CWA ICWA Foundation : Financial Accounting Fundamentals - December 2003

CWA ICWA Foundation • Financial Accounting Fundamentals • December 2003

This Paper has 20 answerable questions with 2 answered.

C–2(FAF) Revised Syllabus
Time Allowed : 3 Hours	Full Marks : 100

Answer Question No. 1 which is compulsory and any five from the rest.
Marks

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)

Which of the following accounts is debited in the books of the drawee when the endorsed bill is honoured on due date?

(i)	Endorsee’s account;
(ii)	Bills receivable account;
(iii)	Bills payable account.

(1)

(b)

The system of accounting, in which revenue is recognized when earned and expenses are recognized when paid, is known as

(i)	Accrual system;
(ii)	Hybrid system;
(iii)	Cash system.

(1)

(c)

If forfeited shares (which were originally issued at discount) are reissued at a premium, the amount of such premium will be credited to

(i)	Share forfeiture account;
(ii)	Share premium account;
(iii)	Capital reserve account.

(0)

(d)

Amount set apart to meet losses due to bad debts is a

(i)	Provision;
(ii)	Reserve;
(iii)	Appropriation.

(0)

(e)

Claims against the company not acknowledged as debts will be shown under the heading

(i)	Secured loans;
(ii)	Contingent liabilities;
(iii)	Unsecured loans.

(0)

(f)

For redemption of debentures, sinking fund is created out of

(i)	Capital reserve;
(ii)	Share premium reserve;
(iii)	Current year’s profit.

(0)

(g)

The nominal value of the shares which are offered to the public is

(i)	Authorised capital;
(ii)	Issued capital;
(iii)	Subscribed capital.

(0)

(h)

Prepaid expenses are shown as:

(i)	Miscellaneous expenditure;
(ii)	Loans and advances;
(iii)	Investments.

(0)

(i)

Noting charges are paid by:

(i)	The acceptor;
(ii)	The payee;
(iii)	The drawee.

(0)

(j)

The valuation procedure for stocks is cost or net realizable value, whichever is lower. This procedure follows

(i)	Historical cost concept;
(ii)	Conservatism concept;
(iii)	Money measurement concept

(0)

Anand started business on 1.1.2002 with his own capital of Rs. 20,000, and an interest free loan of Rs. 20,000 from a friend.

His business makes toys, which are selling at Rs. 40 each. Anand, who has little knowledge of accountancy, produced the following information at the end of the first year’s trading: Cash received: Sale proceeds of 2,000 toys Rs. 80,000.

Cash paid: Wages Rs. 28,000; Raw materials Rs. 13,600; Rent Rs. 8,000; General expenses Rs. 4,800; Loan repaid Rs. 6,000.
You ascertain the following additional information:—

(1)	A further 300 toys were sold in 2002, but not paid for at the year end.
(2)	Rs. 3,600 of raw materials received in the year, but not paid for.
(3)	The only stock at 31.12.2002 was Rs. 1,600 raw materials.
(4)	The rent covered the period from 1.1.2002 to 31.3.2003.
(5)	Expenses included Rs. 800 withdrawn by Anand for his own use.
(6)	The initial capital and loan of Rs. 40,000 was used to buy machinery with 4–year life and an anticipated residual value of Rs. 8,000.
(7)	The wages figure included Rs. 10,000 for installing the machinery.
(8)	The machinery is to be depreciated under reducing balance method @ 25% p.a. for the whole year.

Prepare a Trading and Profit and Loss Account for the year ended 31.12.2002 and a Balance Sheet as on that date.

4+6+6=16

(0)

On 1.1.2003, A sells goods to B for Rs. 10,000 and draws a bill on him for the same amount for 3 months. B accepts the bill and returns it to A. One month before the due date, B requests A to cancel the bill.

Instead, he wants to pay Rs. 3,000 immediately as part payment and to accept a fresh bill for the balance plus interest for a further period of 2 months from the due date of the original bill. A agrees to the proposals.

The new bill is honoured on the due date. The rate of interest is 12% p.a. Pass Journal Entries in the books of A.

(0)

The following balances appeared in the books of P. Ltd. on 1.1.2002:

12% Debentures ‘Rs. 4,00,000; Sinking Fund Investment’ Rs. 3,00,000 (represented by 10% Rs. 3, 60,000 secured bonds of Government of India).

Annual contribution to the Sinking Fund was Rs. 64,000 made on 31 December each year. On 31.12.2002, balance at bank was Rs. 2,00,000 after receipt of interest. The company sold the investments at 80% and debentures were paid off.

You are required to prepare the following accounts for the year 2002:

(a)	Debentures Account;

(b)	Sinking Fund Account;

(c)	Sinking Fund Investment Account;

(d)	Bank Account.

2+6+6+2=16

(0)

Rectify the following errors found in the books of Mr. S.K.Sharma. The trial balance had Rs. 1,860 excess credit. The difference has been posted to a Suspense Account:

(a)	The total of Returns Inward Book has been cast Rs. 2,000 short.
(b)	The purchase of an office table costing Rs. 6,000 has been passed through the Purchase Day Book.
(c)	Rs. 7,500 paid for wages to workman for making showcases had been charged to Wages Account.
(d)	A purchase of Rs. 1,340 had been posted to the Creditor’s Account as Rs. 600.
(e)	A cheque for Rs. 4,000 received from Mr. P.C. Joshi had been dishonoured and was passed to the debit of allowances Account.

After rectification, reflect the transactions in the Suspense Account.

(0)

A, B, C and D are partners in a garage comprising (i) petrol sales, (ii) repairs and servicing, and (iii) second–hand car dealing. A is responsible for petrol sales, B for repairs and servicing, and C for second-hand car dealing, while D acts purely in an advisory capacity.
The partnership agreement provides for the following:

(a)

Each partner is to receive commission of the net profit of the partner’s own department as under: A — 10%, B — 15% and C — 20%.

(b)

A total salary of Rs. 11,000 is payable to D which is to be allocated among the above three departments in the ratio of 3 : 4 : 4 respectively.

(c)

50% of the net profit of each department after charging commission and salary will be distributed to A, B, and C as under:

Petrol sales
Repairs and Servicing
Second–hand Car Dealing

A, B and C — Equally
A:B:C = 2:2:1
A:B:C = 3:2:1

(d)

The balance of the profit of the firm will be shared equally by all partners after charging interest on capital @ 10% p.a.

The net profit of the departments for the year ended 31.12.2002 were as under:

Petrol Sales: Rs. 20,000; Repairs and Servicing — Rs. 40,000; Second–hand car dealing — 50,000

The partners’ capitals are:
A — Rs. 40,000; B — Rs. 30,000; C — Rs. 25,000; D — Rs. 10,000.

You are required to prepare the Profit and Loss Appropriation Account for the year ended 31.12.2002.

(0)

From the following data, prepare an Income and Expenditure Account for the year ended 31 December 2002, and a statement of affairs as at that date of the Leela Hospital:

Receipt and Payments Account for the year ended 31 December, 2002.
	Rs.	Rs.			Rs.	Rs.
To Balances:			By	Salaries (Rs. 3,600 for 2001)		15,600
Cash Bank	400 2,600	3,000	By By	Hospital Equipment Furniture Purchased		8,500 3,000
To Subscription:			By	Additions to Building		25,000
For 2001 For 2002 For 2003		2,550 12,250 1,200	By By By	Printing and Stationery Diet Expenses Rent and Rates (Rs. 150 for 2003)		1,200 7,800 1,000
To Government Grant:			By	Electricity and Water Charges		1,200
For Building For Maintenance Fees from sundry patients		40,000 10,000 2,400	By By By	Office Expenses Investments Balances:		1,000 10,000
To Donations (not to be capitalised:		4,000		Cash	700
To Net collection from Benefit shows:		3,000		Bank	3,400	4,100
		78,400				78,400

Additional Information:

Value of building under construction as on 31.12.2002
Value of hospital equipment on 31.12.2002
Building Funds as on 1.1.2002
Subscriptions in arrears as on 31.12.2002

70,000
25,500
40,000
3,250

Investments in 8% Government securities were made on 1 July 2002.

8+8=16

(0)

Write short notes on:

4x4=16

(a)

Capital Fund;

(0)

(b)

Standing Order;

(0)

(c)

Bonus Shares;

(0)

(d)

Goodwill.

(0)

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