ACCOUNTING & FINANCE

Q1. On June 24 Tariq departmental store acquire a new accounting machine with a list price
of Rs.2,200 receiving an allowance of Rs.400 on an old machine and giving a note for the
remainder. The following information about the old equipment is obtained from the accounts the
office equipment ledger cost Rs.1,000 accumulated depreciation on December 31, the close of
preceding fiscal year Rs 800 and Rs 100 depreciation, present journal entries.

 To record depreciation accrued for the year.

 To record the transaction on June 24, recognizing and gain and loss
 To record the transaction on June 24, not recognizing any gain and loss.

Q On 31st March 2004, just before preparing the final accounts, Mr X prepared a trial
balance which did not agree. He put the difference in newly established suspense account. The
following errors were located. Pass journal entries to rectify the errors and prepare suspense
account.

 An amount of Rs1,000 was received form D on 31st March 2004 but had not been
entered in the cash book on 3rd April
 The return inward book for Mar 2004 had been cast Rs 1,000 short.
 The purchase of an office table costing Rs3,000 had been passed through the purchase
day book
 Rs3,750 paid for wages to workers for making show cases has been charged to wages
account.
 A Purchase of Rs671 had been posted to the debit of the creditor accounts as Rs 617.

Q On Jan 3 a business enterprises pays Rs240 to the city for annual license fees, charging
the amount to prepaid taxes. By the end of Jan the same enterprise has incurred a tax expense
of Rs 105 that is payable to the state in April

 Journalize the two adjusting entries required to bring the account up to date as of Jan
31. How much tax incurred so far?
 The balance in the prepaid insurance account at the end of Year Rs1,420. Journalize the
adjusting entry required under each of the following asumptions.

Q From following data, prepare statement of cost according to both absorption costing and
marginal costing techniques

Sales 15,000
Direct Material 6,000
Direct Labor 4,000
Fixed FOH 3,000
Variable FOH 1,000
Fixed Admin Overheads 500
Fixed Selling Overheads 1,000
Variable Selling Overheads 500
Q from following determine the following

Budget / Standard Actual

Units 4,000 3,500
Net Price per Unit Rs 20 Rs 21
Material Per Unit 4 kg 4 kg
Rate of Material per Unit 2.05/ Kg 2.25/ Kg
Labor hours per Unit 5.5 hr 4.5 hr
Rate per Labor Hour 0.5/hr 0.6/hr
Fixed overhead per unit Rs1 Rs1.2
Variable Overhead /Labor Hrs Rs0.08 Rs1
 Direct material Price Variance
 Direct material Usage Variance
 Direct material cost variance
 Direct Labor rate variance
 Direct Labor cost variance
 Variable overhead cost variance
 Fixed overhead cost variance
 Sales price variance
 Slaes volume variance

Q Saleem khan financial statements appear below

Saleem Corporation
Balance Sheet
December 31, 2003
Assets
Current Assets
Cash 100,000
Marketable securities 200,000
Inventory 300,000
Total current Assets 600,000
Non current Assets 500,000
Total Assets 1,100,000
Liabilities and Equity
Current Liabilities 200,000
Long Term liabilities 100,000
Total Liabilities 300,000
Stock Holder’s Equity
Common Stock Rs 10 par 100,000
Premium on common stock 500,000
Retained earning 200,000
Total Stock Holder’s Equity 800,000
Total Liabilities and Equity 1,100,000
 Saleem Corporation
Income statment
December 31, 2003
Net Sales 10,000,000
Cost of Sales 6,000,000
Gross Profit 4,000,000
Operating Expenses 1,000,000
Income before taxes 3,000,000
Income tax 50% 1,500,000
Net Income 1,500,000
Additional Net worth
Market price of stocks Rs 15 per share
Total dividend 2003 600,000
Inventory as on 31.12.2002 250,000

 Current Ratio
 Quick Ratio
 Inventory turnover
 Average age of inventory
 Debt equity ratio
 Book value per share
 Earning per share
 Price earning ratio
 Dividend pays out ratio
 Comment on financial performance of the company

Q Following is the balance sheet of Haris Garments, Sales for the year were Rs2,400,000
with 90% on credit

Assets Amount (Rs) Liabilities & Equity Amount (Rs)

Cash 60,000 Account Payable 220,000
Debtor 240,000 Accrued Tax 30,000
Stock 350,000 Bonds Payable 150,000
Plant & Machinery 410,000 Common Stock 80,000
Paid in Capital 200,000
Retained Earning 380,000
Total 1,060,000 Total 1,060,000

 Current Ratio
 Quick Ratio
 Debt to Asset Ratio
 Debtor Turnover
 Average Collection Period
 Working Capital to Sales
Q Followings are the financial of Wilson Drug Store

Balance Sheet Data: 2005 2004

Quick Assets 2467.9 2864.6
Current Assets 8316.5 7764.4
Current Liabilities 4481.0 4077.9
Stockholder Equity 8889.7 8139.7
Total Assets 14608.8 13342.1
Income Statement Data:
Net Sales 42201.6 37508.2
Gross Profit 11787.8 10197.8
Operating Income 2424.0 2142.4
Net Income 1559.5 1349.8

 Compute for 2005 & 2004

o Working Capital
o Current Ratio
o Quick Ratio
 Comment on the trends in the liquidity measures and state whether Wilson appears to
be able to satisfy its liabilities at the end of 2005
 Compute the percentage change in net sales & net income for 2005
 Compute for 2005 & 2004
o Gross Profit Rate
o Net Income as percentage of sales
o Return on Assets
o Return on stock holder’s equity
 Comment on the trends in the profitability measures of Wilson.

Q The XYZ is considering installing a new conveyer for material handling in ware house,
The conveyer will have initial cost of Rs75,000 and an installation cost of Rs5,000. Estimated
benefits of the conveyer are:

 Annual labor cost will be reduced by 15,500

 Breakage and other damages from handling will be reduced by Rs4,000 some of the
company cost will rise as follows:
o Electricity cost increases by Rs100/month
o Annual repair cost of conveyer will be Rs900

The conveyer has an expected useful life of eight years with salvage value of Rs5,000. However
for tax purposes, the company recognizes no salvage value and charges depreciation in the
remaining years at rate of 15% in first year, 22% in estimated future cash flows for proposed
projects. Determine the viability of project at 10%
Q The Great ways company is considering upon replacing an old machine with a newer
model having lower maintenance costs. The old machine has a current book value of Rs9,000
and a straight line depreciation charge of Rs3,000 per year for the remaining life of 3 year
including the current year. It will have no salvage value. However, at present the machine can
be sold in the market for Rs6,000 The existing machine requires an annual maintenance costs
of Rs600. Its expected useful life is 3 years with no salvage value.

Assuming Straight line depreciation also for new machine and tax rate of 50% determine the
incremental cash flow of the replacement decision.

Q Farooq Enterprises has an investment opportunity costing Rs30,000 with the following
expected net cash flow(after tax and before depreciation)

Year Net Cash Flow

1 4,000
2 4,000
3 4,000
4 4,000
5 4,000
6 7,000
7 9,000
8 12,000
9 9,000
10 2,000

Use 10% as the cost of capital (Rate of discount), determine the following:

 Payback Period
 Net Present Value
 Profitability Index
 Internal Rate of Return (10% & 15% discounting factor)

Q The SAS Company has prepared the following estimates for a long term project. It is
considering initial investment is Rs18,250. Project is expected to yield after tax cash inflow of
Rs4,000 per year for 07 year. The form has 10% cost of capital.

 Determine the NPV for the Project

 Determine IRR for the Project
 Recommend whether the firm should accept or reject the project

Q Compute the margin of safety with the help of following data

Fixed Cost 9,000

Variable Cost 15,000
Total Sales 30,000
 Units Sold 10,000

Q From the following data compute

 Break even point in Rs

 No of units must be sold to earn profit of Rs100,000/year

Particulars Amounts(Rs)
Selling Price 20 per Unit
Variable Manufacturing Costs 10 per unit
Variable Selling Costs 5 per unit
Fixed Factory Overheads 500,000/year
Fixed Selling costs 200,000/year

Q In a production department of a factory, there are 80 workers and the average rate of
wages per worker is Re1 per hour. Standard working hours per week are 45 and the standard
performance is six units per hour.

During the four weeks in February, wages are paid, for 40 workers at Re 1 per hour, for 15
workers at Re1.2 per hour, and for 25 workers at Re.0.80 per hour. The production department
did not work for 8 hours due to power failure in factory.

Calculate the labor rate variances for the department for four weeks.

Particulars Amount (Rs)

Opening Stock
Raw Material 5,000
Finished Goods 4,000
Closing Stock
Raw Material 4,000
Finished Goods 5,000
Raw Material Purchased 40,000
Office paid on Raw Materials 4,000
Carriage Inward 6,000
Direct Wages Paid 20,000
Direct Expenses 2,000
Rent, Rate & Taxes 5,000
Power 2,000
Factory Heating & Lighting 2,000
Factory Insurance 1,000
Experimental Expenses 500
Office Management Salaries 4,000
Office Printing & Stationery 2,000
Salary of a Salesman 600
Advertising 300
Carriage Outward 100
Sales 100,000
  Compute Value of Raw Material Consumed
 Total Cost of Production
 Cost of Goods Sold
 Net Profit

Q Malik Abbas opened rent-a-car center. During the month of June Abbas completed the
following transactions for his car rental business.

 Jun 2 began business by placing Rs5,000,000 in business bank a/c

 Jun 3 purchase supplies on account Rs15,000
 Jun 4 purchased 10 Cars for Rs4,000,000. Paying 2,500,000 balance to be paid in 30
days
 Jun 10 Received cash for car rental
 Jun 20 Billed customers for car rental Rs40,000
 Jun 30 Paid Salaries to employees Rs15,000
 Jun 30 Withdraw Rs10,000 for personal use

Pass journal entries, set up appropriate T accounts

Q Following are the business transactions of Sameena Computing Services

 Sameena began business with Rs90,000 & She bought system library which cost
Rs30,920
 Paid Rs5,000 as one month rent for an office
 Purchased computer for Rs57,000
 Purchased computer supplies on account Rs6,000
 Collected Revenue from a client Rs8,000
 Billed Client Rs3,710
 Paid expenses of Rs400
 Received Rs2,710 from a client billed previously
 With drew 1,250 for personal use
 Paid Rs2,000 against owed on computer supplies

Arrange Assets, Liabilities and Owner Capital in an equation and show by adding & subtracting
the effects of above on equation

Q Shown below is the information needed to prepare bank reconciliation statement for
Ayesha center at Dec 31, 2006

 At Dec 31, bank balance as per bank statement was Rs37,758 and Rs42,500 as per
accounting record
 The cash receipts of Rs6,244 on Dec 31st were deposited on Jan 2007
 Included in bank statement was a credit for Rs167 interest earned during December
 Two cheques were outstanding at Dec 31, 2006
 o Cheque No921 Rs964
o Cheque No925 Rs1,085
 Included in bank statement was debit memoranda for service charges
 Enclosed with bank statement Rs700 cheque of customer Laiba marked “NSF”

Prepare Bank Reconciliation Statement as at Dec 31, 2006.

Q Following balances were extracted from the books of Punjab ceramics Ltd. At 30th June
1906. All necessary adjustments have been made

Balances Amount (Rs)

Free hold premises 32,000
Bank Overdraft 27,200
Cash in Hand 1,650
Inventory 74,400
Creditors 18,560
10% Debentures 34,000
Dividend Proposed
8% Preference Shares 1,600
Ordinary Share 6,000
Accrued Expenses 2,400
General Reserves 20,000
Share Capital
8% Preferenced Share of 100 each 20,000
6000 ordinary shares of Rs 10 each
Investment at Cost 60,000
Motor Vehicle at Cost 14,800
37,200
Provision for Depreciation 30 Jun 1906 9,600
Plant & Machinery at Cost 84,960
Provision for Depreciation 30th June 1906 24,160
Retained Earning 32,800
Share Premium 14,240
Accounts Receivable 25,520

Prepare Balance Sheet of Punjab Ceramics Ltd. As at 30 June 1906

Q At the end of first month operation, Jun 2001, Khalid plumbing services had the following
accounts balances:

Cash Rs29,300 Tools Rs23,800

Debtor Rs15,400 Creditors Rs14,00

Delivery Truck Rs69,000

In Addition during June, the following transactions affected owner’s equity:

Investment by Khalid Rs20,000 Revenue Rs32,800

Drawings Rs12,000 Salaries Rs28,300

Further investment Rs30,000 Rent Rs7,000

Revenue Rs51,600 Fuel Rs4,200

Prepare Balnce Sheet

Q During 2006, Liaba Corporation purchased goods as follows:

Jan 1 balance in hand 40 units @ 30/unit

Mar 5 Purchased 200 units @ 28/unit

July 10 Purchased 80 units @ 25/unit

Oct 2 Purchased 160 units @ 28/unit

Dec22 Purchased 120 units @ 30/unit

Total Units 600

Units sold during the year were 450

Determine Cost of Ending Inventory & Cost of Goods Sold under each of the following

 Weighted average cost basis

 FIFO
 LIFO