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INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN

Fall (Winter) 2010 Examinations

Saturday, the 4th December 2010

FUNDAMENTALS OF FINANCIAL ACCOUNTING (S-101)

STAGE - 1

Time Allowed

2 Hours 45 Minutes Maximum Marks

90(i) Attempt ALL questions.

(ii) Answers must be neat, relevant and brief.

(iii) In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,effective presentation, language and use of clear diagram / chart, where appropriate.

(iv) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.

(v) Use of non-programmable scientific calculators of any model is allowed.

(vi) DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.

(vii) Question No.1 Multiple Choice Question printed separately, is an integral part of this question paper.

MarksQ.2 (a) A comparison of cash book and bank statement of Afzal Traders for the month of March,

2010 revealed the following:

Balance as per cash book Rs.24,720.

Bank statement showed an overdraft of Rs.22,660.

A cheque for Rs.14,400 deposited into the bank was shown in the debit column of thebank statement.

A cheque for Rs.3,920 deposited into the bank was recorded in the bank statementas Rs.3,560.

A cheque for Rs.1,600 received from Ameer Brothers and deposited into the bankwas returned dishonoured by the bank.

A cheque for Rs.14,000 issued to Saqib Traders has not so far been presented tobank for payment.

The bank statement showed a debit of Rs.540 for bank charges and a credit of Rs.840 for profit.

Cash amounting to Rs.30,920 was deposited into the bank late in the evening onMarch 31, 2010, but it was recorded by the bank on April 1, 2010.

Required:

(i) Bank Reconciliation Statement as on March 31, 2010. 07

(ii) Entries in the General Journal to adjust the cash record of the company. 03

(b) (i) Nazim Company uses the periodic inventory system and reports the followinginformation for the month ended January 31, 2010:

Cost per Unit Total CostDate Description Units

Rs. Rs.January 1

12151825

Balance b/dPurchasesPurchasesPurchasesPurchases

200300600400800

56767

1,0001,8004,2002,4005,600

During the month ended January 31, 2010, two thousand units were sold.

Required:

Calculate the value of closing inventory and the value of cost of goods sold, assuming thecompany uses valuation method of weighted-average. 05

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Marks(ii) Ahmed Brothers, a trader of household items, uses periodic inventory system. In

the last week of June 2010, a theft took place in the shop and the thief succeededin taking away most of the inventory with him. In order to make an insurance claim,Ahmed Brothers need an estimate of the stolen inventory. Following information isavailable:

Rs.

Opening inventory (July 1, 2009) 255,250

Purchases during the year 1,590,500

Remaining inventory on June 30, 2010 25,750

Sales 2,090,200

Ahmed Brothers apply gross profit margin of 25%.

Required:

Make an estimate of the stolen inventory in the light of the above data. 05

Q. 3 (a) Prepare adjusting and correcting journal entries for the year ended June 30, 2010 fromthe information given below: 10

(i) Sales to Mr. Ali for Rs.25,600 was wrongly entered in the books as Rs.26,500.(ii) Unearned revenue account showed a credit balance of Rs.257,500 in the trial

balance on June 30, 2010. An analysis revealed that 80% of this amount hadbeen earned during the year.

(iii) Sales proceeds amounting to Rs.35,500 (sold at book value) of a non-currentasset were wrongly treated as sales of goods.

(iv) Rent paid amounting to Rs. 55,000 in relation to the rented house of the proprietorwas debited to the office rent expense account.

(v) Insurance expired during the year Rs.6,500. Prepaid insurance at the beginningbeing Rs.15,000.

(vi) Amount of repairs to building was debited to building account, Rs.25,500.

(vii) Purchase of office equipment for Rs.15,520 was treated as purchases ofinventory.

(viii) Allowance for doubtful debts to be maintained at 2% on sales. Sales for the yearamounted to Rs.2,850,500.

(ix) Interest on a 10% loan of Rs.275,000 was outstanding .

(x) Purchase of goods for Rs.6,500 from Mr. Ahmed was completely omitted from thebooks.

(b) On January 1, 2007, A Limited purchased five machines for Rs.120,000. On June 30,2008, it acquired another machine at a cost of Rs.20,000. On March 31, 2009, amachine, purchased on January 1, 2007 for Rs.25,000, was sold for Rs.10,000. It was

replaced on the same day by a new machine costing Rs.8,000. Depreciation is to beprovided at 20% per annum using straight-line method. Company charges full year sdepreciation in the year of purchase and no depreciation in the year of sale.

Required:

Prepare the following accounts for three years to December 31, 2009:

(i) Machine Account. 04

(ii) Accumulated Depreciation Account. 04

(iii)Machine Disposal Account. 02

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MarksQ. 4 Yasir & Company deals in electronic items. Not only does it sell goods for cash, a big

proportion of its sales consist of credit sales. Due to liberal credit policy, Yasir & Company svolume of sales has increased over the last few years; however, this policy has also resultedin additional bad debt expense. At July 1, 2008, Accounts Receivable and Allowance forDoubtful Debts accounts, showed balances of Rs.155,890 (debit) and Rs.9,350 (credit),respectively. Following transactions took place during two years to June 30, 2010:

2009 2010

(Rs.) (Rs.)Credit sales 1,154,300 1,210,750

Receipts from customers 1,075,250 1,255,280

Discount allowed 15,350 15,350

Debts considered to be un-collectable 13,250 14,180

Yasir & Company makes allowance for doubtful debts @ 5% of the closing balance ofaccounts receivable.

Required:

For the years ended June 30, 2009 and 2010, prepare accounts of:

(i) Accounts Receivable(ii) Allowance for Doubtful Debts

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Q. 5 Hammad drew a bill for Rs.3,000 and Khalid accepted the same for mutual accommodation

of both of them to the extent of 2/3 to Hammad and1/3 to Khalid. Hammad discounted the

same for Rs.2,820 and remitted 1/3 of the proceeds to Khalid. Before due date Khalid drew

another bill for Rs.4,200 on Hammad in order to provide funds to meet the first bill. The

second bill was discounted for Rs.4,080 with the help of which the first bill was met and an

amount of Rs.720 was remitted to Hammad. Before the due date of the second bill, Hammad

became bankrupt and Khalid received a dividend of 50 paisa in the rupee in full satisfaction.

Required:

Pass the necessary journal entries in the books of Khalid. 15

Q. 6 The following balances have been taken from the pre-closing Trial Balance of A. RahmanTraders prepared on June 30, 2010:

Dr. (Rs.) Cr. (Rs.)Cash 30,000

Accounts receivable 45,000Furniture & fixture 60,000

Office equipment 40,000Inventory (1-7-2009) 35,000Purchases 205,000

Carriage-in 5,500Office supplies expense 2,500

Discount allowed 7,500Allowance for doubtful debts 2,000

A. Rahmans drawing 15,000Prepaid office rent expense 5,000Prepaid insurance 2,500

Salaries expense 25,000Accounts payable 22,500

Sales revenues 327,500

Purchase returns and allowances 10,000A. Rahman, Capital 120,000

480,000 480,000

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Marks

Supplementary data for adjustments on June 30, 2010:

(i) Inventory was valued at Rs.15,000.

(ii) Depreciation expenses for the year were Rs.12,000 for furniture & fixture andRs.4,000 for office equipment.

(iii) Insurance expired during the year, Rs.1,500.

(iv) Amount of prepaid office rent was Rs.2,000.(v) Accrued salaries amounted to Rs.10,000.

(vi) Allowance for doubtful debts was to be raised to Rs.5,000.

(vii) Unused office supplies on hand amounted to Rs.1,000.

Required:

(a) Income Statement for the year ended June 30, 2010. 12

(b) Statement of Financial Position as at June 30, 2010. 13

THE END