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(1 mark)

(e) Written down value.

7. Which of the following is not a current asset?

(1 mark)

(a) Inventories(b) Debtors(c) Cash at Bank(d) Patents

(e) Prepaid expenses.

8. The concept which states that every transaction has two aspects is known as

(1 mark)

(a) Duality concept(b) Matching concept(c) Realization concept(d) Consistency concept(e) Conservatism concept.

9. A purchase day book is used to record

(1 mark)

(a) All credit purchases of fixed assets

(b) All cash purchases only(c) All credit and cash purchases(d) All credit purchases of goods only(e) All credit purchases and cash discount.

10.Which accounting entry is to be passed to make a full and final settlement for a payment of Rs.10,000 toMr. Abuja at a discount of 2% (payment is made through a cheque)?

Rs.Rs.

(1 mark)

(a) Abujas account Dr. 10,000To Bank account 9,800To Discount received account 200

(b) Abujas account Dr. 9,800To Bank account 9,800

(c) Purchases account Dr. 10,000To Bank account 10,000

(d) Abujas account Dr. 10,000To Bank account 10,000

(e) Abujas account Dr. 10,000To Trade discount 200To Bank account9,800.

11.Which of the following subsidiary books serves the purpose of ledger, in addition to the recording ofaccounting transactions?

(1 mark)

(a) Purchases book(b) Sales book(c) Bills receivable book(d) Cash book(e) Journal proper.

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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The total of purchases recorded in purchase day book for the month of June 2007, was

(2 marks)

unit Rs. Discount

June 01, 2007 Color TVs 10 6,000 10%June 09, 2007 Tape Recorders 10 1,000 10%June 19, 2007 Audio Cassettes 100 30 5%June 22, 2007 Stationery cartons 10 dozens 35 --June 22, 2007 Stationery pens 10 dozens 25 --

(a) Rs.65,850(b) Rs.54,000

(c) Rs.63,000

(d) Rs.66,450

(e) Rs.73,000.

13.M/s. Swathi Enterprises introduced the imprest system of maintaining petty cash book, the amount ofimprest being Rs.3,000. The petty cash transactions during the month of June 2007 are as under:

The amount of cash received on July 01, 2007 to make up the imprest balance is

(2 marks)

Particulars (Rs.)

Stamps 200Conveyance 190Repairs 500Stationery 200Other office expenses 93

(a) Rs.1,578(b) Rs.1,194(c) Rs.1,183(d) Rs.1,422(e) Rs.3,000.

14.The total assets of a business are Rs.21,315 and outside liabilities are Rs.4,120. Reserves and surplusstands at Rs.2,500. Then, the amount of owners equity is

(2 marks)

(a) Rs.21,315(b) Rs.17,195(c) Rs.27,435(d) Rs. 4,120(e) Rs.14,695.

15.The rule applicable to personal account is

(1 mark)

(a) Debit what comes in and credit what goes out(b) Debit the receiver and credit the giver(c) Debit all expenses and losses and credit all incomes and gains(d) Debit the giver and credit the receiver(e) Debit what goes out and credit what comes in.

16.While preparing the final accounts of the company, the accountant of Pioneer Company located thefollowing errors:

The Returns Inward book was undercast by Rs.1,377.

A purchase of Rs.1,252 was posted to the debit of the suppliers account as Rs.125.

Sales returns of Rs.877 were taken into stock but no entry in respect of the transaction waspassed in the books.

The difference in Trial Balance of the company on account of the above errors is

(a) Nil

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(2 marks)

(b) Rs. 877

(c) Rs.1,377

(d) Rs.3,631

(e) Rs.4,131.

17.Which of the following errors is not disclosed by the Trial Balance?

(1 mark)

(a) Error in casting of subsidiary books(b) Error in balancing the account(c) Error of complete omission of recording of a transaction(d) Error in carry forward of total from one page to another(e) Error in preparation of debtors schedule.

18.The statement which helps an accountant to assess the arithmetical accuracy of the accounting records isthe

(1 mark)

(a) Balance sheet(b) Profit and loss account(c) Cash book(d) Trial balance

(e) Bank reconciliation statement.

19.Rs.400 paid as rent was credited to the Rent account. The rectifying entry is

Rs. Rs.

(1 mark)

(a) Cash account Dr. 400To Rent account 400

(b) Rent account Dr. 800To Suspense account 800

(c) Rent account Dr. 400To Suspense account 400

(d) Suspense account Dr. 800To Rent account 800

(e) Rent account Dr. 400To Cash account 400.

20.The following incorrect Trial Balance as on March 31, 2007 was prepared by an inexperiencedaccountant:

The total of corrected Trial Balance as on March 31, 2007 was

Particulars Debit (Rs.) Credit (Rs.)

Capital (1st April, 2006) 79,000

Stock (1st April, 2006) 37,000

Purchases 2,33,300Sales 3,94,000Fixed assets 50,850Sundry creditors 49,760Sundry debtors 1,39,700Bank overdraft 9,000Administrative expenses 79,160Carriage outward 2,310Provision for bad debts 4,250Returns outward 3,160Discount received 3,150

Total 5,42,320 5,42,320

(a) Rs.5,42,320(b) Rs.4,64,200

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(2 marks)

(c) Rs.5,55,510(d) Rs.5,43,200(e) Rs.5,03,440.

21.The accountant of Style Ltd. noticed certain differences in the books of account after preparation of thefinal accounts. One of the differences is that the discount column on payments side of cash book istotalled as Rs.5,900 instead of Rs.5,600. The journal entry required to be passed to rectify this error is

(2 marks)

Rs. Rs.(a) Discount account

To Sundry creditors accountDr. 300

300

(b) Suspense accountTo Discount account

Dr. 300300

(c) Profit and loss adjustment accountTo Suspense account

Dr. 300300

(d) Discount accountTo Profit and loss adjustment account

Dr. 300300

(e) Discount accountTo Suspense account

Dr. 5,6005,600.

22.The trial balance shows

(1 mark)

(a) Both debit and credit balances of real and nominal accounts(b) Both debit and credit balances of personal and nominal accounts(c) Both debit and credit balances of real, nominal and personal accounts(d) Both debit and credit balances of Personal accounts only(e) Both debit and credit balances of Real accounts only.

23.Which of the following is an example of capital expenditure?

(1 mark)

(a) Insurance premium(b) Taxes and legal expenses

(c) Depreciation on machinery(d) Discount allowed(e) Installation charges.

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:

The company has invested Rs.1,00,000 in 13% Debentures and the interest for the year 2006-2007is not accounted for.

Salary to manager is still outstanding for the month of March, 2007 and is not taken into accountwhile 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 tothe above omissions is

(2 marks)

(a) Rs.6,01,500(b) Rs.5,59,000(c) Rs.6,30,000(d) Rs.5,75,500(e) Rs.5,92,000.

25.The following is the data pertaining to Jagriti Enterprises as on March 31, 2007:

Particulars Rs.

Gross profit 2,64,000Closing stock 75,000

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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

(2 marks)

Salaries 86,000Other expenses 73,000Fixed assets 6,00,000Sundry debtors 45,000Sundry creditors 32,000Cash and bank 53,000Capital 6,00,000Short term loan 36,000


26.The following is the data pertaining to Mr. Kantilal for the year ended March 31, 2007:

The manager of Mr. Kantilal is entitled to a commission of 5% on net profit after charging hiscommission. The commission payable to the manager for the year 2006-2007 was

(2 marks)

Particulars Rs.

Sales 5,00,000Purchases 4,50,000Opening stock 30,000Salaries and wages 19,000Carriage inward 5,500Returns inward 10,000Returns outward 15,000Closing stock 10,000

(a) Rs.500

(b) Rs.525

(c) Rs.619

(d) Rs.650(e) Rs.700.

27.Consider the following data pertaining to M/s. Soma Enterprises as on March 31, 2007:

Additional Information:

Gross profit of M/s. Soma Enterprises for the year ended March 31, 2007 was

Particulars Rs.

Total sales 1,60,000Total purchases 90,000Wages paid 5,000Returns inward 3,000Returns outward 2,000Carriage inward 1,000Carriage outward 1,000

Gas, water and fuel 2,000Raw materials destroyed by fire 2,000

Particulars As on April 01, 2006 As on March 31, 2007

Rs. Rs.

Inventory 27,000 40,000

Outstanding wages 500 700

(a) Rs.73,800

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(2 marks)

(b) Rs.75,800(c) Rs.74,800(d) Rs.76,200(e) Rs.75,200.

28.Payment of Rs.5,000 to repaint the premises is an example of

(1 mark)

(a) Capital expenditure

(b) Revenue expenditure(c) Capital receipt(d) Revenue receipt(e) Deferred expenditure.

29.Brougham & Sons accounting records indicated the following information:

A physical inventory taken on 31st March 2007 resulted in an ending inventory of Rs.20,90,000.Companys rate of gross profit on sales has remained constant at 25%. The management of the company

suspects some inventory may have been pilfered by a new employee. The estimated cost of missinginventory as on March 31, 2007 was

(2 marks)

Particulars Rs.

Opening inventory 15,00,000

Purchases during the year 2006-2007 45,00,000

Sales during the year 2006-2007 50,00,000

(a) Rs.2,65,000(b) Rs.2,10,000(c) Rs.1,75,000(d) Rs.1,60,000(e) Rs. 55,000.

30.Which of the following systems of inventory valuation computes cost of goods sold as a residualamount?

(1 mark)

(a) Weighted Average(b) Last-in First-out(c) Perpetual Inventory System(d) Periodic Inventory System(e) Specific Identification.

31.Which of the following methods of valuation of inventory is based on the assumption that costs arecharged against revenue in the order in which they occur?

(1 mark)

(a) FIFO method(b) LIFO method(c) Weighted average method(d) Moving average method(e) Retail inventory method.

32.Consider the following data pertaining to Lays Ltd. for the month of June, 2007:

If the company uses weighted average method for inventory valuation, the value of inventory as on June

Date

Purchases Issues Balance

Quantity(Kg.)

Rate(Rs.)

Quantity(Kg.)

Quantity(Kg.)

Rate(Rs.)

01-06-2007 500 22.8002-06-2007 400 2410-06-2007 600 2525-06-2007 1,000

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30, 2007 was

(2 marks)


33.In relation to price, the phrase markup means

(1 mark)

(a) The first selling price at which goods are offered(b) The selling price raised above the original selling price(c) Difference between the cost and the original selling price(d) Difference between the cost and the first selling price(e) The selling price raised above the cost.

34.Cost of conversion is made of

(1 mark)

(a) Direct material plus direct wages plus production overhead(b) Direct wages plus all types overhead(c) Direct wages plus production overhead plus direct expenses(d) Direct material plus direct wages plus direct expenses plus production overhead

(e) Direct material plus direct wages plus all types of overhead.

35.Consider the following information supplied by Alvin Co. for the year 2006-07:

Opening stock of goods for the year 2006-07 was

(2 marks)

Purchases during the period Rs.80,000Total sales Rs.80,000Closing stock of goods Rs.40,000Gross profit margin 25%

(a) Nil(b) Rs.60,000(c) Rs.20,000

(d) Rs.36,000(e) Rs.40,000.

36.Under which method, the revenue is recognized in the period in which goods are delivered or servicesare actually provided?

(1 mark)

(a) Installment method(b) Production method(c) Delivery method(d) Realization method(e) Percentage-of-completion method.

37.Cyber Ltd. has furnished the following information for the year 2006-2007:

The total amount of credit sales was

Opening balance of Sundry debtors account Rs. 50,000

Closing balance of Sundry debtors account Rs. 60,000

Cash collected from debtors Rs.5,00,000

Discount allowed to debtors Rs. 10,000

(a) Rs.6,00,000(b) Rs.5,20,000(c) Rs.5,10,000(d) Rs.5,00,000

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(2 marks)

(e) Rs.4,90,000.

38.Consider the following data pertaining to Universe Ltd., as on March 31, 2007:

Total sundry debtors as per Trial Balance Rs.40,600Bad debts identified after the preparation of Trial Balance Rs.600Provision for bad debts to be created @ 5% on sundry debtorsProvision for discount on sundry debtors to be created @ 2%.

The amount of provision for discount on sundry debtors created for the period endedMarch 31, 2007 was

(2 marks)

(a) Rs. 760(b) Rs.2,000(c) Rs. 771(d) Rs. 800(e) Rs. 812.

39.ABC Ltd. has the practice of creating provision for doubtful debts @ 5% on debtors. The balance ofprovision 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

(2 marks)

(a) Rs.58,000

(b) Rs.56,100(c) Rs.54,000(d) Rs.55,900(e) Rs.56,000.

40.Revenue for the current period does not include

(1 mark)

(a) Sales(b) Interest on investment(c) Rent received(d) Dividend received(e) Advance received for supplies.

41.The present book value of an asset of a company is Rs.2,04,120. The company has charged depreciationat the rate of 10% under straight line method for the last 3 years. The original cost of the asset was

(2 marks)


42.Which of the following is not a method of calculating depreciation?

(1 mark)

(a) Straight line method(b) Reducing balance method

(c) Sum-of-the years-digits method(d) Units-of-production method(e) Simple average method.

43.Which of the following is false about Fixed Assets?

(a) They are acquired for using them in the conduct of business operations(b) They are not meant for resale to earn profit(c) They can be easily converted into cash(d) Depreciation at specified rates is to be charged on the Fixed Assets(e) Their utility is not confined to one accounting period.

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(1 mark)

44.Which of the following is not included in the cost of a building?

(1 mark)

(a) Permanent fixtures in the building(b) Municipal fee for plan approval(c) Stamp fee(d) Architect fee(e) Cost of air conditioner.

45.The balance in Machinery account of Leo Ltd., as on 1 st April, 2006 was Rs.85,000. The followingtransactions took place during the year 2006-07:

If the company charges depreciation @10% per annum on book value, the balance in Machineryaccount as on 31st March, 2007 was

(2 marks)

Date Particulars Rs.

01.04.2006 Machinery sold (book value as on 01.04.06 is Rs.40,000) 50,000

01.07.2006 Machinery purchased 90,000

(a) Rs.1,84,500(b) Rs.1,93,500

(c) Rs.2,05,000(d) Rs.1,99,000(e) Rs.1,23,750.

46.Supriya Ltd. purchased a machinery on April 01, 2002 for Rs.1,50,000. It is estimated that themachinery will have a useful life of 5 years after which it will have no salvage value. If the companyfollows sum-of-the-years-digits method of depreciation, the amount of depreciation to be chargedduring the year 2006-2007 was

(2 marks)


47.Consider the following:

I. Rate of depreciation under the written down method = 20%II. Original cost of the asset = Rs.50,000III. Residual value of the asset at the end of useful life = Rs.20,480

The estimated useful life of the asset, in years, is

(2 marks)

(a) 4(b) 5(c) 6(d) 7(e) 8.

48.A new machine costing Rs.1,00,000 was purchased by a company to manufacture a special product. Thescrap value at the end of its useful life was estimated to be Rs.10,000. The production plan for the next5 years using the above machine is as follows:

Year 1 5,000 units

Year 2 10,000 units

Year 3 12,000 units

Year 4 20,000 units

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The depreciation expenditure for the 3rd year under units-of-production method will be

(2 marks)

Year 5 25,000 units


49.The profits of Kavya Ltd. for the past 3 years are as under:

The company noticed the following errors, while computing the average profits for the purpose ofvaluation 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

(2 marks)

Year Rs.

2004-2005 3,75,0002005-2006 4,50,0002006-2007 7,42,500


50.The following information is extracted from the books of Jeet and Company:

Capital employed - Rs.1,00,000.

Normal rate of return is -10%.

Present value of annuity of Re.1 for five years at the rate of 10% 3.78.

Average profit: Rs.16,000

The value of goodwill under annuity method of super profit is

(2 marks)


51.Amortization of unidentified intangible assets is in recognition of

(1 mark)

(a) Conservatism concept(b) Going concern concept

(c) Matching concept(d) Time period concept(e) Business entity concept.

52.Which of the following deductions from profits is permitted under Section 350 of the Companies Act,for the calculation of managerial remuneration?

(a) Any tax notified as a tax on excess or abnormal profits(b) The remuneration payable to the managing agents(c) Loss on sale of undertaking(d) Development rebate reserve

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(1 mark)

(e) Any compensation, damages or payments made voluntarily.

53.Which of the following factors is used as a multiplier of super profits in valuation of goodwill of abusiness?

(1 mark)

(a) Average capital employed in the business(b) Simple profits(c) Number of years purchase

(d) Normal rate of return(e) Normal profits.

54.Which of the following factors does not have lasting impact on the valuation of goodwill?

(1 mark)

(a) Normal rate of return(b) Capital employed(c) Nature of business(d) Temporary craze or fashion(e) Personal skill and reputation of the owner.

55.The Balance Sheet of Marvel Ltd. as on March 31, 2007 is as under:

The following assets are revalued as under:Fixed assets Rs.9,00,000Sundry debtors Rs. 85,000The amount of capital employed for calculation of goodwill is

(2 marks)

Liabilities Rs. Assets Rs.Equity share capital 6,00,000 Fixed assets 9,20,000Reserves and surplus 2,10,000 Sundry debtors 90,00012% Debentures 1,50,000 Inventories 65,000Sundry creditors 1,50,000 Cash 35,000

Total 11,10,000 Total 11,10,000

(a) Rs. 7,85,000(b) Rs.10,85,000

(c) Rs. 8,85,000(d) Rs. 7,65,000(e) Rs.10,65,000.

56.Which of the following items cannot be shown as reserves under the head Reserves and surplus in thebalance sheet of a company?

(1 mark)

(a) Capital reserve(b) Sinking funds(c) Retained earnings(d) Capital redemption reserve(e) Unclaimed dividends.

57.Dinakar operates a garment store in a hired premises at a rent of Rs.1,20,000 per annum. The owner ofthe premises, who has recently completed her fashion-designing course, wishes to purchase the garmentstore. The details of the business of Dinakar are as under:

b The profit for the year 2006-2007 is Rs.2,30,000.b The capital employed by Dinakar is Rs.20,00,000.b The value of the premises is Rs.4,00,000.

If the normal return on capital employed is 12%, the super profit for calculation of goodwill is

(a) Rs. 58,000(b) Rs. 62,000

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(2 marks)

(c) Rs.1,10,000(d) Rs.1,20,000(e) Rs.1,78,000.

58.The net profit of Yankee Ltd. is Rs.15,75,000, which is arrived at after considering the following:

If the managerial remuneration payable to directors is Rs.83,475, the percentage of such commission onthe net profits before charging such commission is

(2 marks)

Directors remuneration Rs. 21,000Subsidy received from the Government Rs.3,15,000

Income tax paid Rs. 94,500Damages paid by virtue of legal liability Rs. 42,000

(a) 4%(b) 8%(c) 7%(d) 5%(e) 10%.

59.The claims against the company not acknowledged as debts are shown as

(1 mark)

(a) Current liabilities(b) Loans and advances(c) Contingent liabilities(d) Unsecured loans(e) Without any separate disclosure.

60.

(2 marks)

Diana Ltd. has issued 10%, 10,000 Preference Shares of Rs.100 each fully paid and 1,30,000 Equity Shares ofRs.10 each fully paid, which are issued at a premium of Rs.20. The profit for the year 2006-07 is Rs.10,84,000and 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 anyappropriations.

The company declared an equity dividend of 10%.

The total amount of profit carried forward to Balance Sheet is(a) Rs.6,68,000(b) Rs.5,38,000(c) Rs.6,81,000(d) Rs.5,68,500(e) Rs.5,86,000.

61.Which of the following persons can be appointed as an auditor of a company?

(1 mark)

(a) A body corporate(b) A person indebted to the company for Rs.1,500(c) A person holding the shares of the company as a trustee(d) A person disqualified to be appointed as an auditor of its subsidiary company

(e) An officer of the company.

62.According to the Companies Act, 1956, the period to which the accounts of a company relate is knownas financial year should not exceed

(1 mark)

(a) 12 months(b) 15 months(c) 18 months(d) 24 months(e) 21 months.

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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 toits scrap value Rs.1,000 on straight line basis over 8 years. The amount of depreciation accumulatedupto date is Rs.7,500. The company reestimates the life of the machine in a more realistic manner to be10 years.

The amount of excess depreciation provided on the machinery for the past five years amounts to

(2 marks)

(a) Rs. 300(b) Rs. 600

(c) Rs. 900(d) Rs.1,200(e) Rs.1,500.

64.Which of the following will not come under the head Miscellaneous Expenditure in the balance sheetof a company?

(1 mark)

(a) Preliminary expenses(b) Interest paid out of capital during construction(c) Discount allowed on issue of shares and debentures(d) Development expenditure not adjusted(e) Contribution to provident fund.

65.The Securities Premium Account should be shown under the head

(1 mark)

(a) Share capital(b) Miscellaneous expenditure(c) Current liabilities(d) Current assets(e) Reserves and surplus.

66.When the auditor is having reservations in respect of some material matters then he will give

(1 mark)

(a) A clean report(b) A qualified report(c) A disclaimer report(d) An adverse report

(e) No report.

67.Tax deducted at source on the payments made by a company appears in the Balance Sheet of thecompany on the

(1 mark)

(a) Liabilities side under current liabilities(b) Liabilities side under provisions(c) Assets side under current assets(d) Assets side under loans and advances(e) Assets side under miscellaneous expenditure.

68.Which of the following is not a community owned asset used by a company?

(1 mark)

(a) Roads(b) Railways(c) Infrastructural facilities(d) Concession provided by the State(e) Plant and machinery.

69.The fund available with a company after paying all claims including tax and dividend is called

(a) Net profit(b) Net operating profit(c) Capital profit

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(1 mark)

(d) Retained earnings(e) Profit before tax.

70.Annual financial statements of a company should be signed by

(1 mark)

(a) Any two directors of the company(b) The manager and one director of the company(c) 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(d) The company secretary and the managing director of the company(e) The company secretary and any one director of the company.

71.The following information is extracted from the books of Jeet Ltd.

The stock was valued at Rs.1,24,840.

The cost of goods sold for the year 2006-07 was

(2 marks)

ParticularsDebit(Rs.)

Credit(Rs.)

Opening stock (1/4/2006) 1,86,420Purchases and sales 7,18,210 11,69,900Returns 12,680 9,850Manufacturing wages 1,11,630Carriage inwards 4,910

Sundry Manufacturing Expenses 19,240


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Suggested AnswersFinancial Accounting (CFA510): July 2007

1. Answer : (b)

Reason : Under Hybrid system of accounting for revenue and expenses, accrual basis for expenses and cashbasis for revenue is used.

< TO

2. Answer : (a)Reason : 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 andrevaluation gains are capital reserve. Hence, answer (a) is correct answer.

< TO

3. Answer : (c)

Reason : Board of Directors, Partners, Managers and Officers are internal users. An investor is an external userof financial statements.

< TO

4. Answer : (c)

Reason : An agreement to sell is not an accounting transaction.

< TO

5. Answer : (c)

Reason: Ex-post income = Revised expectation of expected future cash flows at the end of the period lessoriginal expectation of expected future benefits at the beginning of the period.

< TO

6. Answer : (d)

Reason: Realizable value is the net amount collectible in the event of the assets disposal. (a) Historical cost isthe amount paid or payable to acquire a benefit. (b) the amount that needs to be paid if the asset is to beacquired currently is the current value. (c) the present discounted value of the future inflows that anitem is expected to generate in the normal course of business is the present value (e) written downvalue is a cost of asset less depreciation. Hence the correct answer is (d).

< TO

7. Answer : (d)

Reason : Current assets include cash and cash equivalents, inventories, debtors, cash at bank, and prepaidexpenses. Patents are fixed asset of the firm.

< TO

8. Answer : (a)

Reason : The duality concept states that every transaction two aspects one debit another credit. Hence, (a) is thecorrect answer.

< TO

9. Answer : (d)

Reason : Only Credit purchases of goods are recorded in the Purchase Day Book.

< TO

10. Answer : (a)

Reason : The entry to be passed for settlement of purchase of Rs.10,000 from Abuja at a discount of 2% willinvolve a debit to Abujas account with Rs.10,000 and credit to Discount received account Rs.200 andBank account Rs.9,800. (a) is the correct answer.

< TO

11. Answer : (d)

Reason : Cash book is a special journal in which all cash transactions are recorded directly. The cash bookresembles a ledger with the debit and credit sides, and the balance represents the cash on hand and atbank at the end of the accounting period. Hence it serves the purpose of ledger. Cash account and bankaccount are not opened when a cash book is maintained. Purchases book, sales book, bills receivablesbook and journal proper are the books of original entry and they do not serve the purpose of ledger

< TO

12. Answer : (a)Reason :

Purchases Day Book

Date ParticularsDetails(Rs.)

Total(Rs.)

June 01, 2007 10 Colour T.V. @ Rs.6,000 each 60,000Less : Trade discount @ 10% 6,000 54,000

June 09, 2007 10 Tape recorder @ Rs.1,000 each 10,000Less : Trade discount @ 10% 1,000 9,000

June 19, 2007 100 Audio Cassettes @ Rs.30 each 3,000

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The purchase of stationery is not a part of purchase of goods and it is to be debited to stationeryaccount.

Less : Trade discount @ 5% 150 2,850

Total of purchase day book transfered topurchase account

65,850

13. Answer : (c)

Reason :

Particulars Amount(Rs.)

Amount(Rs.)

Petty cash 3,000Less : Stamps 200

Conveyance 190Repairs 500Stationery 200Other office expenses 93 1,183

1,817Amount reimbursed 1,183

3,000

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14. Answer : (b)

Reason : Total assets = Total outside liabilities + Owners equity

Owners equity = Total assets Outside liabilities = Rs.21,315 - Rs.4,120 = Rs.17,195.

The amount of Reserves and Surplus of Rs.2,500 is included in the owners equity. (b) is the correctanswer.

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15. Answer : (b)

Reason : The rule applicable to personal account is debit the receiver and credit the giver.

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16. Answer : (a)

Reason : Nil. The difference in one transaction got compensated by another transaction. The error of principledoes not result in any difference and also the error of omission does not affect the agreement of trialbalance.

The under casting of returns inward book is rectified by debiting returns inward account with Rs.1,377and the wrong debit to the suppliers account is to be rectified by crediting the account withRs.1,252+Rs.125=Rs.1,377. Thus, the wrong casting in one transaction is compensated by wrong

posting of wrong amount to the wrong side. It has no effect on the agreement of trial balance. Thecomplete omission of sales returns will not affect the trial balance totals. Thus, the difference in trialbalance is nil despite the errors.

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17. Answer : (c)

Reason : Error of complete omission of recording of a transaction does not affect the trial balance. Hence, (c) isthe correct answer.

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18. Answer : (d)

Reason : The trial balance is prepared to assess the arithmetical accuracy of the accounting records. Hence theanswer is (d). (a) The profit and loss account is prepared to know the profit or loss of the concern. (b)The balance sheet is prepared to know the financial position as on a particular date. (c) The cashbookindicates the cash receipts and payments. (e) The bank reconciliation statement is prepared to reconcilethe bank balance as per cash book and pass book.

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19. Answer : (b)

Reason : Rent paid was wrongly credit to rent account. The rectifying entry involves a debit to Rent account anda Credit to Suspense account with an amount of Rs.800.

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20. Answer : (a)

Reason :

Trial Balance as on March 31, 2007

Sl.No Heads of AccountDebt Balance

(Rs.)

Credit Balance

(Rs.)

1. Capital (1st April,2006)

79,000

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2. Stock (1st April, 2006) 37,000

3. Purchases 2,33,300

4. Sales 3,94,000

5. Fixed assets 50,850

6. Sundry Creditors 49,760

7. Sundry Debtors 1,39,700

8. Bank Overdraft 9,000

9. Administrative Exp 79,160

10. Carriage Outward 2,310

11. Provision for BadDebts

4,250

12. Returns Outward 3,160

13. Discount Received 3,150

Total 5,42,320 5,42,320

21. Answer : (c)

Reason : The discount on the payments side of cash book implies discount received. Since the discount receivedis overcast, the excess amount is to be debited to profit and loss adjustment account (as the accounts arealready finalized). The corresponding credit is to be given to suspense account. Hence the rectificationentry is

Profit and loss adjustment account Dr. Rs.300

To Suspense account Rs.300

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22. Answer : (c)

Reason : The Trial Balance shows both debit and credit balances of all real, personal and nominal accounts.

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23. 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.

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24. Answer : (a)

Reason :

Particulars Rs.

Profit as reported by the accountant 5,90,000Add : Interest on investments 13,000

6,03,000Less : Managers salary 1,500

Profit after considering all aspects 6,01,500

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25. Answer : (c)

Reason: In the books of Jagriti Enterprises

Dr. Profit and loss account for the year ended March 31, 2007 Cr.

Balance sheet of Jagiriti Enterprises as on March 31, 2007

Particulars Rs. Particulars Rs.

To Salaries 86,000 By Gross profit 2,64,000To Other expenses 73,000To Depreciation 60,000To Net profit 45,000

2,64,000 2,64,000

Liabilities Rs. Assets Rs.

Share capital 6,00,000 Fixed assets (Rs.6,00,000 Rs.60,000)

5,40,000

Net profit 45,000 Sundry debtors 45,000Short tem loan 36,000 Closing stock 75,000Sundry creditors 32,000 Cash and bank 53,000

7,13,000 7,13,000

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26. Answer : (a)

Reason :

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Trading account and Profit and loss account for the year ended March 31, 2006.

Profit before charging Managers commission = Rs. 10,500

Managers Commission =Rs.

Particulars Rs. Rs. Particulars Rs.

To Opening stock 30,000 By Sales 5,00,000

To Purchases 4,50,000Less: Returnsinward

10,000 4,90,000

Less : Returnsoutward

15,000 4,35,000 By Closing stock 10,000

To Salaries and wages 19,000

To Carriage inward 5,500To Managers commission 500To Net Profit 10,000

5,00,000 5,00,000

10,5005 Rs.500

105 =

27. 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 : 1,60,000To Purchases 90,000 () Returnsinward

3,000 1,57,000

() Inventory lost 2,000 By Closing stock 40,000

() Returns outward 2,000 86,000

To Wages 5,000(+) Outstanding as onMarch 31, 2007 700

5,700() Outstanding as onApril 01, 2006 500 5,200

To Carriage inward 1,000

To Gas, water, fuel 2,000To Gross Profit 75,800

1,97,000 1,97,000

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28. Answer : (b)

Reason : Payment of Rs.5,000 to repaint the premises is an example of revenue expenditure.

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29. 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

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30. Answer : (d)

Reason : Under the periodic system, the cost of goods sold is computed by subtracting the ending inventorieswhich 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 ofmaintaining 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. Itis not computed as a residual amount.

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31. Answer : (a)

Reason : The basis for pricing inventory is either cost of production or cost of acquisition. FIFO method ofidentifying inventory is based on the assumption that costs are charged against revenue in the order inwhich they occur. In case of other methods i.e. LIFO method (b) matches the most recent costsincurred with current revenue, leaving the first cost incurred to be included as inventory. Weighted-Average method (c) assumes that costs are charged against revenue based on an average of the numberof units acquired at each price level. Moving average method (d) can be used only with a perpetualinventory. 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 methodrequires the maintenance of records of purchases both cost and selling price.

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32. Answer : (b)

Reason :

Date

Purchases Issues Balance

Quantity(Kg)

RateRs.

Rs.Quantity

(Kg)RateRs.

Rs.Quantity

(Kg)RateRs.

Rs.

01-6-07

500 22.8 11,400

02-6-07

400 24 9,600 900 23.33 21,000

10-6-07

600 25 15,000 1,500 24 36,000

25-6-07

1,000 24 24,000 500 24 12,000

30-6-07

500 24 12,000

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33. Answer : (b)

Reason : The phrase markup means the selling price raised above the original selling price.

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34. Answer : (c)

Reason : Cost of conversion is made of direct wages plus production overhead plus direct expenses.

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35. Answer : (c)

Reason :

Calculation of value of closing stock as on March 31, 2007

Particulars Rs.

Closing stock of goods 40,000

Add: Cost of goods sold

Sale Rs.80,000

Less : Gross profit (25%) Rs.20,000 60,000

1,00,000

Less: Purchases during the period 80,000

Opening stock of goods 20,000

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36. Answer : (c)

Reason : Enterprises which earn revenue by the sale of goods and services follows delivery method. Under thedelivery method, the revenue recognized in the period in which goods are delivered or services areactually provided.

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37. 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

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38. Answer : (a)

Reason:

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Provision for discount on sundry debtors will be

Particulars Rs.

Debtors as per trial balance 40,600

Less : Bad debts written-off 600

40,000

Less : Provision for bad debts@ 5% 2,000

38,000

2Rs.38,000 Rs.760

100 =

39. Answer : (a)

Reason :

Dr. Sundry Debtors Account Cr.

Date Particulars Rs. Date Particulars Rs.

April 01,2006

To Openingbalance (300/5%)

6,000 2006-2007 By Cash 56,000

2006-2007 To Credit sales(Balance figure)

58,000 March 31,2007

By Closingbalance(400/5%)

8,000

64,000 64,000

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40. Answer : (e)

Reason : Sales, interest on investment, rent received and dividends received are revenue items where as advancereceived for supplies is not a revenue item.

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41. 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 =

= = Rs.2,91,600.

The cost of the asset before depreciation = Rs.2,91,600.

Rs.2, 04,120

[1 (3 10%)]

7.0

120,04,2.Rs

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42. Answer : (e)

Reason : There are mainly four methods which are widely used for calculating the depreciation expenditure:

Straight line method

Reducing balance method

Sum-of-the-years-digits method

Units-production method.

Simple average method is not a method of depreciation, it is a method of inventory valuation.

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43. Answer : (c)

Reason : Fixed assets cannot be easily converted into cash. They are acquired for using them in the conduct ofbusiness operations They are not for reselling to earn profit. Depreciation at specified rates to becharged on most of the Fixed Assets. Their utility is not confined to one accounting period.

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44. Answer : (e)

Reason : Cost of air conditioner is not included in cost of building. All others are included.

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45. Answer : (e)

Reason :

Dr. Machinery account Cr.

Date Particulars Amount inRs.

Date Particulars Amount inRs.

1.04.06 To Balance b/d 85,000 1.04.06 By Bank (sale) 50,000

1.04.06 To Profit & loss a/c 10,000 31.3.07 By Depreciation 11,250

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Calculation of depreciation:

(Rs.50,000 Rs.40,000)

1.07.06 To Bank 90,000 31.3.07 By Closing balance 1,23,750

1,85,000 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% 4,500Total depreciation 11,250

46. Answer : (e)

Reason : Depreciation under sum-of-the-years digits method for the year 2006-07

=

1

1,50,000 Rs.10,0001 2 3 4 5

=+ + + +

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47. Answer : (a)

Reason :

Year ParticularsRs.

1st year Cost of the asset

Less depreciation @20%WDV at the end of the year

50,000

10,00040,000

2nd year Less depreciation @20%

WDV at the end of the 2nd year

8,000

32,000

3rd year Less depreciation @20%

WDV at the end of the 3rd year

6,400

25,600

4th year Less depreciation @20%

WDV at the end of the 4 th year

5,120

20,480

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48. Answer : (b)

Reason : The formula for calculation of depreciation under units-of production method is original cost minusscrap value multiplied by the number of units produced during the particular year divided by the totalnumber 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.

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49. Answer : (a)

Reason :

Average adjusted profits = Rs.15,22,500 / 3 = Rs.5,07,500

Particulars2004-2005

Rs.2005-2006

Rs.2006-2007

Rs.TotalRs.

Profit 3,75,000 4,50,000 7,42,500Less: repair expenses - 30,000Add: Depreciation oncapitalized repairs 1,500 3,000 3,000Less: profit on sale ofplant 22,500

Adjusted profits 3,46,500 4,53,000 7,23,000 15,22,500

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50. 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.

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51. Answer : (c)

Reason : Intangible assets are amortized like tangible fixed assets. If costs/benefit are more than one accountingperiod, they should be systematically and rationally allocated to all accounting periods. Matching

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concept involves recognizing costs as expenses on the basis of direct association with assets. Thus amortization ofintangible assets is systematic allocation of costs over several periods in recognition of matchingconcept (c). The other concepts do not recognize allocation of costs of fixed assets. Conservatismconcept is not meant to introduce a bias into financial reporting. It is a prudent reaction to uncertaintyto 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 thecontrary. Time Period concept (d) requires accounting information to be reported at regular intervals tofoster comparability. Business entity concept explains that in accounting business is to be considered as

a separate entity from the owner.52. Answer : (a)

Reason : According to Section 350 of the companies Act any tax notified as a tax on excess or abnormal profitscan be deducted from the profits for the calculation of managerial remuneration.

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53. Answer : (c)

Reason : Number of years purchase is the factor with which the super profits will have to be multiplied in orderto 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.

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54. Answer : (d)

Reason : Goodwill is the value of reputation of the firm judged in respect of its capacity to bring in unaidedprofits. 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 attachedto goodwill. Thus, it does not have any lasting impact on evaluation of goodwill. The factors stated inother alternatives, normal rate of return (a) is the return which will satisfy ordinary investor, capitalemployed, (b) is the most important factor, since the size of profits is significant only in relation tocapital employed, it is difficult to enter an industry. Existing entities will enjoy a measure of goodwillby 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.

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55. Answer : (a)

Reason :

Particulars Rs.

Fixed assets 9,00,000Sundry debtors 85,000

Inventories 65,000Cash 35,000

10,85,000Less:12% Debentures 1,50,000Sundry creditors 1,50,000

Capital employed 7,85,000

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56. Answer : (e)

Reason : Unclaimed dividends is a current liability not a reserve. Hence, correct answer is (e).

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57. Answer : (b)

Reason :

Profit for the year 2006-2007 2,30,000

Add: Rent (not relevant if the owner of the premises operates thebusiness)

1,20,000

Adjusted maintainable profits 3,50,000

Capital employed by Dinakar 20,00,000Add: Value of premises 4,00,000

Total capital employed 24,00,000

Normal profit (12% of Rs.24,00,000) 2,88,000Super profits (Rs.3,50,000 Rs.2,88,000) 62,000

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58. Answer : (d)

Reason : To arrive at the profits for calculating managerial remuneration, the directors remuneration, damagespaid by virtue of legal liability shall be deducted and subsidy received from Government shall be

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added. However the income tax payable shall not be deducted. Hence the profit for the purpose of calculatingmanagerial remuneration is Rs.15,75,000 + Rs.94,500 = Rs.16,69,500.

Commission = = 5%

83,475

x10016,69,500

59. Answer : (c)

Reason : The claims against the company not acknowledged as debts represent contingent liabilities.

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60. Answer : (d)

Reason :

Particulars Rs. Rs.

Current year profit 10,84,000Previous year profit 1,52,500 12,36,500

Provision for taxation of the previous year 4,38,000Dividend on 10% 10,000 Preference Shares of Rs.100 1,00,00010% 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

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61. 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 beappointed 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 anominee or a trustee for any third person and in which the holder has no beneficial interest shall not bedisqualified. Hence the answer is (c).

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62. Answer : (b)

Reason : According to the Companies Act, 1956, the period to which the accounts of a company relate shouldnot exceed 15 months. Therefore, alternative (b) is the correct answer.

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63. Answer : (e)

Reason :

Total adjustment for 5 years = 5 Rs.300 = Rs.1,500.

Depreciation before revision (Rs.12,000/8) Rs.1,500Depreciation after revision (Rs.12,000/10) Rs.1,200

Difference per year Rs. 300

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64. Answer : (e)

Reason : Contribution to provided fund is an item of profit and loss account and will not enter intomiscellaneous expenditure. Except that all the other items are example of miscellaneous expenditure.Hence alternative (e) is the correct answer.

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65. Answer : (e)

Reason : The securities premium account should be shown under Reserves and Surplus as per schedule IV ofthe Companies Act.

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66. Answer : (b)

Reason : When the auditor is having reservations in respect of some material matters then he will give aqualified report.

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67. Answer : (a)

Reason : Tax deducted at source is the liability of the company towards the tax authority. It is also payable tothe tax authority within very short period. So, it is the item of current liabilities. It cannot be treated asprovisions or assets.

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68. Answer : (e)

Reason : A company makes use of community owned assets such as roads, railways, other infrastructuralfacilities and also concession provided by the State. Plant and machinery is not a community ownedassets.

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69. Answer : (d)

Reason : The fund available with a company after paying all claims including tax and dividend is called retainedearnings. (d) is the correct answer.

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< TOP OF THE DOCUMENT >

Reason : Annual financial statements of a company should be signed by the manager or secretary of thecompany (if any) and by not less than two directors of the company, one of whom shall be a managingdirector where there is one.

71. Answer : (a)

Reason :

Statement of cost of goods sold for the year 2006-07

Particulars Rs. Rs. Rs.

Opening stock 1,86,420Add: Purchases 7,18,210

Less: Returns 9,850 7,08,360

Carriage in-wards 4,910

Wages 1,11,630Manufacturing expenses 19,240 10,30,560

Less : Closing stock 1,24,840

Cost of goods sold 9,05,720

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