CWA ICWA Foundation : Financial Accounting Fundamentals - June 2005

CWA ICWA Foundation • Financial Accounting Fundamentals • June 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 for a question.

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)

Accounting can be described as being concerned with —

(i)	Measurement;
(ii)	Management;
(iii)	Measurement and management;

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(ii)

In the case of consignment sale—

(i)	Property passes to the consignee,
(ii)	Debtor Creditor relationship is established,
(iii)	Risk is with the Consignor

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(iii)

Contingent Liability is a–

(i)	Current Liability shown in a Liability side;
(ii)	Expenses shown in Profit & Loss Account,
(iii)	Foot note item to the Balance Sheet.

(0)

(iv)

The word “Cum” means–

(i)	Exclusive;
(ii)	Inclusive;
(iii)	Inclusive as well as exclusive.

(0)

(v)

Preference shares issued by a company has to be redeemed within —

(i)	10 years from the date of issue;
(ii)	5 years from the date of issus,
(iii)	3 years from the date of issue.

(0)

(b)

State with reasons whether the following statements are true or false

2x5=10

(i)

Prudence is a concept to recognise unrealised profits and not losses;

(0)

(ii)

Pre — operative expenses are revenue expenses;

(0)

(iii)

Errors of Principle will affect Trial Balance;

(0)

(iv)

Rectification of mistakes is necessary to tally the Trial Balance;

(0)

(v)

The rule of Garner–Vs.– Murry is applied in settling the Customers dues.

(0)

(c)

Fill in the blanks:

2x5=10

(i)

A Balance Sheet is a statement of what an organisation ___________ and what it ____________ ;

(0)

(ii)

'The Shareholders' finds comprise _________ and _________ ;

(0)

(iii)

The posting from Sales book is made to the debit of ____________ and to the credit of ____________ accounts;

(0)

(iv)

Net realisable value is the estimated selling price in the ordinary course of business less costs of ___________ and less costs necessarily to be incurred in order to make the __________;

(0)

(v)

When the entries are made in the books of each party (without Memorandum Joint Venture account). A credit B's account with all expenses paid by B and his share of __________ and debits him for all ________ him.

(0)

Mrs. Lakshmi, a retail trader needs Final accounts for the year ended 31.03.2005 for the purpose of taking a Bank Loan. However she informs you that the principle of double entry was not followed by her accountant. With the following inputs from Mrs. Lakshmi’s accountant prepare Profit and Loss account for the year ended 31.03.2005 and Balance Sheet as at 31.3.2005. Details of receipts and payments:

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.

Cash deposited into Bank A/c
Dividend on personal A/c deposited in Bank
Tuition fee of Mrs. Lakshmi’s daughter paid by cheque
Rent for the year paid by cheque
Cash received from Debtors
Paid to creditors
Salaries and Wages (cash)
Transportation Charges (cash)
Electricity (Office in cash)
Electricity (House in cash)
General Expenses

3,500.00
250.00
4,500.00
9,000.00
52,500.00
40,025.00
9,000.00
2,750.00
6,600.00
7,200.00
890.00

Opening and Closing Balances of Assets and Liabilities

Stock
Bank
Cash
Debtors
Creditors
Investments

31.3.2004
Rs.
42,500.00
55,500.00
10,850.00
16,800.00
15,600.00
15,000.00

31.3.2005
Rs.
22,500.00
20,500.00
10,500.00
14,800.00
22,800.00
15,000.00

Mrs. Lakshmi also informs you that she draws Rs. 6,000/- from bank on monthly basis regularly and some debtors deposit cheques directly in bank.

(0)

(a)

Morning, Day and Night Carry on business in partnership sharing the Profits and Losses in the proportion of 25%, 25% and 50% respectively. Their Balance Sheet as on 31.03.2005 was as under:

	Liabilities	Rs.	Assets	Rs.
Sundry Creditors General Reserves Capitals Morning Day Night	24,00,000 24,00,000 50,00,000	1,20,000 80,000 98,00,000	Cash/Bank Sundry Debtors Inventories Fixed Assets W.D.V Investment (At cost) (Market Value Rs. 15,00,000/-)	1,00,000 75,00,000 10,00,000 4,00,000 10,00,000
		1,00,00,000		1,00,00,000

On 1^st April, 2005, Morning and Day retired and Night continued the business. Night paid Rs. 36,00,000 to Morning and Rs. 36,00,000 to Day in full and final discharge of their claim in the partnership. This amount was brought in by Night for the purpose of payment to the retiring partners. None of the assets and liabilities are to be revalued.

You are asked to:

(i)	Pass accounting entries in relation to the above in the books of business Unit.
(ii)	Prepare the Balance Sheet of business Unit after the above transactions are recorded.

(0)

(b)

The Balance in Profit & Loss Account as per Balance Sheet as at 31^st March, 2004 is Rs. 32,600, whereas the Balance on Balance Sheet as at 31^st March, 2005 is Rs. 38,100. The following facts are ascertained:

(i)	Rs. 7,500 depreciation has been charged;
(ii)	Provision for dividend Rs. 10,000 has been made;
(iii)	Rs. 9,500 has been transferred to General Reserve;
(iv)	Rs. 1,000 Davidend (Gross) has been credited;
(v)	Rs. 3,300 Loss on Sale of Fixed Assets has been debited;
(vi)	Indirect Expenses debited amount to Rs. 30,200 in total.
Find out Gross Profit, Trading Profit and Net Profit.

(0)

Given below is the relevant portion of Trail Balance as on 31.03.2005. You are asked to give adjustment entries and open necessary Ledger Accounts after taking into consideration the information under the Trail Balance. Prepare also adjusted Trial Balance as on 31.03.2005;

Trial Balance as on 31.03.2005
Materials Consumed Stock as on 31.03.2005 Suspense A/c of N. K. Sinha Suspense A/c of S. K. Sinha Other Balance	Dr. Rs. 3,75,000 50,000 7,500	Cr. Rs. 20,000 4,12,500
	4,32,500	4,32,500

Information:

(i)	Analysis of N. K. Sinha’s account reveals that goods costing Rs. 30,000 were sent to him under consignment agreement. All the goods were sold except ¼ (which was valued at cost) for Rs. 50,000 against which a cheque of Rs. 20,000 only was received. No entry was passed except that of cheque received. Commission @ 1% is payable to N. K. Sinha.
(ii)	Similarly a joint venture agreement was entered into with S. K. Sinha for which an advance of Rs. 7,500 was made. It is now ascertained that the venture earned a Profit of Rs. 5,000 of which the proprietor’s share is 3/5 this.

(0)

(a)

Calculate what amount will be posted to Income and Expenditure Account for the year ending 31^st March, 2005;

Stock of Stationary on 1^st April, 2004
Creditors for Stationary on 1^st April, 2004
Advances paid for Stationary Carried Forward from 2003–04
Amount paid for Stationary during the year 2004–05
Stock of Stationary on 31^st March, 2005
Creditors for Stationary on 31^st March, 2005
Advances paid for Stationary on 31^st March, 2005

Rs.
600
400
40
2,160
100
260
60

(0)

(b)

X’s financial year ends on March 31, but actual stock is not taken until the following 5th April when it is ascertained at Rs. 54,000. You find that:

(i)	Sales between 31^st March, and 5th April are Rs. 3,000;
(ii)	Purchases between 31^st March and 5th April are Rs. 1,400;
(iii)	Sales Returns between 31^st March and 5th April are Rs. 200;
(iv)	Purchases return between 31^st March and 5th April are Rs. 60.
All sales are made at 25% of Gross Profit on cost. You are required to calculate the value of stock on 31^st March.

(0)

A Mukherjee has agreed his Trial Balance by putting the difference in a Suspense Account and has prepared a Trading and Profit & Loss Account and the Balance Sheet. On subsequent scrutiny, the books disclosed several errors as detailed below. Rectify these errors and ascertain the amount carried to Suspense Account:

(a)	A sale of goods to X for Rs. 350 has been credited to his account.
(b)	Goods purchased from Y amounting to Rs. 750 were entered in the Purchases Day Book but were omitted from Y’s Account in the Creditors’ Ledger.
(c)	An office typewriter purchased for Rs. 500 has been passed through the Purchase Account.
(d)	Goods returned to S. Sen valued at Rs. 75 were debited to P. Sen’s Account.
(e)	Repairs to office car valued at Rs. 750 were debited to the Office Car Account.
(f)	Goods sold to R. Banerjee valued at Rs. 730 have been posted into his account as Rs. 370.
Will the above rectification affect the profit figure? If so, to what extent?

(0)

X Ltd. has the following Balance Sheet as on 31.3.2005:

LIABILITIES	Rs.	ASSETS	Rs.
Share Capital Issued, Subscribed and fully paid–up 10,000 Equity Shares of Rs. 100 each 5,000 Preference Shares of Rs. 100 each Capital Reserve Security Premium A/c General Reserve Profit & Loss A/c Current Liabilities	10,00,000 5,00,000 1,00,000 1,00,000 2,00,000 1,00,000 10,00,000	Fixed Assets Current Assets	22,00,000 8,00,000
	30,00,000		30,00,000

The Preference Shares are to be redeemed at 10% premium. Fresh issue of equity shares is to be made to the extent it is required under the Companies Act for the purpose of this redemption. The shortfall in funds for the purpose of the redemption after utilising the proceeds of the fresh issue are to be met by taking a bank loan. Show Journal Entries.

(0)

Write short notes on:

3+3+
4+4=14

(a)

Goodwill;

(0)

(b)

Dishonour of a bill;

(0)

(c)

Contingent Liabilities;

(0)

(d)

Standing Order.

(0)

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