Mb131 - 2004 - 07 (july)

Question Paper Financial Accounting (MB131) : July 2004 • • 1.

Answer all questions. Marks are indicated against each question. < Answer >

Which of the following ratios indicates a firm’s ability to pay its debts in the short run? (a) Liquidity ratios (d) Profitability ratios

(b) Turnover ratios (e) Leverage ratios.

(c) Coverage ratios (1 mark)

2.

Which of the following is not a method of computing purchase consideration in case of an amalgamation? (a) Lump sum method (b) Net asset method (c) Net payment method (e) Intrinsic value method.

(d) Super profit method (1 mark)

3.

The financial statement which reflects the static picture of the sources and uses of funds is (a) Funds flow statement (c) Balance sheet (e) Prospectus.

The amount earmarked for distribution to the shareholders is known as (a) Profit after tax (c) Dividends

(b) Retained earnings (d) Operating profit

If machinery account is debited with the amount of repairs incurred on the machine, this is an example of (a) Compensating error (c) Error of commission (e) Error of partial omission.

The time interval between the dates of balance sheets of holding company and subsidiary company for the purpose of consolidation of accounts (a) (b) (c) (d) (e)

Based on which of the following concepts, is share capital account is shown on the liability side of a balance sheet? (a) Business entity concept (c) Cost concept (e) Conservatism concept.

Which of the following concepts is not considered as basic principles of accounting? (a) Materiality concept

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(b) Money measurement concept (d) Going concern concept (1 mark)

8.

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Can be more than 1 year Can be more than 9 months but less than 1 year Can be more than 6 months but less than 9 months Cannot be more than 6 months Cannot be more than 2 months. (1 mark)

7.

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(b) Error of principle (d) Error of omission (1 mark)

6.

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(e) Profit before tax. (1 mark)

5.

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(b) Cash flow statement (d) Bank reconciliation statement (1 mark)

4.

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(b) Cost concept

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(c) Consistency concept concept.

(d) Matching concept

(e) Logical (1 mark)

9.

Which of the following inventory valuation methods shows higher profits during the period of rising prices? (a) FIFO method (c) Weighted average method (e) Specific identification method.

(b) LIFO method (d) Simple average method (1 mark)

10.

Which of the following events/transactions is not recorded in the books of account of a business? (a) (b) (c) (d) (e)

Exchange of fixed assets for equity shares is the commonly used exchange mode in mergers and acquisitions. The accepted method of recognition of the value of fixed assets in the books is (a) The net book value (c) The net realizable value (e) The replacement value.

Which of the following is not considered as Research and Development Costs? (a) (b) (c) (d) (e)

Which of the following is not classified as inventory? (a) Raw materials and components process (d) Finished goods

(b) Goods-in-transit (e) Stores and spares.

Which of the following is a method of financial statement analysis which highlights the interrelationships in the contents of financial statements? (a) Du Pont analysis (c) Time series analysis analysis.

(b) Common size analysis (d) Index analysis

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(e) Break-even (1 mark)

15.

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(c) Work-in-

(1 mark) 14.

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Testing in search for product alternatives Legal work on patent application Modification of design of a process Searching for application of new research findings The design of tools, moulds and dies involving new technology. (1 mark)

13.

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(b) The fair market value (d) The current market value (1 mark)

12.

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Withdrawal of goods by the proprietor for personal consumption Sale of an asset on credit Purchase of a new asset in exchange of an old asset Receipt of interest by proprietor on bank fixed deposit held jointly with spouse Loss of stock by fire. (1 mark)

11.

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At the time of preparation of final accounts, bad debts recovered account will be transferred to

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(a) Debtor’s account (b) Profit & loss account (c) Profit & loss adjustment account (d) Profit & loss appropriation account (e) Provision for discount on debtors account. (1 mark) 16.

Amortization of unidentified intangible assets is in terms of (a) Conservatism concept (c) Matching concept concept.

(b) Materiality concept (d) Cost concept

(e) Business entity (1 mark)

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17.

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In double entry system of book-keeping, every business transaction affects (a) (b) (c) (d) (e)

Two accounts The same account on two different dates Two sides of the same account Two accounts on two different dates Two accounts on the same side. (1 mark)

18.

Which of the following errors will not cause a mismatch in the trial balance? (a) (b) (c) (d) (e)

Recording a transaction in the wrong subsidiary book Posting to an account on the wrong side Omitting to write the cash balance in the trial balance Wrong casting of a subsidiary book Both (a) and (d) above. (1 mark)

19.

Which of the following is/are source(s) of funds? (a) Disposal of an asset (c) Acceptance of bills payable (e) Both (a) and (c) above.

Which of the following concepts assumes that a business will last indefinitely? (a) Business entity (c) Periodicity

(b) Going concern (d) Duality

Which of the following factors is used as multiplier of super profits in valuation of goodwill of a business? (a) Average capital employed in the business (c) Number of years’ purchase (e) Normal profits.

The excess price received over the par value of shares, should be credited to (a) Calls-in-advance account (c) Reserve capital account (e) Share allotment account.

The periodical total of a purchases returns book is recorded to the (a) (b) (c) (d) (e)

The statement which helps an accountant to assess the arithmetical accuracy of the accounting process is the (a) Balance sheet (c) Cash book (e) Bank reconciliation statement.

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(b) Profit and loss account (d) Trial balance (1 mark)

25.

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Debit side of the purchases account Debit side of the purchases returns account Credit side of the purchases account Credit side of the purchases returns account Credit side of creditors account. (1 mark)

24.

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(b) Share capital account (d) Share premium account (1 mark)

23.

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(b) Simple profits (d) Normal rate of return (1 mark)

22.

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(e) Consistency. (1 mark)

21.

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(b) Payment to creditors (d) Purchase of an asset (1 mark)

20.

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In a Funds flow statement, the excess application of funds over sources of funds is known as

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(a) Net profit (c) Increase in working capital Loss.

(b) Funds from operations (d) Decrease in working capital

(e) Net (1 mark)

26.

‘Outstanding salaries’ represents (a) A personal account (c) A nominal account asset.

(b) A real account (d) A deferred expense account

(e) An (1 mark)

27.

If closing stock appears in the trial balance, it should be (a) (b) (c) (d) (e)

Calls in advance account is shown on (a) (b) (c) (d) (e)

Which of the following is true when a debtor pays his dues? (a) (b) (c) (d) (e)

Which of the following accounting treatments is/are true in respect of accrued commission appearing on the debit side of a trial balance? (a) (b) (c) (d) (e)

The discount allowed on re-issue of forfeited shares is debited to (a) Discount on re-issue of shares account (c) Share premium account account (e) Forfeited shares account.

Which of the following is not specifically identifiable intangible asset? (a) Patents (c) Goodwill

(b) Trademarks (d) Franchises

Which of the following statements is false? (a)

The forfeited shares should not be issued at a premium

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(e) Secret processes. (1 mark)

33.

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(b) Profit and loss account (d) Discount on issue of shares

(1 mark) 32.

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It is shown on the debit side of the profit and loss account It is shown on the credit side of the profit and loss account It is shown on the liabilities side of the balance sheet It is shown on the assets side of the balance sheet Both (b) and (d) above. (1 mark)

31.

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The asset side of the balance sheet will decrease The asset side of the balance sheet will increase The liability side of the balance sheet will increase The liability side of the balance sheet will decrease There is no change in total assets or total liabilities. (1 mark)

30.

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The assets side of the balance sheet The liabilities side of the balance sheet as a deduction from paid up share capital The liabilities side of the balance sheet as an addition to the paid up share capital The liabilities side of the balance sheet separately from the paid up share capital The liabilities side of the balance sheet as a contingent liability. (1 mark)

29.

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Credited to the trading account Credited to the profit and loss account Deducted from the purchases in the trading account Credited to the trading account and shown on the assets side of the Balance sheet Shown on the assets side of the Balance sheet. (1 mark)

28.

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(b)

At the time of forfeiture of shares, share premium should not be debited with the amount of premium already received (c) Shares can be issued at a discount only after one year from the commencement of business (d) Share premium cannot be utilized to redeem preference shares (e) The loss on re-issue of shares cannot be more than the gain on forfeiture of those shares. (1 mark)

34.

The process of transferring entries from journal to ledger is known as (a) Journalizing (c) Posting Appropriation.

(b) Ledgerizing (d) Transferring

(e) (1 mark)

35.

Which of the following equations is equal to Net Value Added? (a) Gross Value Added + Depreciation (c) Gross Value Added – Depreciation (e) Gross Value Added + Inventory.

Which of the following methods of valuation of shares is/are known as intrinsic value method? (a) Earning capacity method (c) Fair value method (e) Both (b) and (d) above.

Which of the following is/are true with respect to debentures? (a) (b) (c) (d) (e)

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They can be issued for cash They can be issued for consideration other than cash They can be issued as collateral security They can be issued in lieu of dividends (a), (b) and (c) of the above. (1 mark)

38.

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(b) Break-up value method (d) Asset backing method (1 mark)

37.

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(b) Gross Value Added + Interest (d) Gross Value Added – Inventory (1 mark)

36.

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Which of the following is/are a limitation(s) of a Balance Sheet?

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I.

It does not contain certain assets and liabilities despite its claim to be the statement of all assets and liabilities II. The factors, which have a vital bearing on the earnings of the organization, are not disclosed III. Personal judgment plays a great part in determining the figures of the balance sheet. (a) Only (I) above (b) Only (II) above (c) Only (III) above (d) Both (II) and (III) above (e) All (I), (II) and (III) above. (1 mark) 39.

Till the date of redemption of debentures, ‘Premium on Redemption of Debentures’ appears on the (a) (b) (c) (d) (e)

Liabilities side of Balance Sheet Assets side of Balance Sheet Credit side of Profit and Loss Account Credit side of Profit and Loss Appropriation Account Credit side of Profit and Loss Adjustment Account. (1 mark)

40.

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Declared dividend should be classified in the Balance Sheet as (a) Provision Reserve (d) Current asset

(b) Current liability

(c)

(e) Miscellaneous expenditure. (1 mark)

Questions No. 41 & 42 are based on the following information:

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Balance Sheet of Mugdha Ltd. as on March 31, 2004 Liabilities Share Capital Reserves & Surplus Long term Loans Current Liabilities: Sundry Creditors 67,000 Outstanding salaries 5,000 Bank Temp-over Draft 5,000 Total

Rs. 70,000 31,300 1,43,020

77,000 3,21,320

Assets Fixed Assets Current Assets: Sundry debtors 85,000 Inventories 65,000 Cash on hand 12,020

Rs. 1,59,300

Total

3,21,320

1,62,020

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41. The quick ratio of Mugdha Ltd. is (a) 2.10 1.45

(b) 1.28

(c) 1.26

(d) 1.10

(e) (2 marks)

42. The debt-equity ratio of Mugdha Ltd. is (a) 0.45 0.90.

(b) 2.25

(c) 2.04

(d) 1.41

(e) (1 mark)

43. Jasmine Ltd. issued 40,000 debentures of Rs.10 each at a premium of 15%. Mr. Wright has underwritten 38,000 debentures. Applications were received for 36,000 debentures. The maximum amount of underwriting commission which can be paid to Mr. Wright is (a) Rs.19,000 Rs.10,350.

(b) Rs.21,850

(c) Rs.20,700

(d) Rs.10,925

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(e) (1 mark)

44. Sun shine Ltd. issued 10,000 equity shares of Rs.100 each at a premium of 10%, payable as under: On application On allotment On first call On final call

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Rs.20 Rs.40 (including premium) Rs.30 Rs.20

Mr. Thakur, to whom 100 shares were allotted, failed to pay the first call money and his shares were forfeited before the final call is made. The journal entry to record the forfeiture by the company is Rs. Rs. (a) Share capital a/c. Dr. 8,000 Share premium a/c. Dr. 1,000 To Share first call a/c. 3,000 To Share forfeiture a/c. 6,000 (b) Share capital a/c. Dr. 10,000 Share premium a/c. Dr. 1,000 To Share first call a/c. 3,000 To Share final call a/c. 2,000 To Share forfeiture a/c. 6,000 (c) Share capital a/c. Dr. 8,000 To Share first call a/c. 3,000 To Share forfeiture a/c. 5,000 (d) Share capital a/c. Dr. 10,000 To Share first call a/c. 3,000 To Share forfeiture a/c. 7,000 (e) Share capital a/c. Dr. 10,000 To Share premium a/c. 2,000 To Share first call a/c. 3,000

< Answer >

To Share forfeiture a/c.

5,000 (2 marks)

45. Super Ltd. issued 500 Debentures of Rs.100 each at a discount of 10% . Holders of these debentures have an option to convert their holdings to equity shares of Rs.100 each at a premium of Rs.20 at any time within 5 years. The total number of equity shares to be issued, if all the debenture holders opt for conversion, is (a) 500 375.

(b) 450

(c) 430

(d) 416

(e) (1 mark)

46. Radial Tyres Ltd. issued 8,000 shares of Rs.100 each at a premium of 10% payable, Rs.20 on application, Rs.40 (including premium) on allotment and the balance on call. Applications were received for 15,000 shares and allotment was made as under: • • •

< Answer >

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Applicants for 9,000 shares were allotted 5,800 shares pro-rata. Applicants for 5,000 shares were allotted 1,350 shares pro-rata. Applicants for 1,000 shares were allotted 850 shares pro-rata.

The surplus money, if any, would be refunded only after utilizing the excess received on application towards the payment of allotment dues. The amount refunded to the applicants is (a) Rs. Nil Rs.1,80,000.

(b) Rs. 19,000

(c) Rs.1,40,000

(d) Rs.31,000

(e) (2 marks)

47. On October 1, 2003, out of 4,000 equity shares of Lilliput Company, the Gulliver Company acquired 3,200 equity shares. The profit and loss account of Lilliput Company showed the following balances: On April 1, 2003 On March 31, 2004

< Answer >

Rs.50,000 (Cr.) Rs.98,000 (Cr.)

The share of capital profit of Gulliver Company that is shown in the Consolidated Balance Sheet as on March 31, 2004 is (a) Rs.78,400 Rs.79,200.

(b) Rs.59,200

(c) Rs.49,000

(d) Rs.24,000

(e) (2 marks)

48. Consider the following data pertaining to Great Ltd. as on March 31, 2004: Particulars 2,000 Equity shares of Rs.100 each 20,000 10% Preference shares of Rs.10 each 2,500 14% Debentures of Rs.100 each Sundry creditors Fixed assets Current assets The asset backing of equity shares is (a) Nil (b) 1 time times.

(c) 2 times

Rs. 2,00,000 2,00,000 2,50,000 80,000 5,75,000 1,55,000 (d) 3 times

(e) 4 (1 mark)

49. H Ltd. acquired 7,500 shares of S Ltd. on August 1, 2003. The equity share capital of S Ltd. is Rs.1,00,000 of Rs.10 per share. The machinery of S Ltd. is revalued upwards by Rs.2,00,000. The minority group interest shown in the consolidated balance sheet as on March 31, 2004 was (a) Rs.2,00,000 Rs.50,000.

(b) Rs.1,50,000

(c) Rs.1,00,000

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(d) Rs.75,000

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(e) (2 marks)

50. Q Ltd. issued 10,000, 10% Debentures at the rate of Rs.100 each during the year 2000-2001. Interest on debentures is payable half yearly on September 30 and March 31 every year. The company has power to purchase its 10% debentures in the open market for cancellation. The following purchases were made

< Answer >

during the year 2003-2004: On July 01, 2003 – On December 01, 2003

5,000 10% debentures at the rate of Rs.96 ex-interest. – 2,500 10% debentures at the rate of Rs.102 cum- interest.

The total amount debited to own debenture investment account was (a) Rs. 7,35,000 7,30,000 (d) Rs. 7,26,666

(b) Rs. 7,30,833

(c) Rs.

(e)Rs. 7,50,000. (2 marks)

51. Consider the following data pertaining to Savera Ltd. Authorized share capital Issued, called-up and paid -up capital Calls in advance Securities Premium Profit for the current year

< Answer >

Rs. 2,00,000 Rs. 1,20,000 Rs. 80,000 Rs. 12,000 Rs. 25,560

The directors of the company proposed a dividend of 10%. The amount debited to Profit and Loss Appropriation account on account of proposed dividend is (a) Rs.18,000 Rs.12,000.

(b) Rs.24,000

(c) Rs.12,800

(d) Rs.14,400 (e) (2 marks)

52. The profits for the past 5 years of Sohan Ltd. are as under: Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004

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Profit (Rs.) 64,000 59,475 58,750 61,200 63,695

The weighted average profit of the company is (a) Rs.63,695 Rs.61,498.

(b) Rs.76,873

(c) Rs.92,247

(d) Rs.61,424

(e) (2 marks)

53. Consider the following data pertaining to Whirl-Wind Ltd. for the month of June 2004: Particulars Stock Sundry creditors

As on June 01, 2004 (Rs.) 1,60,000 60,000

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As on June 30, 2004 (Rs.) 90,000 40,000

The company makes all purchases on credit. During the month of June 2004, the company paid a sum of Rs.3,70,000 to the suppliers. The goods are sold at 25% above the cost. The sales for the month of June 2004 were (a) Rs.4,12,500 (d) Rs.4,10,000

(b) Rs.5,25,000 (e) Rs.5,12,500.

(c) Rs.4,20,000 (2 marks)

54. A credit sale to Mr. Govind for Rs.75,000 was recorded in Purchases book as Rs.57,000 and was posted to the debit side of Govind’s account as Rs.75,000. The effect of this mistake, in trial balance is (a) Debit is more by Rs.1,32,000 (c) Credit is more by Rs.57,000 (e) Credit is more by Rs.1,32,000.

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(b) Debit is more by Rs.75,000 (d) Debit is less by Rs.75,000 (1 mark)

55. Anand Ltd. has purchased a machinery on December 20, 2002 in exchange of its securities. The machinery was installed on March 31, 2003. The value of securities on the above two dates is

< Answer >

Rs.1,75,000 and Rs.1,65,000, respectively. It is expected that the machinery will have a useful life of 10 years after which it will have a salvage value of Rs.15,000. The machinery was put to use with effect from April 01, 2003. If the company follows straight line method of depreciation, the amount of depreciation charged for the year 2003-2004 is (a) Rs.16,000 Rs.17,500.

(b) Rs.15,000

(c) Rs.15,500

(d) Rs.16,500

(e) (1 mark)

56. As on June 30, 2004, the overdraft balance of Mr.Y as per bank pass book is Rs.30,000. The pass book balance did not agree with the balance as per cash book. On scrutiny, the following omissions and commissions were noticed: • •

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A cheque for Rs.6,000 issued to Mr.Z has not been presented for payment till date Mr.M, a tenant, directly deposited into the bank account of Mr. Y an amount of Rs.20,000 towards rent and the same is not accounted in the cash book. A cheque for Rs. 5,000 deposited in the bank is not yet realized till date The interest on debentures for this year, directly collected by the bank, amounted to Rs.15,000.

• •

The bank balance as per cash book is (a) Debit balance of Rs.26,000 (c) Credit balance of Rs.36,000 (e) Debit balance of Rs.66,000.

(b) Credit balance of Rs.66,000 (d) Debit balance of Rs.71,000 (3 marks)

57. Consider the following information pertaining to PQR Ltd.:

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On April 01, 2003 , the Provision for bad debts account showed a credit balance of Rs.40,000. As on March 31, 2004, the status of the following debtors is • • •

Mr. X had become insolvent and only 30 paise in a rupee is expected to be realized out of his estate in full settlement. He owed a total amount of Rs.40,000. Mr. Y who owes an amount of Rs.20,000 became bankrupt and it was understood that no amount will be recovered from him. Mr. Z has agreed to pay Rs.4,000 as final settlement against his due of Rs.12,000 and the balance is irrecoverable.

If the company decided to maintain the provision at Rs.15,000 as on March 31, 2004, the amount to be debited to Profit and loss account, after considering the above, is (a) Rs.31,000 Rs.11,000.

(b) Rs.15,000

(c) Rs.23,000

(d) Rs.71,000

(e) (2 marks)

58. Consider the following data pertaining to M/s.Scorpio Company: Particulars Cash & bank Sundry debtors Sundry creditors

As on April 01, 2003 Rs. 6,00,000 5,00,000 7,00,000

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As on March 31, 2004 Rs. ? 4,00,000 8,00,000

During the year 2003-04, the sales were Rs.46,00,000 and all were on credit. The cash purchases were Rs.9,00,000 and credit purchases were Rs.30,00,000. Expenses paid during the year were Rs.80,000. The cash and bank balance of M/s.Scorpio Company as on March 31, 2004 is (a) Rs.29,00,000 Rs.37,00,000 (d) Rs.51,00,000

(b) Rs.14,20,000

(c)

(e) Rs.6,00,000. (3 marks)

59. Lay’s Ltd. purchased furniture for Rs.60,000 two years ago. The current book value of the furniture is Rs.43,350. If the company charges depreciation on furniture under written down value method, the rate

< Answer >

of depreciation is (a) 35% 15%.

(b) 30%

(c) 25%

(d) 20%

(e) (1 mark)

60. Vardhan Ltd., records its stock under first-in-first-out method, so as to minimize accumulation of outdated stock. The opening stock as on June 01, 2004 is Rs.30,000 consisting of 1,500 units at the rate of Rs.20 per unit. The purchases and sales made during the month are:

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Purchases: Date 03-06-2004 14-06-2004 21-06-2004 26-06-2004

No. of units 2,000 1,000 3,000 1,500

Cost price per unit Rs.25 Rs.22 Rs.30 Rs.40

Sales: Date No. of units 03-06-2004 1,000 10-06-2004 1,500 15-06-2004 1,000 25-06-2004 2,000 28-06-2004 1,500 The opening stock of the company as on July 01, 2004 is (a) Rs.20,000 (b) Rs.60,000 Rs.80,000 (d) Rs.50,000 (e) Rs.75,000.

(c)

(2 marks) 61. Consider the following data pertaining to XL Ltd. i. ii. iii.

Original cost of furniture (Rs.) Rate of depreciation under written down value method (%) Residual value of furniture at the end of useful life (Rs.)

The estimated useful life of the furniture is (a) 3 years (b) 4 years years.

(c) 5 years

< Answer >

15,000 20 6,144 (d) 6 years

(e) 7 (1 mark)

62. Kavya Ltd. started its operations on April 15, 2003. Consider the following data pertaining to the company for the year 2003-2004: Particulars Total Sales during the year 2003-2004 of which 85% is cash sales Bad debts written off Issue of shares for cash Purchase of fixed assets for cash Depreciation Amount received by way of short-term loan from Bank Short-term loan repaid Payment towards manufacturing and administrative expenses Amount paid to purchase raw materials Amount deposited in bank

< Answer >

Rs. 9,00,000 3,500 6,00,000 4,50,000 45,000 1,20,000 20,000 4,50,000 1,80,000 2,80,000

The balance of cash as on March 31, 2004 is (a) Rs.60,000 Rs.2,40,000 (d) Rs.1,95,000

(b) Rs.1,05,000

(c)

(e) Rs.56,500. (2 marks)

63. On June 30, 2004, the bank column of cash book of Sri Ltd. showed debit balance of Rs.3,400 and this balance did not agree with the balance as per bank pass book. On verification, the following facts were

< Answer >

noticed: i.

An outstation cheque for Rs.4,500 deposited in the bank on June 28, 2004 was not collected by the bank as on June 30, 2004. ii. Bank charges amount to Rs.120 and interest charges amount to Rs.790 were not recorded in the cash book. iii. Cheques amounting to Rs.5,650 were not presented for payment as on June 30, 2004. The bank balance as per pass book as on June 30, 2004 was (a) Rs.3,160 (debit) (b) Rs.5,460 (credit) (c) Rs.7,660 (debit) (d) Rs.3,640 (credit) (e) Rs.1,340 (debit). (3 marks) 64. The balance in machinery account of Taurus Ltd. as on April 01, 2003 was Rs.85,000. The following transactions took place during the year 2003-2004: Date 01-07-2003 01-10-2003 01-01-2004

Particulars Machinery purchased Machinery sold (book value as on April 01, 2003 is Rs.40,000) New machinery purchased

< Answer >

Amount (Rs.) 90,000 50,000 80,000

If the company charges depreciation at the rate of 10% per annum, on written down value method, the amount of depreciation charged for the year 2003-2004 is (a) Rs.23,250 Rs.19,500 (d) Rs.13,250

(b) Rs.15,500

(c)

(e) Rs. 15,250. (2 marks)

Consider the following data pertaining to Saketh Ltd. as on March 31, 2004 and answer Question Nos. 65 and 66. Particulars Opening stock Sales Purchases Salaries Other expenses Fixed assets (cost – Rs.9,00,000) Sundry debtors Sundry creditors Cash and bank Share capital Short-term loan

Amount (Rs.) 90,000

Amount (Rs.) 4,35,000

2,56,000 76,000 68,000 6,00,000 1,55,000 1,32,000 58,000

13,03,000

7,00,000 36,000 13,03,000

65. 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.

< Answer >

The Profit/Loss made by the Saketh Ltd. for the period ended March 31, 2004 is (a) Rs. 70,000 (loss) (profit) (d) Rs.20,000(profit)

(b) Rs.35,000(loss)

(c) Rs. 1,64,000

(e) Rs.20,000(loss) (2 marks)

66. The total of balance sheet of Saketh Ltd. as on March 31, 2004 is (a) Rs.8,38,000 (d) Rs.7,98,000

(b) Rs.8,68,000 (e) Rs.9,38,000.

(c) Rs.9,58,000 (2 marks)

67. Consider the following data pertaining to Lairs Ltd. for the month of June 2004:

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< Answer >

Date

Purchases Quantity Rate (Kg.) (Rs.)

Issues Quantity (Kg.)

Balance Quantity Rate (Kg.) (Rs.) 500 228

01-06-2004 02-06-2004 400 240 10-06-2004 600 250 25-06-2004 1,000 If the company uses weighted average method for inventory valuation, the value of inventory as on June 30, 2004 is (a) Rs.1,19,670 (b) Rs.1,20,000 (c) Rs.1,25,000 (d) Rs.1,14,000 (e) Rs.3,60,000. (2 marks) 68. On May 31, 2004 the cash balance of Wren Ltd. is Rs.1,65,500. The cash receipts and cash payments during the month of June 2004 aggregated to Rs.2,91,000 and Rs.2,05,000, respectively. Further, the company deposited Rs.2,00,000 with its banker as fixed deposit for three years. The rent and salaries yet to be paid amounted to Rs.5,000 and Rs.6,000, respectively. The amount of cash balance as on June 30, 2004 is (a) Rs.68,500 (d) Rs.45,500

(b) Rs.79,500 (e) Rs.40,500.

< Answer >

(c) Rs.51,500 (1 mark)

Question Nos. 69 and 70 are based on the following information: Trial Balance of Varun & Co. as on March 31, 2004: Particulars Debit (Rs.) Particulars Credit (Rs.) 5% Investments (as on 01.04.2003) 2,500 Capital Account 64,050 Cash with Safe Bank Ltd. 4,000 Interest 1,625 Stock on 01-04-2003 23,400 Sales 1,44,800 Furniture 1,000 Discount 1,495 Sales returns 4,300 Purchases returns 2,900 Purchases 1,20,550 Sundry creditors 7,400 Audit fees 350 Carriage inward 9,300 Office administrative expenses 12,760 Interest 450 Sundry debtors 12,000 Discount 3,770 Advertising 5,600 Fire insurance premium 300 Cash on hand 1,990 Drawings 5,000 10% Deposits (as on 01.04.2003) 15,000 2,22,270 Total 2,22,270 Total Additional Information: • Value of Stock as on March 31, 2004 is Rs.37,800.(Market Value Rs.42,500). • Depreciation should be provided on furniture at 10% per annum. • The firm makes a provision for doubtful debts at 5% on sundry debtors. No such provision need be made for the deposits. 69. Considering the above Trial Balance and the additional information, the net profit made by the firm for the year ending March 31, 2004 was (a) Rs.11,840 Rs.7,740.

(b) Rs.4,340

(c) Rs.4,790

(d) Rs.7,140

(e) (3 marks)

70. The total of Balance Sheet of the firm as on March 31, 2004 was

< Answer >

< Answer >

(a) Rs.78,590 (d) Rs.74,190

(b) Rs.78,290 (e) Rs.58,590.

(c) Rs.73,590 (3 marks)

71. The following Trial Balance pertaining to Tom Vicky as on March 31, 2004 was prepared by an inexperienced accountant:

< Answer >

Trial Balance of Tom Vicky as at March 31, 2004 Debit Credit Particulars (Rs.) (Rs.) 89,000

Capital Drawings Stock (1st April, 2003) Purchases Sales Closing Stock Motor vehicles Cash in hand Sundry creditors Sundry debtors Bank overdraft Administrative expenses Office equipment Carriage outward Returns inward Provision for bad debts Returns outward Discount allowed Discount received Total

9,000 37,000 2,01,100 3,94,000 30,150 14,500 1,350 49,760 1,39,700 9,000 76,360 35,000 3,310 2,050 4,250 3,160 2,800 5,22,170

3,150 5,82,470

The Trial Balance was not tallied, and the errors were subsequently rectified. The total of corrected Trial Balance as on March 31, 2004 is (a) Rs.5,52,320 Rs.5,55,510 (d) Rs.5,43,200

(b) Rs.4,64,200

(c)

(e) Rs.5,03,440. (2 marks)

72. Consider the following data pertaining to Dileep Company for the period 2003-2004: Particulars Rs. Opening inventory 4,00,000 Purchases during the year 26,00,000 Sales during the year 32,00,000 A physical inventory taken on March 31, 2004 showed an ending inventory of Rs.4,25,000. Company’s gross profit on sales was constant at 20% through out the year. The management of the company suspects pilferage of inventory. The estimated cost of missing inventory on the last day of the financial year was (a) Rs.2,25,000 (b) Rs.2,00,000 (c) Rs.85,000 (d) Rs.70,833 (e) Rs.15,000. (2 marks) END OF SECTION B

< Answer >

Suggested Answers Financial Accounting (MB131) : July 2004 1.

2.

3.

4.

5.

6.

7.

Answer : (a) Reason : Liquidity ratios are the ratios which judge the financial position of the concern inorder to highlight its relative strength in meeting their current obligations. These are used to measure firm’s ability to meet short run obligations. They are current ratios and quick ratios. Turnover ratios (b) are also known as performance ratios; Activity ratios will indicate position of assets usage. Coverage ratios (c) indicate the extent to which the interests of the persons entitled to get a fixed return or scheduled repayment as per agreed terms are safe. Profitability ratios (d) are of utmost importance for a concern. These ratios enlighten the end results of business activities. Leverage ratios (e) refers to employment of funds to accelerate rate of return to owners. These ratios explain the extent to which the debt is employed in the capital structure of the concerns. Thus, the ratios (b), (c), (d) and (e) do not explain the firm’s ability to pay its debt in the short run. Hence, are not the correct answers. Answer : (d) Reason : Purchase consideration is the price payable by the transferee company to the transferor company for the net assets taken over. (d) Super profit method : is one of the methods of valuation of goodwill, thus, it is not one of the methods for computation of purchase consideration and is the correct answer There are basically four methods of calculating purchase consideration. a. Lump sum method : is the simplest method under this, the purchase consideration is the specified fixed amount. b. Net asset method : Under this method, the purchase consideration is calculated by deducting agreed values of all liabilities from agreed values of all assets. c. Net payment method : Under this method, the purchase consideration is arrived at by adding up the cash paid and the agreed values of the shares and debentures allotted by the transferee company to the transferor company e. Intrinsic value method : The purchase consideration is calculated on the basis of agreed value of shares of the transferor company. All these are methods of calculating purchase consideration. Thus, the super profit method (d) is the correct answer. Answer : (c) Reason : Balance sheet is a statement reflecting the various sources of funds on liabilities side and the different uses to which they were put on assets side. It is static in nature. Thus, the static picture of the sources of funds and its uses are reflected in Balance Sheet (c). Thus it is the correct answer. Funds flow statement (a) captures the movement in sources of funds and uses of funds Cash flow statement (b) represents only sources and uses involving cash. Bank reconciliation statement (d) is not a financial statement. It is a statement prepared to reconcile the differences between Bank pass book balance and balance as per Bank column of cash book. Prospectus (e) is not a financial statement. It is a document inviting the public to subscribe for securities of a body corporate. Thus, alternatives (a), (b), (d) and (e) are incorrect. Answer : (c) Reason : Dividends represent the amount earmarked to distribute to the shareholders. 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. Answer : (b) Reason : If machinery account is debited with the amount of repairs incurred on the machine, this is an example of error of principle. If two or more errors are made and the amount compensates in such a way that the error is not disclosed by trial balance, such errors are compensating errors. The mistake made by recording the amount incorrectly, either wholly or partly is known as error of commission. If any transaction is omitted, to be recorded, it is known as error or omission. If any transaction is partially omitted, to be recorded, it is known as error of partial omission. Answer : (d) Reason : According to the sub-section 2(c) of section 212 of the Companies Act, the time interval between the dates of balance sheets of the holding company and subsidiary company should not be more than 6 months. Answer : (a) Reason : Share capital is the contribution made by the owner(s) and is regarded as a liability to the business in the nature of

8.

9.

10.

11.

12.

13.

14.

15.

owner’s equity. The underlying feature for this treatment is the distinction between the owner(s) and that of the business owned by them. According to business entity concept (a) whenever an owner brings capital into the business, the business in turn is deemed to owe the capital to the owner. As such the share capital account is treated as a liability to the business and shown under liabilities. The other concepts are not correct because, (b) Money measurement concept explains that in financial accountancy, a record is made only of information that can be expressed in monetary terms and ignores other events, however significant they may be. It is silent about the treatment of share capital account. (c) Cost concept implies that in accounting all transactions are generally recorded at cost and not at market value. It does not explain why share capital account is to be treated as liability. (d) Going concern concept explains that the resources of the concern would continue to be used for the purposes for which they are meant to be used. The very categorization of assets into fixed and current presupposes the going concern concept. It does not deal about the treatment of share capital account. (e) Conservatism concept : The theme behind this principle is that recognition of revenue requires better evidence than recognition of expenses. It deals with revenues and expenses and not the share capital account. Thus alternative (a) is the correct answer. Answer : (e) Reason : According to Generally Accepted Accounting Principles, materiality concept (a), cost concept (b), consistency concept (c) and matching concept (d) are considered as basic principles of accounting. Logical concept (e) is not considered as basic principle of accounting. Answer : (a) Reason : FIFO method is based on the assumption that the costs are charged against revenue in the order in which they occur. It means, the first unit in stock is the first unit to be out. The closing inventory consists of the units purchased last. If the prices are rising, goods are issued at lower price and closing stocks are valued at higher price. It will help to create more profit. Other inventory methods statedin LIFO method (b), Weighted average method (c), Simple average method (d) and Specific identification method (e) do not show higher profits during the periods of inflation. Hence, (a) is true. Answer : (d) Reason : The receipt of interest by proprietor on bank fixed deposit held jointly with spouse cannot be entered in the books of account of the business. The other items i.e. withdrawal of goods by the proprietor for personal consumption, sale of an asset on credit, purchase of net asset in exchange of old asset and loss of stock by fire are all recorded in the books of account. Answer : (b) Reason : AS-10 suggests use of fair market value of the fixed assets so acquired for recognizing in the books of accounts. At times the fair market value of the securities issued shall be considered in recording, if it is more evident than the fair market value of the fixed asset acquired Answer : (b) Reason : Legal work on patent application is not related to research and development work. Other activities referred in (a), (c), (d) and (e) are relevant to research and development work. Hence, (b) is correct. Answer : (b) Reason : As per Accounting standard 2, Goods in transit (b) is not classified as inventories. The other items mentioned in alternatives Raw materials and components (a); Work-in-Process (c); Finished goods (d) and stores and spares (e) are classified as inventories. Answer : (a) Reason : Analyzing return ratios is referred to as Du Pont Analysis. This system highlights the inter-relationships in the contents of financial statements. Hence, the answer is (a). The other alternatives compare the financial statements by taking the individual items of different financial statements and reviewing the changes that have occurred from year to year and over the years. Break – even analysis is related to the production/sales where a business incurrs neither loss nor profit. Answer : (b) Reason : Bad debts recovered is a wind fall gain and it is transferred to profit and loss account at the time of preparation of final accounts. If provision account is there in the books it will be transferred to provision account and the balance if any in the provision account will be transferred to profit and loss account. It is recovery of bad debt written off and hence it is not transferred to debtor’s account. It is not transferred to profit and loss adjustment account. It is not an appropriation to be transferred to profit and loss appropriation account. Provision for discount on debtors is the account created to record the discount allowed to debtors and not to record either the bad debts or bad debts recovered. Thus, the answer is (b).

16. Answer : (c) Reason : Intangible assets are amortized like tangible fixed assets. If costs benefit more than one accounting period, they should be systematically and rationally allocated to all accounting periods. Matching concept involves recognizing costs as expenses on the basis of direct association with assets. Thus amortization of intangible assets is a systematic allocation of costs over a several periods in recognition of matching concept. The other concepts do not recognize allocation of costs of fixed assets. Conservatism concept is not meant to introduce a bias into financial reporting. It is a prudent reaction to uncertainty to try to ensure that inherent risks in business are adequately considered. Materiality concept (b) explains that the transactions which can be quantified in terms of money alone find place in accounting. Cost concept (d) requires fixed assets to be reported at acquisition cost/historical cost. Business entity concept (e) explains that in accounting business is to be considered as a separate entity from the owner. It does not speak about amortization. Alternative (c) is the correct answer. 17. Answer : (a) Reason : In double entry system of book-keeping every business transaction affects two or more than two accounts (a) one account affects debit aspect while the other credit aspect. It does not affect the same account on two different dates (b) nor two sides of the same account (c). It does not affect two accounts on two different dates (d) it does not affect same side of two accounts (e). 18. Answer : (a) Reason : Making an entry in the wrong subsidiary book (a) will not cause a mismatch in the trial balance. The wrong recording is carried over at all stages and the trial balance is not affected by this wrong recording. The mistakes stated in other alternatives results in a mismatch in the trial balance. The posting of an amount on debit side instead of credit side or vice versa (b) omitting to write the cash balance in the trial balance (c) and wrong casting of a subsidiary book (d) affects the agreement of trial balance. 19. Answer : (e) Reason : In a business, funds can be raised by increasing liabilities and reducing assets. Thus alternative (a) reduction in asset and alternative (c) increase in liability are the sources of funds. The other alternatives (b) payment of creditors leads to reduction in liability and (d) purchase of an asset increases assets and they are uses of funds. 20. Answer : (b) Reason : According to going concern concept (b), a business entity is assumed to carry on its operations forever. Seemingly inconsequential, this is a fundamental concept which has far reaching consequences. The other concepts, business entity concept (a) treats business distinct from the entity of its owners. According to the concept of periodicity (c) the income or loss of the business is measured periodically, one year is the usual accounting period. The duality (d) concept is also known as accounting equivalence concept implies that the uses of funds must be equal to the sources of funds i.e. Assets = owners’ Equity + outside liability. The liabilities and assets that appear in the Balance sheet are governed by this concept. The consistency concept (e) requires that once an entity has decided on one method of treating an event in recording it in books of accounts, it will treat all subsequent events of the same character in the same fashion. Thus, the alternative (b) is the correct answer. 21. Answer : (c) Reason : Number of years’ purchase is the factor with which the super profits would have to be multiplied in order to arrive at the value of goodwill. Super profits : Average annual profits – (Average capital employed x Normal rate of return) Goodwill : Number of years’ purchase x super profits 22. Answer : (d) Reason : If by the terms of issue, the price payable is above the par value of shares, it is called an issue at premium. The amount so received is to be credited to securities premium account. 23. Answer : (d) Reason : Purchases account is a debit balance and purchases returns is a credit balance and the total of purchase returns will be recorded to the credit side of the purchases returns account. Hence (d) is the answer. It is not taken to debit side of purchases returns account. Hence (b) is not the answer. It is not taken to purchases account. Hence (a) and (c) are not the answers. The creditors account will be debited with the amount of purchase returns. Hence (e) is not the answer. 24. Answer : (d) Reason : The trial balance is prepared to assess the arithmetical accuracy. Hence the answer is (d). The profit and loss account is prepared to know the profit or loss of the concern. The balance sheet is prepared to know the financial position as on a particular date. The cashbook indicates the cash receipts and payments. The bank reconciliation statement is prepared to reconcile the bank balance as per cash book and pass book. 25. Answer : (d)

Reason :

26. Answer : Reason : 27. Answer : Reason :

28. Answer : Reason :

29. Answer : Reason : 30. Answer : Reason :

31. Answer : Reason :

32. Answer : Reason :

33. Answer : Reason :

34. Answer : Reason :

35. Answer : Reason :

36. Answer : Reason :

In the preparation of funds flow statement, the excess of sources over application is known as increase in working capital, hence option (c ) is incorrect, and the excess of applications over sources is known as decrease in working capital. The terms Net profit, Net loss are used in the case of Income statements and not funds flow statement, hence option (a) and (e) are incorrect. Similarly the term Funds from Operation is a source of fund (component in the Funds Flow Statement) hence, option (b) is incorrect. (a) Outstanding salaries is the amount payable during a particular period which is not yet paid. It is Personal Account representing salaries due to employees. It is a representative personal account (e) When Closing stock appears in the trial balance it implies that it is already adjusted against the purchases figure in the trial balance , so no more adjustment is required in the purchases account in the trading account. Only when closing stock is given as an adjustment , closing stock is credited to the trading account and shown on the assets side of the Balance sheet, hence both (a) and (d) are incorrect. When closing stock appears in the trial balance , only one effect is given i.e. it is shown on the assets side of the Balance sheet. Option (e) is correct answer. (d) Calls in advance results when a shareholder pays the entire amount on the shares i.e. in respect of future calls also in advance. Calls in advance is a liability and not an asset, hence option (a) is false. Calls in advance does not form a part of the Company’s share capital, hence it is not deducted like Calls in arrears nor added as amount in forfeited account. It is shown separately from the Paid up share capital (e) If a debtor pays his dues, debtors balance will decrease and cash balance will increase. Thus, the composition of assets will change. But there is no change in the total assets or liabilities and hence (e) is true. (d) If accrued commission is shown on the debit side list of balances in the trial balance, it indicates that it is already adjusted in the commission received /receivable and it does not require any adjustment in the profit and loss account. It directly appears as a current asset in the balance sheet. Hence (d) is true. (e) Discount allowed on re-issue of forfeited shares is debited to forfeited shares account. It cannot be debited to discount on re-issue of shares, since there is no such account maintained, it is not a usual discount allowed to be debited to (b) Profit and loss account. The share premium account (c) can be debited only for the purposes as per the provisons of the Compnaies Act. The discount on issue of shares (d) can be debited only in the event of issue of shares at a discount originally. Thus, (e) is the correct answer. (c) Patents, trademarks, franchises and secret processes are specifically identifiable intangible assets. They can be sold individually. However goodwill is unidentifiable intangible asset. Customer loyalty, and a reputation for quality are unidentifiable intangibles, they cannot be sold without selling the enterprise. Hence the answer is (c). (a) Forfeited shares can be re-issued at a premium. Thus, the statement in alternative (a) is false. The statements in other alternatives are true-, if share premium is already received, share premium account cannot be debited with the amount of premium on forfeiture of shares; Shares can be issued a discount, only after one year from the commencement of business; Share premium can be utilized only specific purposes as per the provisions of section 78 of the Companies Act and it cannot be utilized to redeem preference shares; The forfeited shares cannot be reissued for a loss more than the gain on those shares. (c) The process of transferring entries from journal to ledger is known as posting. Hence the answer is (c). The process of recording the transaction in the book of original entry is journalizing. Taking over the balance in nominal accounts to profit and loss account is transferring. The allocation of profit to reserves is known as appropriation. There is no term called ledgerizing. (c) Net value-added is derived by deducting depreciation from the gross value added. Gross value added is arrived at by deducting cost of all materials and services and other extraordinary expenses from sales revenue and any other income. Therefore, Net value added = Gross value added – Depreciation. Therefore, alternative (c) is the correct answer. (e) The intrinsic value method of valuation of shares is also known as break-up value method and asset backing

37.

38.

39.

40.

41.

method. The yield method is known as earning capacity method. The fair value method is an average of intrinsic value method and yield method. Hence the answer is (e). Answer : (e) Reason : Debenture can be issued for cash or consideration other than cash. It can be issued as collateral security, but it cannot be issued in lieu of dividends. Hence, (e) is true. Answer : (e) Reason : Though the balance sheet is claimed to be the statement of all assets and liabilities, it does not contain certain assets and liabilities. For example, the efficient management force is a human asset available to the organization. Though efforts are being made to quantify and present the human resources, most of the balance sheets do not present the same. Also dissatisfied labor force is a liability to the organization. The factors, which have a vital bearing on the earnings of the organization such as changes in the managerial personnel, cessation of agreements, loss of markets, are not disclosed. Personal judgment plays a great part in determining the figures for the balance sheet. Example: provision for depreciation, stock valuation, provision for bad debts are more based on the personal judgment and is therefore not free from bias. Hence the answer is (e). Answer : (a) Reason : Premium on redemption of debentures is a personal account and is shown on the liabilities side of the balance sheet as it depicts the amount payable to the debenture holders at the time of redemption. Hence (a) is the answer. It is not shown on the assets side of balance sheet. It is not credited to profit and loss account / profit and loss appropriation account / profit and loss adjustment account. Answer : (b) Reason : The proposed dividend is classified as a provision and shown on the liability side of the balance sheet. The dividend finally decided by the shareholders in the annual general meeting as payable is termed as Declared Dividend. Any dividend declared must be paid with thirty days from the date of declaration. Hence, a declared dividend must be classified as a current liability in the balance sheet of the company. Thus the answer is (b). Answer : (c) Reason :

Currentassets − Inventories Current liabilities Quick ratio :

Rs.1, 62, 020 − Rs.65, 000 97, 020 = = 1.26 Rs.77, 000 77, 000 = 42. Answer : (d) Reason :

Long − term debt Net worth Debt equity ratio =

Rs.1, 43, 020 = 1.41 = Rs.1, 01, 300 43. Answer : (d) Reason : The underwriting commission should not exceed 2.5 % of the issue price in case of debentures. Issue price of the debentures is Rs. 10 x 115% = Rs.11.5 Hence the maximum commission payable to Mr.Wright is 38,000 x Rs.11.5 x 2.5%= Rs.10,925 44. Answer : (c) Reason : When shares are forfeited, the share capital account should be debited with called up amount (excluding premium) and corresponding credit should be given to share call account with amount not received and share forfeiture account with amount received. If the premium is already received, the same should not be reversed. Hence the entry is Share capital a/c

Dr.

Rs. 8,000

To Share first call a/c To Share forfeiture a/c

Rs.3,000 Rs.5,000

45. Answer : (e) Reason : Debenture amount–500 units × Rs.100 Less: Discount – 10%

Rs.50,000 Rs. 5,000

Rs. 45,000 These Rs.45,000 debentures are converted into equity shares of Rs.100 each at a premium of Rs.20. So, the amount of equity share per unit = Rs.100 + Rs.20

=

Rs.120 Rs.45, 000

No. of equity shares to be issued 375 shares. 46. Answer : (b) Reason : Shares Shares applied allotted

(1)

(2)

Application money received Rs.

Application Money due Rs.

=

Excess money Rs.

(3)=(1)×Rs.20

(4)=(2) × (5)=(3) – Rs.20 (4) 9,000 5,800 1,80,000 1,16,000 64,000 5,000 1,350 1,00,000 27,000 73,000 1,000 850 20,000 17,000 3,000 15,000 8,000 3,00,000 1,60,000 1,40,000 Hence the amount of refund is Rs.19,000. 47. Answer : (b) Reason : Share of Gulliver company is 100 x 3200 / 4000 = 80%

Allotment money due (including premium) Rs. (6)=(2)×Rs.40 2,32,000 54,000 34,000 3,20,000

Rs.120

=

Surplus / (deficit) Rs. (7) = (5)– (6) (1,68,000) 19,000 (31,000) (1,80,000)

Date of acquisition is October 1, 2003. Profit prior to date of acquisition is capital profit. Capital profit for 6 months (up to 1st October) = 50% of (Rs.98,000 – Rs.50,000) Rs.48,000 = Rs.24,000 Share of Gulliver Company is 80% of (Rs.50,000 + Rs.24,000) = 80% of Rs.74,000 = Rs.59,200. 48. Answer : (b) Net assets available for equity shareholders Reason :

Equity Share Capital Asset backing per equity share = = Rs.5,75,000 + Rs.1,55,000– (Rs.80,000+ Rs.2,50,000+ Rs.2,00,000) = Rs.7,30,000 – Rs.5,30000= Rs.2,00,000

Rs.2, 00, 000 =

Rs.2, 00, 000 = 1 time

49. Answer : (d) Reason : Number of shares of S Ltd. = Rs. 100000 / Rs. 10 = 10000 Minority interest = 10000 – 7500 = 2500 = 25% Profit on revaluation of machinery = Rs.2,00,000. Share of minority group of S Ltd. = 25% Share of profit on revaluation = 25% of Rs.2,00,000 25 × Rs. 2, 00, 000 = Rs. 50,000 100 Equity share capital

Total minority interest 50. Answer : (b) Reason : 01.07.2003 5,000 × Rs.96 ex-interest

[2500×10]

=

Rs. 25,000

Rs. 75,000

Rs.4,80,000

01.12.2003 2,500 × Rs.102 cum-interest = Rs.2,55,000 – Rs.4,167 2 10 × (Interest for 2 months Rs.2,50,000× 12 100 = Rs.4,167)

Rs.2,50,833

Rs.7,30,833 Amount debited to own debenture investment account is Rs.7,30,833. 51. Answer : (e) Reason : No dividends are paid on call in advance nor on calls in arrear. Dividend = 10% on Rs.1,20,000 = 52. Answer : (e) Reason : Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004

Profit (Rs.) Weight 64,000 1 59,475 2 58,750 3 61,200 4 63,695 5 9,22,475 15 Average profit = Rs.9,22,475 / 15 = Rs.61,498

Rs. 12,000

Product 64,000 1,18,950 1,76,250 2,44,800 3,18,475 9,22,475

53. Answer : (b) Reason : Books of Whirl Wind Ltd Dr.

Cr.

Stock Account

Date Particulars June 01, 04 To Opening balance To Purchases

Rs. Date Particulars 1,60,000 June 30, By Cost of 04 goods sold (bal. Fig) 3,50,000 By Closing balance 5,10,000

Dr.

Rs. 4,20,000

90,000 5,10,000

Sundry creditors Account Date June 30, 04

Particulars To Cash paid To Closing balance

Rs. Date 3,70,000 June.01, 04 40,000

Cr

Particulars By Opening balance By Purchases (balancing figure)

Rs. 60,000 3,50,000

4,10,000 4,10,000 Sales = Rs.4,20,000 + 25% (Rs.4,20,000) = Rs.5,25,000. 54. Answer : (a) Reason : An amount of Rs.75,000 (i.e credit sale) was not recorded on credit side and Rs. 57,000 was wrongly recorded on debit side. Hence, the debit side will be more by Rs.1,32,000 (i.e 75,000 + 57,000) Mr. Govind account is correctly debited with Rs.75,000 and hence will not affect the trial balance. Thus, debit is more by Rs.1,32,000. 55. Answer : (a) Reason :

Depreciation

Rs.1, 75, 000 − Rs.15, 000 = Rs.16, 000 10 years =

The cost as on March 31, 2003 is irrelevant (cost concept). 56. Answer : (b) Reason : Bank Reconciliation Statement Particulars Overdraft balance as per Pass book

Rs.

Rs. 30,000

Add: Cheques issued to Mr. Z but not presented for payment Rent deposited by Mr. M directly into the bank Interest on debentures directly collected by bank

6,000 20,000 15,000

41,000 71,000

Less: Cheque deposited, yet to be realised Overdraft balance as per cash book 57. Answer : (a) Reason :

Dr.

To

Particulars

Rs.

X

28,000

To Y To Z To Closing balance 58. Answer : (b) Reason : Dr. Date Particulars April 01, 2003 To Balance b/d

20,000 8,000 5,000 71,000

Sundry debtors account Rs. Date 2003-2004 5,00,000

To Sales

46,00,000

March 31, 2004

Date April 01, 2003 March 31, 2004

Cr. Particulars By Opening balance By P & L a/c

March 2004

31,

Particulars By Cash (Balancing figure) By Balance c/d

47,00,000 4,00,000

29,00,000 8,00,000

Cr.

Date April 01, 2003

Particulars

2003-2004

By Purchases

By Balance b/d

37,00,000 Cash and Bank balance: Particulars Opening cash and bank balance Add Cash received from sundry debtors Less

Cash paid to sundry creditors Cash purchases Expenses paid Closing cash and bank balance

=

1–

S C

2 =

1– =

Rs. 6,00,000 47,00,000 53,00,000 29,00,000 9,00,000 80,000 14,20,000

43,350 60, 000

1 – 0.85 = 15%.

60. Answer : (e) Reason : Particulars

Rs. 7,00,000 30,00,000 37,00,000

59. Answer : (e)

n

31,000

51,00,000 Rs.

Particulars To Cash (balancing figure) To Balance c/d

40,000

Cr. Rs.

Sundry Creditors

Date 2003-2004

Rs.

71,000

51,00,000 Dr.

Reason :

5,000 66,000

Provision for Bad debts Account

Date March 31, 2004

2003-2004

5,000

Units

Total Purchases Opening stock

7,500 1,500 9,000 7,000 Less Sales Closing stock 2,000 Since FIFO method of valuation is followed, the stock in hand will be that purchased on the latest date. i.e 26-06-2004 ; 21-06-2004. Hence closing stock =

500 x Rs.30 per unit 1,500 x Rs.40 per unit

=

Rs.15,000 =

Rs.60,000 –––––––– Rs.75,000 ––––––––

61. Answer : (b) Reason : Particulars Original cost of furniture Less Depreciation at the rate of 20% Year – 1 Year – 2 Year – 3 Year – 4 Residual Value Useful life – 4 years

Rs. 15,000

3,000 12,000 2,400 9,600 1,920 7,680 1,536 6,144

62. Answer : (b) Reason : Particulars Cash Sales (9,00,000 × 85%) Issue of shares Amount received by way of short-term loan Less: Purchase of fixed assets Short tem loan repaid Payment towards expenses Amount paid to purchase raw materials Amount deposited in bank Cash balance as on March 31, 2004

Rs. 7,65,000 6,00,000 1,20,000 14,85,000 4,50,000 20,000 4,50,000 1,80,000 2,80,000 1,05,000

63. Answer : (d) Reason : Bank reconciliation statement: Particulars Favourable (debit) balance as per bank column of cash book Add: Cheques issued not yet presented for payment

Rs.

Rs. 3,400

5,650 5,650 9,050

Less: Cheques deposited not yet cleared Bank and interest charges not recorded in cash book

4,500 910 5,410 3,640

Credit balance as per pass book 64. Answer : (e) Reason : Dr. Date Particulars 1-04-03 To Opening balance 1-07-03 To Bank 1-10-03 To Profit and loss a/c (Profit on sale of machine) 1-01-04 To Bank

Cr.

Machinery account Rs. Particulars 85,000 1-10-03 By Bank (sale) 90,000 31-3-04 By Depreciation 31-3-04 By Closing 12,000 balance

Rs. 50,000 15,250 2,01,750

80,000 2,67,000

2,67,000

Depreciation calculation: Particulars On machinery purchased on 1-7-03 (Rs.90,000 x 10% x 9/12) On machinery sold (40,000 x 10% x 6/12) On machinery purchased on 1-1-04 (Rs.80,000 x 10% x 3/12 ) On balance machinery (Rs,85,000 – Rs.40,000) x 10%

Rs. 6,750 2,000 2,000 4,500 15,250

65. Answer : (a) Net Loss : Rs. 70,000 Reason : Dr. Trading and profit and loss account for the year ended March 31, 2004 Particulars Rs. Particulars To Opening stock 90,000 By Sales To Purchases 2,56,000 By Closing stock To Gross profit 1,64,000 5,10,000 To Salaries 76,000 By Gross profit To Other expenses 68,000 By Net loss To Depreciation 90,000 2,34,000 66. Answer : (b) Reason : Balance sheet as on March 31, 2004 Liabilities Rs. Assets Share capital 7,00,000 Fixed assets Sundry creditors 1,32,000 Sundry debtors Short tem loan 36,000 Closing stock Cash and bank Net loss 8,68,000 67. Answer : (b) Reason : Purchases Issues Balance Quantity Rate Amount Quantity Rate Amount Quantity Rate Date (Kg) per (Rs.) (Kg) per (Rs.) (Kg) per kg. kg. kg. (Rs.) (Rs.) (Rs.) 01-6500 228 04 02-6400 240 96,000 900 233.33 04 10-6600 250 1,50,000 1,500 240

Cr. Rs. 4,35,000 75,000 5,10,000 1,64,000 70,000 2,34,000

Rs. 5,10,000 1,55,000 75,000 58,000 70,000 8,68,000

Amount (Rs.)

1,14,000 2,10,000 3,60,000

04 251,000 240 2,40,000 500 240 1,20,000 0604 68. Answer : (c) Reason : Cash balance as on June 30, 2004 = Cash balance as on June 01, 2004 + Cash receipts – Cash Payments - Deposits with bank = Rs.1,65,500 + Rs.2,91,000 – Rs.2,05,000 – Rs. 2,00,000 = Rs.51,500. 69. Answer : (d) Reason : Dr.

Cr.

Trading and Profit & Loss Account for the year ended March 31, 2004

Particulars To Opening Stock To Purchases Less Purchases returns Less Furniture purchasd To Carriage inward To Gross profit c/d

Rs. 1,20,550 2,900

To Office Administrative expenses To Interest To Advertisement To Discount allowed To Audit fees To Fire insurance premium To Provision for doubtful debts 12000 x 5% To Depreciation on furniture: To Net Profit (transferred to capital)

Rs. Particulars 23,400 By Sales Less Sales returns: By Closing stock 1,17,650 9,300 27,950 1,78,300 By Gross profit b/d 12,760 By Interest received 450 By Discount received 5,600 3,770 350 300 600

Rs. 1,44,800 4,300

Rs. 1,40,500 37,800

1,78,300 27,950 1,625 1,495

100 7,140 31,070

31,070

70. Answer : (c) Reason : Balance Sheet of as at March 31, 2004 Liabilities Capital Opening balance Less: Net Profit during the year Less Drawings

Sundry Creditors

Rs. 64,050 7,140 71,190 5,000

Rs. Assets Furniture Less Depreciation 5% Investments 10% Deposits 66,190 Stock-in-trade Sundry debtors Less: Provision for doubtful debts 7,400 Cash with Safe Bank Cash on hand 73,590

Rs. 1,000 100

12,000 600

Rs. 900 2,500 15,000 37,800 11,400 4,000 1,990 73,590

71. Answer : (a) Reason : Trial Balance of Tom Vicky as at March 31, 2004 Debt Balance Credit Balance Heads of Account (Rs.) (Rs.) Capital 89,000 Drawings 9,000 37,000 Stock (1st April, 2004)

Purchases Closing Stock Sales Motor Vehicles Cash in Hand Sundry Creditors Sundry Debtors Bank Overdraft Administrative Expenses Office Equipment Carriage Outward Returns Inward Provision for Bad Debts Returns Outward Discount Allowed Discount Received TOTAL 72. Answer : (e) Reason :

2,01,100 30,150 3,94,000 14,500 1,350 49,760 1,39,700 9,000 76,360 35,000 3,310 2,050 4,250 3,160 2,800 5,52,320

3,150 5,52,320

Cost of goods sold during the year 2003-2004 = Rs.32,00,000 × 0.80 = Rs.25,60,000 Closing inventory = Opening inventory + Purchases during the year 2003-2004 – Cost of goods sold = Rs.4,00,000 + Rs.26,00,000 – Rs.25,60,000 = Rs.4,40,000 Actual physical inventory as on March 31, 2004 = Rs.4,25,000 Therefore, missing inventory = Rs.4,40,000 – Rs.4,25,000 = Rs.15,000 < TOP OF THE DOCUMENT >