CWA/ICWA Foundation :: Financial Accounting Fundamentals: June 2004

*C-2(FAF)* *Revised Syllabus*
Time Allowed : 3 Hours	Full Marks : 100
The figures in the margin on the right side indicate full marks for a question.
Answer Question No. 1 which is compulsory and any five from the rest .
		Marks

In each of the following cases, one of the answers is correct. Indicate the correct answer:

2x10=20

(a)

Wages paid on the erection of a new machinery should be debited to —

(i)	Wages account;
(ii)	Cash account;
(iii)	Machinery account;

(b)

Overdraft as per cash book means —

(i)	Credit balance in hte pass book;
(ii)	Credit balance in the bank column of the cash book;
(iii)	Neither of the two.

(c)

Overriding commission is calculated on —

(i)	Cash sales only;
(ii)	Credit sales only;
(iii)	Total sales.

(d)

When goods are purchased for the joint venture, the account to be debited is—

(i)	Purchase account;
(ii)	Joint venture account;
(iii)	Venture's capital account.

(e)

Stock-in-trade also includes —

(i)	Goods in teh process of production for sale;
(ii)	Items held as fixed assets;
(iii)	Items consumed for daily use.

(f)

Goodwill raised by the partners at the time of admission of a parner will be written off in—

(i)	Old profit sharing ratio;
(ii)	New profit sharing ratio;
(iii)	Sacrificing ratio.

(g)

X and Y are sharing profits in the ratio of 2:1. They admitZ into the firm with 25% share in profit for which he brings Rs.12,000 as his share of capital. Hence, the adjusted capital of Y will be —

(i)	Rs.12,000;
(ii)	Rs.16,000;
(iii)	Rs.24,000.

(h)

When preference shares are redeemed out of profits otherwise available for dividend, sum equal to the nominal amount of the shares must be transferred to —

(i)	Capital reserve;
(ii)	Sinking fund;
(iii)	Capital redemption reserve;

(i)

The figure for capital in the beginning is ascertained from —

(i)	Cash account;
(ii)	Total debtors account;
(iii)	Opening balance.

(j)

Depreciation is the process of —

(i)	Allocation of cost of the asset to the periods of its life;
(ii)	Valuation of assets;
(iii)	Maintenance of an asset in a state of efficiency.

Golden Spoon Ltd., issued 5,000 equity shares of Rs.10 each at a premium of Rs.2 per share payable as follows:

On application
On allotment
On first & final call

RS.
7 (including premium)
3
2

The company has received 6,000 applications for 5,000 equity shares. The allotment was made on prorata. Excess application moneys were utilized towards dues on allotment.
Mr.Y who held 200 shares, failed to pay allotment money and first & final call. These shares were forfeited. The company reissued 150 shares out of 200 forfeited shares to Mr.K as fully paid for Rs.8 per share.
Required:
Pass journal entries in the books of the company for the above transactions.

Please turn over

( 2 )

C-2(FAF)
Revised syllabus

Marks

From the following information given about Victory Always Education Society for the year ending 31.03.2003:
Prepare (a) income and Expenditure A/c and (b) Balance Sheet:

Trial Balance as on 31.03.2003

Particulars

Library Books
Books purchased during the year
Furniture and Fixtures
Addition to Furnitures during the year
Buildings
Investment
Investment Reserve
Creditors
Debtors
Entrance Fee
Examination Fee
Certificate fee
Subscription Received
Hire Charges
Interest
Other receipts

Dr.
Amount
Rs.
230,000
52,200
159,500
35,500
3,789,000
2,125,000

59700

Cr.
Amount
Rs.

185,000
177,90

202,600
32,500
7,800
275,800
95,500
85,000
4,400

Particulars Salary Printing and stationery Postage and Telephone Insurance Examination Expenses Periodicals Awards and prizes Fund Awards and Prizes Investments Awards and Prizes Income Awards and Prizes Given Awards and Prizes Fund Bank Balance Donations(Capital) General Expenses Capital Fund Bank Balance Cash on Hand	Dr. Amount Rs. 155,900 8,500 2,500 10,400 24,000 15,600 210,400 9,500 2,450 5,250 65,500 1,520		Cr. Amount Rs. 215,000 10,200 199,000 5,471,720
	6,962,420		6,962,420

The following information is also given:

		Rs.
	Subscriptions Receivable as on 31.03.2003 Subscription for FY 2003-2004 Interest accrued on Investment O/s Salary as on 31.03.2004 Prepaid Insurance as on 31.03.2004	22,500 7,850 6,250 12,500 4,500

Depreciation is to be provided at the following rate:

Library Books
Building
Furniture and Fixtures
(50% Depreciation to be provided on additions)

15% PA
1% PA
10% PA

Lotus started his business as a designer. His book were maintained on single basis. He provides you with the following information with the help of which you are required to prepare:(a) Profit and Loss Account for the year ending 31.03.2004 and (b) Balance Sheet as on 31.03.2004.

Business was started with capital of Rs.75,000/- which was deposited into the Bank A/c on 01.04.2003.

A sewing machine for Rs.25,000/- was also bought in, which will have the useful life for 4 years.

Rs.1,000 was drawn from the Bank every month for his personal expenses.

Personal trip to Nepal Rs.28,500/- was paid from Bank.

Office premises was taken on lease for Rs.50,000/- for 10 years. A loan @12.5% was taken from Mrs.Lilly on 01.10.2003 on which date the lease was also taken. Interest due was paid on 31.03.2004.

Salary paid during the year Rs.24,000

Purchases during the year amounted to Rs.42,500/-, Rs.7,500 was outstanding as on 31.03.2004.

Machinery having five years of useful life bought on 01.04.2003 Rs.27,800/-.

Other expenses:

Electricity
General Expenses
Postage and Telephone
Vehicle Maintenance Rs.
6,000
1,250
4,500
12,000

10.

Vehicle insurance included in Vehicle maintenance paid in advance to the extent of Rs.950/-.

11.

Sales bills amounted to Rs. 1,25,000/- out of which Rs. 25,000 was outstanding 31.03.2004.

12.

According to Mr. Lotus, out of Rs. 25,000 receivable from Debtors 10% is to be treated as bad.

Note:

that all the transactions were routed through the Bank A/c only.

Please turn over

( 3 )

C-2(FAF)
Revised syllabus

Marks

(a)

Explain the different types of errors which are not disclosed by trial balance.

6+10

(b)

Neel Ltd., has two current accounts: Account No.6885 and Account No.24516 with State Bank of India. On June 0, 2003, his cash book showed credit balance of Rs. 9,500 and Rs. 8,600 in the two accounts respectively. On scrutiny, the following discrepancies were observed:

(i)	Rs. 8,000 was transfered from Account No. 24516 to Account No. 6885 without and instruction.
(ii)	Bank charges of Rs.45 was debited in the Bank pass book of each account and was not considered in hte cash book.
(iii)	Cheques of Rs. 58,00 pertaining to Account No.6885 were issued in the month of June, 2003, out of which cheques of Rs. 49,000 were presented before June 30, 2003.
(iv)	A cheque of Rs. 4,000 deposited into the Account No. 24516 was credited by the Bank in Account No.6885.

You are required to prepare the Bank Reconciliation Statements for Account No.6885 & for Account No.24516 and arrive at the balance as per Bank Statements.

Trial Balance of M/s. Welcome Associates as on 31.03.2003 did not agree. The difference of Rs.20,120 was transfered to credit side of Suspense A/c by the Accountant. As an Auditor you find the following errors:

1.
2.

3.
4.

5.

6.
7.
8.

Sales Return book was overcast by
Cash deposited in the Bank is wrongly shown in the debit side
of the Cash Column
Sales to Mr.Ali wrongly posted in Purchases Register
Wages for the month of March debited as Rs.25,000/- instead
of Rs. 52,000
Cash Balance as on 31.03.2003 wrongly written as Rs.5,260/-
instead of Rs. 5,620/-
Purchases from Mr.Ali wrongly posted in Sales Register
Loan taken from Mrs. Beauty not credited to her A/c
Bonus A/c Balance as on 31.03.2003 not considered in the Trial Balance

Rs.
500
25,000

5,500

4,260
10,000
15,500

Pass the necessary Journal entries (without narration) and show the suspence A/c.

(a)

On May 20, 2003, Mr.A accepts a 3 months bill drawn by his Creditor for Rs. 10,000, 0n June 23, 2003, Mr.B discounts the same at 6% per annum. Mr. A being unable to meet the bill at maturity reqests Mr. B to accept 50% of the bill amount in cash and to drew another bill for 3 months for the balance sum plus interest at 10% P.a. and Mr. B agrees. But before the maturity of second bill, Mr. A becomes insolvent and is unable to pay any amount whatsoever.

10+6

You are required to record these transactions in the Books of Mr.B.

(b)

R & S are in partnership sharing profit and losses at the ratio 3:2. They take T as a new partner. Calculate the new profit sharing ratio if:

(i)
(ii)
(iii)

T purchases 1/10th share from R.
R & S agree to sacrifice 1/10th share to T in the ratio of 2:3.
Simply gets 1/10th share of profit.

Write short notes on:

(a)
(b)
(c)
(d)

Direct debit;
Fund based and non-fund accounting;
Goodwill;
Contingent liabilities.

4x4

__________

CWA/ICWA Foundation :: Financial Accounting Fundamentals : June 2004