Question Paper

Financial Accounting (CFA510): July 2007

• Answer all questions.

• Marks are indicated against each
question.

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1. Under Hybrid system of accounting for revenue and expenses, Answer
>
(a) Accrual basis for revenue and cash basis for expenses is used
(b) Accrual basis for expenses and cash basis for revenue is used
(c) Accrual basis is used irrespective of whether an item is revenue or an expense
(d) Cash basis is used irrespective of whether an item is revenue or an expenses
(e) Varies according to the nature of the items of revenue and expenses.
(1 mark)
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2. Revenue reserve represents Answer
>
(a) Accumulated retained earnings from the profits
(b) Bad debts realized
(c) Premium on issue of debentures
(d) Gain out of revaluation of assets
(e) Premium on issue of shares.
(1 mark)
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3. Who among the following is not an internal user of ‘Financial Statements’? Answer
>
(a) Board of Directors
(b) Partners
(c) Investors
(d) Managers
(e) Officers.
(1 mark)
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4. Which of the following is not considered as an accounting transaction? Answer
>
(a) Sale of goods for cash
(b) Payment of salary of office staff
(c) An agreement to sell
(d) Purchase of office furniture
(e) Repayment of bank loan.
(1 mark)
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5. Ex-post income means Answer
>
(a) Original expectation of expected future cash flows at the end of the period less original expectation of
expected future benefits at the beginning of the period
(b) Capital at the end of the period less capital at the beginning of the period
(c) Revised expectation of expected future cash flows at the end of the period less original expectation of
expected future benefits at the beginning of the period
(d) Gross sales less returns
(e) The profit which is disclosed in profit and loss account.
(1 mark)
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6. The net amount collectible in the event of an asset’s disposal is known as Answer
>
(a) Historical value
(b) Current value
(c) Present value
(d) Realizable value
 (e) Written down value.
(1 mark)
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7. Which of the following is not a current asset? Answer
>
(a) Inventories
(b) Debtors
(c) Cash at Bank
(d) Patents
(e) Prepaid expenses.
(1 mark)
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8. The concept which states that every transaction has two aspects is known as Answer
>
(a) Duality concept
(b) Matching concept
(c) Realization concept
(d) Consistency concept
(e) Conservatism concept.
(1 mark)
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9. A purchase day book is used to record Answer
>
(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.
(1 mark)
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10.Which accounting entry is to be passed to make a full and final settlement for a payment of Rs.10,000 to Answer
Mr. Abuja at a discount of 2% (payment is made through a cheque)? >
Rs.
Rs.
(a) Abuja’s account Dr. 10,000
To Bank account 9,800
To Discount received account 200
(b) Abuja’s account Dr. 9,800
To Bank account 9,800
(c) Purchases account Dr. 10,000
To Bank account 10,000
(d) Abuja’s account Dr. 10,000
To Bank account 10,000
(e) Abuja’s account Dr. 10,000
To Trade discount 200
To Bank account
9,800.
(1 mark)
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11.Which of the following subsidiary books serves the purpose of ledger, in addition to the recording of Answer
accounting transactions? >
(a) Purchases book
(b) Sales book
(c) Bills receivable book
(d) Cash book
(e) Journal proper.
(1 mark)
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12.Consider the following data pertaining to purchases made by Kodiac Ltd., a dealer in electronic goods, Answer
for the month of June 2007: >

Date Particulars No. of units Rate per Trade

 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 --
The total of purchases recorded in purchase day book for the month of June 2007, was
(a) Rs.65,850
(b) Rs.54,000
(c) Rs.63,000
(d) Rs.66,450
(e) Rs.73,000.
(2 marks)
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13.M/s. Swathi Enterprises introduced the imprest system of maintaining petty cash book, the amount of Answer
imprest being Rs.3,000. The petty cash transactions during the month of June 2007 are as under: >

Particulars (Rs.)
Stamps 200
Conveyance 190
Repairs 500
Stationery 200
Other office expenses 93
The amount of cash received on July 01, 2007 to make up the imprest balance is
(a) Rs.1,578
(b) Rs.1,194
(c) Rs.1,183
(d) Rs.1,422
(e) Rs.3,000.
(2 marks)
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14.The total assets of a business are Rs.21,315 and outside liabilities are Rs.4,120. Reserves and surplus Answer
stands at Rs.2,500. Then, the amount of owners’ equity is >
(a) Rs.21,315
(b) Rs.17,195
(c) Rs.27,435
(d) Rs. 4,120
(e) Rs.14,695.
(2 marks)
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15.The rule applicable to personal account is Answer
>
(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.
(1 mark)
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16.While preparing the final accounts of the company, the accountant of Pioneer Company located the Answer
following errors: >

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

• A purchase of Rs.1,252 was posted to the debit of the supplier’s account as Rs.125.
• Sales returns of Rs.877 were taken into stock but no entry in respect of the transaction was
passed in the books.
The difference in Trial Balance of the company on account of the above errors is
(a) Nil
 (b) Rs. 877
(c) Rs.1,377
(d) Rs.3,631
(e) Rs.4,131.
(2 marks)
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17.Which of the following errors is not disclosed by the Trial Balance? Answer
>
(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 debtor’s schedule.
(1 mark)
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18.The statement which helps an accountant to assess the arithmetical accuracy of the accounting records is Answer
the >
(a) Balance sheet
(b) Profit and loss account
(c) Cash book
(d) Trial balance
(e) Bank reconciliation statement.
(1 mark)
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19.Rs.400 paid as rent was credited to the Rent account. The rectifying entry is Answer
Rs. Rs. >

(a) Cash account Dr. 400

To Rent account 400
(b) Rent account Dr. 800
To Suspense account 800
(c) Rent account Dr. 400
To Suspense account 400
(d) Suspense account Dr. 800
To Rent account 800
(e) Rent account Dr. 400
To Cash account 400.
(1 mark)
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20.The following incorrect Trial Balance as on March 31, 2007 was prepared by an inexperienced Answer
accountant: >

Particulars Debit (Rs.) Credit (Rs.)

Capital (1st April, 2006) 79,000
Stock (1st April, 2006) 37,000
Purchases 2,33,300
Sales 3,94,000
Fixed assets 50,850
Sundry creditors 49,760
Sundry debtors 1,39,700
Bank overdraft 9,000
Administrative expenses 79,160
Carriage outward 2,310
Provision for bad debts 4,250
Returns outward 3,160
Discount received 3,150
Total 5,42,320 5,42,320
The total of corrected Trial Balance as on March 31, 2007 was
(a) Rs.5,42,320
(b) Rs.4,64,200
 (c) Rs.5,55,510
(d) Rs.5,43,200
(e) Rs.5,03,440.
(2 marks)
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21.The accountant of Style Ltd. noticed certain differences in the books of account after preparation of the Answer
final accounts. One of the differences is that the discount column on payments side of cash book is >
totalled as Rs.5,900 instead of Rs.5,600. The journal entry required to be passed to rectify this error is
Rs. Rs.
(a) Discount account Dr. 300
To Sundry creditors account 300
(b) Suspense account Dr. 300
To Discount account 300
(c) Profit and loss adjustment account Dr. 300
To Suspense account 300
(d) Discount account Dr. 300
To Profit and loss adjustment account 300
(e) Discount account Dr. 5,600
To Suspense account 5,600.
(2 marks)
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22.The trial balance shows Answer
>
(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.
(1 mark)
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23.Which of the following is an example of capital expenditure? Answer
>
(a) Insurance premium
(b) Taxes and legal expenses
(c) Depreciation on machinery
(d) Discount allowed
(e) Installation charges.
(1 mark)
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24.The accountant of M/s.Abhay Enterprises reported a net profit of Rs.5,90,000 for the year 2006–2007. Answer
Subsequently, the following omissions were noticed: >

• The company has invested Rs.1,00,000 in 13% Debentures and the interest for the year 2006-2007
is not accounted for.
• Salary to manager is still outstanding for the month of March, 2007 and is not taken into account
while preparing profit and loss account. The manager draws an annual salary of Rs.18,000.
The above omissions were duly considered. The profit of M/s. Abhay Enterprises after giving effect to
the above omissions is
(a) Rs.6,01,500
(b) Rs.5,59,000
(c) Rs.6,30,000
(d) Rs.5,75,500
(e) Rs.5,92,000.
(2 marks)
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25.The following is the data pertaining to Jagriti Enterprises as on March 31, 2007: Answer
Particulars Rs. >
Gross profit 2,64,000
Closing stock 75,000
 Salaries 86,000
Other expenses 73,000
Fixed assets 6,00,000
Sundry debtors 45,000
Sundry creditors 32,000
Cash and bank 53,000
Capital 6,00,000
Short term loan 36,000
The firm has the practice of charging depreciation on the fixed assets at the rate of 10% on book value.
The total of the Balance Sheet as on March 31, 2007 was
(a) Rs.7,38,000
(b) Rs.6,68,000
(c) Rs.7,13,000
(d) Rs.5,93,000
(e) Rs.7,43,000.
(2 marks)
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26.The following is the data pertaining to Mr. Kantilal for the year ended March 31, 2007: Answer
>
Particulars Rs.
Sales 5,00,000
Purchases 4,50,000
Opening stock 30,000
Salaries and wages 19,000
Carriage inward 5,500
Returns inward 10,000
Returns outward 15,000
Closing stock 10,000
The manager of Mr. Kantilal is entitled to a commission of 5% on net profit after charging his
commission. The commission payable to the manager for the year 2006-2007 was
(a) Rs.500
(b) Rs.525
(c) Rs.619
(d) Rs.650
(e) Rs.700.
(2 marks)
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27.Consider the following data pertaining to M/s. Soma Enterprises as on March 31, 2007: Answer
>
Particulars Rs.
Total sales 1,60,000
Total purchases 90,000
Wages paid 5,000
Returns inward 3,000
Returns outward 2,000
Carriage inward 1,000
Carriage outward 1,000
Gas, water and fuel 2,000
Raw materials destroyed by fire 2,000
Additional Information:
Particulars As on April 01, 2006 As on March 31, 2007
Rs. Rs.
Inventory 27,000 40,000
Outstanding wages 500 700
Gross profit of M/s. Soma Enterprises for the year ended March 31, 2007 was
(a) Rs.73,800
 (b) Rs.75,800
(c) Rs.74,800
(d) Rs.76,200
(e) Rs.75,200.
(2 marks)
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28.Payment of Rs.5,000 to repaint the premises is an example of Answer
>
(a) Capital expenditure
(b) Revenue expenditure
(c) Capital receipt
(d) Revenue receipt
(e) Deferred expenditure.
(1 mark)
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29.Brougham & Sons’ accounting records indicated the following information: Answer
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 physical inventory taken on 31st March 2007 resulted in an ending inventory of Rs.20,90,000.
Company’s 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 missing
inventory as on March 31, 2007 was
(a) Rs.2,65,000
(b) Rs.2,10,000
(c) Rs.1,75,000
(d) Rs.1,60,000
(e) Rs. 55,000.
(2 marks)
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30.Which of the following systems of inventory valuation computes cost of goods sold as a residual Answer
amount? >
(a) Weighted Average
(b) Last-in First-out
(c) Perpetual Inventory System
(d) Periodic Inventory System
(e) Specific Identification.
(1 mark)
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31.Which of the following methods of valuation of inventory is based on the assumption that costs are Answer
charged against revenue in the order in which they occur? >
(a) FIFO method
(b) LIFO method
(c) Weighted average method
(d) Moving average method
(e) Retail inventory method.
(1 mark)
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32.Consider the following data pertaining to Lays Ltd. for the month of June, 2007: Answer
>
Purchases Issues Balance
Date Quantity Rate Quantity Quantity Rate
(Kg.) (Rs.) (Kg.) (Kg.) (Rs.)
01-06-2007 500 22.80
02-06-2007 400 24
10-06-2007 600 25
25-06-2007 1,000
If the company uses weighted average method for inventory valuation, the value of inventory as on June
 30, 2007 was
(a) Rs.11,967
(b) Rs.12,000
(c) Rs.12,500
(d) Rs.11,400
(e) Rs.36,000.
(2 marks)
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33.In relation to price, the phrase markup means Answer
>
(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.
(1 mark)
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34.Cost of conversion is made of Answer
>
(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.
(1 mark)
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35.Consider the following information supplied by Alvin Co. for the year 2006-07: Answer
>
Purchases during the period Rs.80,000
Total sales Rs.80,000
Closing stock of goods Rs.40,000
Gross profit margin 25%
Opening stock of goods for the year 2006-07 was
(a) Nil
(b) Rs.60,000
(c) Rs.20,000
(d) Rs.36,000
(e) Rs.40,000.
(2 marks)
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36.Under which method, the revenue is recognized in the period in which goods are delivered or services Answer
are actually provided? >
(a) Installment method
(b) Production method
(c) Delivery method
(d) Realization method
(e) Percentage-of-completion method.
(1 mark)
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37.Cyber Ltd. has furnished the following information for the year 2006-2007: Answer
>
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
The total amount of credit sales was
(a) Rs.6,00,000
(b) Rs.5,20,000
(c) Rs.5,10,000
(d) Rs.5,00,000
 (e) Rs.4,90,000.
(2 marks)
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38.Consider the following data pertaining to Universe Ltd., as on March 31, 2007: Answer
>
Total sundry debtors as per Trial Balance Rs.40,600
Bad debts identified after the preparation of Trial Balance Rs.600
Provision for bad debts to be created @ 5% on sundry debtors
Provision for discount on sundry debtors to be created @ 2%.
The amount of provision for discount on sundry debtors created for the period ended
March 31, 2007 was
(a) Rs. 760
(b) Rs.2,000
(c) Rs. 771
(d) Rs. 800
(e) Rs. 812.
(2 marks)
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39.ABC Ltd. has the practice of creating provision for doubtful debts @ 5% on debtors. The balance of Answer
provision for doubtful debts on April 01, 2006 and March 31, 2007 is Rs.300 and Rs.400, respectively. >
If the amount collected from debtors is Rs.56,000, credit sales during the year 2006-2007 are
(a) Rs.58,000
(b) Rs.56,100
(c) Rs.54,000
(d) Rs.55,900
(e) Rs.56,000.
(2 marks)
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40.Revenue for the current period does not include Answer
>
(a) Sales
(b) Interest on investment
(c) Rent received
(d) Dividend received
(e) Advance received for supplies.
(1 mark)
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41.The present book value of an asset of a company is Rs.2,04,120. The company has charged depreciation Answer
at the rate of 10% under straight line method for the last 3 years. The original cost of the asset was >
(a) Rs.2,91,600
(b) Rs.2,80,000
(c) Rs.2,55,150
(d) Rs.2,52,000
(e) Rs.2,26,800.
(2 marks)
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42.Which of the following is not a method of calculating depreciation? Answer
>
(a) Straight line method
(b) Reducing balance method
(c) Sum-of-the years’-digits method
(d) Units-of-production method
(e) Simple average method.
(1 mark)
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43.Which of the following is false about Fixed Assets? Answer
>
(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.
 (1 mark)
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44.Which of the following is not included in the cost of a building? Answer
>
(a) Permanent fixtures in the building
(b) Municipal fee for plan approval
(c) Stamp fee
(d) Architect fee
(e) Cost of air conditioner.
(1 mark)
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45.The balance in Machinery account of Leo Ltd., as on 1st April, 2006 was Rs.85,000. The following Answer
transactions took place during the year 2006-07: >

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
If the company charges depreciation @10% per annum on book value, the balance in Machinery
account as on 31st March, 2007 was
(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.
(2 marks)
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46.Supriya Ltd. purchased a machinery on April 01, 2002 for Rs.1,50,000. It is estimated that the Answer
machinery will have a useful life of 5 years after which it will have no salvage value. If the company >
follows sum-of-the-years’-digits method of depreciation, the amount of depreciation to be charged
during the year 2006-2007 was
(a) Rs.50,000
(b) Rs.40,000
(c) Rs.30,000
(d) Rs.20,000
(e) Rs.10,000.
(2 marks)
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47.Consider the following: Answer
>
I. Rate of depreciation under the written down method = 20%
II. Original cost of the asset = Rs.50,000
III. Residual value of the asset at the end of useful life = Rs.20,480
The estimated useful life of the asset, in years, is
(a) 4
(b) 5
(c) 6
(d) 7
(e) 8.
(2 marks)
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48.A new machine costing Rs.1,00,000 was purchased by a company to manufacture a special product. The Answer
scrap value at the end of its useful life was estimated to be Rs.10,000. The production plan for the next >
5 years using the above machine is as follows:

Year 1 5,000 units

Year 2 10,000 units
Year 3 12,000 units
Year 4 20,000 units
 Year 5 25,000 units
The depreciation expenditure for the 3rd year under units-of-production method will be
(a) Rs.16,667
(b) Rs.15,000
(c) Rs.20,000
(d) Rs.18,000
(e) Rs.19,000.
(2 marks)
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49.The profits of Kavya Ltd. for the past 3 years are as under: Answer
>
Year Rs.
2004-2005 3,75,000
2005-2006 4,50,000
2006-2007 7,42,500
The company noticed the following errors, while computing the average profits for the purpose of
valuation of goodwill:
• On October 01, 2004, repair expenses of Rs.30,000 of machinery were capitalized. Kavya Ltd.
provides depreciation at the rate of 10% on straight-line method.
• The profit for the year 2006-2007 includes profit of Rs.22,500 on sale of plant.
The average adjusted profit of the company to be considered for valuation of goodwill is
(a) Rs.5,07,500
(b) Rs.3,79,500
(c) Rs.2,84,100
(d) Rs.5,00,100
(e) Rs.3,78,500.
(2 marks)
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50.The following information is extracted from the books of Jeet and Company: Answer
>
• 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
(a) Rs.37,800
(b) Rs.16,000
(c) Rs.22,680
(d) Rs.60,480
(e) Rs.59,724.
(2 marks)
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51.Amortization of unidentified intangible assets is in recognition of Answer
>
(a) Conservatism concept
(b) Going concern concept
(c) Matching concept
(d) Time period concept
(e) Business entity concept.
(1 mark)
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52.Which of the following deductions from profits is permitted under Section 350 of the Companies Act, Answer
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
 (e) Any compensation, damages or payments made voluntarily.
(1 mark)
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53.Which of the following factors is used as a multiplier of super profits in valuation of goodwill of a Answer
business? >
(a) Average capital employed in the business
(b) Simple profits
(c) Number of years’ purchase
(d) Normal rate of return
(e) Normal profits.
(1 mark)
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54.Which of the following factors does not have lasting impact on the valuation of goodwill? Answer
>
(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.
(1 mark)
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55.The Balance Sheet of Marvel Ltd. as on March 31, 2007 is as under: Answer
>
Liabilities Rs. Assets Rs.
Equity share capital 6,00,000 Fixed assets 9,20,000
Reserves and surplus 2,10,000 Sundry debtors 90,000
12% Debentures 1,50,000 Inventories 65,000
Sundry creditors 1,50,000 Cash 35,000
Total 11,10,000 Total 11,10,000

The following assets are revalued as under:

Fixed assets Rs.9,00,000
Sundry debtors Rs. 85,000
The amount of capital employed for calculation of goodwill is
(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.
(2 marks)
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56.Which of the following items cannot be shown as reserves under the head “Reserves and surplus” in the Answer
balance sheet of a company? >
(a) Capital reserve
(b) Sinking funds
(c) Retained earnings
(d) Capital redemption reserve
(e) Unclaimed dividends.
(1 mark)
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57.Dinakar operates a garment store in a hired premises at a rent of Rs.1,20,000 per annum. The owner of Answer
the premises, who has recently completed her fashion-designing course, wishes to purchase the garment >
store. The details of the business of Dinakar are as under:
˜ The profit for the year 2006-2007 is Rs.2,30,000.
˜ The capital employed by Dinakar is Rs.20,00,000.
˜ 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
 (c) Rs.1,10,000
(d) Rs.1,20,000
(e) Rs.1,78,000.
(2 marks)
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58.The net profit of Yankee Ltd. is Rs.15,75,000, which is arrived at after considering the following: Answer
>
Directors’ remuneration Rs. 21,000
Subsidy received from the Government Rs.3,15,000
Income tax paid Rs. 94,500
Damages paid by virtue of legal liability Rs. 42,000
If the managerial remuneration payable to directors is Rs.83,475, the percentage of such commission on
the net profits before charging such commission is
(a) 4%
(b) 8%
(c) 7%
(d) 5%
(e) 10%.
(2 marks)
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59.The claims against the company not acknowledged as debts are shown as Answer
>
(a) Current liabilities
(b) Loans and advances
(c) Contingent liabilities
(d) Unsecured loans
(e) Without any separate disclosure.
(1 mark)
60.Diana Ltd. has issued 10%, 10,000 Preference Shares of Rs.100 each fully paid and 1,30,000 Equity Shares of <Answer
Rs.10 each fully paid, which are issued at a premium of Rs.20. The profit for the year 2006-07 is Rs.10,84,000 >
and the balance brought forward from the previous year amounted to Rs.1,52,500.
• The company decides to provide Rs.4,38,000 for taxation of the previous year before making any
appropriations.
• The company declared an equity dividend of 10%.
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.
(2 marks)
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61.Which of the following persons can be appointed as an auditor of a company? Answer
>
(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.
(1 mark)
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62.According to the Companies Act, 1956, the period to which the accounts of a company relate is known Answer
as financial year should not exceed >
(a) 12 months
(b) 15 months
(c) 18 months
(d) 24 months
(e) 21 months.
(1 mark)
 <
63.A machine was acquired by a company five years ago at a price of Rs.13,000. It is being depreciated to Answer
its scrap value Rs.1,000 on straight line basis over 8 years. The amount of depreciation accumulated >
upto date is Rs.7,500. The company reestimates the life of the machine in a more realistic manner to be
10 years.
The amount of excess depreciation provided on the machinery for the past five years amounts to
(a) Rs. 300
(b) Rs. 600
(c) Rs. 900
(d) Rs.1,200
(e) Rs.1,500.
(2 marks)
<
64.Which of the following will not come under the head ‘Miscellaneous Expenditure’ in the balance sheet Answer
of a company? >
(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.
(1 mark)
65.The Securities Premium Account should be shown under the head <
Answer
(a) Share capital >
(b) Miscellaneous expenditure
(c) Current liabilities
(d) Current assets
(e) Reserves and surplus.
(1 mark)
<
66.When the auditor is having reservations in respect of some material matters then he will give Answer
>
(a) A clean report
(b) A qualified report
(c) A disclaimer report
(d) An adverse report
(e) No report.
(1 mark)
<
67.Tax deducted at source on the payments made by a company appears in the Balance Sheet of the Answer
company on the >
(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.
(1 mark)
<
68.Which of the following is not a community owned asset used by a company? Answer
>
(a) Roads
(b) Railways
(c) Infrastructural facilities
(d) Concession provided by the State
(e) Plant and machinery.
(1 mark)
<
69.The fund available with a company after paying all claims including tax and dividend is called Answer
>
(a) Net profit
(b) Net operating profit
(c) Capital profit
 (d) Retained earnings
(e) Profit before tax.
(1 mark)
<
70.Annual financial statements of a company should be signed by Answer
>
(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.
(1 mark)
<
71.The following information is extracted from the books of Jeet Ltd. Answer
>
Debit Credit
Particulars
(Rs.) (Rs.)
Opening stock (1/4/2006) 1,86,420
Purchases and sales 7,18,210 11,69,900
Returns 12,680 9,850
Manufacturing wages 1,11,630
Carriage inwards 4,910
Sundry Manufacturing Expenses 19,240
The stock was valued at Rs.1,24,840.
The cost of goods sold for the year 2006-07 was
(a) Rs.9,05,720
(b) Rs.7,18,210
(c) Rs.9,02,270
(d) Rs.9,50,270
(e) Rs.8,05,270.
(2 marks)
 Suggested Answers
Financial Accounting (CFA510): July 2007
1. Answer : (b) < TOP >

Reason : Under Hybrid system of accounting for revenue and expenses, accrual basis for expenses and cash
basis for revenue is used.
2. Answer : (a) < TOP >
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 and
revaluation gains are capital reserve. Hence, answer (a) is correct answer.
3. Answer : (c) < TOP >
Reason : Board of Directors, Partners, Managers and Officers are internal users. An investor is an external user
of financial statements.
4. Answer : (c) < TOP >
Reason : An agreement to sell is not an accounting transaction.
5. Answer : (c) < TOP >
Reason: Ex-post income = Revised expectation of expected future cash flows at the end of the period less
original expectation of expected future benefits at the beginning of the period.
6. Answer : (d) < TOP >
Reason: Realizable value is the net amount collectible in the event of the asset’s disposal. (a) Historical cost is
the amount paid or payable to acquire a benefit. (b) the amount that needs to be paid if the asset is to be
acquired currently is the current value. (c) the present discounted value of the future inflows that an
item is expected to generate in the normal course of business is the present value (e) written down
value is a cost of asset less depreciation. Hence the correct answer is (d).
7. Answer : (d) < TOP >
Reason : Current assets include cash and cash equivalents, inventories, debtors, cash at bank, and prepaid
expenses. Patents are fixed asset of the firm.
8. Answer : (a) < TOP >
Reason : The duality concept states that every transaction two aspects one debit another credit. Hence, (a) is the
correct answer.
9. Answer : (d) < TOP >
Reason : Only Credit purchases of goods are recorded in the Purchase Day Book.
10. Answer : (a) < TOP >
Reason : The entry to be passed for settlement of purchase of Rs.10,000 from Abuja at a discount of 2% will
involve a debit to Abuja’s account with Rs.10,000 and credit to Discount received account Rs.200 and
Bank account Rs.9,800. (a) is the correct answer.
11. Answer : (d) < TOP >
Reason : Cash book is a special journal in which all cash transactions are recorded directly. The cash book
resembles a ledger with the debit and credit sides, and the balance represents the cash on hand and at
bank at the end of the accounting period. Hence it serves the purpose of ledger. Cash account and bank
account are not opened when a cash book is maintained. Purchases book, sales book, bills receivables
book and journal proper are the books of original entry and they do not serve the purpose of ledger
12. Answer : (a) < TOP >
Reason :
Purchases Day Book
Details Total
Date Particulars
(Rs.) (Rs.)
June 01, 2007 10 Colour T.V. @ Rs.6,000 each 60,000
Less : Trade discount @ 10% 6,000 54,000
June 09, 2007 10 Tape recorder @ Rs.1,000 each 10,000
Less : Trade discount @ 10% 1,000 9,000
June 19, 2007 100 Audio Cassettes @ Rs.30 each 3,000
 Less : Trade discount @ 5% 150 2,850
Total of purchase day book transfered to 65,850
purchase account
The purchase of stationery is not a part of purchase of goods and it is to be debited to stationery
account.
13. Answer : (c) < TOP >
Reason :
Amount Amount
Particulars
(Rs.) (Rs.)
Petty cash 3,000
Less : Stamps 200
Conveyance 190
Repairs 500
Stationery 200
Other office expenses 93 1,183
1,817
Amount reimbursed 1,183
3,000
14. Answer : (b) < TOP >
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 correct
answer.
15. Answer : (b) < TOP >
Reason : The rule applicable to personal account is ‘debit the receiver and credit the giver’.
16. Answer : (a) < TOP >
Reason : Nil. The difference in one transaction got compensated by another transaction. The error of principle
does not result in any difference and also the error of omission does not affect the agreement of trial
balance.
The under casting of returns inward book is rectified by debiting returns inward account with Rs.1,377
and the wrong debit to the supplier’s account is to be rectified by crediting the account with
Rs.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. The
complete omission of sales returns will not affect the trial balance totals. Thus, the difference in trial
balance is nil despite the errors.
17. Answer : (c) < TOP >
Reason : Error of complete omission of recording of a transaction does not affect the trial balance. Hence, (c) is
the correct answer.
18. Answer : (d) < TOP >
Reason : The trial balance is prepared to assess the arithmetical accuracy of the accounting records. Hence the
answer 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 cashbook
indicates the cash receipts and payments. (e) The bank reconciliation statement is prepared to reconcile
the bank balance as per cash book and pass book.
19. Answer : (b) < TOP >
Reason : Rent paid was wrongly credit to rent account. The rectifying entry involves a debit to Rent account and
a Credit to Suspense account with an amount of Rs.800.
20. Answer : (a) < TOP >
Reason :
Trial Balance as on March 31, 2007
Debt Balance Credit Balance
Sl.No Heads of Account
(Rs.) (Rs.)
1. Capital (1st April, 79,000
2006)
 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 Bad 4,250
Debts
12. Returns Outward 3,160
13. Discount Received 3,150
Total 5,42,320 5,42,320
21. Answer : (c) < TOP >
Reason : The discount on the payments side of cash book implies discount received. Since the discount received
is overcast, the excess amount is to be debited to profit and loss adjustment account (as the accounts are
already finalized). The corresponding credit is to be given to suspense account. Hence the rectification
entry is
Profit and loss adjustment account Dr. Rs.300
To Suspense account Rs.300
22. Answer : (c) < TOP >
Reason : The Trial Balance shows both debit and credit balances of all real, personal and nominal accounts.
23. Answer : (e) < TOP >
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.
24. Answer : (a) < TOP >
Reason :
Particulars Rs.
Profit as reported by the accountant 5,90,000
Add : Interest on investments 13,000
6,03,000
Less : Manager’s salary 1,500
Profit after considering all aspects 6,01,500
25. Answer : (c) < TOP >
Reason: In the books of Jagriti Enterprises
Dr. Profit and loss account for the year ended March 31, 2007 Cr.
Particulars Rs. Particulars Rs.
To Salaries 86,000 By Gross profit 2,64,000
To Other expenses 73,000
To Depreciation 60,000
To Net profit 45,000
2,64,000 2,64,000
Balance sheet of Jagiriti Enterprises as on March 31, 2007
Liabilities Rs. Assets Rs.
Share capital 6,00,000 Fixed assets (Rs.6,00,000 – 5,40,000
Rs.60,000)
Net profit 45,000 Sundry debtors 45,000
Short tem loan 36,000 Closing stock 75,000
Sundry creditors 32,000 Cash and bank 53,000
7,13,000 7,13,000
26. Answer : (a) < TOP >
Reason :
 Trading account and Profit and loss account for the year ended March 31, 2006.
Particulars Rs. Rs. Particulars Rs.
To Opening stock 30,000 By Sales 5,00,000
Less: Returns
To Purchases 4,50,000 10,000 4,90,000
inward
Less : Returns
15,000 4,35,000 By Closing stock 10,000
outward
To Salaries and wages 19,000
To Carriage inward 5,500
To Manager’s commission 500
To Net Profit 10,000
5,00,000 5,00,000
Profit before charging Manager’s commission = Rs. 10,500
10,500
× 5 = Rs.500
Manager’s Commission =Rs. 105
27. Answer : (b) < TOP >
Reason : Books of Soma Enterprises
Dr. Trading Account for the period ending March 31, 2007 Cr.
Particulars Rs. Rs. Particulars Rs. Rs.
To Opening stock 27,000 By Sales : 1,60,000
To Purchases 90,000 (–) Returns 3,000 1,57,000
inward
(–) Inventory lost 2,000 By Closing stock 40,000
(–) Returns outward 2,000 86,000
To Wages 5,000
(+) Outstanding as on
March 31, 2007 700
5,700
(–) Outstanding as on
April 01, 2006 500 5,200
To Carriage inward 1,000
To Gas, water, fuel 2,000
To Gross Profit 75,800
1,97,000 1,97,000
28. Answer : (b) < TOP >
Reason : Payment of Rs.5,000 to repaint the premises is an example of revenue expenditure.
29. Answer : (d) < TOP >
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
30. Answer : (d) < TOP >
Reason : Under the periodic system, the cost of goods sold is computed by subtracting the ending inventories
which are determined by the physical count from the sum of the opening inventory plus purchases.
Thus, it is computed as a residual amount. Hence, (d) is the correct answer. Weighted average method,
Last-in First-out and Specific identification are the methods inventory valuation and not the systems of
maintaining inventory records. And are not the correct answers. Under the perpetual inventory system,
a continuous record that tracks inventories and the cost of goods sold on a day-to-day basis is arrived. It
is not computed as a residual amount.
31. Answer : (a) < TOP >
Reason : The basis for pricing inventory is either cost of production or cost of acquisition. FIFO method of
identifying inventory is based on the assumption that costs are charged against revenue in the order in
which they occur. In case of other methods i.e. LIFO method (b) matches the most recent costs
incurred with current revenue, leaving the first cost incurred to be included as inventory. Weighted-
Average method (c) assumes that costs are charged against revenue based on an average of the number
of units acquired at each price level. Moving average method (d) can be used only with a perpetual
inventory. The cost per unit is recomputed after every addition to the inventory. The ending inventory
is valued at the last moving average unit cost for the period. Retail inventory method (e) this method
requires the maintenance of records of purchases both cost and selling price.
32. Answer : (b) < TOP >
Reason :
Purchases Issues Balance
Date Quantity Rate Quantity Rate Quantity Rate
Rs. Rs. Rs.
(Kg) Rs. (Kg) Rs. (Kg) Rs.
01-6-
500 22.8 11,400
07
02-6-
400 24 9,600 900 23.33 21,000
07
10-6-
600 25 15,000 1,500 24 36,000
07
25-6-
1,000 24 24,000 500 24 12,000
07
30-6-
500 24 12,000
07
33. Answer : (b) < TOP >
Reason : The phrase markup means the selling price raised above the original selling price.
34. Answer : (c) < TOP >

Reason : Cost of conversion is made of direct wages plus production overhead plus direct expenses.
35. Answer : (c) < TOP >
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
36. Answer : (c) < TOP >
Reason : Enterprises which earn revenue by the sale of goods and services follows delivery method. Under the
delivery method, the revenue recognized in the period in which goods are delivered or services are
actually provided.
37. Answer : (b) < TOP >
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
38. Answer : (a) < TOP >
Reason:
 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
2
× Rs.38, 000 = Rs.760
Provision for discount on sundry debtors will be 100
39. Answer : (a) < TOP >
Reason :
Dr. Sundry Debtors Account Cr.
Date Particulars Rs. Date Particulars Rs.
April 01, To Opening 6,000 2006-2007 By Cash 56,000
2006 balance (300/5%)
2006-2007 To Credit sales 58,000 March 31, By Closing 8,000
(Balance figure) 2007 balance
(400/5%)
64,000 64,000
40. Answer : (e) < TOP >
Reason : Sales, interest on investment, rent received and dividends received are revenue items where as advance
received for supplies is not a revenue item.
41. Answer : (a) < TOP >
Reason : The depreciated value of the asset Rs.2,04,120
Depreciation rate – 10%
Depreciation charged under straight line method for 3 years
Rs.2, 04,120
Cost of asset before depreciation = [1 − (3 × 10%)]

Rs.2,04,120
= 0 .7 = Rs.2,91,600.
The cost of the asset before depreciation = Rs.2,91,600.
42. Answer : (e) < TOP >
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.
43. Answer : (c) < TOP >
Reason : Fixed assets cannot be easily converted into cash. They are acquired for using them in the conduct of
business operations They are not for reselling to earn profit. Depreciation at specified rates to be
charged on most of the Fixed Assets. Their utility is not confined to one accounting period.
44. Answer : (e) < TOP >
Reason : Cost of air conditioner is not included in cost of building. All others are included.
45. Answer : (e) < TOP >
Reason :
Dr. Machinery account Cr.
Date Particulars Amount in Date Particulars Amount in
Rs. Rs.
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
 (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
Calculation of depreciation:
Particulars Amount in Rs.
On machinery purchased on 1.7.06 (Rs.90,000 x 10% x 9/12) 6,750
Depreciation on balance machinery (Rs.85,000 – 40,000) × 10% 4,500
Total depreciation 11,250
46. Answer : (e) < TOP >
Reason : Depreciation under sum-of-the-years’ digits method for the year 2006-07
1
× 1,50, 000 = Rs.10, 000
= 1+ 2 + 3 + 4 + 5
47. Answer : (a) < TOP >
Reason :
Year Particulars
Rs.
1st year Cost of the asset 50,000
Less depreciation @20% 10,000
WDV at the end of the year 40,000
2nd year Less depreciation @20% 8,000
WDV at the end of the 2nd year 32,000
3rd year Less depreciation @20% 6,400
WDV at the end of the 3rd year 25,600
4th year Less depreciation @20% 5,120
WDV at the end of the 4th year 20,480
48. Answer : (b) < TOP >
Reason : The formula for calculation of depreciation under units-of production method is original cost minus
scrap value multiplied by the number of units produced during the particular year divided by the total
number of units produced during the entire useful life of the asset. i.e.,
(Rs.1,00,000 – Rs.10,000) ×12,000/72,000 = Rs.15,000.
49. Answer : (a) < TOP >
Reason :
2004-2005 2005-2006 2006-2007 Total
Particulars
Rs. Rs. Rs. Rs.
Profit 3,75,000 4,50,000 7,42,500
Less: repair expenses - 30,000
Add: Depreciation on
capitalized repairs 1,500 3,000 3,000
Less: profit on sale of
plant 22,500
Adjusted profits 3,46,500 4,53,000 7,23,000 15,22,500
Average adjusted profits = Rs.15,22,500 / 3 = Rs.5,07,500
50. Answer : (c) < TOP >
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.
51. Answer : (c) < TOP >
Reason : Intangible assets are amortized like tangible fixed assets. If costs/benefit are more than one accounting
period, they should be systematically and rationally allocated to all accounting periods. Matching
 concept involves recognizing costs as expenses on the basis of direct association with assets. Thus amortization of
intangible assets is systematic allocation of costs over several periods in recognition of matching
concept (c). The other concepts do not recognize allocation of costs of fixed assets. Conservatism
concept is not meant to introduce a bias into financial reporting. It is a prudent reaction to uncertainty
to try to ensure that inherent risks in business are adequately considered. Going concern concept (b)
assumes that the business entity is assumed to be a going concern in the absence of evidence to the
contrary. Time Period concept (d) requires accounting information to be reported at regular intervals to
foster comparability. Business entity concept explains that in accounting business is to be considered as
a separate entity from the owner.
52. Answer : (a) < TOP >
Reason : According to Section 350 of the companies Act any tax notified as a tax on excess or abnormal profits
can be deducted from the profits for the calculation of managerial remuneration.
53. Answer : (c) < TOP >
Reason : Number of years’ purchase is the factor with which the super profits will have to be multiplied in order
to arrive at the value of goodwill.
Super profits: Average annual profits – (Average capital employed x Normal rate of return)
Goodwill: Number of years’ purchase x super profits.
54. Answer : (d) < TOP >
Reason : Goodwill is the value of reputation of the firm judged in respect of its capacity to bring in unaided
profits. It is in respect of profits expected in future. Temporary craze or fashion (d) is a temporary
phenomenon, and if in the past good profits have been earned due to it, there will be no value attached
to goodwill. Thus, it does not have any lasting impact on evaluation of goodwill. The factors stated in
other alternatives, normal rate of return (a) is the return which will satisfy ordinary investor, capital
employed, (b) is the most important factor, since the size of profits is significant only in relation to
capital employed, it is difficult to enter an industry. Existing entities will enjoy a measure of goodwill
by the mere fact of existence. Thus, nature of business (c) has a bearing on evaluation of goodwill.
Personal skill and reputation of the owner (e) is much more important in evaluation of goodwill. Thus,
the factors in alternatives (a), (b), (c) and (e) have a bearing on future profits.
55. Answer : (a) < TOP >
Reason :
Particulars Rs.
Fixed assets 9,00,000
Sundry debtors 85,000
Inventories 65,000
Cash 35,000
10,85,000
Less:
12% Debentures 1,50,000
Sundry creditors 1,50,000
Capital employed 7,85,000
56. Answer : (e) < TOP >
Reason : Unclaimed dividends is a current liability not a reserve. Hence, correct answer is (e).
57. Answer : (b) < TOP >
Reason :
Profit for the year 2006-2007 2,30,000
Add: Rent (not relevant if the owner of the premises operates the 1,20,000
business)
Adjusted maintainable profits 3,50,000
Capital employed by Dinakar 20,00,000
Add: Value of premises 4,00,000
Total capital employed 24,00,000
Normal profit (12% of Rs.24,00,000) 2,88,000
Super profits (Rs.3,50,000 – Rs.2,88,000) 62,000
58. Answer : (d) < TOP >
Reason : To arrive at the profits for calculating managerial remuneration, the director’s remuneration, damages
paid by virtue of legal liability shall be deducted and subsidy received from Government shall be
 added. However the income tax payable shall not be deducted. Hence the profit for the purpose of calculating
managerial remuneration is Rs.15,75,000 + Rs.94,500 = Rs.16,69,500.
83,475
x100
Commission = 16,69,500 = 5%
59. Answer : (c) < TOP >
Reason : The claims against the company not acknowledged as debts represent contingent liabilities.
60. Answer : (d) < TOP >
Reason :
Particulars Rs. Rs.
Current year profit 10,84,000
Previous year profit 1,52,500 12,36,500
Provision for taxation of the previous year 4,38,000
Dividend on 10% 10,000 Preference Shares of Rs.100 1,00,000
10% Dividend on 1,30,000 equity shares of Rs.10 each 1,30,000 6,68,000
The total amount of profit carried forward to balance sheet 5,68,500
61. Answer : (c) < TOP >
Reason : According to Section 226(3) of the Companies Act, 1956, a body corporate, an officer of the company,
a person indebted to the company for an amount exceeding Rs.1,000, a person disqualified to be
appointed as an auditor of its subsidiary company, a person holding any security of the company are
disqualified to be appointed as an auditor. However, a person holding the shares of the company as a
nominee or a trustee for any third person and in which the holder has no beneficial interest shall not be
disqualified. Hence the answer is (c).
62. Answer : (b) < TOP >
Reason : According to the Companies Act, 1956, the period to which the accounts of a company relate should
not exceed 15 months. Therefore, alternative (b) is the correct answer.
63. Answer : (e) < TOP >
Reason :
Depreciation before revision (Rs.12,000/8) Rs.1,500
Depreciation after revision (Rs.12,000/10) Rs.1,200
Difference per year Rs. 300
Total adjustment for 5 years = 5 × Rs.300 = Rs.1,500.
64. Answer : (e) < TOP >
Reason : Contribution to provided fund is an item of profit and loss account and will not enter into
miscellaneous expenditure. Except that all the other items are example of miscellaneous expenditure.
Hence alternative (e) is the correct answer.
65. Answer : (e) < TOP >
Reason : The securities premium account should be shown under Reserves and Surplus as per schedule IV of
the Companies Act.
66. Answer : (b) < TOP >
Reason : When the auditor is having reservations in respect of some material matters then he will give a
qualified report.
67. Answer : (a) < TOP >
Reason : Tax deducted at source is the liability of the company towards the tax authority. It is also payable to
the tax authority within very short period. So, it is the item of current liabilities. It cannot be treated as
provisions or assets.
68. Answer : (e) < TOP >
Reason : A company makes use of community owned assets such as roads, railways, other infrastructural
facilities and also concession provided by the State. Plant and machinery is not a community owned
assets.
69. Answer : (d) < TOP >
Reason : The fund available with a company after paying all claims including tax and dividend is called retained
earnings. (d) is the correct answer.
70. Answer : (c) < TOP >
 Reason : Annual financial statements of a company should be signed by the manager or secretary of the
company (if any) and by not less than two directors of the company, one of whom shall be a managing
director where there is one.
71. Answer : (a) < TOP >
Reason :
Statement of cost of goods sold for the year 2006-07
Particulars Rs. Rs. Rs.
Opening stock 1,86,420
Add: Purchases 7,18,210
Less: Returns 9,850 7,08,360
Carriage in-wards 4,910
Wages 1,11,630
Manufacturing expenses 19,240 10,30,560
Less : Closing stock 1,24,840
Cost of goods sold 9,05,720

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