional Re. 0.40 for each copy. 40,000 copies have been made by QE up to
31 December 2018.
(iii) QE received 5% discount on list price of goods purchased for cash which was credited
to other income. List price of such purchases was Rs. 2,500,000.
(iv) Cost of office repairs amounting to Rs. 85,000 was paid by the owner from personal
cash.
(v) On 1 November 2018, a vehicle was completely destroyed in an accident. In
December 2018, insurance company agreed to pay Rs. 500,000 in January 2019. The
vehicle was purchased for Rs. 600,000 on 1 January 2016.
(vi) On 1 September 2018, a vehicle was invested into the business by the owner. The
vehicle was purchased by the owner on 1 July 2015 for Rs. 1,050,000 and had a fair
value of Rs. 960,000 on 1 September 2018.
(vii) QE depreciates vehicles at 10% using straight line method while furniture is
depreciated at 15% using reducing balance method. Cost of furniture includes an item
of furniture purchased for Rs. 400,000 on 1 May 2018.
(viii) Sales include Rs. 335,000 received from a customer though the related goods were
dispatched on 5 January 2019.
(ix) Trade receivables include Salman’s balance of Rs. 370,000. It has been decided to
set-off Rs. 100,000 payable by QE to Salman and make a specific provision of 30%
against the remaining balance.
(x) A general provision of 4% of remaining trade receivables is maintained. Trade
receivables amounting to Rs. 131,000 were written off and debited to provision for
doubtful receivables during 2018.

Required:
(a) Prepare statement of profit or loss for the year ended 31 December 2018. (12)
(b) Prepare statement of financial position as at 31 December 2018. (11)
 Introduction to Accounting Page 4 of 5

Q.6 The trial balance of Sibi Brothers (SB), dealer of equipment and machines, did not agree as
at 31 December 2018 and the difference was carried to suspense account. The financial
statements prepared from the trial balance showed a gross profit of Rs. 854,000.

During review, following errors were detected:

(i) A sales invoice of Rs. 24,000 was debited to the debtor’s account as Rs. 42,000.
(ii) A purchase of Rs. 23,000 was entered in purchases day book as Rs. 32,000 and
posted to the creditor’s account as Rs. 3,200.
(iii) An item was included in closing inventory at its cost of Rs. 94,000. Due to lower
demand, it had a net realizable value of Rs. 81,000.
(iv) A sub-total of Rs. 49,000 was carried forward in the sales day book as Rs. 94,000.
(v) Return inward and return outward appearing in the trial balance were Rs. 82,000 and
Rs. 99,000 respectively. While preparing the financial statements, the amount of
return inward was shown as return outward and vice versa.
(vi) Discount received of Rs. 4,100 was posted to the debit of discount allowed.
(vii) SB started using an inventory item as office machine effective from 1 October 2018.
No adjustment has been recorded and this item is included in closing inventory. The
cost and selling price of this item are Rs. 145,000 and Rs. 182,000 respectively.
(viii) Another office machine costing Rs. 270,000 with a carrying value of Rs. 127,200 as
on 1 January 2018 was disposed off on 1 September 2018 for Rs. 80,000. The sale
proceeds were credited to accumulated depreciation account and whole year’s
depreciation was provided on the machine.

The balance as per bank statement as on 31 December 2018 was reconciled with cash book.
During review, following matters were noted in bank reconciliation statement:
(i) List of unpresented cheques included:

a cheque issued to a creditor on 30 April 2018 amounting to Rs. 28,000.

a cheque dated 30 December 2018 amounting to Rs. 16,000 which was handed
over to the creditor on 6 January 2019.
(ii) List of deposits in transit included a cheque dated 15 January 2019 from a debtor
amounting to Rs. 35,000.
(iii) Bank charges of Rs. 3,100 correctly debited by bank had been added back.

Other information:
SB uses periodic inventory method to record the inventory. Office machines are depreciated
at 10% from the month of addition to the month prior to disposal using reducing balance
method. Control accounts are not maintained for Debtors and Creditors.

Required:
(a) Prepare journal entries to correct the above errors. (Narrations are not required) (15)
(b) Compute the corrected gross profit. (03)
 Introduction to Accounting Page 5 of 5

Q.7 Bannu Traders has three partners A, B and C. The net profit for the year ended
31 December 2018 was Rs. 5.8 million. Following further information pertains to the year
ended 31 December 2018:

A B C
------- Rs. in ‘000 -------
Opening balances: Capital accounts 9,000 6,000 3,000
Current accounts 800 1,700 (600)
Drawings during the year 2,500 750 1,000

As per the partnership agreement:

(i) interest on the partners’ opening capital is allowed at 10% per annum if the partner
has positive opening current account balance.
(ii) A and C are entitled to monthly salaries of Rs. 100,000 and Rs. 120,000 respectively
for the months in which they attend the partnership office. C did not attend the office
for 3 months during 2018.
(iii) interest is charged at 8% per annum on drawing balances as at 31 December in excess
of salary entitlement.
(iv) B is entitled to a bonus of 10% of profit after partners’ salaries.
(v) residual profit is to be shared as follows:

Up to Rs. 1.2 million equally; and

Balance would be shared by A, B and C in the ratio of 3:3:2 respectively.

However, B is entitled to a minimum annual profit share of 30% of his capital

balance. Any shortfall is to be contributed by A and C in the ratio of their capital
balances.

Required:
For the year ended 31 December 2018:
(a) show how the partnership profits would be shared among the partners. (09)
(b) prepare partners’ current accounts. (03)
(c) compute the profit at which B would receive the guaranteed minimum profit share
without any contribution by A and C. (03)

(THE END)