CWA ICWA Foundation : Financial Accounting Fundamentals - December 2005

CWA ICWA Foundation • Financial Accounting Fundamentals • December 2005

This Paper has 27 answerable questions with 0 answered.

C—2(FAF) Revised Syllabus
Time Allowed : 3 Hours	Full Marks : 100
The figures in the margin on the right side indicate full marks.

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

(a)

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

2x5=10

(i)

A Bill of Exchange is

(a)	Drawn on a specified Banker;
(b)	An unconditional undertaking signed by the maker;
(c)	An unconditional order signed by the maker;

(0)

(ii)

Statement of Affairs is a

(a)	Statement of Income and Expenditure;
(b)	Statement of Assets and Liabilities;
(c)	Not a financial statement.

(0)

(iii)

Shareholder of a company is

(a)	Owner of the company;
(b)	Debtor of the company;
(c)	Employee of the company.

(0)

(iv)

Unfavourable bank balance means

(a)	Credit balance in the Cash Book;
(b)	Credit balance in the Pass Book;
(c)	Debit balance in the Cash Book

(0)

(v)

A and B are sharing profits in the ratio of 3:2. They admit C as a partner and the new profit sharing ratio is 2:2:1. If C pays Rs.1,000 towards goodwill, B will get

(a)	Rs.400;
(b)	Rs.500;
(c)	Nil;

(0)

(b)

State with reasons whether the following statements are true or false:

2x5=10

(i)

A bearer cheque is payable to the person who presents it at the counter for encashment.

(0)

(ii)

Higher depreciation will not effect cash profit of the business.

(0)

(iii)

The balance in the Cash Book shows net income.

(0)

(iv)

A bill given to a creditor is called bills payable.

(0)

(v)

The excess of current assets over current liabilities is called net worth.

(0)

(c)

Fill in the blanks:

2x5=10

(i)

Real accounts can be of two types ___________ and ____________.

(0)

(ii)

A debit balance in the income and expenditure account denotes excess of ___________ over _________.

(0)

(iii)

Patent right is an __________ asset. So it is in the nature of ___________ account.

(0)

(iv)

The process of recording in the journal is called ___________ and the process of recording in the ledger is called __________.

(0)

(v)

___________ balance of Profit and Loss is a __________ asset.

(0)

(a)

Ram and Rahim agreed to share profits as follows:

First Rs.8,000 to Ram and the balance in 2:1. The profits for the year are Rs.11,600; the capitals being Ram Rs.40,000 and Rahim Rs.36,000. Interest on capital had been omitted from the books and is to be allowed at 5% p.a., — Adjust.

(0)

(b)

Flaming Ltd. offered for public subscription 5000 equity shares of Rs.10 each at a premium of Rs.2.50 per share payable as follows:

On Application
On Allotment
On First call
On Second Call

Rs. 2.00 per share
Rs.4.50 per share (including premium)
Rs. 4.00 per share
Rs. 2.00 per share

Applications were received for 7500 shares and allotment was made pro–rata to applications for 5000 shares, letters of regret being issued for the remaining applications. Money over paid on application by the allottees was adjusted with allotment amount.

Rahim to whom 100 shares were allotted failed to pay the allotment money and on his failure to pay the first call, his shares were forfeited.

Haq, the holder of 150 shares failed to pay last two calls and his shares were forfeited after the second call was made.

Of the shares forfeited, 200 were allotted as fully paid upto Karim for Rs. 8 per share paid in cash.

Show the journal entries to record the forfeiture and reissue of forfeited shares including those relating to cash, assuming that the whole of Rahim's shares have been re–issued.

(0)

New Delhi Recreation Club consists of a badminton section and a football section. The Balance Sheet of the Club as on 1.1.2004 is as under:

Liabilities Accumulated fund	Rs. 36,450	Assets Club house Badminton court (cost Rs. 20,000) Equipments Cash and Bank	Rs. 21,200 12,000 2,500 750
	36,450		36,450
The following is the Receipts and Payments Account for the year ended 31.12.2004;
Receipts To balance b/d To ten–year badminton membership To subscription: Badminton Football	Rs. 750 6,000 3,200 650	Payments By new badminton court By prizes for tournament: Badminton Football By football kit	Rs. 8,000 1,000 12,000 1,200
To tournament entry fees: Badminton Football To collection at football matches	1,000 4,000 17,300	By rates of club house By general expenses By balance c/d	500 4,650 5,550
	32,900		32,900

In order to help pay for the new badminton court, ten–year badminton memberships were offered for sale, at the beginning of 2004 at Rs. 200 each. It is the club’s policy to write off the badminton court over a ten year period. Equipment are to be depreciated at 10%. The football kit can be considered to posses a nil value.
Prepare:

(a)	An Income and Expenditure Account for the year ended 31.12.2004, showing the net surplus/deficit arising separately from the badminton section and football section.
(b)	The Balance Sheet as on 31.12.2004.

(0)

The following is the Balance Sheet of A and B, who share profits and losses as 3 : 2 respectively, as at 31.12.2004:

Liabilities Capital: A B Reserve Creditors	Rs. 35,000 30,000 10,000 25,000	Assets Land and Building Plant and Machinery Stock Debators Less: Provision for doubtful debts Bank Cash	20,000 1,000	Rs. 30,000 20,000 10,000 19,000 11,000 10,000
	1,00,000			1,00,000

On 1.1.2005, C joints the firm and brings in the following assets:

Stock Rs. 21,000; Investments Rs. 12,000; Cash Rs. 15,000; Debtors Rs. 10,000.

Following were agreed upon:

(i)	The new profit sharing ratio among A, B and C will be equal.
(ii)	The capitals of the partners should also be equal taking C’s capital as base.
(iii)	The reserve of the new firm will be Rs. 15,000.
(iv)	Provision for doubtful debts is to be created @ 10% of total debtors.
(v)	An investment provision of Rs. 2,000 is to be created.
You are required to prepare the Balance Sheet of the new firm.

(0)

Mrs. Honey who is not an accountant by profession prepared a Trial Balance as on 31.3.2005. There was difference in the same which she tallied by taking the amount to Suspense A/c. She needs your help in preparing the correct Financial Statements for the year ended 31.3.2005. You on scrutiny find the following:

(1) (2) (3) (4) (5) (6) (7) (8)	Purchases book was over cast by Sales book was undercast by Sale of goods to Ravi was wrongly debited to Raju Machinery purchases was wrongly taken to purchases Salary for the month of March was wrongly posted as Rs. 25,500 instead of Rs. 55,500 Salary was not payable to the Driver for the month of March, This was not shown as O/s in the books Mrs. Neelu who is creditor was shown as a debtor Depreciation on machinery to be charged for the year	Rs. Rs. Rs. Rs. Rs. Rs. Rs.	900.00 5,400.00 1,000,00 25,000,00 4,500.00 2,500,00 3,750.00
Mrs. Honey informs you that as per the Trial Balance prepared by her Profit for the year was		Rs.	26,200.00

You are required to pass the necessary journal entries and find out the exact profit for the year.

(0)

Mrs. Sharmila a fashion designer did not follow double entry system of accounting. She approaches you with the following data for the financial year 2004-05. You are required to

(1)	to prepare her Profit and Loss A/c for the year ended 31.3.2005 and
(2)	Balance Sheet as on 31.3.2005.

Data made available by Mrs. Sharmila:

A. Analysis of Current A/c with "Indian Bank".

Deposits		Rs.
(1) (2) (3) (4)	Cash Profession Fee Bank Interest Dividend	3,00,000 18,00,000 12,980 22,800
Withdrawals:
(1) (2) (3) (4) (5) (6) (7)	Cash Salary Service Tax Electricity Telephone Rent Consultancy Charges	7,20,000 3,00,000 1,44,000 12,000 18,000 3,00,000 2,50,000

B.Details of Cash transaction:
Payments:

(1)
(2)
(3)
(4)
(5)

Printing and Stationery
Repairs and Maintenance
Travelling and Conveyance
Staff Welfare
Business Promotion

75,000
80,000
1,25,000
25,000
1,56,000

C. Details of Assets and Liabilities:

Capital
Rent O/s
Professional Fee Receivable
Cash
Bank
Fixed Deposits
Office Equipment

31.3.2004
?
?
–
25,000
1,25,000
25,00,000
8,50,000

31.3.2005
?
25,000
55,000
42,000
?
25,00,000
?

Additional Information:

(1)	Rent per month Rs. 25,000
(2)	Drawing per month Rs. 15,000 in cash
(3)	Mrs. Sharmila has cash receipts also towards professional fee
(4)	Interest accrued on FDs for the Financial Year Rs. 1,37,500
(5)	Depreciate Office Equipment by 15% p.a.

(0)

(a)

David sent goods costing Rs. 5,50,000 on consignment basis to Devi on 1.1.2005 @ 7% commission. Rs. 75,000 was spent on transportation by David. Devi spent Rs. 45,000 on unloading. Devi sold 85% of the goods received for Rs. 6,25,000, 10% of the goods for Rs. 85,000 and she took over the balance @ 5% below the cost price and sent a DD for the amount due from her to David.

Show Consignment A/c and Devia’s A/c in the books of David.

(0)

(b)

Me and You entered into joint venture contributing Rs. 45,000 each into joint Bank A/c with an under standing to share the profit or loss equally. It was also agreed to pay commission @ 5% on the sale made by the ventures. With the following details prepare
1. Joint Venture A/c
2. Joint Bank A/c
3. Venturer’s Capital A/c

Goods worth Rs. 52,000 was purchased and 50% of the same was sold for Rs. 35,000 by "Me", Rs. 4,500 was spent on transportation. 25% of goods bought were sold by You for Rs. 17,500. Unsold goods were taken over at cost price by both the ventures in the profit sharing ratio and balance due the ventures was paid from joint Bank A/c

(0)

Write short notes on:

3+4+4+3

(a)

Historical cost concept;

(0)

(b)

Revaluation method of depreciation;

(0)

(c)

Subscriptions;

(0)

(d)

Change in the profit sharing ratio.

(0)

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