CWA ICWA Foundation : Financial Accounting Fundamentals - December 2006

CWA ICWA Foundation • Financial Accounting Fundamentals • December 2006

This Paper has 26 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 one of them is correct. Indicate the correct answer.

2x5=10

(i)

Electricity Expenser of proprietor paid from the business A/c

(a)	Reduced the capital of the proprietor;
(b)	Increases the profit or loss;
(c)	Decreases the profit or loss.

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(ii)

Balance in share forfeiture A/c is transferred to

(a)	General Reserve A/c;
(b)	Profit and Loss A/c;
(c)	Capital Reserve A/c.

(0)

(iii)

The matching principal results from the

(a)	Accounting period principle;
(b)	Duality principle;
(c)	Historical cost principle.

(0)

(iv)

If the bearer cheque is encashed over the counter

(a)	Cash account is debited;
(b)	Bank A/c is debited;
(c)	None of these.

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(v)

Compensating error means

(a)	One error compensated by another error;
(b)	Error in totaling;
(c)	Error in posting.

(0)

(b)

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

2x5=10

(i)

Prospectus is an invitation to subscribe for shares.

(0)

(ii)

Profit and loss A/c covers a period and not the position on a particular day.

(0)

(iii)

The surplus of the non–profit organization is distributed amongst the members.

(0)

(iv)

Discount on bills is a loss for the drawer and gain for the drawee.

(0)

(v)

Current assets + current liabilities = Working Capital.

(0)

(c)

Fill up the blanks:

2x5=10

(i)

A promissory note is given by a ______ to a creditor.

(0)

(ii)

The Bank Statement is sent by the _________ to _______.

(0)

(iii)

Stock on consignment will be valued at ______ or ________whichever is _______.

(0)

(iv)

Under Cash system of Accounting entries are made only when ________ is received or ________.

(0)

(v)

Depreciation under SLM methods is cost of the asset less __________ divided by _______.

(0)

Ravi accepted on April 1, 2005 a bill for Rs. 10,000 drawn by Kapil at three months. Kapil on the 4th April, discounted the bill with his banker at 6% p.a. Ravi failed to meet the bill on the due date and at his request Kapil agreed to renew the bill for three more months for which he demanded collateral security. Ravi endorsed two of his customers bills for Rs. 7,000 and Rs. 5,400 due on August, 20 and September 20, 2005 respectively as collateral security. Kapil discounted all the three bills at 6% p.a. on 10th July with the bankers; but on the due date the second customer’s bill was dishonoured, Ravi became bankrupt on 1st September, 2005 and nothing was realized from his estate.

Pass the necessary journal entries and Ravi’s account in the books of Kapil.

(0)

Dr. Krishna does not have an account and does not maintain books of accounts. She is able to give the following details. Help to prepare her Statement of Affairs as on 31.03.2006 and Profit and Loss A/c for the year in question.

(i)

Cash receipts deposited in the Bank the very next day;

(ii)

No cash payments towards Expenses;

(iii)

Summary of Payments and Receipts Register:

Drawing from Bank
Drawing in Cash
Salary
Cash deposited in Bank
Rent
Paid Creditors
Telephone
Electricity
Membership and Subscription
Printing and Stationery
Miscellaneous Expenses
Advance Tax
Consultancy Charges paid
Fixed Deposit made during the year
Other Investments
Library Books
Visiting Faculty Fees received
Unsecured Loan to Uncle

1,25,000.00
60,000.00
4,80,000.00
12,00,000.00
1,44,000.00
60,000.00
24,000.00
78,000.00
2,500.00
12,000.00
60,000.00
5,00,000.00
90,000.00
2,50,000.00
1,00,000.00
75,000.00
1,44,000.00
2,00,000.00

(iv)

List of Balances

	01.04.2005		31.03.2006
Furniture Equipments Cash Bank Fixed Deposit Other Investments Car Library Books Sundry Creditors	3,50,000.00 8,90,000.00 5,000.00 3,78,000.00 7,50,000.00 8,00,000.00 5,60,000.00 2,25,000.00 45,000.00		3,15,000.00 7,56,500.00 5,000.00 4,98,000.00 ? ? 4,20,000.00 ? 55,000.00

(v)

Library books including the additions during the year to be depreciated at 50% P.A.

(0)

A, B and C are partners sharing profits and losses in the ratio of 3 : 2 : 1. D is admitted as a new partner on 31.12.2005 for an equal share and is to pay Rs. 25000 as capital. Following is the balance sheet on the date of admission:

Liabilities	Rs.	Assets	Rs.
Capital: A	30,000	Land and Building	25,000
B	30,000	Plant and Machinery	20,000
C	20,000	Furniture & Fixture	15,000
Creditors Bills Payable	15,000 5,000	Stock Debtors Bills Receivable Bank	10,000 15,000 10,000 5,000
	1,00,000		1,00,000

Following are the required adjustments on D's admission:

(i)	Out of the Creditors, a sum of Rs. 5000 is owing to D.
(ii)	Bills worth Rs. 8,000 were discounted with the bankers, out of which, a bill of Rs. 2,000 was dishonored on 31.12.2005, but no entry has been passed for that. Due dates of the other discounted bills fall in January, 2006.
(iii)	Unexpired insurance premium Rs. 600.
(iv)	Expenses debited to the Profit and Loss Account includes a sum of Rs. 1,000 paid for B's personal life insurance policy.
(v)	A provision for bad debts @ 5% is to be created against Debtors.
(vi)	Expenses on revaluation amounting to Rs. 1,010 is paid by A.
(vii)	During 2005. Part of the furniture was sold for Rs. 2,500, the book value of the furniture sold was Rs. 4,000 and the written down value on the date of sale is Rs. 3,500, the proceeds was wrongly credited to the Sales Account.
You are required to prepare the Revaluation A/c and the Balance Sheet after D's admission.

(0)

Following is the Summarised Balance Sheet of X Ltd.

Liabilities		Rs.	Assets	Rs.
Paid up Share Capital 50000 Equity Shares of Rs. 10 each fully paid, 1000, 10% Redeemable Preference Shares of Rs. 100 each		5,00,000	Bank Other Asset	90,000 8,10,000
full called–up Less: Calls-in-arrear @ Rs. 20 each	1,00,000 1,000	99,000
Reserve & Surplus: Securities, Premium Profit & Loss A/c General Reserve Creditor Current Liabilities:		20,000 60,000 70,000 1,51,000
		9,00,000		9,00,000

The redeemable preference shares were redeemed on the following basis:

(i)	Further 4500 equity shares were issued at a premium of 10%
(ii)	Expenses for fresh issue of shares of Rs. 5000;
(iii)	Of the 50 preference shares, holders of 40 shares paid the call money before the date of redemption. The balance 10 shares were forfeited for non-payment of calls before redemption. The forfeited shares were re–issued as fully paid on receipt of Rs. 500 before redemption;
(iv)	Preference shares were redeemed at a premium of 10% and securities premium account was utilized in full for this purpose.
Show journal entries and Summarized Balance Sheet after redemption.

(0)

(a)

Usha sent good costing Rs. 75,50,000/- on consignment basis to Gayathri on 01.02.2006 @ 8.5% commission. Rs. 8,25,000/- was spent on transportation by Usha. Gayathri spent Rs. 5,25,000/- on unloading. 88% of the goods received were sold for Rs. 90,00,000/-, 10% of the Goods for Rs. 10,00,000/- and the balance was taken over by Gayathri @ 10% below the cost price. She had sent a DD to Usha for the amount due. Show in Usha’s Books:

(i)	Consignment A/c and
(ii)	Gayathri’s A/c

(0)

(b)

Anushka and Avani entered into joint venture contributing Rs. 5,00,000/- each into the joint bank A/c with an understanding to share the profit or loss equally. It was agreed to pay commission @ 8% on the sale made by the each of them. Purchases Goods for Rs. 8,00,000/- and Anushka sold 60% of the same for Rs. 5,20,000/-. Rs. 25,700/- was spent on Loading and unloading. 30% of goods were sold by Avani for Rs. 3,00,000/-. Closing stock was taken by the ventures in the ratio of 3 : 2 at cost price and the venture's A/c settled from joint bank A/c.
Prepare

(i)	Joint Venture A/c;
(ii)	Joint Bank A/c;
(iii)	Venture’s Capital A/c.

(0)

Write Short notes on:

4x3+2=14

(a)

Bonus Issue Vs. Right Issue,

(0)

(b)

Statement of Affairs,

(0)

(c)

Account Sales,

(0)

(d)

Capital Redemption Reserve.

(0)

According to Cash Book of A, there was a bank balance of Rs. 1,050/- in favour on 30th June, 2005 in his business Bank Account. However, according to Bank Statement A's business account was overdrawn by Rs. 3,600/-.
On Scrutiny you find that–

(a)	The receipts column of the Cash Book has been over added by Rs. 1,100.
(b)	Cheques drawn and entered in the Cash Book in June, 2005 amounting to Rs. 1,670 were not presented until July, 2005.
(c)	Discount received from a supplier of Rs. 100 was not entered in Cash Book.
(d)	An amount of Rs. 750 paid directly into A’s account by a customer not entered in the Cash Book.
(e)	A cheque payment of Rs. 1,230 in April, 2005 has been entered in the Cash Books as Rs. 1,320.
(f)	The bank had charged the business account with a cheque for Rs. 2,200 in February, 2005, which should have been passed through A’s private account.
(g)	Bank Charges of Rs. 80 at 31.12.2004 and Rs. 100 at 30.6.2005 had not yet been entered in the Cash Book.
(h)	Cheque to the value of Rs. 3,780 received from customers were recorded in the Cash Book on 28.6.2005 but not entered by the bank until 2.7.2005.
You are asked to make appropriate adjustments in the Cash Book as at 30.6.2005, and prepare a Statement reconciling Cash Book balance with the balance shown by the Bank Statement.

(0)

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