Question Paper

Financial Accounting – I (111) –July 2004

• • Answer all questions.

• • Marks are indicated against each question.
< Answer
1. Which of the following are not contingent liabilities? >

(a) Debts included in sundry debtors which are doubtful in nature

(b) Uncalled liability on partly paid shares
(c) Claims against the company not acknowledged as debts
(d) Arrears of cumulative fixed dividend
(e) Both (a) and (b) above.
(1 mark)
< Answer
2. Which of the following statements is true? >

I. Recoupable shortworkings is a current asset

II. Lapsed shortworkings is a nominal account
III. Shortworkings is the part of minimum rent not represented by the use of rights
IV. Shortworkings is the amount by which the minimum rent exceeds the actual royalty
V. The occurrence of shortworkings in any period indicates that the lessee is liable to pay the
minimum rent.
(a) Both (I) and (II) above (b) Both (II) and (III) above
(c) (I), (II) and (IV) above (d) (II), (IV) and (V) above
(e) All (I), (II), (III), (IV) and (V) above.
(1 mark)
< Answer
3. Assets are classified into ‘fixed assets’ and ‘current assets’. This is in recognition of which of the >
following accounting concepts?

(a) Business entity concept (b) Going concern concept

(c) Money measurement concept (d) Conservatism concept
(e) Duality concept.
(1 mark)
< Answer
4. Certain costs of doing business are capitalized when incurred and then depreciated over a period of >
time. This is in recognition of

(a) Money measurement concept (b) Materiality concept

(c) Business entity concept (d) Conservatism concept
(e) Matching concept.
(1 mark)
< Answer
5. If the shortworkings amount is not recouped due to expiry of the term of recoupment, it should be >
debited to
(a) Minimum rent account (b) Landlord account
(c) Royalty account (d) Profit & loss account
(e) Bank account.
(1 mark)
< Answer
6. In contract accounting, the percentage of completion method is an exception to the >
 (a) Matching principle (b) Going concern principle
(c) Historical cost principle (d) Business entity principle
(e) Revenue recognition principle.
(1 mark)
< Answer
7. Which of the following accounting concepts enables comparison of financial statements over a period >
of time?
(a) Cost concept (b) Consistency concept
(c) Materiality concept (d) Money measurement concept
(e) Time period concept.
(1 mark)
< Answer
8. The expenses and incomes pertaining to full trading period are taken to the Profit and Loss account of a >
business, irrespective of their payment or receipt. This is in recognition of
(a) Time period concept (b) Business entity concept
(c) Going concern concept (d) Accrual concept
(e) Duality concept.
(1 mark)
< Answer
9. XYZ Ltd. has a branch at Bangalore. The branch sells goods only for cash and the Head Office >
maintains the accounts of the branch in its books. At the beginning of the year, the company debits its
Banagalore Branch Account with which of the following accounts?
I. Goods sent to branch II. Opening balance of cash
at the branch
III. Opening bills receivables of the branch IV. Opening stock at the branch
V. Opening debtors of the branch.
(a) Only (I) above (b) Both (II) and (III) above
(c) Both (II) and (IV) above (d) (II), (III) and (IV) above
(e) All (I), (II), (III), (IV) and (V) above.
(1 mark)
< Answer
10. The amount earmarked for distribution to the shareholders is known as >

(a) Profit after tax (b) Retained earnings

(c) Dividends (d) Operating profit
(e) Profit before tax.
(1 mark)
< Answer
11. Which of the following are current assets of a business? >

I. Income received in advance II. Stock

III. Debtors IV. Pre-paid expenses
V. Accrued income.
(a) Both (I) and (IV) above (b) Both (II) and (III) above
(c) (I), (II) and (III) above (d) (II), (III), (IV) and (V) above
(e) (I), (II), (III) and (IV) above.
(1 mark)
< Answer
12. Which of the following is not a change in Accounting Policy? >

(a) Introduction of straight line method of depreciation in place of written down value method of
depreciation
(b) Introduction of formal retirement gratuity scheme by an employer in place of adhoc ex-gratia
payments to employees on retirement
 (c) Change in method of valuation of inventories from LIFO to FIFO
(d) Change in method of recognizing revenue on construction contracts from percentage of
completion method to completed contract method
(e) Change in method of conversion of foreign currency items.
(1 mark)
< Answer
13. The income or expenses which arise in the current year as a result of errors or omissions in the >
preparation of financial statements of one or more previous years is known as
(a) Prior period items (b) Extraordinary items
(c) Contingent items (d) Preliminary items
(e) Equity items.
(1 mark)
< Answer
14. Which of the following entries in the books of Head Office is true if goods are returned by customers >
to branch?
(a) Debit Branch Stock a/c. and Credit Returns Inward a/c.
(b) Debit Branch Stock a/c. and Credit Branch Debtors a/c.
(c) Debit Branch Debtors a/c. and Credit Returns Inward a/c.
(d) Debit Branch Debtors a/c. and Credit Branch Stock a/c.
(e) Debit Returns Inward a/c. and Credit Branch Stock a/c.
(1 mark)
< Answer
15. Which of the following statements is/are true? >

I. Drawings account is a nominal account

II. Capital account is a real account
III. Sales account is a nominal account
IV. Outstanding salaries account is a nominal account
V. Patents account is a personal account.
(a) Only (I) above (b) Only (III) above
(c) Both (II) and (IV) above (d) (II), (IV) and (V) above
(e) (I), (II), (III) and (IV) above.
(1 mark)
< Answer
16. The periodical total of a purchases returns book is recorded to the >

(a) Debit side of the purchases account

(b) Debit side of the purchases returns account
(c) Credit side of the purchases account
(d) Credit side of the purchases returns account
(e) Credit side of creditors account.
(1 mark)
< Answer
17. Which of the following subsidiary books serves the purpose of ledger, in addition to the recording of >
accounting transactions?
(a) Purchases book (b) Sales book (c) Bills receivable book
(d) Cash book (e) Journal proper.
(1 mark)
< Answer
18. Which of the following transactions of a business is/are recorded in journal proper? >

I. Purchase of goods on credit

II. Sale of office furniture for cash
III. Discounting of bill of exchange with a bank
 IV. Endorsement of a bill of exchange in settlement of debt of the business.
(a) Only (I) above (b) Only (IV) above
(c) Both (II) and (IV) above (d) (I), (III) and (IV) above
(e) All (I), (II) (III) and (IV) above.
(1 mark)
< Answer
19. ABC Ltd. makes payments to its sundry creditors through cheques and the cash discount received on >
these payments is recorded in the triple columnar cash book. In the event of dishonour of any such
cheques, the discount so received should be written back through
I. A debit to discount column of the cash book
II. A credit to discount column of the cash book
III. A credit to bank column of the cash book
IV. A debit to discount account through journal proper
V. A credit to creditor’s account through journal proper.
(a) Only (I) above (b) Only (II) above
(c) Only (IV) above d) Both (I) and (III) above
(e) Both (IV) and (V) above.
(1 mark)
< Answer
20. RS Ltd. makes purchases on credit. If the purchases are not as per the specifications, the company >
returns them to the suppliers. The book, that is used to record such returns is
(a) Returns inward book (b) Returns outward book
(c) Cash book (d) Journal proper
(e) Purchases day book.
(1 mark)
< Answer
21. The periodical total of discount column on receipts side of a triple column cash book is recorded to the >

(a) Credit side of discount account (b) Credit side of provision for discount account
(c) Debit side of discount account (d) Credit side of debtor’s account
(e) Credit side of creditor’s account.
(1 mark)
< Answer
22. Which of the following is a liability of a firm? >

(a) Debit balance of discount column of cash book

(b) Credit balance of bank pass book
(c) Debit balance of bank column of cash book
(d) Debit balance of cash column of cash book
(e) Credit balance of bank column of cash book.
(1 mark)
< Answer
23. Which of the following items is not a reason for difference between bank balance as per cash book and >
pass book?
(a) Omission of a contra entry in cash book
(b) Cheques deposited but not yet cleared
(c) Omission of an entry in cash column of cash book
(d) Cheques issued but not yet presented for payment
(e) Interest on investments directly collected by bank.
(1 mark)
< Answer
24. If a bill is endorsed to a third party, the accounting treatment, in the books of endorser, at the time of >
endorsement is
(a) Credit Endorsee’s account (b) Debit Endorsee’s account
 (c) Debit Bills receivable account (d) Credit Bills payable account
(e) Debit Bills payable account.
(1 mark)
< Answer
25. If a cash sale of Rs.2,345 is omitted to be recorded in the sales account, it is an example of >

(a) Error of principle (b) Error of omission

(c) Error of partial omission (d) Compensating error
(e) Error of commission.
(1 mark)
< Answer
26. Which of following transactions does not change the total amount of liabilities in the balance sheet? >

(a) Purchase of office furniture on credit

(b) Payment of bank loan
(c) Issue of debentures
(d) Acceptance of bills from creditors
(e) Both (a) and (d) above.
(1 mark)
< Answer
27. If the goods are sent by the head office to its branch at cost plus 20%, then the loading on the invoice >
price is
1 2 1
(a) 33 3 % (b) 25% (c) 20% (d) 16 3 % (e) 8 3 %.
(1 mark)
< Answer
28. Which of the following statements is true? >

(a) Compensating errors cause a mismatch in the trial balance

(b) Error of principle affects the agreement of trial balance
(c) Omission of recording of a transaction from the books affects only one account
(d) Recording a transaction at an amount which is totally different from the actual amount does not
affect the agreement of trial balance
(e) Error of casting does not affect the agreement of trial balance.
(1 mark)
< Answer
29. Which of the following statements is false? >

(a) The financial statements should disclose the accounting policies adopted in measuring inventory
(b) The cost of conversion of inventories includes costs directly related to the units of production
such as direct labor
(c) Inventory should be measured at the lower of cost and net realisable value
(d) The cost of inventory is recoverable if it has become wholly or partially obsolete
(e) The cost of inventory should comprise of all costs of purchase, costs of conversion and other costs
incurred in bringing the inventory to their present location and condition.
(1 mark)
< Answer
30. Which of the following methods of valuation of inventory is based on the assumption that costs are >
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) Base stock method.
(1 mark)
< Answer
31. Balancing of an account at the end of a financial year denotes >

(a) Carry forward excess of debit over credit

 (b) Carry forward excess of credit over debit
(c) Equalizing both sides of an account by placing funds or withdrawing funds
(d) Both (a) and (b) above in case of personal, nominal and real accounts
(e) Only (a) in case of real accounts and both (a) and (b) in case of personal accounts.
(1 mark)
< Answer
32. The opening inventory is >

(a) Net purchases minus closing inventory

(b) Net purchases minus the cost of goods sold
(c) Total goods available for sale minus net purchases
(d) Total goods available for sale minus the cost of goods sold
(e) Total goods available for sale minus closing inventory.
(1 mark)
< Answer
33. Which of the following items is/are covered under Accounting Standard-2 with regard to accounting >
for inventory?
I. Financial instruments held as stock-in-trade
II. Work in progress arising under construction contracts
III. Work in progress of service providers
IV. Work in progress of a manufacturing industry.
(a) Only (I) above (b) Only (IV) above
(c) Both (I) and (II) above (d) Both (III) and (IV) above
(e) (II), (III) and (IV) above.
(1 mark)
< Answer
34. The total of debit side of the Trial balance of Gemini Co. is excess by Rs.4,247. The same was carried >
over to suspense account by a credit of Rs.4,247. The accounting treatment of the suspense account at
the time of preparation of final accounts is to
(a) Credit as income in profit and loss account
(b) Debit as expense in profit and loss account
(c) Show under current liabilities
(d) Show under current assets
(e) Credit to capital account.
(1 mark)
< Answer
35. Which of the following is true, if the going concern concept is no longer valid for a company? >

(a) All the prepaid expenses should be written off

(b) Land held as an investment would be valued at its net realizable value
(c) Total contributed capital and retained earnings would remain unchanged
(d) The bills receivable from debtors will be taken as zero
(e) Intangible assets would continue to be carried at net amortized historical cost.
(1 mark)
< Answer
36. The entry for creating provision for bad debts is >

(a) Debit provision for bad debts account and credit debtors account
(b) Debit provision for bad debts account and credit profit and loss account
(c) Debit profit and loss account and credit debtors account
(d) Debit profit and loss account and credit provision for bad debts account
(e) Debit debtors account and credit provision for bad debts account.
(1 mark)
< Answer
37. Which of the following factors are primarily considered to determine the economic life of an asset? >
 (a) Passage of time, asset usage, and obsolescence
(b) Tax regulations and SEBI guidelines
(c) Tax regulations and asset usage
(d) SEBI guidelines and asset usage
(e) Management and external factors.
(1 mark)
< Answer
38. Under trading method of maintaining branch accounts, the excess of invoice price over the cost price of >
the goods sent to branch is credited to
(a) Goods sent to branch account (b) Branch account
(c) Branch adjustment account (d) Branch stock reserve account
(e) Branch stock account.
(1 mark)
< Answer
39. The portion of the acquisition cost of the asset yet to be allocated is known as >

(a) Written down value (b) Accumulated value (c) Realisable value
(d) Salvage value (e) Replacement value.
(1 mark)
< Answer
40. Which of the following statements is true with regard to written down value method of depreciation? >

I. The rate at which the asset is written off reduces year after year
II. The amount of depreciation provided reduces from year to year
III. The rate of depreciation as well as the amount of depreciation reduce year after year
IV. The value of the asset gets reduced to zero over a period of time.
(a) Only (I) above (b) Only (II) above
(c) Both (I) and (II) above (d) (I), (II) and (III) above
(e) (II), (III) and (IV) above.
(1 mark)
< Answer
41. The following information pertains to Taurus Ltd. for the year 2003-04: >

Particulars 1st April 2003 31st March 2004

Inventory Rs. 72,000 Rs. 67,000
Sundry debtors Rs. 47,000 Rs. 70,000
Sundry creditors Rs. 40,000 Rs. 38,000 Total of sales
during the year was Rs.8,90,000, out of which cash sales amounted to Rs.2,15,000. The cost of goods
sold of the company was 80% of the sales.
If a discount of Rs.13,040 is allowed, the amount of cash collected from the debtors during the year was
(a) Rs. 6,38,960 (b) Rs. 6,61,960 (c) Rs. 6,75,000 (d) Rs. 8,53,960 (e) Rs. 6,63,960.
(2 marks)
< Answer
42. Rama drew on Arvin a bill of exchange for Rs.60,000 on May 1, 2004 for two months for mutual >
accommodation in equal proportion. Duly accepted bill was discounted with a bank for Rs.59,500. Rama
remits Rs.29,750 to Arvin against his share. The discount that appears in the books of Rama on account
of this transaction is
(a) Rs. Nil (b) Rs.500 (c) Rs.250 (d) Rs.200 (e) Rs.100.
(1 mark)
< Answer
43. A machine was acquired by a company five years ago at a price of Rs. 26,000. It is being depreciated to >
its scrap value on straight line basis over 8 years. The amount of depreciation accumulated upto date is
Rs.15,000. The company re-estimates the life of the machine in a more realistic manner and indicates its
 life span for 10 years. The revised realistic estimate of depreciation per year will be
(a) Rs.2,000 (b) Rs.2,400 (c) Rs.2,600 (d) Rs.3,250 (e) Rs.3,000.
(1 mark)
< Answer
44. EX Ltd. maintains the inventory records under perpetual system of inventory. Consider the following >
data pertaining to inventory of EX Ltd. for the month of June 2004:
Quantity (in Cost Per unit
Date Particulars
Units) (Rs.)
June 1 Opening inventory 15 400
4 Purchases 20 450
6 Purchases 10 460 If the company sold
22 units on June 24, 2004, the value of closing inventory under FIFO method is
(a) Rs.10,380 (b) Rs.9,680 (c) Rs.9,800 (d) Rs.9,000 (e) Rs.10,450.
(1 mark)
< Answer
45. Consider the following information pertaining to SIRI Company for the year 2003-2004: >

Opening balance of provision for doubtful debts Rs. 20,000

Bad debts during the year Rs. 18,000
Closing balance of Sundry debtors Rs.2,65,000
Estimated provision for doubtful debts 4%
Provision for discount on debtors 2% The amount to be
debited to profit and loss account to make the estimated provision for discount on debtors is
(a) Rs.4,728 (b) Rs.5,300 (c) Rs.5,088 (d) Rs.4,788 (e) Rs.5,128.
(2 marks)
< Answer
46. Consider the following data pertaining to HiFi Systems Ltd.: >

Book value of furniture (Rs.) 22,000

Rate of depreciation (%) 15
No. of years depreciation charged from the date of 3
acquisition If the company
charged depreciation under straight line method, the acquisition cost of the furniture is
(a) Rs.31,900 (b) Rs.48,889 (c) Rs.66,000 (d) Rs.40,000 (e) Rs.35,200.
(1 mark)
< Answer
47. The present book value of an asset of a company is Rs.2,04,120. The company has charged depreciation >
at the rate of 10% under straight line method for the last 3 years i.e. from the date of acquisition. The
amount of depreciation charged for the current year is
(a) Rs.29,160 (b) Rs.28,000 (c) Rs.25,515 (d) Rs.25,200 (e) Rs.20,412.
(1 mark)
< Answer
48. Teja Co. purchased furniture worth Rs.2,050 in exchange of its old furniture, whose book value is >
Rs.1,080, and paid cash of Rs.600.
Amount of loss/profit recognized on this transaction by Teja Co. is,
(a) Rs.230 (loss) (b) Rs.370 (profit)
(c) Rs.600 (profit) (d) Rs.230 (profit) (e) Rs.370 (loss).
(1 mark)
< Answer
49. Returns inward of Rs.3,210 is wrongly entered in the returns outward account as Rs.1,230. The impact of >
 this on the Gross Profit is
(a) Overstatement by Rs.1,980 (b) Overstatement by Rs.1,230
(c) Overstatement by Rs.3,210 (d) Overstatement by Rs.4,440
(e) Understatement by Rs.3,210.
(1 mark)
< Answer
50. Leo Co. invested Rs.80,000 in 12% debentures of Gemini Ltd. on January 31, 2003. The company pays >
interest on debentures on April 30, and October 31, every year. As on March 31, 2004, the accrued interest
revenue is shown in the financial statements of Leo Co. at
(a) Rs. Nil (b) Rs.9,600 (c) Rs.4,000 (d) Rs.2,400 (e) Rs.1,600.
(1 mark)
< Answer
51. Mars Ltd. of Hyderabad has a branch at Chandigarh. Head office invoiced goods to its branch at 10% >
less than the catalogue price which is cost plus 25%. If the total of invoiced goods during the year 2003-
04 is Rs.4,52,000, the cost of such goods is
(a) Rs.4,01,778 (b) Rs.3,39,000 (c) Rs.4,06,800 (d) Rs.3,66,120 (e) Rs.3,84,200.
(1 mark)
< Answer
52. The following information has been extracted from the books of a lessee relating to the year 2003-2004: >

Shortworkings lapsed Rs. 8,000

Shortworkings recovered Rs.12,000
Actual royalty Rs.30,000 The minimum rent paid during the year was
(a) Rs.42,000 (b) Rs.38,000 (c) Rs.22,000 (d) Rs. 18,000 (e) Rs. 4,000.
(1 mark)
< Answer
53. VAIBHAV Ltd. took on lease a mine on October 01, 1999 on the following terms: >

• • Royalty at the rate of Rs.50 per ton of output

• • Minimum rent of Rs.5,00,000 per annum
• • Shortworkings of any year can be recouped in the next 3 years
The output during the first 5 years is as under:
Year Output in tonnes
1999-2000 6,000
2000-2001 6,000
2001-2002 8,000
2002-2003 12,000
2003-2004 14,000 The amount debited to Profit and
Loss account on account of short working lapsed, for the period ended March 31, 2004 is
(a) Rs. Nil (b) Rs.1,00,000 (c) Rs.3,00,000 (d) Rs.5,00,000 (e) Rs.4,00,000.
(2 marks)
< Answer
54. Paradise Gifts is a well established book stores at Mumbai. The balance of sundry debtors as on April 01, >
2003 and March 31, 2004 was Rs.4,00,000 and Rs.3,00,000 respectively. During the year 2003-2004, an
amount of Rs.9,000 was written off as bad debt. If the firm makes a provision for bad debts at the rate of
4% on debtors, the amount debited to profit and loss account on account of provision for doubtful debts
for the year ended March 31, 2004 is
(a) Rs.21,000 (b) Rs. 5,000 (c) Rs.9,000 (d) Rs.12,000 (e) Rs.16,000.
(1 mark)
 < Answer
55. 1 >
33
Life Needs Ltd. of Srinagar sends goods to its Delhi Branch at cost plus 3 %. Out of the goods sent to
the branch during the month of June 2004, part of the goods were lost in transit. The transactions
pertaining to the branch during the month of June 2004 were as under:
Particulars Rs.
Opening stock (invoice price) 30,000
Goods sent to Branch (invoice price) 55,000
Credit sales 40,000
Closing stock (invoice price) 13,000
Opening cash balance 2,500
Closing cash balance 11,000
Cash received from branch 48,000
Cash collected from debtors 26,500 The cost price of the goods lost in
transit is
(a) Rs.750 (b) Rs.1,500 (c) Rs.2,000 (d) Rs.24,000 (e) Rs.32,000.
(3 marks)
< Answer
56. The accountant of ANMOL Ltd. prepared the provisional profit and loss account for the year ended >
March 31, 2004 and submitted to the manager for verification. The accountant reported a profit of
Rs.6,10,000. On scrutiny, the following omissions and commissions are noticed:
• • Manager salary of Rs.3,000 for the month of March 2004 was paid on April 10, 2004.
No adjustment was made to that effect.
• • Sales book is undercast by Rs.20,000.
• • Rs.20,000 paid for the repair of second hand machinery purchased at the beginning of
the year, to bring it to the working condition, is debited to Repairs and Maintenance as
Rs.2,000. The machinery is depreciated at the rate of 10%.
The above mistakes were duly rectified. The profit made by the company after the rectifications is
(a) Rs.6,27,000 (b) Rs.6,47,000 (c) Rs.5,89,000 (d) Rs.5,87,000 (e) Rs.6,29,000.
(2 marks)
< Answer
57. Mr. Amar purchased goods worth Rs.10,000 from Mr. Anush on credit on June 01, 2004. He accepted a >
bill for 3 months on the same day. On July 01, 2004, Mr. Anush discounted the bill with a bank at 15%
p.a. The entry in the books of Mr. Amar to record the transaction of discounting of the bill is
Rs. Rs.
(a) Bank a/c. Dr. 10,000
To Bills receivable a/c 10,000
(b) Bank a/c. Dr. 9,750
Discount a/c. Dr. 250
To Bills receivable a/c. 10,000
(c) Bank a/c. Dr. 9,625
Discount a/c. Dr. 375
To Bills receivable a/c. 10,000
(d) Bank a/c. Dr. 10,000
To Discount a/c. 250
To Bills payable a/c. 9,750
(e) No entry is passed
(1 mark)
< Answer
58. On January 01, 2000. Nanditha took on lease a coal mine on the following terms: >
Minimum rent per annum Rs.50,000
Royalty 10% of sales
 Shortworkings of any year can be recouped in the next two years.
Nanditha sells coal at the rate of Rs.50 per ton
The production and closing inventory details are as under:
Year Production in tonnes Closing stock in tonnes
2000-2001 2,700 700
2001-2002 5,800 500
2002-2003 8,300 800
2003-2004 11,600 1,400 The amount of
shortworkings shown on the asset side of Balance Sheet of Nanditha as on March 31, 2004 is
(a) Rs. 5,000 (b) Rs.25,000 (c) Rs.Nil (d) Rs.30,000 (e) Rs.10,000.
(2 marks)
< Answer
59. Moon Light Ltd. is a manufacturing unit with Authorised Capital of Rs.8,00,000 of Rs. 100 each issued >
at a Premium of 10%. The following balances are extracted from the books of the company as on March
31, 2004:
Particulars Rs. Particulars Rs.
Called-up share capital 6,00,000 Plant and machinery 2,20,000
Land and building 4,40,000 10% Investments 60,000
12% Debentures 3,00,000 Calls in arrears 30,000
Term loan from bank 70,000 Securities premium 60,000
Sundry creditors 90,000 Profit and loss account
50,000
Sundry debtors 1,20,000 (debit balance)
Closing Stock 96,000 Outstanding salaries 10,500
Loans to employees 50,000 Insurance premium paid in
1,200
Provision for doubtful debts 10,000 advance
Interest received in advance 700 Cash on hand 4,000
Bank balance (debit) 40,000 Preliminary expenses 30,000
The total of liabilities side of the balance sheet is
(a) Rs.11,01,200 (b) Rs.11,00,500 (c) Rs.11,31,200 (d) Rs.13,31,200 (e) Rs.11,01,900.
(2 marks)
< Answer
60. The balances extracted from the books of M/s.Fair Pals as on March 31, 2004 are as under: >

Particulars Rs.
Salaries 33,000
Interest on loan from Mr.Prahlad 4,500
Sales 1,19,500
Returns Inward 6,000
Purchases 93,000
Rent 26,000
Machinery 1,00,000
Sundry debtors 16,000
Sundry creditors 29,000
Loan at 10% from Mr. Prahlad
50,000
(taken on April 01, 2002)
Capital account 90,000
Cash 4,500
Drawings 5,500 However, Mr. Avinash, the proprietor,
omitted to consider the following information:
– The salary of Mr. Arjun, the manager for the month of March 2004 is yet to be paid. Mr.Arjun
draws a salary of Rs.36,000 per annum.
– Depreciation on Machinery is to be provided at 10% per annum.
– Rent for the building to be paid to the landlord is Rs.2,000 per month as per the terms of lease
agreement. The additional amount of rent paid pertains for the month of April 2004.
 The total of the trial balance after considering the above information is
(a) Rs.2,86,000 (b) Rs.2,91,500 (c) Rs.2,92,000 (d) Rs.2,87,500 (e) Rs.2,87,000.
(3 marks)
< Answer
61. Consider the following data pertaining to Mr. Kishan for the year ended March 31, 2004: >

Particulars Rs.
Sales 5,20,000
Purchases 4,30,000
Opening stock 50,000
Salaries and wages 18,000
Printing and stationery 1,000
Rent paid 6,000
Insurance 2,000
Carriage inward 2,900
Carriage outward 2,500
Returns inward 30,000
Returns outward 15,000
Closing stock 36,000 The manager of Mr. Kishan is entitled to a
commission of 10% on profit after charging his commission. The commission payable to the manager for
the year 2003-2004 is
(a) Rs.5,318 (b) Rs.5,850 (c) Rs.2,860 (d) Rs.2,600 (e) Rs.2,363.
(3 marks)
< Answer
62. Mr. Sravan accepted a six months bill amounting to Rs.15,000 drawn by Mr. Vidwan on January 01, >
2004 and the bill was later discounted with a bank. On the due date, Mr. Sravan was declared insolvent
and a first and final dividend of forty paise per rupee was received by
Mr. Vidwan from the official receiver of Mr.Sravan on July 10, 2004. The journal entry to be passed to
record the transaction in the books of Mr. Vidwan on July 10, 2004 is
Rs. Rs.
(a) Bank account Dr. 6,000
Bad debts account Dr. 9,000
To Bills receivable account 15,000
(b) Bank account Dr. 9,000
Bad debts account Dr. 6,000
To Bills receivable account 15,000
(c) Bank account Dr. 6,000
Bad debts account Dr. 9,000
To Sravan account 15,000
(d) Bills receivable account Dr. 15,000
To Sravan account 15,000
(e) Vidwan account Dr. 15,000
To Bank account 6,000
To Bad debts account 9,000.
(2 marks)
< Answer
63. In the books of Brindavan Ltd., the balance in the furniture and fixtures account as on March 31, 2004 >
was Rs.2,10,000. The following additional information is given:
i. Sales of the company during the year 2003-2004 includes Rs.18,000 in respect of sale of an old
furniture on March 31, 2004. The book value of the furniture on April 01, 2003 was Rs.20,000
ii. Depreciation @ 10% is to be provided on furniture & fixtures under written down value method.
The amount at which the furniture and fixtures is shown in the balance sheet of Brindavan Ltd. as on
March 31, 2004 is
 (a) Rs. 2,10,000 (b) Rs. 1,69,000 (c) Rs. 1,89,000 (d) Rs. 1,92,000 (e) Rs. 1,71,000.
(1 mark)
< Answer
64. Consider the following particulars pertaining to the sole proprietor business of Mr. Kalyan: >

As on April 01, 2003 As on March 31, 2004

Particulars
Rs. Rs.
Capital 3,50,000 ?
Loan from bank 1,75,000 1,70,000
Sundry creditors 25,000 65,000
Fixed assets 2,75,000 2,55,000
Inventory 1,50,000 1,25,000
Sundry debtors 70,000 90,000
Cash and bank 55,000 85,000 The profit/loss
for the year 2003-2004 was
(a) Rs. 30,000 (profit) (b) Rs.55,000 (profit)
(c) Rs. 30,000 (loss) (d) Rs. 95,000 (profit) (e) Rs.5,000 (loss).
(1 mark)
< Answer
65. Ms. Mugdha owns a coal mine which is leased to Ms.Muktha at a royalty of 10% of sales subject to a >
minimum rent of Rs.60,000 per annum. The royalty is payable on April 30 for the coal sold during
September 01 to February 28/29 every year and on October 31 for the coal sold during March 01 to
August 31 every year.
Details of sales are as under:
Period Sales (Rs.)
September 01, 2002 to February 28, 2003 2,10,000
March 01, 2003 to March 31, 2003 60,000
March 01, 2003 to August 31,2003 2,30,000
September 01, 2003 to February 28, 2004 2,55,000
March 01, 2004 to March 31, 2004 95,000 The amount which Ms.
Mugdha should record as revenue from royalty for the year 2003-2004 is
(a) Rs.52,000 (b) Rs.73,000 (c) Rs.60,000 (d) Rs.64,000 (e) Rs.85,000.
(2 marks)
< Answer
66. Sumesh drew a bill on Sanjay for Rs.45,000 for mutual accommodation in the ratio of 2:1. Sanjay >
accepted the bill and returned it to Sumesh. Sumesh discounted the bill for Rs.42,300 and remitted 1/3 rd
proceeds to Sanjay. Before the due date, not having funds to meet the bill, Sanjay drew a bill on Sumesh
for Rs.63,000 on the same terms as to mutual accommodation. The second bill was discounted for
Rs.61,200. The second bill was honoured on the due date and a net amount of Rs.10,800 was remitted to
Sumesh by Sanjay.
The proportionate discount charge on both the bills that is to be borne by Sumesh is
(a) Rs.1,800 (b) Rs.1,500 (c) Rs.3,000 (d) Rs.1,200 (e) Rs. 400.
(1 mark)
< Answer
67. The inventory of Gayatri Ltd. as on March 31, 2003 is overvalued by Rs.30,000. The net profit for the >
year 2003-2004 is
(a) Overstated by Rs.30,000 (b) Understated by Rs.30,000
(c) Overstated by Rs.60,000 (d) Understated by Rs.60,000
(e) Not affected.
(1 mark)
< Answer
68. Consider the following data pertaining to Jay Ltd. as on March 31, 2004: >
 Particulars Amount (Rs.) Amount (Rs.)
Opening stock 80,000
Sales 6,25,000
Purchases 4,66,000
Salaries 82,000
Other expenses 77,000
Fixed assets 5,00,000
Sundry debtors 45,000
Sundry creditors 44,000
Cash and bank 53,000
Share capital 6,00,000
Short term loan 34,000
13,03,000 13,03,000 The value of stock as on March 31,
2004 is Rs.75,000. The company has the practice of charging depreciation on the fixed assets at the rate
of 15% on written down value method. The total balance sheet of Jay Ltd. as on March 31, 2004 is
(a) Rs.7,28,000 (b) Rs.6,78,000 (c) Rs.6,83,000 (d) Rs.7,48,000 (e) Rs.6,03,000.
(2 marks)
< Answer
69. Consider the following data pertaining to Lairs Ltd. for the month of June 2004: >

Purchases Issues Balance

Date Quantity Rate Quantity Quantity Rate
(Kg.) (Rs.) (Kg.) (Kg.) (Rs.)
01-06-2004 250 45.60
02-06-2004 200 48
10-06-2004 300 50
25-06-2004 500 If the company
uses weighted average method for inventory valuation, the value of inventory as on June 30, 2004 is
(a) Rs.11,967 (b) Rs.12,000 (c) Rs.12,500 (d) Rs.11,400 (e) Rs.36,000.
(2 marks)
< Answer
70. The accountant of Sun Rays Ltd. noticed certain differences in the books of account at the time of >
preparation of Trial Balance. The difference in books is placed to suspense account. One of the
differences is that the discount column on payments side of cash book is totalled as Rs.9,500 instead of
Rs.5,900. The journal entry to rectify this mistake is
Rs. Rs.
(a) Discount account Dr. 3,600
To Suspense account 3,600

(b) Suspense account Dr. 3,600

To Discount account 3,600

(c) Profit and loss adjustment account Dr. 3,600

To Suspense account 3,600
(d) Discount account 3,600
Dr.
To Profit and loss adjustment account 3,600

(e) Discount account 5,900

Dr.
To Suspense account 5,900.(1 mark)
 < Answer
71. On June 01, 2004, the Bills receivable of Swan Ltd. showed a balance of Rs.30,000. During the month of >
June 2004, new bills accepted by debtors amounted to Rs.20,000, bills dishonored by drawees amounted
to Rs.14,000 and bills honored by drawees amounted to Rs.15,000. The balance of bills receivable
account as on June 30, 2004 is
(a) Rs.21,000 (b) Rs.36,000 (c) Rs.50,000 (d) Rs.35,000 (e) Rs.64,000.
(1 mark)
< Answer
72. Consider the following Balance Sheet of Penguin Ltd. as on March 31, 2004: >

Liabilities Rs. Assets Rs.

Share capital 25,00,000 Land 3,00,000
Profit and loss account 1,50,000 Buildings 8,75,000
Provision for depreciation: Plant and machinery 15,00,000
Buildings 1,75,000 Furniture and fittings 2,00,000
Plant and machinery 6,00,000 Investments 5,85,000
Furniture and fittings 60,000 Sundry debtors 3,50,000
Short-term loan 5,50,000 Closing stock 1,50,000
Sundry creditors 1,50,000 Cash and bank 2,25,000
41,85,000 41,85,000 The
company charges depreciation on all its fixed assets at the rate of 10% on written down value method.
The amount to be charged to profit and loss account for the year ended March 31, 2004 on account of
provision for depreciation is
(a) Rs.2,60,000 (b) Rs.1,74,000 (c) Rs.2,57,500 (d) Rs.2,08,000 (e) Rs.9,08,000.
(1 mark)
< Answer
73. The provision for bad and doubtful debts of Bharani & Company has a debit balance of Rs.2,500 after >
adjustment of bad debts of Rs.6,000. If the company decides to maintain a provision for bad and doubtful
debts of Rs.3,200 at the end of the year, the profit and loss account will be debited by
(a) Rs. 8,500 (b) Rs. 1,300 (c) Rs. 9,200 (d) Rs. 5,700 (e) Rs.10,700.
(1 mark)
 Questions 74-75 are based on the following information:
An inexperienced book-keeper of M/s. Twin Angels has drawn up the following trial balance of the firm
for the year ended March 31, 2004:
Trial Balance as on March 31, 2004
Particulars Debit Particulars Credit Rs.
Rs.
Provision for doubtful debts 2,000 Capital 45,900
Bank overdraft 16,540 Sundry creditors 16,370
Sundry debtors 29,830 Discount allowed 7,330
Discount received 2,520 General expenses 8,290
Drawings 12,000 Returns inward 3,300
Office furniture 21,550 Cash sales 60,800
Purchases 1,09,230 Credit sales 1,08,020
Rent and rates 3,140
Salaries 25,200
Opening stock 24,180
Provision for depreciation on 3,650
office furniture
Total 2,49,840 Total 2,50,010
Subsequently, another corrected trial balance was drawn and the residual difference was found to be on
account of omission of cash on hand.

74. The total of corrected Trial Balance is < Answer

>
(a) Rs.2,49,840 (b) Rs.2,49,925 (c) Rs.2,50,010 (d) Rs.2,54,180 (e) Rs.2,55,800.
(2 marks)
< Answer
75. Additional information: >

• • The closing stock of the company is valued at Rs.35,200

• • The business depreciates office furniture at the rate of 10% on written down value method.
The net profit of the Twin Angels for the year ended March 31, 2004 is
(a) Rs.23,715 (b) 17,480 (c) Rs.17,115 (d) Rs.24,080 (e) Rs.22,220.
(2 marks)
< Answer
76. On June 30, 2004, the bank column of the cash book of Venus Ltd. showed a debit balance of >
Rs.1,62,000 which did not agree with the balance as per the bank statement. On scrutiny the
following omissions and commissions were noticed:
 As per bank statement, a cheque of Rs.7,000 was deposited on June 25,2004. But no entry was
made in the cash book
 Receipt side of the bank column of the cash book was undercast by Rs.1,000
 An amount of Rs.49,960 was credited by the bank on account of the proceeds of a cheque for
Rs.50,000 deposited for collection. No entry was passed in the cash book for bank charges
 A cheque issued by a customer for Rs.5,300 was deposited in the bank on June 25,2004. But the
same was dishonoured on June 29, 2004. No entry was passed in the cash book for dishonour
 The amount of bills receivable collected directly by the bank aggregated to Rs.35,000
 The amount of bank charges of Rs.250 was recorded twice in the cash book
 A bill of Rs.80,000 sent for collection was dishonoured by the drawee, and noting charges of
Rs.150 was paid by the bank. No entry was made in the cash book.
The bank balance as per the bank statement on June 30, 2004 was
 (a) Rs.1,92,760 (credit) (b) Rs.1,24,240 (debit)
(c) Rs.1,99,760 (debit) (d) Rs.1,99,760 (credit)
(e) Rs.1,24,240 (credit).
(3 marks)
< Answer
Questions 77-78 are based on the following information: >

XLNT Company of Hyderabad has a Branch at Kanyakumari to which goods are invoiced at cost plus
25%. The Branch maintains its own sales ledger and remits cash received to Head Office on regular
basis. All expenses of the Branch are paid from Head Office. The company has furnished the following
information of the Branch for the year 2003-2004:
Particulars Rs.
Stock as on April 01, 2003 23,000
Goods sent to Branch 4,00,000
Sundry debtors as on April 01, 2003 35,000
Petty cash balance as on April 01, 2003 2,800
Cash sales 64,000
Collection from debtors 4,80,000
Goods returned to Head Office 7,500
Bad debts 12,000
Discount allowed 4,500
Returns Inward 17,250
Cheques sent to Branch for
Salary 1,24,000
Rent 42,000
Other expenses 24,000
Stock as on March 31, 2004 25,000
Sundry debtors as on March 31, 2004 40,000
Petty cash balance as on March 31, 2004 1,500
< Answer
77. The Head Office prepares the Branch Account under Trading system of Branch accounting. The profit >
made by the Branch for the year 2003-2004 is
(a) Rs. 45,300 (b) Rs. 46,800 (c) Rs. 51,300 (d) Rs. 84,050 (e) Rs.76,550.
(3 marks)
< Answer
78. The amount of credit sales made by the branch during the year 2003-2004 is >

(a) Rs.5,36,000 (b) Rs.5,18,750 (c) Rs.4,85,000 (d) Rs.4,73,000 (e) Rs.5,01,500.
(1 mark)

END OF QUESTION PAPER

 Suggested Answers
Financial Accounting – I (111) –July 2004
1. Answer : (a) <
TO
Reason :A contingent liability is the loss which will be known or determined only on the P
>
occurrence or non-occurrence of one or more future uncertain events. Debts of debtors
is not an uncertain event but only the realization of a part of the debt is doubtful for
which provision must be provided and hence it is not a contingent liability.
2. Answer : (e) <
TO
Reason :All the following statements are true (I) Recoupable shortworkings is a current asset P
and it is shown in the balance sheet either till they are recovered or written off; (II) >

Lapsed shortworkings is a nominal account and is to be debited to profit and loss

account in the year of lapse of the time; (III) Shortworkings is the part of minimum
rent not represented by the use of rights because the amount of shortworkings is paid
due to the agreement of minimum rent without making use of the rights vested in; (IV)
Shortworkings is the amount by which the minimum rent exceeds the actual royalty;
and (V)The occurrence of shortworkings in any period indicates that the lessee is
liable to pay the minimum rent. Thus, the statements above stated are true and the
combination of all the above (e) is the correct answer. The other alternatives (a), (b),
(c) and (d) are not combined with all the true statements and are not the correct
answers.
3. Answer : (b) <
TO
Reason :Classification of assets into “fixed” and “current” pre-supposes going concern P
concept. Going concern concept implies that the business entity is assumed to carry its >
operations forever. It is because, that the assets like land, buildings, machinery etc
would continue to be with the concern for a long time for producing and selling the
end products, these assets are termed as fixed assets. If this assumption is invalid and
the assets were to be sold off, such assets will be termed as current assets.
4. Answer : (e) <
TO
Reason :Certain costs are capitalized when incurred and then depreciated over a period of P
time. This is done to match revenues of a period with the expenses attributable to such >

period. Hence, this is in recognition of matching concept.

5. Answer : (d) <
TO
Reason :The un recovered short workings after the expiration of the stipulated period is to be P
written off by debiting profit & loss account, because it is a loss. It cannot be debited >

to minimum rent account, landlord a/c., royalty account or bank account. Hence, (d) is
true
6. Answer : (e) <
TO
Reason :In contract accounting, there is a reasonable certainty that the project would be P
completed and the return consideration is realized. In fact, return consideration may >

begin as soon as the work begins. So, revenue may be recognized as work-in-progress.
This is the exception to the revenue recognition principle. Other principles stated in
(a), (b), (c) and (d) are not correct. Hence, (e) is true.
7. Answer : (b) <
TO
Reason :According to the consistency concept, the financial statements should be prepared on P
the basis of accounting principles which are followed consistently. Hence, this concept >
 enables comparison of financial statements over a period of time. According to cost
concept, all transactions are recorded at cost. All material items should be separately
disclosed under materiality concept. Money measurement concept envisages that a
record is made only of information that can be expressed in monetary terms.
According to time period concept, the income or loss of a business is measured
periodically for a specific interval of time, called accounting period.
8. Answer : (d) <
TO
Reason :The expenses and incomes for the full trading period are taken to the Profit and Loss P
account of a business, irrespective of their payment or receipt is in recognition of >

accrual concept. The concepts in other alternatives are incorrect because according to
the Time period concept (a) the income or loss of a business is measured periodically
for a specified interval of time usually one year and it does not speak about how
expenses and incomes are accounted for the entire period irrespective of the cash
involvement.
According to the Business entity concept (b) the transactions of the business
are treated distinctly from that of the owners of the business and it explains that all the
expenses and incomes of business are to be accounted for distinctly from that of the
owners. The Going concern concept (c), which necessitates distinction between
expenditure that will render benefit over a long period and that whose benefit will be
exhausted within the accounting period. The Duality concept (e) says that every
transaction has dual aspect and explains that Capital + outside liability =Assets. This
is the basis for fundamental equation. Thus, the correct answer is (d).
9. Answer : (c) <
TO
Reason :In case of branches where the sales are made only for cash, in the books of Head P
Office, the Branch Account is debited with opening balance of cash (II) and opening >

balance of stock (IV) in the beginning of the year. The combination of the statements
(II) and (IV) alternative (c)is the correct answer. When the goods are sold only for
cash the branches do not maintain any books of accounts except a petty cash book and
a stock statement. Since there are no credit sales, the debtors account does not appear.
Whenever goods are sent to the branch, the branch account is debited with the goods
sent and not at the beginning of the year. Thus, the statements in (I), (III) and (V) are
incorrect and the combination with those statements. Hence (c) is the correct answer.
10 Answer : (c) <
TO
. Reason : Dividends represent the amount earmarked to distribute to the shareholders. P
Hence (c) is the answer. >

The amount of taxes is to be deducted from profit before tax and the amount to
be transferred to reserves and other appropriations, if any, need to be made from
profits after tax. Operating profit is the amount of profit other than non-operating
surplus. Interest, taxes, other appropriations should be made to operating profit. Hence
this is not the amount earmarked for distribution to shareholders.
11. Answer : (d) <
TO
Reason :Current assets are the assets which can be consumed or converted into cash within an P
accounting period i.e. usually twelve months. Income received in advance is a liability >

of a business and is not a current asset. Thus, (a) is the correct answer. Alternatives (b)
stock, (c) debtors, (d) pre-paid expenses, accrued income (e) are current assets of a
business and are not the correct answers.
12 Answer : (b) <
TO
. Reason :As per Accounting Standard 5, introduction of formal retirement gratuity scheme by P
an employer in place of adhoc ex-gratia payments to employees on retirement, is not a >

change in Accounting Policy.

13 Answer : (a) <
TO
. Reason :According to Accounting Standard-5, the incomes or expenses which arise in the P
current period as a result of errors or omissions in the preparation of financial >

statements of one or more prior periods is known as prior period items. Extraordinary
items are incomes or expenses that arise from events or transactions that are clearly
distinct from the ordinary activities of the enterprise and, therefore, are not expected to
recur frequently or regularly. Contingent items are gains or losses, which arise only
on the occurrence or non-occurrence of a one or more uncertain future events.
Preliminary items are those expenses incurred for the incorporation of the company.
Equity items are the items like equity share capital, calls-in-arrears, which are related
to equity shareholders.
14 Answer : (b)
. Reason : In the Books of head office, journal entry is
Branch stock a/c – Dr.
To Branch Debtors a/c
Other entries stated in (a), (c), (d) and (e) are not true
15 Answer : (b) <
TO
. Reason :Sales account is a nominal account is the correct statement and alternative (b) is the P
correct answer. The alternative (a) is incorrect because drawings is not a nominal >

account and it is a personal account of the owner which indicates the value of money
or goods withdrawn by him for personal consumption. The alternative (c) is incorrect
because the combinations of wrong statements (II) Capital account is a personal
account and not a real account with (IV) correct statement. The alternative (d) is
incorrect because the statement IV is incorrect as outstanding salaries is a
representative personal account and not a nominal account and the statement V is
incorrect as patents account is a real account and not personal account and the
combination of II, IV and V is not the correct answer. The alternative (e) is incorrect
because the combination of one correct statement (III) with incorrect statements in (I),
(II) and (IV). Thus, the correct answer is (b).
16 Answer : (d) <
TO
. Reason :Purchase account is a debit balance and purchase return is a credit balance and the P
>
total of purchase returns will be recorded to the credit side of the purchase return
account.
17 Answer : (d) <
TO
. Reason :Cash book is a special journal in which all cash transactions are recorded directly. The P
cash book resembles a ledger with the debit and credit sides, and the balance >

represents the cash on hand at the end of the accounting period. Hence it serves the
purpose of ledger too. Cash account is 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.
18 Answer : (b) <
TO
. Reason :Endorsement of a bill receivable in settlement of a debt of the business is recorded in P
 the journal proper (b) is the correct answer. The transactions in other alternatives are >

not recorded in journal proper and they are recorded in other subsidiary books
specified for them like alternative (a) Purchase of goods on credit is recorded in
purchases book Sale of office furniture for cash (II) and Discounting of a bill
receivable with a bank (III) are recorded in cash book and not in the journal proper.
Thus, the combination of these transactions in alternatives (a), (c), (d) and (e) are not
the correct answers.
19 Answer : (e) <
TO
. Reason :The amount of cash discount received on the payments made to sundry creditors P
through cheques by the business will be recorded in the cash book, and if the >

previously issued cheque is dishonoured, the discount should be written back through
(IV) A debit to discount account through journal proper and (V) A credit to creditor’s
account through journal proper (e) the combinations of these two statements is the
correct answer. Discount received and allowed accounts separately maintained are not
netted as such the discount received which got to be written back because of return of
previously issued cheque cannot be debited to discount column of the cash book (a) is
the incorrect answer. Since it is reversal of already credited discount account again a
credit to discount column of the cash book cannot be given and (b) is the incorrect
answer. Bank column is debited with the amount of cheque returned which does not
include discount component and it is not a credit to bank column of the cash book as
such (c) is the incorrect answer. The combination of the incorrect statements in (I) and
(III) i.e.(d) is not the correct answer. Thus, (e) is the correct answer.
20 Answer : (b) <
TO
. Reason :The book, that is used to record the goods purchased on cash that are sent back to the P
suppliers on account of non confirmation to the specifications, is the returns outward >

book also known as purchases returns book (b) is the correct answer. Returns inward
book (a) is not the correct answer because, the sales returns are recorded in the returns
inward book. Cash book (c) is not the correct answer because, the transactions
involving either the receipt or payment of cash is recorded in the cash book. Journal
proper (d) is not the correct answer because the journal proper is meant to record the
transactions which do not find place in any other subsidiary book. Purchases day
book (e) is not the correct answer because, all credit purchases are recorded in the
purchases day book and not the returns of it. Thus, (b) is the correct answer.
21 Answer : (c) <
TO
. Reason :The periodical total of discount column on receipts side of a triple column cash book P
is recorded to the debit side of discount account. Receipts side of a triple column cash >

book indicates the debit side and the debit in case of a nominal account is an
expenditure and the discount entered on the receipt side of triple column cash book
indicates the discount allowed and posted to the debit side of discount account in the
ledger. Thus, (c) is the correct answer. Since it is not an income it is not credit to
discount account and alternative (a) is not the correct answer. It is not the discount to
be credited to provision for discount account on debtors (b) and it is not the correct
answer. The periodical total is not credited to debtor’s account as only the individual
amount of discount is credited to respective debtor’s account and not the periodical
total is credited to debtor’s account and alternative (d) is not the correct answer. Since
it is an expenditure being the amount of discount allowed to the debtors, it does not
 find any place in creditors accounts and alternative (e) is the incorrect answer. Thus,
alternative (c) is the correct answer.
22 Answer : (e) <
TO
. Reason :Debit balance of discount column of cash book is an expenditure. Debit balance of P
cash column of cash book and debit balance of bank column of cash book are assets of >

a firm. Credit balance of bank pass book is also an asset of a business. Credit balance
of bank column of cash book is a liability of a firm.
23 Answer : (c) <
TO
. Reason :Omission of an entry in cash column of cash book does not affect the bank balance of P
either cash book or pass book. Hence this is not a reason for difference between bank >

balances as per cash book and pass book.

24 Answer : (b) <
TO
. Reason :A bill of exchange is treated as a bill receivable by the party who draws the bill and is P
entitled to receive payment and he can endorse the bill to a third party before the due >

date and become an endorser. The accounting treatment for endorsement in the books
of endorser will be
Endorsee’s a/c Dr.
To Bills receivable account
Hence, the endorsee’s account will be debited.
The other alternatives are not correct because,
(a) As per the accounting principle of personal accounts ‘debit the
receiver and credit the giver’ here the endorsee is the receiver and his account
cannot be credited.
(c) ‘Bills receivable account’ is a real account and as per the
accounting principle of real accounts ‘debit what comes in and credit what goes
out; bills receivable is parted with on endorsement and hence it cannot be debited.
(d) and (e) A bill of exchange is a bill receivable to the endorser and
bills payable account does not reflect in his books.
25 Answer : (c) <
TO
. Reason :Error of partial omission is an error where one aspect of a transaction has been omitted P
to be recorded. Here, the cash sale of Rs.2,345 has been entered in the cash book, but >

posting the same to sales account is omitted which is an example of partial omission.
The other errors are not correct because,
(a) Error of principle involves an incorrect allocation of expenditure or
receipt between capital and revenue which has no relevance to the cited example.
(b) Error of omission is an error of omission of recording the debit and
credit aspects of a transaction from the books of accounts.
(d) Compensating error is a combination of more than one error
wherein the first error would be exactly compensated by the second error or series
of errors. The said error has no relevance to the given example.
(e) Error of commission is recording a transaction in wrong subsidiary
book or posting of correct amount in the wrong account on the correct side which
has no relevance to the said example.
26 Answer : (d) <
TO
. Reason :Acceptance of bills drawn by creditors will not result in any change in the amount of P
liabilities of balance sheet, because it will decrease the balance of creditors and >
 increase the balance of bills payable by the same amount. So (d) is correct, other
transactions change the total amount of liabilities of the balance sheet.
27 Answer : (d) <
TO
. Reason : Let the cost = 100% P
Loading 20% on costs = 20% >

120%
20% 2
16 %
Loading on invoice price = 120% × 100% = 3
28 Answer : (d) <
TO
. Reason :The errors may arise because of mathematical mistakes, erroneous application of P
principles or misuse of existing information and depending upon their nature, they are >

classified as errors disclosed by the trial balance as they affect its agreement and errors
not disclosed by trial balance. The statement (d) is true because if the recording of a
transaction in the books of original entry is for an amount different from actual, the
transaction is recorded/posted everywhere for the same amount. Ultimately it has no
affect on agreement of trial balance. To illustrate, if a credit sale of Rs.15,000 to Mr. X
is recorded as Rs.1,500 in sales daybook and posted to the debit of Mr. X as Rs.1,500
has no affect in the agreement of trial balance.
The alternative (a), compensating errors cause a mismatch in the trial balance
is false, because, if any error caused at first instance is compensated by a second error
or series of errors, the trial balance will be in agreement and these are quite difficult to
detect.
The alternative (b), error of principle involves an incorrect allocation of
expenditure or receipt between capital and revenue. Such errors do not affect the
agreement of trial balance and they are not disclosed by trial balance. Thus, the
alternative (b) is false.
The statement (c), omission of recording a transaction from the books affects
only one account is false, because it results in omission of both the debit and credit
aspects of a transaction and thus affects the accounts involved.
The Statement (e), error of casting does not affect the agreement of trial
balance is false because wrong totaling in a subsidiary book/ledger accounts result in
either higher amount or lower amount than actual and ultimately results in mismatch
of the trial balance.
29 Answer : (d) <
TO
. Reason :The statement (d) the cost of inventory is recoverable if it has become wholly or P
partially obsolete is false because according to Accounting Standards –AS-2, the cost >

of inventories may not be recoverable if those inventories are damaged wholly or

partially or if their selling prices have declined. AS-2 also prescribes the accounting,
reporting, valuation, cost (which is a resultant of cost of purchase and cost of
conversion) and disclosure (of the policies adopted) associated with the inventories.
The same are depicted in statements (a), (b), (c) and (e) which are true.
30 Answer : (a) <
TO
. Reason :The basis for pricing inventory is either cost of production or cost of acquisition. FIFO P
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
(b) method 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. Base stock method (e) wherein a minimal level of it is a permanent investment,
which is necessary for the normal business activities. Base stock would be carried at
historical cost. Thus, FIFO method is the correct answer.
31 Answer : (e) <
TO
. Reason :Balancing of an account at the end of a financial year denotes carry forward excess of P
debit over credit in case of real accounts and carry forward of the difference between >

debit and credit in case of personal accounts. Hence (e) is the answer. The funds are
neither placed nor withdrawn for balancing an account.
32 Answer : (c) <
TO
. Reason :Total goods available for sale includes opening inventory and net purchases. Hence the P
opening inventory is total goods available for sale minus net purchases. Hence (c) is >

the answer. Net purchases minus closing inventory does not indicate opening
inventory. Net purchases minus the cost of goods sold gives the difference of closing
stock and opening stock. Total goods available for sale minus the cost of goods sold is
the closing inventory. Total goods available for sale minus closing inventory is the cost
of goods sold.
33 Answer : (b) <
TO
. Reason :The Accounting Standard-2 deals with regard to accounting for inventory. According P
to the statement, Work in progress of a manufacturing industry is covered. Thus, the >

alternative (b) is the correct answer. The items of inventory stated in other alternatives
are not covered under AS-2 Financial instruments held as stock-in-trade: Work in
progress arising under construction contracts and Work in progress of service
providers. Hence, alternatives (a) reflecting statement (I); (c) combination of
statements (I) and (II); alternative (d) combination of statements (III) and (IV) and
alternative (e) combination Of statements II, III and IV are incorrect.
34 Answer : (c) <
TO
. Reason :The difference in trial balance is to be located before the preparation of final accounts. P
If for any reason it could not be located, it should be carried forward to Balance Sheet. >

Here, in the present instance, since the suspense account shows a credit balance, it
should be shown on liabilities side of the balance sheet. It is neither an income nor
expenditure to be routed through profit and loss account. It is not showing debit
balance to show on the assets side. It is not a profit to be credited to capital account.
35 Answer : (b) <
TO
. Reason :Going concern concept implies that resources of the concern would continue to be P
used for the purposes for which they are meant to be used. In fact the resources or >

assets would continue to be with the concern for longtime and these assets are termed
as fixed assets and are valued at cost in accounting but not market value or realizable
value. The cost concept is closely related to going concern concept. If the land is
acquired for the operation of the business and would continue to be used for its
operations and would not be sold shortly, then it is immaterial what the land’s market
value is, since it is not going to be sold anyway. If this going concept is no longer
 valid, land would be valued at realizable price. Hence, (b) is correct.
36 Answer : (d) <
TO
. Reason :To create the provision for bad debts, the profit and loss account will be debited and P
the provision for bad debts account will be credited. The entry for creating provision >

for bad debts is

Profit and loss account Dr.
To provision for bad debts.
The provision for bad debts is the provision created to meet the bad debts and
it should be credited. Hence the entries in (a) and (b) are false. As this is only a
provision, the debtor’s balance is not affected in any way. Hence (c) and (e) are false.
Hence the correct answer is (d).
37 Answer : (a) <
TO
. Reason :The economic life of an asset should be estimated on the basis of passage of time, P
asset usage and obsolescence of the asset. It will not consider the factors like tax >

regulations, SEBI guidelines, management and external factors. Hence (a) is true.
38 Answer : (b) <
TO
. Reason :Under trading method of maintenance of branch accounts, the excess of invoice price P
over the cost price of the goods sent to branch is credited to branch account and >

debited to goods sent to branch account. Under Stock and debtors method, the excess
of invoice price over the cost price of the goods sent to branch is credited to branch
adjustment account and debited to goods sent to branch account. In neither of the
methods, it is taken to branch stock reserve account or branch stock account.
39 Answer : (a) <
TO
. Reason :The portion of the acquisition cost of the asset yet to be allocated is known as written P
down value (a) Accumulated value (b) is the value of a thing accumulated over a >

period of time and not the correct answer. Realizable value (c) is the value which can
be realized in the event of sale and is not correct answer. Salvage value (d) is the value
of an asset that remains as scrap value after its usage over a period of time and is not
the correct answer. Replacement value (e) is not the correct answer. Alternative (a) is
the correct answer.
40 Answer : (b) <
TO
. Reason :Under written down value method of depreciation, the amount on which depreciation P
is provided reduces from year to year. Thus the statement under alternative (b) is the >

correct answer. The statements in other alternatives are incorrect because, the rate of
depreciation does not change year after year it remains fixed (a): The rate of
depreciation and the amount of depreciation reduce from year to year is incorrect
because only the amount of depreciation reduces and not the rate. Thus, the alternative
with the combination of statements (I) and (III) is incorrect. Under diminishing
balance method of depreciation, the amount of the asset never becomes to zero over a
period of time. Thus, the combination of statements (I), (III) and (IV) i.e. a, c, d and e
are incorrect.
41 Answer : (a) <
TO
. Reason : P
>
 Particulars Rs.
Opening balance of sundry debtors 47,000
Add: Credit sales 6,75,000
[Total Sales – Cash sales : Rs. 8,90,000 –
Rs. 2,15,000 = Rs. 6,75,000]
7,22,000
Less: Closing balance of Sundry debtors 70,000
Less: Discount allowed 13,040
Cash collected from debtors 6,38,960
42 Answer : (c) <
TO
. Reason : P
>
Particulars Rs.
Amount of bill 60,000
Proceeds of the bill on discounting with the bank 59,500
Discount paid to bank 500
Share of Arvin 30,000
Share remitted 29,750
Discount borne by Arvin 250
Discount accounted by Rama = Rs.500 – Rs.250 = Rs.250.
43 Answer :(b) <
TO
. Reason : Before Revision P
>
Cost of machine Rs.26,000
Total depreciation for 8 years, Rs.3,000 × 8 Rs.24,000
Salvage value Rs.2,000 After
revision – from 8 years to 10 years
Rs.24, 000
Depreciation per year = 10 = Rs.2,400.
44 Answer : (e) <
TO
. Reason : Under First in First out method of inventory valuation, the sale of 22 units will P
be accounted as, >

15 Units @ Rs.400 = Rs. 6,000

7 Units @ Rs.450 = Rs. 3,150
Rs. 9,150
The balance of inventory is,
13 Units @ Rs.450 = Rs.5,850
10 Units @ Rs.460 = Rs.4,600
Value of closing inventory = Rs10,450
45 Answer :(a) <
TO
. Reason : Siri Co. P
>
 Rs.
Bad debts 18,000
Add: Closing provision (4% on Rs.2,65,000) 10,600
28,600
Less:Opening provision 20,000
Amount to be debited to profit & loss account on account of 8,600
provision for doubtful debts
Amount to be debited to profit and loss account on account of provision for
discount on debtors
Debtors : Rs.2,65,000
Less provn. for doubtful debtorsRs. 10,600
Bad debts Rs. 18,000
Rs.236400 x 2% = Rs.4,728
46 Answer : (d) <
TO
. Reason : Rate of Depreciation = 15% No. of years = 3 P
Depreciation method : Straight line >

Book value = Rs.22,000

Cost of furniture = X
Depreciation for three years = (3) (0.15X)
Book-value after three years = X – 0.45 × X = 0.55X =Rs. 22,000
Rs.22, 000
Acquisition cost of the furniture = X= 55 × 100 = Rs.40,000
47 Answer : (a) <
TO
. Reason : The depreciated value of the asset Rs.2,04,120 P
>
Depreciation rate – 10%
Depreciation charged under straight line method for 3 years
Rs.2,04,120
(1 − 3 × 10%)
Cost of asset before depreciation =
Rs.2,04,120
= 0 .7 =
Rs.2,91,600.
The cost of the asset before depreciation = Rs.2,91,600.
The depreciation for the current year = Rs. 29,160.
48 Answer : (b) <
TO
. Reason : P
>
Particulars Rs.
Book value of old furniture 1,080
Add: Cash paid for exchange 600
1,680
Less:Value of new furniture 2,050
Profit recognized on this transaction 370
49 Answer : (d) <
TO
. Reason :Returns inward is an expense and returns outward is an income (cost savings). If the P
 returns inward of Rs.3,210 is wrongly entered in the returns outward account as >

Rs.1,230, income (cost savings) will be increased by Rs.4,440 i.e., Rs.3,120 +

Rs.1,230. It ultimately results in an increase of gross profit by Rs.4,440. The
alternatives a, b, c and e are not the correct resultant amounts. The effect of the
mistake is an increase in gross profit and not a decrease of gross profit.

50 Answer : (c) <

TO
. Reason : The interest accrued on debentures as on 31, March is P
5 >

Rs.80,000 × 12% × 12 = Rs.4,000

i.e. the interest payable from 1st Oct. 2003 to 31st March 2004 (5 months)
51 Answer : (a) <
TO
. Reason : P
Rs. >

Let cost price 100

Add: 25% 25
Catalogue price 125
Less: 10% 12.5
Invoice Price 112.5 Total invoiced goods = Rs.4,52,000
Rs.100
Cost of invoiced goods = Rs.4,52,000 × Rs.112.5 = Rs.4,01,778.
52 Answer : (d) <
TO
. Reason : Minimum Rent = Actual royalty – Shortworking recovered P
= Rs.30,000 – Rs.12,000 = Rs.18,000. >

53 Answer : (a) <

TO
. Reason : VAIBHAV Ltd. P
>
Minimum Rent = Rs.5,00,000 per annum
Rate per ton of output = Rs.50
Short Short
Output Amount to
Year Royalty Short workings working workings
in tonnes be paid
recouped lapsed
Rs. Rs. Rs. Rs.
1999-2000 6,000 3,00,000 2,00,000 - 5,00,000
2000-2001 6,000 3,00,000 2,00,000 - 5,00,000
2001-2002 8,000 4,00,000 1,00,000 - 5,00,000
2002-2003 12,000 6,00,000 – 1,00,000 5,00,000 1,00,000
2003-2004 14,000 7,00,000 – 2,00,000 5,00,000 Nil
54 Answer : (b) <
TO
. Reason : Provision for doubtful debts Account P
>
Dr.
Cr.
 Date Particulars Rs. Date Rs.
March 31, 04 To Bad debts 9,000 April 01, 03 By Balance b/d 16,000
By P & L a/c
To Balance c/f 12,000
(Balancing figure) 5,000
21,000 21,000
55 Answer : (b) <
TO
. Reason : Dr. Branch Cash A/c P
Cr. >

Particulars Rs. Particulars Rs.

To Opening balance 2,500 By Remitted to HO 48,000
To Cash collected from
26,500
debtors
To Cash sales
30,000 By Closing balance 11,000
(Balancing figure)
59,000 59,000
Dr. Branch Stock A/c
Cr.
Particulars Rs. Particulars Rs.
To Opening balance 30,000 By Credit sales 40,000
To Goods sent to Branch 55,000 By Cash sales 30,000
By Closing balance 13,000
By Stock lost
2,000
(Balancing figure)
85,000 85,000
Invoice Price = Rs.2,000
1
33 %
Margin on cost price = 3 i.e., 25% on sales.
3
Cost price of the goods lost in transit= Rs. 2,000 × 4 = Rs.1,500

56 Answer : (a) <

TO
. Particulars Rs. P
Reason : >
Profit as per P & L a/c 6,50,000
(–) Outstanding Salary 3,000
6,07,000
(+) Undercast of sales book 20,000
6,27,000
(+) Repairs for machinery (wrongly debited) 2,000
6,29,000
(-) Depreciation on Machinery 2,000
6,27,000
57 Answer : (e) <
TO
. Reason : As Amar is the drawee of the bill, no entry is passed in his books when the bill P
is discounted. >

58 Answer : (e) <

TO
. Reason : Royalties Analytical Table: P
>
Short- Short-
Royalt Short-
workings workings
Cl. Sales Sales y Rs. Short- workin
Productio Op. stock transferr carried
Year stock in in (10% workin gs
n Units Units ed to P & Rs.
Units tonnes Rs. of gs Rs. recoup
L A/c
Sales) ed Rs.
Rs.
1,00,00 40,000
2000-2001 2,700 700 2,000 10,000 40,000
0
3,00,00 60,000
2001-2002 5,800 700 500 6,000 30,000 20,000
0
4,00,00 30,000
2002-2003 8,300 500 800 8,000 40,000 10,000 40,000
0
5,50,00 10,000
2003-2004 11,600 800 1,400 11,000 55,000 5,000 15,000
0
59 Answer : (a) <
TO
. Reason : Balance Sheet of Moon Light Ltd. as on March 31, 2004 P
>
Liabilities Rs. Assets Rs.
Authorised 8,00,000 Land & building 4,40,000
Capital 6,00,00
Share capital 0
Less call in 30,000 Plant and machinery 2,20,000
5,70,000
arrars
Securities 10% Investments 60,000
60,000
Premium
Sundry debtors 1,20,000
Less provision 1,10,000
12% Debentures 3,00,000 for doubtful debts
10,000
Term Loan from Bank 70,000 Closing Stock 96,000
Sundry creditors 90,000 Loans to employees 50,000
Outstanding Salaries 10,500 Cash on hand 4,000
Interest received in advance 700 Bank 40,000
Insurance premium paid in 1,200
advance
Preliminary expenses 30,000
Profit and loss account 50,000
Total 11,01,200 Total 11,01,200
60 Answer : (c) <
TO
. Reason : Adjusted Trial Balance of Fair Pals P
>
 D C
• • Particulars
R R

Salaries (Rs.33,000 +
Rs.3,000)

3
Outstanding salaries

Interest on loan from

Mr. Prahlad
(Rs.4,500 + Rs.500)
5
Outstanding Interest
1
Sales

Returns Inward

Purchases

Rent (Rs.26,000 –
Rs.2,000)

Prepaid rent

Machinery
(Rs.1,00,000-
Rs.10,000)

Depreciation

Sundry debtors

2
Sundry creditors
61 Answer : (d) <
TO
. Reason : Trading and Profit and loss account for the year ended March 31, 2004. P
>
Dr.
Cr.
Particulars Rs. Particulars Rs.
To Opening stock 50,000 By Sales 5,20,000
To Purchases 4,30,000 Less: Returns inward 30,000 4,90,000
Less: Returns outward 15,000 4,15,000
To Salaries and wages 18,000
To Printing and stationery 1,000
To Rent 6,000
To Insurance 2,000
To Carriage inward 2,900
To Carriage outward 2,500
To Manager’s commission 2,600 By Closing stock 36,000
To Net Profit 26,000
5,26,000 5,26,000
Profit before charging Manager’s commission = Rs. 28,600
28, 600 x10
Manager’s commission = 110 = Rs.2,600.
62 Answer : (c) <
TO
. Reason :The amount received from Sravan (i.e. Rs.15,000 x 40% = Rs.6,000) should be P
>
debited to bank account, the amount not recoverable (Rs.15,000 – Rs.6,000 =
Rs.9,000) should be debited to bad debts account and corresponding credit should be
given to Mr. Sravan account with the total amount of the bill. Hence the journal entry
is Rs. Rs.
Bank account Dr. 6,000
Bad debts account Dr. 9,000
To Sravan account 15,000

63 Answer : (e) <

TO
. Reason : Dr. Furniture and fixtures account P
>
Cr.
 Particulars Rs. Particulars Rs.
To Opening balance 2,10,000 By Bank (sale) 18,000
By Depreciation (Rs.2,10,000 x 10%) 21,000
By Closing balance 1,71,000
2,10,000 2,10,000

Particulars Rs.
Written down value of furniture sold as on April 01, 2003 20,000
Less: Depreciation (Rs.20,000 x 10%) 2,000
Value of furniture on March 31, 2004 18,000
Less: Sale consideration 18,000
Loss/Profit on sale of Furniture Nil

64 Answer : (c) <

TO
. Reason : According to the basic accounting equation, assets = liabilities + owners’ equity. P
>
Hence owners equity = assets – liabilities.
= Rs.2,55,000 + Rs.1,25,000 + Rs.90,000 + Rs.85,000 – (Rs.1,70,000 + Rs.65,000)
= Rs.5,55,000 – Rs.2,35,000 = Rs.3,20,000
Loss for the year 2003-2004 = Capital as on March 31, 2004 – Capital as on April
01, 2003
= Rs.3,20,000 – Rs.3,50,000 = Rs. – 30,000 (Loss)
65 Answer : (c) <
TO
. Reason : P
>
Period Sales (Rs.)
April 01, 2003 to August 31,2003 (Rs.2,30,000-Rs. 60,000) 1,70,000
September 01, 2003 to February 28, 2004 2,55,000
March 01, 2004 to March 31, 2004 95,000
Total sales for 2003-2004 5,20,000
Royalty (Rs.5,20,000 x 10%) for the year 2003-2004 Since 52,000
actual royalty is less than a minimum rent, minimum rent of Rs. 60,000 should be
recorded as royalty.
66 Answer : (c) <
TO
. Reason :Amount of first bill = 45,000 P
>
Amount of discount = Rs.45,000 – Rs 42,300 = 2,700
2
Discount to be borne by Sumesh = Rs.2,700 × 3 = Rs.1,800
Amount of second bill = Rs.63,000
Amount of discount = Rs.63,000 – Rs.61,200 =Rs.1,800
Sharing ratio = Rs.2:1
Discount to be borne by Sumesh = Rs.1,800 x 2/3 = Rs.1,200.
Total discount to be borne by Sumesh = Rs.1,800 + Rs.1,200 = Rs.3,000.
67 Answer : (b) <
TO
. Reason :The stock as on March 31, 2003 is overvalued. Hence the opening stock for the year P
>
2003-2004 is overvalued. Hence the profit for the year 2003-2004 is understated by
Rs30,000.
68 Answer : (b) <
TO
. Reason : Dr. Trading and profit and loss account for the year ended March 31, P
>
2004 Cr.
Particulars Rs. Particulars Rs.
To Opening stock 80,000 By Sales 6,25,000
To Purchases 4,66,000 By Closing stock 75,000
To Gross profit 1,54,000
7,00,000 7,00,000
To Salaries 82,000 By Gross profit 1,54,000
To other expenses 77,000 By Net loss 80,000
To Depreciation 75,000
2,34,000 2,34,000
Balance sheet as on March 31, 2004
Liabilities Rs. Assets Rs.
Share capital 6,00,000 Fixed assets 4,25,000
Sundry creditors 44,000 Sundry debtors 45,000
Short tem loan 34,000 Closing stock 75,000
Cash and bank 53,000
Net loss 80,000
6,78,000 6,78,000

69 Answer : (b) <

TO
. Reason : P
>
Purchases Issues Balance
Quantity Rate Amount Quantity Rate Amount(Rs. Quantity Rate Amount(Rs.)
Date per (Rs.) per ) per
(Kg) kg. (Kg) (Kg)
(Rs.
kg. kg.
) (Rs.) (Rs.)
01- 250 45.6 11,400
6-04
0
02- 200 48 9,600 450 46.6 21,000
6-04
7
10- 300 50 15,000 750 48.0 36,000
6-04
0
25- 500 48 24,000 250 48.0 12,000
06-
04 0
70 Answer : (a) <
TO
. Reason :The discount on payments side of cash book implies discount received. Since the P
>
discount received is overcast, the excess amount is to be debited to Discount account.
 The corresponding credit is to be given to suspense account. Hence the rectification
entry is
Discount A/c Dr. Rs.3,600
To Suspense account Rs.3,600
71 Answer : (a) <
TO
. Reason :Balance of Bills receivable as on June 30, 2004 = Bills receivable as on June 01, 2004 P
>
+ bills accepted by customers – bills honored – bills dishonored
= Rs.30,000 + Rs.20,000 – Rs.14,000 – Rs.15,000 = Rs.21,000
72 Answer : (b) <
TO
. Reason : P
>
Particulars Rs.
Depreciation:
Buildings (Rs.8,75,000 – Rs.1,75,000) x 10% 70,000
Machinery (Rs.15,00,000 – Rs.6,00,000) x 10% 90,000
Furniture (Rs.2,00,000 – Rs.60,000) 14,000
Total depreciation 1,74,000
73 Answer : (d) <
TO
. Reason :Closing balance of provision Rs.3,200 P
>
Add: Debit balance of provision account Rs.2,500
Profit and loss account will be debited by . Rs.5,700
74 Answer : (e) <
TO
. Reason : Corrected Trial Balance P
>
Particulars Debit Credit
(Rs.) (Rs.)
Provision for doubtful debts 2,000
Bank overdraft 16,540
Sundry debtors 29,830
Discount received 2,520
Drawings 12,000
Office furniture 21,550
Purchases 1,09,230
Rent and rates 3,140
Salaries 25,200
Opening stock 24,180
Provision for depreciation on furniture 3,650
Capital 45,900
Sundry creditors 16,370
Discount allowed 7,330
General expenses 8,290
Returns inward 3,300
Cash sales 60,800
Credit sales 1,08,020
Cash on hand 11,750
Total 2,55,800 2,55,800
75. Answer : (d) Rs.24,080 <
TO
Reason :Trading and profit and loss account of Twin Angels Co. for the year ended March P
 31,2004. >

Dr. Cr.
Particulars Rs. Rs. Particulars Rs. Rs.
To Opening stock 24,180 By Sales (cash) 60,800
To Purchases 1,09,23 By Credit sales 1,08,02
0 0
To Gross Profit 67,310 1,68,82
0
Less Returns 3,300 1,65,520
By Closing stock 35,200
2,00,72 2,00,720
0
To Rent, Rates 3,140 By Gross profit 67,310
B/d
To Salaries 25,200 By Discount 2,520
received
To Discount 7,330
To General expenses 8,290
To Depn. On furniture
(Rs.21,550 – 3,650) = 1,790
Rs.17,900 × 10%
Net Profit 24,080
69,830 69,830
76 Answer : (d) <
TO
. Reason : Bank Reconciliation Statement as on June 30, 2004 P
>
Rs. Rs.
Bank balance as per the cash book 1,62,000
Less:Cheque for Rs.50,000 deposited but collection as per bank
statement Rs.49,960 i.e. bank charges 40
Cheque dishonoured as per the bank statement 5,300
Bill for Rs.80,000 sent for collection dishonoured by the
drawee, noting charges being Rs.150 150 5,490
1,56,510
Add: Cheque deposited but not recorded in the cash book 7,000
Debit side of the bank column cast short 1,000
Bills collected directly by the bank 35,000
Bank charges recorded twice in the cash book 250 43,250
Bank balance as per the pass book (Cr.) 1,99,760
77 Answer : (a) <
TO
. Reason : XLNT COMPANY
P
Kanyakumari Branch Account >
Dr. Cr.
 Particulars Rs. Rs. Particulars Rs. Rs.
1-4-2003 1-4-2003
To Balance b/f
By Stock reserve (loading on
opening stock) (Rs.23,000 ×
Stock 23,000 25 4,600
125 )
Sundry debtors 35,000
60,80
Petty cash 2,800 By Bank:
0
4,00,0
To Goods sent to branch Cash sales 64,000
00
4,80,00 5,44,0
Collection from debtors
0 00
To Bank :
1,24,0 By Goods sent to branch
Salary 7,500
00 (Returned to head office)
Rent 42,000
1,90,0
Other expenses 24,000
00
To Goods sent to branch By Goods sent to branch (load
(loading on returns on goods sent Rs.4,00,000 ×
25 1,500 25 80,000

Rs.7,500 × 125 ) 125 )

By Balance c/d
To Stock reserve (load on
25 5,000 Stock 25,000
closing stock Rs.25,000 × 125 )
Sundry debtors 40,000
Petty cash 1,500 66,500
To Profit & loss a/c (Branch 45,30
profit) 0
7,02,6 7,02,6
00 00
78 Answer : (b) <
TO
. Reason :
P
Memorandum Branch debtors A/c >
Dr.
Cr.
 Particulars Rs. Particulars Rs.

To Balance b/d 35,000 By Cash 4,80,000

By Bad debts 12,000

By Discount 4,500

To Sales – Credit (Balancing figure) 5,18,750 By Returns inward 17,250

By Balance c/d 40,000

5,53,750 5,53,750
Alternative method:
XLNT Company
Kanyakumari Branch Trading & Profit & Loss A/c for the year ended March 31,
2004.
Dr. Cr.
Particulars Rs. Rs. Particulars Rs. Rs.
To Opening stock
(cost) (Rs.23,000– 18,400 By Sales
Rs.4,600)
Cash 64,000
5,18,75
Credit
0
5,82,75
0
To Goods sent to branch
(cost) (Rs.4,00,000 3,20,00 Less Returns 17,250 5,65,500
– Rs.80,000) 0
Less: Returns
3,14,00 By Closing stock
(Rs.7,500 – 6,000 (Cost) (Rs.25,000 20,000
0 – Rs.5,000)
Rs.1,500)
2,53,10
To Gross profit – c/d
0
5,85,50
5,85,500
0
1,24,00 By Gross profit
To Salary 2,53,100
0 b/d:
To Rent 42,000
To Other expenses 24,000
To Bad debts 12,000
To Discount 4,500
To Petty expenses:
1,300
(Rs.2,800–Rs.1,500)
To Net Profit 45,300
2,53,10
2,53,100
0
< TOP OF THE DOCUMENT >